Fox loses second ad-skipping battle

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WASHINGTON – A U.S. federal court decision Wednesday gave fresh support to a new technology that helps consumers avoid a basic irritant of television viewing — the commercial.

Dish’s Hopper service, which automatically removes ads before consumers view recorded shows, is the latest technology to worry broadcasters.

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These companies have long reaped profits from a practice that is as old as the television itself: forcing viewers to watch ads before they can see the rest of a show.

But a growing slew of technology firms, from Amazon to Netflix, has roiled the industry by offering programs outside the traditional distribution channels that for years dictated what appeared on the living room television.

For far less than what cable companies charge, these upstarts are giving consumers more control over what they watch and when they watch it, while enabling them to easily skip ads.

Google, the owner of YouTube, has now become the latest company to join this trend, unveiling a device Wednesday that pumps online videos and other content directly into television sets.

Such innovations have raised questions over how many Americans are actually watching commercials these days and cast a shadow over a basic way television funds itself. Digital recorders have become so common that many consumers fast-forward through ads. With Dish’s Hopper, people can watch shows that are free of commercials shortly after they are broadcast live.

Now that Hopper has received greater legal support, analysts expect cable companies, DVR providers and others who distribute television content to quickly offer similar services.

“This is another indication of the slow erosion of a dominant media company’s control over distribution of content,” said Gene Kimmelman, a former senior antitrust official at the U.S. Department of Justice. “That control is slowly but increasingly being handed over to the consumer.”

Shortly after it was introduced last May, Dish’s Hopper service set off alarms at Fox Broadcasting.

In its lawsuit, which was supported by other broadcasters, Fox sought a court order to halt Dish’s service, arguing that it violated copyright laws.

But the U.S. Court of Appeals for the 9th Circuit agreed with a lower court’s rejection of Fox’s request.

In an opinion written by Judge Sidney Thomas for the three-member panel, the appeals court determined that consumers were free to do anything they want with their recordings of Fox programs, as long as they don’t resell the content.

Thomas cited the 1984 Supreme Court ruling that stated Sony Betamax video recordings were legal.

Besides, Thomas added, “Fox owns the copyrights to the television programs, not to the ads aired in the commercial breaks.”

Fox said it is reviewing its options. The company could decide to pursue the case, which might eventually reach the Supreme Court.

“We are disappointed in the court’s ruling,” said Fox spokesman Scott Grogin in a statement.

“This is not about consumer choice or advances in technology. It is about a company devising an unlicensed, unauthorized service that clearly infringes our copyrights and violates our contract.”

Some analysts say the case could end up hurting consumers in other ways. Broadcasters may try to raise how much they charge Dish and cable companies to distribute their content, if ad-skipping technology becomes pervasive. Those costs, in turn, could raise consumer bills.

And industry officials have been warning that if the revenue model for television breaks, the funding for a variety of programming, from AMC’s original shows to the reality programs on Food Network, could dry up.

“We suspect broadcasters are factoring potential ad-skipping losses into their demands for . . . payments from Dish,” said David Kaut, an analyst at Stifel Nicolaus. “I wouldn’t be surprised to see other parties looking at this ruling as encouraging for them to develop their own, similar ad-skipping technologies.”

Hopper requires a group of technicians based in Cheyenne, Wyoming, to manually view TV shows and mark the beginning and end of commercials for removal. Once enabled, a user doesn’t have to press any more buttons for future commercial deletions.

The technology immediately drew criticism by broadcasters for sabotaging their business.

At the 2013 International Consumer Electronics Show, tech website CNET picked Hopper for best-in-show technology.

But CNET then dropped its choice after it was vetoed by the site’s parent company, CBS. The Consumer Electronics Association protested the broadcaster’s interference in the awards process.

The court ruling on Hopper was the second major legal blow to broadcasters this year. In April, a federal appeals court affirmed the business model of Aereo, which uses antennas to pick up broadcast signals. It then converts the programming into digital streams that are delivered for a small fee to TV sets or mobile devices through an Internet connection.

Several analysts say the Hopper ruling could bolster Aereo’s legal defense, should broadcasters renew suits against the firm. Aereo has announced it plans to bring its service to the Washington region this summer.

The current legal battles have echoes of the past, Michael Petricone, a senior vice president of the Consumer Electronics Association said. Every time a new device alters the business models of Hollywood, lawsuits ensue.

At a 1982 House hearing on video recording and copyright, Jack Valenti, head of the Motion Picture Association of America, urged lawmakers to ban the VCR. “I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone,” he said.

Yet Petricone argued that the VCR, DVDs and online videos have only increased demand for entertainment.

“Again and again, they declare new innovations will hurt their industry. But what happens instead was that new innovations opened up new revenue avenues for the content industry,” he said.

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