iTunes pricing spat with NBC seen as hurting Apple

NBC Universal's pullout from the iTunes online store is more of a loss for Apple and points to fierce resistance among media companies to potential Apple dominance of online video sales, an industry analyst said.

On Friday, Apple announced it won't sell NBC TV shows for the upcoming television season after NBC's decision not to renew its iTunes contract. Apple explained that NBC wanted to increase its wholesale price for each episode by so much that Apple would have had to charge $4.99 per episode instead of the current rate of $1.99 for all videos on the site. Apple wouldn't agree to that price change.

Shows from ABC, CBS, and News Corp.'s FOX and The CW, plus 50 cable networks, are available on iTunes for the flat rate.

The incident reflects how poorly the iTunes video store has done relative to the iTunes music store, said James McQuivey, an analyst with Forrester Research. "It shows how paltry and uninfluential the video side of the iTunes house is," he said. Few major music labels could similarly afford to pull out of iTunes, which dominates the online music industry.

iTunes does make up the bulk of the online video resale market, but the market is small. Because the segment is still budding, many of the media companies are resisting Apple's attempt to dominate the video market as it does the online music business, he said.

Forrester expects the online video resale business to generate about $300 million this year with iTunes taking in most of that. He estimates that NBC will bring in about $60 million from iTunes video sales this year.

The loss of that revenue would be "not that big of a cost if it helps them undermine Apple's monopoly aspirations in the video world," McQuivey said.

In the meantime, NBC is building a new platform for watching shows on its own Web site for free with paid advertising. NBC has already sold its online advertising inventory for the upcoming season, which represents revenue it won't have to share with Apple. Revenue from that service is likely to generate hundreds of millions of dollars in a few short years, McQuivey said.

The rift with NBC is more damaging to Apple than to NBC, he said, because Apple is pushing several video products, including the Apple TV, the iPhone, and video iPods.

While other big content providers are probably cheering NBC's decision, they're unlikely to follow suit, McQuivey said. They may, however, use the incident to continue to push Apple to allow variable pricing. So far, Apple has insisted on a flat rate for all videos. Media companies would prefer to be able to charge more for exclusives or season finales, he said.