What precludes cable providers from controlling the ads via the DVR/box?

The cable companies have been working on dynamic ad insertion into VOD and (to a lesser extent) DVR playback for a decade or more. In fact, the industry has a five-year-old joint venture called http://www.canoe-ventures.com/ devoted to just that. However, progress has been very slow, and CANOE a year ago had a major restructuring and dropped a bunch of its more ambitious programs. The biggest reason for the slow pace is that only "natural" inventory for dynamic insertion is "spot cable" positions -- adds that the cable companies, not the networks, sell -- and it is a tiny market. The networks and broadcasters have an agenda which is 180 degrees opposite: persuading advertisers that Live and Live + 3 on hit televisions hows remains something they are supposed to pay for and that enough people are watching linear / traditional advertising. The last thing in the world that Disney wants to do is to persuade advertisers that they aren't supposed to care about the show or its broadcast slot, but simply try to be on whatever show that an 18-49 year old male happens to be watching on Thursday at 9 p.m. This is sufficiently built into the thinking that dynamic insertion will (in my view) have to come from partnerships of non-traditional content channels on over-the-top platforms rather than those of the controlled by the cable company -- i.e., it's going to be something that AppleTV, Roku, or Xbox will create and offer as an option to content partners who are already ad-supported (e.g. Hulu, Crackle) or who want to create an ad-supported option to go along with their a la carte or streaming models (Netflix, Vudu, Amazon).

There are a few different kinds of ads. Network Ads, which MUST run and the Network will lock the cable provider into running them as part of their agreement. There are also slots that the cable providers get to sell. They can be within the Network Ad time, you'll see this mostly on everything but the big 4 networks. So if you're watching a Law and Order re-run on TBS, some of the ads will be through TBS network, and some of the ads will be through your local cable provider. So along with a Cascade commercial, you'll also see a commercial for "Y'all Come N Get It, Ribs and Bait shop in Decatur, GA." Also, ads mean money, and no one is messing with that.

FWIW, I'm on Comcast and they regularly preempt ads for their own. Quite often, you will catch just a millisecond of the real ad start and then quickly get overridden by the Comcast/Xfinity ad. Sometimes the cascade of Comcast ads are so heavy, some shows almost seem to be exclusively sponsored by them.

I'm pretty sure, though, the preemption isn't at the set-top box. It's at the main facility.

Broadcasts have spots designated for insertion of local commercials. For network programs, these are sold by your local network affiliate. For basic cable programs, these are sold by the cable provider. It's a form of revenue sharing. If your cable system has improperly configured its audio routing, you might even hear the touch tones that signal the insertion point.

The above answers are correct, but also, the networks and cable companies are absolutely working on technology to insert individualized ads in those slots, though it would be at the broadcast center and not the DVR.