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Summary:

Apple has long referred to Apple TV as a hobby, but that could soon change with the launch of a full-fledged HDTV. But if Apple hopes to succeed at getting content providers on board, it’s going to need to open up and allow third-party ad serving.

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Apple has long referred to its streaming TV set-top box as a hobby, but there are indications that could soon change with the launch of a full-fledged HDTV. But if Apple hopes to succeed at getting content providers on board with a new TV platform, it’s going to need to open up Apple TV — and whatever iTV may be coming — to allow third-party ads to be served.

Take a look at the current content on Apple TV, and you’ll notice that it’s either subscription-based or pay-per-view. In addition to Apple’s own iTunes video store, there are apps like Netflix, MLB.tv, NBA Game Time (on hiatus due to the current strike) and NHL GameCenter, all of which are subscription-based services. But even sites that serve ads online — like YouTube — have yet to monetize views on Apple TV in that fashion.

So what gives? Several sources we’ve spoken to say there’s currently no mechanism for serving ads onto Apple TV, other than through AirPlay streaming from a mobile device.

Lack of ads might not be too big of a surprise for those who have been following Apple closely: The company has historically shied away from ad-based business models, going so far as to strip ads out of mobile articles with Safari Reader. And Apple’s own effort at establishing an ad serving platform — iAds — has failed pretty spectacularly.

But not having a video ad-serving mechanism in Apple TV might be keeping content partners off the device. For instance, it’s likely one reason why Hulu Plus — which is being rolled out on as many digital platforms as possible — has yet to embrace Apple TV. Earlier this week, there were reports that a Hulu Plus app wasn’t being added to the streaming box for “political reasons,” suggesting that introducing next-day broadcast TV content would cannibalize sales of TV episodes from iTunes.

But given how small of a business iTunes sales are for Apple — and the fact that it’s allowed services like Hulu Plus to operate on other devices that also have iTunes, including the iPad — it’s unlikely Apple is blocking the introduction of a Hulu app because it’s slightly competitive. Apple wants to sell as much hardware as possible, after all.

A much more plausible explanation is that lack of ad support would keep Hulu from wanting to play on the Apple device. Hulu CEO Jason Kilar wrote in a blog post earlier this year that the company pays approximately $8 per subscriber for content licensed on the Hulu Plus service. To maintain profitability, it also runs ads against Hulu Plus content. So without an established mechanism for serving ads into Apple TV, there’s little reason for Hulu to embrace the platform as it does other devices.

While not supporting video ads might in the short term limit the number of streaming video providers that distribute content on Apple TV, it also could have bigger implications for Apple, particularly as the company reportedly works on its long-awaited “iTV.” The latest round of speculation that Apple may be getting close to bringing a full-fledged HDTV to market comes after Steve Jobs told biographer Walter Isaacson that he had “cracked the code” for introducing a new TV interface.

Cable, satellite and IPTV distributors and networks are becoming increasingly comfortable with the idea of making their content available through apps on connected devices like HDTVs, Blu-ray players and game consoles. Comcast, Verizon, Time Warner Cable, HBO and Epix are all working on TV Everywhere apps for connected TVs or game consoles, for instance. Those initiatives rely on users signing in with cable credentials and proving that they subscribe to pay TV services.

Most content owners have shown they understand the need to make their content available on as many devices as possible, but for basic cable networks like MTV or TBS, their apps on connected devices will also need to support advertising to make sense. And this is where Apple needs to get on the ball if it hopes to get its “apps as channels” plans underway. That might as well start with Apple TV, before it moves on to a full-fledged TV.

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  1. Bullshit. To succeed in TV Apple needs to aggregate content that people want. Ads ain’t it.

    1. Yes, but to get that content, Apple will need to offer content owners the ability to monetize in whatever fashion they see fit. Some of them will want to run ads, and Apple will have to support that to get them on board.

      1. Why would Apple need to support adverts? Content owners can charge a subscription fee, which Apple will get a cut from. Ads don’t give Apple any direct money.

        If MTV or TBS wants to be on AppleTV they’ll need content that people are willing to pay for. They’ll also likely be shielded like AMC and HBO now do. I don’t know if the market will support the hassles of showing proof of cable TV subscription, and seeing ads. OTOH, if I could get an app that lets me subscribe to Mad Men without owning cable, showing ads or having to watch the rest of AMC’s dreck, I’d be very interested. In other words, an app that duplicates iTunes subscription features with AirPlay to my TV. So nothing really new needed to make me happy.

      2. Anon – That argument might be good in theory, but no cable or broadcast network is about to skip cable distribution and go straight to consumers with subscription products anytime soon. There’s way too much money coming in from affiliate fees for them to do so, and it wouldn’t make sense for them to alienate their current distributors.

        The future of distribution for cable networks — at least in the short- to medium-term — is TV Everywhere and authentication. But cable is a dual-revenue stream business, and those networks aren’t going to support an Apple TV that doesn’t allow ads.

  2. Implying that Hulu has shied away from the Apple TV because there isn’t a built-in ads system completely misses the point: Apple TV currently doesn’t support 3rd party apps.

    If/when they add an App Store to the Apple TV, there’s no reason Hulu and the likes couldn’t offer ad-supported content via their own app (just like they do via their iPhone/iPad app). In that case it doesn’t matter if Apple embraces ads or not, it would be up to the developer how it would work.

    I’m filing this article under speculative bullshit.

    1. For sure, Apple TV is a closed ecosystem and the company picks and chooses who gets to play in that sandbox. But on the other hand, if there’s a technological limitation to the way that they can monetize, Apple is missing an opportunity to offer up content that potential customers might want.

      What’s perhaps not clear in this article is that I’m not basing my conclusions on Hulu speculation alone, but that I spoke with a number of existing partners and ad networks to find out what can be done, ad-wise. Based on those conversations, there doesn’t seem to be any support for third-party dynamic ad insertion at all.

      That might change, especially if and when Apple opens up the ecosystem with Apple TV/iTV apps in the future. But for now, Apple can’t offer content that people want, like Hulu Plus, because its box doesn’t allow for a certain method of monetization.

      1. Reporting about there not being third-party dynamic ad insertion still misses the point: without third-party apps it doesn’t matter if there’s support for third-party ad insertion. How could there be support for support for third-party dynamic ad insertion if there’s no support for apps that would need it in the first place? That’s putting the cart before the horse.

        If and when Apple opens up their app ecosystem to the Apple TV, and if they don’t approve apps that includes ads, THEN you’ll have a relevant story. Until then, you’re just making stuff up.

  3. Not sure this is true
    The Wall Street Journal feeds – recently added to the Apple TV in the recent update – have unstoppable adverts before the main feature starts

  4. Google TV has ads but the platform is a complete dud.

  5. I’m guessing that the author of this piece never has started the New York Times app on the Apple TV.
    It has adds prior to every video…

    1. You’re talking about delivering ads to Apple TV via AirPlay? As I mention in the article, that works for sure.

      1. As stated above, the WSJ app serves up ads in precisely the same fashion as Hulu. The ads stream without warning with a countdown at the bottom of the screen letting you know when your video will start. And the app is native. It has nothing to do with AirPlay. It’s an integrated part of the menu under “Internet,” listed alongside YouTube and Vimeo.

  6. The day Apple introduces ads on appleTV is the day I unplug it.
    I payed for it and content to avoid ads.
    I will go elsewhere.

  7. The day Apple introduces ads on appleTV is the day I unplug it.
    I payed for it and content to avoid ads.
    I will go elsewhere.

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