Wednesday, September 05, 2007

Apple iTunes First Mistake.

Apple has been on a roll with its iTunes Store and downloadable music and was positioned to do the same with video, until NBCU wanted to change the deal. Now 40% of iTunes video download business has moved over to Amazon at the same price of $1.99. This could be the first chink in the iTunes armor. Steve Jobs, you aren't in Kansas anymore.

iTunes management, thought they had leverage over NBCU because of their 76% market dominance, so there was no need to negotiate -- their arrogance may have cost them. While nobody can touch iTunes in regards to music downloads, video is another story altogether. Studios and Networks play hardball while the Music labels play catch-up.

Reportedly, NBCU wanted to double the price of their downloads and iTunes said no. Well, apparently that was just a starting point in negotiations because when NBCU moved over to Amazon they agreed to the same pricing as they had previously with iTunes.

" NBC believed it was in a strong position to negotiate for new iTunes deals, accounting for a reported 40% of all iTunes video downloads, the No. 1 supplier of digital video to the service. But iTunes, which holds a gigantic 76% of the market, wasn't interested, believing it would create a confused marketplace when it comes to pricing. The retail price of an iTunes TV show, as it has been since the service's launch, is still $1.99. For movies, iTunes users pay $9.99."

There wasn't much risk on NBC's part in taking the hard line because the revenue from Video downloads is minuscule. It's better to make the move in the infancy stage rather than after you've helped iTunes build their video download business. So, now we will see if the market follows the content or the marketplace. My bet is on content.

NBCU said in a statement that Apple's intent with iTunes isn't really to help its content providers, but itself. It's 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."

Stay tuned as other Studios and Networks follow suit. If video downloads were a larger share of their revenue many would stay but the risk of moving is minimal and Amazon should working aggressively to pursue deals with the other Networks and Studios. Strike while the iron is hot.

5 comments:

Anonymous said...

I bet the cut that NBC gets out of that $1.99 is a LOT higher than the cut they were getting at the same price when going through itunes.

Apple probably wanted something like 70% of the revenue generated, which would give Apple $1.40 of each $1.99, and NBC would just get $0.60 an episode. (I think itunes music takes about 60-70% of the total price)

NBC probably wanted to earn over a buck per episode, so to get the cut they wanted, they would have to raise the itunes price to $4.99 to reach the margins they were looking for.

Amazon probably lets NBC get the total revenue per episode that NBC is looking for while retaining the current pricing point of $1.99

Pure speculation on my part, but that's the fun part of this blog :]

Randy Smythe said...

I think your speculation is right on. Amazon hasn't released any details on the deal but I think that NBCU is getting a much greater share of the revenue from Amazon.

Sure $1.99 is the price point that consumers want and the content guys certainly want more. I think iTunes may regret not working with them.

I was looking for some Scrubs episodes, now I'll have to get them from Amazon for my TIVO

Anonymous said...

In my opinion, Amazon offers a superior product for this anyway

Their video works with the media extenders in Windows, which means I can use my xbox 360 to stream tv shows from my computer over my wireless network and watch it on my big screen.

It's actually more convenient than the pirated product!

junk said...

You said it, playa!

SVJ

Anonymous said...

If you want to see this policy change start writing to the top investors of ebay. Here is a list of the real owners of ebay that have BILLIONS invested.

http://finance.yahoo.com/q/mh?s=EBAY

If 100 people will send a letter to everyone on this list, explain what is going on, give your user ids, copies of emails, etc, this thing will go away by next week. PROMISE!

Funny thing is ebay has been calling me to ask me what they can do to help me sell more! They've also launched some new program to refer new sellers to the site. What a bunch of idiots.