By: Chelsea DeCesare

History

Regulation in the cable industry refers to who has the rights to distribute broadcast station signals, and to whom. Regulation of cable distribution first came about in the 1940’s, when cable television system operators placed antennas in areas with good reception, picked up broadcast station signals, and then distributed them by coaxial cable to subscribers for a fee.[1]

Today, the distribution systems are far more complex. Consumers now have the option to decide when they want to view television content, and if they want to “binge view” through video on demand programs. With a variety of mediums available to take in content, it has become difficult for broadcasters to manage and regulate how and where materials are being viewed.

With the invention of the Digital Video Recorder or DVR as well as Video on Demand technology, both consumers and companies have the power to record and disseminate live television. For many cable and network providers, this budding technology has threatened vital advertising and subscription revenues.

The Evolution of the DVR

Tivo and ReplayTV

In January 1999, TiVo unveiled it’s Personal Television Service at the National Consumers Electronics Show. After unveiling the first working prototype, and despite an estimated four to five months of work remaining to complete a real working product, the company shipped the first DVR on the planet on March 31, 1999. [2]

ReplayTV also premiered in 1999, and allowed viewers to record, rewind, and store cable and broadcast programs of the consumers choosing. [3]

Both TiVo and ReplayTV currently charge subscribers anywhere from $80 to $200 for their services. Additionally, the services act as a liaison between television signal providers and viewers. They interpret the signals from a provider and allow consumers to tell them what programs they want to record. [4]

As a result, there were no initial regulations placed on TiVo, as the content being recorded had to be obtained through a cable subscription.

Video on Demand

Television video on demand or VOD systems first came to prominence in the 2000’s. VOD’s either stream content through a set-top box, a computer, or smart device. With a VOD, viewers can either watch in real time on television, or download to an outside device for viewing at any time.

With the creation of internet VOD systems, companies looked to pen licensing agreements with media companies in order to provide viewers with a library of shows and movies that they could access at any time.

Netflix

In January of 2013, Netflix signed a multi-year licensing agreement with both Turner Broadcasting and Warner Brother’s Television Group.

The agreement includes episodes of shows from Cartoon Network, Warner Bros. Animation, Adult Swim, and TNT. The deal, which will only make content available to U.S. Netflix subscribers, went into effect on March 30, 2013. [5]

Additionally, in December of 2012, Netflix and Disney reached a first time licensing agreement that allowed the streaming of back catalog classic Disney films including Dumbo, Pocahantas, and Alice in Wonderland.

The Disney deal stipulated that by 2016, all new theatrically released films in the pay TV window will be able to be watched instantly. This includes all films produced by Disney, Walt Disney Animation Studios, Disneynature, Pixar Animation Studios, and Marvel Studios. [6]

New and Controversial On Demand Systems

The Hopper

Aereo

Backlash

Dish Network vs. Network TV

In September of 2012, Fox, NBC Universal, and CBS filed a copyright infringement lawsuit against Dish Network. The lawsuit was in response to the release of new software called “The Hopper,” which allows subscribers of the satellite network to skip commercials during programs that have been previously recorded.

The broadcast networks asserted that new DVR technology is a violation of their copyrights and puts programming in danger by undermining advertisements which still make up a bulk of programming revenue.

In a court filing Dish Network said:

“This case is about freedom of consumer choice, individual families’ choice to elect, if they want, to time-shift their television viewing and watch recorded television without commercials.”

 

The Hopper system was officially released on May 10, 2012 and is only currently available to PrimeTime Anytime service customers.

While the lawsuit is being settled, Fox has refused to air any Dish Network commercials that feature the Hopper service. [7]

Aereo vs. Broadcast Networks

Last year, CBS Corporation, Comcast, News Corporation, and the Walt Disney Company filed two suits against Aereo, a start-up Internet service that streams stations without compensating them.

The lawsuits were first filed in March 2012, mere weeks before the service was set to premiere in New York. However, a district court judge denied the request for a preliminary injunction last summer. [8]

On April 1, 2013, a federal appeals court in New York upheld a ruling in favor of Aereo.

Aereo is able to stream broadcast stations by operating an array of tiny antennas that pick up over-the-air signals. Subscribers pay about $12 a month, and receive control over one antenna. Aereo basically turns the subscriber’s phone, computer or tablet into a small television set, but without the rabbit ears that would normally be needed. Subscribers can then select programming over the internet.[9]

An array of antennas in Brooklyn allow Aereo to avoid paying the retransmission fees that operators have traditionally paid for access to stations. Those fees are an increasingly important revenue source for the stations.

The Court of Appeals for the Second Circuit affirmed the lower court ruling on April 1,  in a 2-to-1 decision, saying that Aereo’s streams of TV shows to individual subscribers did not constitute “public performances,” and thus the broadcasters’ copyright infringement lawsuits “are not likely to prevail on the merits.” [10]

The Future

Looking ahead, Aereo’s win in court may make other companies more comfortable in joining the service. Some prospective partners include cable channels that want carriage (Bloomberg TV signed the first such deal with Aereo last year) and wireless providers. And the mere existence of the service may cause the broadcasters to speed up their own plans for streaming programming to phones and tablets.

Analysts suggest that some cable and satellite providers, such as those that pay billions of dollars in retransmission fees for the right to carry broadcasters’ signals, might start to mimic Aereo’s system to get around the fee requirements. Others predicted that the broadcasters might lobby Congress to change the law. [11]

The outcome of this case will undoubtedly influence the way future systems do business in the future. In the meantime, all we can do it wait, and watch for the next big thing to enter the market and revolutionize the business yet again.