A U.S. Federal Court of Appeals ruled this week that top U.S. cable operator Cablevision Systems, of Bethpage, New York, would not directly infringe the copyrights of program content owners if it allowed its subscribers to use network-based digital video recording (DVR) technology. The ruling reverses a lower court ruling in March 2007 that prevented the cable operator from implementing the network-based DVR technology - called remote storage digital video recorder (RS-DVR) - that would enable customers to record and store TV programs using the cable operator's own network servers across its 4.6-million-home footprint in the greater New York, northern New Jersey and Connecticut service areas.

The ruling lifts an injunction that prevented the MSO from implementing its RS-DVR without obtaining a separate license from content owners. Various network programmers and movie studios, including Time Warner, 20th Century Fox, Universal Studios, Paramount Pictures, Walt Disney, as well as broadcast networks ABC, CBS and NBC, sued Cablevision in May 2006, when the MSO announced its intention to roll out the technology to consumers. The content owners argued that, because the RS-DVR service involved recording and storing of programs at Cablevision's facilities, Cablevision, and not its subscribers, would be making the copies when a consumer recorded a program with RS-DVR, and a consumer's replaying of programs recorded with RS-DVR would be a "public performance." Both of which would require a separate license from the content owners.

This case made for some strange bedfellows. Last year, a number of industry associations and lobbying groups, including the Consumer Electronics Association (CEA), USTelecom (USTA - which represents telephone companies such as AT&T and Verizon, the latter being a key rival to Cablevision with its FiOS Internet and TV service offerings), as well as the Electronic Frontier Foundation, joined together to file a court brief in support of Cablevision's appeal.

The ruling now frees Cablevision to use the network-based hardware and software solutions that will enable cable customers with existing digital set-top boxes (STBs) to time-shift their favorite programs, instead of using more expensive locally based storage solutions. DVRs are highly popular with U.S. pay-TV households of all distribution modalities - satellite, telco/IPTV and cable -and are now increasingly being incorporated into cable advanced digital STBs.

Although this is positive for both consumers and cable operators, the long-term implications may be less positive for set-top box manufacturers such as Motorola, Cisco, Pace, Thomson and others that are shipping large quantities of advanced STBs that incorporate storage capacity for time-shifted TV, and that are also a source of higher margins than generic digital set-top devices. The news could be good for video server vendors, as well as suppliers such as BigBand Networks that provided some of the initial RS-DVR equipment the company used at the time of the proposed trial before it was shut down.

Cablevision's subscriber base of digital customers was almost 90% at the end of 1H08, so the ruling comes at a good time for the MSO because DVRs are an increasingly important competitive service element for pay-TV service providers. Although network DVR is a less costly solution, especially because it enables a whole-home DVR solution in every room, it does nothing to enable a comprehensive solution for "whole-house video" or "networked video," especially one that incorporates video originating from sources other than the operator's network, such as from PCs or other storage devices/home servers.

It is unclear when Cablevision might start rolling out the network-based DVR service, but the path is now cleared for all cable operators to move forward with this technology option for time-shifted television.

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For anyone who has followed technology and media for any period of time, the digital video recorder (DVR) is an awesome thing.

To me, though, the DVR, as a standalone device, is the perfect example of an interim hardware solution: it fits a need at a given point in time in the market but its functionality could very quickly be provided by a, dare I say it, combination of on-screen software and a cloud-type service. Why manage another hard drive? Why not just go to an on-screen menu and pick whatever episodes of a program you might have missed?

Given the court’s ruling, who benefits? Ultimately consumers get the benefit of, perhaps, a fairly rich set of options in programming content without having to worry about a given network’s schedule (except for live events such as sports and special events or breaking news). The ruling would also seem to benefit those vendors such as Hillcrest Labs and Macromedia which are developing the next generation of electronic programming guides. Another group that could benefit would be the host of open set-top-box providers such as Roku, Neulion or SezMi.

Potential losers? Long term, would be the manufacturers of the proprietary set-top boxes that include hard drives for DVR functionality. One has to also wonder how long Apple’s pay-to-download-and-own TV programming can thrive if network-based services provide catch-up and programmed capture of broadcast TV content.

In the short term, copyright holders and media companies will lose if their reaction is stay strategically focused on the notion of creating scarcity by looking to require some form of direct compensation for “on demand” viewing. In an era where a terabyte of storage comes in devices the size of hardback books and costs $300, such a strategic position would be puzzling at best.

We’ll probably get some insight into the rightsholders' intentions when entities like the Motion Pictures Association of America state what their intentions are for this case, as press reports indicated the parties might push this case to the Supreme Court.