We were already pretty sure that Apple and NBC fell out over the prices of TV shows on iTunes, but the head of NBC apparently asked Apple for a cut of iPod revenue as well.
I will say this: NBC's Jeff Zucker has got serious stones.
According to a report in the venerable entertainment industry trade rag Variety, Zucker, president and CEO of NBC Universal, asked Apple for a cut of iPod revenue as part of the failed negotiations between the two companies over a contract extension for the right to sell NBC's shows on iTunes. (Thanks, Valleywag.) If that's true, wow.
A source familiar with NBC Universal's negotiations confirmed that the company asked for a slice of iPod revenue but only after Apple refused to budge on variable pricing.
"Apple sold millions of dollars worth of hardware off the back of our content and made a lot of money," Zucker reportedly told The New Yorker's Ken Auletta during a benefit for former football powerhouse Syracuse University. "They did not want to share in what they were making off the hardware or allow us to adjust pricing."
The content industry has long had a beef with Apple's fixed pricing structure on iTunes. They would prefer to charge more for newer hit shows and less for older programs, but Apple CEO Steve Jobs has been firm on the $1.99 pricing for television shows on iTunes. Now, NBC and Zucker certainly have the right to decide what they want to charge for their content. And it's very early days for online video sales, so you can see how negotiations might have broken down over the pricing.
But seriously, you guys asked Apple for a cut of iPod revenue? Justifying it by claiming that they are making tons of money off your content?
I'm not even sure where to begin. First off, in earlier comments reported by Variety Zucker said that NBC took in only $15 million in revenue through iTunes during the last year of its deal. I'm not exactly sure when that began or ended, but in 2006 NBC Universal did $16 billion in revenue, according to parent company General Electric's annual report. So even if you tripled the amount of money NBC was taking in from iTunes sales a year, that would have only amounted to 0.3 percent of NBC Universal's revenue for the year. By comparison, NBC Universal's theme park business did $100 million in revenue.
So it's not like Apple screwed NBC out of all this revenue they would have otherwise been earning, although the network will get a chance to prove otherwise with the pending launch of its Hulu project and its own NBC Direct site. But that's not really the point.
How much revenue does Sony give NBC when it sells a television? How about Panasonic? Or Sharp? The idea that NBC thought Apple would agree to give them a share of iPod revenue is either the funniest or the most horrifying thing I've ever heard come out of the mouth of an high-profile executive like Zucker.
NBC may or may not need iTunes to distribute its content, and it will be interesting to see if it can build an online distribution model on its own. But does Apple really need NBC's content? I'm sure Apple would like to sell hit shows like Heroes or My Name is Earl on iTunes, but I can't imagine there's a network show good enough on television to justify Apple giving anyone a share of revenue from its crown jewel.
You have to have leverage to demand revenue from a prospective partner, like Apple did with AT&T over the iPhone. And that worked: the iPhone is AT&T's top-selling model, and brought hundreds of thousands of new customers to the carrier. Is Bionic Woman really going to bring thousands of new customers to iTunes?
I would have given anything to have been a fly on the wall when Zucker or one of his lieutenants made that pitch to Apple. Apple immediately retaliated after talks broke down, announcing plans to pull NBC's shows from iTunes before the contract between the two companies ended. They're still offering several shows, perhaps a signal that not all is lost, but I'll promise to watch an entire season of The Singing Bee if Zucker gets a cut of iPod revenue from Apple.
By the way, if you're going to start selling your own shows online, shouldn't you try to get a cut of PC sales from Hewlett-Packard and Dell, while you're at it?
CNET News.com's Greg Sandoval contributed to this report.