Analysis: What NBC’s return means for iTunes

It got lost in the shuffle of new iPods and a retooled iTunes announced at Apple’s iPod event last week, but NBC’s return to the iTunes Store could prove to be just as significant a development. The announcement not only ended a year-long stalemate between two corporate giants, it also expands the kinds of content available at the iTunes Store.

As part of its return to iTunes, NBC will offer high-definition versions of TV shows that air on its broadcast and cable networks, including The Office, Heroes, 30 Rock, and Battlestar Galactica, among others. As part of a promotion, the iTunes Store has made 12 high-definition episodes of NBC programming available as free downloads.

The high-definition shows will cost $2.99 per episode. Standard-definition versions of the same episodes will be available for $1.99. In addition, NBC will sell older programs such as The A-Team, Alfred Hitchcock Presents, Miami Vice, and others for 99 cents per episode.

That variable pricing could offer a clue was to why NBC’s programming is back in the iTunes Stores. Reportedly, a clash over pricing is why the network’s shows disappeared from iTunes for more than a year.

The dispute began in August 2007 when Apple announced it wouldn’t offer NBC shows on iTunes anymore well in advance of the December 2007 expiration for NBC’s iTunes contract. Media reports at the time suggested that NBC and Apple were clashing over pricing—NBC reportedly wanted to increase prices for more popular shows by raising the per-episode cost or bundling shows with other content while Apple as opposed to variable pricing.

Since leaving iTunes, NBC began selling its shows at Amazon. The network also launched NBC Direct, and started the Hulu video service with News Corp.

As public as the NBC-iTunes split may have appeared, neither company appears to have seen NBC’s 2007 departure as permanent. Eddy Cue, Apple’s vice president of Internet Services, told Macworld last week that Apple was happy to have NBC back, and others at the company noted that both parties remained in contact throughout the year-long dispute. In fact, by May, NBC offerings had reappeared on the UK version of iTunes.

Still, the fact that NBC returned to the iTunes Store with three tiers of pricing has some observers suggesting that the television network was able to get what it wanted out of Apple. “Nobody is gloating publicly about this,” said James McQuivey, principle analyst at Forrester Research. “But if you add up the complaints, it looks like NBC got their concerns addressed.”

That seemed to be NBC’s take on the issue. Talking to CNet, NBC president of digital distribution JB Perrette said that Apple realized that “having the best content and the widest breadth of content is more important than being too rigid.”

“It looks like Apple came back to NBC and they [NBC] got most of what they wanted,” Forrester’s McQuivey said. “It shows that iTunes has not dominated the video landscape as much as they have with music.”

Apple has dismissed that suggestion, with Cue noting elsewhere that special pricing packages are nothing new at iTunes. Indeed, Apple initially charged $1.29 for DRM-free music tracks as part of its iTunes Plus feature. (Those tracks now cost 99 cents, just like music with DRM.) iTunes also charges higher prices for new movie releases for both rentals and purchases.

What’s more, charging extra for HD content is standard practice for the iTunes Store. HD movie rentals—downloadable only through Apple TV set-top boxes—cost $1 more than their SD counterparts.

Given that Apple’s stance on pricing is not as rigid as it seems, NBC could have motivations for returning to iTunes. “The obvious thing is that iTunes is so dominant in the market that to not distribute through them is doing yourself damage,” said Van Baker, research vice president of retail and manufacturing for IT analysis firm Gartner. “There is just nobody challenging them [iTunes].”

That may be overstating things a bit. Video downloads at iTunes are a drop in the bucket compared to music sales (which have pushed iTunes to the position of top music retailer in the U.S., ahead of even retail giant Wal-Mart). Still, the iTunes Store enjoys enormous name recognition. With everyone from broadcast networks like ABC, CBS, and Fox to pay-cable operators like HBO and Showtime on board, NBC risked losing out to rival networks if it continued to remain out of iTunes.

“If you’re not in iTunes you’re missing the opportunity,” said Phil Leigh, president of Inside Digital Media.

Ultimately, though, the nuts and bolts of the NBC-Apple negotiations matter little to iTunes users. What does matter is the impact on available content at the iTunes Store. In that sense, users have come out ahead—there are more shows available in more formats and at different prices than there were before last week’s announcement.

”The fact we got HD shows at a higher price is good,” Baker said. “I don’t think that’s exactly what NBC wanted, but they did get a range of pricing. It was a compromise deal and enough of a compromise where both sides were happy with it.”

Updated at 7:30 a.m. PT to correct an editing error on the original price of iTunes Plus tracks.

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