Fox Breaks Dish's Auto-Hop

Today Fox and Dish announced the settlement of Fox's lawsuit over Dish's Hopper which dates back to late 2012. The Hopper, for those whose memories have faded since 2012, is a DVR with two main features:

1. It automatically records all of the Big-4 networks' prime time programs; and
2. with a single selection by a home user, can automatically skip over all of the commercials in the recorded shows. Dish calls this feature "Auto-Hop".

Parsing the features, the first, automatically recording a program, is only a negative to the network in the event that not having the recording makes the home viewer more likely to watch the show (and the commercials within it) on a live basis. I don't think most networks are fighting that fight.

The second, however, is the real fight and the basis of the settlement. Dish agreed to disable the Auto-Hop functionality for the first seven days after a program is recorded. This preserves the "C7 Rating" for Fox -- the measure of how many viewers watch a commercial within the first 7 days that a program airs. C7 is a bit of an aspirational goal for the networks; the most common currency is C3 rating -- viewership in the first 3 days after airing. (CBS settled its complaint against Auto-Hop similarly in December 2014).

Fox is certainly a winner here, negotiating for something that has some clear economic value. More precisely, Fox was able to to stop a feature that might have threatened the advertising business model more than the DVR fast-forward button does. (Note that when networks license content to MVPDs for VOD services, they often insist that fast-forwarding is disabled altogether -- that's the power of being able to withhold your content.)

Dish is also a winner here in that they were able to survive the challenge to the automatic recording complaint, although, it sure seems to this analyst that Fox may have been on thin legal ground trying to stop a feature that simply put, simplified DVR recording.

The loser, naturally, is the viewer who loses some convenient functionality. On the bright side, she gains additional exercise for the finger pushing the fast-forward button (unless the cat knows how).

Previously on peterlitman.com: CBS Hates on the Hopper Some More, Claims Fraud (25 January 2013)

CBS Hates on the Hopper Some More, Claims Fraud

According to a story this week in the Hollywood Reporter, CBS has taken legal action to terminate and/or receive damages under its retransmission consent deal with Dish Network on the grounds that Dish fraudulently concealed its as-yet-unreleased Hopper DVR functionality.

The papers quote a December 16, 2011 email from CBS executive vp  Martin Franks to Dish executive David Shull that allegedly made it clear that CBS was not "looking to have this arrangement include new businesses that DISH may choose to enter into in the future, whether they be Netflix-like businesses, new mobile services, or other new platforms."

The grant of rights is an increasingly complicated topic in retransmission consent agreements between broadcasters and distributors. The standard for the grant of broadcast rights is codified in the FCC must carry regulations. Cable operators carry the linear channel of programming as supplied by the broadcaster on a full time continuous basis without editing or other interruption.

CBS - the greatest logo in television

Cable networks, in contrast, often grant broader rights to use their content. For example the programmer might allow the channel to be encoded to be delivered within the subscriber's home to computers, tablets and phones. Alternately, the programmer might allow certain programs to be made available on a video-on-demand basis. Either the live channel or selected programs might be made available to subscribers outside of their homes (e.g., TV Everywhere).

Further, a distributor might wish to have the right to distribute content online unrelated to its delivery of the linear channel to cable video subscribers. For example, the operator might look for the right to operate their own iTunes-like store with video downloads of select programs (for free or for a fee). To the extent that anyone actually launches a virtual MSO (delivering a cable-like package of services over-the-top, without necessarily owning the connection into the subscriber's home -- Sony, Microsoft, Intel, Apple and Dish Network are among those rumored to be interested in such an offering and Dish already delivers some international channels on such basis as does religious broadcaster Sky Angel), it is clear from Martin Franks's quote above that CBS was not planning on granting such rights to Dish.

But is the Hopper a new platform that requires a broader grant of rights from a programmer? It is hard to see how that is the case.

Hopper is the big box, its hard-drive-less second-set companion is the smaller box (Joey)

For those unfamiliar with Dish's Hopper, Hopper is a souped-up DVR that can, with a single request from a user record all the Big 4 Network prime time programs and with a second request, skip all of the advertisements in such programs when they are played back. The DVR technology itself is not significantly different from other DVRs. Hopper has more tuners than usual (4 vs. 2) and more storage space than usual (2TB versus hundreds of MB in older cable DVRs).

I think it is unlikely that CBS has restrictions in its retransmission consent agreements addressing the number of tuners nor the storage capacity of the DVRs deployed by its affiliates.

The other deviations from the common DVR are the programming innovations which really constitute a few things. (Programming, used here, meaning the user selecting which content to record.)

The Hopper includes a new extended variation on the "season pass" programming option. Rather than recording every airing of a particular show -- which networks love, note this "set your DVR" campaign for Fox's new series The Following -- it will record ALL the Big 4 broadcast prime time shows. Instead of record all episodes of this show, record all shows between 8 and 11PM (7 and 11PM on Sunday) on ABC, CBS, Fox and NBC. An ordinary DVR could do the same thing, but would require MUCH more work on the part of the user (each program would have to be selected individually and any changes to the schedule would necessitate another individual selection - e.g., when Sunday Night Football ends and something else slides into that time slot on NBC). Anything that encourages more viewing (like recording) would seem to be a good thing for a programmer. Given that the broadcast programming is now more conveniently available than cable programming (which is not so easily recorded), it seems that, if anything, Dish is helping the broadcasters by offering this functionality.

