This Is Just Stupid: Digital HD Downloads Still Cost More Than DVDs

Yesterday, Apple announced that shortly they will start selling HD quality movies for download from the iTunes store. While it sounds like a great idea, the business model is completely flawed and clearly the movie studios are living in a bubble. As I have mentioned in the past, how on earth can the studios continue to charge more for a digital download than a physical DVD?

I really don't get the thinking from the studios when they think they can make a business model out of charging $19.99 to download Quantum of Solace from iTunes when the average price to buy the physical DVD, from retailers like Amazon, is $16.99.

Itunes 

Amazon

With digital downloads, studios don't have to pay to produce the DVD or any of the packaging. The bandwidth cost to download a two hour movie costs pennies and online promotion of digital content is a lot less expensive than other forms of marketing. Yet even with all those savings, the studios charge more for digital downloads. While one could say this is an iTunes issue, it's not. Looking at CinemaNow or any of the other online movie services and you'll see that digital movies cost between $3-$5 more than buying the actual DVD.

Why is no one questioning this? How can this be the future business model for the online consumption of entertainment? Many of us have waited a long time to get to the point we are at today
with broadband connections capable of getting movies and having
multiple devices to play them back on. Yet even with all the progress
we have made, studios will keep the business models from being
successful. Part of me really wants to see all the studios fail just so they learn their lesson. I know it would not be good for the online video industry but studios continue to run their business on one simple principle – greed.

  • Seth

    While I agree that $20 is a lot of money, I know what its like to author DVDs and I know what its like to encode for VOD- it requires considerable work and attention to detail to get it right.
    I think what this really says is that people are willing to pay for the convenience of having it playable on their iPod, AppleTV, and computer without having to make any effort toward transcoding or even deal with cutting open a box.

  • http://www.linkedin.com/in/synstelien Don Synstelien

    No. Sorry. It;s really you that does not get it. Everything in life is based on incentives. Currently the reason that Digital downloads cost more than DVDs is that they really, really don’t want to have digital succeed. DVD is a huge market for them and they have complete control over the entire predictable profitable pipeline. Once they go Digital, they have no idea of what will happen and they know what happened to the music industry… Poof.
    You will never see digital downloads cheap and official until the incredibly boneheaded studio execs have lost the beachhead of DVD sales. When they lose that one, they will try anything to get the money back and one of those things will be to personally ask Steve Jobs for help. ;-)

  • Li

    Am I missing something? Isn’t $14.99 $2 cheaper than $16.99? DVD is not HD.

  • Steve

    Have to compare apples to apples here (or at least closer). DVD is 480p. HD movies on iTunes are probably 720p (since the AppleTV supposedly can’t do higher than that [per http://www.apple.com/appletv/specs.html). Blu-ray is 1080p.
    The DVD quality version on iTunes is $15. The DVD on Amazon is $17. The 720p version on iTunes is $20. The Blu-ray on Amazon is $26.
    Given that, I think the pricing is pretty reasonable, although you probably don’t get all the extras (deleted scenes, commentary, etc).

  • http://www.BusinessOfVideo.com Dan Rayburn

    That is a fair point, the quality is a bit better. But even with that being the case, it does not cost the studio any more money to deliver a 720p version versus the 480p version. It should still be a lot cheaper than a DVD. In the music business, you can download many entire albums for cheaper than buying the CD or they are at least the same price.
    Why should consumers have to pay more money for HD? It does not cost the studios more to deliver an HD movie digitally than a non-HD movie via DVD.

  • http://www.blogtogreat.com rob, BtG

    the studios, in the QUANTAM.. case, MGM & Fox, are entering these digital deals with hestitations. they’ve been force to offer new releases digitally (since DVD sales are declining- 15% down at Sony in 2008), and that they have to work with iTunes, but they don’t really want make the offer toooo attractive to consumers. they’d much rather arrange their own digital download system, but are too slow and dumb to get it up & running.

