"This little NBC-iTunes spat is more about the desire for the networks to be able to set their own pricing for how they monetize their content," said Pam Zucker, exec VP-marketplace ignition, MediaVest USA.
When broadcast networks only had to worry about beaming their programming to someone's living room, figuring out how to make money off of it was relatively easy: Just sell some ads.
Today consumers face a tangled skein of viewing opportunities -- from downloading to web streaming to traditional TV watching -- each of which generates revenue for the networks in a different way. Broadcast networks have spent the last year or so casting about at each of these things in an experimental fashion -- but now they're ready to impose some financial discipline to these platforms.
Achieving a "balance of control" between the supplier of video and the distributor of it can be a thorny issue, said David Cohen, exec VP-U.S. director of digital communications for Interpublic Group's Universal McCann. At the same time, he added, "Online video distribution across a network of high-quality properties is the name of the game."
At the center of the Apple/NBCU breach, according to one person familiar with the situation, was NBC's desire for more flexibility when it comes to the wholesale price Apple paid for the network's programs. Some newer programs could command higher or lower price point, this person suggested, and it would be up to Apple whether it should raise the price it charges consumers in order to maintain its margins on the sale of downloaded programs.
After about 18 months of testing new models, networks are finding that downloading and streaming web video have the most potential, according to one TV-industry executive. But both offer challenges. While network streaming sites bring smaller audiences than TV and run fewer ads (often from a single marketer), the CPMs are extremely high, according to media buyers.
And there are other issues to be solved. "There is no good business model yet for how to structure the ads in a free broadband model," Ms. Zucker said. "People don't yet know how many ad breaks they should have, what kind of ad lengths are people willing to tolerate."
That's one of the reasons it's likely more networks will start to take control of the pricing for each platform. "What's incredibly important to us is connecting across all of the platforms and optimizing the revenue that we get for investing in any particular program," said George Kliavkoff, NBC Universal's chief digital officer.
One thing networks have in their favor is the fact that there's always another venue worth trying. NBC Universal said Tuesday, for example, that it would make programs including "The Office," "Heroes" and "30 Rock" available for download on Amazon Unbox, the Seattle online-retailer's digital-video-download service. Beginning Sept. 10, Amazon Unbox customers will also be able to download pilot episodes for NBC's newest fall programming, including "Bionic Woman," "Chuck" and "Life." That move came just as Apple announced it would not make NBC's new fall programs available on iTunes starting this month.
NBC is "hopeful that we can reach a resolution" with Apple "before the existing contract expires," said Cory Shields, exec VP-communications, NBC Universal, in a statement.
Meanwhile, NBC and Amazon Unbox are "offering customers a variety of content packages, including up to 30% off when purchasing full seasons" of NBC series, the two companies said.
More interesting, perhaps, is what programs aren't showing up for download or streaming, at least not right away. Producers and networks know that making too many of their new programs available to hordes of people too soon could hurt more traditional platforms -- including syndication and DVDs.
In an Aug. 31 statement, Apple said, "ABC, CBS, Fox and the CW, along with more than 50 cable networks, are signed up to sell TV shows from their upcoming season on iTunes at $1.99 per episode," and suggested NBC's demands would result in dramatic increases in the prices consumers paid for its TV programs. NBC executives stress that negotiations with Apple will continue.
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