Kangaroo hops the ads

Melbourne Herald Sun, Friday May 25, 2012

A cartoon kangaroo is at the centre of a new American media storm that is going to be just as relevant here. It's the perennial topic of ad skipping. Are you being unfair, and risking your nightly entertainment, by removing the ads?

The topic has surfaced with the recent release of a new heavy-duty digital video recorder called "The Hopper" (hence the kangaroo logo). It will record up to six channels at once, and as it replays, it can automatically cut out the commercials - hop over them.

The television networks don't like this recorder. In fact several have refused to play commercials for the product (rather ironic if you think about it) because of its potential to damage them. The latest, just this past week, was Fox Network in New York.

The reason is obvious. If everyone was able to skip the ads on their nightly programs, the advertisers would close their cheque books and walk out. Network revenue would plummet and they would suffer even greater financial pains than many of them are already feeling.

The simple fact is that if we want varied, entertaining TV stations they have to be paid for, somehow. Currently it's through an invisible tax - the manufacturers' advertising budgets. Oh yes it is a tax - it is collected from every dollar you pass across the shopping counter. Fortunately for our governments, no-one calls it a tax.

The popular alternative to ads is the ABC. But once again you are paying the cost of those invisible commercials. Only here the tax is direct, paid from consolidated revenue so you actually see it. Hence the annual brawl between the network's management trying to get more, against the government trying to balance the budget.

If ad skipping robbed the TV stations of their income, they too would then have to charge us direct - some kind of monthly subscription fees, like the cable stations already do. But even those fees would rise if they lost the subsidies provided by the advertisers.

Again in America, the head of CBS, Les Moonves, used this very point as a warning over the growth of hopper technology. "How does Charlie Ergen," the manufacturer of the technology, "expect I produce CSI without advertisements?" All that blood and gore costs around $6 million an episode to produce.

Time Warner's Glenn Britt agreed: "The dual stream of advertising and subscription fees has been great for content providers and we don't want to destroy one of those revenue streams,"

This argument has been around since the earliest introduction of video recorders. The fast-forward button allows you to "zap" the commercials out of pre-recorded programs, perhaps not as efficiently as a hop but just as effectively.

But what we have learned from that experience is that once we're settled in for the night, the zapping decreases. After all, those three-minute breaks are the ideal length to check the kids' bedrooms or visit the loo.

However, automated hopping is a command you can set and forget. This is what has agitated the networks.

This battle has already been fought, nearly a decade ago. When the TiVo first hit the American market it had commercial-zapping technology as a major selling point. But it was a laborious process involving transfers to your PC and installation of downloaded apps.

A competitor, ReplayTV, had built-in, automatic cutting. They were sued by the TV industry, sending their parent company broke.

Will this be the fate of the hopping kangaroo? Right now there are intense discussions among the normally factious networks about the ways and means to kill this threat to their revenues.

ray@ebeatty.com

Blog: themarketeer-raybeatty.blogspot.com