Fictional paper company Dunder-Mifflin is shutting down its branch in Cupertino. The unlikely collection of superheroes who sought to save the cheerleader and save the world will no longer be saved on your iPod. General Electric's (NYSE:GE) majority-owned NBC Universal is ready to pull its hit shows from Apple's (NASDAQ:AAPL) iTunes store by the end of the year.
This is a pretty big deal, considering that NBC accounts for 40% of the videos sold through Apple's digital video store.
Why would NBC bolt from a successful venture? With Apple bearing the burden of distribution, NBC should be happy basking in the passive, inventory-free, high-margin royalties.
Well, it all boils down to a lack of control. Apple charges a fixed $1.99 for an episode of The Office or Heroes. That's too restrictive for networks such as NBC, which would like a little more pricing elasticity, or the option to bundle shows and movies to drive higher ticket sales. Piracy concerns also exist.
It's probably not a coincidence that the sides are allegedly bickering just as NBC is teaming up with Fox parent News Corp. (NYSE:NWS) to launch a new video hub, Hulu.com. The website is being positioned as an ad-supported streaming site, though it's not unreasonable to expect digital downloads to be implemented in the future. If NBC and Apple fail to come to terms before the current contract ends in December, Hulu scores a major promotional win. If the website becomes the only legal place for fans to catch shows such as 30 Rock or the Battlestar Galactica revival on NBC Universal's Sci Fi Channel, the upstart will have a leg up on the established competition. Heck, this may even be a win for Netflix (NASDAQ:NFLX), which offers old episodes of The Office as part of its PC-streaming service for paying subscribers.
Apple is a juggernaut. It doesn't necessarily need NBC. However, this development also comes at a time when Apple's iPhone is a summertime smash and the industry expects that the Mac daddy will introduce a new line of iPods at a media event scheduled for next Wednesday. This is supposed to be a time for gushing instead of fuming. But with Apple's biggest content providers making headlines by grumbling -- Universal Music backed out of a long-term digital-distribution contract earlier this year -- you can see why the media companies want to rock the boat now. The timing of the dissent is not accidental.
Apple doesn't have to listen, but an open mind and a little flexibility will help calm those waves at a time when the company should be enjoying some smooth sailing.
A few more Apple dippers for you:
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Longtime Fool contributor Rick Munarriz thinks Cupertino has nothing on Scranton. Of the companies mentioned in this story, he owns shares of Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
