Apple's iTunes Chump Change for Hollywood

by: Andrea Chalupa October 19, 2008 | about stocks: AAPL / CBS / DIS / GE / NWS    

Andrea Chalupa

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It's Apple (AAPL) backlash time.

When Apple announced on Thursday that iTunes has sold 200 million TV shows over the last three years, the company clearly expected Hollywood and network executives to stand up and cheer. They didn't.

As Silicon Valley Insider pointed out, if most of those shows are sold at the fixed price of $1.99 a pop, then the networks and studios get $280 million from their 70 percent cut. That comes out to a shared pot of $93 million a year.

Compare that to the $11 billion in ad revenue that broadcasting racked up last quarter, according to the Television Bureau of Advertising. Or to NBC's $645 million in profit last quarter.

So it's no wonder Jeff Zucker fought Steve Jobs to raise the price of its shows. During his year-long public feud with Jobs, Zucker last October sniffed that his network only sees $15 million in sales from iTunes. And even after NBC U pulled its shows last fall, Jobs refused to budge from the fixed price system that's led the success of iTunes.

Finally early last month NBC put the shows back on. And now Apple is announcing, on Thursday, there will be a dollar price increase, but only for high-definition TV shows by four major networks -- NBC, Fox, ABC, and CBS.

Sure, these networks now are making a dollar more, which is a potential 50 percent increase, but only for their HD offerings. And even if all 200 million episodes were sold at this new price, the total for all four networks would only come to $598 million (average of $150 million each). For a $200 billion market cap company like GE, it's all just chump change.

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This article has 12 comments:

  •  
    Oct 19 06:01 AM
    Yup. Chump change today.

    Andrea,

    Can you fill us in on how Apple revenues compare to competing download or streaming generated revenues?

    These competitive numbers would be very interesting to consider.

    Thanks.
    Reply | Link to Comment
  •  
    Oct 19 08:46 AM
    isn't it great that in these times you can turn your nose up at $15m they should be so lucky. Wait until the credit squeeze really starts to hurt then let's see how they like it, cheap suckers
    Reply | Link to Comment
  •  
    Oct 19 09:14 AM
    Your article proudly exhibits your naivete and ignorance of market matters. Funny that. Sorry to say so but your words are the best testament to the hollowness of your arguments. TV in its traditional sense is finished. Record companies, in their traditional business formats are finished. DVD has seen its best days a long time ago and, oh shock, oh horror, Blu Ray got all dressed up to party only to find that the party's nearly over. If you want to write about such things, you should know all this, unless you have migrated to this topic from writing about the vibrancy of the Betamax market these days, or commenting on the ever-blossoming sales of film and film-based cameras.
    The point is, people have wised up and they don't want packaged media, they want to pick and mix what they watch, read and listen to. This is wonderful news for us ordinary folks whose money keeps all biz ticking over. It is a death knell for all media 'publicasters' who think that their exploitative business model will survive. When, as is already happening, TV, radio, mags and papers see their revenues tank, albeit slowly to begin with, they will holler and wail and rail at Apple and iTMS because life is just so unfair, boo hoo. Fools like Jeff Zucker, (now what does that rhyme with in his case?) who are still reeling drunk on the excesses of their old biz model, suddenly find that they have lost control and the damn consumers have somehow stopped being their doormat and taken charge of how they watch, listen and read. Only a truly desperate dolt like Zucker would suggest that Apple should pay NBC a royalty on every iPod sold. Why? Where does that entitlement come from? Apple is doing them and all the studios and all the record companies a huge favour by slightly extending their failing biz model. The point that they, and you, are missing is that any revenue they make from iTMS is a pure opportunity value. It came from Apple's innovations - they needed to make very little effort to achieve those added, windfall, profits. All they needed to do really was simply to sign wherever Steve Jobs told them to sign and then disappear and let Apple do what they themselves (i.e. the Zuckerati) never ever imagined could be done to generate sales with no traditional pressing, printing, sales and negligible distribution costs. Beautiful really. But these greedy (Z)uckers are never satisfied and for the usual 30 pieces of dollar, they can find talentless shills like you to do their pathetic bleating for them. You should be ashamed. Really.
    GE's market cap is an irrelevance. Market cap can evaporate overnight as many many companies are realising this month - GE and Apple included. These royalties are a windfall bonus to NBC and others, whose traditional channels of distribution, and profit models, are failing fast. Seen in this light, these revenues from Apple are a Godsend, an air supply to a drowning ingrate. You should know this and avoid making such a comprehensive fool of yourself, Portfolio.com and Conde Nast.
    Compare these royalties as additions to GE's net revenues and then let us hear what you have to say. If you want to know the difference between market cap and revenues, I will be happy to enlighten you but, in the meantime, why not write for a column on comparison grocery shopping or similar. It's much safer ground for your skill level and you may have something useful to say.
    I stand by what I said elsewhere, in another post against your shill nonsense:
    Your article is chump change in the world of journalism. Ad revenues are going to rapidly decline as broadcast tv loses its relevance to a world that is moving on to user-driven tv. In the future , the insidious cancer of advertising will be beaten down to acceptable, non-intrusive levels as users realise what a distraction it is from a program's entertainment value; how much it adds to the cost of everything they buy and how it pollutes the airwaves with noise. I fully expect that as TV and all news media gravitate to the web, software will become available to filter out the ads. I would pay up to $500 and $50 in annual subs and updates to buy such software if it was available. So, when you factor out the rapid decline of tv ad revenues and factor in the rapid growth in sales of anything that sells on iTunes, your views will change, you chump.
    Your article is entirely untrue in terms of biz model trends and so it is worthless. Find me any CEO anywhere on the planet who would say no to hundreds of millions in added revenue with no additional effort. then I might listen to you. Which planet are you on btw?
    Reply | Link to Comment
  •  
    Oct 19 01:11 PM
    "Chump change"? What should happen to an executive who turns down millions of dollars in pure profit? Distributing the programs via the iTunes Store probably costs the networks nothing or next to nothing. (At most, it requires them to convert the programs to downloadable format, which may take a few minutes per episode.) The revenue they get is, therefore, essentially pure profit or "net revenue," as chano wrote. If you're serious about being in business, you don't turn down sources of revenue, especially if they don't add to your costs.

