“Cheaper iTunes Just to Sell More iPods,” … And Cheaper DVD’s Sell More Tractors?

One of the arguments that get trotted out when Apple wants to maintain iTunes video/music pricing (or lower prices) is that all it will do is help Apple sell more iPods.

Um, so?

How is that different than DVD’s on sale for $3.99 or $5.99 every week at Circuit City & Best Buy … are those lowered wholesale and retail prices because of goodwill and generosity in the hearts of consumer electronic retailers and the movie studios?

Doesn’t selling a DVD movie at $3.99 previously priced at $12.99 or $24.99 just encourage people to buy DVD players?

That’s okay but iPods are not?

Okay, you could argue that people will buy different brand DVD players but what exactly is the problem with Apple selling more iPods versus Toshiba selling more DVD players?

The movie studios don’t get a cut from DVD player sales or iPod sales (as it should be) but it gives them a new avenue to make money. Is that really so scary?

Why is a “non-physical” digital format is so much more scary to them than a physical object they can hold in their hand?

What power does Apple really hold?

Sure, Apple is the leading purveyor of online, digital music & videos and the iPod is very popular but really, it means very little since you can buy an iPod and load it 100% with music, movies, etc. without making one purchase on the iTunes store. You can buy competing video players and mp3 players and avoid Apple, the iPod & iTunes in its entirety also.

Yes, Apple has sold 110 million iPods but there are 6 billion people on Earth.

So, what exactly is the problem?

If anything, a DVD essentially has an exclusive “hold” as THE take home movie entertainment physical format (VHS and the two new HD format discs have a tiny sliver) but Apple’s format is not even an exclusive – and the iPod will load video from lots of sources without you buying anything from iTunes.

If anything, the convenience in trade for $2 should ENCOURAGE people not to bother:

to record shows and convert them to load on their iPod;
to use a Bit Torrent site to download and load onto their iPods or:
to rent a season DVD to convert and transfer to their iPod …

But maybe that’s too logical?

I suppose for the uneducated, they might say Apple has a “monopoly” on the iPod but what exactly is a monopoly on something sold in millions of stores in another formats but ALL containing the EXACT same show (info)?

Is that like complaining OLD NAVY has a monopoly on shirts that are printed Old Navy?

Even though Apple holds the bulk market share of online video sales (a high market share is not immediately considered “illegal” or “a monopoly,”) to be a real monopolist – Apple must leverage that position for additional advantages which Apple has never done. Apple has never prevented anyone else from entering the online marketplace … Apple has never prevented a studio from offering the title elsewhere or link it to an agreement such as it can never release it on DVD. In fact, the studios should appreciate Apple’ ability to sell nearly everything on iTunes is sold only AFTER it’s been broadcast for “free!”

(free – of course, theoretically as most people paying for sat/cable).

Other than some older TV shows from 30-40 years ago, nothing Apple offers is even an exclusive – you can buy it or even rent it elsewhere online or offline.

So, what exactly is so scary about the iTunes format?

It has a little less stringent DRM (you can load it on several computers and unlimited iPods) but that’s hardly an open door policy. How many people willingly let others outside their immediate family have their login, password and access to their credit card or iTunes charge account? That is the only way a “stranger” can load that video file onto their iPod or computer.

NBCU and Universal Music proved you can cut off your revenue to spite your shareholders … but why? Because iTunes is a good retailer? That’s quite a crime there.

Because Apple will have too much power?

How can you lose power to Apple when there is no exclusive deal and Apple doesn’t even have pricing control?

Wal-mart even has pricing control over the studios. A DVD typically wholesale’s for around $12-$15 new – Wal-mart does not always price accordingly because with “normal” margins, it should retail for $19.99 or higher, in fact during the first week of release, you will often find DVD’s priced right at or slightly above wholesale costs to bring in foot traffic and hopefully sell shoppers other things … maybe even iPods … but that’s okay because they sell physical items?

I don’t hear NBCU complaining that Wal-mart controls 25% of DVD sales in the US and maybe they should cut them off also … or if Wal-mart is too big, what about Kmart or Costco?

And we all know that Target and Wal-mart were unhappy when the first iTunes video deals were signed and threatened to pull back on catalog ordering of Disney products – now, they never came out and said anything specific but by the tone and words of their quotes, it was clear what they meant. No one accused them of being monopolists?

