DISH’s Ad-Skipping DVR: An Opportunity Not a Threat 

By Charles B. Slocum, WGAW Assistant Executive Director
(July 2, 2012) 

Charles B. Slocum  

Three major broadcasters have sued DISH Network over its recently debuted ad-skipping DVR, the Hopper. Ad-skipping has typically required fast forwarding through commercials, which the networks actually argue increases awareness of the brands advertised. DISH has previously provided a 30-second skip button on its DVRs that permits the viewer to accomplish skipping with one button-push per ad, and an unofficial TiVo hack permits the same functions. Automatic ad-skipping was built into the Replay DVR, an early TiVo competitor, but its use became a non-issue when that company went out of business. That feature is back with the Hopper under the name AutoHop. Ads in primetime programming on the Big Four networks are automatically skipped.

DISH claims its innovation is simply the result of ever-developing technology. The networks are correct in the implicit message of their legal challenge: technology is never inevitable; it has to conform to both a market need and existing laws. The market need here is self-evident: consumers would opt out of watching commercials if they could. The current state of the law, however, is not so clear. The disruption to the broadcasting business model that the networks fear is not clearly protected. Copyright exists for individual television programs. Technologically hopping over the commercials has been unchallenged while it’s been a manual process. Does making it automatic break a law? As with television reuse of feature films in the 1960s, home taping of off-air broadcasts in the 1980s, and Internet delivery of television and film content in the 2000s, network lawyers may be fighting a technology that industry strategists will soon declare a new source of revenue.

In one sense, the revenue-generating potential of DVRs is already being demonstrated. Cable and satellite services have started paying retransmission fees to broadcasters. All estimates are that what is now hundreds of millions of dollars will develop into billions of dollars added to broadcasters’ bottom lines. When you pay your cable bill, part of that money goes directly to the broadcast networks. It’s a small stretch, as DISH is arguing on its subscribers’ behalf, that these payments by consumers via DISH, should pay for the technological convenience not only of a DVR with manual ad-skipping technology but also for one that skips ads automatically.

DISH has attempted to mitigate the negative effects of the Hopper by limiting the ad-skipping to next-day viewing. So if you view the recorded program on the same night it is recorded, you still have to manually use the 30-second skip button. An industry rule of thumb holds that 80% of DVR viewing occurs on the same day, time-shifted only a few hours. Thus, for 80% of viewing via the Hopper is unchanged. Beyond this, DISH has only implemented the ad-skipping on the top four broadcast networks’ primetime schedules. Other channels and other times of day are unaffected. And, therein lies a detail that has gone mostly unreported and which offers a major upside to the networks.

The four-network, primetime scope of the next-day ad-skipping matches another feature of the Hopper DVR: Primetime Anytime. The DVR automatically records every primetime telecast on the Big Four networks. It stores each night’s programs for a week, after which they are replaced with the new night’s shows. With this, DISH solves one of the great frustrations of DVR viewing, which is that consumers often forget to record programs that they were interested in. With AutoHop, the belatedly sought program is recorded already, and so is everything else in primetime, including programs that now seem worth trying. This “impulse sampling” of programming overcomes a tremendous hurdle networks face in getting viewers to tune into a program that first time. The networks cite sampling as a benefit of Internet availability of current episodes and of cable telecasts of both current and older episodes. The same is true of this archive of the last week of primetime sitting on half of each Hopper hard drive. And compared to those other venues for sampling, the programs are much easier for the viewer to stumble upon as they are already browsing their DVR menu. The serendipity of old-school channel flipping is reconstructed in browsing recorded programs on a DVR, and DISH has done the networks a favor in dropping all of primetime in there.

The networks haven’t said “thanks” yet. Neither had Dallas-based local broadcaster Hoak Media, which also sued DISH over the AutoHop technology. But unlike the Big Four, Hoak has already settled. The terms of the settlement have not been released, but reading between the lines of the public statements, which do not mention ad-skipping, suggests how the same dispute will be resolved with the Big Four: with money. The fact that there are no reports that ad-skipping was disabled in the Hoak settlement, points to the likelihood that Hoak got higher retransmission fees.

So, while lower ad revenues due to ad skipping is a negative development, the potential for higher retransmission fees strengthens the dual-revenue stream of advertising and subscription fees for broadcast. It makes the business less subject to recessionary pressure on ad rates and enables the business model to accommodate new on-demand technologies such as DVRs, which consumers will want to skip commercials. It’s possible that an industry-wide version of the Hoak resolution will involve a fee high enough that consumers taking advantage of ad-skipping will have to pay a premium, but that can be accommodated as easily by the DISH infrastructure. This premium fee move is all but invited by the fact that same-day ad-skipping could be the consumer enhancement that DISH held back to add later so the consumer is happy to pay a premium. This market-based revenue enhancement for added consumer flexibility, in combination with program sampling for primetime programs via Primetime Anytime, potentially make this a win for the Big Four networks (and, if the technology becomes more widespread, we can expect a fifth network, Univision, to be added, too). DirecTV is said to have the technology in the wings and TiVo and other cable DVR makers are likely not far behind. If the lawyers let the future arrive.