The Breakup: NBC Wanted a Slice of iPod Revenue
October 31, 2007 8:52 AM
comment(s) - last by
"So that's a 'No' on a cut of the iPod hardware sales? Well, I had to ask."
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
regulars. Back in August
reported the split
. It then went on to cover Apple's decision to
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.
have emerged, which may provide shocking testimony to NBC's audacity, if they are true.
NBC President Jeff Zucker, according to a report in
, 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
), its deal with Amazon Unbox and its NBC Direct service,
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...
10/31/2007 2:17:02 PM
Actually that's a VERY good point (although I think some will disagree). NBC (or Apple) can negotiate for whatever they want, even if stupid or outrageous. Demanding a different 30 virgins every night (or perhaps 29 the second night, 28 the third...etc ) might not be legal, but they can ask for anything. Hopefully the stupid stuff will be pushed up their hose with a rubber nose -- but they can ask/demand and then not getting it, go their own way. Not significantly different than Walmart (or Sears back when they were all powerful) demanding their suppliers drop their prices yearly or get dropped. Some will say "bye-bye" and both lose. You can demand whatever you want (that's legal) in such a contract -- but one may also get nothing if demanding too much.
P.S. - I don't think Apple gets a slice of AT&T's profits. I think they get a slice of their revenue. If AT&T is losing money hand over fist, I suspect Apple will still get their $18/month per iPhone.
"My sex life is pretty good" -- Steve Jobs' random musings during the 2010 D8 conference
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