Dish TV, a multichannel video program distributor (MVPD) led by Charlie Ergen, recently introduced a new DVR, the Hopper. One feature is “Prime Time Anytime”: users may program the Hopper to simultaneously record the prime time programming of four broadcast networks (CBS, NBC, Fox, ABC), which is accessible for eight days after broadcast. A viewer who watches a PTA program any time after 1 a.m. on the night of the broadcast may select a feature called “Auto Hop,” which automatically skips the commercials during playback.
The broadcast networks are outraged. NBC executive Ted Harbert insisted that “this is an attack on our eco-system.” CBS chief Leslie Moonves felt betrayed. One industry analyst has claimed that Dish hates advertising. Another notes that “it’s clear that in the fight for TV revenue the gloves have finally come off.”
The broadcast networks filed suit against Dish in California, claiming Auto Hop violates copyright law. Dish filed pre-emptively in New York, where a federal court restraining order bars further action on the lawsuit for a month. Unlike ReplayTV, whose ad-skipping technology was likewise challenged in court but never struck down as illegal or affirmed as legal because its owners declared bankruptcy, Dish is willing and able to litigate.
On what grounds are the broadcast networks suing Dish? The Betamax case established that timeshifting itself is not copyright infringement. Fox is claiming that Dish, not the viewer, is making the recording, thus, PTA is not covered by the Betamax decision; however, since the viewer must choose to record, it’s hard to see how this will hold up. CBS is claiming that recording programs with the intent to skip the commercials is a form of copyright infringement. Mike Masnick points out the absurdity: “CBS seems to be saying that merely wanting to avoid commercials is, itself, direct copyright infringement. And, given that Auto Hop doesn’t work until the day after the shows air, does that mean that it’s legal to record the shows if you intend to watch them the same day… but the second your intention is to watch them later, it’s copyright infringement?”
Media scholars are aware that disruptive technologies bring out litigiousness in legacy industries; intellectual property litigation is a time-honored method for stamping out competition. However, the television industry’s vociferous reaction to Auto Hop is puzzling. Haven’t viewers been able to avoid commercials since the advent of the VCR? Haven’t viewers muted audio, channel surfed, left the room, or taken up other activities to avoid engaging with commercials since radio?
The claims of copyright infringement could be the networks’ way to delay and distract their antagonists. Instead of focusing on copyright issues, I suggest that we should track how this case may reflect 1) the redefinition of the market for television services and 2) the viability of the broadcast business model based primarily on advertising revenue.
The television market is changing. Despite assurances from MVPDs that subscribers are not “cord cutting” and from broadcasters that their airtime is worth increasingly more to advertisers, both are worried about over-the-top (OTT) program providers, such as Netflix, that provide viewers with a variety of choices at a lower price than MVPDs and without commercial interruptions. Auto Hop may be Dish’s effort to stanch subscriber defections to OTT services. Networks and MVPDs have long benefited from their tacit agreement to keep raising affiliate fees (the price MVPDs pay to networks for carriage) and subscription prices (the price viewers pay to subscribe to an MVPD). Dish, then, in attempting to appeal to their “end user,” the viewer, instead of the networks, may be redefining its view of the television market. According to one analyst, “The fact that Dish would be willing to anger some of its most important content partners just goes to show how desperate these times we live in really are.”
The broadcast networks are positioning their fight against Auto Hop as their effort “to aggressively defend the future of free, over-the-air television.” This is disingenuous on two counts. First, only a minority of viewers (10-15%) actually enjoy free, over-the-air viewing today in exchange for viewing commercials; the rest pay high subscription fees to MVPDs and endure commercial interruptions. Second, broadcasters have invoked the defense of “free” over-the-air commercial broadcasting to protest subscription radio in the 1940s, the importation of distant signals by early cable operators (CATV) in the 1960s, and the dissemination of local broadcast signals by direct broadcast satellite in the 1990s. Despite predictions that each of these would destroy “free” commercial programming by undermining advertising revenues, broadcasters made their peace with these technologies and continued to profit from their ad-revenue model.
Nonetheless, today the broadcasting business model is under stress. Despite lower ratings, broadcast networks have been reaping higher CPMs (the price advertisers pay per thousand viewers) in part because their program services provide “tonnage” for advertisers. But the networks’ ability to harness viewer attention and, more important, to prove to advertisers that they are delivering that attention to ads, is eroded daily by evidence of changing audience behaviors. Auto Hop makes explicit what networks prefer to keep implicit: that audiences paying for programming would often prefer to watch it without commercials. Although networks are providing advertisers with brand integrations, product placements, and sponsorships (the so-old-they-are-new-again strategies), none of these can replicate the profitability, mobility, and flexibility of the separate 15-30 second commercial.
Whatever the outcome of the Auto Hop litigation, shifts in the television market and changing audience behaviors will eventually force change to the broadcast business model. To track where that change is going, we should keep a close eye on what the advertisers are doing.