• by Wayne Friedman , David Goetzl  @dgoetzl, September 4, 2007

NBC's decision to bolt from iTunes Music Store wasn't only affected by lower-than-expected revenues from the subscription download service, say analysts, but perhaps disappointing revenues from its ad-supported services.

"The networks probably thought there would be more revenue in the TV upfront for digital [ad-support platforms]," says Alan Schulman, senior vice president and executive creative director for digital-marketing agency, imc². "I don't think they saw the revenue in the online play."

According to analysts, NBC's decision to leave iTunes signals that it wants to consolidate some of its program distribution, making it more exclusive and special to advertisers. The net's new Hulu.com--its TV program/Net destination site, done in partnership with News Corp.--is a platform to build a central major location for video consumers. This tactic differs from the CBS strategy of syndicating its content to virtually all viable digital video platforms.

Central to the iTunes deal for NBC has been driving more business to the table--to package, say, an NBC Universal movie with an NBC TV show. Then, offering such packages at a discount to drive overall revenues higher. That hasn't happened. "We have seen what kind of revenue [NBC] gets for $1.99," says Schulman. "And it's not a lot."

NBC believed it was in a strong position to negotiate for new iTunes deals, accounting for a reported 40% of all iTunes video downloads, the No. 1 supplier of digital video to the service. But iTunes, which holds a gigantic 76% of the market, wasn't interested, believing it would create a confused marketplace when it comes to pricing. The retail price of an iTunes TV show, as it has been since the service's launch, is still $1.99. For movies, iTunes users pay $9.99.

NBCU said in a statement that Apple's intent with iTunes isn't really to help its content providers, but itself. It's clear that "Apple's retail pricing strategy for its iTunes service is designed to drive sales of Apple devices, at the expense of those who create the content that make these devices worth buying."

NBC isn't abandoning the pay-per-download business. It recently made a deal with a competing service from Amazon: Amazon Unbox. Amazon likely agreed to give NBCU a greater share of the profits, though Amazon declined to release terms.

In addition to "The Office" and "Heroes" from the flagship network, offerings from NBCU cable outlets Bravo, USA and Sci-Fi have become available in recent weeks. Episodes cost $1.99 each to download, the same as Apple's iTunes.

NBCU had an existing agreement with Amazon to makes its Universal Pictures movies available on Unbox. Amazon declined to comment on whether the TV shows' availability is a separate agreement or an expansion of the current one. The deal marks an apparent coup for the online retailer as it looks to give its year-old Unbox service more traction.

The New York Times first reported the end of the NBCU-Apple relationship, and said the deal was to expire in December.