Supreme Court's Ruling Deals a Blow to Big Media

The media conglomerates are trading down today, off more than the Dow. One factor pulling them down is the Supreme Court's decision not to consider their appeal to challenge Cablevision Systems' (CVC) new DVR service. This is a direct blow to NBC Universal (GE), CBS, ABC (DIS), and 20th Century Fox (NWS), who sued Cablevision in 2006.

This decision will enable Cablevision to soon roll out a new kind of DVR, which requires much less capacity.

This DVR service stores a viewers' recordings on the cable operator's servers, rather than on the box in your living room. That'll make it easier and cheaper to sign up more customers for this service. Comcast (CMCSA) and Time Warner Cable (TWC) say they're looking into this kind of technology, which could quickly put DVRs in twice as many homes as they're in now, in about about half the country. There's no doubt this is a win for cable operators, who will be able to deliver higher capacity storage for shows. And this system uses an infrastructure their rival satellite TV companies (DISH, DTV) can't replicate.

The media giants already have their hands full. They're struggling with declining ad prices as marketers find more targeted ways to reach consumers. And DVRs have been eating away at their commercial-viewing audience for a while - as of May they're in about 30 percent of US households. Some studies indicate that DVR viewers watch more TV, but the question is whether that TV watching can be monetized: people watching recorded shows fast-forwarded past more than half the commercials.

So what next? The TV networks will have to figure out how to adapt to this setback. They may try to take advantage of cable's interactive capability to update ads with more up-to-date commercials when viewers start watching recorded shows. And of course they'll try to implement restrictions on ad-skipping, though that seems unlikely. This Supreme Court decision is also sure to spark more long-hard thinking about distributing more content online through websites like Hulu.com, where the nets can control when and how ads run. Online video may not include many ads, but at least (for now) they can't be skipped.

And if this technology isn't a violation of copyright laws, what's next?

Comments

[stocknerd:]

Miss Boorstin is correct. However the dinos of broadcasting will NOT go quietly inot the night. They will either: BUY the new technology, or create (compete) with a similar one. The media landscape is changing that is for sure. I just looked at the top rated shows on television----what a waste land. Crime shows and reality shows. How lame brained is the US viewing public? Don't answer that qiestion.

Jul 01 09:02 AM

[Knight48:]

My guess is we will see more of those damn 'in show ads'. The ones that have people and graphics on the screen DURING the show (sometimes taking up a good portion of the screen). TBS/TNT/FOX are already masters of this annoying little trick

Jul 01 10:55 AM

[sarge 907:]

A really tough life when all you have to worry about is watching irritating ads on tv.
If your working hard enough to provide for your family your certainly going to be to tired to watch the idiot box.

Get a life America. Television and Hollywood movies are spam.

Jul 01 11:51 AM

[derryl:]

No, Hollywood movies are perfectly restful escapism when you want to give your brain a rest and enjoy watching the good guys kick some ass.

Jul 02 12:12 AM

[User 441226:]

DVR devices are great, but Cablevision's version of it isn't going to be very good. Time and time again they promise big things and then disappoint. Cablevision is going to try to force everyone to use their DVR boxes and then they'll both jack up the rates and start inserting tons of their ads into your downloaded shows. I suggest staying away!

Jul 06 02:54 AM

[Robert H. H...:]

"And if this technology isn't a violation of copyright laws, what's next?"

I think the situation is more ambiguous than this, which is undoubtedly why the Supreme Court declined to hear the Cablevision case. You can draw a pretty clear line from the Betamax definition of "fair use" to the "networked PVR" proposed by Cablevision.

en.wikipedia.org/wiki/....

If making a copy of a broadcast show is fair use under copyright law, it shouldn't matter whether the copying device is owned by me and located in my house (like a VCR or DVR) or in my brother-in-law's house, or arguably on a Cablevision server.

That said, I don't think we've heard the last of this issue. When I watch a recorded show on my TiVo, there's no explicit economic transaction involved. If Cablevision explicitly charges for the network DVR feature, it does feel like they're "re-broadcasting" for profit. And even if the cost of the feature is bundled into a monthly subscription, the broadcasters will see no distinction between an explicit or implicit charge.

So at the end of the day, network PVR functionality will likely be offered on terms that (at least some) broadcasters reluctantly find acceptable. This may preclude fast-forwarding through ads, forcing viewers to engage in old-fashioned ad avoidance like going to the bathroom, or to the fridge, or another channel for five minutes.

The cost of storage and video compression technology will continue to plummet, making DVR technology in some form a mass market product. As DVRs are quite a bit easier to operate than VCRs, it seems reasonable that in ten years, DVR may achieve near-universal household penetration (in the U.S.) like VCR did before it.

Forward-looking broadcasters may actually prefer to see networked DVR (with limitations) established as an alternative to forestall standalone DVR penetration (without such limitations). Likewise, cable networks with small audiences may gain meaningful viewership through readily available time-shifting.

I think the Supreme Court is wise to duck this case now. Any fine-tuning of Betamax based on the physical architecture of the network and recording devices involved would likely be obsolete before the law profession could sort out its implications.

Moreover, if over-the-air broadcasters -- who currently enjoy "must carry" privileges on cable systems -- move towards negotiated carriage fees as CBS has suggested it might, one can reasonably expect that network PVR rights will be part of that discussion.

During this period of rapid technological and regulatory upheaval, the Supremes are wise to let the market sort this out.

Jul 06 10:51 AM