Dish Network chairman Charlie Ergen’s comments in the June 7th edition of The Wall Street Journal captured a key point he has pushed for decades, even before EchoStar’s unveiling of its Digital Video Recorder technology in the late 1990s: technology will continually challenge the big media players’ notions of true change.
Indeed, what TiVo, Dish, and ReplayTV started back in the late 1990s, is only just moving through a similar phase now, 14 years later, as the true potential of the DVR again is recognized and implemented.
Ad Skipping = Relevant Ads
And by “true potential,” I don’t just mean high-quality ad-skipping — as in the new Hopper set-top boxes’ “Auto Hop” feature. Instead, on the positive side, I mean high-quality ad placement and ad-targeting will be the ultimate technical implementation of the DVR. Indeed, this latter development is the true, long-term future of what we all will one day watch, i.e., personalized TV. It is also a point highlighted often in the NAB-Focal Press book, entitled “DVRs: Changing TVs and Advertising Forever”. Give people relevant and helpful advertisements, and they will not only put up with those ads, they will indeed seek out - and even pay for — those ads!
Content Challenges
For the time being though, on the broadcaster’s side, they’d better get ready, because they are going to be fighting a whole lot more of these types of battles. Indeed, the recently-filed broadcaster lawsuits against FilmOn, ivi, and Aereo nee Bamboom, are three other examples of this issue of “technology challenging the status quo.”
And to say the content providers had better get ready is also to say they had better get good legal and good strategic help, and in essence “pick their battles wisely.” This is because some adverse decisions in the wrong cases could significantly impact other plans, and other cases, and other strategies, well down the line. The 2009 Remote Storage-DVR (RS-DVR) case that the U.S. Supreme Court determined in Cablevision’s favor (versus a group of content owners) is an example of just such an adverse case.
The Auto-Hop Case: Preliminaries
Dish is now engaged in a major legal battle with the four networks over whether the Auto Hop feature is legal, and thus can still be offered to and used by Dish viewers. Yet, in this instance - we’ll call it the Auto Hop case — it may be a similar case where the timing, the strategies, and the bona fides are not so clearly in the content owners’ favor. That starts because Mr. Ergen, and his legal and strategic teams, gambled, perhaps wisely, that there was true advantage in choosing, themselves, to commence the Auto Hop legal battle, and to do it in the same court that determined (and is presumably familiar with) the initial Cablevision RS-DVR case. By filing first, Dish appears to have acquired a subtle procedural advantage when it comes to determining the ultimate place, or venue, of the suit. And this subtle advantage may affect the entire case going forward.
Moreover, there is a large sum of additional reasons why Dish wants the case to be heard in the Federal Court for the Southern District of New York. These include 1) the distribution contracts Dish has with ABC, CBS, NBC and Fox declare N.Y. as the proper forum, 2) ABC, CBS, NBC, and Fox have their headquarters in NYC, and 3) Dish’s is the only suit among several filed that includes all the defendants in the same action.
In addition, as the federal court in NY court moves toward an injunction hearing July 2, 2012, blocking further actions in the case, four key factors face the court in determining each party’s claims, i.e., 1) that there is a substantial likelihood of success on the merits of the case, 2) that there is a substantial threat of irreparable damage or injury if the injunction is not granted, 3) that the balance of harms weighs in favor of the party seeking the preliminary injunction, and 4) that the grant of an injunction would serve the public interest. As for the first three factors, the court is likely to give the benefit of the doubt to Dish Network, in that the outcome of this case, based largely on legal and technical determinations, could go either way. As for the fourth claim, that of whether the injunction would serve the public interest, from the beginning Dish has positioned the Auto Hop feature as being nothing if not consumer friendly. That said, a court could well find now that taking the Auto Hop away from viewing consumers before the end of the case would hurt them more than help them.
Prediction: This case goes to trial, and it goes to trial in the Southern District of New York (and not California, as three of the four networks wish). Then, once the procedural motions are determined, the important substantive determinations are made on the merits, in a full-fledged trial.
The Auto-Hop Case: Toward a Finale
In short, the networks appear to have perhaps inadvertently let the proverbial genie out of the bottle by not objecting sooner and louder to DVRs. But that will not determine this case. Now, like they did in the Paramount vs. ReplayTV case ten years ago, the content folks are trying again to say “not so fast, and not so much at once.” In this case, however, the networks are attacking Dish Network, with enormously deep pockets, and a history, and - despite what people might say about Mr. Ergen now - with respect in the industry. And unlike ReplayTV, Dish Network is not likely to go bankrupt trying to defend this case against the content providers.
Indeed, the one key area where the broadcasters appear to have a significant material argument is in the whole zone of what constitutes a “change” in the broadcast signal. The broadcasters must convince the trier or fact here that “altering the signal” includes allowing viewers, two hours after the live signal has ended, a choice to replay that signal and 1) chose themselves to leave the signal intact, or 2) zip through the ads in “normal” DVR fashion, or 3) use the Auto Hop feature to completely eliminate the forced viewing of ads. In essence, if this item # 3 is found to be “altering the signal,” then the broadcasters might have their case.
Confused Counsel
Interestingly, as a former network staff attorney, I have a lot of empathy for some key players in this drama. Indeed, a lot of network and other telecom industry attorneys are going to be wishing on this one that they had more carefully defined what “altering the broadcast signal” really meant. Doing so after the fact leads exactly to the kind of lawsuit seen here.
Indeed, one might almost feel sorry for a media company’s legal counsel confronted today with the arduous and possibly impossible task of drawing up this kind of adequate contract. Put another way, there are a lot more possibilities and nuances to position for today than back in the days when, as a fledgling contracts attorney several decades ago, I used to write and negotiate programming and talent agreements for ABC Sports.
Ultimate Solution
In summary, no matter who wins this and the other legal battles, one thing is for sure: Charlie Ergen is correct when he opines that the networks - and their advertisers — need to develop more targeted commercials “…that you’re not going to want to hop over….”
For the long term, that is the real solution, however, it is not what they are doing.
Put another way, advertisers and the telecom industry, including Dish: Wake up!
Jimmy Schaeffler is chairman and CSO of Carmel-by-the-Sea-based consultancy The Carmel Group (www.carmelgroup.com).
