Apple is mulling a plan to cut the price of TV show downloads in half — an idea that’s not going over too well in Hollywood.
According to three people familiar with the proposal, Apple has told networks and studios that it would like to slash the cost of most TV episodes sold via iTunes from the current $1.99 to just 99¢ — the same as what Apple charges for most music singles.
But entertainment companies don’t seem to be rushing to embrace the idea. Indeed, the half-price plan may have contributed to NBC’s decision last week not to renew its current deal with Apple (though if NBC had simply let its contract automatically renew, the current price of $1.99 would’ve stayed in place).
Previous reports on the Apple-NBC kerfuffle have focused on Apple’s claims that NBC wants to dramatically increase the price consumer pays for iTunes content (a charge NBC has denied, arguing it simply wants more pricing flexibility).
Apple’s argument to studios and nets has been that they will end up making more money from digital downloads under the new proposal. Company believes the volume of sales for TV shows will rise dramatically, offsetting the impact of the price cut.
Among the concerns is that at 99¢, iTunes downloads could impact sales of DVD boxed sets, an important revenue source for TV congloms.
Case in point: NBC Universal just released “Heroes” on DVD, with most retail outlets charging about $40 for the set of 23 episodes. If Apple had its way, the same set of episodes would cost less than $23, potentially making the DVD — despite its myriad bonus features — less appealing to consumers.
While many congloms believe digital distribution is the future for TV shows, retail sales of DVDs are of primary importance for now, along with protecting partnerships with giant DVD sellers such as Wal-Mart and Best Buy. Those retailers would likely scoff at selling DVD boxed sets at a price point significantly higher than what iTunes effectively charges.
Such pricing concerns echo the problems Apple has had recruiting movie studios to iTunes. Only Disney, in which Steve Jobs is the largest individual shareholder, has agree to sell new movies for $12.99 the same day they are released in homevideo. Others have balked at undercutting, and potentially angering, DVD retailers.
Despite those problems, Apple’s move to cut the price of TV shows indicates that it’s only getting more aggressive on video pricing.
Insiders at several networks and studios, all of whom spoke only on the condition that their companies not be identified, seemed skeptical about Apple’s price proposal — but not completely closed to negotiations.
Some believe that prices on library titles could easily be reduced to the 99¢ price Apple wants. They admit that it doesn’t make sense to charge the same amount for an episode of “The Brady Bunch” as for “Lost.”
But Apple has proved to be resistant to multiple price points for video downloads, preferring to keep things as simple as possible. At the same time, the computer giant has shown some flexibility, allowing nets to cut prices on full-season collections of shows. Indeed, last month, iTunes offered several NBC shows at reduced prices as part of a summer sale.
If cooler heads prevail, it seems possible Apple and the nets will come to a settlement in which shows are sold via tiered pricing, perhaps 99¢ for library titles, $1.99 for current hits and $2.99 for megahits or shows on premium cablers such as HBO or Showtime.
While big networks and studios seem to be scoffing at Apple’s proposal, some nets could welcome the idea. Cablers such as MTV or A&E may welcome the chance to sell their reality shows at a lower price, particularly since Apple would likely reward them with greater promotion on iTunes.
And some industry observers believe ABC — which has already extended its deal with Apple — may also be open to the idea of charging less for shows. Disney was the first conglom to join iTunes, and Jobs is on the Disney board.
An Apple spokesman declined to comment on the company’s move to the cut the price of TV show downloads, pointing only to a previous statement that Apple wouldn’t agree to NBC’s request for a “dramatic price increase.”
(Ben Fritz contributed to this report.)