>If a consumer watches one of my studio's productions instead of watching Avatar, we didn't just earn $0.99 -- we also stole a $10.50 purchase from 20th Century Fox.
That's not how the economics work. Consumers have a level of disposable income. Just because they spent 0.99 on your movie doesn't mean that they won't also spend $10.50 on Avatar. The allocation of disposable income is not based on price as much as quality.
Secondly, $0.99 vs $10.50 is a failure in signal theory. You immediately signal to the consumer that the value of your movie is far less than most other forms of entertainment. The reason why the $0.99 model works for music on iTunes is that all songs are priced the same. There is no signaling of quality between songs. The 99 cent model works for iPhone apps is that it is low enough of a cost to value to risk ratio that it's worth 99 cents to try something out. If it is bad, there's no real loss to it. There's little opportunity costs associated with it.
But you can't sell a $10M budget movie at 0.99 and make a reasonable revenue.
> Consumers have a level of disposable income. Just because they spent 0.99 on your movie doesn't mean that they won't also spend $10.50 on Avatar.
The number of movies people see isn't limited by their disposable income, it's limited by the number of movies they want to watch. If they get one for five dollars instead of twenty they're probably going to put the change on their mortgage or their car, or maybe their spending on food will increase as they realise they have a little more money to play with.
What they won't do is go to four times as many films as they otherwise might. I'll grant that demand is elastic, but it's not a linear relationship. Reducing the cost of film viewing in this way will absolutely reduce the amount of money spent on it.
(That disagreement aside, I think the rest of your post is pretty reasonable.)
At that price its no real loss to skip the movie either. You can always watch it 'later'.
You get checkmated here by the Holly wood buzz machine.
People will go with their mainstream aware friends for the major holywood release over your movie. They will watch your movie independently, later.
As has been said in this thread, the only real competiton is time - Holly wood is dying already, because they are fighting for time, which is being eroded by video games, mmos and the likes of zynga.
That's not how the economics work. Consumers have a level of disposable income. Just because they spent 0.99 on your movie doesn't mean that they won't also spend $10.50 on Avatar. The allocation of disposable income is not based on price as much as quality.
Secondly, $0.99 vs $10.50 is a failure in signal theory. You immediately signal to the consumer that the value of your movie is far less than most other forms of entertainment. The reason why the $0.99 model works for music on iTunes is that all songs are priced the same. There is no signaling of quality between songs. The 99 cent model works for iPhone apps is that it is low enough of a cost to value to risk ratio that it's worth 99 cents to try something out. If it is bad, there's no real loss to it. There's little opportunity costs associated with it.
But you can't sell a $10M budget movie at 0.99 and make a reasonable revenue.