99-Cent TV Episodes on iTunes? Networks Aren't Buying -- Yet

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Apple (AAPL) hopes to sell network TV shows through iTunes for 99 cents -- half of what most of them sell for now. Apple's argument to media companies is that what they lose in price, they'll pick up in volume. The New York Timesreports that the new pricing model has been met with skepticism, and the networks say they're concerned that a special deal with Apple would hurt their relationships with other partners. "They are equally wary of harming their far more lucrative deals with affiliates and cable distributors, who may feel threatened by online storefronts like Apple's and those operated by Amazon, Microsoft and Sony," the newspaper writes.CBS (CBS) CEO Leslie Moonves has already announced that his network will test the 99-cent program, though other sources inside the company have since suggested that he was speaking speculatively and said there was no firm deal with Apple yet. Meanwhile, the network's peers might not follow CBS's alleged lead for a number of reasons. The most obvious is that the Apple plan could cannibalize their other revenue streams. But the more important issue could be a matter of leverage.

Apple virtually controls the market for music downloads with iTunes, which allows it to control pricing to a large extent. Music publishers have lost most of their leverage with Apple because it can threaten to cut off iTunes distribution of a label's songs. And even if Apple is selling those songs for less than publishers and artists would like, with iTunes approaching its 10 billionth song download, its market share is so large that losing it as a distributor would be too costly for a publisher. TV networks may want to avoid giving iTunes that level of leverage over them.

If the networks are unwilling to go where music publishers did, it's likely to hurt sales of the new iPad. Its screen, much larger than the iPod's or iPhone's, is an ideal medium for watching video, which TV networks and movie studios know. From a pricing perspective, at 99 cents a show, Steve Jobs may be setting a trap for them. If the networks let consumers get used to such a price, there'll be no going back.
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