It appears that one of CBS's arguments is that the Hopper is some sort of de facto VOD system (an argument Fox makes in their lawsuit). However, it seems that Fox's argument could equally be applied to any DVR and the fact that DVRs existed at the time that Fox entered into a VOD agreement with Dish would suggest that both sides understood VOD and DVR to be two different things.

Then there is the Hopper's automatic-commercial-skipping "AutoHop" functionality. This feature is the real rub for the broadcasters. With AutoHop engaged during playback of a program, the program jumps from the end of one program segment to the start of the next, "hopping" over the commercials. (How effective it is at skipping network advertisements, local advertisements, promotional spots, etc. I do not know, as I don't have the device -- please comment if you do.) What's interesting about AutoHop is that is does not have to do with making copies and copyright is the basis for the programmer's control of its rights.

It is widely believed that most people who use DVRs do not watch the commercials when they watch their recorded programs. This is a behavior has been extensively researched by Nielsen. If there continues to be substantial commercial viewing going on in recorded programs it is unclear if viewers are forgetting that they can skip the commercials (because watching the recording feels like watching a live program and watch television to veg out) or if they are enticed by the commercial content (an ad for a soon-to-be-released movie may not be something to skip if you are interested in the movie). 

Perhaps the current data are not sufficiently pessimistic about the viewing of commercials in DVR playback. It could be that DVR users are not yet fully attuned to living with the device and will fast-forward through more commercials as they become more habituated to it. 

One thing is abundantly clear, no one likes the idea of "having" to watch commercials, so a single button which shuts them off is a pretty attractive proposition for viewers. For those who see the DVR as a throwdown, a creative challenge to advertisers, the Hopper makes that a no-win game. It is not hard to be sympathetic with the programmers in that respect, the game is changing on them, through no fault of their own.

Of course, that is the nature of life. We must adapt to change, 

Right now, television programming is supported by a mix of advertising and user payments. To the extent that Hopper-like DVRs make the advertising business less attractive and...big assumption...the big brand advertisers have someplace to go and stop spending as much on Big 4 broadcaster advertising inventory, then either broadcasting becomes less profitable or the user payment proportion will have to go up. 

As I look at this issue, it is not hard to be struck by the history of the sale of broadcast television advertising. There is recent history that a change that should have devalued broadcast network advertising -- the rising viewing of cable networks and the concurrent drop in the audience delivery for broadcasters -- did not seem to destroy the broadcast advertising business. In fact, the broadcasters, despite far smaller audiences than they had 20 years ago, charge far more for their audiences now. They are still are a superior reach vehicle.

If the court does not find for the broadcasters in their disputes with Dish, there is still recourse available to them. After all, the broadcasters negotiate with Dish for the carriage of their programming. To the extent that CBS believes that the Hopper is having a negative impact on its advertising business, CBS is free to propose a renewal of the retransmission consent agreement (whenever it expires -- and there probably won't be too many Hoppers deployed before that date arrives) in which rate structure that reflects the Hopper's impact. For example, Dish might pay CBS $2 per subscriber per month for all subscribers who receive a given CBS station but get a $1 discount for subscribers who do not have an AutoHop DVR. The gradations could get much finer than this. Customers with no DVR (or perhaps a new one that automatically deletes programs after the end of the C3 window) might get the lowest rate, customers with small-capacity, single tuner DVRs a slightly higher rate, etc. Broadcasters negotiate exactly these sort of things when they negotiate VOD rights (availability windows, disabling fast forward functionality). To the extent that the broadcasters want to negotiate DVR functionality with the distributors, they can always make such requests. However, to the extent that they do so, and distributor DVR functionality is curtailed or priced at a premium, it will create an opportunity for third party DVRs (e.g., TiVo, Windows Media Center) which are do not have to negotiate such rights with programmers.

Much of what is different about the Hopper is what is also inevitable -- with more tuners and more storage space, and more sophisticated and simple programming options -- the nature of the DVR will change from something whose use is limited to a handful of programs stored for a modest amount of time to something that could store large numbers of programs effectively for as long as the subscriber might want to keep them. Unless the Betamax precedent is thrown out, it seems that the broadcasters are going to have to find a way to negotiate this new environment.

Sony Betamax, circa 1984

Updated (28 Jan 13): Per The Verge, CBS has taken the unusual step of not allowing its CNET subsidiary, which reports on consumer technology, from reporting on the Hopper or Aereo, because the parent company is suing both firms. Somewhere, Frank Stanton is rolling over in his grave.

Earlier: post about the Hopper's introduction (13 Jan 12)

Updated (12 Feb 13): Dish has rolled out a new Hopper commercial, about the death of commercials.

I don't understand why they use "Boston Guys", when Dish is far more popular in the West and actually less penetrated in Boston than most places.