Robert H. Heath

Supreme Court's Ruling Deals a Blow to Big Media

"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.

Digital TV Providers Stand to Profit from Many New Subscribers

I think it is highly doubtful that cable and satellite TV providers will see a meaningful uptick in subscribers due to the analog cut-off.

Sure, some households like your parents will make the switch. But even without a $40 converter box subsidy; spending $50 to $100 on a DTV converter box from Best Buy is equivalent to one month's cable or satellite bill. It's pretty clear that over-the-air households don't care so much for the additional channels available on satellite and cable or they would've switched already. Non-subscriber households are generally more rural, more price-sensitive and less interested in 400 channels than cable or satellite households.

I will be surprised if significant numbers of these households sign up for the recurring monthly expense of a cable or satellite bill in these challenging economic times.

Sure, a small fraction of OTA households may be too rural -- or conversely too urban -- to get a reliable over-the-air digital signal so they must turn to satellite or cable if they want a signal at all. But as an investor I'm more concerned with existing subscribers (whose numbers dwarf non-subscribers) downgrading their services by canceling HBO or giving up the premium digital tier.

Like all subscription-based businesses, cable and satellite benefit from consumer inertia making them somewhat defensive in a recession, especially compared with more ad-dependent media companies.

But I would not bet on a big boost from the digital switchover.