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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: Article Edits
By JasonMick (blog) on 10/31/2007 9:38:35 AM , Rating: 2
The second one is being fixed.

Reread the first, what I meant was low cost to the consumer, but expensive (high end) hardware. Hardware like the XBOX 360 or PS3 is expensive and these companies take large losses to give their expensive hardware product to consumers at low cost, in hope of future profits.

Even the iDevices and Wii I would marginally categorize as expensive hardware at low cost, as they aren't making much profit past covering their shipping, advertising, retailing, and warehouse fees.


RE: Article Edits
By omnicronx on 10/31/2007 9:58:24 AM , Rating: 2
quote:
Even the iDevices and Wii I would marginally categorize as expensive hardware at low cost, as they aren't making much profit past covering their shipping, advertising, retailing, and warehouse fees.
I beg to differ, Apples high earnings in the past years have been solely due to ipod sales. The Wii is in the same boat, its a cashcow and they are surely making more than a few dollars more than it costs to ship/r&d/make. Itunes sales sure as hell have not been giving apple the profits that are coming in. Same with the low attach rate wii, most of Nintendo's profits must be coming from the Wii console(or DS) as the Wii has one of the worst console attach rates.


RE: Article Edits
By JasonMick (blog) on 10/31/2007 10:25:19 AM , Rating: 2
Agreed, but my point is that as far as hardware is concerned they are doing slightly better than breaking even with a small profit. Those small profits add up, but it is really the iTunes/Software/etc sales which make these products "Cash Cows", as they come at little cost to the hardware manufacture, but deliver a sizeable cut to them.

However, if hardware manufacturers had to pay cuts on their hardware to everyone who might place content on it (ie if every Wii sold gave a cut to EA, Activision...) it would force them to raise prices or go from profitable hardware to hardware that is sold at a loss.

Hardware sold at a loss, ie the XBOX 360 @ introduction is certainly valid, it is certainly an aggressively competitive business strategy. But not every company has the massive financial backing of Microsoft or Sony to "ride out the financial storm" until your software sales/media content sales catch up to your hardware losses.

Giving NBC a cut of iPod revenue would be a bad precedent and just plain would ruin Apple's profitability and just is incredibly preposterous from a business standpoint.


"If they're going to pirate somebody, we want it to be us rather than somebody else." -- Microsoft Business Group President Jeff Raikes

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