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Apple and ad-skipping

I stopped putting a lot of stock in TV-related Apple rumors awhile ago, so I don’t want to over-analyze today’s edition, by former Wall Street Journal reporter Jessica Lessin, citing unnamed “media executives” that Apple is in talks with the networks about some sort of combined live-and-on-demand video service via Apple set-top box (or perhaps a TV). But for the sake of conversation, here are a few speculative thoughts on what they might be talking about.

Apple already offers ala carte downloads of TV content via iTunes, so presumably what we’re talking about here is a streaming service, probably via subscription. Recreating the full cable bundle wouldn’t make a lot of sense for Apple (and would likely be cost-prohibitive) so, again presumably, we’re talking about some sort of smaller bundle of channels or (less likely) an ala carte channel offering. For the most part, those deals would simply be a matter of price.

According to Lessin, however, a “premium” version of the service would allow users to skip over ads while Apple would “compensate television networks for the lost revenue.” That’s a puzzler, but here goes:

Lots of TV viewers skip ads now; all that’s needed is a DVR. So it’s hard to see why that capability would be considered a “premium” feature. The only way to skip ads, in fact, is with a DVR — you can’t skip ads in real time — so, again presumably, Apple intends to offer DVR functionality, either locally in a set-top box, or (more likley) in the cloud. All well and good, but it’s still not clear why Apple would need to secure licenses from the networks to offer a DVR.

Here’s what might require a license (or a very strong stomach for the litigation that likely would follow if attempted without one): A live streaming service that allowed users to record, via cloud-based DVR, combined with the ability to retrieve those recordings for playback on mobile devices (iPad and iPhone), using a system that automatically stripped out the ads so that watching a recorded show on an iPad would be similar to watching it via iTunes download.

The “compensation” Apple paid to the networks, then, wouldn’t be to replace the ad revenue per se but part of a deal in which an ad-free playback would be converted to something akin to the per-download licensing fee Apple pays rights owners now under its iTunes deals. Users might pay that fee directly, or (more likely) it would be buried in the cost of a premium subscription.

There’s even precedent for such conversion deals. Apple’s deals with the record labels for iTunes Radio include terms that allow per-stream licensing fees to convert to per-download fees when a user clicks “buy” after hearing a track.

Such a structure would offer advantages to both Apple and the networks. Any service Apple rolls out would have to include multi-device access if it’s going to compete with Netflix, Hulu and Amazon Instant Video. Playback on iPads or iPhones, however, can’t be tracked by Nielsen so there’s no benefit to the networks in having the ads included in those playbacks anyway. By allowing Apple to convert a recording into a paid download (however disguised) the networks would be able to reap revenue where otherwise there would be none.

Offered for what it’s worth.