Lawsuits Piling Up in the Hopper

Dish Network CEO Charlie Ergen was looking for a fight, he found a sure bet by
threatening the broadcast networks' advertising revenue right before the
upfront market.

Dish last week was sued separately by Fox, NBC and CBS. (A representative for
ABC, which had not filed suit at presstime, said the network was monitoring the
situation.) And the irrepressible Ergen, who previously preferred to fight one
legal battle at a time, filed a suit against all four major broadcast networks.

At issue is Dish Network's mega DVR called The Hopper and its Auto Hop feature,
which allows subscribers to automatically eliminate all commercials during
playback of primetime broadcast shows with the touch of a single button.
According to TV executives attending last week's Cable Show in Boston, Auto Hop
isn't just a way for Ergen to attract new customers. It's a doomsday machine aimed
at billions in ad revenue, created by a company bristling at paying millions in
retransmission consent fees.

In their suits, broadcasters charged Dish is not only violating copyrights and
breaching contracts, but is endangering the economic ecosystem that allows the
programming Ergen's customers want to be created. "By undermining the economic
engine supporting the production of content, defendants' system threatens to
diminish the quantity and the quality of the programming Americans have come to
expect and demand," CBS said.

Dish claims it is only improving on what the humble videocassette recorder set
in motion by allowing consumers to watch shows when they want and fast-forward
through commercials if they desire. "We are giving them a feature they want and
that gives them more control," David Shull, Dish senior VP of programming, said
in a statement.

Dish charged that the networks are trying to stifle its Auto Hop innovation by
threatening lawsuits and rejecting ads for the Hopper. "We respect the business
models that drive our industry, but we also embrace the evolving nature of
technology and new ideas," said Shull. "Advances in the ability to measure and
target viewership will give the entire industry -- including advertisers -- the
ability to develop better programming, more effective advertising and deliver
an overall better experience to the viewer."

Dish announced Auto Hop on May 10, the week before the broadcasters held their
upfront presentations. The networks will sell about $9 billion worth of ads on
the new primetime schedules they unveiled.

During the upfront presentations, network executives called Auto Hop everything
from "illegal" to "an insult." When the lawsuits finally landed, most of the
claims from Fox, NBC and CBS involved copyright ownership versus fair use, an
unpredictable area of the law.

"Understandably, the studios are always afraid of the latest and newest
technology," said attorney Lawrence Steinberg, former president of the Los
Angeles Copyright Society. Steinberg said that while in fair use cases,
"different judges can come to different decisions based on similar fact
patterns, it will be a challenge for Dish to convince a court that this new
technology does not affect the studios' commercial exploitation of their
copyrighted material."

But Steinberg added: "On the other hand, courts try to be protective of
consumer choice and have tried not to deprive consumers of advances in
technology....The story of Hollywood and the law over the last 30 years has been
trying to figure out where to draw the line between giving intellectual
property holders a fair return on their investment and letting consumers have
use of the latest and greatest available technology."

In its lawsuit, Fox also charged breach of contract, saying that Fox and the
other broadcasters license Dish to retransmit primetime network programming
exactly as it is broadcast, and that the nets have agreed to license primetime
broadcast programming to Dish for video-on-demand service to customers under
conditions including prohibiting fast-forwarding through commercials. Fox said
Dish has launched "its own bootleg broadcast video-on-demand service" that
eliminates ads.

In its suit, Dish said it pays the networks hundreds of millions of dollars per
year in retransmission fees, collected from its subscriber base, for the right
to rebroadcast those signals -- even though the "Major Television Networks
provide their content at no charge to television viewers with an over-the-air
antenna." Dish said it isn't erasing or deleting ads. "They remain on the
recording and can be readily viewed at each customer's individual option. The
Dish Auto Hop feature does not alter or modify the broadcast signal."

Derek Baine, analyst at SNL Kagan, figures Ergen loses either way. "I don't
think it makes any sense anyway from a business perspective," Baine said. "I
know Dish Network is not afraid of litigation, but it's going to cost a lot of
money to defend a lawsuit like this. Even if [Auto Hop] survives a legal
challenge, they're going to wind up paying for it when the carriage
negotiations come up for the broadcast and cable networks. They're just going
to jack the rates up to replace the ad revenue."

Jon Lafayette

Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.