CBS

TV is finally catching up with the digital age and catering to new generations of consumers — those who rely on services like Netflix, Amazon, and YouTube for most of their video entertainment.  This week may have been a tipping point for online television, with HBO and CBS announcing over-the-top (OTT) services that don’t require a traditional TV subscription.  HBO’s announcement came on Wednesday, with a product launch expected for 2015, and CBS’s CBS All Access was announced and launched yesterday to 14 cities, with more on the way.  These new offerings should help encourage cord cutting and more competition with established broadcasters and cable companies.

The New York Times has a great run-down of the business and competition issues at stake, even pointing out the classic innovator’s dilemma of whether to cannibalize an existing revenue stream when faced with disruptive innovation and competition:

Television executives are eager to woo those viewers, who often are younger and represent their future audiences. But at the same time, these traditional television networks must perform a careful balancing act to not cannibalize the billions of dollars in revenue they generate each year through existing business models.

The Times also mentioned that this week’s announcements mean that “viewers have more options to pay only for the networks or programs they want to watch — and to decide how, when and where to watch them,” and quoted CBS CEO Leslie Moonves saying that their “job is to do the best content we can and let people enjoy it in whatever way they want.”  But they did not point out that this is the classic formula for reducing piracy.  As DisCo has said over and over (often quoting Kevin Spacey or Netflix executives), making content lawfully conveniently available in the format consumers want reduces piracy.  A stand-alone HBO service is likely to increase the amount of subscribers.  As The Oatmeal explained so well, there isn’t currently a lawful way to watch Game of Thrones for cord cutters.  Giving people what they want — piracy demonstrates market demand — should help convert pirates into customers.  Research confirms this, including studies of Spotify and Netflix entering the market in Norway and Spotify’s introduction in the Netherlands.

This week’s news demonstrates great potential in the market for OTT video, evidenced by Netflix’s meteoric rise and Aereo’s ongoing legal battle.  A recent update from Aereo shows that it is “still standing up for innovation, progress, technology and our consumers,” now willing to even accept MVPD regulation in order to lawfully enter the market for online television.  And on the subject of Aereo, the Times also noted that CBS had been planning this service for more than a year — which means the planning started during the Aereo litigation.  As Moonves told the Times, “I am the old broadcasting guy here,” adding, “I continued to poke holes in it for the last year.”  That’s certainly one way of putting it.

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Today, the U.S. Supreme Court will hear arguments in the case of ABC v. Aereo – a dispute which has been billed as likely to shape the future of television.  As earlier coverage here at DisCo has explained, the case also has the potential to alter the future of the Internet, and specifically, cloud-based services.

This copyright case revolves around the New York-based start-up Aereo, who provides arrays of Internet-attached antennae to subscribers, who each use an individually-assigned antenna to access their free local broadcasts, online.  Major U.S. broadcasters don’t like this, since cable services now pay them handsomely in order to carry those broadcast signals to cable subscribers.  Broadcasters have argued that Aereo infringes copyright by enabling its users to access their local broadcasts online in this manner. MORE »

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A year after DisCo covered CBS dropping the ban hammer on an ad for homebrew carbonated beverage company SodaStream aimed at Sunday’s “Big Game,” FOX has repeated the performance, nixing an ad in which actress Scarlett Johansson touts SodaStream, concluding, “sorry, Coke and Pepsi”.  One of SodaStream’s prime selling points is that its mix-it-yourself approach to carbonated beverages produces fewer bottles, and is therefore more eco-friendly.

Johansson’s four-word swipe was the ostensible basis for rejecting the ad, even though, as Ad Age noted last year, “Pepsi has scored big points with viewers over the years by showing Super Bowl ads with Coke deliverymen abandoning their employer wholesale for a sip of a Pepsi drink.”  (This all occurs against the backdrop of the NFL’s notoriously aggressive policing of the trademark for the Game Which May Not Be Named — a subject that has been the subject of previous mockery.)

Today’s news reinforces the conclusion last year that sniping at one’s competitors over trivial product differences is fine, so long as your product doesn’t attack the business model of big incumbent advertisers.

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You may have to tune into the loonier realms of reality shows to see TV-driven foolishness surpassing what arises in retransmission disputes like the current slapfight between Time Warner Cable and CBS.

