Growing iHate for iTunes
Few weeks ago, I reported about Universal severing its ties with Apple. Universal had disagreements with Apple around the pricing structure, which led to refusal to renew its contract. Universal then teamed up with Google and gBox to bring DRM free music to the masses via the Google AdWords program.
Well, the hate for iTunes is spreading further. Following Universal, NBC announced that it will no longer utilize Apple iTunes to deliver its content. NBC’s portfolio includes popular shows like Heroes, The Office and My Name is Earl.
This comes right after NBC’s announcement of its online video service (in partnership with NEWS Corp), named Hulu, where they are planning to offer hit shows from both NBC and FOX. They are still in private beta. Apart from Hulu, NBC also offers streaming video on its own website.
In its announcement NBC said that it will not renew its contract with Apple and its shows won’t be available on iTunes post end of this year. Within hours of this announcement Apple reacted strongly and decided to remove NBCs entire portfolio from iTunes immediately. According to Apple, NBC wanted to sell their shows at $4.99 instead of $1.99, which is a preset price point for almost all shows on iTunes.
After Universal, NBC is another huge entity to sever its relationship with Apple. This is another one in growing trend of media corporations realizing the power of internet distribution. For past few years Apple served as the middle-man for such content and drove lower price points. With its lead in online media commerce, it almost has a controlling position. As broadband profileration increases and media entities realize the power of online distribution, they want no part of a middle man like Apple. Such an independent strategy allows such media entities to reach consumers directly and control the price points.
Moreover it allows them to introduce alternative models in this business. Apple has had a simple and cheap model as its goal was to generate revenue from iPod sales. Apple would never delve into alternative models such as advertisements. Reacting to Apple’s announcement, NBC stated that it’s decision was not based on money, but on the business model. Apple’s model is favorable to its device sales, hence hampering content producers. Here is an excerpt:
“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 make these devices worth buying.”
This reaction clearly reflects the sentiment of the media entities, where they feel that they have received the short end of the stick over past few years. Now gradually they have grown intelligent about this and have access to start-ups and technologies to do this themselves. By leveraging the TV distribution mechanism to promote their online services, they can get the word out, better than Apple itself. This offers users multitude of new options to discover and consume this content.
I believe many more media networks will go down this path and explore their own delivery methods. Many (including NBC) will leverage ad based model to inherently make the content free. Apple’s online media business will certainly be impacted. However their bottomline won’t be impacted much as their margins are made by iPod sales and not iTunes.
My only worry is the lack of standardization between the media networks. This will create plethora of different delivery models and it may be difficult for users to get the content to their iPods or set-top boxes seamlessly.
Difficult to get content to their Ipods. No come on the studios wouldn’t be stupid enough to cut out the Millions and Millions of people who own Ipods simply because they want to “Explore alternative solutions”
Give me a break. If you think they want to do anything except get a bigger piece of the pie your deluding yourself.
Do I think they don’t deserve their portion of the proceeds from selling their product. No. But I do recognize that Apple has been the only truly successful online distributor of TV Shows.
Although if ABC keeps improving their online video streaming it may all be a moot point (all they need is TRUE full screen and I would watch Lost there instead of on Live TV)
Apple deserves to make their money like anyone else. The reason these studios went to apple is because of all of the Millions of Ipods that are out there. I can guarantee that they are not losing money because of Apples lack of more secure DRM but in fact are making more money because of it.
Stringent DRM causes consumers to give up because IT NEVER WORKS EVER!!!
I know I have been testing almost every type of DRM that has appeared. The only truly secure solution that I think may work is something akin to what Microsoft is doing on the XBOX 360. But I won’t pay the prices for entire seasons of shows that they want. Until it comes down to DVD Prices for HD Versions of seasons I will simply pick and choose what I want to watch that way.
If they get rid of DRM and make the prices palatable they will make a mint and pirating would pretty much be relegated to the people who won’t pay for anything and those people are always going to be out there.
TimT
That first paragraph wasn’t very clear it should have read.
Difficult to get content to their Ipods? No, Come on the studios wouldn’t be stupid enough to cut out the Millions and Millions of people who own Ipods simply because they want to “Explore alternative solutions”? Would they?
(Deep Sarcasm entirely intended)
TimT
Tim,
The keyword is “seamless”. Yes I agree with you. I do believe NBC and others will have to deploy models where they still allow users to download media to their iPods. I just wish they do this a simple and standardized fashion. Let’s face it, iTunes had become somewhat a defacto method of content download. This move will change that. I hope user experience is not hampered because of that.
This move is simply to get better business terms for their content. Alternatively ad based models may also be pretty enticing.
Abhishek
The problem with your argument is that pursuing alternative, ad-based models theoretically has nothing to do with offering content on iTunes. NBC could do both: they already stream the shows on their website right now. Why can’t NBC offer their programs in multiple ways? The answer is because this has nothing to do with options and more to do with control.
Think about it: if NBC’s new video service was cheaper than what Apple charges, market forces would settle things in NBC’s favor. Obviously NBC wants to charge more and thus realizes market forces won’t work in their favor with Apple in the equation.
