(This article originally appeared on ArtistsHouseMusic.org.)
NBC Universal President Jeff Zucker has a problem. The distribution method for media content is changing. It’s a topic that the music business has grappled with for nearly 10 years and one that NBC Universal and News Corp’s joint venture hulu.com aims to tackle head on.
Though it is an example from the TV business and not the music business, let’s look at how NBC Universal wants to tackle the problem of getting paid for intellectual property.
Interviewed at a benefit for Syracuse University’s Newhouse School by the New Yorker’s Ken Auletta, Zucker discussed why he walked away from NBC Universal’s current deal with iTunes, which expires in December. At issue is the cap imposed by Apple of pricing TV shows at $1.99.
According to Zucker, “We don’t want to replace the dollars we were making in the analog world with pennies on the digital side.”
NBC Universal had been in discussions to offer one of its shows at $2.99 on an experimental basis but according to Zucker, “We made that offer for months and they (Apple) said no.”
In response, NBC Universal asked for a cut of Apple’s hardware sales.
“Apple sold millions of dollars worth of hardware off the back of our content, and made a lot of money. They did not want to share in what they were making off the hardware or allow us to adjust pricing.”
Thus, hulu.com was born. I will take a closer look at hulu.com in a future column.
This has to be a tough position for Zucker to be in. Before the Internet and Tivo, the TV business wasn’t so bad. They had the market cornered on their own content and advertisers were more than happy to pay to be associated with it. Tivo and the Internet have tipped the balance in favor of the consumer. With Tivo, shows can be timeshifted and commericals can be skipped. With the Internet, everything you could possibly want is available at your favorite download spot. They have lost their distribution monopoly.
He does have a legitamite problem. He’s grappling with questions asked in the article “The Economy of Ideas” by John Perry Barlow in Wired magazine during the infancy of the modern Web in 1994.
“If our property can be infinitely reproduced and instantaneously distributed all over the planet without cost, without our knowledge, without its even leaving our possession, how can we protect it? How are we going to get paid for the work we do with our minds? And, if we can’t get paid, what will assure the continued creation and distribution of such work?”
Zucker’s current solution is to ask for a cut of iPod sales or to raise the price of a TV show on iTunes by 30%. This tactic might work short term but shows no vision of the future.
The irony is that Apple did essentially the same thing and got away with it. The NY Times reported on Sunday that AT&T pays Apple on average $18 a month for each iPhone activated on its network. That’s $432 over the course of the mandatory two year contract. In essence, Apple charges AT&T for the right to let its phone be used on AT&T’s network.
A case could be made that it makes just as much sense for NBC to charge a premium to Apple to allow its content to play on the iPod. But ultimately the argument falls down in the face of reality.
Apple sells a hardware product that presumably has brought new customers to AT&T. They are charging them for monthly access to their customers. It makes sense for AT&T to pay the money in order to keep the iPhone an AT&T exclusive. It’s a brand enhancement strategy and is a sexy incentive to move to AT&T.
NBC Universal makes TV shows. They also resell many of their shows on DVD. With hulu.com they will be giving their content away (to a point) while presumably also making it available for sale. However once downloaded, these shows will play on much more than iPods. They will play on computer screens, can be copied to DVD, and will play on all video enabled digital media players. Why should NBC Universal single out Apple for a licensing fee?
The problem for NBC Universal is that they sell what’s ultimately a commodity. The Internet is chock full of content. One could argue that it is better suited for short YouTube clips rather than the traditional 30 minute TV shows. As one poster on Slashdot wrote in response to a story on hulu.com:
I think it’s really weird that Amazon.com, Hulu, Netflix, and so many others think that I watch television on my computer. I don’t. I watch television on… well, I watch it on my television.
Now, I know, some of you have fancy media PCs set up so that you can watch television on your computer on your television, and if you do, congratulations, sounds like you’ve got a nice setup. But the vast majority of people don’t.
A while back, I bought one of the AppleTV boxes. Know why? So that I can watch television on my television, not on my computer. So now, I buy shows from iTunes. I’ve also been known to rent a movie or two on my Xbox 360, which is also hooked up to… well, you already know what it’s hooked up to, right?
So to NBC, and to anyone else who wants me to watch their stuff, unless it’s short clips that are posted on sites like YouTube, it doesn’t matter how great the quality your programming is, it doesn’t matter how simple it is to download and watch it on my computer. If you can’t give me a relatively simple way to watch it on my television, I’m not going to be watching it. Period, end of story.
At the end of the day, Apple argued from a position of strength. They had a unique product with a big ‘wow’ factor that made economic sense for AT&T to lock up with an exclusivity agreement. NBC Universal in asking for price control or a slice of iPod sales argues from a position of weakness. They are supplying a commodity that is already available in other venues, chief among them TV – the place where consumers want to watch their TV shows in the first place.
Zucker would do well to read “The Economy of Ideas”. Written back in 1994 the author, John Perry Barlow, closes with a few ideas on the future of intellectual property protection. Among them are:
- In the absence of the old containers, almost everything we think we know about intellectual property is wrong. We’re going to have to unlearn it. We’re going to have to look at information as though we’d never seen the stuff before.
- The protections that we will develop will rely far more on ethics and technology than on law.
- The economy of the future will be based on relationship rather than possession. It will be continuous rather than sequential.
Let’s hope that the media conglomerate elite – men like Jeff Zucker – come to have a deeper understanding of intellectual property pricing than how to transition TV revenues to the Internet while retaining as much value as possible. The titans of traditional media content seem to have trouble grasping the fundamental way in which the Internet undermines their business model. No longer can it be a game of content protection and artifical valuation through controlling distribution. Now they must provide a product people want in ways they are willing to pay for. The value will be in the service of providing the content.
Content providers – TV, movie, and music companies must go from behaving like the bottled water industry where products are available in certain sizes at corresponding prices to the municipal water service where content is available in quanity and on demand. The way to create value and eliminate the average user’s need for pirated material is to make sure content is available in a ubiquitous manner.