On The Money

Tie Me Kangaroo Down, Sport

3/07/2014 11:15 AM

With its landmark Disney carriage deal, an agreement that provides the building blocks for Dish Network to launch its own “virtual over-the-top” online video service, the satellite giant could effectively have driven a stake through the kangaroo heart of its controversial ad-skipping service, the AutoHop.

Dish launched the AutoHop – complete with CEO Joe Clayton clutching a small kangaroo – at the Consumer Electronics Show in 2012. It was touted as a revolutionary new product – one that would free customers from the shackles of unwanted ad viewing – and it seemed to be just that. With one touch of a button, AutoHop customers could eliminate every commercial from certain networks’ prime time lineups on their DVRs, one day after their original air. 

As part of its carriage agreement with Disney, Dish agreed to disable the controversial ad-skipping feature until three days after the program originally airs. That period, known in ad parlance as C3, is the basis for the television advertising economic model – ad buyers pay a rate based on ratings for a show for up to three days after it airs. But the vague wording of the language, at least according to one top analyst, suggests that the disabling period could last longer if the ad measurement model changes.

“Even as the ink is drying on this deal, the C3 window [is] on a path to be increased to C7,” wrote Sanford Bernstein media analyst Todd Juenger. “Based on the language in the joint press release, we believe if the currency measure is extended to C7, Dish would extend the disable of AutoHop for seven days (post the currency window).”

Extending the window to seven days would seem to seriously impede the relevance of the Auto-Hop – who wants to wait that long to skip an ad? And other language in the release: “The deal also provides a structure for other advertising models as the market evolves, including dynamic ad insertion, advertising on mobile devices and extended advertising measurement periods” – suggests that the Auto-Hop could be disabled for even longer. Who is going to pay to dynamically insert an ad in a VOD stream in a service that lets its customers automatically skip ads?

Granted, this is only for Disney networks, but it is probably a safe bet to assume that in future carriage negotiations, other programmers will ask for the same consideration.  

 “It certainly makes it less compelling,” said Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak. “But I still think it is something that is useful. People are talking about it.”

Advanced advertising guru and Vertere Group founder and CEO Tim Hanlon said that while ad skipping could make an insertable offering less compelling, it would depend on the ads.

Hanlon added advertisers probably wouldn’t want to insert an ad in a VOD stream until at least 8 days after the original air date, which would seem to suggest an even longer period of AutoHop disability.

“Ad skipping was basically a reaction to too many ads,” Hanlon said. “As recording becomes more cloud based, and video on demand is essentially cloud based DVR, the DVR function in the cloud is more consumer initiated, As more of that access functionality becomes centered in the cloud, the ability to retrain or disengage or disable a fast forward function becomes easier.”

Dish executive vice president and chief commercial officer Dave Shull said the purpose of the Auto-Hop isn’t necessarily to get rid of ads all together, but to encourage better ads and a lighter ad load during shows.

“We like the Hulu model, which is a much lighter ad load but it’s a targeted ad load,” Shull said. “A lighter load of advertising is really what customers want and they are willing to watch ads that are relevant to them.”

I’m not quite so sure about this, but Dish seems to believe that ad skipping will force advertisers to develop advertising that people will watch.

“We generate a ton of profits, many, many millions of dollars from advertising ourselves,” Shull said. “We believe strongly in the dual revenue stream. We understand it’s an important part of the ecosystem. We just wish that ads were smarter.”

Shull said that while the Auto-Hop gets all the press, Prime Time Anytime is really the killer feature of the Hopper DVR product. Being able to record an entire primetime line-up of shows with one press of a button, and being able to download that content to a laptop, tablet or phone for later viewing is the aspect that blows most folks away.

“People misunderstand how unique that is,” Shull said. “…The AutoHop is gravy  on top of that.”  

But still the AutoHop manages to give programmers fits. And even though the feature has its limits – it is only good for certain ABC, CBS, Fox and NBC programming one day after it airs and PTA only stores shows for eight days – it was sufficiently scary enough for the networks to launch a flurry of lawsuits in 2012 against the service. As a result of its deal earlier this week, Disney has agreed to drop its lawsuit against Dish. 

While Dish chairman Charlie Ergen had vowed to fight those lawsuits  in the past – Twenty-First Century Fox, CBS and NBC Universal still have pending Auto-Hop lawsuits against the satellite giant – it is probably a good guess that Dish will negotiate away those suits in the next round of carriage negotiations with those programmers.

Which leads to perhaps another example of Charlie Ergen’s genius. What if, as Re/Code columnist Peter Kafka and others suggested earlier this week, the Dish chairman’s protestations that the ad market needs to change its model to fit the Auto-Hop, was masking his true agenda?  What if Ergen had planned all along to use the Auto-Hop as a negotiating tool to secure OTT rights?

It’s not that far-fetched a notion.

Remember that it was not too long ago that Ergen had been hinting that someone should drop ESPN to send a message about the high cost of sports programming – a lot of people took that as meaning that Dish would eventually jettison the channel. And in the months leading up to the Disney agreement, Ergen had been characteristically vague, likening negotiations to trying to convince a pretty girl to be your date, adding that Dish would either get that date or go stag, learning to live without the programming giant in its lineup. And in the end, what did he do? He got the girl he wanted, but also agreed to squire her less attractive cousins – adding Disney channels The Longhorn Network and the SEC Network, costly sports networks that Dish has shunned in the past. He added Disney apps like WATCH ESPN and WATCH Disney, WATCH ABC Family and WATCH ABC, which he had also rejected in the past. He got the right to put five Disney channels – ABC Family, ESPN and ESPN2, Disney Channel and content from ABC-owned broadcast stations – in a virtual OTT service.

Ergen won’t be the only distributor with plans to launch an OTT service, but he could be the first to market. Verizon also announced plans for an online video package – CEO Lowell McAdam has said he already has deals for 20 channels and expects to have 110 channels by the end of the year – and AT&T is expected to launch a similar service. DirecTV has also hinted at an OTT offering, and they have said publicly they want a similar deal to Dish. DirecTV’s Disney carriage deal expires at the end of 2014.

If Ergen is serious about launching an OTT service, he’s going to have to do a lot more deals. While Dish has not said how many channels the service will have, it only has five now and reports have said the goal is for 20 or 30. And now that the cat is out of the bag, the terms with other programmers have probably gotten more expensive. CBS CEO Les Moonves last week said Dish’s Disney deal is a “great start,” adding later that it is “not quite enough for us.” CBS’s deal with Dish expires at the end of the year. We’ll see if other programmers take a similar position in their future negotiations with Dish.

 

September