iAd and the Apple Broadcast Network

By Richard Menta 6/5/10

NBC head Jerry Zucker's oft repeated quote about trading analog dollars for digital pennies reflects the collapse of sponsor trust towards Internet advertising more than anything else. Publications that pulled $35.00 per thousand page views in 1998 were lucky to get $0.35 cents after the dot-com crash thanks to rampant abuse (click fraud, oppressive pop-ups, spam etc.). Nearly a decade later, Apple will attempt to elevate sponsor trust - and with it ad rates - with it's new iAd concept. They will support it through no less than a model that TV execs like Zucker are familiar and comfortable with.

In 1959 5,749,000 television sets were sold in the US, bringing the cumulative total of sets sold since 1950 to 63,542,128 units. This number supported, through advertising, three national television networks, ABC, NBC, and CBS (a fourth, Dumont, folded in 1956) and numerous local independent stations. Television was big business by the start of the 1960's.

Richard Menta

Now here are another set of numbers. As of April this year Apple sold 75 million iPhone and iPod touch units, devices capable of delivering video via Wi-Fi and 3G connectivity. Add to that figure 2 million iPads and counting. By the end of the year Apple should have about 90 million smart mobile devices in the wild. That makes a proprietary amalgam greater than what the TV networks had in 1959 and one that easily serves as a foundation for a pending broadcast network that will be delivered not through tall radio towers, but through small wireless hubs and the Internet.

Call it the Apple Broadcast Network. iAd is how Apple plans to pay for it.

Apple's adept ability to exert strong control over its environment is why this can all work. iTunes and the Apple App Store serve as a compelling track record where even the valid complaints against Jobsian hegemony underscore Apple's success. Executives at content suppliers from the music, film and TV industries - Zucker chief among them - have sharp concerns when it comes to working with Apple as a distributor. But the fact is consumers trust Apple more than any other corporation that comes to mind and it was lack of trust that crippled Internet ad delivery past volume distributers like Google.

If Steve Jobs can extend the Apple glow to iAd, Internet advertising could enter a new era. It's a feasible thought, because Apple will possess a means that overcomes a chronic problem.

Apple has to bring everyone to the table first and it won't be an easy sell. The television networks won't own iAd so they won't get 100% of the revenues as they do now. But, 100% of Hulu is not providing Zucker with the sustainable revenue model he needs. On its own NBC can't seem to muster improved ad rates from even existing clientele. That opens the door for Apple. If iAd moves ad rates up to where it becomes a viable option Zucker is under due-diligence to consider it.

TV Set Sales 1939-1959

It has been a couple of decades since viewers were limited to a handful of TV stations. The growth of cable has spread TV viewership over hundreds of stations while the rise of gaming and the Internet offer different options. The glory days of the major TV network are gone simply because today's consumer has much more choice.

This has put network leadership under constant pressure to develop new revenue streams and that makes it all the harder to resist the Apple siren when Jobs and co. create something compelling. Should Apple achieves its objective to sharply raise the value of online advertising - raising digital pennies to digital dimes is a ten-fold start - network leadership will be hard-pressed to ignore it.

Last April, Broadpoint AmTech analyst Brian Marshall mused that Apple could generate through a hybrid pricing model as much as $32 per 1,000 viewers. That's pure speculation, but if Apple comes anywhere close to Marshall's figure then it becomes just a matter of how large a cut Apple offers Zucker and his ilk to free up network programming.

If that happens the Apple Broadcast Network becomes a reality. "If" is the key word here.


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