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Don't Tread On My DVR

6/01/2012 2:51 PM

Is fast-forwarding through TV ads illegal?

That’s apparently the legal position of Fox, NBC and CBS, which are suing Dish Network over its Auto Hop ad-skipping feature (see Ad Hopper Dispute Heads for Court). Dish has responded with a lawsuit against the four big broadcasters, alleging they are trying to “stifle” an innovative feature that customers have every right to use.

I understand the concern TV networks have about a feature that zaps their multibillion-dollar ad inventory into digital nothingness.

But the broadcasters are about a decade late in objecting to the digital video recorder. You’re fighting the DVR now? Folks, the horse is out of the barn, the genie is out of the bottle — pick your metaphor.

The DVR is here to stay, and fighting Auto Hop does nothing but reinforce Dish’s populist marketing appeal.

“Consumers should be able to fairly choose for themselves what they do and do not want to watch,” Dish senior VP of programming David Shull said in a statement last week. “Viewers have been skipping commercials since the advent of the remote control; we are giving them a feature they want and that gives them more control.”

Meanwhile, most TV content — about 90% — is watched live even in homes with DVRs, Pivotal Research Group analyst Brian Wieser wrote in a note Friday. “We believe this is because consumers generally enjoy ‘flipping’ channels and browsing an array of networks,” he said. “They also use television as background viewing for as much as half of all viewing.”

Continued Wieser: “While Auto Hop — if proven legal — could restrain the ability of programmers to monetize a small portion of networks’ most valuable programming it will do nothing to limit the appeal of television to advertisers relative to other alternatives other than to minutely alter sentiment towards the medium.”

Concern among content owners about the effect of video recording on buy rates and/or commercial viewing goes all the way back to the dawn of the VCR. The U.S. Supreme Court’s seminal 1984 Sony Corp. of America v. Universal City Studios decision (aka “the Betamax case”) established that consumers’ personal copies of video constituted fair use, not copyright infringement. And recall that early DVR maker ReplayTV was sued 10 years ago by programmers over its ad-skip button, and the company subsequently filed for bankruptcy.

Interestingly, TV programmers have never challenged Dish or EchoStar over the Slingbox features — which provide access to live or recorded TV content, anywhere over the Internet.

However the Auto Hop dispute plays out, Dish “seems to have thought about the implications of the Hopper very carefully before releasing it,” ISI Group analysts Vijay Jayant and Judah Rifkin wrote in a research note Thursday.

The DBS operator has placed specific limitations on the Auto Hop, the research firm noted: First, the “functions must be enabled by customers,” indicating that the consumer is taking the action (not Dish); second, Dish only offers ad-skipping versions as of 1 a.m. after the programming first airs. “We believe that there’s an aspect of Dish trying to anticipate some of the possible contentions that the broadcasters might have insofar as its Hopper services goes,” Jayant and Rifkin said.

Ultimately, though, ISI said it does not believe the “legal rumblings” about the Auto Hop feature pose a significant risk to Dish, adding that the satellite operator’s dispute with AMC Networks is more significant (see AMC: Dish Spat Could Have ‘Material Effect’). The firm maintains its “buy” rating on Dish shares, with a $37-per-share target price.

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