  • John W

    Don S. hit the nail on the head. The DVD business is a huge business for the studios and their retail partners (Best Buy, Wal-Mart, etc.). The dollars Apple drives to the studios compared to retailers is peanuts. If the studios charge less, they run the risk of drawing the ire of their retail partners for what an extra couple of bucks per sales over a much smaller base of sales. It doesn’t make economic sense in the short-term. They can always bring the price down to drive sales but they will only do so as the volume justifies it.
    p.s. the cost to deliver 480 vs 720 vs 1080 isn’t the same. The bandwidth cost is progressively more adding up to real dollars when pushed up against volume.

  • John Evans

    What a whiner. Price points are a matter between the buyer and seller. If you perceive the price is too high for a digital download then you’re perfectly free to not make the purchase. What has become of the mindset of marketers when they don’t recognize that company profits are what drive the success of our nation? Profit is the reward we give those who serve us the consumer. Call it greed if you want, but those who profit don’t live in a vacuum, they employ the hands and talents of many, directly benefiting our economy. Who cares whether they charge more for a download compared to a DVD, that’s there choice. Your role in this exchange is to make your own decisions about what has value to you. Don’t purchase if you believe the price is too high. If the majority of consumers feel the same, companies tend to respond by finding a way to lower their price through some economy of production. The finality of the matter is that companies that don’t bring something of value to the market also disappear -poof. So believe as you will, influence others if you must, but do yourself a favor, quit wasting your time with a diatribe that profit is bad when it is the very motive that has advanced our nation providing more than a hole in the ground in which to take a crap, unlike the majority of the world. Breakeven isn’t success and it sure as heck doesn’t provide an opportunity for the employment or advancement of others.

  • http://profile.typepad.com/HardNewsInc The Wordyeti

    John – this isn’t whining. It’s frustration.
    The mistakes that video companies are making are the same damn ones the music industry made, and the same ones that the print newspaper/magazine industry made. For the same reasons, which you seem to misapprehend.
    As Don identified above, the problem is that the studios have come to rely on the fat, predictable revenue stream from DVDs to support their entire bloated organization. Rather than institute structural changes to adapt to disruptive technology, they are choosing to pull out all the stops to try to defend that golden river o’ cash. And when the customers, annoyed with the unfair & abusive pricing structures (remember how prices for CDs were supposed to come down from $15? remember how they never did?) start turning to piracy, the reaction to this will be “just milk the cow harder.”
    That then turns into the death spiral we’re seeing in large media companies now, where they cut costs, dilute the quality of the product, and try to maintain their pricing structures in the face of encroaching reality.
    Your faith in the corrective powers of “the market” and the educational value of the profit imperative is … shall we say … somewhat quaint in light of current economic realities.

  • http://profile.typepad.com/grinsandfun grinsandfun

    HUM – when I got my first car as a teenager, I wanted a Ferrari or a Porsche – but really was not all that pissed to get my Nissan… give it time guys, you will get your toys when they are cost efficient and you have budget.

  • Fagin

    Factors relating to digital price points.
    Piracy (leakage)
    Prosumers (competition)
    Broadband roll-out (market)
    We will just have to play the waiting game before the majors feel the points above are effecting their share price, unfortunatly the market is still in a state of transition, frustrating as it is.

  • Steven Kramer

    EZTakes http://www.eztakes.com sells legal DVD quality downloads that are burnable to DVD-r at 35%-50% off the retail price of the DVD. It really depends on what you want to sell.

  • GreenField

    Don S nailed it – Bing! This is the studios way of telling us they are scared by the 10 year old wiz kid that can decrypt and unpackage their goodies, only ot repurpose their precious movies on the secondary market. Hey Burbank – wake up – the internet is here to stay, are you?

  • http://www.buydrm.com Christopher Levy

    Dan,
    It’s not greed. It’s called Value. That’s what the studios and Apple can get for an HD Download and that’s what they are going to charge.
    Everything else is just heresay. I know you know the streaming marketplace fairly well but this insinuation that selling something at value-based pricing is all due to greed is, IMHO off the mark.
    Maybe you should do a little more research into the pay media industry and the economics at work here?

