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Internet NBC Universal to Sever iTunes Contract
Brandon Hill (Blog) - August 31, 2007 9:27 AM
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Claire Bennet and the rest of the Heroes gang may be leaving iTunes
NBC Universal says "good-bye" to iTunes

Apple is very protective of its iTunes store and the pricing model used to distribute music and video. That tight grip over pricing has caused NBC Universal to break ties with Apple.

NBC Universal will not renew its contract with Apple to sell TV shows on iTunes. Popular NBC Universal shows made available on iTunes include "Heroes," “30 Rock” and "The Office." In fact, NBC Universal is currently the number one provider of video downloads on iTunes and accounts for 40 percent of video downloads (roughly 1,500 hours or programming).

NBC Universal's two-year contract ends in December, so content will still be available on iTunes until that time. Apple and NBC Universal could still come to an agreement before the end of the contract, but it appears -- for the moment at least -- that neither side is willing to budge on the matter.

NBC Universal feels that it should receive a larger cut of iTunes downloads and have the ability to package content together. Apple on the other hand has stood its ground with regards to pricing and contends that packaging video content would lead to confusion for buyers and decrease demand.

This isn't the first time that Apple has run into pricing issues with one of its content providers. In July, Universal Media Group decided not to renew its iTunes contract over similar pricing concerns.

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About time!!
By wupta on 8/31/07, Rating: 0
RE: About time!!
By TomZ on 8/31/2007 11:24:15 AM , Rating: 2
The problem isn't really the cost per song, it's that consumers can pick and choose to purchase individual tracks, right? In the old system, you had to purchase an entire CD, which was typically $10-15. Now you can just buy 1-2 songs that you like and only spend $1-2.

I agree with you, the flat rate per song should be eliminated, and individual prices should be set based on individual songs, plus a discounted price offered for purchasing all the songs on a CD.


RE: About time!!
By TomZ on 8/31/07, Rating: 0
RE: About time!!
By wupta on 8/31/2007 11:40:02 AM , Rating: 2
You are correct about choice. This feature I really like because it allows us to sale singles. We used to have to put out an entire CD whether we liked it or not. Retailers wouldn't take your product if it wasn't a full length.

Apple is not being truthful about not making money on songs. Which corporation would not try to make money on what it sales.


RE: About time!!
By TomZ on 8/31/2007 12:41:30 PM , Rating: 2
So the basic problem seems to be that $1/track may be profitable if you are able to sell 1M or 10M downloads, for if you're only selling 100K downloads, it is not profitable.

Therefore, because of the production cost, it would seem to support your view that an individual song from a label like yours would need to cost more, like the $3 figure you mention. But since Apple has now effectively defined the cost expectations at $1, that creates a real problem. Because of this, the $3 song needs to really stand out compared to the typical $1 song. How do you do that?

I guess the person who can figure out this will make a lot of money.


RE: About time!!
By wupta on 8/31/2007 1:02:12 PM , Rating: 2
You are correct from my perspective and a great song deserves that.


RE: About time!!
By Oregonian2 on 8/31/2007 2:25:36 PM , Rating: 2
quote:
Also, I find it interesting to learn that Apple takes 50% plus an adminstration fee. I have heard time and time again that Apple basically makes no money off of iTunes. That statement would appear in reality to be completely incorrect.


I don't understand your statement. Apple does NOT say that they get no revenue from iTunes. They say they don't get significant profits off of it. A VERY different thing.

Even companies with billions of dollars of revenue go bankrupt and close down due to lack of it being profitable.


RE: About time!!
By TomZ on 8/31/2007 2:38:37 PM , Rating: 2
I've heard that Apple is getting $0.05-$0.10 per song, even seen that in comments here on DT. That's a far cry different than the $0.60 that is being stated here.

And I am assuming that the net cost to distribute a song is significantly less than $0.60/song. Therefore, I if this assumption is correct, then the statement that Apple doesn't earn much profit from iTunes is false.

Where am I going with this? I think the impression Apple conveys about not making profit on iTunes, only on the hardware, is just some more PR spin from Apple.

quote:
Even companies with billions of dollars of revenue go bankrupt and close down due to lack of it being profitable.

