The rift, which encompasses all NBCU news, sports and entertainment programming, means Apple may no longer offer the network's videos on the online store after the current contract expires in December. Apple said it decided not to offer the network's new shows in September, in order to avoid disappointing iTunes customers by having to pull the shows mid-season.
"We are disappointed to see NBC leave iTunes because we would not agree to their dramatic price increase," Eddy Cue, Apple's vice president of iTunes, said in a statement. "We hope they will change their minds and offer their TV shows to the tens of millions of iTunes customers."
The dramatic increase was a doubling of the wholesale price Apple pays for each NBC TV episode. That would have resulted in iTunes customers paying $4.99 per episode instead of the current $1.99. Agreeing to such an increase would have placed Apple in an awkward position with ABC, CBS, Fox, The CW, and more than 50 cable networks that have agreed to sell their TV shows from the upcoming season at the lower price.
Apple is sure to feel the loss of NBC Universal, which provided three of iTunes' 10 best selling TV shows last season, according to Apple. Those shows accounted for 30% of iTunes' TV show sales. The New York Times, which was the first to report the NBCU-Apple troubles, said NBC Universal, which is part of General Electric, accounts for 40% of digital video downloads on the Apple online store. Among NBCU's popular shows on iTunes is "Battlestar Galactica," "Heroes," and "The Office."
NBC is not the first major iTunes supplier to bang heads with Apple over pricing. Universal Music Group, owned by Vivendi, refused to renew its contract with Apple in July, saying it would sell music on iTunes at will. This gives Universal the option of removing songs from the store on short notice.
Allen Weiner, analyst for Gartner, said on his blog that the latest rift should be a wake-up call for Apple. "Apple must face the fact that charging flat rates for television programs of varying lengths and vintage will not resonate with an industry for which advertising is its lifeblood," he said. "This is especially true with the number of competitors who are streaming the same programs for free with ads."
Weiner believes that Apple will eventually join Google in a partnership in which the search engine giant would insert and track ads in iTunes TV content. To Weiner, such a deal is "sensible and inevitable." Google is currently testing such a system on its YouTube video site.
Besides the rift over price, the relationship between NBC Universal and Apple is further complicated by the online joint venture between NBCU and News Corp. called Hulu. Scheduled to launch in the fall, the collaboration is the result of $1 billion in equity investments, so any outside deals for content will be examined closely, Weiner said. Confusing matters further are the ad-supported streams and downloads of programming NBCU and News Corp., which owns the Fox network, offer on their own Web sites, as well as with partners such as AOL.