Amazon Unbox and the Law of Small Numbers

posted 19 August 2007

I've recently (finally) got into Battlestar Galactica via my Netflix subscription. Unfortunately, having binge-watched my way through series 1 and 2, series 3 is not yet available on DVD. Gah! So I went digging and found that you can get full episodes, legally, via iTunes and Amazon Unbox, their new video service. Since I don't care to buy video from Apple, I thought I'd give it a try.

Pros: The experience is simple. You search on Amazon and it pops up the episode. You click the episode and it downloads instantly -- it's watchable inside the first 5 minutes. Very satisfying. The first download requires you install the Amazon Unbox Player, which seems to be Windows Media Player 10 with all of that skinning tech Microsoft spent so much time working on finally put to some use. It works just like media player, although oddly there doesn't seem to be a way to buy additional episodes from within the player -- you have to go back to Amazon for that. Playback is crystal-clear and uninterrupted. So far so good.

Cons: It costs $2 an episode. That doesn't seem crazy, but at $2 an episode, the series costs you $38 -- which is only a few bucks less than the entire first season on DVD -- except the DVD can be played anywhere and, thanks to the laughably poor copyright protections on DVDs, copied to any medium you like, as fair use would allow were fair use not being held hostage by media companies right now.

The pricing follows what I call the "law of small numbers": people are willing to be ripped off by vast margins as long as the numbers themselves are low. Two other markets where this occurs:

  • Mobile ringtones and other mobile content (and I should know, since I spent two years working in this industry). These items have miniscule real value: they are low fidelity audio and/or tiny resolution images and video. They take up at most a couple of megabytes of storage, and they actually have a negative distribution cost from the point of view of the carriers, who are the main pushers of these: because not only do you pay an average of $5-10 for the ringtone (thanks to devious subscription models) but you also pay data charges to download the ringtone itself. Licensing fees are in the area of $1-2 for these items, so the margins are vast -- but the customers don't mind, because they're only being ripped off for $3, and $3 doesn't seem like too much money.
  • Movie food -- everybody should be familiar with this one. A bag of M&Ms does not cost $3. Nor does popcorn have a value anywhere close to $4. A coke -- even a gigantic bucket of coke -- is even more hilariously overpriced for $5. But each one is only a dollar or two more expensive than seems fair. And so movie theatres can get away with gigantic margins, even when the tickets are being sold at a loss.

So I don't intend to buy from Unbox again, especially given their shocking terms of service, including such gems as "our software will run continuously to make sure you're not stealing the content" and "you will upgrade the software whenever we tell you to, or your content will stop working", to say nothing of the standard DRM crap like being unable to play it any video player software other than the Unbox Video Player -- even on the same computer -- far less being able to transfer it to any other device. Luckily, I have found another source for the whole of series 3. They rip me off, I rip them off.

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