You're usually good about not stating the obvious...


RE: About time!!
By MaulBall789 on 8/31/2007 11:48:08 AM , Rating: 2
You are setting yourself up for huge failure with that model. When the major labels were price fixing cds through the better part of the 90s is when they began to destroy their business. Artificially high prices will always drive the consumer away, and if there is a better alternative, i.e. the internet, they will continue to consume at a level they are comfortable. Set up your own website and try selling your songs for $2.99 apiece and see what happens. I don't know anyone who is comfortable paying $2.99 for a single song. I am not saying they should steal it, but if they hold out and no one dls your high priced single you will lower that price. A buck a song would appear to be the sweet spot for iTunes but YOU could sell it for $0.75 and make a greater profit if you're only getting $0.40 from Apple.


RE: About time!!
By wupta on 8/31/2007 12:43:43 PM , Rating: 2
Very intelligent point. I did exactly as you say I have a Digi site in the works? Back in the day I used to buy 45's for the singles and I used to pay over a buck, which back in my day was more then 5 bucks if we go by the MCdonald scale. I didn't buy a song because it was cheap I bought it because I wanted that song, I had to have that song. This is why people buy songs not because of price.

For small companies like mine we used to thrive on selling as few as 10,000 units. This allowed for a lot of indie music to get out there. Lets do the math again even at $.75 a hundred thoudasnd downloads give you gross $75,000 for lets say a single. Now lets do the cost for that song, to hire PR for a band costs on average 15k, to get college radio promotions another 3k, to get art and a song mastered another 3K. Studio time 5k, websites and staff, office and softcosts like promo items stickers etc. another easily another 10k. Video on the cheap 5k. Tour support which can run into big $$$ at least $45k. The artists won't be signed for a single they have to do more then one track the artists want an advance lets say it's about 5 to 7k. Now add a little more for mastering and studio another 15k. To achieve a 100,000 fans for a group is enormous the money I just spent is nothing this won't give you 100,000 fans it may give you perhaps 14k to 20k fans, they don't all run out and buy the music. This is only part of the expense and the risk it takes 3yrs on the minimum to develop and artist and act and at least 15-30 songs and maybe maybe then you can have 100,000 downloads which gives you a gross of 75k. I can continue but you get the point.

I am not interested in price fixing. To invest in artist and music is a great risk and requires enormous $$$ resources the return should also be commiserate to the risk.


RE: About time!!
By fic2 on 8/31/2007 1:15:46 PM , Rating: 3
Interesting that you only count the revenue off of one song, but the expenses for many songs. At least I am guessing that you don't hire PR for one song @ $15k, college radio for one song @ $3k, etc.

Also, most bands I know have songs/CDs that they did on their own, PR own their own, etc before any label, indie or otherwise, would touch them. Unless you are actually creating the band then I would expect most bands are coming to you with some kind of fan base otherwise you wouldn't touch them.

There is no way in hell I would pay $3 for a song. Your comparison to buying a cup of coffee is stupid. If you can get a band to make a personalized song for ME then I would pay $3 for it.


RE: About time!!
By jtesoro on 8/31/2007 2:08:54 PM , Rating: 1
I sympathize with your situation but the market is changing and everyone will have to deal with it. I agree that piracy is having a negative impact on major and indie labels but I wouldn't point the finger at Apple. In my view, without iTunes and its ilk, there'd be even less money to go around the music industry.

You want freedom to do what you want with your product and sell it at the price you believe is fair. You do have this freedom. You can actually price songs at $2.99, but you'd have to do it at your own store. After all, no-one is forcing you to go to iTunes.

I also don't like your comparison to expensive coffee. Like you, they should be able to price it the way they want. If people find the coffee too expensive they simply wouldn't buy it. But people do buy it for some reason in spite of availability of super cheap coffee they can make at their own homes. The onus is on you to make your product desirable at the price point you want.


