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In the latest episode of the US ad-skipping saga, Dish Networks is facing the wrath of broadcasters such as NBC and Fox, but winning praise from customers and no doubt causing a little churn among competitors. That at least is the intention of the Dish PVR ad skipping feature called Auto Hop, with the company gambling that the gain in subscription revenue will make the pain of having to defend a possibly protracted case against it from broadcasters worthwhile.

Dish, the second largest US satellite operator with 14 million customers, and its bullish CEO Joseph Clayton, also believe there is a principle at stake in that service providers should be allowed to give their customers choice of functionality, providing it does not directly infringe copyright.

There is plenty of historical precedent and it looks like the broadcasting and content industry may regret not having nailed the issue after previous cases. The story began early in the days of DVR in 1999 when a company called Replay TV introduced a DVR allowing time shifted viewing of content with the help of a feature called "Commercial Advance" that was a forerunner of the Dish AutoHop. Of course time shifting had been possible for over two decades before that with the VCR, but with a hard drive based system ad skipping became much easier and faster, with the potential for automation.

Replay TV attracted the attention and anger of copyright holders, which finally sued two years later. This brought Replay TV to its knees, and its parent company was bankrupt two years later still. Since then most cable and satellite operators have been wary of taking on broadcasters and content owners by introducing features to help consumers skip ads, even though it has been technically quite straightforward. At the same time though the broadcasters failed to see the case through to establish a lasting precedent, because they thought the issue had already been settled.

At the time when Replay TV‘s owner, a company called Sonicblue, declared itself bankrupt, a consumer group sought a legal judgment over the legality of the device, and content owners failed to take the chance of pursuing the case to a conclusion and obtaining a definitive ruling. Perhaps by then they feared they may fail to get such a ruling and that it was better to let sleeping dogs lie. The case ended up being dismissed in 2004 leaving the issue still hanging in the air. As a result the entertainment industry may find itself without the legal recourse to take on Dish, or at the very least having to face a long battle. Another difference is that Dish is a more powerful adversary than Sonicblue and has deeper pockets, with a determination to fight, having known full well what reaction AutoHop would elicit among broadcasters and advertisers.

There have also been one or two other US cases with some relevance, and most notably involving cable operator Cablevison after it introduced a network based DVR, or RS-DVR, in 2006, offering remote storage to give customers a much quicker and easier way of recording content without having to worry whether they had enough space left on their hard drive, although at a premium price.

A number of content providers sued Cablevision for this on the basis it violated the principle of one-to-one transmission of content to users, subject to carriage fees. These included 20th Century Fox, Universal Studios, and Walt Disney, which sought a permanent injunction that would effectively prevent Cablevision from implementing the system, and they initially prevailed at district court level.

But then Cablevision appealed, leading to the so called 2nd US Circuit Court of Appeals in August 2008 reversing the lower district court verdict that had found the use of RS-DVRs in violation of copyright law. This court agreed with Cablevision that a RS-DVR was logically and legally the same as a customer owned DVR.

Some content providers began the process of appealing to the US Supreme Court, but this was eventually thrown out. As a result network DVR is now legal, but subject to the ludicrous rule that a particular piece of content has to be stored separately for every user that wants to record it, rather than having just one copy and an updateable list of subscribers who can access it.

Logically this would be no different, but legally operators have to maintain a separate physical copy for each user, so the content owners have ensured operators with network DVR offerings continue to spend a lot on storage. This absurdity led Comcast recently to argue that the industry needs to wake up to its responsibilities on the energy front and avoid the unnecessary power consumption that current practices, including network DVR, insist on.

The relevance for Dish with its Auto Hop is that the Cablevision case validated the legality of DVR functionality. Dish has been careful to confine use of Auto Hop to programming where it has a clear licensing agreement with the content provider. This means that the key legal question in the event of a case being brought will be whether Dish has breached that agreement by allowing automated ad skipping.

It is also worth reflecting why Dish has taken this move. It is partly we think to generate momentum behind and publicity for a radical change of strategy from being a low cost provider of programming, undercutting its rivals, which had been unsuccessful, to being a value added player promoting the interests of consumers with features they like. As such Dish could stand to win even if it loses a case over ad skipping.

Copyright © 2012, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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