“retrans” battle could be a simple bargaining session, but two things set it apart from the markets taught in freshman-year economics classes:

* The Cable Act of 1992 effectively requires cable and satellite operators to buy network TV programming. (Broadcasters can choose “must-carry” status and forego retransmission fees, but the popularity of much network fare makes it economically smarter to cede that privilege.)

* The money involved belongs to a third party absent from negotiations: cable and satellite subscribers.

So what happens when one large corporation that owns local stations wants another large corporation to pay more for its shows? They take it out on the viewer.

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Aereo, the television streaming service that recently won in the Second Circuit, is no longer confined to New York.  Today, Aereo launched in Boston, and 21 other cities are planned for 2013, including Atlanta launching as Aereo’s third city on June 17.

In addition to increasing its markets, Aereo has also increased its lawsuits.  Previously, Aereo had been sued by broadcasters, who argued that when individuals watch shows in their homes they are unauthorized ‘public performances’ that infringe copyright.  The Second Circuit agreed that Aereo’s conduct was legal under the 2008 Cablevision case.  Last week, Aereo brought suit against broadcasters, by filing a declaratory judgment against CBS and some of its affiliates.  A declaratory judgment is a suit brought with the intent that the court clarify the ambiguity around the potential impact of a law or legal obligation on the plaintiff.  Here, Aereo has requested that the court confirm that its technology does not infringe CBS’s copyrights or violate the Copyright Act, and requests costs, attorneys’ fees, and any other relief the court deems just and proper.  The complaint cites May 1 comments from CBS President and CEO Leslie Moonves that “we’ll sue,” and April 23 tweets from CBS Corporation Communications Exec Dana McClintock, which are embedded below:

These remarks from CBS demonstrate what Aereo investor Barry Diller recently explained; broadcasting is a challenging business for competitors: “No incumbent wants anyone in. That is an unbreakable rule.”  But Aereo’s decisions to continue to enter new markets, and to bring this declaratory judgment, show that they are up to the challenge.

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We’ve written several posts on the DISH Hopper dust-up, but to recap: CBS owns the popular tech site CNET, whom it forced to retract an award given to the best product from the recent 2013 Consumer Electronics Show (CES).  Why?  Because CNET granted the Best of CES award to the DISH Hopper product, a product that CBS and other networks were suing DISH over, on the grounds that its service constituted copyright infringement.  As Rob described, initial reports implied this came from the legal division, which prompted a round of ‘typical lawyer nonsense’ eye-rolling.  Subsequent developments indicated that the decision had not come from the Wet Blanket Department at all, however, but rather directly from CBS CEO Les Moonves.

DisCo has yet to give this kerfuffle any legal analysis, and this post admittedly only scratches the surface.  At Hollywood Reporter, Eriq Gardner previewed the questions that IP and tech watchers have been pondering: does CBS meddling in CNET reporting now undermine its ability to argue that it should not meddle in CNET reporting on other subjects?

The prime example, noted in Gardner’s article, involves Download.com.  After CBS acquired CNET along with CNET’s website, Download.com, CBS was sued for making available peer-to-peer software, including BitTorrent applications.  If you do not immediately grasp the connection between CBS and P2P apps, worry not.

In short, the allegations in the suit are:

  • CBS controlled CNET, which ran the website Download.com.  Download.com is a software distribution platform, ancient by Internet standards (1996), which reviews and makes available freeware, shareware, and trial versions of software.
  • Among the thousands of applications that Download.com made available were file-sharing applications, and among the applications that Download.com editors reviewed were BitTorrent applications.
  • Individuals downloaded and then allegedly used these BitTorrent applications to infringe copyright.  And thus CBS should be held responsible, the theory goes, for those end-users’ infringement.

Presently, judge-made rules do allow for plaintiffs to hold non-infringers responsible for the acts of other infringers under certain circumstances: this is called “secondary liability.”  In these special cases, judges have decided that it is in the broader interest of protecting copyright to penalize non-infringers for the misconduct of third parties.  (Thus, this notion is sometimes confusingly referred to as “third party liability.”)

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If CBS isn’t already wishing it could hit the rewind button on its attempt to deny publicity to DISH Network’s video recorder, the company will be grasping for the remote soon enough.

The festivities began last week, when editors at CBS’s tech-news site CNET had voted to give DISH’s updated Hopper DVR–which can automatically skip ads in recorded prime-time network fare–its “Best of CES” award. CBS is not so fond of that feature, having already sued DISH over it, and forced CNET to give the award to somebody else.

