The Brooding Savage

A new white paper from Parks Associates advises media companies to distribute free video content via mobile phones as a way to spur growth. They cite Apple as the consummate success story for growing digital demand.  But the authors haven't learned the right lessons from past strategies.

The paper titled "How Hollywood Can Out-Apple Apple" uses the Apple’s iPod success to justify to distribution of free clips and previews to promote movies or TV shows.  The freebies will pave the way for paid mobile content later, they argue.  

"Demand for mobile content will grow as consumers become more accustomed to it, but their appetite must be whetted with free content," wrote authors from Parks Associates and USC’s Entertainment Technology Center.

According the report, Hollywood studios can simply repurpose existing video content, such as clips and trailers.  Then as the demand for mobile video begins to grow, made-for-mobile content will become commercially viable.  Eventually, the future will be in “advertainment” content, which will drive both sponsor and subscription revenues.

The price point of any product is determined by the lowest publicized price in the marketplace. Giving away free video essentially sets the market price at $0.

Nice idea.  Unfortunately, the study’s authors miss the mark on so many levels, I hardly know where to begin.

First, users will not upsell from free to paid.  From AOL to NYT, the Web is filled with examples of how once-free content fails when users are subsequently asked to subscribe or buy.  I’ve said before, the price point of any product is determined by the lowest publicized price in the marketplace. Giving away free video essentially sets the market price at $0.  Once set, the perception is that anything more than $0 is a rip-off.

Once you go free, you can never go back.  Maybe that’s not so bad for repurposed online video, if one assumes that it eventually will be ad-supported.  The repurposed content has a low production cost, so there’s little downside risk for studios.  If studios intend to keep the market price at $0 by deriving revenue from other sources, so much the better.  Free stuff will certainly move faster than paid. And if margins are tight, they can make it up on volume.

But there is even a downside to free stuff, too.  Setting the price point at $0 will fuel the demand for P2P downloads.  If products are seen to have a retail value of $0, then there’s no ethical disincentive to using the P2P sites. Further, because P2P sites aggregate content from multiple sources (negating the need to visit multiple e-commerce sites browse for interesting content) they can offer a superior buying experience to legitimate downloads.

I like that these authors cite Apple as their “core” example.  Apple is certainly making money on iPod sales, but no analyst believes that Apple’s iTunes store is anything but a break-even business.  And there is no evidence that, despite years of low-cost music, Apple is successfully upselling their music audience to anything except eve more, cheaper music.  If the authors were correct, we should see new, more expensive products moving off of Apples digital shelves.   Not the case. For example, digital movie sales have been a disappointment. 

Meanwhile, the music studios distributing content via iTunes have not been able to upsell their products either. Digital CDs are not selling any faster because of the success of digital tracks.  And in-store sales are continuing to tank.

Nope. There are lessons to be learned from iTunes on how to develop a market.  Apple has been brilliant at creating demand for both MP3 players and donwloaded songs.  But in the final analysis, experience shows that free music has driven demand for, well, more free music.