Court Upholds Cablevision Plan for remoteDVRs

By Mark Harrington, Newsday, Melville, N.Y.

Aug. 5–A federal appeals court yesterday ruled in favor of a Cablevision Systems Corp. service that would allow consumers to record programs remotely on its network storage facilities without the need for a separate video recorder.

The ruling by the 2nd U.S. Circuit Court of Appeals in Manhattan overturned a lower-court ruling last year that barred Cablevision from operating the service without first getting a license from film and television programmers, who filed suit to block the service in May 2006.

Cablevision, which owns Newsday and is based in Bethpage, in spring 2006 announced plans to test a service that would allow its subscribers to digitally record up to 45 hours of programs on storage drives housed on its central computers. Users would have to subscribe to the digital iO service and use their existing digital box and remote to control the service, but would not have to buy or rent a set-top DVR such as TiVo’s or one provided by Cablevision. (Cablevision rents set-top digital video recorders for $6.50 a month, plus $9.95 a month for the service.) The launch never took place.

Programming companies, including Twentieth Century Fox Film Corp., University City Studios, Paramount Pictures, Disney Enterprises, CBS, ABC and NBC, argued in their lawsuit that Cablevision was facilitating recording without their consent. One concern, observers said, was that widespread availability of the recording service would allow viewers to fast-forward through commercials, which provide the lion’s share of broadcast TV network revenue.

But the appeals court agreed with Cablevision, which argued that its service was offering the same functionality as that already provided by traditional video recorders — functionality whose right was protected by a 1984 Supreme Court ruling in the Sony Betamax VCR case.

In a statement, Cablevision chief operating officer Tom Rutledge called the ruling “a tremendous victory for consumers.” He said it would allow Cablevision “to make DVRs available to many more people, faster and less expensively than would otherwise be possible.”

In a statement yesterday, the Motion Picture Association of America said: “We are reviewing the court’s decision and will be considering all legal options. We will continue to take the steps we believe are necessary to protect our legal rights with regard to our content.”

Cablevision hasn’t yet said how much it will charge for the network DVR service, or whether it will release it to its entire service area before any possible appeal by the programming companies.

A Wall Street analyst who has followed the DVR saga said programming companies were certain to appeal.

Craig Moffett, who tracks Cablevision at Sanford C. Bernstein & Co., said he expects the case could be argued up to the U.S. Supreme Court. Nevertheless, he called the verdict a “huge win for cable operators.”

“For cable, it potentially means much lower capital spending going forward,” he wrote in an investors’ report, because cable companies would “no longer need to provide a unique piece of hardware [a DVR] for each individual subscriber in order to offer DVR functionality.” He noted DVRs have been one of the largest single drivers of capital spending for cable firms in recent years.

Moffett said the ruling could spur penetration of the DVR service in the nation’s cable households, around 20 percent of which currently have such a recorder. He predicted penetration could jump to 60 percent in a relatively short amount of time.

Cablevision rival Verizon, which offers a set-top recorder called Home Media DVR, downplayed the ruling.

“The technology and latency of old-fashioned cable systems will have to be overcome for this [network DVR] to be successful — but FiOS has already been offering advanced DVRs for some time now,” spokesman John Bonomo said.

Q&A

What were the issues alleged? Programming companies like NBC and Twentieth Century Fox argued Cablevision should be required to get a license to record their content; Cablevision said it was just acting as a program-recording facilitator for subscribers, who have a court-ordered right to record programs.

What did the court say? The court agreed with Cablevision.

What’s the technology? Cablevision loads software onto its digital iO cable boxes that allows consumers to control a “virtual” digital video recorder. All the content is stored on Cablevision computer servers rather than on separate set-top digital boxes, as is the case with TiVo and other hardware.

Where does Cablevision go from here?

The case is likely to be appealed by programming companies, perhaps up to the Supreme Court. Cablevision hasn’t said whether it will release the service, which had been in pilot mode when the initial suit was filed, across its subscriber base in the interim.

What are the implications for the industry/consumer?

With the ability to store up to 45 hours of programming, the service is expected to be cheaper than the $16.45 a month Cablevision currently charges to rent a separate box and provide the service. But the recorded programming remains on Cablevision servers, and not within the hard drives of DVR recorders in consumers’ homes, a flexibility some may not want to give up. — Mark Harrington

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