RE: About time!!
By MaulBall789 on 8/31/2007 2:29:03 PM , Rating: 2
And I think you just made my point better than I did. I've been through all of this before and you are absolutely right, it takes a lot of dough to front a new act especially on an indie label. But you have to remember that your first priority is to get the artist as much exposure as humanly possible, not to make a profit. If they are talented enough when they perform live and get their name/brand out to the public you give away free cds, t-shirts, etc. to get those initial 14k-20k fans and hopefully their word of mouth creates some real interest. But in the beginning you have to be able to give it away for nothing. Is it worth it? Most of the time, no. But if they hit, then heck yeah.

As for those old 45s (yes I'm old enough to remember them), there was a B side with a potentially hidden gem, so a little more content for your money. Not to mention that the poor performers were not kept on shelves for very long, and as there was no other outlet, that single was essentially dead. So if you were to actually charge $5 per digital single dl, like a 45 adjusted for inflation, there would certainly be a few die hards who would pay anything for their favorite band, but a grand majority would be a lot less thrilled. $50 for an album of 10 songs wouldn't fly now or then, adjusted back. (I seem to remember the majority of entire albums back in the 60s being $2.99 to $3.99) Give it away for free and just about anyone who stumbles across them will at least give it a listen, and generally create some buzz, good or bad.

I don't know this for sure, but I pretty sure that iTunes is charging you a premium on your digital catalog because you are more of an unknown quantity. I would be very surprised if a Universal doesn't get a much better rate of return on their catalog as they have far more leverage to get a bigger slice of the $0.99. Maybe a big label insider can fill us in.

In conclusion, running a small label is tough. I admire you for doing it. There isn't an antacid strong enough keep me in that job. But you take that risk knowing that one big hit can make it all worthwhile. THEN negotiate your own bigger slice of the pie! Or get bought out by a major.


RE: About time!!
By Danderson on 8/31/2007 12:23:15 PM , Rating: 2
If you owned the largest (legal) online distribution channel in the world for music, how much would you charge labels? I realize the burden this can have on independent labels can be hard, but it seems that iTunes if anything has given independent bands more exposure (global) than they could in any other venue in the past. Secondly, the cost of production for CDs, printing artwork is removed, etc., which I am assuming is more costly because of the smaller numbers involved.

I may be ignorant on the earning potential, but has producing small independent individual bands ever been a huge profitable venue? Seems the independents eventually sign with a larger label anyways after time? Am I correct on this?

And yes I feel that I am entitled to cheap music on a song by song basis. $.99 is a fair price, the problem is I typically don't buy all 11-12 songs on a CD. I know you can buy a $4 latte at Starbucks, but I get my $.50 coffee from 7-11. The point is if you think you can provide a more profitable channel why wouldn't a group of independent labels create their own online channel and charge $5 a song for all I care? Because a competitive market will provide otherwise.


RE: About time!!
By wupta on 8/31/2007 12:54:27 PM , Rating: 1
It was inevitable that music would be on the web, Apple wasn't the first but it was the best at the time. The independents always signed with majors because they had $$$ to get them launched properly after the small companies like mine had developed them. It wasn't always profitable but is sure made you feel good to get music out there. You can feel entitled but so does the Artist as well as the companies behind them. The cost of production of hard goods isn't the major expense for companies that generally runs from a dollar to $.50 a unit over time. I am sure u don't care and thats fine. The future will show if I am wrong. I go to 7-11 for coffee which is $1.29 a 16oz a cup where I am.


RE: About time!!
By acer905 on 8/31/2007 12:29:49 PM , Rating: 2
I hate to sound like i don't care... but a cup of coffe costs more than a song because of the simple fact that its not as easy to pirate coffee. As the cost of music goes up, so will the piracy rate. And the sad truth is, for larger businesses its easier to put out products. And because of that, they can charge less, and get more.


RE: About time!!
By wupta on 8/31/2007 12:59:23 PM , Rating: 2
You are also correct unfortunately and this is why I will probably layoff the rest of my staff by next year move on. The larger business who were putting out songs were initially looking at their back catalog of music which was languishing and didn't think for a sec about the future. They figured why not put it on the web. We don't have to reprint it, ship it or warehouse it. We will just make money. They were greedy but ultimately stupid because once they had sold at .99 they couldn't go back and people got used to it at that price. That is why now they are not re-signing with Apple.


