Heading into the Christmas gift-buying frenzy, Apple Inc. faced the prospect of trying to sell millions of video iPods in Canada without offering any downloadable television programs for Canadians to watch on the sleek and pricey gadgets.
It was a marketing nightmare and it may have put enough pressure on the computer giant and two Canadian networks to get a deal done after several months of plodding negotiations.
With just two weeks left in the year's busiest retail season, Apple, based in Cupertino, Calif., announced yesterday that its iTunes Canada store will carry episodes from a handful of TV series seen on MTV, CTV, CBC and the Comedy Network, along with a small number of NHL games. Until now, iPod owners looking to view TV programs were forced to resort to peer-to-peer and torrent networks for content, most of which was pirated.
- Would you pay $1.99 to download some of the current fare at the iTunes Canada online store? Answer the poll question at Globetechnology.com
While the deal only includes a sparse selection of TV shows mostly domestic titles to go on iTunes Canada, it is a potential watershed moment.
If the model proves profitable in the next year or two, it will provide the blueprint for more TV content to flow onto iTunes Canada including Hollywood's prime time hits.
"This gives Canadians another choice when they are trying to decide how they want to enjoy programs they love, and it gives them even more content that they can enjoy on their iPod," said Peter Lowe, director of marketing for iTunes in Canada.
The content being placed on iTunes Canada consists entirely of shows to which Canadian networks already hold the digital rights, such as CTV's Corner Gas and CBC's Little Mosque on the Prairie. CTV also secured the digital rights in Canada to MTV and Comedy Central shows, allowing for that U.S. content to be sold on iTunes in Canada.
Meanwhile, the NHL can deal directly with iTunes on both sides of the border to offer its games, since it holds those rights.
Canadian networks are otherwise at loggerheads trying to get some of the top-rated U.S. shows onto digital platforms, which is why there are so few shows.
The Canadian networks pay hefty sums of money to acquire the exclusive broadcast rights to programs such as House, CSI and Grey's Anatomy, and it's not clear whether putting those shows on the Internet or selling them through iTunes would erode their margins on television. This has made the networks reluctant to take the plunge.
Meanwhile, since the U.S. industry sells the rights to such shows to networks here, they can't stream them into Canada through their websites, nor offer them on Canadian iTunes. Negotiations have so far failed to break this impasse, mainly because the U.S. and Canadian players aren't sure how to divide revenues.
Apple and the networks will each share in the revenue generated from the downloads, according to CTV's vice-president of interactive media, Stephan Argent.
"I hope it opens up the market inasmuch as it provides us the opportunity for viewers to catch up on episodes already broadcast on CTV," he said. "Providing viewers with content on their own terms is what we're seeing in the market that people want."
CBC spokesman Jeff Keay said the public broadcaster sees the deal as more than just an experiment and is expected to generate revenues.
"We see it as a viable business plan," he said. "It's more than just let's see what happens."
Not to be outdone, Global said it is looking to put some of its shows on iTunes, with Canadian productions like Deal or No Deal a likely candidate.
"It's definitely part of our strategy to continue to further explore, not only our news, but also our entertainment content on a wide variety of platforms in the coming months," said Laura Tanner, senior vice-president, broadcast digital at Global.
Analysts say Apple is betting video downloads will spur hardware sales, including iPods and the Apple TV, a streaming device that allows users to watch videos on their television.
Although Apple would not disclose sales figures for the device, the consensus among analysts is that it has had limited success due to a lack of HD content on iTunes and the difficulty of transferring DVDs and other video files to the device.
"Apple TV suffers from the fate of having content that is limited to iTunes more than anything else," said Josh Martin, an analyst with Yankee Group.
"To make video online popular as a category it's really about bridging the gap between TV and PC and we're just not at that point yet."
Digital video also suffers from a lack of a universal format, as digital audio has had in MP3 a file that can be played on devices produced by a variety of manufacturers, he said.