Apple's Internet TV Success May Lie in Sharing Customer Data - TheStreet

NEW YORK (TheStreet) -- If you want to know why media companies are wary of Apple (AAPL) - Get Report getting into the television business, you need only to look at what happened to the music industry after it introduced iTunes: Music companies lost much of their clout and reach.

The maker of the iPad and iPhone is expected to unveil a 25-channel Internet-based television service later this year, according to a report last week in The Wall Street Journal, deepening its competition with Amazon (AMZN) - Get Report and Google (GOOG) - Get Report as well as streaming services from Roku, Sony (SNE) - Get Report and DISH (DISH) - Get Report.

For media companies that spend billions of dollars developing programming, Apple represents an opportunity and a risk. The opportunity is the chance to gather insights into the viewing habits of Apple's customers, a high-income demographic active in social media, and to better reach the roughly 10 million U.S. households that have a high-speed Internet connection but choose not to subscribe to a pay-TV service.

The risk, however, is that customers of Apple TV, intensely loyal to the brand, will identify the service with the Cupertino, Calif.-based tech company, not with owners of the networks on the Internet-based platform, and that Apple will have the final say on how networks are organized on its service.

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"These issues are real and likely the biggest stumbling blocks to an Apple television service," Toni Sacconaghi, a Bernstein media analyst wrote in an investor note on March 17. "That said, with data pointing to declining ratings in traditional linear TV ... content providers have become more open to working with [over-the-top] bundlers like Apple in an attempt to reach the 10 million household broadband-only population."

Apple declined to comment on The Wall Street Journal's report.

If Apple is to alleviate media company concerns about control, the company may have bait worth dangling: customer data. Pay-TV operators such as Comcast (CMCSA) - Get Report and Time Warner Cable (TWC)  don't share that data because it could give network owners information to demand higher fees to carry their channels, said Scott Ferber, the chief executive of Videology, an advertising technology company. Additionally, it could raise customer privacy issues.

"It is incredibly sensitive information," Ferber said. "Comcast and Time Warner Cable don't really provide any of that information to anyone."

Apple is less likely to need to assert that control, in large part because it doesn't directly compete in media programming, and its streaming TV offering would be a means to sell more of its mobile products rather than a major revenue source. Media companies are likely to embrace a deal that would trade their content for data about who was using the service, which programs they watched and at what times.

"This is a big lure to get them into the boat and for them to go after Roku, Amazon and Google," Randy Giusto, a media analyst at Outsell, an industry consultant, said. "The data carrot is a big way to do it."

Apple's data could paint a detailed picture of the consumers advertisers desire most. It would give the service an edge over traditional age- and gender-defined demographic breakdowns, like those long provided by Nielsen (NLSN) - Get Report, and a view into the nitty-gritty of consumer behavior, said David Campanelli, Horizon Media's senior vice president and director of national broadcast.

Campanelli said Apple -- known for broadening the appeal of emerging devices like smartphones and tablets -- is possibly using the carrot of big data to claim its space in Web television, which he described as the "wild, wild West" of the media world.

"The assumption is that its an upscale, tech-savvy, early adopter, influencer type of person," Campanelli said. "It checks all those sorts of boxes that a network would love to have."

The crowded field of bundlers is likely to become even more crowded as broadcaster CBS (CBS) - Get Report, which began its All-Access platform last year, is expected to do the same for its premium pay-TV network Showtime in the coming months. Apple announced earlier this month that it would exclusively offer HBO Now, the streaming service of Time Warner's (TWX) HBO.

If Apple is successful in luring networks and advertisers to its platform, it could force other tech providers to provide more of their data, said Mark Fratrik, senior vice president and chief economist at BIA/Kelsey. It could also minimize the clout of the networks in a repeat of what's taken place at Netflix (NFLX) - Get Report over the past 10 years. The iTunes assault on the music industry could be poised for a rerun. 

"The big thing with Apple is that once people go to an Apple platform, they tend to stay there," Giusto said. "It's very sticky."

For advertisers, "what Apple is doing is unique," Ferber added. "It's a pretty bold move because it's easy to sell against."

By making its service potentially more lucrative to networks and advertisers, Apple could speed up the public's appetite for a la carte television services that cable companies such as Time Warner Cable and Comcast have long fought. Apple, with its core of young, loyal and early-adopting customers, has great appeal with television networks.