or merging the ad into the video stream itself. This would make it un-skippable
That's not true. Besides the point that people can skip any video content manually anyway, I already use a Firefox addon called "SponsorBlock for YouTube - Skip sponsorships", which is configurable and works for other sites as well. The skip points are community maintained, but with the help of AI it should be easy to detect ads automatically. The point is, there are already tools to help with skipping video encoded content.