  • http://www.buydrm.com Christopher Levy

    Oh yeah…
    comparable Blue-Ray versions of this movie are anywhere from $4 to $8 MORE FYI.
    http://www.google.com/search?sourceid=navclient&ie=UTF-8&rlz=1T4HPIA_enUS315US252&q=Blue+Ray+Quantim+of+Solace

  • http://www.BusinessOfVideo.com Dan Rayburn

    Christopher, you make money off of companies that sell digital content so it’s in your best interest to stand up for them. Nothing wrong with the business you are in, but your biased. You have something to lose or gain financially from this debate, I don’t.
    Does it cost the studio more to deliver a video digitally in HD versus HD? Yes, about a penny. So why do they charge at least a dollar more? As a consumer, why can’t I decide what version I want without having to pay more for one quality over another? Simple, the studios do it to make more money. You say it’s called “value”, yes, it’s value for the studio who makes more money, it’s not value to the consumer.
    There is no way try to describe it as something other than greed, plain and simple. It does not cost the studio any more money to sell, yet they sell it for a higher price/profit. That’s greed.

  • http://www.BusinessOfVideo.com Dan Rayburn

    Yes, the HD quality download is cheaper than buying a Bluray dics of the same movie but that is not a fair comparison. Apple’s HD downloads on a 50″ TV do not look anything close to what a Bluray disc looks like on the TV. Bluray is MUCH better.
    And since it costs studios almost nothing to deliver a digital HD movie over a SD movie, why do they charge at least a dollar more? Where is their extra cost that warrants the extra price?

  • http://www.buydrm.com Christopher Levy

    Dan,
    First off iTunes is not my customer so no I am not biased towards them. I also don’t have customers selling comparable offerings to iTunes HD Movie offering so no I am not biased to this business model either.
    Furthermore, I think it’s hilarious to hear you saying I am biased about my industry. Does that mean anytime you defend the streaming media industry’s business models, you are biased Dan?
    As someone who has 8 years of experience, post streaming media boom, in the pay media industry, one thing I have learned is that something is worth what people are willing to pay for it. A good metaphor for the streaming industry would be Akamai’s pricing. What’s it worth? Oh about $10cents a Gb right now in large amounts.
    In the case of HD Digital Movie downloads, you tried to compare a standard definition movie DVD to an HD Movie Download with an iPhone copy and an iPod copy. How does that compare? By the way, it costs less for the user to acquire an iTunes HD Movie download than it does for them to drive to Blockbuster or for the US Mail to drive it to their house. Oh and they don’t have to _return_ it either.
    It’s not about does it cost more. It’s about what are people willing to pay? If consumers pay $19.99 for these movies then that’s what they are worth. It’s a big world. Many places to buy content. You speak as though iTunes is the only place on the Internet to buy movies. It’s not. Get a PC and go look around.
    By the way, Studios don’t set iTunes pricing. Apple does. If you have a beef with it, point your beef meter at Apple.

  • http://www.BusinessOfVideo.com Dan Rayburn

    How many posts have you left on this blog only saying positive things about the pay media industry and ripping anyone who does not agree with pay media models, like anything ad supported? Many.
    Compare that to my blog and the number of times I call out companies and business models who are using streaming in a way that makes no sense and is not a viable business. When I am writing posts telling content creators that streaming will not help their business as their content is not worth anything, that’s not my idea of “defending the streaming media industry’s business models.” If all I wanted to do was promote streaming, then I would be saying the opposite. My posts speak for themselves as do your comments.
    How does it cost less for me to download a HD movie as opposed to buying a DVD online with free shipping? It doesn’t. If your argument is that consumers should pay more for “convenience”, then that’s a fair argument. Except for the fact that all the studios do is complain about DVD sales, complain about how much money they are losing, complain about piracy…all they do is complain. Now they have the chance to sell the same product in a form consumers want and still make money, yet they sell it for more than the physical asset even though it costs them a_lot less to deliver it. How is that value?
    Did you read my post completely? No where did I say iTunes is the only one with this problem, I even referenced CinemaNow in the post. This is not a iTunes issues, it’s a studio issue. I hope the studios continue to lose tons of money and get burned just like the music industry did. It’s their own greed that’s ruing their business, simple as that.

