iTunes TV sales incremental, not cannibalistic

Hit television shows on the iTunes Music Store will generate more revenue per consumer for content providers than is possible with the traditional on-screen advertising model, according to two analysts.

JPMorgan Chase analyst Spencer Wang says that shows such as “Desperate Housewives” and “Lost” command about $440,000 per 30-second spot, with one episode generating about $12 million in ad revenue. By comparison, “even in the worst-case scenario” with 20% of viewers opting to download from iTunes, the digital episodes can generate about $15 million in revenue.

“The main reason is that the $1.44 in download revenue per user (or 70% of the $1.99 per download) is greater than the estimated 57 cents in advertising revenue per user generated under the current model,” Wang said.

Forrester Research analyst Josh Bernoff says the same. He also notes that a popular series can generate significantly more gross revenue for a TV network from a downloading model. Bernoff estimates that an episode generates $1.20 per user, compared with 45 cents per episode per viewer generated by advertising sales.

“Even if 20% of the audience shifts its viewing from broadcast to iTunes (iPod) downloads and ad revenue drop as a result, ABC makes an incremental $1.8 million,” Bernoff said in a recent report.

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