On content providers, noses and faces

Stephen Withers
Tuesday, 18 September 2007 14:32

Business IT - Technology

Apple's success with the iPod family and the iTunes Store has content vendors in a bind.

iPods are hugely popular, with a market share that any company - with the possible exception of Microsoft when it comes to operating systems - would envy.

But this success has put Apple in a strong position when it comes to negotiating with content providers like record labels and TV networks.

Until recently, most content owners have bitten the bullet and acquiesced to Apple's terms, especially the fixed-price model. While it is true that customers have been conditioned to expect to pay more for newer material than for older titles, there's an underlying feeling of being ripped off by new release pricing.

For example, Eragon came out on DVD just a few months ago at around $A28. Today, the exact same product is selling for under $A13. Yet you see other movies that are years old still treated as 'full price' items.

Apple's fixed-price model avoids the problem of customers putting off purchases because they expect prices to fall.

Furthermore, we know that major studios are selling DVDs in China for the equivalent of $A3 or so. Even allowing for differences in distribution costs and retail margins, you can see why many consumers in western nations feel they are being overcharged. If it's possible to sell a DVD movie for $A9 and still make a profit, why expect customers to pay $A29?

There's an old saying about not cutting off your nose to spite your face, but at first glance that's exactly what content owners are doing by bypassing Apple and the iTunes Store. I'll explain why on the next page.