Is Apple changing course on variable pricing?

More price hikes likely to follow HBO deal

Will the real Apple please stand up?

It's hard to know where Steve Jobs stands with regard to iTunes. This month, HBO joined the Internet's most successful content store with three series including "The Sopranos" meriting $2.99 per episode -- the first deviation Apple has made from its standard $1.99 price for TV episodes.

But the move was all the more surprising given that NBC Universal withdrew all of its TV programming from iTunes six months ago after Apple refused to grant variable pricing, among other issues.

Thus we are left with a question: Is HBO the exception to the rule on iTunes, or is Apple changing the rule?

With its usual Kremlinesque approach to public relations, Apple isn't explaining the change. But sources at several major studios who spoke on condition of anonymity, citing the sensitive nature of negotiations, say Apple has changed its tune on iTunes.

Long before HBO nabbed $2.99 pricing, programming providers say they have been hammering Apple to obtain not only increases but also lower price points than $1.99 -- as low as 33 cents. More than one studio has been aggressively asking for TV shows to be structured like films on iTunes, which offers new releases and catalog titles at separate price points.

"The conversations I've had with them over the last quarter are markedly different than they were a year or two ago," one content chieftain says. "Apple is much more flexible than people presume."

That presumption also might have been unfair to begin with, given that sources also suggest that it wasn't Apple but NBC Uni that was being stubborn in their previous negotiation stalemate. Not only was NBC Uni pushing to test a $4.99 price point -- suddenly, "Sopranos" doesn't seem that expensive -- but it also wanted to institute dynamic pricing, an experimental new technology that recalibrates price based on consumer demand. NBC Uni declined comment on dynamic pricing, which is being tested by Warner Music Group.

But regardless of whether a TV episode is increased to $2.99 or $4.99, another question arises: Which shows merit price increases?

Apple was comfortable making HBO the test case in this regard because it felt that the brand's premium status clearly differentiated it from the rest of TV. But that decision didn't sit well with one studio executive, who believes Apple is going about variable pricing all wrong. If TV eventually could adopt the dual-tiered pricing model iTunes applies to newly released and library films, why apply an increase to a library title like "Sopranos"? Shouldn't that show actually be priced lower than $1.99?

Even if a program's popularity was key to setting its price, "Sopranos" hasn't proved particularly popular in its first few weeks on iTunes -- perhaps because of the elevated price point. It is ranked 24th among season packages on iTunes; among individual episodes, "Sopranos" didn't even crack the top 100.

No doubt Showtime might want to test the $2.99 waters not only because it shares HBO's premium status but also because its series "Dexter" is currently the most popular full-season order on iTunes.

If sales ends up driving pricing, shows that aren't necessarily big on-air hits but are iTunes darlings could command higher prices, including the CW's "Gossip Girl."

However, one conglomerate exec believes that Apple might have its own opinions on programming value. "When you get into that conversation, it's a slippery slope," the exec says. "Because we'll differ with them on what content is worth what."

If anything is indicative of a show's iTunes price, look at the digits appearing on its DVD price tag. HBO in particular has a massive DVD business, and with that comes the need to maintain a higher price in order to afford some protection from cannibalizing DVD sales.

But variable pricing is only part of what content companies want from iTunes. What one might call variable packaging is high on the wish list as well, which means the ability to bundle multiple titles in creative ways -- for instance, selling a film and its soundtrack together for one discounted price.

Another question altogether is whether Apple also will adjust revenue splits -- known to be in the neighborhood of 70-30 with the content companies -- once pricing changes. Not likely, most say, and beside the point for Apple. Content isn't seen as much as a revenue driver in and of itself as it a catalyst for more significant dollars that come from sales of iPods and AppleTV devices.

ITunes has taken some heat on its message boards for the elevated pricing, but not everyone has a problem with it. As one reviewer wrote, "The Sopranos on VHS: $10. The Sopranos on DVD: $40. The Sopranos on my iPod: priceless."
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