Thursday , September 21 2017

Apple’s 4K Content Pricing Strategy is a Very Smart Move

Apple-4K-Feature

At its launch event yesterday, Apple announced a bold new strategy that could give it a leadership position in a critical market. Marketing professionals and executives from other companies were left looking foolish by comparison and they’ll undoubtedly scramble to keep up with the Cupertino-based company. I’m speaking, of course, about Apple’s new 4K content strategy. Silly melodrama aside, the company’s new pricing is a pretty big deal for long-term 4K adoption.

There were two components to Apple’s announcement here. First, every 1080p film you’ve previously purchased through iTunes will be available in 4K + HDR at no additional cost (presumably these upgrades go in as new film versions are available). Second, 4K movies are going to carry the same price as 1080p films.

Up to this point, Apple has priced most HD films at $15 for 1080p, though there have been some $20 products as well. Other services, which already offer 4K purchases, have typically charged a $5 to $10 additional fee for the 4K option. That’s what the movie industry has favored, for obvious reasons — it makes significantly more money for delivering a different version of a film, and it establishes 4K as a premium viewing experience that consumers are used to paying a premium for to enjoy.

Apple is pushing back on that model, and with good reason. The idea of paying $30 for a digital stream of a movie is absurd. And while $20 isn’t a great price, either, it’s still an improvement.

 

$179 to $199 for the new Apple TV 4K against a low-cost box elsewhere is a tough argument. “Plus, all your old 1080p iTunes movies are now 4K” is much more appealing.

The film industry would love nothing better than to force everyone to buy a new version of every film they own when they upgrade a television. Back in the DVD era, this made practical sense — the data on a VHS couldn’t practically be upscaled to DVD quality, the video quality of DVDs doesn’t degrade with repeated plays, and the advent of disc-based storage made it possible to ship extras and additional content that meaningfully improved whatever version of a film you’d previously owned.

As time has passed, recreating previous film collections has gotten more and more expensive, while offering fewer improvements (see: Blu-ray). The advent of streaming services simplifies this on the one hand, since you don’t pay more for Netflix or Amazon Prime in 4K than you do in 1080p. But it also highlights how crazy it is to pay a $5-$10 higher rate to the film studio for the privilege of streaming bits. A 4K HDR stream costs Sony just as much as a 1080p stream. Any difference in marginal cost related to streaming the bits themselves is born by Amazon or the subscriber, not the studio.

Pushing content costs down fits Apple’s business model — it sells hardware and earns its money there, not on software — but it also benefits consumers. Apple’s 4K TV box sales will jump if it continues to offer price advantages other products can’t match; if a hit movie is $20 on an Apple TV and $25 elsewhere, you don’t need to buy very many movies to see the hardware as paying for itself over time. The new Apple TV is substantially more expensive than competitive offerings from other companies. But Apple neatly took away that talking point with its push to cut content costs, and reported plans to offer support for Amazon Prime and Netflix on the upcoming platform. All in all, a very smart move.

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