The U.S. Supreme Court on Monday blocked an effort by major media companies to quash a technology that threatens their already deteriorating advertising business.
Plaintiffs including CBS, Fox, NBC Universal, Turner, Viacom and Walt Disney had asked the justices to reverse a lower-court ruling that allowed Cablevision Systems Corp. to offer a so-called remote-storage DVR, which enables viewers to record and store shows on the operator's computers rather than on a set-top box in subscribers' homes.
By rejecting the case, the court left the previous decision intact and cleared the way for Cablevision, a New York-based cable operator with 3.1 million subscribers, to launch the service by late summer.
The decision is likely to lead to an increase in the number of viewers who fast-forward through commercials, undermining the ad-based business model on which networks rely.
"The content owners are probably very agitated right now," said Derek Baine, senior entertainment analyst with research firm SNL Kagan Associates. "It's one more knife in the back."
As soon as Cablevision announced plans in March 2006 to introduce the service, it was challenged in court by a consortium of networks and Hollywood studios that argued that remote-storage digital video recorders constituted new on-demand programming for which the cable operator should pay a license fee.
A federal judge in New York briefly blocked Cablevision from moving ahead, but last year the U.S. 2nd Circuit Court of Appeals reversed that ruling.
Though Cablevision's largest competitors, Comcast and Time Warner Cable, are not planning to start offering remote-storage DVRs immediately, the high court's decision hastens the ongoing decline of live TV viewing for entertainment programs. More than a third of consumers have DVRs in their homes, according to Leichtman Research Group.
That will probably add to the headaches of networks reeling from the declining ad market, especially if Cablevision's bigger competitors follow suit.
A spokesperson for Time Warner Cable, the nation's second-biggest cable operator, said the company would consider offering remote-storage DVR service once it was certain there would be no further legal challenges.
Almost all of Cablevision's subscribers -- 2.9 million -- would have access to the virtual DVR without needing new equipment. Although it hasn't announced specific plans, Cablevision could offer the service at a lower price or with features not available with current DVRs, such as unlimited storage or the ability to record numerous channels at once.
The proliferation of DVRs enables consumers to watch shows whenever they want, not on networks' timetable. Although network schedules would have diminishing importance as a result, some industry experts say prime-time slots would continue to hold value in an on-demand world.
"Without a linear lineup, people would not know how to find the best content to watch on demand," said Dan Brenner, a partner at law firm Hogan & Hartson and a former head of regulatory and legal affairs for the National Cable and Telecommunications Assn. Prime time "would remain a way to create marquee content."
In the wake of the ruling, content companies could choose to work with cable operators to try new forms of advertising within recorded programs. Cablevision Chief Operating Officer Tom Rutledge said in a statement that his company wanted to work with programmers to "deliver real benefits to advertisers."
Tim Hanlon, executive vice president of Viva Ki Venture, the digital investment arm of ad giant Publicis Groupe, said marketers could use DVRs to deliver targeted spots that consumers might choose to view.
"From an advertiser's perspective, opt-in environments are a much more palatable targeted advertising environment than anything that's not," Hanlon said.
It wasn't immediately clear, however, whether big media companies would use Monday's decision as a prompt to adapt to the technology or take a new stab at combating it in court.
"We will continue to do what is necessary to protect the legal rights of our members with regard to their content, and look forward to the continued development of the law in this area in future cases," said Daniel Mandil, chief of legal affairs for the Motion Picture Assn. of America.
Brenner noted that the studios had several paths to pursue, in or out of court.
"This could get resolved at the negotiating table now that the parties have a clearer sense of where they stand, or they could take on the outstanding legal question of secondary liability," said Brenner, referring to a theory used successfully against file-sharing networks in which a company is held liable for enabling customers to engage in piracy even if it doesn't violate copyrights itself.
"They could also try to get Congress to address this," he added. "Content owners have been pretty successful when they go to Congress."