Cablevision suit a test case bound to happen

Content companies want to decide when a particular piece of programming is ready for VoD distribution, and then place an agreed price on that content, or decide if it should fall into paid or unpaid subscription VoD services. This needs a separate contract at present.

But the real problem here is that this delivers a kind of advertising double whammy. The first issue is that more cable customers would have DVR immediately with the Cablevision system, because the company was planning to enable network DVR capabilities from existing set tops. So more people would be inclined to switch the capabilities on, even if a charge is involved. This is fine for Cablevision, which is in a war for more customers, and a cheap DVR capability would put it ahead of other cable, satellite and IPTV rivals.

The other problem is that if more people are watching DVR content, it prevents them from watching broadcast content that contains advertising, reducing the effectiveness of the cable networks as advertising mediums.

At least with Network DVRs it is possible to enforce the showing of advertising by disabling fast forward at the server for those sections of the programming. However, this would make it a weaker offering than a true disk based DVR and reduce its consumer appeal.

And anyway, it is a moot point who owns those advertising slots, the cable operator or the cable network which owns the channel. DVRs are currently at the top of US channel owners' agendas, given the blocked Upfront negotiations, which are stalled over the subject of what is the exact definition of a viewer.

Those viewers that watch a program on a DVR are suspect, because they may not watch the advertising, and this number of DVR watchers is rising alarmingly throughout the US.

The great bulk of advertising is kept back for the owner of a TV channel, the cable networks, and as long as this yields good results, they are happy to let cable operators carry programming relatively cheaply. This relationship is embedded in long term contracts, so if advertising suddenly collapses due to increased DVR usage, and if they are tied to five year terms and beyond, their revenues will inevitably slide, while the cable operator's revenues will not.

So this legal action is a way of slowing down that slide and keeping it under control.

Interestingly, the broadcast networks ABC, CBS and NBC are part and parcel of this complaint either because they are owned by content businesses, such as ABC being part of Disney, or because they provide some of the content themselves.

Companies like Fox, owned by New Corp, which also owns DirecTV won't like network DVRs because DirecTV can't take advantage of them, since it has no broadband connection to its customers. Cheap DVRs for the cable companies would be a disaster for DirecTV.

Late last year Time Warner Cable introduced its "start over" service, whereby if a program has yet to finish broadcasting, a customer can rewind to the beginning of the program and start again. This didn't get the censure of the content companies, but there were good reasons for this.

Time Warner Cable had the agreement of content business NBC Universal and the system won't allow fast forwarding or the skipping of commercials, which got Time Warner around sensitive rights issues.

Cablevision is the nation's sixth-largest cable TV provider, in US and has about three million customers around New York City, Connecticut and New Jersey.

Cablevision said it has examined the copyright implications of the service and found that it did not violate the law, and that's a reasonable interpretation. It may not even violate the spirit of the law, but content businesses never worry about that, and if this case goes against the collective might of US content businesses, then they'll just lobby to change the law until they get their way.

In the end, this is just using the courts as a form of negotiation, with on the one hand license fees paid by Cablevision and other cable operators, for effectively what is a VoD service, against the rising costs of DVR subsidy that cable operators could avoid by using network DVR.

The outcome is likely to never be decided in court and we would expect Cablevision to quietly back down after some behind the scenes negotiations and settle on some form of fee.

Copyright © 2006, Faultline

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