Rafi Mohammed

What’s Causing the Riff Between NBC and Apple? Price…of course!

Posted on September 4th, 2007 (2 Comments)

NBC announced last Friday that it would no longer offer new episodes of its television shows and pull all of its existing inventory off Apple’s iTunes’ site at the end of the year. This is the second content provider to threaten pulling its products off of iTune’s virtual shelves (NBC’s sister company, Universal Music Group, refuses to sign a long term contract with iTunes).

Admittedly, I’m not the most technologically savvy…I was surprised to learn that iTunes sells television downloads (after being broadcast on television) for $1.99 per show. And even more surprised at its growing popularity: James McQuivery, a Forrester Research analyst, estimates that no more than 50 million television downloads are sold per year. Who would have figured there would be such an emerging market for television downloads? NBC’s shows currently account for 30% of iTune’s TV show revenues.

It should come as no surprise that, similar to the music industry’s beef with Apple, this sword fight centers on NBC’s dissatisfaction over Apple’s flat $1.99 video pricing strategy. NBC wants the flexibility to charge more for popular episodes and less for other shows. Apple contends that this flexibility could result in a $4.99 retail price for some shows. So…what’s the problem with this? Why not let the market speak?

Commenting on its pricing show down, NBC released a statement that echoes a point I have long pushed to media companies and previously discussed in a blog: “It is clear that Apple’s retail pricing strategy for its iTunes service is designed to drive sales of Apple devices, at the expense of those who create the content that makes these devices worth buying.”

When are media companies going to see the light and make it a top priority to encourage competing services and hardware? This current situation violates one of the key principles of strategy: don’t let your buyers become too powerful. Media companies need a formidable competitor to avoid having their prices eternally dictated by Apple’s CEO, Steve Jobs. While it’s hard to currently envision a credible competitor to the deliciously hip iPod line, someday tastemakers are going to decide there’s more to life than owning a music/video device that everyone else has.

NBC and Fox are starting an online video site, Hulu.com, that is expected to sell television show downloads. While interesting, let’s be realistic: a fundamental reason why consumers flock to iTunes is because they own Apple devices. So building an e-media site is nice, but the key to making it a formidable competitor is to give people a reason to use it…get cracking on that new device.

On a related note, I’m curious on your opinions about flat pricing. I agree that knowing that everything in a store is 99 cents is nice. But if differentiated pricing (e.g., 79 cent to $1.39 music prices) is the ONLY alternative, when push comes to shove, do you think consumers will spend less money than they would in a flat price environment?

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Readers' Comments on This Blog Entry

From Steve on September 4th, 2007
This is a tough one. Being a non technology guy, I like the simplicity of flat pricing. But then I can't imagine watching TV on an Ipod. If music were priced at $.79 - $1.39 I would probably be OK, but my gut is that the music companies will screw it up somehow. I know, I know. Let the market decide. After the fight these content providers have put up aginst the technological advances all the way back to the Betamax, I just don't have a lot of faith in their judgement.
From Rafi on September 4th, 2007
Quite coincidentally and timely, the Wall Street Journal reports today that Sony is planning on taking on Apple with both a new portable video player and a video purchasing site (like iTunes). This is going to be intense competition!