The U.S. Court of Appeals here cleared the way Monday for cable operators to offer millions of customers the flexibility to record and watch shows whenever they want — and even skip the ads — without getting a DVR.
The three-judge panel overturned a district court decision that barred Cablevision cvc from launching what it calls a remote-storage DVR (RS-DVR).
The Appeals Court agreed with the Long Island, N.Y.-based cable company's contention that this system, which would store programs on a central server instead of a hard drive in the home, is identical to a DVR and wouldn't violate the copyrights of program producers. "All aspects of the case were decided our way," says Cablevision Chief Operating Officer Tom Rutledge. "It couldn't be a bigger or more complete win."
The ruling specifically shot down the argument by Time Warner's Turner Broadcasting, leading the charge for Hollywood studios and the major TV networks, that Cablevision would reproduce and perform their copyrighted works because it buffers shows before they are transferred to the server where they are stored.
The court found that customers, not Cablevision, would control the recording process. Cablevision shares rose 57 cents to $25.93.
Turner Broadcasting said in a prepared statement, "We respectfully disagree (with the Appeals Court ruling) and are considering the appropriate next steps in this matter."
There's a lot at stake.
Nearly 60% of cable's 64.8 million customers subscribe to a digital service, the National Cable & Telecommunications Association says.
If the latest ruling stands, operators could offer DVR-like services, including fast-forward and rewind capabilities, at a fraction of the cost required to buy and install a conventional DVR with a hard drive.
Set-top DVRs have accounted for about 10% of cable operators' capital expenditures, says Sanford C. Bernstein analyst Craig Moffett.
That, he said in a report, "means a huge increase in the number of viewing hours per day potentially subject to ad skipping." About 25% of all households have DVRs, and users skip 56% of the ads.
Moffett says, "The case is all but certain to be appealed and — given its importance — could eventually be headed for the Supreme Court."
Stifel Nicolaus analyst Blair Levin notes that, while possible, such appeals "tend to be difficult."
Rutledge seemed to hold out an olive branch, saying that he'd be glad to consider deals that would make it possible for advertisers to update spots that become obsolete after they're stored. "With a network DVR, you can create a new rights structure," he says.