NBC Points gun at own head, Apple pulls the trigger

In case anyone missed it, there has been a war of words this week between Apple and NBC Universal that ended with Apple refusing to put any new NBC shows in the iTunes store because NBC are withdrawing from the store at the end of the year. That’s all we really know to be factual, although Apple asserts that NBC wanted to “double the price” of their TV shows to force a “$4.99” per episode show, force bundling of shows, and insisting on beefed up DRM.

Could NBC be more idiotic and go more against the obvious trends? Is the management of NBC as Fake Steve Jobs points out:

They’re all buffed and polished and about a hundred and fourteen years old. They look like cadavers who’ve been done up by the world’s best funeral home makeup artist. A lot of them are just GE lifers who did time in plastics and then airplane engines and then somehow got dropped into the TV group.

That whole article, actually penned by Senior Editor at Forbes, Daniel Lynons who writes Fake Steve Jobs, is well worth a read. He says it better than I can. I think it’s reasonable to assume that none of the executives or board at NBC watch their own network as broadcast or have ever downloaded shows from the iTunes store and are really, really out of touch with changes in digital distribution. Otherwise they would not have moved 180 degrees contrary to every trend!

Let’s consider the three points that supposedly lead to the falling out between Apple and NBC. Because I want to address pricing in most detail, I’ll go in reverse order. It’s worth noting that NBC denied that they pushed the “$4.99” pricing, but in a very carefully worded press release, that really does little to deny the accusation.

More DRM

Allegedly, NBC wanted Apple to “beef up” DRM beyond Apple’s Fairplay. Now, I’m no fan of DRM because the concept of “keeping honest people honest” is so stupid that no-one with intellectual integrity could possibly hold that thought in their head without it exploding. You actual, paying customers, are the very people who are honest: didn’t they just pay real money for the product? DRM does not prevent piracy (otherwise why would every NBC show, including those they don’t sell on iTunes, be available much more easily on bittorrent sites?). Even with free content available, customers chose to pay money, so why treat them like potential criminals?

Commercial piracy is a crime and deservedly so. Content creators need to be compensated for their work. That’s a given. What is fundamentally stupid is adding more and more egregious DRM that simply does not prevent piracy. See above – everything is already available free, and yet in 18 months NBC has taken $50 million in income from the iTunes store from paying customers. DRM does not prevent piracy. DRM causes all sorts of complications for customers and devalues the content. To even contemplate adding more DRM is counterproductive at best.

To do what NBC allegedly were pushing Apple to do – to ONLY allow DRM’d content on an iPod – is mind numbingly, absolutely, without doubt the most stupid idea to come out of a dinosaur’s mouth since the advent of mammals. Have these people not heard of “Fair Use Rights“? (BTW, Defend Fair Use is a new website by the Computer & Communications Industry Association, which is backed by Google, Yahoo, Microsoft and others.)

What about family videos or personal recordings or podcasts? NBC would want Apple to ban all from iPods? Legitimate, legal rips of purchased CDs would also be banned? Yeah, right. If that’s what NBC were asking for, see comments above about levels of stupidity never before experienced by mankind!

Bundling

I guess I can understand why NBC might think bundling was a good idea. After all it’s the only business they know! They bundle shows together and sell advertising against it. That’s been the Broadcast Television model since it started. However, it’s over. Gone. Finished. The Television Mk II era of VCR/Tivo/PVR/many channels appointment television (watch it at our schedule or not at all) is going the way of the dodo.

Increasingly we’re moving toward a program-oriented model. I’ve said it before: people watch programs, not channels. At a time the FCC are pushing for unbundling of cable channel packages NBC wants to go the other way and push packages of programs when customers want their own choices?

See above comments on levels of stupidity!

Increased pricing for TV shows on iTunes

At least now we can get away from blind stupidity and get to egregious greed! At $1.99 per show Television shows are grossly overpriced. Even the season pass price is on the high side. If I were to buy all the programs we watch via the iTunes store, my TV viewing bill would be around $200 a month. Compare that to Cable or Satellite at $55 a month (my most recent Satellite bill.)

NBC are simply being greedy. Networks like NBC look to get 25-65c per viewer per show in advertising revenue. Even the most popular show on American Television, the Super-Bowl, brings in only about 95c per viewer. Let’s say the average is 50c per viewer (on the high side – my research suggests 35c per viewer is a more likely average) from advertising revenue. For the networks to receive the same revenue per viewer for their premium content sold through iTunes, then that 50c would translate to about 75c per show. That assumes that Apple make the same percentage gross margin on TV shows as they do on music, out of which they pay the credit card processing costs and the cost of bandwidth for delivery.

So, at $1.99, a TV show is already over-priced. There’s another benchmark to consider and thanks to John Gruber for pointing this out: TV shows released on DVD average out to around $2 an episode but for that you get a physical disc, packaging, liner notes, extra content and marginally higher quality. You also have a tradable asset thanks to the First-sale Doctrine. You get none of that with DRM-infested digital downloads, so the purchase is of much lower value.

