Apple, TV, Data and Ads

This is the fourth in a series of posts on Apple TV, with the first a year ago here on Tech.pinions, the second another Tech,pinions post on Apple’s HBO deal and what it signified, and the most recent from earlier this week on my own blog on the WSJ reports of Apple’s new TV service. This post focuses specifically on a couple of detail points around what Apple might offer, beyond the obvious stuff, which comes down to what Apple might want to do beyond the basics, and what it might have to offer the content providers to get that done.

Although each of these pieces has been based on my own analysis of what’s going on in the market, I’ve been grateful for the conversations I’ve had with a number of individuals, not all of whom wish to be named, who’ve helped me think through all this and who have added insight. You know who you are – thank you.

Linear content alone isn’t enough

Most of the focus with regard to Apple’s reported TV service has been on the channels and content itself, and that’s to be expected: a TV service that doesn’t have the channels people want will never be successful. But the reality is TV has moved a long way beyond pure consumption of linear content. There are lots of surveys out there on this, but they all point to the fact that, for under 45s especially, the main viewing method is now a combination of DVR and Video on Demand rather than live. And the younger you go, the more extreme this becomes. As such, a new TV service launching today has to have some combination of DVR and VoD functionality, the more advanced the better. Even Aereo, ill-fated though it was, recognized this and provided a cloud DVR service.

Of course, one new TV service that launched recently didn’t launch with DVR or full VoD functionality: Sling TV. It’s not because Sling’s owners don’t know how to do DVR. DISH makes the Hopper DVR for its own subscribers, so it clearly isn’t a matter of know how. There are three possible explanations for this. First, Sling wanted to get the service out the door and didn’t have time to prepare this functionality for launch, so it’s coming later; second, DISH, as the owner of Sling TV, didn’t want to compete head-on with its existing service, which is much more lucrative, and so they handicapped it; third, Sling couldn’t garner the rights it needed. My money’s on the last of these explanations and that suggests getting DVR rights might be tough for Apple without giving something in return (Sony has leverage through its content ownership, which explains how it was able to offer it in the service it announced today).

TV rights are tied up in ratings and ads

Television rights are tied up in two things: ratings and advertising. In other words, your ability to secure the rights to the content you want in the format you want depends entirely on your ability to not just deliver but track viewership and to deliver relevant and targeted advertising. But one of the biggest challenges with the shift to non-live viewing is tracking this is tough, and serving ads as content ages gets harder too. As live viewing has dropped off, Nielsen (which tracks this stuff on behalf of the industry) has moved from tracking live viewing only to tracking live viewing plus any views within three days of airing (“live+3”) but that still fails to capture a great deal of viewing which occurs after those three days are up. Given many VoD services offer five recent episodes, some content might well be consumed five weeks after airing, but this isn’t captured in ratings. Content providers feel under-compensated because of this and would love to both track more viewing and better monetize that viewing with higher rated ads. If content providers could reliably track viewing over a longer period, and if they could report those ratings back to advertisers, that would be a boon.

Apple’s ratings and ad play and data

This is where Apple comes in. Apple could do two significant things here. First, because any Apple TV service will be entirely controlled by Apple, it will be able to track all viewing and tie it back to a single user ID. Second, because it knows a certain amount about its users, it will also be able to report aggregated demographic information back to content providers and to advertisers. And it could offer to track viewing through DVR and VoD over a longer period, which would differentiate it nicely from the classic pay TV providers, which are doing live+3 only. Now, here’s where the recent article in the New York Post comes in. That article states:

Apple is offering to share data with programming partners to get them on board with its cable-like TV network package, The Post has learned.

The company is willing to share details on who its viewers are, what they watch and when they watch it to entice broadcast networks and others to go along with the service, sources said.

The information could help programmers better target shows to viewers and advertisers, who are increasingly chasing niche audiences.

Apple could, in this way, become the trusted source of ratings data Nielsen tries to be but is increasingly failing at. With Nielsen struggling to capture viewing beyond three days, and all viewing on TV Everywhere platforms, it’s serving the content owners and pay TV providers poorly. Some of the pay TV providers have their own data on that viewing, but since they are incentivized to maximize those numbers, they don’t represent a trusted party and this data counts for little. Apple, on the other hand, wouldn’t directly benefit from higher ratings numbers, and could, at the same time, provide very granular tracking and reporting of exactly what’s been watched, by which users, for how long, etc. It would be a trusted third party in much the same way as Nielsen is. This would be valuable for the content owners and give them something traditional pay TV providers can’t. Apple could capture the actual quality of experience on the end user side, something most cloud providers can’t do because they only see their end of the stream.

