Sunday, June 04, 2006

If It's Not a DVR, It Must Be a Lawsuit

Cablevision was sued last week by Fox, Viacom, Disney, NBC Universal and CBS. The previous week, it was sued by Time Warner's CNN and Cartoon Network. Why is Cablevision so unpopular all of a sudden? The reason is that it plans to roll out a Digital Video Recorder (DVR) service that stores the shows that subscribers record on servers on Cablevision's network, rather than on DVR-equipped set-top boxes in subscribers' homes. The services is called RS-DVR by Cablevision and Network DVR by everyone else.

What's the difference between network and set-top DVRs? To consumers, not much, but to Cablevision and the big media companies, a great deal. According to this article, by next year, Cablevision could deploy network DVRs for one-third the capital cost and 1/10th the monthly maintenance cost of in-home DVRs. Here's the breakdown:

Hardware: Set-top Box--$300 vs. Network Storage--$100 (for 80-200GB/storage per subscriber)

Maintenance: Set-top Box--$1/month vs Network DVR--$0.10/month (based on the fact that it's much less expensive to swap out a faulty hard disk from a server farm than it is to roll a truck and swap a set-top box.)

Cablevision's Network DVR system will work with any of its existing digital set-top boxes, so in Cablevision's case, 70% of its total subscribers could become DVR users the minute the company turns the system on. And, Cablevision is simply buying the software and hardware from Arroyo Video Solutions, so any other cable operator can use it. If it works for Cablevision, a lot of other cable operators will want it. So why don't big media companies want them to have it?

The debate is based on interpretation of Copyright law in general, and the Betamax decision in particular. (This is the point at which I have to remind you that I'm not a lawyer, I'm not giving legal advice, my interpretation of the relevant laws and legal decisions may be wrong, and your mileage may vary.) In 1984, the U.S. Supreme Court ruled that consumers have the right to record television programs for their own personal use, for the purpose of watching them at a later time or date ("time-shifting".) Cablevision argues that its Network DVR system does exactly what the Betamax ruling permits. The major media companies, however, counter that it's really Cablevision, not consumers, who are making the copies, and that the copies (from hundreds to potentially millions) reside on Cablevision's servers. They argue that a court ruling designed to allow one person to make one or two copies for their own use was never intended to extend to multi-billion dollar corporations making,storing and distributing millions of copies. The big media companies also argue that Network DVR is simply another name for on-demand programming, and the cable MSOs are already required to obtain licenses in order to distribute their content on demand.

Both sides have valid arguments. Network DVR is, in fact, nothing more than on-demand programming whose storage is triggered by individual viewers instead of MSOs, but the network storage really serves exactly the same purpose as the hard disk in a TiVo or other set-top DVR, or, for that matter, a VHS tape. This case is probably going to end up at the Supreme Court, which means that it'll be years before we know whether or not Network DVRs are legal. I'm rooting for the cable operators to prevail, but for the time being, thanks to the slow, grinding effect of the U.S. legal system, your next DVR is still likely to be in the form of a set-top box. At least it's legal to not have to put up with that blinking "12:00".

UPDATE: On June 8th, Cablevision agreed not to deploy network DVRs until the court can decide whether or not they are covered under the Supreme Court's Betamax decision. Both Cablevision and the studios agreed to an expedited schedule that will have the court hear arguments on October 30th or 31st.

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