An occasionally dusted-off blog by M. Scott Smith

More on NBC/iTunes 🔗

Jeff Zucker, President and CEO of NBC Universal, recently gave a speech at a benefit for Syracuse University. During this speech he criticized Apple and the iTunes Store. (Earlier, NBC announced that they were pulling their content from the iTunes Store since Apple refused to give them "price flexibility" -- in other words, Apple wouldn't let them charge more than $1.99 per television episode -- the same television episodes that are shown on television for free, and that NBC is now making available to view for free on their own web site. Huh.)

According to Variety magazine, Zucker complained that NBC was not getting a cut of Apple's hardware sales. He said "Apple sold millions of dollars worth of hardware off the back of our content." He then complained that NBC had netted "just" $15 million in revenue from the sale of its content on the Apple Store.

Interesting. Zucker is arrogantly suggesting that people are rushing out to buy iPod hardware so they have the opportunity to pay $1.99 to watch hit NBC shows such as My Name is Earl. Then he complains that NBC was only able to sell about 7.5 million episodes to video iPod owners. Uhh.... How can you have it both ways? If NBC's content really was driving the sale of so many iPods, then wouldn't those customers be, you know, buying lots of NBC content?

(And by the way... Why isn't NBC Universal complaining that they don't get a cut of every television sold? Seems to me the high-definition television manufacturers are selling "millions of dollars worth of hardware" off the back of NBC's content. After all, a far greater number of people are watching NBC shows on their televisions than on iPods -- by many orders of magnitude.)

The way I look at it, it's amazing that NBC has sold $15 million worth of content in a market that is nascent and full of growth potential. During the period that they sold that content, there weren't that many iPods capable of playing video. (Probably less than 15 million.) And the iPhone (and new iPod touch, with its wider screen) weren't out yet. Of the over 100 million iPods that have been sold, only a small percent are capable of playing video. That will soon change; with the recent iPod updates, all are capable of playing video now except for the Shuffle. This could (eventually) be a big market, and the iTunes Store shows that people are willing to pay $1.99 for content that has traditionally been free, for the convenience of playing it on their iPod. (Here's a question: how many more iPod owners would be willing to pay $0.99 for television episodes vs. $1.99? At least twice as many?) Frankly, $1.99 is way too expensive for an episode of television (low-definition, at that). It's incredibly arrogant for NBC to think they can or should charge more.

NBC is either too shortsighted or greedy to see this. By ditching iTunes and instead making the content available free on their own web site, they are throwing away a new revenue stream and implicitly confirming that network shows should be "free," which will only make it harder for them to monetize their content in the future as we move further to a digital world. By removing the ability for iPod owners to easily (and legally) view their content "on the go" by complaining that television episodes should be more than $1.99, they are alienating a customer base. There's no shortage of quality video content from competitors.

It may be that NBC isn't all that shortsighted. They may see the writing on the wall: in the long term, there isn't much need for networks like NBC. Any content producer will be able to connect with viewers on a one-to-one basis. Every show will be "on demand," with bits streaming directly to the viewer. In this model, content will fractionate and become much more diverse, because it will be economically viable to produce "niche" shows instead of "lowest common denominator" shows. Look at the incredible popularity of YouTube, and now imagine that in high-definition, with high-speed networking available in the majority of U.S. homes, and with the ability to stream in high-def to any television in the house. This technology is beginning to be available today, and will only spread. It will be much more lucrative for content producers to go direct to the consumer through services such as iTunes instead of through a "middle man" like NBC. Perhaps Zucker is starting to realize this.

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