Yep there is that too. I don’t talk much about that in my post. However I am sure NBC would love to get viewers on its own service to cross promote other services.
The ad based angle is little different here. I actually think that NBCs revenues will be higher in an ad based scenario. With its content on iTunes, they may feel that majority of iPod users wont utilize its online services, which potentially could have an upside. Hence going with a dual model (with iTunes) maybe perceived as an hinderance to its own offering.
I mean, would you want to have your product on a counter in a huge mall with everyone else or have your own megastore where you can leverage cross sales.
Again however, having your product on a counter in a huge mall or your own megastore is already done. And the reason THAT works is because the product can be used everywhere.
DRM is the factor and keeps digital downloads from being as successful as other available methods. These studios believe that the only reason that people download stuff illegally is because that they don’t want to pay.
Actually it has to do with a number of factors.
1. Studios still like to believe they live in 1980 where they were able to control when video would appear in other countries.
(the internet has proven this to be a fairly stupid and arrogant stance on their part. Take Heroes for instance. Most people who truly wanted to see it have either downloaded it themselves or had the kid who knows how to do it get it for them. Instead of waiting until way after the season was over to provide it to other countries.) I know it takes time to localize shows and etc, but I bet it mostly has to do with securing special Deals with distribution etc.
2. Most digital downloads that people put onto Bit Torrent etc, are of higher quality then the average download off of Itunes.
(Until recently 128KB aac and mp3 was the norm on the download services including Itunes. Some provide higher quality audio but none are the native quality of the CD. While people want the ease of downloading over going to a store and purchasing a CD and then ripping it, alot want better quality. This is especially true of downloadable TV shows. Until very recently BitTorrented shows almost always looked better than what the studios themselves were offering. Itunes is Standard Def only and there are some (in the minority I know) that would like the ability to stream or download HD versions of shows)
While these entitys are finally getting a handle on just barely using the internet alot of their customers are alot more savvy about it then they, and are not going to wait around for them to “Get it”
Apple at least was moving in the right direction and if they announce an HD Version of Itunes and Apple TV soon they may have another IPod situation on their hands and new shows will start appearing directly on Itunes rather then on NBC/CBS/ABC.
I for one would have gladly paid to keep shows like, Firefly, Jeremiah, etc on the air by purchasing it on an Itunes like service, instead of watching the reality based drek that the masses seem to love so much.
TimT
Apple surely has done lot of things right and we all love them for that. I guess its interesting to see the media networks realize this. As you say, they can no longer control the media anymore and are trying various things themselves.
One can perceive that these efforts are them “trying” to gain control over this medium as well. I am sure it will be pointless, but it does offers users more options.
You may want to read this post I wrote almost a month ago.
PS — I am so waiting for HD version of iTunes, when I will finally get the Apple TV.
First, the iTunes Store is not a “monopoly.” That word has a specific legal meaning, and there are strict laws that govern monopolies. iTunes is hugely popular and it’s in a dominant market position, but it’s not a monopoly.
Second, you don’t mention that Universal is NBC’s parent company. You make it sound like there is a mass exodus from the iTunes Store, when actually, only one company, Universal, is canceling the long-term contracts for its two divisions, Universal Music and NBC Universal.
As for Hulu, will their downloadable videos be in a format that is compatible with the iPod (aka the world’s most popular portable video player)? If not, I’m going to go out on a limb (but not that far out) and say that Hulu will be a spectacular flop, at least as far as downloadable content is concerned. The word “hulu” will become synonymous with “not iPod compatible,” and that may well be a death blow.
BuddhistMonkey,
Thanks for correcting me. I have updated the post to not sound negative on Apple. Yes you can say that NBC is the parent of Universal and thus the same company. However the entity partnering with gBox and Google is Vivendi Universal and I will find it hard to believe if it really shared a lot in common with NBC. Not to mention the differences in the Music vs TV businesses.
With respect to Hulu, I am actually on board with you. I don’t think they can survive without offering support for the iPod. My post is simply a commentary on the fact that this will happen more as these entities realize that they can do more going directly to the consumer. This doesn’t mean Apple has done anything bad.
From WIkipedia:
80 percent of the Vivendi Universal Entertainment branch was sold to GE, forming NBC Universal, with VU retaining a 20 percent stake.
So YES, the record company does have a say in the TV company, they own 1/5 of them.
Much like I think that Steve Jobs has a say in what Disney and ABC do, I think that Universal is working hard to take away the ‘freedom’ that they gave to Apple. They see millions of TV shows purchased for 1.99 and any good marketer will tell you that you should raise the price and watch what the market will do. Heck you can even give it a fancy name and call it ‘Bundling’ and ‘Price Flexability’.
They don’t like the fact that price is 1.99 for _everything_. (Well, they probably like it on the really old stuff that wasn’t selling anyway).
I work in Revenue Management and I can tell you that the fixed price model doesn’t well with a lot of people..
Yeah makes sense. I am sure most companies try to do this and who can blame them.
I just think that there is a growing sense among these networks that they can make more by going solo. At the same time they wont be able to ignore the iPod userbase.
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