A DVR Ad-Eraser Causes Tremors at TV Upfronts
Broadcast television executives came to New York this week, as they do every year, to talk up their new TV shows in front of advertisers.
This year, they are having to talk about yet another technology trying to tear them down.
The disruptive technology at hand is an ad eraser, embedded in new digital video recorders sold by Charles W. Ergen’sDish Network, one of the nation’s top distributors of TV programming. Turn it on, and all the ads recorded on most prime-time network shows are automatically skipped, no channel-flipping or fast-forwarding necessary.
Some reviewers have already called the feature, named Auto Hop, a dream come true for consumers. But for broadcasters and advertisers, it is an attack on an entrenched television business model, and it must be strangled, lest it spread.
“How does Charlie Ergen expect me to produce ‘CSI’ ” without commercials? asked Leslie Moonves, the chief executive of the CBS Corporation, in response to questions from reporters on Wednesday morning before his annual upfront presentation.
Ted Harbert, the chairman of NBC Broadcasting, struck a similar note at his network’s presentation on Monday, calling the Dish feature an insult to the television industry.
“Just because technology gives you the ability to do something, does that mean you should? Not always,” he said.
Unlike the music and news businesses, television has been mostly successful at fending off technological challenges. Several network owners worked together to start Hulu, an online streaming Web site intended to curb piracy. This year, when a start-up called Aereo introduced a service to stream New York TV stations via the Internet, the stations banded together in filing two lawsuits to stall it. The lawsuits are pending.
The Auto Hop is noteworthy because it originated not from a start-up but from a satellite distributor with longstanding ties to the rest of the TV industry. Dish Network regularly negotiates with the networks for the rights to rebroadcast programming. Without that programming, subscribers would switch distributors. Yet Dish has still decided to promote its ad eraser, which comes with the Hopper, a new DVR that can record all the prime-time programming on ABC , CBS , Fox and NBC simultaneously.
As network executives tell it, Dish Network is a friend turned foe, once preserving the advertising model but now threatening to turn on a doomsday device. (It didn’t help Dish’s cause that it gave the networks less than a day’s notice before announcing the feature last Thursday.)
So they are closing ranks to try to stop it. At least one of the network owners, News Corporation, is no longer accepting Dish’s new DVR ads on any of its television properties. It and several other owners are examining whether they can sue Dish, the same way they sued a maker of DVRs a decade ago, according to several people with knowledge of the deliberations, who insisted on anonymity to speak freely about the internal discussions.
James L. McQuivey, a vice president and analyst for Forrester Research, said that “with Dish’s aggressive move to please the end customer rather than advertisers, it’s clear that in the fight for TV revenue the gloves have finally come off.” He continued: “The fact that Dish would be willing to anger some of its most important content partners just goes to show how desperate these times we live in really are.”
The desperation stems from the persistent fear that subscribers will forgo paying for television service and turn to Internet alternatives instead. A feature like Auto Hop is a drastic step “to keep consumers interested,” Mr. McQuivey asserted.
The technology to automatically skip TV ads isn’t new. TiVo, one of the original DVR makers, flirted with such a feature about a decade ago. Another maker, ReplayTV, actually put such a feature in place, spurring lawsuits from the major TV networks.
In 2003, after the owner of ReplayTV filed for bankruptcy, the new owners dropped the feature. A company executive was quoted as saying at the time that “we will take features out because we want to be a positive force in the industry.”
TiVo has taken the same approach, promoting ways to deliver ads to viewers even as they’re fast-forwarding through them.
“We’ve gone from being a black hat to being more of a white hat,” said Tom Rogers, the chief executive of TiVo.
He was an executive at NBC a decade ago when the network was considering making an investment in TiVo. One of the conditions of the investment, he said, was that “they not have an automatic commercial skip.”
TiVo’s Web site specifies that its devices “do not offer a commercial skip feature,” though there is a way to turn on a 30-second skip-ahead button. Mr. Rogers said Dish’s all-ads-skipped button takes the notion “to an extreme.”
But Dish asserts that the technology actually promotes broadcasting and encourages people to sample new shows.
“Over time, we can actually get viewers more engaged with content, not less,” said Vivek Khemka, a vice president at Dish, in an interview this week. “We are sensitive to the networks’ needs.”
That’s why the feature does not start working until two hours after the end of prime time each day, he said, and why the ads are preserved on the recording. (They’re hidden, however, because the Dish software knows when to skip over them.)
As Mr. Khemka pointed out, consumers have had the ability for years to manually fast-forward through ads. DVRs are now in nearly half of all American households and are widely accepted by the industry. DVR owners still see many TV ads, though, according to Nielsen data, suggesting that the recorders give owners the illusion of choice.
Network executives privately dismiss Dish’s claim that it will promote more viewing. They declined to comment on the record about legal maneuvering, but representatives for ABC, CBS, Fox and NBC said this week that they were reviewing the matter.
“Ads are the key to our business,” said Paul Lee, the president of ABC Entertainment Group, on Tuesday. “So we’re not supportive of anything that doesn’t support our advertisers.”
Mr. McQuivey said, “In the end, the real power of the networks comes in their distribution deals. If Dish doesn’t play nice, Dish will find it impossible to renew those deals when they’re up.”
Dish knows that, of course, but has decided to rock the boat anyway. Mr. Khemka declined to speculate on the possibility of litigation from television networks.
Mitch Stoltz, a staff lawyer for the Electronic Frontier Foundation, which argued against the network suit a decade ago, said, “Giving customers the ability to skip commercials automatically may be a business problem for the TV networks but it’s not a clear copyright violation.
“Unfortunately, the damages that copyright law allows are so high that threatening litigation can create a lot of leverage in negotiations, so that copyright can act as a veto on innovation.”
Amy Chozick contributed reporting.