To understand this, lets’s start with a quick history lesson on music sales. Some bands produce true albums, where the entire recording is meant to be listened to as a unit. Other musical acts record songs, but don’t necessarily produce albums. When music sales were dominated by the CD, record labels tried to make every collection of songs into an album, and they would promote a few “singles” – songs meant to top the industry charts and market an artist. The rest of the disc would be filled with a hit-or-miss assortment of songs that might be good, but all too often sounded like work in progress. In order to get the hit singles, one had to buy the whole disc, so it sold like an album, but wasn’t a true album in the sense of the art form.
When Apple introduced the iTunes store with songs priced at 99¢, it changed the “single” part of the music landscape, by allowing consumers to buy only the songs they wanted. The Album part of the music landscape still works in much the same way: artists who are known for producing Albums still do so, and fans still buy entire albums. According to a 2003 press release from Apple, announcing the sale of over 1 million songs in the iTunes Store’s first week:
Over half of the songs were purchased as albums, dispelling concerns that selling music on a per-track basis will destroy album sales. In addition, over half of the 200,000 songs offered on the iTunes Music Store were purchased at least once, demonstrating the breadth of musical tastes served by Apple’s groundbreaking online store.
What the iTunes Store did was allow consumers who want just a single song to get it without all the added filler music that used to come on CDs, without killing sales of true albums. It essentially added a new way to reach consumers with a particular type of buying pattern, and build a long-term relationship with them by offering a growing library of content to suit their interests.
Why can’t we subscribe to individual cable channels? This is the question people have been asking about TV for years, because a cable subscription is analogous to the CD: you have to buy the entire package in order to get the content you want. Individual TV episode rentals available at 99¢ might be the beginning of an answer to that question. It places greater onus on TV producers to make shows people will deem worthy of a 99¢ rental, but it also frees shows from the need to be massive hits on the primetime schedule in order to stay in production. A show that’s not a ratings hit, but is loved by its audience, could conceivably have a greater shot at sticking around as long as episode rentals sustain it.
The rental model also poses a parallel marketing challenge to networks (I’m not assuming the primetime schedule goes away anytime soon). Right now, new TV shows are scheduled before or after hit shows in order to build audience, but this won’t work in the rental model, where people explicitly choose the episodes they want to rent. One way networks could handle this is to bundle a free episode of a new show with the 99¢ episode rental of an existing hit show.
Rentals also present an opportunity to entice an audience to stick around for the season. A full-season of episodes could conceivably be offered as a discounted iTunes Season Pass for rent. (Several networks currently offer a Season Pass whereby consumers can purchase an entire season of a TV show at a discount.) For example, rent a 10-episode season for $7.99 or a 20-episode season for $16.99. At those prices, rentals are a close match to DVD prices, but with the advantage of no hardware, packaging, and shipping costs.
In addition to the news about rentals, the new Apple TV got a significant hardware update. It is one-quarter the size of its predecessor, and comes with a new processor. The Intel Pentium M processor used in the previous Apple TV has been replaced with the same A4 processor used in the iPad, iPhone, and iPod Touch. This indicates that Apple is deepening its commitment to developing its own, in-house processors. It may also mean that the new Apple TV is running a version of iOS, the operating system now running on the iPad, iPhone, iPod Touch, and (in a modified version) on the iPod nano.