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Apple in a Fight for Rights to TV Shows

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Which means that sales of the Apple TV box -- the $299 device that allows users to play downloaded movies on their television sets in addition to their computers -- have stalled, said analyst Tim Bajarin of Creative Strategies.

Apple declined to comment.

Now, the fight turns to television shows, and potential trouble is on the horizon with music companies. Compared with music companies four years ago when iTunes was launched, television networks and studios have more leverage.

First, there is the revenue issue. Music companies depend on digital sales -- most of it on iTunes -- for 15 to 20 percent of their revenue. By comparison, NBC Universal's take from selling its shows on iTunes last year was far less than 1 percent of the company's total revenue -- only about $15 million, according to a source close to the situation who spoke on the condition of anonymity because the number has not been made public.

Perhaps more important is the issue of distribution. Television companies don't need Apple as much as music companies did.

Networks such as NBC own dozens of stations and are affiliated with hundreds more. Also, companies such as NBC Universal own cable channels that rerun network shows; for example, NBC's "Heroes" is rerun on the Sci Fi Channel. Networks resell their shows on DVD and syndicate them on local stations.

Also, all major networks have begun rerunning entire shows on their Web sites.

NBC's big power play against Apple is due later this month, with a new Web site called Hulu. NBC has partnered with Fox to create Hulu, which will allow users to see shows from the two networks free on the Internet. Hulu has the potential to be in front of nearly every Internet eyeball, as NBC and Fox have distribution deals with AOL, MSN, Yahoo and MySpace.

Meanwhile, music companies also have expanded distribution options.

Before iTunes came along, music companies had only two ways to distribute their songs-- for sale in stores and for play on radio. But that is no longer the case.

Earlier this year, Universal Music Group, the world's largest collection of record labels, told Apple that it would not renew its yearly exclusive contract and instead would go month-to-month so it could be free to deal with other distributors. Over the past year, sales of Universal songs for cellphones around the world have soared. Universal, which has 35 percent of the U.S. music market, is discussing deals with U.S. mobile-phone companies, said a source close to the talks who spoke on the condition of anonymity because no deal has been announced. Warner Music Group, whose contract with Apple expires at year-end, is considering switching to a month-to-month deal with Apple, said a source with knowledge of the discussions who spoke on the condition of anonymity because no decision has been made. Universal also sells music videos to portals such as Yahoo.

Apple's iTunes has succeeded because it is easy for consumers: Pay one price, get one song (or album). As such, iTunes accounts for about 70 percent of all digital music sales. But by setting the retail price of songs, Apple also put a ceiling on what record companies can charge Apple for songs to be resold on iTunes. Record companies have yielded to Jobs's pricing to get distribution.


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