Since I read Dish Network's press release last month announcing its new Auto Hop feature, I've been scratching my head, wondering (like many others), what Dish's cryptic CEO Charlie Ergen was really thinking about with the move. Auto Hop is such a blatant poke in the eye to broadcasters' ad-based business model that Ergen surely knew it would evoke a legal and business response - as it has.
Therefore, I was hoping an article in last Friday's WSJ, based on the first interviews with Ergen about Auto Hop, would clarify his motivations. While some have called Auto Hop a negotiation tactic with broadcasters over retransmission consent fees (which, in part it is), rather, I think Ergen's larger message with Auto Hop is that the traditional TV ad model is irreparably broken and it's urgent the industry figure out what's next. Not doing so risks the ultimate unraveling of the great American broadcast TV industry.
Ergen highlights the industry's challenges by pointing to viewership shifts among the young, specifically a survey sample of his five kids. Of the four apparently living outside his house, none subscribe to pay-TV service. The fifth, a daughter who still lives at home, spends time online surfing with her friends on their tablets "until they find something free" to watch. Sound familiar?
With 50% of homes now having a DVR, skipping ads is becoming ever more commonplace. Compounding matters, online ad loads are relatively light, which further re-conditions viewers to expect less interruption. It's no surprise therefore that linear ratings were down again this past season. As the rate increases seen in the current upfront demonstrate, diminished linear inventory actually works to make what remains increasingly valuable to advertisers seeking as broad an audience as possible.
And that brings us to the irony of the broadcasters' reaction to Auto Hop. Dish subscribers who would use it already have DVRs, and therefore are already likely skipping most ads. So what's the real benefit networks get out of stomping on Auto Hop, other than to try setting a precedent that a distributor shouldn't be allowed to fiddle with their ads, even though viewers already do? Wouldn't it make more sense, as Ergen implies, for the networks to focus their energies on innovating the ad model and trying to restore its relevance in the hopes of maybe monetizing some of the DVR-based views?
By playing the role of public truth-teller, Ergen's been willing to make himself a lightning rod for the industry on issues that others would be foolish to ignore. However, Ergen would help his cause a lot if he proposed specific solutions to address the problem, rather than speaking vaguely about having "half a dozen creative ideas" about how to better target ads. Regardless, advertising is crucial to broadcasters' health, so it's ultimately on the industry itself to figure out how to adapt to viewers' new behaviors and expectations if it wants to prosper long-term.
(Note: if you want to understand how online video advertising plays into all of this, join me at the VideoNuze Online Video Advertising Summit next Tues, June 19th in NYC. Register here.)
Topics: Dish Network