NBC U says iTunes revenues meager

NBC Universal topper Jeff Zucker warned Monday that new digital business models are turning media revenues “from dollars into pennies” and revealed that NBC U booked just $15 million in revenue during the last year of its deal with Apple’s iTunes.

Interviewed by the New Yorker’s Ken Auletta at a benefit for Syracuse U.’s Newhouse School, Zucker described the impasse that led to NBC U’s decision not to renew its current iTunes deal, which expires in December.

NBC U wanted to explore higher pricing for hit shows such as “Heroes” by raising the price from Apple’s standard $1.99 to $2.99 on an experimental basis.

“We wanted to take one show, it didn’t matter which one it was, and experiment and sell it for $2.99,” he said. “We made that offer for months and they said no.”

In lieu of more flexibility on pricing, NBC U sought 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,” Zucker said. “They did not want to share in what they were making off the hardware or allow us to adjust pricing.”

NBC Universal programming accounted for 40% of iTunes’ video sales. Zucker used iTunes as an example of the kind of digital business model that, he asserted, is corrosive to the media business.

“We don’t want to replace the dollars we were making in the analog world with pennies on the digital side,” he said.

Apple did not return calls for comment.

Zucker’s comments came on the day of the beta launch of Hulu.com, NBC U and News Corp.’s joint venture that aims to compete with iTunes for whatever online demand exists for studio-produced TV and films online.

Auletta pressed Zucker on Hulu.com, pointing out that user-generated clips and shortform programming — not necessarily full-length episodes of TV shows — had taken off on the Web.

Zucker argued that the 50 million streams of TV shows that had been accessed on NBC.com during the month of October prove there is a demand for traditional TV series on the Web.

“It’s extraordinary,” he said of NBC.com. “It’s like a small cable channel in our universe that is becoming very successful.”

Zucker took on a wide range of questions from Auletta and the audience, including whether NBC U would be spun off from GE and what he thinks of the newly launched Fox Business Network.

On the potential spinoff, Zucker chalked up the talk as fashionable in media circles but with no basis in reality. “If it made sense for GE to sell NBC U, I would be all for it; I’m a major shareholder,” he said. “The fact is we have had a very good year, and a lot of those whispers have quieted down.”

Zucker said he had given CNBC’s new competitor, Fox Business Network, a look and that he liked what he saw.

“CNBC is a very serious-minded financial news network, and what we’ve seen thus far from Fox appears to be not as investment-focused or financially focused, and that’s good for us,” he said. “From a performance standpoint, it has had no impact (on ratings) over the last few weeks.”

Like News Corp., Zucker said NBC U had looked at a potential Dow Jones acquisition at least four times over the last decade and examined it again during Rupert Murdoch’s latest bid.

“The fact is at that price it makes absolutely no economic sense for anybody but Rupert,” he said.

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