You know something is up when the story goes from anonymous sources say NBC to end iTunes contract to Apple press release saying “see ya NBC” in the course of a few hours.

It’s particularly telling that Apple usually doesn’t put out a lot of pressers fired in anger. Usually, Apple doesn’t discuss its negotiations with third parties, so saying that NBC wanted to double the price of TV downloads is a proactive bit of spin on Apple’s part. NBC, you’ve been Steve’d. Or, to quote from your soon-to-be-former download powerhouse, “you’re fraked.”

Still, assuming the basics of the story as reported are correct — that NBC sought much a much higher price and more DRM restrictions — they certainly stand to look like fools if this is a bluff that has been called. Considering that network television loses a few million viewers every year (and has been consistently doing so for a decade), it’s vital that they have alternate revenue streams. And they’ve just pissed away iTunes. Amazing.

This is the latest in a series of attacks on iTunes by rivals, which seems remarkable in its pointlessness. Apple’s power, and money, come from the iPod, not iTunes. Apple doesn’t make a lot of money from iTunes, and if you fill your iPod with alternate sources, that’s no worse for Apple than if you use iPhoto and get prints from Shutterfly instead of iPhoto’s built-in printing service. As long as people continue to buy Macs, iPods, and iLife updates, Apple’s happy. iTunes challengers may eventually succeed, but even if they do, does it matter?

So far, the attempts to unseat the iPod itself have largely been laughable. It remains the dominant portable media player, and the key fact is that it plays two kinds of media: non-DRM’ed media, and FairPlay DRM’ed media. This leaves NBC with four highly unappealing options

  • Release DRM’ed shows in a format other than FairPlay. In other words, don’t play on the iPod. Given the carnage of the many Windows Media DRM stores — Rhapsody, PlaysForSure, Urge, etc. — this is obviously suicide
  • Release non-DRM’ed shows. In five years, we’ll look back and see how obvious this was: watermark the hell out of the files so you can catch the worst scofflaws, but let people play with their media on whatever devices they like and re-use it in harmless ways (Universal is not going to go broke if I use one of their songs in a home video, fercryinoutloud). Given that NBC is reported to want more DRM from iTunes, not less, this is a non-starter for them in 2007.
  • Only release web-player versions of shows. And monetize it how? Can you really sell ads to that format? And is the 600×400 pixel Flash window really appealing to a non-trivial number of viewers
  • Don’t sell digital downloads at all. Step 1, do nothing. Step 2. Step 3, profit!

It’s worth remembering that NBC is part of NBC Universal, 20% owned by Vivendi, which also owns Universal Music Group. And those corporate cousins are also threatening to walk out on iTunes and boosting iTunes rivals with non-DRM content. So it seems like there may be a company-wide desire to resist or actively thwart Apple’s influence over media distribution. Which sort of makes sense, given that the various Universal divisions are media distributors, making iTunes a competitor. If Apple had the potential to make my company irrelevant, I’d probably be pissed too. But hopefully not as stupid.

Then there’s the other bit of format-wars weirdness from the company, Universal Home Entertainment’s long-time exclusive support for HD-DVD, and its rejection of Blu-Ray. At least Paramount and Dreamworks got paid handsomely for picking sides in the fight… $100 million might be more than either would have made selling discs in either format over the next year, especially now that the conflicting fortunes of the formats (it was just two months ago that Blockbuster dumped HD-DVD) is a strong disincentive for consumers to pick sides in the battle.

So, is Universal picking a fight it can’t win, by turning its back on iTunes and the iPod? If they play keep-away with their content, won’t they just drive a lot more users into grabbing pirated music and TV shows off Bittorrent? Or is there some sane, plausible strategy here that I’m not seeing?