Another way of looking at price is to compare buying two shows – The Daily Show and The Colbert Report – from iTunes on Season Passes (20 shows each) when the total for these two Comedy Central shows is $19.95 per month. Subscribe to cable or satellite and Comedy Central will get 60c to $1 from your Basic Cable subscription, at best. Sure, there’s advertising support but that Basic Cable subscription gets you access to view (and record) the entire month’s content on Comedy Central. Not just two shows! Sure, the Daily Show and Colbert Report are advertising supported on Comedy Central – not only do you have to pay to get the cable channel but you have to also pay with attention to commercials (or not).

What would be “fair” for those shows? Exact numbers are a little hard to come by, but even taking Jon Stewart’s reportedly $5 million a year salary, it’s hard to imagine that each episode having a budget over $60,000 an episode. (Mr Stewart’s salary breaks down to around $32K an episode based on 40 weeks of shows a year, 160 shows, New York studio with crew $10K a show and correspondents with production crews and writers account for the rest – feel free to correct me in the comments.)

At 10c per episode (this is disposable television – watch it once and it’s done) and an audience variously estimated at 1.3 to 1.7 million (1.5 used for simple math), that’s $150,000 an episode. Bandwidth and Apple’s margin might add another 10c to that (although 20c is incredibly hard to charge using conventional methods, allow me the conceit for the moment) for a retail price of 20c that would return the producer (or Comedy Central) a very tidy profit over the current budget and cost less than 1/3 the cost of a season pass.

Does NBC need Apple more than Apple needs NBC?

I’m certainly not claiming that Apple would be happy losing 30% or so of their iTunes TV content, and at least one analyst thinks it will hurt Apple more than NBC. Given the general level of accuracy of analysts in the tech sector, I’m always skeptical of such “analysis”. Almost all the rest of the writing on the subject reflects my own feeling that “NBC Could Not Have Screwed This iTunes Thing Up Any Worse“. Do they expect that the unreleased hulu which is also touted as a competitor to YouTube, or are they relying on the spectacularly unsuccessful Amazon Unboxed?

My prediction is that within 18 months NBC will be back in the iTunes store, with much less favorable conditions than they have now because they’ll have come back with tail between legs.

And here’s some other opinions. I think the headlines alone will give you a feel for “the wisdom of the crowds”.

From Cnet – NBC says bye to iTunes, hello to piracy and lost revenue

After this new PR campaign is complete, NBC executives–obviously without any grasp on reality–will sit there and expect their assistants to bring them financial numbers that show exploding growth in programming sales. With cigars firmly in place, the big shots will open up the revenue reports and come to one damning conclusion: revenue from programming has gone down, yet piracy has increased tenfold.

From iLounge – An Open Letter to NBC re: Leaving Apple’s iTunes Store

Let me explain something to you, because you don’t seem to understand it already. Your TV shows are available every day, every week, and every month of the year for free. They fly through the air (and travel through cables) at no a la carte charge to customers.

From blogger Thomas Hawke – iTunes Store To Stop Selling NBC Television Shows, Who the Hell Cares (not safe for those of delicate dispositions)

Who in the hell would pay five bucks for a TV show? Especially when all you have to do is hop on over to that old bittorrent thingy and just borrow a copy for free. …Nice move NBC. Way to go from being mostly irrelevant to entirely irrelevant.

From Podcasting News – NBC Betting On Losing Strategy

Proprietary portals, like Hulu, also have a long history of failure. NBC would be better off keeping its content in iTunes and working with other networks to create open standards for commercial video downloads. This would create a competitive environment for digital video sales and increase competition among portable media manufactures.

For a very satirical view, Phil Ryu describes an alternative universe: Zuckerland! – bizzaro reverse world where NBC’s decision makes sense.

In Zuckerland, customers on iTunes pay $4.99 per episode for NBC shows, which, though it may sound ludicrous at first, actually makes perfect sense within this fantasy world, because in Jeff Zucker’s mind, this is war with Apple, and wars cost a lot of money. So he’ll need some funding from all those hardcore customers on iTunes for the effort.

And someone should perhaps remind Jerry Zucker that, according to Angela Bromstead, Executive VP, NBC Studios, (yeh, she works for Zucker) The Office should have been cancelled but thanks to sales through iTunes it’s now a hit for NBC. Likewise sales through the iTunes store probably gave 30 Rock an extra season, and influenced the extension of Studio 60 on the Sunset Strip to a complete season. Would that have happened if “Studio” didn’t have just the slightest traction on iTunes? (Four episodes placed recently in the iTunes top 50.)

Perhaps it’s true, as Michael Gartenberg of Jupiter Research (yes another analyst so treat with caution) says:

Sometimes I think God put video content guys on the planet to make the music guys look progressive and visionary.

The last word goes to some intrepid photoshop artist who previews how NBC shows are going to be distributed in the future.

1 reply on “NBC Points gun at own head, Apple pulls the trigger”

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  1. However Phil,
    Some how, after all this noise, I feel it comes down to being simply an excuse for leaving iTunes.

    The main issue, I feel, is that fact that iTunes is too dominant. Hulu and the Amazon deal are an attempt to fragment the market.

    A monopoly is only good when you own it. NBC are not use to being any where but the top of the food chain.

    And actually, I hope there is some fragmentation in online media distribution. I’m not a big fan of any one person or company controlling anything.

    But then again, I think its inevitable.
    James

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