But if Apple wants to lower prices or maintain them, somehow because it’s a digital only product – that’s somehow a crime against humanity? And poor, poor NBCU or Universal Music is a 4-year old orphan being kicked out of a children’s hospital because of no insurance?

NBCU can make any business decision they wishes to – even ones to cut off the revenue to spite their shareholders but you have to apply their pricing rationale to ALL their retailers and not just to this situation because Apple is not the only partner/retailer interested in selling more of … fill-in-the-blank.

Of course, Apple wants to sell more iPods – d’uh.

Wal-mart publicly admitted that DVD buyers spend more in their stores – but it’s fine to sell a DVD at a loss to bring in people to buy iPods but it’s not okay for Apple to use the same tactics on a digital product to sell more iPods? What kind of reasoning is that?

It seems safe to say if the price of a TV Show is lowered, NBCU & Apple would sell more copies of THE OFFICE digitally? How is that bad?

A digital download is currently priced about the cost per episode on DVD and of lower quality, without extras, with a more stringent DRM than what’s on DVD’s AND other factors in NBCU’s favor is that there’s no inventory to manufacturer AND it’s only for sale AFTER it airs

A savvy consumer in today’s world is faced with these options:

They can watch it in its original airing;
It might be available on demand;
They can watch it on the network website;
They can record it with a VCR or a DVD-R recorder;
They can record it on a Tivo, PVR or other HDD recorder;
They can download a torrent file (presumably illegally);
They can rent or watch it from another online source (Unbox, MovieLink, XBox, etc …)

Is adding iTunes to the list above that terrible of a crime or choice? Just because someone might buy another iPod? How exactly does that hurt NBCU?

Not to mention, you don’t really to buy an NBCU iTunes show to load it on an iPod or an Archos or a Sony PSP (just to cite some examples).

But yet, NBCU and others seem to want to apply special “Apple-only” penalties which makes no sense at all considering that one company managed to make a business out of digital entertainment.

Why not penalize Toy-R-Us since it’s the only real successful all-across America toy retailer? (KB has retrenched quite a bit) or should coffee bean sellers penalize Starbucks because they dwarf the next competitor?

Apple isn’t forcing you to buy an iPod – unlike other industries with massive consolidation so you really only have a few choices – Apple bought no competitors – do we go more than a few days before we read the phrase, ‘ipod killer?’ So clearly new competitors are coming onboard from all directions. Apple did not force any retailer not to sell a competitor nor does it even offer every feature the oddball freaks keep crying out for like subscription music or FM radio … leaving plenty of room for competitors.

Maybe it’s just hatred of Steve Jobs? At least that reason is more logical than claiming raising prices is what consumers want or that we want a GE lightbulb with our digital download for $4.99.

If the object they were selling was something in a museum and you prevented photography, then you control it 100% of the time – then people would have to come to you but a TV show (in particular NBC) is broadcast in HD for FREE (with an HD antenna in most metro areas and good reception) so that is the first consumer choice. They can record it on tape from sat/cable, record it to a TiVo.DVR.EyeTV – then convert with a couple buttons to mp4. They can download a torrent if they missed the show entirely. They can stream record it off NBC.com or presumably Hulu.com later this fall.

Then a company wants to offer a chance to sell it for $2 and thousands are willing to do it – is it then wise to turn that down to pick a more obscure and more difficult venue for consumers?

Why?

Even 5-7 years ago, you could argue people would make an effort to watch a show – now, look at the ratings for HOT shows that take a hiatus or holiday break like HEROES, PRISON BREAK or LOST – they lost up to 20% + percent of the audience. People who did NOT return because they thought it was yet another re-run or yet another Ryan Seacrest holiday special … so if the viewer has 6 “free” choices to watch a show after it airs, why not offer a 7th that is a reasonable $2 or less?

As noted, NBCU is free to make business decisions as they see fit – even if it appears to be a poor decision. They only have to answer to their stockholders but you can’t apply one standard to Apple and its interest to sell more iPods any differently than Wal mart wanting to sell more DVD players or Best Buy wanting you to impulse buy a digital camera by lowering prices on DVD’s.

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2 Comments

Filed under Advertising, Apple, Film, Financial, Marketing, Media, TV

2 responses to ““Cheaper iTunes Just to Sell More iPods,” … And Cheaper DVD’s Sell More Tractors?

  1. Exactly. Why can’t the whiners understand this?

  2. Remel

    Great article. What you said is exactly right.

    I’m sure in a few months we’ll see NBC coming back to Itunes.

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