Apple's Content Quarrel

CEO Steve Jobs announced snazzy new iPods and a price cut for the iPhone, but the frustrations of content owners such as NBC are coming to the fore

by Ronald Grover and Peter Burrows

One addition to the product line: an iPod nano with a video display.

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Anyone who has been to one of Steve Jobs' media events knows well the thrall cast by the Apple (AAPL) chief executive. Music blares, the lights dim, and Jobs mesmerizes as he demonstrates the bells and whistles of Apple's latest offerings. But he had more than the usual ground to cover on Sept. 5.

By the time he was done, he had announced an overhauled iPod product line that includes a slick, video-enabled iPod nano and a Wi-Fi-enabled "iPod touch" that introduces the innovative iPhone touch-screen technology to iPod users. And most surprising of all, he slashed the price of the iPhone by $200.

But not all Apple affiliates are applauding the company's act. Hollywood and music company executives whose songs, movies, and other digital programming are distributed over Apple products are clamoring for Jobs to cut them a better deal.

Warner and CBS on the Fence

That displeasure became public in late August, when both Apple and General Electric's (GE) NBC acknowledged that Apple will soon no longer let iTunes users download NBC shows such as Heroes and The Office. But frustrations of content owners were building for months before NBC took action. In late spring, Universal Music, which produces roughly 1 in every 3 CDs, cut off talks for a long-term deal with iTunes, although it continues to make its music available. Both Universal and NBC want greater flexibility in the pricing of their products—efforts at independence that Jobs has so far refused to entertain, arguing that consumers won't pay the prices content providers want to charge.

That leaves Universal and NBC to look for other ways of distributing their content. NBC, for example, has its own Web site as well as a joint venture with News Corp. (NWS) called Hulu (BusinessWeek.com, 8/30/07). And the day before Jobs took to the stage in San Francisco, NBC said it would sell TV shows through Amazon's (AMZN) new Unbox service, moving up the announcement date by a week just to make sure the Apple CEO was listening. As part of the deal, Amazon would offer discounts for buying full seasons of shows such as 30 Rock, and sell single shows for the same $1.99 they sold for on iTunes. That suggests NBC was telling the truth when it denied Apple's charge, made via press release on Sept. 4, that the studio wanted to charge $4.99 per show. But one insider says NBC had no choice but to stick with the traditional pricing on Amazon, rather than aim for an increase—which would have played into Jobs' efforts to paint it as overly greedy.

So should Steve Jobs be worried? Perhaps—but only if NBC and Universal's experiments in independence pay off. Warner Music Group (WMG), whose contract with iTunes comes up at the end of the year, is said to be watching with interest how Universal does with its pressure on Apple.

On the TV side, CBS (CBS), which signed a short-term deal for its content, is also watching the ongoing NBC-Apple talks to see if Jobs blinks. Neither Warner Music nor CBS would comment for this story.

Starbucks Connection

But Jobs hardly seems worried: On stage at the Moscone Center, he chose John Lennon's Give Peace a Chance to demonstrate a new feature that lets users create ringtones on their iPhones. "That's for when NBC calls," he deadpanned.