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"So that's a 'No' on a cut of the iPod hardware sales? Well, I had to ask."  (Source: NBC)
New allegations emerge which indicate more possible causes for the NBC and Apple split.

The story of NBC and iTunes' breakup is well known to DailyTech regulars.  Back in August DailyTech first reported the split.  It then went on to cover Apple's decision to prematurely drop its contract with NBC, which would have last until year's end. 
The coverage included a blast at NBC in which Apple alleged that the split resulted from NBC's greed $4.99 per episode pricing demands.  NBC fired back, finding a new home at Amazon's new Unbox download service.

NBC previously stated that it wanted to be able to offer free pilot episodes, control the packaging of content and have more flexibility in pricing.  It also wanted additional protection from piracy.  It stated that Apple was unwilling to work with it on these issues.

Now new allegations have emerged, which may provide shocking testimony to NBC's audacity, if they are true.

NBC President Jeff Zucker, according to a report in Variety, allegedly shared with The New Yorker's Ken Auletta during a benefit for former football powerhouse Syracuse University that NBC had wanted a cut of every iPod Apple sold as part of NBC's negotiations to renew their contract. 

Zucker is quoted as saying, "Apple sold millions of dollars worth of hardware off the back of our content and made a lot of money.  They did not want to share in what they were making off the hardware or allow us to adjust pricing."

This revelation is being met with incredulity in the media industry.  After all, NBC was not alone in most of its complaints against Apple -- for example, iTunes’ fixed price of $1.99 per episode.  However, no other television network would dare make as audacious a demand as a cut of hardware revenues.

More surprising is how little money NBC was really making for Apple and itself.  In the first year of its contract Zucker is quoted as placing its iTunes revenue $15 million USD.  In comparison to the $16 billion USD in revenue that NBC Universal, this is only 0.3 percent of the company's total revenue.

It was noted that NBC Universal's theme park business did $100 million USD in revenue. On the other hand, this does mean that iTunes sold approximately 7.5 million NBC TV episodes.

It seems relatively obvious that such demands were the realm of fantasy.  Otherwise every television maker from Sony to LG would have to pay a slice to NBC, Fox and the other studios.  The “iDevices” would have to pay cuts to Fox, ABC and many more.  This is obviously an untenable business model, considering the drive for low cost expensive hardware that often is only slightly profitable at best.

Other networks such as FOX and ABC have not dared make such demands.

NBC has a chance to prove itself on its own with the new HULA service it is starting with FOX (coverage later today at DailyTech), its deal with Amazon Unbox and its NBC Direct service, reported about at DailyTech earlier this month.

However, until NBC shows a far larger business volume, its demands may appear undeniably like gold-digging of a hardware giant.



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RE: If Apple...
By Screwballl on 10/31/2007 9:28:56 AM , Rating: 3
so every single channel out there wants a $10 cut of every television sold or if it is HD then $20... so out of the 1000 channels out there, each TV would cost $12,000 (instead of $150-300) just to pay the $10,000 to the channels?
NBC has always been a greedy money hog to which there is nothing too small for them to try to profit off of.


RE: If Apple...
By omnicronx on 10/31/2007 9:51:58 AM , Rating: 1
Key word here: 'allegations', nothing has been proven. Knowing these two companies I don't trust a word from either of them.

And as for greedy; Apple lives in their own little world and are just as bad or worse than NBC. If they think they can sell songs for $1.99 forever and keep almost all the profits, they are kidding themselves. Kudos for apple for coming up with the Itunes idea in the first place, but if they don't start shelling out more cash, they could lose some big players in the industry. I still to this day do not understand why apple thinks it can tell the music industry what to do, when Apple doesn't actually own any of the music they are selling.

Regardless if these allegations are true and this is the real reason NBC left, Apple is eventually going to have to give others a cut, or suffer the consequences.


RE: If Apple...
By michael2k on 10/31/2007 10:17:54 AM , Rating: 4
You got that wrong.

Apple charges $0.99 per song, half what you allege.
Apple keeps $0.35 per song, which is not "almost all the profits". The labels get that charge at $0.64 per song. I hear the artists get $0.08 from the labels, as alleged at Downhillbattle:
http://www.downhillbattle.org/itunes/

So rethink your opinion here; if Apple shells out more cash, it means the labels are in the more dominant position, and nobody except the labels want that.

Apple already gives the majority (where 65 percent is greater than half) of the cut to the labels. What else do you think they should do?


RE: If Apple...
By Oregonian2 on 10/31/2007 2:28:31 PM , Rating: 2
The writer of a music piece gets a fixed percentage (single digit) but the music companies think they're getting ripped off and are working with the agency that sets the amount to get it reduced. The artists, if they didn't actually write the material, might get nothing after their expenses are deducted (I read a book on this: ugly unless you write the music).


RE: If Apple...
By mal1 on 10/31/2007 11:19:19 AM , Rating: 2
Apple didn't "come up" with the idea for iTunes any more than Steve jobs invented the personal computer.


"This week I got an iPhone. This weekend I got four chargers so I can keep it charged everywhere I go and a land line so I can actually make phone calls." -- Facebook CEO Mark Zuckerberg

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