I doubt they thought that Apple would go for the price hike. More likely they stuck to the absurd price just to scuttle the deal. They, like many other media companies, imagine that they (or one of their partners.. *cough* MS *cough*) can do a better job of selling digital content online. Time will tell, but so far the only significant competition to the iTunes Store is P2P.
Hey, Zune and its music store has taken the northwest corner of the Texas panhandle by storm. We better watch out. But I agree: It was a scuttle move, not a real price increase. Nobody would pay $5.00 for a TV show. NBC had also held back on some key properties all along. Note Universal Music terminated their iTunes music contract, though they are likely to still sell most of their music, with DRM, through iTunes. NBC Universal, Universal's NBC, same company.
Universal is HD DVD only, now lately joined by Paramount, but Paramount perhaps only for a limited time -- until the cash the HD DVD consortium (ah, Microsoft) gave them. Universal seems to be trying some sort of bizarre consumer-unfriendly dual strategy: They are a content producer but they also want to do digital retail for it, but they don't have any real digital retail operation, so they look to Microsoft which for some reason I can't fathom -- probably because Microsoft doles out "financial incentives" -- they believe will allow them more control over the retail end.
This is all part of the recent trend in retail product sales: four guys win, everybody else loses. I've given up trying to have a shot at everything. We went Wii and PS3 for games; if it comes out for Xbox, we just can't play it. We went Blu-ray for HD movies; if it's Universal or, at least for a while, Paramount, we get it on standard DVD -- the deck upscales, anyway, and looks great. I don't watch much TV so I can't say the NBC thing will really bother me. But for music, if its an album Universal won't sell through iTunes, I'll just buy a CD copy if I can find one for $10 - 12. If they want $17, I'll just live without it.
By all means I think Universal should sell music and TV through a Microsoft operation if they wish. I just think they should sell through iTunes, too. And release on Blu-ray *and* HD DVD. And third-party games should be released for any console that can handle them. I would say it's like if Universal said they'll sell CDs at Wal-Mart but not Target; but deals like that are already happening. It's ridiculous. We as consumer should start screaming about it, but I just don't have the time or energy for their sneaky deals. I suppose they're counting on that, but I don't think they're counting that I'll just do without.
Honestly I think a lot of this is coming from desperation pay-outs from Microsoft, if not cash then some sort of incentive tantamount to hard currency, because they know they're losing domination of the digital media market. But then their answer to iPod and, ultimately, iPhone* is Zune? Well, what did they expect?
*Apple is a bit guilty of this retail/platform exclusivity thing with their ATT deal. But they did apparently shop the thing around to just about everyone and ATT was the only one to seriously consider their terms and requirements.