By NICK WINGFIELD, JOE FLINT and ETHAN SMITH Staff Reporters of THE WALL STREET JOURNAL October 17, 2005; Page B1
Last Thursday morning, Apple Computer Inc. started selling an episode of the hit television series "Lost" through its iTunes Music Store for $1.99 after the show aired the night before on ABC. It marked the first time a popular show was made available for legal downloading over the Internet so quickly after its original airing.
With that, Apple may have helped open a Pandora's box for the media business. The Cupertino, Calif., company and its first TV partner -- Walt Disney Co., the parent of ABC -- have taken a potentially significant step in the dismantling of a decades-old system for distributing TV programming to viewers, a move that could have profound long-term consequences for broadcasters, cable systems and satellite companies if more users download shows instead of watching them the old-fashioned way.
Apple's deal with Disney, which also includes past and current episodes of "Desperate Housewives," "Night Stalker" and "That's So Raven," is already causing waves in the TV business. On Friday, Leon Long, the president of the association representing ABC's affiliate stations, expressed misgivings about the partnership, which was announced publicly by Apple Chief Executive Steve Jobs and Disney CEO Robert Iger at an event last Wednesday. In a letter Mr. Long sent to the president of the ABC network, Alex Wallau, Mr. Long said ABC affiliates are concerned that they weren't given an opportunity for financial participation in a new form of distributing shows that derives value through the promotion and broadcasting of affiliates.
The letter, a copy of which was reviewed by The Wall Street Journal, says: "It is both disappointing and unsettling that ABC would embark on a new -- and competitive -- network program distribution partnership without the fundamental courtesy of consultation" with its affiliates.
Mr. Long, who runs the ABC affiliate WXON in Biloxi, Miss., didn't return calls seeking comment. Mr. Wallau said he would respond to the affiliates this week but declined to comment further.
For TV affiliates, Apple's new offering "is really bad," says Josh Bernoff, an analyst at Forrester Research in Cambridge, Mass. "You don't get anything. You just get a smaller audience," he says.
Also concerned about the Apple-Disney partnership are the unions that represent TV-show writers, producers, directors and actors. Soon after Disney and Apple's announcement, those unions issued a joint statement saying, "We look forward to a dialogue that ensures our members are properly compensated for this exploitation of their work."