Big media seen playing hardball with Apple

By Kenneth Li - Analysis

NEW YORK (Reuters) - Apple Inc (AAPL.O) will face a tougher time filling its iTunes store with television shows and movies as big media companies gird against repeating the music industry's mistakes.

NBC Universal, which decided last week to pull its shows from iTunes by the end of the year, is seen as only the first media company considering hardball tactics as deadlines approach to renew contracts to offer shows on iTunes.

The stakes are high for both sides. The media industry needs to court new viewers as interest in watching digital entertainment explodes. Apple, meanwhile, has staked its future on being the favored online storefront as it is set to debut a new line of iPod digital entertainment devices on Wednesday.

"If there isn't any video you want to watch, the device itself is worth less money," Forrester analyst James McQuivey said of the iPod and other Apple products, such as the Apple TV set-top box and the iPhone.

Following NBC Universal's move, several media executives and industry analysts raise the possibility that TV programming could disappear from iTunes altogether if negotiations do not go well.

"Maybe it's not a long-term type of content to stay on iTunes," Gartner analyst Mike McGuire said.

While sales of video programming is estimated at under 10 percent of iTunes' total $2.3 billion revenue this year, according to Forrester, less content could jeopardize sales of Apple's lucrative consumer electronics business.

Two media executives involved in discussions with Apple say they see an opportunity to seize control over their digital destinies, emboldened by NBC Universal's actions. They declined to be identified by name.

"There's a substantial amount of hubris in the way Apple approaches the content industry," another media executive said. "It would behoove Apple to be a bit more cooperative."

News Corp NWSa.N, Time Warner Inc (TWX.N), Viacom Inc (VIAb.N) and Walt Disney Co (DIS.N) all have contracts with iTunes. One of them is due to expire by the end of this year, and another by next year, according to industry sources.

"We're disappointed to see NBC leave iTunes," an Apple spokeswoman said. "We hope they will change their minds and offer their TV shows to the tens of millions of iTunes customers.

PRICING, PIRACY TOP ISSUES

The biggest gripe is what media companies see as Apple's rigid, one-size-fits-all approach to pricing. TV shows cost $1.99 per episode, regardless of whether they ran last night or 20 years ago. Movies carry different pricing schemes, however.

NBC Universal cited Apple's inability to offer different pricing packages as a reason for its decision not to renew a contract expiring at the end of 2007. Discussions are ongoing.

Charging less for older shows could boost sales, executives say.