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.