Term Paper on "NBC Takes Programming Off Itunes"

Term Paper 5 pages (1883 words) Sources: 4 Style: MLA

[EXCERPT] . . . .

NBC Takes Programming off of Apple iTunes

Introduction

NBC's decision to discontinue its relationship with Apple regarding the

distribution of its popular television shows is symptomatic of the evolving

conflicts between content providers on the one hand and device

manufacturers on the other. NBC executives contend that Apple's

commoditization of the music industry will not happen to television

programs, as far as NBC is concerned (Rebecca Dana and Nick Wingfield, A3).

NBC also contends that Apple's approach to implementing privacy and

Digital Rights Management (DRM) are insufficient to protect the video

content that NBC until this month, have sold on the iTunes site. The most

divisive issue however between NBC and Apple are the pricing requirements

of the content provider, which Apple says would require them to charge

$4.99 per episode downloaded, up from $1.99 today (Joshua Chaffin (1), pg.

18). NBC's senior management asked Apple founder and CEO Steve Jobs for a

percentage of Apple iPod sales revenue attributable to video content, yet

Jobs refused. NBC has since been joined by other content providers who

increasingly see Apple as a commoditizer of their programming content. In

addition, the nascent approaches Apple uses for managing DRM has led NBC

and other content providers to question how protected their content is

online, and how safe from duplication and piracy. In December 2005, Apple

and NBC first signed their distribution agreement, and less than two years

later, NBC is now 30% of total iTunes television sales, netting the company

$15M a year in revenues (Knight Ridder News Service, 3, 4). Both NBC

specifically and content providers in general have invested in websites and

streaming video technologies to provide their programs online, either for a

fee or for free. NBCs' launch of NBC Direct and the much-hyped Hulu.com

are both cases in point. Where content providers initially considered

iTunes comparable to Amazon.com as the most ubiquitous and cost-effective

digital distribution channel, the pricing policies of Apple are driving

content providers away from what had initially been a very attractive

digital distribution channel.

Effects on Ratings and Popularity of NBC Shows

Admittedly the marketing buzz created for NBC's shows being on iTunes added

to the shows' collective perceptions of being popular. iTunes, with over

100 million songs downloaded and its ubiquitous music and video catalog

available in multiple languages, has become a force of an entire new form

of personal entertainment and fostered the development of personal MP3

players that now include the ability to also view videos. While iTunes

itself is not an integral part of how NBC builds brands for its television

shows and other forms of content, the customer segments iTunes sells to are

the most attractive, from an advertising standpoint, that NBC wants to

attract to its programs. These are the below 30 year old young

professionals who are show-loyal over simply channel surfing, which is

common in older viewers. NBC loses the potential to connect with this

critical customer demographic segment by discontinuing the Apple iTunes

relationship. NBC however is confident that their new initiatives

including NBC Direct and partnership with Hulu.com will be successful. The

net effect on NBCs' ratings and popularity will be minimal, yet the loss of

another channel of communication to a very important demographic segment

could partially impact NBCs' ability to charge more per minute of

commercial advertising time due to any potential drop in viewers from the

under-30 demographic segment.

NBC's Response to Apple's iTunes: NBC Direct

Looking to build marketing buzz regarding their online initiative, NBC has

been leaking limited but significant information to bloggers, key

influencers including financial and industry analysts and journalists to

promote the new service online. This strategy has been successful as

ironically screens and screen cams of NBC Direct are now on YouTube.com, a

barometer of how pervasive the buzz of this new initiative has been. NBC

Direct (http://www.nbc.com/Video/), now in beta testing, illustrates how

NBC is attempting to alleviate connectivity and integration issues quickly.

The majority of customer service calls and e-mails for iTunes regard how

to make the Apple-proprietary player work with other MP3 and MP4 files.