  • http://www.buydrm.com Christopher Levy

    Dan,
    Let me redirect my comments as your points hit home esp in light of what we have to say to benefit the readers here.
    It’s not a studio or cost issue actually. It’s a capitalism issue. In fact, DVD’s do cost more to manage across the board. The slip alone that NetFlix puts their DVD’s in is probably more expensive than the cost to deliver the same movie over the Internet considering the costs of scale in regards to bandwidth.
    But even if the cost to deliver a movie on the Internet was the same as the cost to deliver a physical DVD to the doorstep, all qualites and resolutions aside, that doesn’t mean they will be priced the same. Things like potential unit sale volume, royalty management, technology costs, legal costs… these things all rapdily come into play.
    Apple may have made a substantial investment in terms of business licensing and legal etc to get this product to market and as a result they may need to charge more. It’s hard to say how they arrive at their pricing. That being said one thing is very clear however, the studios don’t price the products. The distributors do. Yes the studios set a price point but the real markup comes from the distributor.
    I just don’t see the studios engaging in the same navie practices that the labels did. While the labels have killed their busines by selling out the entire music industry to iTunes, the studios all got smart and widened their distribution pipeline and offerings.
    Pricing is a direct reflection of what the market will bear. I respect you comments and welcome an open dialogue and am ecstatic that instead of talking cost per MBps or quality of CODEC, we are discussing real business issues that are the future of this industry. While you may or may not agree with my points here, I hope we can both agree this is where our entire industry is headed.
    Regards,
    Christopher

  • Fagin

    Cristopher, from what I gather from Dan’s post this is not about DVD pricing it’s about download pricing,
    In this case from your post, the web is the distribution, the studios need the revenues to produce the content, the studios price proliferation is an extrapolation of the sombre music industry.
    Apple can only work with the forces presented to them after all they are agents skimming from the top, and eaking out a profit, good luck to them.
    This is all about competition, the majors run things right know until competition affects the shareprice we will have to suck it up.
    This is all business, not so much greed.

  • MikeC

    Do these iTunes video contain DRM? I know I heard Apple was going DRM free, but is that just for music?
    DRM could add a lot of cost to the video depending how they do it. Also DRM would make it really difficult to share the video with friends or family.
    What if I want to take the movie to my friends house to watch? I need to bring my computer, and hope that I can hook it up over there?? DVDs are much more portable in that sense.
    Anyway you figure it… Apple is getting .05 to .10 per GB from their CDN. An HD movie should be 3-5GB if compressed.. So that would cost .30 to .50 to deliver the movie.
    I’m sure there are other costs involved, but $14-20 for a movie is a crime anyway you look at it.
    If Brad Pitt didn’t require $20Million to make a movie, maybe ticket prices might go back down and ultimately we wouldn’t have to pay so much for all crappy entertainment put out there.

  • wg

    I’d rather go for a physical DVD and let my friends borrow it, and ask them a favor ;p It’s also a sort of collectible.

  • Luima

    It is cheaper but not by much.
    I love digital downloads and wish that they would come down in price and be DRM free. I strongly believe that streaming media devices are the wave of the future and will replace dvd and blu-ray players as the dvd player replaced the VCR. The ability to pop a couple hundred movies on my 1TB Western Digital passport drive and carry it with me where ever I travel, along with my Western Digital Media Player, is priceless.
    Also, having the physical DVD is only psychological – it is just the data on a cheap piece of plastic – with my DVD rips, I keep a digital copy on my main computer drive, and another copy on a back up drive. Also, there is nothing to stop you from burning a digital copy to a physical DVD.

  • http://www.tvsvpro.com Nate Stephens

    Dan, I understand your viewpoint. But why worry if the big studios blow this opportunity also. They are the big old tortoise in the marketplace.
    I pre-ordered the iTunes Bond last week and yesterday morning there it was waiting on my hard drive.. yummy.. Yes I was interested in just how big, how pretty, how quick.. Apple downloaded SD and HD version to my week old Mac Pro (last years display model). So I had to take a long lunch and watch it on my new 32″ Scepter off-off brand LCD. And it did look very good. Sure I could put my nose up to the screen and discern aliasing artifacts, and it had the occasional camera pan shudder, plus a few quick freeze frames that I could not tell wether they were do to encoding or bad edits.
    But Jeeze, it was pretty and sounded good using just the monitors speakers, all for 19 bucks.. And if Apple can do this for 20 bucks, download 1280×530 -3.6gb.. Just think of the off-beat / independent film-market it provides.. I know a few filmmakers who would love to have their film on a world market and would be ecstatic to get 11 bucks a ticket…
    Let the old tortoise alone, We don’t owe them a bail out..
    Concentrate on helping us less profitable film-makers distribute our pretty stories.
    At 50 cents a downloaded GB, I could find lots of stories to share.
    And isn’t this the promise of the internet??

