June 5 (Bloomberg) -- The dispute over whether Dish Network Corp.’s ad-skipping technology violates network television copyrights may turn on which court the second-biggest U.S. satellite-TV service persuades to hear the matter.
Dish is seeking court sanction on copyright grounds for its Auto Hop digital video recording feature in New York, where an appeals court has already said cable companies can offer remote DVR services to customers. A jurisdictional win for Dish may reduce the case to whether its contracts with the networks to transmit their TV shows permit ad-skipping.
Widespread adoption of technology like Auto Hop could compel advertisers to demand lower rates for easily skippable commercials at a time when television viewership and ad revenue are already declining. If enough viewers skip ads, the networks warn, it might threaten broadcasters’ very existence.
“If there were no advertising revenues, the free broadcast television model in the United States would collapse,” News Corp.’s Fox Broadcasting said in the complaint it filed in Los Angeles federal court. Also filing complaints were Comcast Corp.’s NBC and CBS Corp. Dish sued those networks, along with Walt Disney Co.’s ABC, in Manhattan federal court.
Both sides sued on May 24, according to court records. U.S. District Judge Laura Taylor Swain in Manhattan issued an order May 30 temporarily barring the networks from pursuing their cases in Los Angeles and requesting arguments on whether the disputes should be consolidated in New York. News Corp. and CBS are based in New York, Disney in Burbank, California, and Comcast in Philadelphia. Dish is based in Englewood, Colorado.
Announced in January, Dish’s Hopper service records the prime-time programs of the four major networks each night. Viewers can select which shows to watch over the next eight days beginning at 1 a.m. the following day. The Auto Hop feature lets viewers choose to skip ads on the prerecorded shows without fast-forwarding through them, as many DVRs require.
Dish has been advertising the service in print and online as “commercial-free TV.”
Hopper costs customers $10 a month on top of their regular subscription. Bob Toevs, a Dish spokesman, said the company isn’t disclosing the number of consumers who have ordered the service. Toevs referred questions about the company’s litigation strategy to court filings.
In its complaint, Dish seeks a ruling that Auto Hop doesn’t infringe copyrights or breach license agreements with the broadcasters. Dish, which claims to have filed its lawsuit first, says New York law governs its contracts with the networks.
The company may also have chosen New York because the federal appeals court there ruled in August 2008 that Cablevision Systems Corp. could provide its customers with DVRs to record shows without authorization from the networks, Mitch Stoltz, a staff attorney for the Electronic Frontier Foundation, said in an interview. The EFF is an organization that lobbies for free speech online.
“The ruling enables remote home taping under the control of the customer without copyright violation,” said Stoltz. “That’s the law in New York. The networks are trying to limit that.”
In the Cablevision case, the networks said the Bethpage, New York-based cable TV provider’s remote-storage DVR system would make unauthorized copies of their programs without the necessary license. The district court ruled in their favor, and U.S. Court of Appeals for the Second Circuit, whose jurisdiction includes New York federal courts, overturned that decision.
The judges on the appeals court said playback didn’t constitute the transmission of a public performance of a work for which a license would be necessary. That removes one argument against ad-skipping playback -- namely, that it creates an unauthorized copy of a copyrighted work.
Even if the dispute winds up in New York, the broadcasters still have a chance to prove that Dish breached its contracts with them. They say the contract that allows Dish to retransmit their programs to subscribers prohibits the use of technology that strips out the commercials.
“On copyright, the networks’ position is not so strong,” Michael Meurer, a professor of intellectual-property law at Boston University, said in an interview. “Whether Dish violated the terms of its contract is more important.”
Lawyers including Meurer declined to speculate on Dish’s or the networks’ chances of winning on the contract issue because contract terms are confidential and haven’t been disclosed in court papers.
“This service takes existing network content and modifies it in a manner that is unauthorized and illegal,” CBS said in an e-mailed statement sent by spokeswoman Shannon Jacobs. Scott Grogin, a Fox spokesman, said, “We look forward to making our case in court against Dish for copyright infringement and breach of contract.”
NBC Universal spokesman John McKay e-mailed a statement calling Auto Hop “unlawful.”
