NBC implications for Apple

I’ve been watching the Apple vs. NBC war of words mostly with amusement. “Stick it to those mega corps that don’t get the new digital world!” I cheered when Apple issued a press release effectively flipping-off NBC for pushing them around on pricing. But now reality is syncing in a bit for me.

I read an article on Last 100 today surveying a bunch of sites selling video downloads. One common element is nearly all offer video downloads using Microsoft’s Media DRM. While Apple may think it’s playing hard ball with NBC, the NBC online video download business is so tiny compared with the rest of their revenue channels that ignoring Apple is not really dangerous for NBC at all. Switching costs are super cheap given we’re still in Internet video download infancy. And with other players getting into the market like Sony and Amazon, NBC certainly has other mega corp options. So, why should Apple care? They control most of the devices that can play video. Well, that’s a temporary lead and far from gauranteed.

Here’s one danger scenario. Jobs has stuck to keeping the Quicktime DRM closed. As new video services are spinning up, they all need DRM to sell major studios’ content. Most video download services, I imagine, are DMR neutral–they could care less what they use–only that any DRM works for a majority of their customers. If Apple licensed their DRM, every one of these new video sites would offer FairPlay in addition to Windows Media. These new companies would want to make sure they have full coverage over a majority of their customer base, many of whom today own Apple iPods. Full coverage guarantees that all Apple hardware can play most any video content available and kicks in a virtuous cycle of Apple hardware spurs more content which spurs more Apple hardware. Given Apple’s recent quarterly earnings, the sale of Macs are driving their latest revenue, not iPods. I would hate to see Apple hardware sales threatened by consumers getting the message that they can’t watch their favorite video content on Apple computers.

Apple has got great word of mouth going right now. I can’t tell you how many people I hear switching from PCs to Macs for two simple reasons, to: 1) avoid spyware and 2) avoid viruses. Beautiful industrial design and software are less of major reasons for switching based on my anecdotal observations. Just as quickly as the Apple over PC trend has started, Microsoft could fix their spyware and virus problems and own video downloads. If Windows isn’t a pain to use any longer and it is better supported from a digital download perspective, then Apple is in trouble again. The only safe haven is if video goes the same direction as digital music, DRM free. I highly doubt it though. The studio’s are a completely different beast than the labels. When it costs $200 million to produce movies like Spider-Man 3, studios aren’t going to provide that content copy protection free. Jobs is playing a dangerous game with keeping DRM proprietary to Apple.

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One Comment on “NBC implications for Apple”

  1. jfew says:

    While I agree Apple is ultimately making a mistake in not letting others license FairPlay, I can’t say I agree that NBC Universal has as strong a negotiating position as you suggest. The fact is that network television is becoming increasingly irrelevant, with dwindling viewership among the demographics most attractive to advertisers. I think even NBC would admit that there are a number of big-budget series that would not have survived past their first seasons without iTunes (i.e The Office, 30 Rock), precisely because it lured that elusive 18-49 demo back to watching in prime time, where they actually do continue to make money (for now) by selling eyeballs to advertisers. Video downloads are a marketing exercise to Big Media, not a profit center; for all the haggling over pricing, you can still watch the programs for free on nbc.com!
    There’s no risk of people being unable to watch their favorite video content when they resort to stealing it DRM-free, which is what’s going to happen when you shun the market leader in digital media distribution to protect a deprecated business model.
    PlaysForSure is accessible to a majority of users, but the services using it *combined* can’t approach Apple’s market share in digital media. Why? Because it’s a crappy user experience built with more concern for the Maginot Line around their intellectual property than serving customers’ needs (see the Amazon Unbox client’s resource-intensive rights management polling, or any of the lackluster PlaysForSure-compatible devices for dozens of examples).
    I won’t say that Apple’s lead is insurmountable, but their competition isn’t even close. I find it funny that on the same day that Sony says it will build yet another competing video download service, it shuts down its failed music download service. As if they learned from that experience.


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