Distribution Costs and the Long Tail

bq.In lieu of more flexibility on pricing, NBC U sought a cut of Apple’s hardware sales. “Apple sold millions of dollars worth of hardware off the back of our content, and made a lot of money,” Zucker said. “They did not want to share in what they were making off the hardware or allow us to adjust pricing.” NBC Universal programming accounted for 40% of iTunes’ video sales. Zucker used iTunes as an example of the kind of digital business model that, he asserted, is corrosive to the media business. “We don’t want to replace the dollars we were making in the analog world with pennies on the digital side,” he said. Apple did not return calls for comment. – “Michael Learmonth(Zucker says Apple deal rotten)”:http://www.variety.com/article/VR1117974910.html?categoryid=1009&cs=1 When you make a purchase in a brick and mortar store, there are a certain amount of costs that accrue in producing the item and getting onto the store shelf in order for you to make a purchase. And one cost that has to be considered: no one will ever actually buy that item. When you purchase something, you are also paying the store for everything that will never be. Their goal is to offer the maximum numbers of items at the highest price possible that they can survive and, hopefully, make a profit. Contrast that with iTunes. Inventory costs: there is only one copy of the item. Storage concerns are not existent as well as keeping the item in stock. Distribution costs: These are minuscule and only incurred after an item is sold, not before. And many other costs from above (promotion, packaging, salaries for sales staff) don’t even figure in. A Heroes DVD set will retail for $59.99 for 23 episodes ($2.61 per episode if full price is paid, which is doubtful) but NBC Universal will only see a small portion of that overall cost (otherwise Amazon couldn’t sell it for $39.99 or $1.74). On iTunes, the episode cost is $1.99; we don’t know how much Apple gets to keep but judging from music reports, it is probably around $.60 leaving Universal with $1.39 of profit per episode. It just sounds to me that Zucker is trying to make a case he is deserved money for profits he lost when he never actually had them in first place.