Filed under: Video, Internet, Apple
NBC exec slams iTunes revenues/business model
The ongoing NBC Universal v. iTunes slap-fight has just become well, more slap happy. As reported in Daily Variety, Jeff Zucker (the President and CEO of NBC Universal), revealed some of the details of the NBC/iTunes impasse in an interview with the New Yorker's Ken Auletta. Some of the highlights:
- In the last year, NBC U reported only $15 million in revenue from the deal with iTunes
- NBC U programming accounted for 40% of iTunes video sales
- NBC did want to experiment with higher pricing, albeit for only one show and on an experimental basis, but Apple refused.
- NBC U also wanted a cut of Apple's hardware sales (presumably iPods) to supplement revenues from the iTunes Music Store.
Issues of profit sharing and price flexibility aside (I'll refrain from sharing my own opinions regarding those issues), the conclusion I find most interesting in this saga is that Zucker's figures (along with figures Apple has reported in the past) back up what many analysts have been saying all along: demand for television content via iTunes is pretty underwhelming. Think about it, NBC says they made only $15 million in revenue off of media sold via iTunes last year; even in the softening TV on DVD market (where the cost per episode is on average, the same, for the consumer), that's peanuts compared to retail revenues of those same shows.
Additionally, if NBC represents 40% of all iTunes video sales, and assuming that the other media companies have a similar revenue split agreement with Apple, that would put total revenues by the content providers for the video/TV sector of the iTMS at approximately $38 million. Strictly looking at the situation in those terms, I can understand why media companies might be reticent to offer up their programming on iTunes. I mean, really, what's the point? If the content is going to be essentially given away, web-based services like Hulu make a lot more sense.
Reader Comments (Page 1 of 2)
Larry said 9:23PM on 10-29-2007
NBC forgets that it is trying to attract the 18-34s to its TV Shows. Those are the same relatively affluent free-spending people who own new computers, iPods, and use iTunes! There's your demographic, waiting for you, over there at iTunes. It turned around the viewership for the Office and for Heroes. Now they don't want that?? NBC makes its money by selling commercial time on its Network Television Shows - on TV, based on how many of the correctly-aged eyeballs it can attract. The $15 million on iTunes is nothing compared to adding a million or more viewers to Heroes or The Office. NBC should be doing all it can to get its shows out there to build an audience for when they are on TV. So what if they aren't making money on iTunes; that's not the point of the endeavor. Dumb, dumb, dumb. NBC will lose in the ratings this year for both shows. Will they ever blame/figure out that it might have a correlation to yanking their content from iTunes? We'll never know, but we will, won't we?
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david said 9:32PM on 10-29-2007
When I hear Zucker say only $15 million in revenue I have two immediate thoughts. First, I wish I could talk about $15 in terms of only. Sure, in the big scheme of NBC Universal it may not be much but it is mostly free money. The content already existed, NBC didn't have to do much to make the $15 million. Second, I see a very short-sighted view of the value of iTunes. I didn't give very much money to the networks in the last 2 seasons but what I did spend made me a regular viewer of 3 shows. That's got to be worth lots more than the $1.99 a show I spent.
I also see a couple major problems with the networks all going it alone with their web only solutions. Now instead of a one stop shopping solution I have to check out multiple websites. Second, I'm now facing time critical deadlines because the shows aren't persistent as they are on iTunes. Third, I can't put them on my iPod or computer to watch when I want where I want. For example, I watched the first 1/2 season of Heroes at work during lunch. My workplace blocks entertainment websites so Hulu will be worthless for catching up on my lunch hours.
Greed is causing stupidity.
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Twist said 9:33PM on 10-29-2007
Here is a big question for NBC though: how much did it cost them to make that extra $15 million on iTunes?
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Eric said 9:33PM on 10-29-2007
As far as I can tell, that $15 million is all profit... five years ago, did they have that coming in?
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Christina Warren said 9:46PM on 10-29-2007
Eric - a good point, but 5 years ago, they made that much during a broadcast of Friends in advertising revenue, plus, every single week. While revenue is still revenue, iTunes has been positioned as a broadcast alternative, when it really (in business/profit terms) is a DVD alternative. If a company is looking at the web as a broadcast alternative, the revenues from any of the services, not just iTunes, right now, don't even compare to what they get on broadcast. The broadcast model is most certainly changing, but I don't expect the network to embrace the web as a distribution model if they are only going to get a few percentage points of what they get in the old models; as much as I would like to have instant online access to all my favorite shows, I can't see any business offering that through a third party service when the return is so minuscule.
