Those scamps over at
NBC Universal and their little tiff with
Apple. It makes me smile quietly to myself and think that
Jeff Zucker would, in another era, manufacture horse buggy whips and complain loudly about those new-fangled horseless carriages.
For those who have been hiding under a rock for Labor Day Weekend here in the United States, here's what happened: NBC Universal decided to
announce that they will not renew their contract with Apple to provide TV show content for the iTunes store and that the contract is due to expire in December.
This is also, by the way, the same Universal that decided to not renew their contract with Apple for music content to the
iTunes store and go on a month to month renewal.
Oh, and is also the same Universal that managed to force
Microsoft to pay a royalty to them for every
Zune sold, even if not a note of Universal-owned music is ever put on the system. Of course, since this is the Zune, the change I have in my pocket could easily cover these royalties. Admittedly, however, well played, Universal. Well played...
This is the same Universal who also said they would like to have the same clause with Apple in their next round of negotiations. I think you can imagine how
Chairman Steve would react to an idea like that.
Oh, and did Apple ever react to this latest announcement from Universal. Their reaction was pretty much a public "Say, Universal...why don't you go F* yourself? We're actually going to stop selling your shows before the new Fall season." It was amazing, simply amazing to
read it. Apple's stock also jumped up a couple bucks on the announcement. Gotta love that.
So after Apple steps up to the plate and accuses Universal of wanting to
double the wholesale price of shows in the iTunes store, Universal says "Well, allow me to retort," and
claims that wasn't their intention at all. Oh, no. They merely wanted to provide
you the
consumer with some wonderful bundled choices and options and flexibility in these bundles to make it attractive to you! I get the fuzzies just reading it!
I figure you'd still be paying the $4.99 a hit, like Apple said, but you would be getting two shows for the price of admission. Does this mean that NBC Universal is sitting there going "Let's do something for the fans that they'll love!" and that they really wanted to have a bundle deal where every week you could for that $4.99 get an episode of
The Office and
30 Rock? Don't bet on it! You'd probably be forced for every episode of The Office to have to download some crap like
Deal or No Deal or some ratings-impaired sitcom that you don't want to watch, much less pay even more for. Or say you really like
Battlestar Galactica. I bet they'd bundle that with the new
Flash Gordon on
Sci Fi. Yeah. I hear the screams already. Think of it as the equal and opposite of quality to counterbalance your Galactica fix. At $4.99 a week.
For those thinking that "Well, I'm sure Apple makes a load of money on these shows, let's give Universal the doubt on this one. Apple's gotta be lying..." Uh...no. The iTunes store is like any other retail establishment out there. Just all digital. That means the split between NBC Universal and Apple as a retailer of Universal's product is about 65/35. So if Universal did want to double their wholesale and Apple wanted to keep their margins the same, it would indeed be about $4.99 an episode...or "bundle" if Universal got their way. Apple
must keep this profit margin. Not out of any greed, but out of responsibility to their shareholders to have a reasonable profit margin (which is not the 50% + markup on their products that everyone keeps repeating - Apple's profit margins across the board are actually around
25-30% as reported in their annual financial statements, which are required by law, and as such had better be air-tight and accurate). If they capitulated to Universal on this, then that opens a Pandora's Box to the other content providers (over 50 other networks who are pleased as punch with the iTunes store I might add) who might get a funny idea and bang goes Apple's margins completely on the product they offer in the store from around 35% to something much, much lower. Since the attractiveness of a $4.99 download is minimal - especially when you multiply that across a season, everyone loses. Especially Apple since, again, their margins would be decimated.
Say you owned a book store and were selling books from one publisher and one day they call you up and said that they were changing the terms of the deal they have with you and said "Don't worry, just charge more to your customers...and if you're worried about losing them, just lower your margins and don't make as much money per book sold." How would
you feel? Thought so.
Apple also has a desire to their customers to provide the content at what they feel is a reasonable price and without strings attached that the customers don't want. That means $1.99 per episode across the board, all shows, all networks (although, for half hour episodes, this admittedly isn't too attractive when compared to the same price for hour long shows) This, plus their responsibility to the shareholders means showing Universal the door. More power to them.
Rumor also has it that Universal wants to start up their own portal to sell their shows directly to the public or some such. Or maybe they're so afraid of "new media" and digital downloads and have this insane desire to hold on to their buggy whips that they'll deliberately price themselves out of the market and try to force said market to abandon digital downloads all together, especially when compared to the price of a DVD box set. Well, good luck with that Universal...the future is now and if you don't get your customers used to a semi-reasonable $1.99 download that you'll make a fair amount of money on, you'll make zero in the digital download arena as people shift to
bittorrent to get their fix of shows they offer. It's better you get used to a new revenue and distribution model that isn't necessarily network and advertiser based.
Labels: Apple, iTunes Store, NBC Universal