Dangerous Trends in the Cost of Media

Digital Media prices are on the rise. The progress that new technology has made in content delivery and price is being rolled back in part by a clever business model learned from facebook; limited competition; and subversion by the old media industry. We're going to lose the transformative power of the internet to protect the consumer.

Two Steps Forward...

iTunes, Netflix, Hulu, Pandora, Grooveshark and Youtube have all decreased the prices of owning, renting and consuming media. iTunes was practically a revolution in the music industry. Netflix was praised for breaking from $4-a-day rental prices. Hulu brought us shows and movies with very few ads because they had already been aired on TV. Pandora and Grooveshark brought us radio that we wanted with barely any ads. And Youtube allowed us to create and share our content with others for free.

Three Steps Back.

But the drop in consumer costs have been steadily rolled back. Hulu increased their advertisement times from 15 seconds per break to 30 seconds and recently up to 1 minute per break, while still having the one week delay and less content than broadcast TV. iTunes music increased their prices for top songs from $.99 to $1.29 in 2009. Also in 2009, Pandora radio began a 40hr/month cap on listening and while their iPhone app released with no audio advertisements it soon went to 30 second audio ads. Youtube began adding more advertisements to content in May 2011. They're dubbed "First Watch" ads and will play before specific content added by Youtube partners. They have also increased the number of banner ads that run across user submitted content.

Netflix has now joined the fray by adding a price hike to their subscription service. To the tune of $4 extra a month for those who have the 3-at-a-time plan with watch instantly. This increase begins in September 2011.

It's obvious that these changes are bad for the consumer right now, but harder to see that they are also part of a dangerous trend that's turning the free internet into pay-per-view or cable. It is going to make it harder to find low-cost content on the internet.

It's Not Subversion if The Old Does it to The New

Old Model businesses are trying to normalize the price of media content across all distribution systems. Their aim is to eliminate the cost difference between media formats. You'll get your choice of media, but not your choice of price.

Royalty fees increase as more users listen to a song or watch a film. Old-Model businesses are using their copyrights to extort exorbitant royalties on music, film and television distributed digitally. Netflix, Pandora, Grooveshark, Hulu and Youtube all pay royalty fees to some degree or another.

New media sites don't have a strong negotiating position to even begin a digital distribution system that copyright holders will allow. This makes competition difficult and consumers are forced to congregate around the few digital distribution systems that already exist.

That Many People!?

The internet's media sites have developed an efficient system to capture and retain paying subscribers. Shoppers are brought into a rewarding and enjoyable system that caters to their media appetites. The costs are initially very low or invisible, but eventually will be raised once the user base has become large enough and unwilling to find something new. This system is reinforced by the lack of viable cheap alternatives.

By waiting until users are comfortable and unwilling to move, these sites are able to introduce or increase costs. With over 21 million paid subscribers for Netflix, and around 40 million Hulu watchers it is easy to see how they can get away with increasing the prices or advertisements. Users aren't going anywhere, in fact, the number of customers is increasing.

Where Are You Going?

It's not just difficulty in finding something better or consumer comfort with the service, users aren't going anywhere because these sites are the only legal, viable sites with a large amount of content in a single location. They are practically digital monopolies. If the internet is the Wild West, these sites are the gold mines people flock towards. Anywhere else you go is potentially dangerous territory for the average browser.

So What's Next

Well it won't be long before another price hike appears in many of the social media and digital content services. And social media sites that are currently free are going to start featuring more ads or a subscription plan. Take a look at Reddit, for example, a relatively recent social media system owned by Conde Nast. There are a few banner ads, but nothing obtrusive. You could pay $4 a month to remove the ads. But the site is largely un-monetized. How long before that changes? At some point it will reach a population threshold which will enable Conde Nast to monetize the site with almost no consequences.