Apple refuses to say exactly how many shows have been downloaded from the iTunes store -- they put iTMS (which includes all downloads) and iPod accessories in the same category on their 10-K -- but I read something last week that contrasted the rate of iTunes song sales with video sales, and the results were jarringly bad -- despite the hype, the number of people actively buying TV shows or movies from iTunes isn't even in the same league as people buying songs. That's a problem if Apple wants to retain market share in this area - because that's the way they can retain power. If the iPod wasn't so ubiquitous for portable music and iTunes song sales weren't so strong, Apple couldn't keep the labels under their thumb (and FWIW, I'm glad, that keeps prices low -- though the big factor in lower prices is competition, as proved by Amazon's entry into the digital music store arena) -- they don't have that power in video, and the numbers back that up. I don't necessarily think NBC is doing the right thing by so brazenly going against iTunes, but they aren't wrong in realizing that they have the potential to make more money and reach the same number of people doing their own service.
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geochick said 9:52PM on 10-29-2007
All the points in the comments above are well put don't need to repeat them here... What I can't believe is that "NBC U also wanted a cut of Apple's hardware sales (presumably iPods) to supplement revenues from the iTunes Music Store." NO WONDER APPLE SAID NO! Let me get this straight they are making extra money on these shows plus gaining a wider audience and have the audacity to ask Apple for a cut of their hardware? This is laughable! I hope Hulu is better than their current rewind streams coz that thing is slow as heck and there is no way I'm paying for a show I can't stick on my iPod.
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G said 10:16PM on 10-29-2007
Maybe they'd make more money if they had more shows worth purchasing besides The Office, Heroes and BSG via SciFi. Though I still wouldn't pay money unless it was HD (the only point where I think Apple is at fault). I gave Hulu a go earlier, and it works well enough, but I have no interest in watching shows this long and small on my computer and the ads just blurt in/out with no proper break edits.
And the entire NBC/Universal concept of sharing in player hardware sales is completely ridiculous.
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Logan said 10:17PM on 10-29-2007
The thing about Zucker's comments that's important to note, is that of course he's going to say NBC didn't make much money on iTunes, because right now Zucker and his fellow honchos are mired in last minute talks with the Writers Guild trying to avoid a strike that could start as early as Thursday. The main issue for the writers is that they want their fair share of the digital download action. So, Zucker is simply keeping in line with the other members of the AMPTP that are telling the writers that there's no money in the internet. When in fact as everyone knows Hollywood is very good at creative book keeping so no one really knows how much money is or isn't being made, let alone how much they project to make in years to come either in direct iTunes like downloads, or in advertising supported website viewing. So, while we cannot know for certain what the truth is, we can know for certain that Zucker has little reason to tell the truth, especially since they don't want to share any revenue with the writers.
And I think we can also be certain that Apple will never give them a cut from hardware. Not gonna happen.
All the Zuckers of the world do is drive people to the less than legal downloading alternatives.
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jadedcritic said 10:21PM on 10-29-2007
Actually, what pops into my mind is do the TV manufacturers pay a cut to the broadcasters for the same reasons? Does Tivo pay a cut to the broadcasters for the same reasons? I'm glad Apple stood up them. I don't really care so much why they did it, but I'm glad to see a company actually draw a line in the sand and then NOT CROSS IT the second it becomes inconvenient.
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doog said 10:23PM on 10-29-2007
I wonder if the elephant in the room in this story is that advertisers were angry at NBC U for lost potential revenue from people watching popular content without ads, and the $15 million was paltry compared with the grief they were getting from the ad customers? Hulu allows them to molify the advertisers and control the content themselves.
But I think that Apple was smart in the long run to say no to a deal like that. If video sales are so poor compared with music, why start giving away the store? I am guessing that losing NBC content from the store will do very, very, very little to iPod revenue this year.
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ishcabittle said 11:21PM on 10-29-2007
I'm going to chime in with doog and say that the advert folk are probably pooping bricks at the thought of people paying for shows with no ads in them.
I got me an aTV and haven't watched an ad in months. Now I'm far from your typical television watcher, there's a bunch of people still doin' the bunny ears, but when my kids are growing up they will know a world without commercials. Their kids will take it as written that their entertainment is just that, and the industry called advertising will be a poor memory, floating in the misty long long ago...
*sigh*
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Jeremy said 11:49PM on 10-29-2007
I think iTunes TV shows would be more "whelming" given a few small changes.
First, the only thing you can do there is BUY shows. I don't want to buy shows. I want to watch them and delete them. The business model is all wrong. What I really want is a subscription model, where I can pay $X per month and grab whatever I want, but it's only good as long as I keep the subscription, or whatever. Not "buying" shows, especially when I may just be mildly interested in seeing if something is any good or not.
Second, HD. Why the heck is this not there?
Third -- I have to watch them from iTunes, and when I go "full screen" on one monitor, iTunes insists on blanking out the other monitor. This really, really, really sucks, and there doesn't seem to be any way to convince iTunes not to do this. So, I have to either watch in a window, which is stupid, or not be able to actually use the computer while it's playing, which is also stupid. EyeTV doesn't do this, and will show the feed from my Tivo, and Amazon Unbox will download stuff to my Tivo, so this ALONE sends me to Amazon rather than iTunes.
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JOHN P. said 12:03AM on 10-30-2007
Oh NBC again... cry me a river nbc.. Well itunes is still going strong and plus u guys from nbc are the one losing money... apple is doing well without you i know that im going to miss couple good shows but hey life ain't perfect... i can always record on my tivo.. so i don't care it will save me money.
