Kind Of A Big Deal: NBC and Apple Part Ways Over iTunes

The internet is aflame with the news that NBC won’t be renewing its iTunes contract with Apple. As NBC accounts for 40% of the videos downloaded from iTunes, this seems like a bad development for Apple. However, Silicon Alley Insider does some quick calculating and discovers that the amount of money invovled really isn’t that much, considering. So what’s this all about?

It’a about control. NBC isn’t happy with the piracy controls on iTunes, and NBC wants to be able to set the price of its videos. With the news that NBC will be jointly launching the YouTube like Hulu, is it hard to imagine NBC using that service to sell its own video dowloads? The prevailing theory is that Apple needs NBC more than the reverse. I’m not sure that is case.

iTunes is the 800 lb. gorilla of media downloading. It accounts for the lion’s share of music downloads, and it sells a lot of video dowloads as well. For NBC to just up and leave that means they are leaving millions of downloads, and dollars, on the table. They don’t have any service they can turn to that has anywhere near the amount of credibility or mindshare as iTunes. In other words, where ever they decide to sell their videos, many people won’t know about it. That’s lost eyeballs and revenue. It will cost NBC a fortune to promote any new venture in an attempt to gain consumers, costing them even more money.

Even Hulu has its own war to wage against YouTube. Ask anyone who isn’t a tech geek if they’ve even heard of Hulu. I bet the answer will be ‘no’. Hulu may be a great service, but NBC and News Corp. have an uphill battle for recognition, which will cost them viewers in the short run, and potentially in the long run. If Hulu is a YouTube clone, then it won’t really be a good place to purchase video downloads anyway. Which leaves NBC with nothing that even comes close to iTunes’ reach.

But let’s say NBC is able to get a download service up and running. If they think they will be able to charge more per episode while saddling each episode with more DRM, causing more of a headache for the viewers, they are in for a rude awakening. iTunes, as the market leader, has set the cost of a download at $2/episode. While I’m not happy that you are purchasing DRM-riddled video, I do know that for most people, that isn’t an issue as they can watch it with no problems. This ease of use will make it difficult for NBC to convince iTunes users to switch to their service to get NBC programs, especially if they charge more per show. Heck, even if they charge the same, people aren’t going to switch because I can guarantee NBC’s offering will be harder to use than iTunes, and people hate to switch from what they know.

This whole thing smacks of the ‘old’ media not ‘getting’ the new media, or its consumers. I don’t see this move as being a smart one on NBC’s part, and I’m thinking that Steve Jobs has similar thoughts.This move will do nothing other than annoy many NBC/iTunes customers when the December deadline passes.

Maybe NBC will surprise us. Maybe they will actually take a risk and attempt to reach as many people as possible for their videos. They could follow the lead of several of the music companies and offer DRM free videos, this ensuring their videos will play on almost any device, be it PCs, iPods, PSPs or any other video device. Make the downloading of shows simple and reasonably priced and they would have a winner. And, they would have the tech community firmly on their side, acting as free evangelists. But that would require some flexible thinking on their part. Something I don’t see happening. I think the big winners with this move will be the torrent sites. Ironic. As NBC tries to gain more control over their videos, they will actually lose it. This is a battle they, or any media comany, simply can’t win.

What does this have to do with science fiction you may ask? Well, NBC provides video downloads for a little show called Heroes, as well as for Galactica. There’s no telling how much iTunes sales impact the popularity of these shows, but I have seen people on the ‘net refer to downloading the shows and then writing about them. That will stop after December. And with new shows like Chuck and Bionic Woman, it seems like NBC is cutting its nose to spite its face.

[Update 1 (09/01/07)]: It gets better! Apparently, NBC wanted Apple to charge $5 per episode for NBC content. And here I was, thinking NBC understood the net better than the other broadcast networks, then they pull this stunt. Good luck charging $5 a pop, $110 for a 22 episode season. I don’t need to shell out $5 for low res versions of your episode through iTunes. I’m guessing many people will now discover they can find episodes for a lot less then $5 elsewhere, commercial free and in HD no less. Nice job NBC.

3 thoughts on “Kind Of A Big Deal: NBC and Apple Part Ways Over iTunes”

  1. The unique element that NBC has is the content. If you want that content, I think you’ll go through some effort to locate it. I agree that if they make it hard to use or difficult (especially with DRM) it will fail. The other networks have content available online that isn’t in iTunes and uses very strange software that still seems to work OK for them.

  2. The ability to vary the price of ones product is really important…JP is right in that NBC is making a mistake….but Apple is not doing its best either for this new market and is hurting itself as well by not allowing content producers to differentiate. One should note that on itunes a 10 min episode of Sealab 2021 costs the same as a 50 min episode of LOST.

    This really screws up the incentives of the market both with consumers and producers.

  3. Why on earth would anyone ever pay $5 per episode on something that is broadcast over the airways in HD for free?

    I mean, Heroes is good, but its all you’ve got. When you have more than 7 (or more) top shows, THEN you can start charging like that, but people still wont pay until you plug the “free” hole.

    Tell whichever NBC executive that came up with this lunacy to attend “economics 101″ please.

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