NBC Universal vs. Apple: Why can’t they just get along?
In the corporate world, it’s usually bad strategy for a CEO to pick fights with other large companies. It makes that CEO look petty and desperate. Worse, it makes any issues between the companies harder to resolve, leaving everyone a loser.
Which is why I’m still scratching my head over NBC Universal CEO Jeff Zucker’s incendiary remarks about Apple and the iTunes Store he uttered on Monday.
First Zucker said that NBC wanted to “experiment” by charging $2.99 for a hit show rather than Apple’s standard $1.99. “We made that offer for months and they [Apple] said no,” Zucker told the New Yorker’s Ken Auletta at a benefit for Syracuse University’s Newhouse School.
OK, fine, we already knew NBC U resented Apple’s ironclad rules on pricing. But then Zucker dropped his bomb: “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.”
Zucker actually asked Apple for a cut of iPod sales, which explains Apple’s unusually harsh public response when negotiations broke down in August. (Apple announced it would not sell new NBC shows the day after NBC U said it would not renew their contract in December.) NBC U apparently was inspired by last year’s Zune deal: Microsoft shares $1 with Universal for each Zune sold.
Zucker had to know how much such a request would infuriate Steve Jobs. It’s clear now that he wanted a public war with Apple. But what did Zucker hope to achieve?
He had to know that Apple would not bow to the pressure and suddenly cave to his demands. Judging from NBC U’s maneuvers over the past six months or so, it appears Zucker’s goal is to rally all the other content providers – both of music and video – to abandon the iTunes Store.
Universal has led the way in promoting alternatives to iTunes. Over the summer Universal announced that it would start selling DRM-free music at just about every other music retail download site except iTunes.
This week it launched the beta phase of Hulu.com, a Web site that will offer ad-embedded NBC shows for free. While Hulu will appeal to some users, the content will be tied to the user’s PC. You won’t be able to watch it on your TV or download it to your iPod. Anyone who prefers the iTunes way of paying for the download to watch it where they want it is out of luck.
You’d think NBC U would want as many types of distribution as possible. Cutting off iTunes to spite Apple will have the undesired side effect of angering a lot of fans of NBC U programs. It’s bad business.
The situation reminds me a bit of the struggle between Pixar Animation Studios and Disney a few years ago, which was more a war of wills between then-Pixar CEO Steve Jobs and then-Disney CEO Michael Eisner. Pixar needed Disney’s distribution system and Disney needed Pixar’s box office successes. That conflict was only resolved because Eisner resigned, and was replaced by Robert Iger. Jobs got along so well with the new Disney chief that he elected to sell Pixar to Disney outright.
Apple won’t be buying NBC Universal or vice versa, but the principal is similar: feuding with a partner with whom you have a mutually beneficial relationship is costly and stupid. The longer the battle goes on, the more both companies stand to lose, financially and in terms of public opinion. Customers care less about who’s right than having a system that serves their needs.
Jeff Zucker thinks he’s working in the interest of NBC U and for that matter, the entire entertainment industry by fighting Apple. Somehow he’s forgotten that the iTunes Store was the pioneer in offering legal paid music downloads, providing a legal alternative to the rampant peer-to-peer file sharing that was undermining their business model. The contribution of the iTunes Store to the video world has not been as dramatic, but even NBC credited the support of fans using iTunes with saving “The Office” from early cancellation.
True, Steve Jobs isn’t the easiest CEO to deal with, but others have shown it can be done. If Zucker wants to show us leadership worthy of a CEO, he’ll try treating Apple as an ally rather than an enemy.

Comments
"You’d think NBC U would want as many types of distribution as possible."
You'd think so, too, but nope.
Personal opinion, the reason NBC/Universal doesn't want their stuff on iTunes is they don't want the competition with their own stuff. For example, NBC/Universal wants to see if people would buy NBC programming for $2.99 versus $1.99. It wouldn't be that effective a test if Apple were still selling NBC programming for $1.99, now would it?
As I've said before, I like to see NBC/Universal in control of their own content. If this was some indie band running their own website and selling their own content, we'd be cheering them on. Why should it make a difference if it's a large corporation?
Now, will they make as much money as they do from iTunes? That's the 15 million dollar question.
Posted by: Peter | November 1, 2007 6:47 PM
Spot On, I couldn't agree more!
Posted by: Kent | November 1, 2007 7:13 PM
You're absolutely right, if it was just a dispute on pricing, hey, Apple doesn't want to raise prices, Zucker does - fine, they can part ... but as you point out, Zucker just can't shut up ...
So, let's ask Zucker this. Isn't NBC using OUR airwaves? Where's our cut?
(Technically - it should also be poimnted you actually don't need an ipod to view the shows, just itunes so Zucker wants a cut of Pc sales also? What about TV manufacturers, those sets that sell for $6k are worth much more than a $200 iPod).
Apple is also a great partner because Apple could've used its ipod leverage to get exclusives (OR RAISE PRICES) but instead did not ask NBC to exclusive anything other than ipod/itunes distribution - NBC has every other venue including DVD sales, & launching hulu and using nbc.com, amazon, etc ... but instead of just launching new ventures, Zucker not only has to walk away from $15 million in revenue (or 7.5 million purchases) to launch a new business BUT also to pick a fight with Apple ... as you point out, how dumb is it to try and match corporate wits with Steve Jobs.
Posted by: jbelkin | November 1, 2007 8:55 PM
The irony of Zucker's comments is that $15M in revenues is about 10M shows, at wholesale prices. Apple sold about 50M iPods last year, that's less than 1 in 5 iPods with a single NBC show on them, assuming even that all the sales were to new iPod owners. If we apply the sales to the whole iPod universe, then that's less than 1 NBC show per 11 iPods. In other words, Zucker's comment that iPods were sold on the back of NBC's content is nuts! They don't sell enough content to make a difference in iPod sales. If anything, the sales show that tv shows should be CHEAPER!
Posted by: KenC | November 1, 2007 11:00 PM
Plase don't use the current catch phrase "Spot On". It sickens me, much as "synergy", last year's moron catchall word for nothing did.
Posted by: Bob Clampett | November 2, 2007 12:34 AM
On my planet, TV Set manufacturers pay content owners $5 per set because they are selling TVs on the backs of the content owners. We call this $5 fee "the reach around".
Other than that, our planets are very similar. It is good to hear that Zucker arrived on Earth safely and is doing so well.
Posted by: Marcos El Malo | November 2, 2007 3:31 AM
You didn't mention the Zucker line where he said something to the extent, "Apple destroyed the music business." Really those words came out of his mouth...You know those what 3-4 billion songs that have been sold to date...yep they really destroyed the music business...
I really hope that other execs don't latch on to his nonsense and break apart a good thing going.
"Spot On" isn't too bad...I can't stand "Think Outside The Box" It makes me want to slap the person that says it...
Posted by: Bill | November 2, 2007 8:24 AM
$2.99? There's a Zucker born every minute.
Posted by: Partners in Grime | November 3, 2007 6:04 PM