Apple and TV Networks Clash Over 99 cent Rentals

Apple Inc introduced a new version of Apple TV on Wednesday with shows from just two networks, underscoring its struggles to win over a media industry worried about losing control over the pricing of its programs. The new $99 Apple TV will allow users to rent TV shows such as “Glee” and “Modern Family” for 99 cents thanks to partnerships with Walt Disney Co’s ABC and News Corp’s Fox. But several other media conglomerates, including General Electric Co’s NBC Universal, CBS Corp, Viacom Inc, are notably absent from the roster. Chief among concerns in the entertainment industry are the terms Apple is seeking for rental deals, according to several media executives familiar with the matter. In its discussions, they said, Apple is asking for deals that would allow it to keep 30 percent of the rental fee. That revenue-sharing breakdown is similar to agreements Apple has struck for TV show and movie downloads from iTunes.

But executives point out that iTunes downloads are priced at $1.99 to $2.99 and say they are hesitant to replicate those deals at prices of 99 cents. “Steve Jobs’ thing is if we lower the price point we’ll sell more stuff,” said one media executive close to the talks. Another said: “This is a plan that is designed to sell iPads, iPods and iPhones. It is not a plan that is designed to appropriately value content.” Still, analysts believe other media companies might feel pressured to strike deals if the 99-cent rental proves popular with consumers. What is more, Apple co-founder Steve Jobs has been proved right before in forcing through business models for media companies, in particular with the music business. As for the media companies, they worry they could find themselves in the same company as the book and music industries struggling to cope with a downward spiral on pricing.

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Evercore analyst Alan Gould, in a note, wrote: “Getting the consumer used to a 99 cent price for a TV show (rental or sale) and further empowering Apple as the ‘800 pound gorilla’… is unwise.” Another industry-watcher, Larry Haverty, a Gabelli funds portfolio manager who owns media stocks, said even the current download deals on iTunes have likely failed to significantly help the bottom line for entertainment companies. “My guess is that the revenue streams from the existing $1.99 downloads aren’t particularly significant,” said Haverty. Viacom, CBS and NBC declined to comment. When it comes to 99 cent rentals, another major sticking point is that broadcasters and producers worry the rentals will further undermine DVD sales. In the past, they have made millions of dollars licensing entire series and packaging them into DVD sets. “We don’t think of TV as an episodic pay-per-view model which is what 99 cents rental is,” one of the media executives said, who spoke on the condition of anonymity because of the sensitivity of talks with Apple.