To succeed at TV, Apple will need to embrace ads

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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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