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Arbitrage and the video store

July 22nd, 2004

A discussion about excessive advertising over at Troppo Armadillo led me to think a bit about the fact that I never watch movies on commercial TV any more, because there are too many ads. Being an economist, I naturally like to assure myself that my conduct is rational, so I did the numbers.

The Media Watch story linked by Ken Parish indicates that TV stations are allowed 15 minutes of ads per hour, which implies that a 2-hour movie can be padded out with around 40 minutes of ads. This seems consistent with my memory of the last time I tried watching such a movie.

For most of the movies shown on commercial TV, I have the alternative option of walking to the video store up the street (10 minutes return) and hiring a video or DVD ($5 max). So, the trade-off is $5 vs 30 minutes. in effect, the TV station is paying me $10 an hour to watch ads. Since I value my time at more than $10 an hour, I choose the rental option.

This seemed convincing to me, but how generally applicable is it? Not everyone lives as close to a video store as I do, but then you can always rent a week’s worth of videos at a time, so the allocation of 10 minutes per movie seems reasonable. As regards the $10 an hour, I have, I think it a perfect arbitrage argument. The average video store pays $10 an hour[1], usually has casual work going, and, in most cases, will let the staff borrow reasonable numbers of videos free of charge.

fn1. I’m ignoring tax here, but if your marginal tax rate is an issue your time is worth more than $10 an hour.

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  1. July 22nd, 2004 at 09:23 | #1

    On television (U.S. television, at least) they also edit out the naughty bits. For those interested in the naughty bits, that’s got to be worth $2 a movie.

  2. James Farrell
    July 22nd, 2004 at 12:16 | #2

    As there are more than enough good movies on SBS, the cost comparison between Channel 9 movies and the video store is redundant. (My only gripe is that they have been showing the excellent Tintin animations on weekday afternoons, when the Captain is probably too busy to watch them.)

    Ken’s piece implies that as commercial organisations, the commercial stations are accountable only to their shareholders and their paying customers, the advertisers. This overlooks that commercial free-to-air licences are rationed, and the rationale for this has always been to ensure quality. The commercial broadcasters should accept strict regulation as a condition for their oligopoly privileges. So David Marr is quite right. (‘Quite’, by the way, in this as in many contexts, means neither ‘very’ nor ‘somewhat’, but rather ‘perfectly’.)

  3. c
    July 22nd, 2004 at 13:51 | #3

    It takes 10 minutes to go to the videostore so it is not $10 but $15 per hour. Not that it really matters for your argument

  4. reshous
    July 22nd, 2004 at 14:15 | #4

    Interesting. Should you also factor the potential cost of missing an advertised bargain(s) that you may otherwise have seen (on commercial telly)?

  5. Davy Jones
    July 22nd, 2004 at 15:11 | #5

    If you don’t want a late fee you’ll have to walk back to return your video, so it’s 20 minutes total travel time per movie (assuming you don’t hire a movie every day). This reduces your time saving to 20 minutes in return for your $5.

    Still, your preference for hiring videos appears to be quite strong, since you find it rational to do so even without relying for the fact that you can start (and pause) the movie any time you like, you can choose any movie you like, and if you watch a DVD you probably get better picture quality than with TV. As I understand it, you would be prepared walk to the video store even if you could only hire the same movie that’s playing on TV and could only watch it at the same start time, and you’d still be happy to pay $5 to avoid the interruptions.

    Logically this makes sense to me, but perhaps I’m irrational because there’s no way I could see myself doing the same thing. Maybe it’s because I don’t consider my time entirely wasted when ads are on (I can talk to people, watch other channels, put the kettle on, take a leak, etc.), but I think it’s because there’s something a bit funny about valuing time this way which I can’t put my finger on.

  6. Davy Jones
    July 22nd, 2004 at 15:13 | #6

    …relying “on”

  7. July 22nd, 2004 at 15:38 | #7

    Since there’s no work going at my local video store and I’m on the dole, I can’t confidently price the value of my time anywhere near John’s suggested floor of $10/hr. As for TV ads, I watch most of my TV pre-recorded, and for the remaining, real-time viewing, I either channel-surf or have reading material at hand for the ad breaks – i.e. I do not watch ads, period.

    Being DVD-less, I suspect that I’m currently in a temporary minority when it comes to routine recording of TV programs. Those who have traded up to DVD, but not yet up UP to recordable DVD, face the not altogether satisfactory situation of retaining the otherwise-obsolete VCR in the loungeroom corner, should they wish to record TV. My anthropological guesswork is that many in the burbs would have chosen to simply junk their VCRs.

    On a related note, I pleased to observe that the video section of my local video store is still going relatively strong, with a video/DVD ratio of about 1:2 (albeit a year ago it was half and half). Again, I doubt that this situation would necessarily be found much elsewhere, but it reassures me that, at least in inner Melbourne, poverty has brought about a beneficial critical mass.

  8. Jim Birch
    July 22nd, 2004 at 15:41 | #8

    A pleasant walk would by-pass the video store.

  9. Mork
    July 22nd, 2004 at 16:34 | #9

    Great post … it’s always inspiring to see economics come up with clear answers to complex but common problems.