Privacy concerns are overblown

I’ve seen some people take umbrage at this suggestion that Apple will share data with third parties, because it appears to contradict the principles outlined in Tim Cook’s recent privacy letter, which reads in part:

We believe in telling you up front exactly what’s going to happen to your personal information and asking for your permission before you share it with us. And if you change your mind later, we make it easy to stop sharing with us…

A few years ago, users of Internet services began to realize that when an online service is free, you’re not the customer. You’re the product. But at Apple, we believe a great customer experience shouldn’t come at the expense of your privacy.

Our business model is very straightforward: We sell great products. We don’t build a profile based on your email content or web browsing habits to sell to advertisers. We don’t “monetize” the information you store on your iPhone or in iCloud. And we don’t read your email or your messages to get information to market to you. Our software and services are designed to make our devices better. Plain and simple.

One very small part of our business does serve advertisers, and that’s iAd. We built an advertising network because some app developers depend on that business model, and we want to support them as well as a free iTunes Radio service. iAd sticks to the same privacy policy that applies to every other Apple product. It doesn’t get data from Health and HomeKit, Maps, Siri, iMessage, your call history, or any iCloud service like Contacts or Mail, and you can always just opt out altogether.

Here’s the thing: Apple’s privacy letter outlines several separate concepts and has very careful wording around each:

  • Personal information – users decide what to share through privacy settings, and retain control over this
  • Profiling – Apple doesn’t build profiles of its users based on the content they access or sell this information to advertisers or others
  • iAd – Apple does have an ad product, which respects the overall privacy policy and also doesn’t dip into personal data.

Nothing in this privacy letter contradicts anything in the Post story, as long as it is understood correctly. Apple won’t start collecting browsing or email content and reporting to advertisers or content owners, they’ll let you decide what to share with the apps you use, and yes, they’ll show you ads (or let content providers show you ads) based on broader data they have about you. That last paragraph is key, because it demonstrates Apple isn’t anti-advertising and, in fact, it understands ad-based business models are critical for certain types of services. I’ve no doubt this won’t go away as an issue for some time, but to my mind there’s no contradiction.

On a related note, Amir Efrati of The Information mentioned a tantalizing tidbit in a tweet but never expanded on it in the linked article:

This is the other element of what Apple could do — offering to help content providers (and their advertisers) match IDs across services, so that it wouldn’t share any information about subscribers itself but would allow these partners to identify users they already know something about from third party databases and services.

What else can Apple offer content providers?

One other thing it could offer is an enhanced electronic programming guide (EPG). Today, what’s typical is the grid of times and channels, with a title, brief description and metadata, possibly a logo or other image, for each program. Apple could offer individual networks a landing page, similar to those they have on iTunes, as an alternate way for users to engage with content. Instead of going to the classic grid EPG, you could navigate by channel and, from the channel page, view the schedule for this evening, but also review your recordings from that channel, set up new recordings through your DVR, browse and view VoD content and so on. This is far more branding than networks currently get from any other service, and it would be familiar to consumers from iTunes. It could also potentially integrate purchases or rentals of content not currently available through free VoD or in the schedule. Apple could also create similar landing pages for genres (sports, dramas, comedy etc) which would also go beyond the typical color coding in the EPG.

An additional benefit for content providers is Apple’s audience isn’t like the general TV audience. As Ben Bajarin has pointed out, Apple’s audience spends more time and more money on its devices and related services. This is the most valuable audience out there and advertisers would love to be able to target such an audience. As a result, even if the audience is small, it’s a very lucrative segment. It may well command higher advertising rates than the general TV audiences at existing pay TV providers.

Apple Pay and iAd

One last thing Apple could do is use its iAd product combined with Apple Pay to offer direct-response advertising, allowing users to immediately purchase items advertised through the TV service. This has been a holy grail of sorts for both advertisers and pay TV providers, but with the only option for payments being adding items to the cable bill, it’s never been attractive for either users or providers. But with Apple Pay offering a secure existing payment solution tied directly to credit and debit cards, it could finally break through this problem. Whether Apple would want to take a direct role in this with iAd, or whether it would simply give the necessary hooks to the content providers is an open question. I’m somewhat doubtful we’ll see this anytime soon, but it’s an interesting additional angle.

A quid pro quo

I talked in my piece earlier this week about the risk content providers are taking here, dealing with Apple and enabling this form of competition with their existing channel to market, the pay TV providers. As I mentioned in that piece, Apple needs to provide significant incentives for these providers to take those risks, especially if it wants to be able to offer full cloud DVR functionality and extended VoD libraries. I believe the benefits associated with better ratings and advertiser data, enhanced branding for channels and content, and the attractive Apple audience could all sway content providers to do just this. That’s critical because, as I also said in my earlier piece, this thing won’t be sold on price, but on the user experience, and that depends on offering much more than just standard linear TV.

