Thursday, January 11, 2007

Coming Up: The Digital Living Room

The President announced yesterday a momentous change of policy on the most important foreign policy issues of our day... but I'm going to keep on blogging about Apple! Yes, this is now an all-Apple all-the-time blog.

All the hullabaloo at the MacWorld keynote Tuesday was about the iPhone, and it's easy to understand why: it's a great product that will revolutionize a huge market. AppleTV, however, could ultimately be the more significant product release. The merging of the computer in the study with the entertainment center in the living room has huge implications for how content is delivered to the home. Apple is wisely building it's presence in the video sector bit by bit. It is steadily recruiting more and more networks and studios to release their shows on iTunes: Tuesday it was Paramount. And it is producing devices to play this content: Macs, iPods, and now iPhones and AppleTVs. This is smart, because digital media has a bit of a chicken and the egg problem: both sides -- content and hardware -- need to be developed in parallel so that they support each other.

There is one step Apple needs to take before their video downloads really take off. The winning model for internet TV will almost certainly be free, advertiser-supported content for digital devices. It need not necessarily be streaming material: hi-def content could download automatically or at the viewers request, overnight or in the background. This new paradigm will offer benefits to both advertisers and audiences.

Advertisers will be thrilled because an integrated content/hardware vendor like Apple will be able to set it up so that you can't fast-forward through their ads. Companies would get guaranteed eyeballs, something they've been getting less and less of with the advent of the DVR. Another thing that would make them happy: through questionnaires or other data-gathering methods, Apple could target ads according to location and demographics: health clubs could advertise just in their neighborhood; luxury cars could advertise just to the people who could afford them. And finally, after seeing an ad, the viewer could click on a button and see an infomercial... or even click on a button and make an impulse purchase. The combination of these advantages would be the holy grail for advertisers: the most powerful advertising medium ever invented.

But what would the viewers get? Surely they can't be thrilled at seeing ads they used to be able to skip over. Some of them might be uncomfortable at their personal information being used to target ads at them (although it doesn't seem to bother g-mail users much.) Well, this kind of advertising would provide so much more added-value that it would be possible to show far fewer commercials. (And this would probably be necessary in order to attract the more affluent consumer who could afford program-purchasing or DVR/cable.) For internet TV viewers, choice will be practically infinite. Timing will be at their discretion. And of course, the content itself will be totally free, other than broadband fees. No more cable subscription bills.

Once this system takes hold it will change everything. It's possible that, as with GoogleAds, advertisers might pay for eyeballs without even seeing the content that will host their ad. If a sixteen-year-old kid with a videocam in his garage creates compelling programming, he would not only attract an audience (as podcasters and YouTubers do today) but also receive advertising revenue for it. The big shows would still be with us, but there would be much more of a grass roots presence in television. Show producers would not need to get their funding from distributors. The business models which rule the making of television would be undermined completely. And not incidentally, the piracy problem will be obviated.

Why do I think this will be the winning model? We've been through this before. Cable could have become an advertising-free zone, but we found that advertisers outbidded viewers. They were willing to pay more to buy eyeballs than the viewers were willing to pay to avoid seeing ads. Yes, there will always be a subscriber or pay-per-view sector, as there is today. But as is the case today, most content will be advertiser-supported.

Apple is in a unique position to make this happen. Now that Jobs is on the board of Disney he has some leverage in getting their cooperation. From what I hear, ABC is very happy with their experience of providing ad-supported TV shows free on their website. A board relationship ties Apple with another possible strategic partner: Google. They might be of assistance tackling the data management issues and selling ads.

Yes, there are other companies that might be players in this sector -- Sony and Microsoft come to mind -- but a project such as this would run counter to the culture of those companies. Microsoft relies too much on third-party suppliers; their great success came from not integrating. Sony has tried to branch out into content, but it is still too hardware-centric. In contrast, Apple's key competencies in marketing and crafting consumer experience would be a neat match to the project's challenges.

O Brave New World that has such TV in it!

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