Lawsuits Piling Up in the Hopper

Dish Network and broadcasters digging in for a fight over new technology

By Jon Lafayette -- Broadcasting & Cable, 5/28/2012 12:01:00 AM

If 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.”

E-mail comments to jlafayette@nbmedia.com and follow him on Twitter: @jlafayette