Has Apple Hit The $1 TV Sweet Spot?

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A few weeks ago, when rumors of the Apple tablet (now known as the iPad) were still swirling around the web, some of the speculation was that Apple would revamp its iTunes store to coincide with the launch.

Reports said that Apple was considering creating a streaming version of its store, and that it was trying to convince TV networks and studios to drop the prices of TV shows from $1.99 to $0.99.When the iPad announcement came and went, no news was made on the iTunes front, a shame, because the big screen would be perfect for viewing TV shows.

Now, the Financial Times (registration required) says that Apple has been able to convince some TV content providers to drop their prices to coincide with the iPad launch. No names were given, but we will see whether it really happens in the next few weeks.

But the big question is why? If single songs are $0.79 to $1.29 on the store, why should a 30 minute video cost the same amount?

The answer is that staple of economic theory, supply and demand. Earlier this week, Warner Music said that digital music sales had slowed to 5% growth last quarter, down from 10 and 11% in the previous two quarters. Not surprisingly, that drop coincided with Apple’s decision to allow music publishers to raise their prices to $1.29 a song. People would buy lots of songs at $0.99, but far fewer at $1.29.

Right now video makes up a tiny portion of Apple’s iTunes sales. The company doesn’t break it out in their earnings reports, but analysts say that it would be shocking if they accounted for even 10% of revenue.

With the iPad tailor made for video, it is in Apple’s best interest to push that product, and that $0.99 price point might just be low enough to get consumers to spend spend spend.

Whether or not all the content companies will follow suit is the big question. The music industry showed first hand the difference $0.30 makes on digital sales, now the ball is in TV’s court.