Web Economics Boards the Plane

For almost 20 years, an extensive onboard entertainment system has been a minimum requirement for any long-haul flight. Anyone who has flown an old airplane internationally knows the level of discontent with the airline, and the many passenger promises never to fly them again.

As a result, airlines have spent millions of dollars per airplane - every few years - revamping those in-seat video screens to add higher resolution, touch screens, more movie capabilities, more games.

For the first 20 years of personal on-board entertainment systems, it was the combination of system + content that created the value. Most passengers had access to neither the content - the movies - not the system - a way of viewing those movies - except via the on-board system.

Since the release of the iPad in 2010, followed by its Android cousins, the dynamic began to change. Passengers began to have access to their own system that can provide personal entertainment. However, they did not have access to the broad content that large airlines could license, and make available en masse. Sure, you could purchase a movie from iTunes or rip it off your DVD and load it onto your iPad, but the tablet is limited in capacity, and the cost of the movies does add up.

In fact, personal technology began to quickly exceed on-board technology. Because of the sheer cost of upgrading on-board personal entertainment systems, not just in equipment and labour, but also in taking the airplane into maintenance, the technology in airplanes has quickly fallen far behind that which most people carry with them. My several-years-old iPad 2, which is probably worth barely $100 nowadays, is still far superior to the seat-back system on most airplanes... except for the availability of content. Like most frequent travelers, I pre-load my iPad with a few movies I think I would want, then when I board, I flip through the seat-back system, see if anything particularly stands out, and only then use the airplane-based entertainment system.

Airlines are thus spending many millions to outfit and maintain systems on airplanes, and millions more to license content, when what customers value is the content itself, and less and less the system.

Some airlines began experimenting with alternate systems a few years back. American Airlines was pre-loading iPads with movies and lending them to passengers in international First Class. However, the risk of damage and loss, combined with the limited capacity of an iPad and no real-time updates, limited this experience. The media hard drives on an airplane entertainment system could be terabytes for a few hundred dollars, exceed the capacity of the 32G largest iPad back in 2010, or even the 128GB iPad Air available today, by at least one order of magnitude.

Enter WiFi. On-board WiFi systems are installed and maintained for a fraction of the cost of the in-seat entertainment system. Yes, the Internet satellite uplink is expensive to install and to operate, but the internal WiFi is quite cheap.

In sum:

• In-seat entertainment system: expensive capital, expensive operating, frequent refresh, per-plane cost.
• Content: expensive to license, covers the fleet
• WiFi: cheap to install, cheap to maintain, per-plane cost
• Internet connectivity: cheap to install, cheap to maintain, expensive to uplink, per-plane cost

It is unsurprising, then, that airlines have installed expensive entertainment systems where the money is - internationally - and cheap WiFi everywhere. Airlines would love to be able to provide entertainment everywhere, if only it were not so expensive.

It seems almost inevitable that an airline would recognize the formula:

personal devices + cheap onboard WiFi + already licensed content = customer-satsifying entertainment at low airline cost

Earlier this week, United Airlines announced it is doing exactly that. Beginning later in 2014, passengers will be able to use their iPad, iPhone, iPod or laptop (Android coming later) to watch on-board content. This service will include domestic flights where in-seat entertainment usually does not exist or is a pay-per-view option. I imagine DirectTV is unhappy.

In a nice twist, United is doing it through their iOS United app. Airlines invest heavily in developing and marketing their apps. They provide a channel to the customer, marketing information, and a way to increase customer retention and loyalty. Using the app, even for the casual flyer, is a nice twist and a good way to maintain control over the property. I imagine there was some level of content owner requirement as well, preventing people from downloading and permanently keeping content that was licensed for on-board viewing only, far easier to do inside their dedicated app.

United is diffusing the hardware cost out to the passengers, who have already spent it, and just providing content access. Web economics have just boarded the plane.