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xt3rm said 12:08AM on 10-30-2007
Definitely a coincidence re: Hulu.com launch.
It would've not have got a link here if not for the comments.
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Matteo said 5:12AM on 10-30-2007
Personally I think it is not much an issue about iTunes pricing of shows as an issue about NBC vs ADVERTISEMENT corporations.
The advertisement model is the one really under fire now. NBC is trying to bring their dear advertisers back on board in the digital age. They are trying to do the same they did with satellite broadcast and dedicated channels.
- first: let you pay monthly with the subtle illusion that you are not going to see any ads
- second: let you pay and yet fill their stuff with ads
NBC told themselves: why let Apple have the distribution? I can:
- one: air my show with ads
- two: put my show online with ads
- three: sell my old shows with ads
It's all about advertisement and the big bucks coming from it. I can have advertisement blocks which, in the future, will be "smartly targeted" to the audience (i will know exactly who's whatching what and when and deliver the right ads to the right people).
Apple is not destroying the "TV model" but rahter the "advertisement model" giving people something NBC and the other corporations HATE and, more, is BEYOND THEIR UNDERSTANDING (or corporate culture to put it "politically correct"):
CHOICE!
Choiche about:
- what to see
- when to watch it
- on which device
- wherever they want
- WITH ads for free (conventional TV) OR without ads for a premium
The money iTunes makes per show is never going to compensate the money NBC (and the others) make out of advertisement. Why?
Because you cannot "cheat" online. You cannot "estimate how many users per target group are watching"... You know for a fact, down to the last single person. And so one cannot invent pricing models... (difference between paper advertisement and Google pay per click model for instance).
The solution:
- status quo
- more product placement
They have chosen the status quo, thinking that money alone can buy know how in the electronic age. How wrong...
One last thing...
NBC forgot the rest of the world in all this battle. How much money could they have made by selling shows elsewhere besides the US? But again, selling a show on iTunes before airing it would decrease prices of the show for regular TV (it is no longer "exclusive" or "TV premiere" and costs less).
In conclusion:
Look behind NBC and you will see where the real struggle is taking place. Zucker would never have the guts to take such an initivative (they slept too long for me to believe it) if it weren't for the Advertisement corporation putting all their weight in this.
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Nitpicker said 6:31AM on 10-30-2007
"...I can understand why media companies might be reticent to offer up their programming on iTunes."
Reticent: not revealing one's thoughts or feelings readily.
Did you mean, "hesitant"?
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William Donelson said 7:33AM on 10-30-2007
NBC is nuts. They are now voting for PIRACY.
The KEY is that online sales are NOT for content (of something that is free on TV), it is for CONVENIENCE.
The price paid is for CONVENIENCE, not for CONTENT.
If it won't play on my iPod, then I'm not interested.
NBC is defending an old business model, which is obsolete, and which will fail.
If it's FREE ON TV, then you can only charge for CONVENIENCE, not for content.
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Charles Miller said 8:29AM on 10-30-2007
It's no big surprise that iTunes TV sales aren't what they could be.
iTunes music store has a very wide range of product. Its songs are encoded at high enough quality that casual listeners can't hear the difference from the CD, and they play on the device that its customers want to hear them on (iPod).
iTunes television offerings, in contrast, are limited, of significantly lower quality than you can download, and who really wants to watch a TV show on an iPod? In the USA it makes far more sense to record the show off Free to Air yourself, and if you want to buy the show to keep, wait for the DVD. That way you get the show at higher quality than iTunes, in a format you can play on your TV.
(Internationally, where demand for downloaded TV is fueled by delays getting shows out of the USA, iTunes could make a killing. Unfortunately the networks don't want to poison the market for selling their shows to overseas networks, so the viewers... download the shows from BitTorrent anyway.)
Lets look at NBC's options, though. Given these constraints, could they make more money by making shows even more expensive than the inevitable DVD release? One would assume that would just drive more people away.
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Billy K said 9:52AM on 10-30-2007
Short answer:
Video is too expensive in the iTunes store.
Nobody wants to be tethered to their desktop to watch shows/movies.
1.99 per show doesn't sound that expensive, but who buys just a few episodes? If you want to purchase an entire season, you're paying as much or more than the DVD set, and that's just ridiculous.
As far as sites like Hulu and/or the networks' own sites being a solution, people want to bring their media with them, on their iPod/media player/phone/laptop/etc. This solution doesn't account for that, and therefore it's dead in the water.
Lower the prices for video on iTunes and you'll see sales go up. The demand is there, it's just being met by more reasonably priced means.
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DrWho said 10:38AM on 10-30-2007
Since NBC pulled their shows from iTunes I've learned how to bittorrent. Thank you Transmission. Thank you TV Shows and most of all thank you NBC!
Mind you, NBC, if you were to put your content back in iTunes then I would start to pay for it again and stop downloading it. Because basically I am an honest person.
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