Saturday, September 01, 2007

Apple and NBC Disagree on Pricing

The New York Times reports that Apple and NBC disagree over pricing of NBC’s video content on the iTunes site. Apple prices all TV shows at the flat rate of $1.99; NBC wants more popular shows to sell for more and to be able to offer promotional prices.

Such disagreements are not surprising. Both firms have monopoly power, so both want to make a monopoly profit. Of course, from one firm’s perspective, a monopoly profit by the other firm is equivalent to a tax that reduces sales and revenues.

Right now, there is a standoff, with Apple not offering any new shows from NBC. Negotiations are supposedly continuing. Who wins will suggest to me just how important the iTunes site is to the content providers.

The other interesting observation is how little Apple uses promotional pricing. I am thinking of buying a new Mac, and there is really little reason to hope for a “back to school” sale – well, I guess they offered an iPod to college kids this year, but generally you might as well not look forward to any big sales by Apple. Interesting pricing strategy -- and of course there is also the uniform 99 cent per-song price that has also been criticized by some copyright owners. Why not adjust price on the basis of demand for a song? Thoughts, anyone?

1 comment:

Anonymous said...

1) I am not sure how I follow that NBC has a monopoly--I read nearly every day that media is more and more cutthroat. Do you mean to say that their rights to certain top shows are exclusive? I believe the two are's a content issue vs. an industry-landscape issue. Maybe I misunderstand?

2) I agree tha Apple's pricing is interesting...and yet, due to superior design of their consumer electronics (not to mention proprietary features that "lock" you into the Apple system, like AAC coding on songs, which makes them only compatible with iPods, for instance) people keep buying them--they seem somewhat price insensitive. It was interesting that the market lopped Apple's shares today a substantial 5% due to the iPhone's lower selling price. From having taken your class, I would make the case that Jobs is going for a price-volume tradeoff--the market didn't interpret it as such.

As to your query on demand-based pricing per song on iTunes, I am not sure I would pay MORE than 99 cents for a popular song, but I surely would be more willing to try a lesser-known artist out for less than 99 cents a song. But that reminds me of the downward spiral "guess the lowest average between one and one hundred" game theory game we played--a race to cheaper-priced songs is probably not one that Apple wants to start. In that case, I am quite sure that Apple would rather have steady revenue at 99 cents/song than uncertain, increased sales figures for less per song.

Enjoy the start of school. Just think, a whole new crop of folks to perplex!