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Competitors to iTunes Are Gearing Up

Sep 30, 2007  •  Post A Comment

The television industry’s pell-mell evolution is confronting Apple’s iTunes store with changes in the same way that Apple and ABC rocked the TV world two years ago with their landmark deal to sell the network’s shows online.
The balance of power has begun to tilt away from Apple. That’s because networks have proven in the last year that consumers will watch ad-supported shows for free, both on network Web sites and other portals.
Now, the two business models — streaming and download — are battling for dominance, and streaming appears to have the upper hand.
The pushing and shoving between free streaming and paid downloads likely won’t result in one format pushing the other aside. Rather, each will find devotees — along with other delivery methods including DVD sales and illegal piracy.
The digital delivery of TV hit an inflection point in the last month, with networks balking at Apple’s terms for the first time. NBC became the first network to defect from iTunes in September, citing pricing disputes, and fled into the arms of an iTunes competitor, Amazon.com’s Unbox service.
That dispute took place in the context of a television industry that is far more comfortable in the digital realm than it was in 2005, when Apple’s Steve Jobs and ABC’s Bob Iger shook hands on their groundbreaking agreement. Now TV networks are streaming shows, on their own sites and others, and are beginning to find advertisers to support the ventures, reducing their reliance on pay-for-download services like iTunes.
“Streaming is driving a lot more volume, and understandably, because it’s free,” said George Kliavkoff, NBC Universal’s chief digital officer. “But it’s not one or the other. We want to give consumers as much choice as to where to get the content, to stream, download it free, view it on their PC and try subscription as well.”
Online TV revenue hit $700 million in 2006 and will overtake download revenue in 2011, according to a study released last week by research firm Screen Digest. At that point, advertising will comprise $2.2 billion of the projected $4 billion in online TV revenue, the firm said.
TV networks can thank video-sharing giant YouTube, which has trained Internet users to become accustomed to streaming. Almost 70 percent of the nearly 180 million Internet users in the U.S. stream some kind of video content on a monthly basis, said Kaan Yigit, analyst with Solutions Research Group.
Of the Internet users who stream video, about 24 percent streamed a TV show at least 30 minutes in length in May, up from 17 percent the year before. Mr. Yigit predicts that number will reach 35 percent to 40 percent by the end of this year.
“There is no question that the momentum is on the streaming side. Why bother to download and pay if you can have archival material available at the click of a mouse?” he said. “And with more networks making the triple-A content available online for streaming, the need to roll your own, download my own content, store on my own digital media, is diminishing.”
But shunning iTunes, still the dominant source of online downloads, comes with a price. NBC took a chance of ticking off fans who own iPods when it removed its content from iTunes, said Will Richmond, president of broadband video research firm Broadband Directions.
“It’s a strategic calculation by NBC to head off Apple gaining any further power as the de facto digital gatekeeper to its programs and to position Hulu and others as the primary digital outlets for NBC programming,” Mr. Richmond said. “At a higher level, the NBC-Apple jousting illustrates how dynamic and murky the relationships between content providers and distributors currently is.”
Apple had no comment.
As networks, studios and technology companies learn more about what consumers want to watch, and how to deliver it digitally, that fog is certain to lift. And with networks contending with piracy, commercial-skipping digital video recorders and smaller audiences for their traditional shows, clarity can’t come too soon for them.

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