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NBC Doesn’t Really Get It

September 21st, 2007

After having skipped out of Apple’s iTunes Store, NBC seems to be flailing about a bit. They signed on to sell their shows on Amazon.com’s video sales service, and now have announced another “free” download service that is ad- and DRM-laden.

The Amazon.com Unbox service seems to be the most reasonable; it allows for more flexible pricing, which the networks of course desire. However, it is also restricted; it requires Microsoft’s “PlaysForSure” DRM software–something also desired by NBC and other content providers–which pretty drastically limits viewing abilities. You can’t play the video unless you’re running Windows or opt for the TiVo option. The video cannot be played on iPods or even Zunes.

The “NBC Direct” route is set up to be a disaster. Not only is it so heavily restricted that you can only play it on NBC’s proprietary software and can’t use it on anything but a Windows PC, but it carries ads which cannot be skipped. Sure, it’s free, but so long as you’re allowing ads into it, why be so stupid as to watch it on NBC’s player where you can’t skip them? Why not just tape or TiVo the show? The “NBC Direct” idea is completely nonsensical.

Part of the reason NBC left Apple was over pricing. Apple claims NBC wanted to charge as high as $5, and other reports suggest that Apple wanted to lower the price on all TV shows to $1. Probably the NBC suggestion of $5, if it happened, was less a serious proposal and more an idea thrown out there. And I can certainly see content providers wanting to set their own prices.

The thing is, Steve Jobs is no idiot, and NBC would be well-advised to listen to him. Sure, he gets money from iPod sales, demands large profit margins for his own products, and does not lose money if the margin on TV shows sold on the iTS is slashed. I will give you all of those.

Nevertheless, Jobs is one of the best marketers around, and he stands to profit by selling more and more and more of NBC’s content. And more often than most people in the business, Jobs has been right. Case in point: music sales on the iTS. It’s wildly successful. But remember how the music labels had to be dragged, kicking and screaming, into allowing for $1 song sales and no tiered pricing? Well, the iTS has been a rousing success, having sold more than 3 billion tracks in 4 years–over half of which sales occurred in the last one year–capturing 88% of the music download market, becoming one of the biggest outlets for music sales.

Like I said, Jobs is not an idiot. And selling TV shows for $1 apiece is similarly very astute. A lot of people have downloaded TV shows at the $2 price, but that can be sustained for only so long and at only so high a rate. Most people will begin to realize that at the end of a season of shows, they have only the shows to own, and they have shelled out between $40 to $48, depending on how many episodes there are in a season. In the meantime, the networks release the DVD set very soon after the TV broadcast ends, and one can own the whole season at higher quality, with all kinds of extras an add-ons, for less money. Payment for one is not transferable to another–you can’t apply the $46 you paid for season 1 of Heroes to the $40 price of the DVD box set. And if you want to watch the show in your iPod or other handheld player, you are limited to downloading via BitTorrent or another service, though you might have to process the file to squeeze it into a format the player can handle.

Yes, that fits nicely with the network paradigm of making viewers pay multiple times for the same content. But enough viewers are not stupid enough to make this a big seller. Jobs has the right idea: price the bare-bones, lower-quality version for lower, and people might go for the double-purchase a lot more easily. After all, $23 doesn’t seem quite so bad a price to pay for having immediate, portable, commercial-free access to a whole season of shows while you’re waiting for the feature-rich, expanded DVD box set to be released. A lot more people would go for that, and NBC would make a lot more money. In the meantime, a lot more people are instead turning to BitTorrent.

Here’s an even more radical idea: make the downloaded versions into the equivalent of a boxed DVD set. Offer the extra versions as extra downloads included in the price of a season pass. You can raise the price because you are essentially selling the DVD box set plus the ability to get it delivered a lot earlier, as the episodes air. Instead of $40 for the box set, sell the season pass equivalent for $50. That would represent a lower profit margin, but I bet increased sales would make up for it–and you would cut out the crowd who only buy one or the other but not both.

But here’s the biggest idea: drop the frakking DRM. Jobs was dead right earlier this year when he said that DRM was stupid. It is. It does not stop piracy one bit–in fact, it encourages piracy. Why? Because if you pay for the video, you have all these restrictions and roadblocks and limitations; if you download it for free, there is absolutely no restriction on what you can do with the file. DRM does not even slow pirates down, and it punishes paying customers. Why NBC and other content providers fail to see this glaringly obvious point is beyond me. Remove the DRM, and sales will rise, piracy will suffer. What is with these idiots at the studios?

In the meantime, if you aren’t in the BitTorrent crowd, expect to pay higher prices multiple times, and face higher obstacles to viewing where and when and how you like.

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