  • http://www.tvsvpro.com Nate Stephens

    Dan, I understand your viewpoint. But why worry if the big studios blow this opportunity also. They are the big old tortoise in the marketplace.
    I pre-ordered the iTunes Bond last week and yesterday morning there it was waiting on my hard drive.. yummy.. Yes I was interested in just how big, how pretty, how quick.. Apple downloaded SD and HD version to my week old Mac Pro (last years display model). So I had to take a long lunch and watch it on my new 32″ Scepter off-off brand LCD. And it did look very good. Sure I could put my nose up to the screen and discern aliasing artifacts, and it had the occasional camera pan shudder, plus a few quick freeze frames that I could not tell wether they were do to encoding or bad edits.
    But Jeeze, it was pretty and sounded good using just the monitors speakers, all for 19 bucks.. And if Apple can do this for 20 bucks, download 1280×530 -3.6gb.. Just think of the off-beat / independent film-market it provides.. I know a few filmmakers who would love to have their film on a world market and would be ecstatic to get 11 bucks a ticket…
    Let the old tortoise alone, We don’t owe them a bail out..
    Concentrate on helping us less profitable film-makers distribute our pretty stories.
    At 50 cents a downloaded GB, I could find lots of stories to share.
    And isn’t this the promise of the internet??

  • solrydr

    ID have to agree with only the few above. This is America and it is about capitalism. If someone wants to sell something at a price they see fit then so be it. The value of the item is generally set if it is consistently purchased at that value. This is how ebay works. If you say put an iphone on ebay and is in average to mint condition your going to get the going cost. Now if you spruce up your ad there on ebay for this phone, make it look pretty and with accessories it will go up more although you generally havent spent too much more money. Just effort. Which in a companies eyes this qualifies as added expense therefore charging more. As the demand for the item goes down possibly the price will as well. However if the supply is greater than the demand. guess what happens. price drop. Now using itunes as an example for downloading/selling content in sd and hd formats. Has anyone thought about the costs they have to put forward in order to offer these things. Think staff, servers, legal matters, copyrights, advertising, concept design, etc etc plus a few more we probably cant even fathom. As a retailer of these items they do have to make a profit in order to continue doing business and has the business in this area picks up the price will drop. Cds by themselves generally cost $20 when first released but for the most part $9.99 is the going rate now including downloaded albums. Only time will tell when the price drops and just use history as the example. Except for a car.lol

  • Anonymous

    well, they’d better start making it affordable coz until they do i will stay on the cutting edge and get my 1080p movies off the newsgroups for free. it isn’t big, it isn’t clever, but its free, easy and convenient.

  • ryan

    quote from christopher – “something is worth what people are willing to pay for it.”
    I agree, however, based on the sales difference between digital and physical; people are NOT willing to pay for this so called convenience. I believe it’s the consumer’s decision to decide whether something is convenient for them. Don’t say that is an unfair example because you have given plenty of unfair examples. The point is I simply won’t buy the movie digitally or a physical copy due to there greed. Dan was simply recognizing the stupidity of these companies and the possible reason to some of their profit losses.
    With that said, you make some decent points but they simply don’t justify the prices they are charging for digital sales.
    This isn’t brain science or rocket surgery :)

  • brandon devost

    You are clearly forgetting the huge amount of money apple charges companies to use I tunes

  • angelo78

    natural law of the market. supply and demand. entertainment movies are not a staple needed to survival so movie studios can charge a thousand dollars for each movie if they want and if its more profitable to them that way, they should be free to charge that much. but i agree in feeling download movies are very expensive.

  • Graymatter1980

    That’s funny,I can go to my local pawn shop and pick up 4
    new to semi-old Blu-Ray titles for the price of one new or semi-old movie sold
    on iTunes and amazon digital services. And in addition hard copies hold
    monetary value, were digital downloads don’t, unless you “ARRR!…A pirate.”