Cable Operators

Court Nixes Network DVR

3/23/2007 8:07 PM Eastern

Cablevision Systems’ dream of a “more elegant” and cheaper way for customers to record and play back programming via a remote digital video recorder was dealt a blow last week as a federal judge found that the system would be in direct violation of programmers’ copyrights.

On March 22, U.S. District Judge Denny Chin ruled that a remote-storage DVR would allow Cablevision and its customers to engage “in unauthorized reproductions and transmissions of plaintiffs’ copyrighted programs.”

In a statement last Thursday, Cablevision expressed its disappointment in the decision, saying it continues to believe that the remote-storage DVR (RS-DVR) is consistent with copyright law and offers a compelling benefit for consumers.

The ruling was applauded by one major programmer, Turner Broadcasting System. “Obviously, we are very satisfied with the result and we are pleased that the court has accepted our view of the rules of the road: headend-based copying requires a license,” said Turner vice president of corporate communications Misty Skedgell.

While Cablevision said in its statement that it was exploring its options, including an appeal, Chin was crystal clear in his decision.

“Indeed, the RS-DVR is not a standalone machine that sits on top of a television,” Chin wrote. “Rather, it is a complex system that involves an ongoing relationship between Cablevision and its customers, payment of monthly fees by the customers to Cablevision, ownership of the equipment remaining with Cablevision, the use of numerous computers and other equipment located in Cablevision’s private facilities, and the ongoing maintenance of the system by Cablevision personnel.”

Cablevision has been working on the RS-DVR for more than a year. Its executives saw the solution as superior to the conventional set-top recorder because it puts all recording and storage of shows on Cablevision’s own servers, outside of customers’ homes.

That would also be a low-cost way to provide digital recording. Conventional set-top DVRs can cost about $300 each. Storing programming on a remote server could cost the cable company less than $100 per customer, according to Envisioneering Group director Richard Doherty.

But programmers didn’t see it that way. And in May, 20th Century Fox Film, Universal City Studios, Paramount Pictures, Disney Enterprises, CBS, ABC , NBC Studios and Turner Broadcasting System’s Cartoon Network and CNN filed suit in U.S. District Court for the Southern District of New York to block the service.

Chin dismissed Cablevision’s counterclaim with prejudice, adding that the Bethpage, N.Y.-based cable company is “permanently enjoined, in connection with its proposed RS-DVR system, from (1) copying plaintiffs’ copyrighted works and (2) engaging in public performance of plaintiffs’ copyrighted works, unless it obtains licenses to do so.”

Cable operators across the country were watching the case closely, mainly because the RS-DVR technology would save them millions of dollars, make the service more widely available and further differentiate cable operators from direct-broadcast satellite competitors.

“I think it’s a great idea, and I really applaud the things that [chief operating officer] Tom [Rutledge] and Cablevision are doing, including network DVR,” Comcast chief operating officer Steve Burke said at a Banc of America Securities conference in March 2006, shortly after Cablevision unveiled its plans. “Our lawyers have told us that they think Cablevision is on very firm [legal] footing.

“If it happens, which I predict it will, it’s a tremendous competitive advantage versus satellite,” Burke added. “I’m sure the rest of the industry will follow.”

But with Chin’s March 22 decision, there seems little hope that the RS-DVR will see the light of day anytime soon.

Doherty said Cablevision could receive a more favorable ruling in an appeals court.

Aside from the economic benefits of network DVRs, Doherty said, the technology is much more efficient than conventional digital recorders and uses less electricity. In tests in his lab, Doherty said that one in eight DVR hard drives fail after three years of constant use.

“They have lots of cases to make to put this in better perspective to a more broader-viewing court,” Doherty said.

Oppenheimer & Co. cable and satellite analyst Tom Eagan said that Cablevision’s defeat will likely just cause cable operators to continue their rollouts of set-top DVRs, but they won’t realize the capital expenditure savings that would have occurred if the suit had gone in Cablevision’s favor.

“Most directly, it is a slight bump in the road for Cablevision, but it is a slight negative for the cable industry in general, because they all would have jumped on the network-DVR bandwagon if it had proved legal,” Eagan said. “You won’t see the kind of accelerated rollout of DVRs that you would have seen if they had gotten a positive ruling.”

Steve Donohue contributed to this story.

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