That's sure to entice advertisers interested in reaching millions of devotees of the service. But it could be worrisome to the service's users, who unplug from ad-supported media when they plug their earphones in.
That may be why Apple's current plans call for the ads to appear only in the lower-left corner of the iTunes library while users listen to podcasts from their computers rather than from portable devices. But it's a big step for the service, which has so far limited ad intrusions to audio spots embedded in some of the podcasts offered via iTunes. ESPN Radio, which supplies some of iTunes' most popular ad-supported sports podcasts, is working with the service on the new advertising offering.
'Much richer advertising experience'
"Our ad model is performing very well thus far. We offer gateway audio ads, often voiced by ESPN talent and a 30-second brand-sell spot," said Marc Horine, general manager-new media, ESPN Radio. "We are looking at new technology that will provide a much richer advertising experience and hope to roll that out very soon."
Apple executives wouldn't comment. But CEO Steve Jobs has supported the idea of ad-supported podcasts, so adding a visual component to the existing audio ads isn't much of a stretch. What's more compelling is what it might mean for other iTunes content, and specifically whether Apple might allow advertising in its premium content, for which it charges users.
It may be under pressure to do just that as content suppliers begin to offer similar fare to consumers online at no cost and with ads. For now, the TV networks are making money from iTunes' ad-free model, charging viewers $1.99 to download an episode of a show. J.P. Morgan analyst Spencer Wang estimates the networks make $1.44 per iTunes sale compared to 57cents per viewer in ad revenue for every episode aired on broadcast TV.
May undercut TV networks
Still, the iTunes deal undercuts the networks' bread-and-butter business. ABC is about to work advertising into its on-demand distribution plans; in May and June it will offer free versions of several of the same shows it sells on iTunes on its own site with ads that can't be skipped. NBC will launch free original Webisodes this summer of its hit "The Office." AOL's In2TV plans to offer free, ad-supported original fare and just signed a distribution deal with A&E Network.
"The question is whether the power of free is more compelling than portability," said Ben Bajarin, an analyst with Campbell, Calif.-based Creative Strategies. "It's an interesting test for ABC and we'll be watching how it affects iTunes."
Not only does iTunes face distribution from content owners' sites, it will soon face competition from other digital download sites. Amazon has announced it will enter the game, and MTV is weeks away from the Beta test of Urge, the digital media service it created with Microsoft.