“Dish simply does not have the authority to tamper with the ads from broadcast replays on a wholesale basis for its own economic and commercial advantage,” according to the statement.
Hope Hartman of ABC didn’t respond to messages seeking comment on the litigation.
Dish has said the technology isn’t an attack on the current television system. The company says it pays the networks “hundreds of millions of dollars” a year in fees to retransmit their broadcast signals to subscribers and that it’s entitled to let customers watch the shows the way they want to.
“We are spending more on national advertising in 2012 than we ever have,” Dish Chief Executive Officer Joseph Clayton said last month. “In recent years, Dish has agreed to pay significant rate increases for broadcast content. Dish values its relationships with both local and national broadcasters. But answering the consumer demand for choice and control is our primary mission.”
There has been no major court ruling on ad-skipping technology. In 2001, the broadcasters sued Sonicblue Inc., whose ReplayTV DVR could skip ads. That case closed without a decision after Sonicblue went bankrupt in 2003, in part due to legal costs.
Litigation imposes a lighter financial burden on Dish, with its 14 million subscribers and $14 billion in revenue last year, an 11 percent increase from the year before.
Nielsen Research, in determining ratings for TV shows, counts as viewers those who watch programs on their DVRs within three days of the initial showing. Advertisers pay networks for viewers who watch the ads, which can be measured.
About 50 percent of people who watch recorded TV shows skip through the ads, Brad Adgate, the senior vice president of research for media services company Horizon Media, said in an interview. About 44 percent of the households in the U.S. with TVs have DVRs, he said. That’s up from 19 percent in 2007.
“Since 2007, ad-skipping has been part of the currency for negotiating in TV,” Adgate said. He said commercial ratings are typically 5 percent to 7 percent lower than the total television viewing audience.
Network TV ad spending declined about 2 percent in 2011 to $21.1 billion from $21.5 billion the year before, research firm Kantar Media reported. The drop was caused by “the shrinkage in number of viewers to network programs,” said Kantar’s Jon Swallen.
If Dish’s new service causes revenue to decline further, it might affect the companies’ ability to borrow money as well. Auto Hop could have “broad negative credit implications across the television industry,” Neil Begley, an analyst for Moody’s Investors Service, said in a May 25 report.
Besides the Auto Hop case, networks are involved in other litigation over new technology that threatens to dilute the value of their broadcasts to advertisers.
They sued New York-based Aereo Inc., which captures over-the-air TV signals and retransmits them to subscribers on the Internet. A federal judge in New York, after a two-day trial that ended May 30, will decide whether to shut down Aereo, which is relying on the Cablevision ruling to bolster its case. The networks said the transmissions are public performances, for which Aereo hasn’t obtained a license.
Ivi Inc., which also captured broadcast signals and streamed programming to subscribers over the Internet, was shut down last year by a New York judge who said the networks were “likely to succeed” on their copyright claims. Arguments in Seattle-based Ivi’s appeal were heard before the 2nd Circuit May 30. Ivi claimed that it functions like a cable TV system and is entitled to a retransmission license. The networks argued that Ivi doesn’t fit the definition of a cable system.
The TV industry’s battles over new recording technology can be traced back at least as far as the Sony Betamax case. Producers sued Sony Corp. over its Betamax videocassette recorders. Taping TV shows would lead to lower ratings and ad revenues, the studios said. The U.S. Supreme Court ruled in 1984 that it wasn’t unlawful for consumers to copy a show for later viewing, nor for companies to sell machines that make copies.
“Copyright law doesn’t require how people use content,” said Boston University’s Meurer. “Copyright owners are in a position to argue: We are going to see a significant decrease in viewing commercials.”
The network cases against Dish are Fox Broadcasting v. Dish Network LLC, 12-4529; NBC Studios LLC v. Dish, 12-4536; and CBS Broadcasting Inc. v. Dish, 12-4551, U.S. District Court, Central District of California (Los Angeles). Dish’s case is Dish Network LLC v. American Broadcasting Cos., 12-4155, U.S. District Court, Southern District of New York (Manhattan).
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