NBC to Offer Downloads of Its Shows
By BILL CARTER
NYT, September 20, 2007

I usually do not have two postings in one week, but this so closely aligns with our last discussion on content (NBC) and infrastructure (Apple) players in the struggle for control and pricing that I had to share it with you in a timely fashion. The key driver is influence over the relationship with the target customers, in this case young adults, in the context of an ever-changing market environment driven by technology.

NBC Universal said yesterday that it would soon permit consumers to download many of NBC’s most popular programs free to personal computers and other devices for one week immediately after their broadcasts. (free, but there are a few twists)

The service, which is set to start in November after a test period in October, comes less than three weeks after NBC Universal said it was pulling its programs out of the highly successful iTunes service of Apple Inc. That partnership fell apart because of a dispute over Apple’s iTunes pricing policies and what NBC executives said were concerns about lack of piracy protection. (the battle we just discussed in our last posting)

NBC’s move comes as companies throughout the television business search for new economic models in the face of enormous changes in the business. Networks continue to lose audience share, and viewers — especially many of the highly prized viewers under 30 years old — are increasingly demanding control of their program choices, insisting on being able to watch shows when, where and how they want. (the change and challenge facing the whole industry – a classic discontinuity)

At the same time viewers are finding more and more ways, like TiVo machines, to avoid watching the commercials that have long provided the bulk of television revenue.
Jeff Gaspin, the president of the NBC Universal Television Group, said, “The shift from programmer to consumer controlling program choices is the biggest change in the media business in the past 25 or 30 years.”

NBC makes many of its popular shows available online in streaming media, which means that fans can watch episodes on their computers. Under the new NBC service, called NBC Direct, consumers will be able to download, for no fee, NBC programs like “Heroes,” “The Office” and “The Tonight Show With Jay Leno” on the night that they are broadcast and keep them for seven days. They would also be able to subscribe to shows, guaranteeing delivery each week.
But the files, which would be downloaded overnight to home computers, would contain commercials that viewers would not be able to skip through (booo). And the file would not be transferable to a disk or to another computer.

The files would degrade after the seven-day period and be unwatchable (the twist). “Kind of like ‘Mission: Impossible,’ only I don’t think there would be any explosion and smoke,” Mr. Gaspin said.

The programs will initially be downloadable only to PCs with the Windows operating system, but NBC said it planned to make the service available to Mac computers and iPods later.
In a second phase of the NBC rollout, customers would pay a fee for downloads of episodes that they would then own, and the files would be transferable to other devices. NBC hopes to offer this service by mid-2008, depending on how quickly the company can put in place the secure software necessary to allow payment by credit card.(pretty cool!!)

The latter system is what is already available through iTunes.

Chris Crotty, an analyst for iSuppli, an independent firm that specializes in analysis of new electronic media, said of the NBC move, “I think it’s a stretch.” He argued that consumers have shown they are extremely happy with the iTunes service and that it would not be attractive to consumers to have to range far and wide over a number of services to find the programs they want to download.

“It’s not just a shift from a supermarket to a mom-and-pop story, it’s a shift to one store that only sells bread, another store that only sells dairy products. The consumers have decided they want to get their content from iTunes.”

(yet to be proven)
Mr. Crotty said NBC had come across to consumers as “highly greedy” in its dispute with Apple. Apple reported that NBC was insisting it raise the price of some downloads on NBC shows to $4.99 from the $1.99 iTunes charges for all programs.

NBC hotly denied that, saying that the disagreement was over what Mr. Gaspin termed the wholesale price that Apple was charging, not the retail price. NBC wanted a better wholesale price for its heavily downloaded shows, like “The Office,” the biggest seller on iTunes.
But, Mr. Gaspin said, “piracy was and is our No. 1 priority.” He said that the music industry had been devastated by the free exchange of music, much of it facilitated by iTunes.
Apple representatives did not respond to requests for comment last night.

Mr. Gaspin said that one important attraction of the NBC service was the option it would offer consumers to receive programs on a temporary basis free, but including commercials, as well as the choice to pay a fee for episodes without commercials and own the programs. (will this really create competitive separation from Apple-type systems or is it just a competitive “advantage” claimed by NBC but really is not desired by the consumer enough to impact their buying decision!!!)

NBC hopes to extract significant revenue both ways, though it is not estimating what kind of money the service may generate. Nor did NBC Universal project what the service would cost.
Mr. Gaspin noted that none of this meant that NBC was moving away from its traditional model of a nightly schedule of programs supported by advertising. He pointed to sales of television sets, driven by high-definition equipment, which are soaring to levels, he said, that surpass those of the biggest booms in color set sales.(another important trend)

"Our research shows that 83 per cent of the viewers would still rather watch on a TV than a PC," Mr. Gaspin said. But he acknowledged that the numbers were different for younger viewers, a trend stirring much of the concern about the business’s future. (the discontinuity)

"What we don’t know is if habits will change when people get to their 40s," Mr. Gaspin said.
But he added, "I don’t think anyone would argue with the idea that the customer is going to be in control."