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Cable Technology Feature Article

July 16, 2013

Apple in Talks with Cable Companies for Ad-Skipping 'Premium' TV Service

By Tara Seals, TMCnet Contributor

According to reports, Apple (News - Alert) is mulling a premium TV play with a business model that would offer consumers the ability to pay a subscription in order to skip over ads; Apple would then compensate TV networks and cable/IPTV (News - Alert)/satellite for the lost revenue.

Sources familiar with the discussions have revealed that Apple continues to approach pay-TV distributors, like Time Warner (News - Alert) Cable, to strike a deal for the companies to use an Apple-branded set-top box and user interface for delivering television—one feature of which would be ad-skipping. Of course, the last thing a cable MSO wants to do is relinquish the branding aspects afforded by the customer’s user interface, meaning that Apple’s quest to get into the big-boy STB business—reported since last fall—has been less than smooth.

The company is also approaching the media and content companies themselves. CEO Tim Cook and senior vice president Eddy Cue held talks with media companies last week at a conference in Sun Valley, hosted by investment bank Allen & Co.

JessicaLessi.com noted that a patent Apple was granted last year covers “technology that could swap in a different stream of video during a commercial break” – i.e. ad skipping or commercial hijacking.

Ad-skipping would of course turn the existing compensation model on its ear. PricewaterhouseCoopers (News - Alert) said that over the next five years, a CAGR of 5.3 percent will see the TV advertising sector pass the $200 billion revenue mark, with global revenues valued at $209.4 billion in 2017 compared with $162.1bn in 2012.

In other words, that’s a lot of money that Apple will need to make up in subscription revenue.

Image via Shutterstock

DISH Network has experimented with ad-skipping in the form of its AutoHop commercial-skipping feature for catch-up TV. At launch last year, it found itself at the heart of a swarm of lawsuits and dire warnings of mass commercial failure for the television industry should advertising be taken out of the equation.

DISH, the third largest pay-TV operator in the United States, filed a preemptive lawsuit against ABC, CBS, NBC and FOX, asking for a declaratory judgment that the feature is legal and does not infringe on copyrights. Broadcasters responded with lawsuits of their own, and were denied by a district judge. FOX for one is appealing that decision.

The ad-skipping capability is available for the Hopper whole-home HD DVR system and works on primetime HD programs shown on ABC, CBS, FOX and NBC when viewed the day after airing. A viewer can watch a show with the Auto Hop option commercial-free starting at 1 a.m. ET, after a show has been recorded to the Hopper's PrimeTime Anytime network DVR library. Prior to that, the Hopper's 30-second "hop forward" feature continues to work for same-day viewing. Auto Hop does not work on live broadcasts.

Other VOD and DVR options in the market, including TiVO, allow users to fast-forward through commercials, so they still are technically exposed to the visuals. This, on the other hand, will simply hop over the ads, as the name suggests.

"The lawsuits filed by the networks essentially argue that 'consumers must watch commercials.' We find that proposition absurd and profoundly anti-consumer," said Dave Shull, senior vice president of Programming for DISH, in a statement last year. "Customers have been skipping commercials since the birth of the remote control, and the networks are arguing against that fact. Taken to the extreme, will the networks next ask consumers to stop changing channels?"

However, if the feature becomes industry-standard, broad negative credit implications will ensue, Moody's Investors Service said, reasoning that if advertising reaches fewer eyeballs it will be worth less in revenue, which in turn will put pressure on networks to raise retransmission fees to make up the shortfall. In turn, DISH as an example will pass that on to its 14 million subscribers.

"AutoHop needs to be put in perspective: the majority of our viewers watch their primetime shows live or during the same evening -- the time that is most valuable to advertisers," Schull said. "We chose to incorporate AutoHop as a next day feature and only if enabled by the consumer."

No word yet on where Apple’s idea falls into the mix, but one can be sure that the very idea of taking ads out of the experience, especially for live television, is not something anyone in Big Media or pay-TV distribution is going to entertain lightly.

Edited by Blaise McNamee

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