Apple’s introduction of a video playing IPod and video downloading service are actually two very separate developments from an advertisers point of view. The video iPod will offer a number of benefits for advertisers. The video downloading service could be a real problem.

The negative effects of the video iPod will begin to appear almost immediately. Apple’s video sales business couldn’t come at worse time for the television networks, or network advertisers. Audience ratings are at an all time low, and to make things worse, both networks and local stations have adopted the use of ever increasingly intrusive and expansive video promos overlaid on top of programs. Rather than watching a program only partly visible behind overlays, many consumers will opt to pay a couple of dollars to watch the show in it’s unobscured entirety the day after it runs.

So far only ABC and Disney have made any video content available through Apple’s iTunes store, but it’s likely other content providers will soon. There’s a compelling argument for them to do so. Instead of waiting until the end of the season to sell the complete season on DVD to consumers, they can start making money the day after the first nights run. There’s no waiting time for mastering, artwork, mass duplication and packaging. In addition, the $1.99 per episode price Apple has set allows for a very healthy profit margin, with no risk of unsold inventory or returns.

It is important to remember that the success of Apple’s video downloading service is not limited to the number of people who own video iPods. An iPod isn’t required to buy or view video downloads from Apple. Millions of songs and podcasts have been downloaded from iTunes by people without iPods. Anyone who owns a reasonably current Mac or Windows computer with an Internet connection can download Apple’s iTunes software and have immediate access to songs, podcasts and videos. Viewing isn’t limited to the computer either. Many computers, including the Apple iMac, have an S-video output jack to connect directly to TVs.

It’s possible that within a year Apple could divert between five to ten percent of prime time viewing audiences. If prices for downloads drop, which is likely once competition starts, the percentage could be significantly higher.

There won’t be much advertisers can do to stop this audience erosion. One option is to try to cut a deal with Apple and its content suppliers to include commercials in the downloads in exchange for covering part of the cost to consumers, like reducing the cost from $1.99 a download to $1.49 or less. Another option would be to demand networks stop the practice of degrading programs with overlays. This approach would be free, easy to implement and welcomed enough by television audiences that it might slow down audience erosion.

Fortunately, there are many ways that advertisers could use video iPods to offset audience losses elsewhere. The podcast world is already seeing educational podcasts being released by companies like IBM and Cisco. Cisco has several podcasts on their Website that explain computer networks and the hardware needed to support them. Drawing on the company’s experts, the Cisco podcasts are genuinely educational and not just 20 minute infomercials for their products. Many companies could follow this model. Other approaches would work, too.

For instance, a car parts manufacturer like Delphi, should it survive, could produce videos that demonstrate how to install the car parts they sell. A home mechanic, or professional one for that matter, would be able to watch a video showing step by step exactly what to do while they were making the repair. Previously, it hasn’t been practical to have a computer video playback system in a garage. It’s practical to have an Apple iPod nearly anywhere. From a marketing perspective, a product that comes with a video that explains how to install or use it is probably more likely to sell than a comparable product marketed without it. How much more likely would depend on how complex the installation or use of the product is, but for many products, it could be significant.

Hardware stores could use a variation of this, too, by offering their customers videos to help them install and repair home improvements. By offering to load the videos on to a customers iPod in the store at the time of purchase, hardware stores could offer the convenience of providing a much higher bandwidth, and shorter loading time, than a customer could get at home through an Internet connection.

Even more opportunities could be present in the future. It has been estimated that by 2009 sales of MP3 players will reach one billion units per year. Most will be wireless and have video screens, and they will be at least as common as cell phones are today. In a world where the average person is expected to have video player with them, some very common marketing devices could take on new dimensions.

For instance, video players could change how products are presented to consumers at exhibitions like car and boat shows. At car shows, booths frequently have a single video display playing a promo about several models and features in a linear format that may take 5-10 minutes to complete. In the world of the future, each booth would broadcast menus that let consumers see exactly what videos on exactly what models they wanted information about, and without waiting 5 minutes or more to get to the part of a video they were really interested in. This approach would also make car shows a lot more peaceful. Instead of dozens of exhibitors blaring audio trying to drown each other out, everyone one would be listening with headphones in an atmosphere of peace and quiet (much like many museums do now with rental headphone systems).

It’s too early to say whether Apple’s video iPod system will be a success, but their system to sell video programming directly to consumers will probably be one of the most far reaching innovations they ever came up with. Advertisers need to start planning to counter its effects now. At the rate Apple’s going, next year may be too late.

Glen Emerson Morris has worked as a technology consultant for Network Associates, Yahoo!, Ariba, WebMD, Inktomi, Adobe, Apple and Radius, and is the developer of the Advertising & Marketing Review Data CD.