Taxing viewership - the end of online streaming video?

California's new (as of mid-2011) regulations requiring the collection of sales tax on online purchases begs the question: Will online sales taxes affect the sale of streaming (or pay-per-view) video media sources vs. video-on-demand cable?

For instance, take a new release via Comcast's Xfinity (formerly On Demand) service. Since I've referenced it before (and as it remains one of the more recent major releases as of this posting), we'll look at Skyfall. Xfinity's service shows that the film (in SD) is priced at $4.99 for a two-day rental, while the same in high definition commands a $1.00 premium at $5.99; also a 48-hour rental.

Skyfall is not presently available via Comcast's Xfinity website, so - for the purposes of this theoretical problem - we are looking at the Xfinity service as video-on-demand cable.

Hulu, on the other hand, offers unlimited streaming of most of its selections for $7.99 per month. At present, Hulu doesn't charge sales tax - but (in the year 2012) it did deliver 43% of all television content streamed online. That is enough to make it a potential target, as with Amazon (a not "if" but "when" scenario), and the only thing that has saved it during the previous two years is that streaming video does not fall under the conventional definition of an online retailer.

Given the potential for the 9.75% sales tax to affect Hulu's user base, consider the following pricing comparison for a California resident seeking to view the recently-released Skyfall (either via cable or online - the price difference and perception of value forms the crux of the buying decision):

Skyfall (online): Hulu - $7.99 (unlimited monthly streaming) + 9.75% tax = $8.07
Skyfall (SD): Xfinity - $4.99 + 9.75% tax = $5.04

The former includes the streaming of any other film desired that month, while the second is an exclusive rental of the film for 48 hours. Statistically, the pricing benefit is clear, but despite the exponential premium of television, the medium continues to be perceived with a higher value by the public (if not potentially a requirement).

With that in mind, will the additional eight cents per month ($0.96/yr) harm Hulu sales due to a lesser perceived value? Not likely (unless Netflix can deliver something essentially similar at a lower price). In short, Hulu's target market desires the flexibility offered by the service, and the alternative is far more expensive.

-Kurt Kaminer

To read more about taxation upon online sales:

• E-Marking for Sensible Folk: Will Amazon be the next Wal-Mart? New tax laws may be the catalyst.