    But I can think of at least one additional factors that you’d have to work in to make it a complete model – the value of being able to switch off a TV movie that it turns out to be shit, thereby saving both the time and the money.

  10. Nicholas Gruen
    July 22nd, 2004 at 20:04 | #10

    Paul,

    Copying a TV show to watch it again. You’ve broken the law. Shame on you. This is the same thing as stealing someone’s bicycle. You didn’t think of it that way did you? But now I’ve put it that way, I’m sure you will agree. Off to gaol. Do not pass go. Do not collect $200.

    I just hope you own up before the AUSFTA goes through and the offence becomes punishable by being in the second rung in a nude human pyramid. (File sharers will be on the bottom because what they have done is worse than stealing a bicycle – much worse, obviously. More like burning down a public building).

  11. John Quiggin
    July 22nd, 2004 at 20:19 | #11

    While we’re at it, Davy has committed a breach of contract by not watching all the ads. This is the official view of the MPAA, which however, will allow visits to the toilet, subject to time limits. Brad De Long has more

  12. tipper
    July 22nd, 2004 at 20:38 | #12

    I used to own a video store. Saturday night was the big one, 70% on one day alone. Always a headache having sufficient new releases on hand.
    I solved the problem by putting a premium on new releases on that day and having Saturday specials on old horror, action and comedy movies.(Horror for teenage girls, and action/comedy for teenage boys)
    The main reason people hired on Saturdays was twofold
    - A continuation of the old tradition of families going to the movies on a Saturday, and
    There usually was bugger all on the tele on a Saturday night.
    I would check the TV guide and if the movies on offer were awful, I would bring in extra casuals and I would offer up a prayer of thanks for the networks programmers.
    On a off economic note, should’nt the advertising costs incorporated in goods, which pay for the TV movies and taxes which pay for public funded TV stations (which noone watches) also be included in the opportunity costs foregone, when hiring?

  13. Jill Rush
    July 22nd, 2004 at 22:20 | #13

    As someone who is too time poor to sit and watch a movie at all I am not sure how to value my time at all. TV movies can only benefit from Ads in this instance – I don’t watching as I so rarely see it through to the end.

    I stopped going to the local video store when they demanded a code word from me as a security measure and I refused to supply one as I didn’t see why something which was leisure should become painful to me in having to remember yet another password/code etc.

  14. July 22nd, 2004 at 22:26 | #14

    man, that type of copyright infringement rubbish makes me want to break the no coarse language policy…

    i guess i could choke on my own rage at my own blog…but its just so much more fun here…

  15. July 23rd, 2004 at 08:07 | #15

    The third option is to watch movies on Pay TV. About 60 bucks a month gets you four different channels of round-the-clock ad free movies. An extra $15 a month gets you an extra 4 channels with even newer movies.

    Pay TV gets the movies up to a year earlier than Commercial TV does, and the premium movie channel (Movie One) gets them at about the same time they go weekly in the video store.

    They have ads between movies on Foxtel, but all the actual showings are uninterrupted.

    Of course the foxtel subscription gets you all the other channels too, but even without them I think that deal stacks up pretty well vs the $10 an hour to watch ads.

  16. July 23rd, 2004 at 09:37 | #16

    As to watching movies on commercial TV;

    1. Movie starts and ends at times that are inconvenient to you.

    2. The length of said movie+ads significantly blows out the chunk of time you may have alloted. We can see a rented movie and be in bed before 10. A TV movie usually requires that we be up till well past 10:30pm. Bad for work or school nights.

    3. Placement of ads is often in a very bad place of the movie which kills any narrative tension or suspense.

    4. The constant hassle of muting strident and blaring ads.

    5. Movie doesn’t stop for your benefit for tea breaks or if the phone rings – unless you have a DVD recorder setup but who wants the hassle just for a movie?

    6. Movie tends to be edited for languange, sex and/or violence. Often edited badly.

    Cost doesn’t even need to be factored into it. The hassle factor alone ensures that we haven’t watched a movie on commercial TV for a long , long time. Time is something we have less and less of – especially on weeknights. We usually find better things to spend our time on than to suffer TV movies.

  17. July 23rd, 2004 at 09:44 | #17

    Yobbo’s note that cable TV only shows ads between shows but not during them reminded me that SBS does the same.

    This often works in their favour when we’re channel surfing because we come across ads and we know that they are between shows and something new is just about to begin. So we tend to hang around to see what is starting. We won’t hang around on other channels to see what show is on if we’ve already missed half or most of it.

    Then again, maybe their ads are just more interesting. The ads on ABC are usually pretty lame.

  18. July 24th, 2004 at 01:48 | #18

    Remember that movies (and many TV shows, like The Simpsons) are often edited not just because their content might offend some blue-rinse wowser, but also so that the network can fit yet *more* ads into the alotted movie time.

  19. July 25th, 2004 at 18:33 | #19

    What about the cost of running the vehicle,several k’s to and from the shop.
    Shoe leather from the car to the shop and back…..

  20. Blair Fairman
    July 26th, 2004 at 01:01 | #20

    These new services were they send the DVD’s in the mail cuts out the need for a drive but does require one to wait for the postal service to work. These services have the video shops running scared.

    So ordering takes the same amount of time as selecting in the shop and the time taken is only the time to check the mailbox (which you are likely to do anyway).

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