Published by

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

1,413 thoughts on “Apple, TV, Data and Ads”

  1. Your observations regarding linear content are very important. Think about it, linear content has always been the result of technology restrictions rather than a customer request or preference. It might be a reasonable fit for major sports and news events, but for everything else it is an inconvenience.
    The electronic program guide as it exists today is a disaster. It does not work very well once you have more than a dozen channels (because you need to start scrolling down and the order of channels is fairly random) and its organising principle is time of broadcast (which is great for linear viewing but makes not sense in a DVR context, which involves endless scrolling right/left). The electronic program guide is literally crying out for some innovation.
    TV has always been able to claim an enormous share of people’s leisure time. Mobile devices have changed that rapidly and are now drawing an enormous share of people’s attention. That means that TV advertising as a source of revenue is being eroded because younger generations are watching far less TV and when they do watch they are not paying attention during the commercial breaks. As the flow of money through the TV ecosystem is being re-routed, things like the linear viewing business models will suffer.

    1. TV advertising is being eroded (to the extent it is – see Oransky’s comment below) because much of the viewing is shifting to methods advertisers can’t track well, which is something I talk about in this piece. That’s why DVR, VOD and being able to track and monetize viewing through both those channels matters so much.

  2. First observation: I understand a “channel” as a bundle of shows, often with a common theme. But if I watched even the national average of 4 hours a day, I don’t think I could exhaust a single channel. As a cable subscriber (which I am no longer), I have to buy my shows in bundles of bundles. Although individual shows compete for my attention (and the ad compensation that comes with it), they don’t compete for my dollars — that appears to be reserved for the cable companies, to maximize their profits, not the producers’.

    A lot of the analysis I’ve seen suggest this is an efficient way to aggregate producers’ efforts, but the purpose of course is to maximize cable company profits—how are individual shows properly incentivized?

    I can see the analogy to season tickets to a favorite sports team (or my local opera company) but these are effectively monopolies for my affections or interest in live performances. With Americans watching something like 40 hours per week of TV, we are NOT staring at must-see-TV. The bulk of it is more akin to movie-watching or road tours — it’s crazy to think we’d sign up for whatever’s on at our local theater, or all the Universal movies, or whatever act is at Yoshi’s or the Shoreline, just because we usually like to see a movie on Friday night.

  3. Second (and shorter!) observation: not only should Apple be happy to collaborate with producers to let them know their shows’ viewership, it is a competitive advantage to do so, and one that seemingly makes it harder for Google to monetize with their existing model.

    One of *my* correspondents (yours, too, methinks) highlighted the rampant piracy of Android viewers — a key reason for demanding SD cards he thought. Not only does this deprive the producers of direct service fees, it makes it impossible for Google to get viewer data to smartly insert its own ads, AND also impossible to feed the viewership data back to producers for their OWN ads, which many depend on for the bulk of revenues.

    1. If I can add:
      The Nielsen ratings are a key element in the mechanism that keeps TV advertising alive, because they are used to determine what content is valuable. What Jan describes is the slow motion collapse of the Nielsen ratings as a meaningful measure of value. It probably oversamples older age groups who engage in real-time linear viewing and underestimates younger groups preferring DVR viewing. It also oversamples time critical programming (sports, news and weather) that are watched live, while underestimating movies, gardening shows and game reviews that could be watched weeks later.
      Selling bundles of bundles was a technical necessity for a long time, but it is not an inevitable outcome now that technology has progressed. Bundles might work well in a world where they reflect the aggregate preferences of the viewers. However, vocal minorities (who must have, say, sports) will influence the composition of the bundle more than the silent majority. In addition, viewers with non-mainstream preferences (say, Spanish language channels, classical music or whatever) may be subsidising the basic bundle even though it is not of great value to them. Finally, content creators or channel programmers can further distort the bundle by using bundling tactics to drive out competitors who do not have must-see-TV that they can use as leverage.
      A data-rich Apple TV product, one that would provide aggregated-but-granular viewer statistics would be very valuable to advertisers and content producers whose content is underestimated by Nielsen, who want to negotiate better deals for themselves. This could enable a wave of unbundling and a redistribution of money within the TV ecosystem (I’m not expecting that watching TV will get any cheaper).

  4. I’ve got the cheapest bundle DirectTV offers and their DVR box. I stopped watching live TV years ago. One third of any program is commercials. News channels? At least 50% commercials. Live football? Two thirds (or more) of the broadcast is commercials.

    If Apple’s TV offering isn’t commercial free (live sports would be excepted), I haven’t the slightest interest. Why do we all pay money and get stuck with all these goddamn ads?

      1. This does set you up with a nice paradox. Rich folks with “more money than time” could happily pay to have the ads taken out, while those with “more time than money” would watch the version with ads. Only problem is, that advertisers are generally less interested in groups with less money.

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