Programmers Transmit Message

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More is riding on a federal lawsuit that seven television networks and Hollywood studios have filed against Cablevision Systems Corp. than its plan to save money by allowing viewers to store TV shows on its computers, rather than putting expensive digital video recorders in their homes.

At stake: How the producers of programs — and the companies who distribute them to television screens — will sell shows, movies, clips and other digital content on a wide variety of new platforms, from cell phones and portable media players to AT&T Inc.'s new video-distribution network, based on Internet Protocol formatting of content.

Transmission Position

The queston: Whether a show recorded inside such a network and then sent back to the user differs legally from device-driven, local storage and playback of the same content, since electronic transmission across a network is involved. A generation ago, copying programs from a TV to a videocassette recorder was ruled a valid way to make “personal use” of television content.

“The big fight here is, to what extent do we want to call a centralized service a transmission?” said Randal Picker, the Leffman Professor of Commercial Law at the University of Chicago Law School and a specialist in copyright law. “That may be a distinct issue that didn't arise in the VCR case.”

According to copyright law, transmitting content would require the distributor to pay a license fee to the content owner. And that could apply whether the transmission is over a wired network to a stationary TV set or a wireless network, to a handheld screen.

Filing suit last week to stop Cablevision's plan to test a network-based digital recording service on Long Island starting next month were 20th Century Fox Film Corp., Universal City Studios, Paramount Pictures, Disney Enterprises, CBS Broadcasting, ABC Inc. and NBC Studios. The programmers asked the U.S. District Court for the Southern District of New York for an injunction to block the test.

The only major studio that didn't sue is Warner Bros., whose Time Warner Cable corporate sister has cheered Cablevision's network DVR concept, and has said it would like to deploy such a service.

By placing the recording of programs inside the network, every digital set-top box automatically becomes a digital recorder — even if the hard drive is at a remote location, not at home. Fast, widespread adoption of digital recording — and the ability for viewers to fast forward past ads — could wreck the economics of programming.

Domino Effect

Cablevision, which has deployed digital set-tops in more than 70% of its customer homes, for instance, would essentially be able to drive DVR penetration past 70% overnight if it moves forward with network-based recording. If Comcast Corp., Time Warner Cable and other pay TV distributors followed Cablevision's lead with their own network DVRs, the number of homes with the ability to easily fast-forward through commercials could seriously crimp TV advertising.

AT&T likely would offer a similar service through its new digital video network, as well.

“If the cable industry wins this case, I would assume that everybody would move over to a network DVR because it's so much less expensive than putting a DVR in every home,” Kagan Research analyst John Mansell said.

If viewers get used to this form of digital recording, Fox Networks Group, NBC Universal and other programmers would not be able to effectively build revenue from the “time-shifting” of programs through licensing video-on-demand shows to distributors. Viewers might not demand shows such as Fox's 24 or MTV: Music Television's Cribs, if they already had recorded them.

Fox, NBC and other plaintiffs argued last week that Cablevision's network DVR is actually a video-on-demand service — which requires license deals with programmers — masked as a digital recorder.

“Cablevision's proposed service is an unauthorized video-on-demand service that would undermine the video-on-demand, download, mobile device and other novel and traditional services that plaintiffs and other copyright owners have developed and are actively licensing into the marketplace,” the plaintiffs complained in the suit.

Several of the plaintiffs, including NBC and Fox, have cut deals to sell programming via Apple Computer Inc.'s iTunes Music Store. Others, including ABC and CBS, have plans to distribute programming via their own Web sites.

The studios and networks complained in the suit that Cablevision hasn't reached programming deals for the network DVR service. But Cablevision maintains a network DVR would operate just like a DVR in a customer's home, and that it therefore doesn't need to cut deals.

'Right' to Time-shift

“This lawsuit is without merit, reflects a fundamental misunderstanding of Cablevision's remote-storage DVR, and ignores the enormous benefit and well-established right of viewers to time-shift television programming,” Cablevision said in a prepared statement.

Cablevision did not mention the transmission aspect of its approach to recording and playback of programming.

“That is the big line you want to push — what separates TiVo from Cablevision is this idea of independent transmission,” said the University of Chicago's Picker. “And if you're Cablevision you want to say, 'All we're talking about guys is how long the wire is.' … That's what's novel about this.”

In the Sony Betamax case in 1984, the U.S. Supreme Court ruled that videocasette recorders didn't violate the copyrights of Universal City Studios and other Hollywood producers. In this case, though, there will be the question of whether Cablevision is earning money from the copies made of the producers' property.

“I think what is going to boil down to is whether the court believes that Cablevision doesn't control the copying enough for this to be considered a commercial copy,” Laurence Pulgrum, a partner and head of the copyright litigation group at San Francisco law firm Fenwick & West and former counsel at DVR service provider Replay TV, said.

“If Cablevision can persuade the court that it's just like at your own house and that Cablevision is not making the copy — even though it's their server and their technology and it's in their warehouse — then they can win. But if the court believes … it's your machine that you program and that you control and that you charge money to make the copy, then the copy becomes a commercial copy rather than a private home copy.”

Pulgrum said that content providers also have an economic motivation for quashing the network DVR.

“The studios and networks would like to chip away at all home recording rights,” Pulgrum said. “They would like to sell you the right to watch shows every time [you want to watch them]. This could raise that issue.”

Also, the programmers only narrowly lost their case 22 years ago. The U.S. Supreme Court decided the Sony Betamax by a 5-4 vote.

The networks may believe that today, with such dramatic changes in recording, playback and transmission technology in the last 20 years, it's a case they could relitigate and win. “My guess is they are ready to take on something like TiVo or even something one step beyond TiVo like a centralized service,” Picker said.

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