Apple Inc. said Friday that it wouldn’t sell future seasons of “The Office” or any other NBC Universal TV shows through its iTunes video store after a contract dispute between the two companies erupted into the open.
Apple’s decision not to sell new episodes of “Heroes,” “30 Rock” and other NBC series marked the latest salvo in the tug of war between the technology giant and the entertainment industry, which is increasingly unsettled by Apple’s growing clout.
NBC Universal notified Apple late Thursday that it would not renew its contract to sell digital downloads of its television shows through iTunes when the agreement expires in December. Apple retaliated by saying Friday that it wouldn’t sell any shows from the fall season.
“There is probably a concern that Apple has become too dominant and too powerful for many parties here,” Jupiter Research analyst Michael Gartenberg said. “This is a power struggle.”
If the two companies can’t overcome concerns about pricing and anti-piracy measures, Apple plans to yank all NBC shows off the service when the agreement ends, according to people familiar with the situation.
The spat with NBC aired at an inconvenient time for Apple. Chief Executive Steve Jobs is expected to showcase new video-playing iPods at a news conference Wednesday.
Apple said NBC’s demands would have caused the price of a TV episode to rise to $4.99 from $1.99.
“We are disappointed to see NBC leave iTunes because we would not agree to their dramatic price increase,” said Eddy Cue, Apple’s vice president of iTunes. He left open the possibility of an eventual resolution.
NBC, which is launching an initial version its own online video service called Hulu.com with News Corp. in October, disputed Apple’s claim. The New York media company attributed the disagreement to Apple’s unwillingness to let NBC package together shows with variable pricing.
“It is clear that Apple’s retail pricing strategy for its iTunes service is designed to drive sales of Apple devices, at the expense of those who create the content that make these devices worth buying,” NBC Universal spokesman Cory Shields said.
Piracy also worries NBC. The media giant contends that Apple is doing too little to prevent iPod owners from filling the portable players with unauthorized copies of TV shows and movies.
Piracy concerns are looming larger as Apple considers starting a movie rental service to complement iTunes. The company has been seeking licensing deals with movie studios, according to people familiar with the talks.
Apple is a dominant force in the music industry, with iTunes ranking as the nation’s third-largest music retailer, ahead of Amazon.com Inc. and Target Corp., according to NPD Group.
But video represents a growth area for the Cupertino, Calif., company, especially on its iPod.
That’s why the loss of NBC’s material deals a blow to Apple’s digital ambitions. The peacock network has struggled in the ratings, but it and NBC Universal’s cable networks supplied iTunes with three of iTunes’ 10 bestselling shows last season, accounting for 30% of TV show sales.
But Apple may emerge the victor in the eyes of the consumer.
“Bottom line: Apple looks really good,” Jupiter’s Gartenberg said. “They’re championing users, holding firm against a media company that wants to get the pricing up to $5.”
Nonetheless, television executives worry that cheap downloads may destroy the economics of an industry that spends hundreds of millions of dollars to produce its most polished, scripted fare -- much as 99-cent song downloads are hastening the death of the CD.
All the major networks now offer TV shows free online as a way to preserve their relationships with audiences and -- just as important -- big advertisers.
Research firm EMarketer Inc. projects that spending for online video ads will reach $775 million this year. That represents only 0.6% of TV ad budgets, but the firm predicts that online video ads will become a nearly $3-billion business by 2010.
Forrester Research analyst James McQuivey estimates that Apple received less than $90 million in revenue from sales of television shows, and that it gives $60 million of that back to the TV studios.
“That’s chump change,” McQuivey said. “Sixty million dollars against the billions of ad revenue that’s going to shift to the Internet over the next couple of years is tiny.”
McQuivey predicts that the Hulu joint venture and others will experiment with free downloads of television shows that include ads that viewers can’t skip. He said that would address the audience’s desire to take their favorite shows on the move.
Other digital download stores might benefit from the frayed relationship between Apple and NBC. Amazon.com’s Unbox service offers several prime-time NBC programs for $1.99 an episode. They won’t play on an iPod, but they can be downloaded to a TiVo digital video recorder to watch on the TV.
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A partial list of affected NBC television shows:
“Saturday Night Live”
“The Tonight Show”
“My Name Is Earl”
“Law & Order”
“Late Night With Conan
Episodes from previous seasons that are currently on iTunes will stay there. If the two sides can’t reach a deal by December, those could get pulled too.