How Apple Plans to Crush Advertising

A pundit opines that Apple plans to sabotage advertising for TV and magazines while offering media creators an alternative source of revenue: Sell content on iTunes.
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Companies that create content, such as TV shows, movies, books, and magazines, typically don’t sell or deliver their content to consumers.

The selling is usually done by somebody else. For example, publishers make books, but bookstores and sites like Amazon sell them.

Apple is one of those companies that sells content.

Apple sells content the Apple way, which is also called the agency model. Basically, the companies that create the content can charge any price they want to, as long as they give Apple 30 percent.

Apple competes against other companies that also sell content, and most of those competitors don’t use the agency model.

One alternative is the one Amazon uses for eBooks, which is called the wholesale model. Amazon buys books at a negotiated price from publishers, then charges customers whatever it wants to charge. So not only do content creators have zero control over pricing, they don’t even know what prices book buyers will be charged.

Both the agency model and the wholesale model are relatively insignificant in comparison with the top model for monetizing content: The advertising model.

Under the advertising model, the content creator gives away the content free, but litters it with paid advertising.

Network TV, for example, uses the advertising model.

Many content creators use hybrid models. For example, magazines and newspapers use a combination of the agency model (they sell subscriptions via an “agent” -- the newsstands or fulfillment houses) and the advertising model.

Apple’s Podcasts App Reveals a New Strategy

Apple quietly released an app called Podcasts this week. The app enables the discovery, organization and playing of podcasts on an iPhone.

In the past, users listened to podcasts in the Music app by default. The next version of iOS will apparently come with a Music app that doesn’t support podcasts.

Podcasts are currently monetized using the advertising model. Nearly all podcasts are free, but those podcasts that make money do so through advertising.

Here’s a typical podcast app spoken during the show: “This podcast is brought to you buy Audible.com! For a free audio book of your choice, including audio books by David Sedaris, Sarah Vowell, John Hodgeman, go to Audible.com/american.”)

Under the current system, a podcast content creator can make money from ads, but Apple gets nothing, even when it’s downloaded via the iTunes store.

Providing a platform for other companies to make money while Apple makes nothing really isn’t Apple’s thing.

Apple’s new Podcasts app contains two surprising but telling features.

First, Podcasts contains a skip-forward-30-seconds button. The most obvious use for this button is to skip advertising in podcasts, even the kind spoken by the host of the show. (“This podcast brought to you by [skip forward 30 seconds].”)

Second, the Podcasts app has a mysterious “Redeem” button-- but only when you run it on the upcoming iOS 6 version.

It’s not clear what exactly the “Redeem” button will do, but it has something to do with a new way for podcasters to charge money.

So let’s put these two new features together: One makes listening to ads optional; the other creates a way to sell podcasts via iTunes using Apple’s agency model.

It’s a carrot and a stick to podcasters: We’re going to reduce the value of your advertising by letting people skip them; but don’t worry, you can monetize by moving to a paid model.

I think this is the direction Apple intends to move all content available on iTunes.

Even TV?

Especially TV.

Of course, Apple already sells TV shows using the agency model. Right now, you can go on iTunes store and either buy individual TV episodes, or a Season Pass to the show of your choice. An episode of Comedy Central’s The Daily Show costs $1.99, and Apple gets about 60 cents for that purchase.

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Tags: Apple, iTunes, advertising

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