Ad-skipping technology moves to the front line

Ad-skipping, the technology that allows consumers to purposely skip commercial TV spots, is now a red-hot issue being fought over by television and advertising executives who think it threatens the very core of broadcasting’s business model.

SONICBlue's Replay TV 5000 allows users to skip commercials breaks.

The New York Times had two major articles on the topic in less than a week. In one it reported on disputes among AOL Time Warner executives on both sides of the issue and attempts to resolve competing interests.

The issue pits Time Warner’s new digital cable systems, now with personal video recorder (PVR) controls that allow subscribers to automatically skip ads, and the company’s media production and broadcasting divisions that count on commercials for income.

It’s an especially sticky issue for Time Warner, the second largest cable company, said the Times, because it has spent aggressively to upgrade 98 percent of its cable systems to digital.

Since 1996, cable companies have collectively spent more than $55 billion upgrading systems for two-way digital services. However, of the more than 70 million people with access to digital cable, about 15 million subscribe. Only about 3.5 million of Time Warner’s customers have signed up.

Time Warner is betting that video-on-demand and PVR features will boost the number of subscribers.

However, executives such as Jamie Kellner, chief executive of Time Warner’s Turner Broadcasting, see the ability of viewers to easily bypass commercials as potentially devastating for the networks and television production studios.

Until ad-skipping technology came along, TV viewers have in effect paid much of the network's cost of programming by watching the commercials, which accounts for all the revenue at the broadcast networks and more than half of the revenue on basic cable.

In another article, the Times examined a new cable network that responded to ad-skipping by integrating ads into its programs. Fine Living, a new channel from Scripps Networks, has been set up to incorporate various forms of advertising that can foil the abilities of PVRs. Every show is available for sponsorship, while advertisers are collaborating in the making of certain one-minute segments that run in the middle of programs.

Though the network's charter advertisers like BMW, Prudential Financial and Viking Range are intrigued by the new commercial opportunities, the newspaper said it is unclear how much value they would place on them if they were not accompanied by traditional 30-second television ads.

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