That’s gone over about as well as you’d expect. CNET writer Greg Sandoval tweeted his resignation on principle (“I no longer have confidence that CBS is committed to editorial independence”), and editor Lindsey Turrentine wrote that CBS executives banned the site from saying what had just happened.

Daniel O’Connor unpacked the foundations of this foolishness yesterday, and a legal analysis by Matt Schruers is forthcoming [EDIT: Matt's post is now up]. Here, I’m going to tee off on two toxic defenses CBS has offered for its conduct, just in case any other media conglomerate wants to follow its example.

(Disclosure: DISH Network is a member of the Computer & Communications Industry Association, which hosts this blog.)

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On Friday, news broke that CNET was forced to pull its consideration of DISH’s awesome new Hopper set-top box from consideration for its “Best of CES” award because of a legal fight between DISH and CNET’s parent company, CBS.  At least, that was the pretext.  More likely CBS nixed the Hopper from receiving its rightful acclaim because — as another network, FOX,  jointly suing DISH with CBS said — the networks fear that DISH’s Autohop “will ultimately destroy the advertising-supported ecosystem that provides consumers with the choice to enjoy free, over-the-air, varied, high-quality primetime broadcast programming.”

CNN later reported (and CNET confirmed with a disclaimer) that CBS had hastily laid down a policy that prevented CNET from reviewing the DISH Hopper because it was involved in litigation with the company surrounding the product.  Unfortunately for CBS this ex-post legal rationalization did not completely ring true because CNET had already reviewed the DISH Hopper at CES and given it glowing praise.

As a quick summation of the legal controversy, the major networks filed suit against DISH’s Autohop technology earlier in the year for letting customers automatically cut commercials out of their primetime network television recordings.  Networks argued that this was a violation of copyright law and an affront to their hallowed business model.  DISH countered that TV viewers have been skipping commercials since the dawn of the commercial, and the Hopper just gives viewers more control.

Here at DisCo, our copyright law guru Matt Schruers discussed the Autohop technology in the context of prior technology aimed at giving users the ability to “tune out” commercials and noted, “your business model won’t last if it demands that the rest of the world order their affairs around you.”  The arguments of the networks are also un-refreshingly similar to the arguments used by the major movie studios in their attempts to make the VCR’s predecessor — the Betamax — illegal.

By today the situation was spiraling further out of control.  First, Greg Sandoval, longtime tech reporter and one of CNET’s most prominent bylines, resigned citing the dishonest way in which the situation was handled.

Then Lindsey Turrentine, an editor at CNET, revealed not only that (1) DISH had won the original vote for the “Best of CES” award, but also that (2) CBS prevented CNET from revealing that fact in its disclosure, forcing the tech news outlet to stick to the official, misleading script which was, “The Dish Hopper with Sling was removed from consideration due to active litigation involving our parent company CBS Corp.”  And not only had the order come down from CBS to meddle with the CNET’s editorial integrity, but it had come from CBS CEO Les Moonves himself.

In a final twist, the implications of which will be covered more extensively by Matt Schruers in a later DisCo post [EDIT: Matt's post is now up], CBS had actually used its “editorial hands off” policy to defend itself from being implicated in a (questionable) lawsuit brought against CNET for facilitating copyright infringement.  Given that CBS now has admittedly exerted direct editorial control in this instance, it is quite possible that future lawsuits will target CBS for the content put out by its affiliates, as lawyers will argue that in not editing future content CBS is exercising editorial control as it has now bulldozed the Chinese wall it used to defend itself in the past.

All in all, this was a myopically short-sighted attempt by CBS to censor editorial comments about a product that its own affiliate said was awesome.  (CBS must agree, seeing as they let CNET post the original review, right?)

In fact, one prescient company perhaps summed up the need for editorial independence best when it argued that forcing parent companies to take editorial control of its news outlets “would create grave uncertainties for writers and publishers — including search engines, web encyclopedias, blogs and most technology journalists — that seek to communicate truthful information about emerging technologies.”  Who was that company you might ask?  It was actually CBS defending itself against the above-mentioned charges accusing it of facilitating copyright infringement through articles published on its tech news affiliate, CNET.

And to would-be censors out there, take note that in attempting to censor something you actually increase its PR exposure, as this controversy has generated far more news than CNET’s “Best of CES” list ever would have.  Another clear instance of the Streisand effect.

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