Content: Disruption, Fair Use & Consumer Choice (Drives the Distribution Metaverse)

The New york times

THE MEDIA EQUATION

VCR’s Past Is Guiding Television’s Future

By DAVID CARR

Published: July 28, 2013

The last few weeks have been a rugged legal stretch for incumbent television companies.

First, an appeals court declined to rehear a case in which broadcasters sought to close down Aereo, a company that allows users to record and play back broadcast television over the Internet. And then last week, another appeals court declined to stop Dish Network, the satellite television company, from selling a service called Hopper, which lets viewers automatically skip ads.

The cases are far from settled, but the stakes could not be bigger. Broadcast television as we know it now stands on two legs: advertising and retransmission fees from cable providers. With Hopper skipping ads and Aereo allowing for distribution over the Internet without payment, profits might go dark.

But the legal cases also seem to defy a kind of common-sense logic: how can insurgents use programming created by someone else to their own ends without sharing revenue?

The answer could get very complicated, very fast, but let’s try to make it simple. The dawn of consumer-controlled television began with the clunky, whirring Sony Betamax in the 1970s. Networks and program providers didn’t like consumers making copies of their movies and TV shows, but a landmark Supreme Court case in 1984 held that taping and time-shifting on the part of viewers was “legitimate fair use.”

Everything we have seen since extends from that decision to let consumers into the driver’s seat. It helps to think of the digital video recorder as more of a capability than a device. Both Aereo, which uses antennas to record broadcast television, and Hopper, which records prime-time programming, can be considered DVRs in the cloud, and the cord going to each home happens to be very long (Aereo over the Internet) or comes via satellite signal (Dish).

In each instance, the courts have more or less held, the customers are doing the programming and recording, and as such, have the right to do so even if they are doing so remotely through a third party.

If a revolution is under way, it is happening in increments. The VCR in the corner gave way to the DVR on the set-top box, and now some of the recording lives in the cloud and is pulled down to a variety of devices, including televisions, tablets, computers and phones.

That new paradigm was affirmed in a more recent case that began in March 2006, whenCablevision announced that it would allow subscribers not only to record whatever they wanted, but to do so remotely on hard drives centrally maintained by the company. Despite the Betamax precedent, the television and movie industry promptly sued Cablevision, claiming that the cable company — not the consumer — was making the actual copy.

A district court in New York agreed, so Cablevision appealed to the Second Circuit Court of Appeals in 2007. Consumer control took a big leap forward the next year, when the court decided in favor of Cablevision, ruling that the people pushing the buttons were the ones making the copies and that the playback of those recordings was not a public performance that infringed on copyright.

“We are in a transition period, migrating toward a world where you are going to get the content you want without commercials,” said Jonathan Band, a lawyer and advocate for consumer choice. “But the truth of the matter is that you are still going to have to pay. The only thing really being argued is who gets the money.”

To his point, Fox has sued Dish, asserting that the Hopper ad-skipping service violates copyrights and breaches contracts, not to mention that the service takes direct aim at its business model.

CBS, NBC and ABC have also been pushing back in a variety of ways. Last Wednesday, the Ninth Circuit Court of Appeals in California denied an appeal from Fox over a federal judge’s decision last fall not to grant an injunction against the Hopper technology.

The judge writing the opinion, Sidney R. Thomas, held that the copies being made met the “fair use” standard set by the Betamax case. The opinion also pointed out that although Fox owned the copyright on the programs, it had no such claim on the commercials, so skipping them did not constitute infringement.

But the judge also suggested that even though he was unwilling to provide injunctive relief — the broadcaster failed to “demonstrate a likelihood of irreparable harm” — the question of whether Dish was in breach of agreements not to create a video-on-demand service was far from settled.

Dish issued a statement, calling the decision a victory for “consumer choice and control.”

In spite of the setbacks, Fox still believes it has good lawyers and a good set of facts in both cases, the most pertinent of which suggests that if the business model that enables the programming goes away, so too will the programming.

Then again, these are the very early innings in the legal fight, and the issues raised by Aereo and Hopper are momentous enough that it may fall to the Supreme Court to decide how the future of television will be divided up.

“Both advertising and subscription revenue are critical to the continued viability of broadcast television,” said Scott Grogin, a spokesman for Fox Networks. “We prefer to have our rights protected through legal or regulatory means, but if that is not possible we must consider business solutions.”

That last bit represents plan B. If all the lawyers and arguments fail to impress the court, Fox could always take its bat and ball and shut off its broadcast signal, leaving Aereo with nothing to grab. And in the instance of Dish, the companies have a great deal of business in common, so Fox might be able to make the satellite provider sorry it ever introduced Hopper.

Still, it isn’t really Aereo, which has yet to catch on with consumers, or even Dish, that the networks are battling. It is the ideas that they represent and the disruption that they, along with other me-too companies, could create. In the current fight between CBS and Time Warner Cable over retransmission fees, for instance, the cable company has suggested to customers that they look into Aereo if CBS was blacked out. You could easily envision a cable company buying the idea and technology behind Aereo as a way to work around big retransmission fees.

It is a truism of all businesses, especially media, that once the consumer decides how things are going to go, it is only a matter of time before disruption occurs in fundamental ways. Just ask the record companies. And for now, the disrupters not only have the consumer on their side, but the law as well.