NC, with NBC Direct, appears to be taking on this challenge head-on and

creating icon-driven interfaces that indicate compatibility of the specific

web browser being used, if a compatible player is installed, and

instructions on how to download the content itself. NBC has also designed

the NBC Direct initiative to provide a critical element of customers'

feedback and ratings of specific programs. Customer referent systems are a

unique feature of the Amazon.com site, and NBC looks to increase the

popularity of programs through giving viewers both an opportunity to rate

programs, and also see, in aggregate, what the ratings are from other

viewers as well.

Unlike iTunes, which relies on a purchase-driven revenue model, NBC Direct

relies on an advertising model based on the commercials included in the

downloaded program content. NBC Direct does not allow the downloaded

programs to be burned onto DVDs or put into portable video recorders

including Apple iPods. Further, the beta version of the NBC Direct client

applications only runs on the Microsoft Windows-based systems that are

running Microsoft Internet Explorer. Unlike iTunes which runs on multiple

operating systems and in conjunction with Firefox and other Linux-based

open source browsers, NBC Direct requires all major system components to be

Microsoft-based (Knight Ridder News Service, pgs, 3, 4). In addition, the

programs are available for seven days from the date they are originally

broadcast. In addition to all these differences to iTunes, there is also

the lack of scalability testing that has occurred on the NBC Direct website

versus the intensive daily workloads on Apple's iTunes store application

software and supporting websites. All other aspects being equal, iTunes

will be proven over time to have a higher level of reliability, based

purely on the accumulated testing and workloads placed on the application

and supporting websites. NBC also has invested in Hulu.com, a video sharing

and digital content distribution website other content producers also are

participating in. Currently in beta, Hulu.com is focused on replacing

YouTube.com, relying on syndicated content and a variety of advertising-

and purchased-based business models to fund its development. From these

developments it is clear that NBC has considered iTunes to be a strategic

weakness for some time, and one that could potentially force their premium

digital content into commoditization. NBC President and CEO Jeff Zucker has

remarked that the two major concerns of a lack of adequate piracy controls

using advanced DRM technology, and the lack of flexibility on pricing left

NBC with no choice but to exit the Apple partnership (Joshua Chaffin (2),

et. al.). Apple's iTunes business model is driven by transactions and

customer loyalty. For NBC, their most successful business models have as

their basis advertising revenue. In a sense it was inevitable for NBC to

consider its own digital forms of content distribution to protect its

programming and also look for content distribution approaches that

capitalize on their core strength of advertising revenue-based business

models.

Boosting Ratings with Digital Content

NBC executives have realized that consumer-generated media including

blogging and viral marketing including the use of video online is critical

to their ability to sustain viewers and grow audiences for shows. For NBC

to be successful with its own online initiatives of NBC Online and Hulu.com

in retaining fans and keeping them interested, in addition to boosting

ratings, the company needs to create entirely new approaches for fans to be

entertained with their content.

NBC needs to consider the following strategies to keep fans engaged and

also boost ratings. First, NBC could have Steve Carell and other popular

stars write blogs during the season, discussing the behind-the-season

antics, practical jokes and everyday life in putting together "The Office"

shows, in addition to commenting on how the shows' cast works through each

episode's script. Fans want to connect with the stars of their favorite

shows and see what their typical days are like, what is involved in getting

a new show done, and how the cast works together. NBC will eventually have

to bring blogging into the cast of its favorite shows to drive up the

interest on the part of existing fans and also attract new ones. Second,

NBC needs to consider having a mini-series format where certain segments

are delivered online, and other segments are broadcast. This multiple

delivery approach would give viewers opportunities to keep up with the

entire season over time, at their own convenience. This would require

advanced planning to have multiple episodes contribute to a single, more

complex story, in addition to allowing each individual episode to stay

active online for a longer period of time. Concepts of viral marketing

from The Tipping Point by Malcolm Gladwell specifically apply to this

strategy. Third, NBC needs to create an online panel and an Advisory

Council that reviews their current and proposed content, navigation,

structure, and messaging of the NBC Direct website to make sure the entire

initiative is staying relevant. The challenge… READ MORE

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