NBC Universal another iTunes abstainer, what now for Apple?

Stan Beer
Sunday, 02 September 2007 19:03

Opinion and Analysis

The largest provider of video downloads to Apple's iTunes stores, NBC Universal, has decided not to renew its contract to supply videos to iTunes after December. In turn Apple has announced that it will not sell any new NBC Universal TV shows due to hit the market in September. Is this the beginning of the end of Apple's dominance over content providers or simply bluster by old world media companies?

The move by NBC Universal to cancel its contract, which follows a similar move by Universal Music Group in July, signals an attempt by content providers to weaken the power of Apple in the digital media downloads space. The question is who needs who more?

There is no doubt that Apple needs content on its iTunes site in order to drive music and video sales. However, iTunes is the dominant player in the digital downloads space with somewhere between 75% and 80% market share. Can either of the unrelated Universals afford to pull the plug on the most popular entertainment retail store on the web?

In fact, it is interesting to note that neither UMG and NBCU have actually withdrawn content - yet. In the case of UMG, really the more important of the two in terms of iTunes and in turn iPod sales, the company has merely imposed an implied threat that it could withdraw music from iTunes whenever it feels like it. The fact is, however, that UMG would be foolhardy to attempt to withhold its music from millions of iTunes/iPod users. However, the case of NBCU is not so clear cut.

NBCU, which according to a New York Times report supplies about 40% of digital video downloads for iTunes, is far less reliant on online video sales than UMG and other record companies are on music downloads. So for the time being NBCU can afford to play hardball with Apple about the wholesale price of its products and mean it. Apple knows this but it cannot afford to succumb to NBCU pressure if it wants to build its video downloads business. There are too many other video suppliers watching.

As a result, Apple has attempted to pull the rug out from under NBCU by simply announcing that it will not be offering any of the media company's new Tv shows due for release this month. What happens to the old crop of NBCU shows beyond December when the contract expires between the two companies is also in doubt.

From what Apple has been saying, unless something changes soon there may be no more NBCU shows on iTunes in 2008. While this will definitely be a setback for Apple, succumbing to NBCU's demands to double its wholesale prices for TV shows would hurt iTunes video downloads business far more.

From NBCU's point of view, the timing of this is no coincidence as it just happens to be launching in conjunction with News Corp its own some might say rather fanciful attempt at competing with YouTube with the Hulu.com video site.

So what's the bottom line? Trying to position yourself as a competitor to a wildly popular interactive video site like YouTube with a site that enables you to view TV online is foolhardy. Trying to pretend that your products don't need exposure on the world's most popular entertainment downloads site and cutting yourself off from access to the world's most popular portable media player is equally foolhardy.

Quite simply, with a dominant marketshare and growing video downloads business the cards are stacked in Apple's favour and the company knows it. Just as UMG will continue to sell music on iTunes, contract or no contract, NBCU will sooner or later be forced to face the inevitable and come back to the negotiating table with Apple.