    By the same logic, NBC, for example, shouldn't bother selling ads on a college bowl game, as that is just "chump change" compared to GE's market cap.
    Reply | Link to Comment
  •  
    Oct 19 01:24 PM
    Have to agree with chano...

    Hollywood is laughing like the music industry did - only to find iTunes as the number 1 retailer of their product. models created in the fifties have been lucky to survive as long as they have.

    Like Chano said, people can pick and choose now. There's so much media on the internet that's more interesting than what hollywood and the networks have to offer. I've dropped my DirecTV as they tried to make me pay for dozens of channels I didn't want with their inflexible packages. Instead of the extra fifteen bucks they tried to gouge out of me they now get zero Murphy dollars.

    I save a lot of money by buying only the content I want to watch.

    Chano was right about blu-ray too: for tons of consumers, even those interested in entertainment tech, video disc formats are on the wrong side of a diminishing returns curve. the improvement in picture quality just isn't enough to make people pay so much more. blu-ray for the set-top box doesn't entice me at all, I'm more than satisfied with dvd quality. Others crave higher and higher resolution - no argument there, but at today's price points MANY will ignore blu-ray.

    Zucker holding his job through all this only highlights the disarray of the networks. Look for him starring on a reality show some day soon.
    Reply | Link to Comment
  •  
    Oct 19 07:49 PM
    Totally agree with Chano. I quit satellite and cable TV four years ago and doubt if I'll ever go back.
    Reply | Link to Comment
  •  
    Oct 19 09:21 PM
    People are only beginning to buy video via iTunes, it's mostly for audio up to this point. Look at the growth rate. Zucker is an idiot, wanted an iPod tax, get real. Make a good show, sell it for $2 an episode to potentially millions of people, what are they whining about? I'm not going to buy it off of some stupid 'hulu' like site that won't work on the iPod or Apple TV, and I'm not buying it on plastic, either.
    Reply | Link to Comment
  •  
    Oct 19 10:14 PM
    The iPod tax was laughable. Like iPods weren't flying off the shelves before NBC had their shows on iTunes. Zucker actually said they sold all those iPods BECAUSE of their content.

    GM should pay a tax to Exxon. I would never buy a car if Exxon didn't have that great Exxon stuff to put inside it. Nice try Zucker.

    Outside of Thursday night I don't think I could name an NBC show. Oh wait, Law & Order. But that's it.
    Reply | Link to Comment
  •  
    Oct 20 12:19 AM
    "chump change"? it may be useful to see how does it affect to the bottom line (and not just top line).. and yes, have to agree that GE's market cap is irrelevant..
    Reply | Link to Comment
  •  
    Oct 20 09:06 AM
    This is a industry in transition and Mr. Jobs understands this. The movie industry must be patient to see the profits one the infrastructure and equipment is built to handle 'TV on Demand' or as 'you want it'. If they try to jam up the price too make big profits now, it will push internet download sales back. Me thinks this is what they want anyway, it's too hard to get this many people together to figure a real solution. Here again "greed" will prevail and we will watch this thing hobble along for years.
    Reply | Link to Comment
  •  
    Oct 21 02:56 AM
    Yet another moronic blog brought to you by the idiots at SA.
    Reply | Link to Comment
  •  
    Oct 23 09:01 PM
    Andrea Chalupa is an editorial assistant at Portfolio.com and writes about technology, green business, and entertainment and produces videos for the web.
    Prior to joining Condé Nast Portfolio, Andrea was a news reporter for The Portland Mercury in Oregon. She was a 2007 finalist for the Sundance Screenwriters Lab.

    Andrea graduated with a B.A. in Soviet history from the University of California Davis and attended the Harvard Ukrainian Institute.
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