Unless the two sides come to the table, iTunes viewers soon will have to live without watching "The Office" and "Heroes" on their iPods. NBC Universal, the network  that owns those shows, is pulling them off of Apple's digital download service, The New York Times reported Friday.
The problem? Apple's refusal to allow media companies more control over price-setting. The current contract runs through December, so Apple and NBC will have that long to come to some agreement.
The move follows Vivendi-owned Universal Music Group's decision in July to change its agreement with Apple from a long-term contract to one in which it supplies music to Apple at will, and can pull songs from the service quickly. Meanwhile, UMG signed on with Wal-Mart's music download service to sell songs at substantially less than Apple charges.
Network Power
Many analysts see Hollywood taking steps to break Apple's stranglehold on the digital downloads market. Besides balking over lack of control, "intellectual property owners other than record labels are really offended by Apple's royalty rate," generally believed to be 35 percent, Michael Pachter, an analyst with Wedbush Morgan Securities in Los Angeles, said in a telephone interview.
While the labels "have no real choice," he said, the "beauty of having only four networks is that we know that 'The Office' is on NBC." By comparison, no one knows what label to which Snoop Dogg is signed. Thus, record labels need a marketplace, while networks have greater brand recognition.
So far, though, NBC, at least, has been stymied in getting Steve Jobs to recognize that power. "My guess is it's posturing by NBC. They would like to be able to keep a better percentage or be able to set the rates," Pachter said.
Time-Based Premiums
While the record labels want to be able to charge variable rates, too, networks might have a better argument. TV shows are time-sensitive, Pachter said. "The value of a show is more the morning after it airs than it is a year later," he said. "My guess is that NBC thinks it could make more money by charging, say, $5 for a show that recently aired, and then charge less and less over time."
Because watching TV on a two-inch iPod screen is essentially a convenience activity -- consumers can watch the shows for free by tuning it at broadcast or recording to TiVo -- the networks "are probably right" that they will command premium pricing, Pachter said. "It's on-the-go viewing for a different type of customer ." And what's wrong with that? Doesn't that make more money for Apple, too? "Why does it hurt Apple to allow media companies to set the price?" Pachter questioned. (continued...)
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