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Apple-NBCU Revisited: $4.99 Would Be Exception — Not Rule; Amazon Launched In August

Apple (NSDQ: AAPL) scored a lot of points when NBCU’s (NYSE: GE) non-renewal notice went public by issuing a statement claiming the network wanted to raise wholesale costs to the point where video would run $4.99. Not entirely true, according to a source familiar with the negotiations: some episodes in demand could run $4.99 or $3.99 but Apple left out the part about the average episode cost being projected to stay about the same. (Also, the part about being able to sell the shows for any price, including as loss leaders.) That would be accomplished, in part, by NBCU selling much of the content at the current price and deeper library content for lower rates. Of course, NBCU technically only has an actual say in the wholesale price; it’s up to the retailer to set the retail rates. The source said NBCU argues that the current 70-30 split for fixed-rate sale allows Apple to dictate both the wholesale and the retail price in effect.

NBCU also wants flexibility in packaging — the ability to sell a batch of episodes across several shows featuring the same actor or The Office and 40-Year-Old Virgin in the same package. If that sounds familiar, maybe you’ve been out shopping for DVDs lately, zigzagging between the bargain bins, the packages and the new releases. Online content likely would be less, since no packaged goods are involved, or similar, but would not be more expensive than the DVDs of the same shows or movies, despite some musing to the contrary based on the Apple statement. NBCU has been able to zig with Apple to a small extent by packaging 20 episodes at a time of sudser Days of Our Lives for $9.99, about $0.50 an episode.

NBCU may be the first to go public on the video side but its not the only media conglom questioning the system. Disney, where Apple CEO Steve Jobs is on the board, is already on board with its renewal but expect others to rumble as their renewal turns come up.

Negotiations: The source familiar with the negotiations said it was a mistake to see the notice of non-renewal last week as anything but a legality. Without the 90-day notice, the contract would have renewed automatically. Negotiations are ongoing, the source stressed. (From the outside, it’s hard to see how either side will compromise on this one but we’ve been surprised before.) NBCU shows represent anywhere from 30-40 percent of iTune video sales.

NBCU-Amazon: The two made official today what we mentioned Friday and what actually has been the case since at least late August (I almost downloaded Heroes the weekend of Aug. 24) — Amazon Unbox (NSDQ: AMZN) is an electronic sell through (EST) partner for NBCU. The initial pricing looks similar to the default industry standard set by Apple but I am told the deal includes the same variable pricing NBCU asked of Apple and wants from all of its EST partners as well as the packaging. Also, up to 30 percent off of full series. The deal includes everything currently on iTunes plus all the freshman shows and, eventually, the deeper library content. Also, as of September 10, Amazon Unbox users will be able to download the premieres of several new shows for free before they premiere on NBC. Release.

Ubiquity: True, the freshman shows won’t be available in the format needed for video iPods but NBCU is well on the road to ubiquity. Ad-supported streaming episodes are on NBC.com and should be available across the hulu distribution network — MSN, MySpace, Comcast, AOL, Yahoo, etc. — sometime this fall. Electronic sell through on Amazon now, coming on hulu and similar deals in the wings with others. There’s also the possibility of EST through NBC.com and I gather the network would be interested in ad-supported downloads.

NBCU-Xbox Live: For now, only one series (Studio 60, go figure) is being offered by NBCU through Xbox Live but look for a deal for much more, likely with an emphasis on HD programming.

A little history … NBCU and Apple announced their first iTunes video deal nearly two years ago just as I was interviewing EMI’s Eric Nicoli about, among other things, variable pricing. At the time, the labels were going great guns about pushing Apple for variable pricing on music. His take on the one-size-fits-all $1.99 video pricing: “It

2 Responses to “Apple-NBCU Revisited: $4.99 Would Be Exception — Not Rule; Amazon Launched In August”

  1. There will be one result for NBC off its decision: more piracy of its programs, esp on college campuses. Expect NBC video not to be worth much for at least a couple of years. Yahoo simply doesn't have the reach iTunes does.

  2. As an FYI, NBCU does not have the digital rights to Studio 60 (I believe WB does) but because the show is aired on the NBC station Xbox Live can say they have NBC programming. To my knowledge, NBCU and Xbox Live have no TV deal in place.