In the world of media, there are three key players: the content creators, the consumers, and the distribution points.  The ‘distribution channel’ is then simply the path from the creators to the consumers.  In recent years, this model has gone through some extensive changes that have produced far reaching effects on the way we do business.  The biggest changes have come in the form of alternate distribution channels (both legal and illegal).  Arguably the biggest player to emerge from the fray has been iTunes.  The online-superstore is now accountable for 20% of all music sold in the United States.  As an online retailer this puts iTunes in a very interesting and powerful situation.  In the network of music distribution, iTunes acts as a trader.  It forms a distribution channel by connecting buyers and sellers, and as the dominant retailer in online distribution, it doesn’t have much competition with other traders in this realm.  iTunes thus retains a very strong position in the music distribution network.  As Forrester Research analyst James McQuivey sees it, “iTunes is totally in the driver’s seat on the music side […]. Everyone is terrified of Apple.”  As they should be.  If a trader has a lock on the only path between buyers and sellers, those buyers and sellers don’t have any real power because of their position in the distribution network.  The trader can set prices as they see fit and rake in as much profit as possible.  And indeed, this is exactly what Apple has done.  They’ve set a fixed price ($.99) for every song regardless of release date or artist, while simultaneously sitting in a strong position to negotiate profits with sellers.

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   However, it is very interesting to note that Apple’s iTunes does not always have this coveted power position in media distribution. In the video distribution network, iTunes is struggling with the fact that it is one of many traders.  A fact that J.B. Perrette, President of Digital Distribution for NBC Universal appears to realize, noting “We’d love to figure out something with Apple, but frankly we have a lot of other alternatives [..]. While iTunes is a great service, it is not the only game in town.”  NBC’s content can no longer be found on iTunes. They insist that Apple is unwilling to negotiate it’s position, despite the fact that (when it comes to video) iTunes is far from unique.  Apple has tried to apply the same control and pricing schemas to the video market that it currently exercises in the music market.  This has led to less than desirable results.  While those in the music industry are able to swallow the slanted terms of iTunes distribution, more and more video producers are balking at those very same terms.  Part of this stems from the fact that, while on the surface, the markets appear very similar, their mechanisms for monetization are very different.  Music is monetized by payment for the product, while video is monetized through advertisements in the content.  Sellers in the video market are concerned with garnering big audiences, and they generally don’t care if that audience pays or not.  As long as there is a large viewership the company will make money from their advertisers.  For this reason studio execs don’t see the value in placing their episodes (without ads) on iTunes for a $1.99, especially when iTunes is only one of many distribution options.  As an example, CBS has teamed up with the likes of AOL, Joost, Sling Media, YouTube, MSNBC and Bebo to bring free content to buyers.  Similarly Hulu, a video site, has burst onto the market with free content primarily from Fox and NBC to very positive reviews from consumers.  

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       In the end, Apple is losing out on profits that it could be tapping into in the video market.  Apple is trying to leverage its strong position in the music distribution market, in the video distribution market where it holds significantly less power.  This really underscores the importance of position in any network and the role that it plays in negotiating power.  See http://www.wired.com/techbiz/media/news/2007/10/nbc_itunes for more information on the story.