Cost per hour: A new metric for paid content

A week ago Netflix released all 13 episodes of House of Cards, allowing subscribers to watch the series in marathon sessions. Variety noted ”the efficiency that makes binge viewing so compelling also accelerates the time a consumer spends with Netflix.” This novel release schedule highlights the question of how consumers value paid content relative to consumption time.

The time spent consuming information and entertainment goods is an important element of the overall satisfaction (or, as economists call it, utility) they provide. So while consumers may not use a calculator each time they go to the movies, buy a book, or subscribe to a magazine, the calculation of utility is implicit in every transaction, despite any obstacles in comparing media across platforms.

In our increasingly digital world, the challenge for consumers in determining a given product’s value or utility will continue to shrink, creating an environment where consumers will explicitly consider “Cost Per Hour,” or CPH, when buying content. Likewise, providers will have the tools to measure CPH and the ability to influence it. The result is that providers who embrace CPH as a metric will have greater opportunities and success for charging consumers for their content.

How we currently consume

With analog channels, consumers associate value with the plastic, celluloid, and newsprint that are mere containers for the content itself. (The value of television programming, too, is clouded by distribution considerations. If the cost of the “dumb pipe” is stripped out, video content fees would become transparent.) Consumers will have an easier time making CPH calculations when they pay for zeros and ones separate from paper and pipes.

The chart below shows a few sample CPH calculations for selected channels for U.S. consumers (figures taken from a variety of sources and are meant as illustration).

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From listening to bundle bashers, cord cutters,and over-the-top enthusiasts, one would assume consumers suffer from an astronomical pay TV CPH, yet it turns out it’s a serious bargain. And if you were to adjust for the average 2.6 persons per U.S. household, pay TV’s CPH drops to a mere 23 cents! (But similar adjustments apply to Netflix, the most economical option among the listed channels.) Newspapers and magazines, which tend to count pass-along readers, deserve a CPH adjustment, too.

Digital media will help solve the valuation problem associated with multiple users. The future promises greater use of personal consumption devices like smartphones and tablets, as well as greater personalization of shared screens (be they computers or TVs) such as with Netflix’s planned personal profiles feature.

Future generations will know only digital information goods. So their value calculations, unlike ours, won’t be rooted in analog versions or clouded by digital-analog bundles. Instead they will be keenly aware of a product’s value proposition based on CPH.

Opportunities for content providers

For media companies, the difficulty of measuring time spent with analog content is well known. Time magazine is unaware if a subscriber has read an issue cover-to-cover or simply deposited it, unread, in the recycle bin. Likewise, Nielsen certainly provides insights into TV viewership, but today’s television ratings are a blunt instrument compared with the possibilities afforded by digital platforms.

Digital content providers, informed by enhanced analytics, are starting to have a growing tool set to positively impact CPH. As an example, the Wall Street Journal Online offers readers 76 newsletters and alerts and maintains 26 Twitter accounts to encourage them to engage more with its product. These digital methods for pushing content to readers and drawing them back to the main property increases engagement, which results in a real drop in CPH.

As an example of a company that has long understood the impact of the principles of CPH, Netflix famously offered a $ 1 million Netflix Prize to anyone who could create a better prediction algorithm for accurately matching its viewers with content they’d like. As Netflix clearly understands, better content discovery translates into more viewership and smaller CPH – and in turn lower churn, as customers find value in the product.

The media and entertainment business grows more complex as consumers increasingly expect any content, any time, any place, on any platform. Concurrently, consumers migrating from analog to digital platforms will become more sensitive to the relation between price and consumption time. CPH is an actionable metric for an industry seeking profitable models for charging consumers.

David Justus is a principal at contentcurrents.com, a digital media consultancy. Follow him on Twitter @ContentCurrents.

Photo courtesy of discpicture/Shutterstock.com.