Apple might be trading in its principles for pragmatism

APPLE A DAY

Plugged In

May 15, 2008|By DAVID ZEILER

For the second time this month, Apple has chosen strategy over principle.

After losing NBC Universal's content from the iTunes Store in a much-publicized tussle over variable pricing last fall, Apple announced a deal this week with HBO to offer many of its most popular shows at two price points.

Customers can buy some shows at the usual $1.99: "Sex and the City," "Flight of the Conchords" and "The Wire" (the brainchild of former Sun reporter David Simon). But others cost $1 more: "The Sopranos," "Deadwood" and "Rome."

This follows last week's announcement that Apple will offer the iPhone through two wireless carriers in Italy, breaking with its policy of one carrier per country.

Apple did not explain why it made an exception for HBO on pricing. In the iPhone's case, Apple COO Timothy Cook had forewarned back in January that Apple is "not married to any business model."

I view the Italy iPhone deals and the HBO deal as signs that Apple - specifically CEO and head guru Steve Jobs - increasingly is willing to sacrifice its historically stubborn adherence to philosophical ideals in favor of pragmatic solutions.

Perhaps the most infamous example of this was Apple's enduring commitment to the one-button mouse. After years of grumbling from large numbers of Mac users, Apple finally relented in 2005 with the Mighty Mouse.

Not that Apple is wrong to stand on principle - Jobs' legendary insistence on ease of use in all his products has paid off in the success of the iPod and the resurgence of the Mac - but when an ironclad policy becomes counterproductive, the company needs to change it.

After all these years, Apple finally is getting better at knowing when to dig in its heels and when to be flexible.

That said, the HBO deal raises other issues.

One major question is whether Apple will consider variable pricing for content from other networks, or for music supplied by the major labels. You can bet that each content provider will ask for some kind of flexibility when its contract renews. And Apple will have a tough time saying no now.

I think Apple should strongly consider allowing some variable pricing at the iTunes Store. Such a minor change would scarcely befuddle music and video customers well-versed in the ways of retail.

And variable pricing doesn't have to mean lots of higher-priced content. Frankly, I'd like to see lower prices on some of iTunes' routine fare. How about 99 cents for episodes of "Bewitched"? Or even "Hannah Montana"? (As if parents haven't got every word of dialogue memorized already from the incessant reruns on the Disney Channel.) For that matter, what about cheap TV episode rentals?

Another question is whether Apple and NBC Universal will kiss and make up now that Apple has compromised on pricing with HBO. Eddy Cue, Apple's vice president of iTunes, told the Associated Press that NBC is now the only major channel not offering shows through iTunes.

But NBC wanted more than variable pricing. It wanted Apple to build a sort of anti-pirating technology into its iPods to prevent them from playing illegal content. Not surprisingly, Apple balked.

According to a technology blog on The New York Times Web site, Microsoft agreed to "explore" content filtering on the Zune while eating the variable pricing - it will charge $1.99 for each episode, as does iTunes.

While Apple might be open to a compromise with NBC Universal on pricing, it does not share NBC's views on anti-pirating schemes. Jobs discovered firsthand how easily iTunes' Digital Rights Management could be broken and has pushed the record labels to sell their music without DRM. Approximately 2 million of the more than 6 million songs on the iTunes Store are DRM-free.

Reconciliation, though both companies would benefit, appears unlikely in the near future.

Finally, I see the HBO deal as another piece of Apple's overall video puzzle. As Apple adds more desirable video content to the iTunes Store, it quietly adds value to its portable video players (primarily iPod Touch and iPhone) but also to the underestimated Apple TV.

Apple's video hardware, coupled with its growing stable of movie rentals and the caliber of content HBO brings, has created the embryo of a video ecosystem that someday could grow as formidable as its music empire.

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