If everyone is skipping commercials, the ads don't reach their intended targets causing advertisers to stop buying the ad space.
Actually, that's turned out not to be the case. There was a lot of talk about the collapse of free over-the-air television some years back predicated around this whole idea. Remember the flap over the early DVR (I forget which one) that had a 30-second-skip button?
As it turns out, free television hasn't collapsed after all. The model works as well as it ever did. Because advertisers aren't actually paying for you watching their ads. They're paying for the network to put their ads into the show, which gives the advertisers the opportunity to be seen. If anything, the prevalence of technology that lets people fast-forward through ad blocks has put pressure on advertisers to come up with more eye-catching images, so they're more likely to pique your interest as you're skipping ahead, making you go "Huh?" and wind back.
To me, the interesting part of this approach (the one described in that patent application I'm sure we've all read closely by now) is that the commercials embedded into a show can disappear after they're watched once. It's not required that they do, but it's one way the patent could be implemented.
Imagine you go to iTunes and download, say, last night's "Reality Game Show." It's free; you don't pay a dime for it. When you sit down to watch it the first time, there are commercials scattered through it, just like broadcast TV or Hulu.
Under the hood, the show is stored on your computer as a bundle. There's a directory, and in that directory is a Quicktime movie of the show itself, one Quicktime movie for each of the commercials, and metadata file that contains information about which segments go where. But that's all hidden from view.
When you watch the show for the first time, the commercials play at those predetermined points. But because they're set to be one-time-only, after each one is viewed, it disappears. It's literally deleted from your hard drive. Once you've watched the show all the way through, the commercials are all gone, and you're left with an unlocked Quicktime movie that you can watch again as often as you want, commercial-free.
That's one way this patent could be implemented. It's not guaranteed that that's how Apple would choose to implement it, if they implement it at all, but they went to the trouble of describing that specific case in the patent application, so it's clear they've thought of it.
The other interesting aspect of this patent is the idea that while you're not tethered to the Internet when you watch the show (it doesn't stream; it's a download), the fact that you played the commercial is recorded, along with possibly a date and time and maybe something like a "liked/didn't like" feedback datum. That metadata is stored as a journal file, then piped back to the server at a later time, when you connect to the Internet. This gives advertisers specific data about which spots are being seen and when, and maybe more information like overall public approval/disapproval. That's valuable information for advertisers, and it makes buying ads that are delivered this way more attractive, business-wise. Which makes it more likely that a service (iTunes or whatever) that incorporates this ad technology would be commercially successful, which means it'll be more likely to carry the content you want to see.
There's more; it's a really interesting patent if you just take the time to read it. Part of it is a system for content providers to upload their own ads. Imagine if podcasters had an easy system for inserting ads into their shows. Many would choose not to, of course, because podcasts are currently either done altruistically or are sponsored. But having that revenue option would mean more people would consider podcasts as profit centers or at least as being revenue-neutral, which ultimately means we'd get more podcast content. More content is a good thing, even if some people choose not to consume it because they dislike ads.
To all the people who said things like "Well I'm just going to go back to piracy," nobody cares. I'm not being rude here; I'm speaking literally. Piracy is viewed in the broadcast industry like shrinkage is viewed in the retail industry. Every retailer knows that for every thousand packs of gum that come in, only 975 will actually be sold. The rest get damaged in shipping, or pocketed by employees, or shoplifted. It's just part of doing business.
If your sensibilities are so fragile that you'd go to the trouble of stealing content
which is already being broadcast over the air for free just because somebody dared to talk about ideas for better advertising delivery, congratulations. You're officially shrinkage. Your piracy is a write-off, and the industry basically doesn't care, except at the annual conferences where somebody inevitably gets up and delivers an impassioned jeremiad about how the Internet is a black hole, and content delivery via the Internet is a nothing more than an elaborate going-out-of-business plan.