For decades, there have been some consumers that would go to excessive lengths to skip ads. They would record shows on VCRs (by today’s standards a complicated affair). They purchased DVRs. They resorted to piracy where ad-free versions of shows could be found. Overall, they engaged, not only in the program by program costs of ad removal, but also invested in sometimes expensive technology to help them do so. In 2002, Turner broadcasting CEO, James Kellner, called this behavior:
… theft. Your contract with the network when you get the show is you’re going to watch the spots.Otherwise you couldn’t get the show on an ad-supported basis. Any time you skip a commercial or watch the button you’re actually stealing the programming.
And today, we have NBC chair, Ted Harbert responding to Dish Network’s new ad skipping function on their DVR:
And finally, we all know that advanced technology provides new options to virtually every business. But just because technology gives you the ability to do something, does that mean you should? Not always.
Here’s a good example that popped up late last week. Did you hear about the new Hop initiative from Dish? With their new DVR, you hit a button on the remote and all the commercials in a program just disappear. Gone. You don’t even have to fast forward through them. Please refer to my earlier comments about our ecosystem. This is an insult to our joint investment in programming, and I’m against it.
So broadcasters don’t like ad-skipping. That is hardly news.
But I wonder: when we see consumers continually trying to evade something, is it time to ask: what happened if TV networks relaxed somewhat? Would it really be that dire?
Let’s work it through. Who are the people spending money and time avoiding ads? Remember, ads interlaced with TV programs are designed to slip into the attention of the mesmerised but otherwise inactive viewer. So the people who are actively trying to avoid ads really hate them. Now, if you are an advertiser, do you really want to know that your content provider is doing everything possible to keep those most annoyed consumers? It would not be a stretch to suppose that consumers who get annoyed by ads don’t exactly get positively influenced by them. So if networks embraced ad-skipping and perhaps got from providers like the Dish network some real statistics on the numbers of consumers who actually viewed the ads, then they could tell advertisers that their metrics comprised viewers who had the option of skipping over ads but did not. Surely, that is a more valuable product to advertisers.
Now the implications of this are, in part, worked out in a paper I recently published with Simon Anderson. What could happen is that what broadcasters make up for in higher advertising prices does not compensate for the loss in advertising views. But equally the reverse could be true. A more significant risk is that there are some programs where consumers will go to more lengths to skip ads than others. This technology could jeopardise their funding. However, this would suggest that such programs will move to ad free/subscription networks. Think about what program came to mind that you wanted ad-free. Chances are it was already on HBO.
Embracing ad-skipping could have a positive effect on advertisers too who would have an incentive to make ads more relevant and less broadly annoying. All in all, I wonder if networks might be better off in this day and age by accepting ad-skipping and retuning their business models to the positive aspects of it rather than a long and, I suspect, ultimately unsuccessful fight against it.
Digitopoly 
An interesting aspect to Dish’s move is that it means that it brings less to the table when it negotiates with programmers for licensing fees. This will likely mean that it will pay higher licensing fees than before the Hopper. So it will benefit from the revenues it receives from Hopper subs, but some of this will effectively flow back to the programmer in terms of higher licensing fees. However, this might not happen until the next round of negotiations.
In this light, it is not a surprise that NBC is upset about the Hopper — my guess is that the fees that Dish pays NBC in their current contract did not anticipate the Hopper, and that it view the introduction of the Hopper a breach of an implicit contract. It may even be a breach of the explicit contract for all I know.
Dish, within its supply chain, is now bringing more to the table for (some) viewers, but less to the table for advertisers. Does the technology create value? We will see — one barometer is whether programmers’ ad revenues decline by less than what Dish collects from Hopper subscriptions.
I think that Joshua is right that if the Hopper provides for self-sorting, this could increase, not decrease, value created in this supply chain by allowing for self-sorting. Self-sorting tends to increase quantities. The problem is that the technology doesn’t just identify who likes and dislikes ads, but it also completely eliminates ads for those who use it. So it does not allow for very flexible discrimination. The fact that it eliminates ads completely might be value-decreasing — the ad-sensitive customers might not minds watching a few ads, and advertisers might be willing to pay a premium to reach these individuals (who might be hard to reach with advertising in general). Corner solutions are probably not optimal here. A more useful technology might be a flexible one with which Dish could limit the number of ads without eliminating them entirely.
However, NBC should probably realize that its strategic position could continue to be pretty strong in the Hopper world. Its strategic position is currently dependent on delivering valuable demographics to advertisers and bring valuable programing to MVPDs. Its ability to package unique programming to MVPDs (“must see TV”) is probably greater than its ability to supply advertisers a unique demographic to advertisers (perhaps “must advertise TV”). If so, its ability to capture value might not be much diminished in the long run in a world with Hoppers. Ultimately, NBC faces much bigger strategic problems than the Hopper.
I think the real problem is that there are plenty of people who would skip the ads if it was made easy but don’t bother to do so (right now) when it is more complicated. These people don’t hate the ads, and they may well be influenced by them. Give them an easy ad-skipper and they’re gone, along with their valuable eyeballs.
Food for thought.
http://www.smbc-comics.com/index.php?db=comics&id=2490
A better model, maybe a middle ground between ad skipping and ad deletion / fast forwarding is the tease ads that are becoming more pervasive in online video.
Functionally, the ad makes a 5-8 second pitch and flashes the product, and after that, you can skip the thing and go about your life. You could even double the number of ads while still decreasing the advertising time by a factor of five.
Do I really need 30 seconds to continue to realize that I don’t need a $60k luxury sedan? Really?