updated 10:20 pm EDT, Sat September 1, 2007
iTunes dispute hurts Apple
The iTunes pricing dispute hurts Apple more than its hurts NBC Universal and reinforces the relatively little influence that Apple has in the video download market (compared with the digital music market). NBC Universal's decision to pull its network TV shows from the industry-leading iTunes Store points to fierce resistance among media companies to the potential Apple dominance of online video sales, an industry analyst told IDG News Service. NBC, which already offers most of its network shows for free via its ad-supported website, has sold out most of ad inventory already, giving it an alternative--and potentially lucrative--distribution strategy. The rift with NBC is more damaging to Apple than to NBC, the analyst said, because Apple is using its digital store to sell products, such as the Apple TV, the iPhone, and video iPods.
The public spat, which started when NBCU announced it decision not to renew its iTunes contract for selling TV shows in December, continued on Saturday with NBCU execs insisting that the disagreement with Apple was over pricing flexibility rather than a "doubling of the wholesale" price of content.
On Friday, Apple said that it would not sell NBC TV shows for the upcoming television season because NBCU demanded more than double the current wholesale price for its content. NBCU's pricing demands would have resulted in the retail price to consumers increasing to $4.99 per episode from the current $1.99, according Apple.
The incident reflects how poorly the iTunes video store has done relative to the iTunes music store, according to Forrester Research analyst James McQuivey. "It shows how paltry and uninfluential the video side of the iTunes house is," he said. Few major music labels could similarly afford to pull out of iTunes, which dominates the online music industry.
While the analyst said that iTunes does make up the bulk of the online video resale market, he emphasized that the video download market is still small and that the industry is wary of Apple dominating the market, like it does the digital music market.
Forrester estimates that iTunes will take the bulk of the $300 million online video resale business and NBC will bring in about $60 million from iTunes video sales this year; however, that the potential money loss for NBCU may be well worth it, McQuivey said.
The loss of that revenue would be "not that big of a cost if it helps them undermine Apple's monopoly aspirations in the video world," McQuivey told IDG News.
NBC's own internet platform offers its shows for free to users and creates a market for paid advertising. The report claims that NBC has already sold its online advertising inventory for the upcoming season and notes that unlike iTunes, the revenue it won't be shared Apple. The ad revenue from that service is likely to generate hundreds of millions of dollars in a few short years, McQuivey told the publication.
Although likely applauded by other content providers, the Forrester analyst believes that others will not follow NBC Universal. Like NBC Universal, most would, however, like more flexibility in pricing and the ability to offer various content bundles.