Last week, Apple and NBC-Universal's relationship ended in a messy split. The usual he-said, she-said followed: Apple accused NBC of wanting to double prices on some TV shows; NBC said no, they just wanted to have some flexibility in pricing. There may have been another factor at work, however: Apple's desire to cut prices drastically on TV shows.
Sources close to the discussions between Apple and the networks told Variety that Apple wants to chop per-show prices in half from $1.99 to 99¢ each—the same price Apple charges for DRMed music. Unsurprisingly, Apple is meeting with a lot of resistance from the studios on the idea.
The iPod maker's argument is simple: lower the prices on TV shows, and you'll more than make up the difference in increased volumes. Left unsaid is how Apple believes 99¢ TV shows would help sales of iPods. With video content priced the same as music, Apple could use the cheap episodes to market the iPod as a way to stay on top of one's favorite shows, and inexpensively at that. Nate could finally catch up on That's So Raven for less than a price of the DVD.
DVD pricing is a big red flag for the studios, however. Take 30 Rock for example. The MSRP for the DVD set of the first season is $49.99, but you can find it for as little as $32.00. Under Apple's proposed pricing plan, fans of the show could grab the first season's 21 episodes for $20.79 (it costs $41.79 at $1.99 per episode). DVD extras—along with the ability to play the discs on the device of your choosing—might be enough to convince some fans to pay extra for the DVD, but others will likely opt to go for the cheaper download option. With DVD sales still a major source of revenue for the studios, fears of cannibalization will be lurking in the background of any discussions over price reductions.
NBC has pointed out that lowered prices for content work primarily to Apple's benefit. "It is clear that Apple's retail pricing strategy for its iTunes service is designed to drive sales of Apple devices, at the expense of those who create the content that make these devices worth buying," said NBC Universal executive VP Cory Shields.
NBC has taken its ball and gone to Amazon, where its programming will be available, albeit with more stringent DRM and in a format incompatible with both the iPod and Mac OS X. NBC will get its much-desired variable pricing, though.
Apple's vision for cheaper content on iTunes is going to be a tough sell to the networks. Disney and its family of networks (e.g., ABC, ESPN) may prove especially amenable to Apple's proposals given that Apple CEO Steve Jobs has a seat on the board and Disney was the first studio to hop aboard the movie train at the iTunes Store. Should Disney go along, the presence of 99¢ episodes of Desperate Housewives alongside $1.99 episodes of CSI: Miami might be enough to spur some of the other networks to go along… or leave iTunes behind.