RE: About time!!
By SirLucius on 8/31/2007 1:29:29 PM , Rating: 2
Heh, the only way I see myself paying $3 for a song is if I can't find it anywhere else. That is to say, the band has to be really, really unique (a band like SikTh comes to mind.) Too many bands today are just generic drivel within their genre. I think that's part of why the music industry is in the state it's in. There's simply too much of the same. People are oversaturated with the same vocal styles, the same guitar riffs and melodies, the same drum rhythms -music as a commodity, not an art. I can't count how many shows I went to this past year with [insert generic metal/grindcore band here] as an opener. After a while they all start to sound the same, and people are less willing to shell out for them.

Actually, having indies labels charge $3 a song might be a good thing. Maybe then they'd look for really unique, innovative bands, since they know if they want to turn any kind of profit, they'd have to be promoting groups that I can't hear anywhere else.


RE: About time!!
By akugami on 8/31/2007 1:32:53 PM , Rating: 2
Considering that it costs the labels, indie or not, a one time production fee to record and produce the song and it costs Apple continual fees to host and provide the song I'm not exactly anti Apple over this.

Don't get me wrong, I'd love for the indies to make a larger amount of the music pie. Maybe we can get some better music going. I have not bought a CD in years though a few songs here and there over the years have been great, which I buy as a single. The fact is 99% of mainstream music simply bores the tears out of me. That's why most people are not buying CD's now. For the few songs they want, they just either illegally download or copy it from a friend or get it through a service like iTunes.

I'm not up to snuff on what costs are incurred by the people producing music but you'd have to rent studio time. Costs of music instruments and hiring any musicians needed to fill in spots that your normal band doesn't play. You can cut out mastering costs since you can keep lossless audio files of your music on a DVD and have a few backups for just in case. Considering technology today, most of the mastering costs and mixing can be done by your band or by the indie label.

This still costs a bundle but it's greatly reduced so that indies can survive. Unlike back in the day when it was almost required to be with a major label in order to produce good final copies of your music. I'm sure there are other costs involved but I would think that most of the costs I've brought up is the majority of what it costs to make a song. The main thing is that even if there are major costs I don't know about, they are almost all one time charges for the most part. So aside from admiistrative costs, once the song is done, it's done. That's how much it costs and that's that.

As for Apple, it costs them time and money to write the software that is Quicktime and iTunes that is required to get the iTunes Music Store running. It also costs money to update and maintain the iTunes store. Not to mention bandwidth costs that they pay out whether they sell a song or not. You might preview half a dozen songs before buying one. Apple has to pay the costs to provide demos of the songs whether you buy it or not. Then when you buy it, they have to pay for the bandwidth to upload the song to you as well.

If sales are bad at Apple, not only do they not make money, they will lose money due to their overhead. For indies, if their songs are not selling well, they may not make any money but they aren't going to go much deeper into the red since the majority of their costs are one time charges.

It's been speculated over and over that Apple makes roughly a nickle to a dime on each 99 cent song. I don't find that unreasonable though I do not know how much the major and indie labels make per song after costs are taken out.

Mom and Pop outfits (selling CD's) were not destroyed by Apple. Large chains such as Best Buys and Wal Mart destroyed them. Adding to the misery was the cheap cost of blank CD's and the proliferation of easy to access, though illegal, music on the internet. Factor in also the mass produced music that I and others find to be absolute donkey crap and you have drops in sales. It's a wonder and testament to the power of the major labels that music sales haven't dropped faster than this.

There is also the fact that if you are not happy with Apple's iTunes, take it and sell it on Real, Walmart, Microsoft or one of the other music stores. There is choice out there. Apple has decided they don't want music to sell for higher than $1, except for the DRM free ones which are $1.29. As a distributor that's their choice. There are other distributors if you are not happy with that pricing model. Or as others have said, make your own indie web store and sell it on your own website for $2 or $3.

I hope you are successful, I am playing devil's advocate to your points and at the same time, I genuinely don't feel that iTunes is destroying music. The record labels have been doing everything they can to drive away customers for years.