Dish Network’s introduction of a set-top box with an automatic ad-skipping feature has prompted a furious legal response from the major broadcast networks, but although this move could be a ploy by the satellite operator to compel broadcasters to cut retransmission-fee demands, the function could become so popular with consumers that it may prove difficult to take away, suggests information and analysis provider IHS.
The controversy centres on Dish’s AutoHop feature in its Hopper set-top boxes, which will allow consumers to automatically skip ads during playback on a digital video recorder (DVR) when viewing broadcast network programming. For the broadcast industry, this could represent a fundamental threat to the advertising revenue that drives their business, according to an IHS Screen Digest US Television Intelligence Service report from IHS.
Because of this, Fox Broadcasting, NBC Universal and CBS Corp. all filed suit on May 24, alleging a breach of terms in the licensing deals that allow Dish to retransmit their network feeds. The lone holdout, ABC Networks, did not immediately file suit like the rest, but parent company Disney CEO Bob Iger has said publicly that Dish’s action “feels like a bite to the hand that feeds you”.
AutoHop for now works only on shows broadcast from the TV majors, not on cable network programming.
With more than 14 million residential and commercial customers at the end of last year, Dish is expected to enjoy household penetration this year of an estimated 9.6 million DVR units, up 8 per cent from 8.9 million DVRs in 2011. DVR penetration for the company will continue to climb during the next few years, reaching a projected 11.7 million units by the end of 2016, as shown in the figure attached. Among operators that provide their own DVR equipment, Dish’s DVR shipments are second only to those of DirecTV, and are ahead of rivals such as Comcast and Time Warner.
“The Hopper was clearly a monster the minute it was announced at the Consumer Electronics Show back in January, with twice the capacity of DVRs from other operators,” said Tom Adams, senior principal media analyst for US media at IHS. “With AutoHop, consumers can automate the ad-skipping process whenever they fire up a show on which the feature is enabled, electronically detecting the switch from programming to advertising, and blackening out the screen briefly while it scans forward to the programme. And with an ever-increasing percentage of viewing occurring on a time-shifted basis via DVRs, this likely-to-be-very-popular innovation is what spurred networks to turn their lawyers loose on Dish.”
Before AutoHop, the industry had reconciled itself to other forms of DVR-enabled ad skipping, such as fast-forwarding through ads or using a 30-second skip button to get to the next section of programming. In these implementations, however, studies show that the branding messages in ads still manage to get through to consumers, even if some details may be missed. AutoHop changes this by skipping through the ads completely.
As a result, it’s now dawning on the networks that AutoHop has the potential to devour the ad model, Adams noted. And with two terabytes of storage space, the Hopper set-top box is twice as capacious as any other US operators’ DVR, capable of playing and capturing up to six programme streams simultaneously during primetime. Together, the AutoHop and the Hopper’s huge capacity could be enough to spur new sales – both among existing Dish subscribers as well as current non-subscribers, which is what the company hopes.
Hopper is also at the heart of Dish’s next-generation consumer proposition. The set-top box is connectable via multimedia over coax (MoCA) to three smaller clients – dubbed ‘Joeys’ in keeping with the kangaroo metaphor – allowing live, recorded and video-on-demand programming to be viewed on other sets. The system’s new interface includes capabilities such as predictive content searching on the DVR, as well as a ‘push’ video-on-demand content that Dish will be pre-loading during off hours for a service the company is calling ‘Dish Unplugged’.
For their part, the networks view AutoHop as an infringement of the basic agreement between broadcasters and pay-TV operators. While broadcasters in the past were happy simply to be guaranteed carriage without direct compensation on burgeoning pay services, the broadcasters now seek retransmission fees commensurate with the value of their content.
Adams points out that the retransmission fees remain minuscule – somewhat less than $1 billion, compared to the $27 billion that the Top 90 cable networks make in affiliate fees. This has led some to speculate that AutoHop was launched simply to fire a shot across the bow of broadcasters in order to get them to moderate their retransmission demands.
That, indeed, may well have been part of Dish’s calculations, Adams noted. However, this bargaining manoeuvre may create further problems for Dish. “If the AutoHop feature proves to be as popular as we think it might be, it will be awfully hard to take it away from consumers – even if broadcasters prove willing to negotiate away the capability in future retransmission deals,” Adams concluded.