Erik Jacobs A Real American Hero

Hank Williams over at Why Does Everything Suck? raised some excellent points about the recent appeals decision in Cablevision’s “network DVR” case.

While Redlasso can almost certainly not operate the type of clipping service they were operating, this may be an opening to a much bigger opportunity. In essence the Redlasso technology is a virtual DVR, just like what Cablevision is offering. Technically, the only difference is that the content is delivered over the Internet.

Hank raises some excellent points. I hadn’t thought about the whole “third party” aspect to this decision. If the FCC or whatever other organization deemed responsible were to mandate that the cable/satellite providers provide “access information” (i.e. what networks a consumer is entitled to DVR), it could be done very easily via an XML interface.  When a consumer signs up for DVR service with a third party, they provide their subscriber/account number.  Third party provider then makes frequent requests to the operator to determine channel accessibility, and a web interface that looks like any other channel guide could let the end user choose what program to record.

Here is where it gets sticky. For one, the cable operators have a huge advantage in the bandwidth arena over the regular internet crew. In practice, the available bandwidth on a coax cable like is run to most homes is fairly significant – this is why you can get so many HD + SD channels AND 10mbit internet. Watching network DVR provided by your cable company is no different than on-demand provided by them.

However, when you talk about a third party that is not physically attached to the cable network, they’re having to do what most people call IPTV – the video signal has to stream right through the public internet. This is a significant disadvantage for the third party provider to overcome, especially in the HD content arena.

The one possible benefit to third party providers like Redlasso is that I see them as becoming a crucial partner (or acquisition target) to the satellite companies that do not have the ability to do on-demand like cable companies do. Especially if the satellite companies continue to forge alliances with the telcos (a’la DirecTV/Bellsouth partnership here in the Atlanta area), I am sure that something interesting could be worked out.

This also probably bodes well for companies like Verizon and AT&T who are starting to provide television service in addition to their standard internet service. These organizations already have the network depth and breadth that the cable companies have, but their primary advantage is that they are also major internet backbones, which gives them a huge advantage if they additionally wanted to provide “IPTV” access to networked DVR content (although end-user bandwidth is still an issue in that scenario).

The more that this gets discussed, the more it seems like this is a great opportunity for the entire industry – content providers (networks), operators, advertisers, and consumers alike.

In an article today on Tech Trader Daily, Eric Savitz talks about the ruling of the U.S. Court of Appeals in New York regarding Cablevision being able to implement a “network DVR.”  Eric Savitz writes:

On the other hand, [Bernstein Research analyst Craig] Moffett contends the ruling is “a major loss for media companies.” As Moffett puts it, “with a stroke of a pen, the Appeals court has opened the door to a massive increase in the penetration of DVR capabilities. Core among these is ad-skipping.”

Well, here is the reason why I’m not sure that this is really such a loss for media companies.  First of all, let’s think of what the “network DVR” really enables and how it compares.  A cable DVR currently is a hard drive in your cable box.  When you record a show, the file gets written to your cable box.  How does a network DVR differ?

Well, first, it’s the same in that there is a “recorded” file, except that this file exists on the cable company’s network of storage.  However, because the cable company is storing this file, they can use the same file for everyone that wanted to “record” this program.  Think of the savings here — the cable company needs one file for S1E11 of House (Season 1 Episode 11 – Detox), even though 14,632 people may have that episode “recorded.”  Not only that, but for a show that is in syndication like House or Friends or any other, the cable company only needs one file no matter how many networks are airing that episode.

How does this pertain to advertising?  Well, let’s consider some possibilities, ignoring any consumer complaints that might arise from them for later:

1. No commercial skip
   If the cable company is completely in control of the DVR, what’s to stop them from implementing ads that cannot be skipped?  Just like when you pop a DVD in the player and you can’t skip the FBI warning (in the USA at least on a standard DVD player), why couldn’t the cable company implement a system of ads that could not be skipped?
2. Targeted advertisement based on network or suggestive advertising/related advertising
   The cable company is providing the network with the storage for their shows to make them available for “recording.”  Normally, a network and a cable company share some of the advertising time during a show, and there is a whole complex system surrounding this.  Well, now the cable company and the network know that the show has been recorded.  There is no guessing here.  They know what network the consumer recorded the show off of.  This leaves a wide range of data mining opportunity for more selected advertising.
3. Pay for no commercials
   Along the lines of non-skippable commercials, what is to stop the cable company or the network from offering consumers the ability to pay to have a commercial-free experience?  Networks like HBO, Cinemax and others already charge premium fees on top of normal cable subscriptions for access to commercial-free movies and entertainment.  In this new world of networked DVR, what is to stop the networks and/or the cable company from providing the same tiered service?

The network DVR may make it difficult for advertisers to sell in to cable providers or networks, but it certainly doesn’t hurt the totality of “media” companies.  This is just another way that advertisers are going to have to get more creative in this new world of on-demand digital content.

Lastly, and on a different note, Savitz writes:

Also losing here: the satellite companies, who have no way to offer network DVR capability, which requires point-to-point connectivity. “The satellite operators will be forced to operate at a significant technological and economic disadvantage,” [Moffett] writes.

Since when is it the law’s job to protect companies from competition?  Is it the fault of the cable companies that satellite television technology is not conducive to allowing for the type of on-demand content that the cable companies can provide?  Satellite television definitely serves a market.  It is a viable product.  It is not the government’s job to cripple one form of technology so that another form of technology can remain competitive.  If the cable companies get the ability to network DVR, then DirecTV, Dish and others will have to innovate elsewhere to survive.  If this were the case, then shouldn’t the Fed cripple cable companies’ ability to deliver faster internet service than the telephone companies?

These are just my thoughts.  I look forward to your comments.