NEW YORK – A court ruling denying Fox Broadcasting’s attempts to bar Dish Network subscribers from using ad-skipping features found on its whole-home DVR is an “early win over broadcast networks” said Moody’s Investors Service.
The ruling to deny Fox's request for a preliminary injunction against Dish came from U.S. District Judge Dolly Gee in Los Angeles. Fox said it intends to appeal the judge's decision.
“The ruling underscores the U.S. Supreme Court’s ‘Betamax’ decision, with the court confirming a consumer’s right to enjoy television as they want, when they want, including the reasonable right to skip commercials, if they so choose,” said Dish in a statement.
Satellite TV provider Dish is the third biggest pay-TV distributor in the U.S. with more than 14 million subscribers. It and several major broadcast networks have traded lawsuits over the summer regarding its ad-skipping features. Dish’s AutoHop allows viewers to automatically skip all the commercials on certain recordings starting the day after broadcast by clicking an on-screen prompt once.
Dish sued four networks, asking for a declaratory judgment that AutoHop doesn't infringe copyrights. Three of those broadcasters then filed separate suits against Dish, accusing it of violating copyrights.
A victory by Dish in the continuing suit could, in the longer term, undermine the ability of broadcast networks to grow and sustain advertising revenue in the traditional fashion wrote Moody’s in a statement. It did note though that the court appeared to acknowledge the copyrights of the broadcaster's content even though details of the decision itself are sealed for now since its involves trade secrets.
Moody’s added that it doesn’t expect the ruling to have an immediate impact on either side, but added that it could enable Dish to marginally differentiate itself from other pay-TV operators which do not offer similar automatic ad-skipping services, and increase its value proposition for consumers, who tend to favour commercial-free viewing. It cautioned that if Dish is victorious and the feature is adopted more broadly by other operators, it expects the battle to move from the court room to the negotiating table as broadcast retransmission agreements expire.
"We expect networks will seek to get compensated for lost revenue by asking for higher fees than typical in the next round of commercial retransmission negotiations," stated Neil Begley, a Moody's Senior Vice President. "In turn, Dish would want smaller increases in fees in return for turning off the service, leaving Dish in a better position than some of its competitors," added Begley.
Moody's believes that the direction of the negotiations will to some extent depend on perceived consumer behavior. If consumers highly value the feature and are more likely to acquire or retain the service as a result, Dish will likely seek to maintain the feature and it may be more widely adopted by other operators. In such a scenario, Moody’s expects the operators will end up paying more in retransmission fees to at least partially compensate for lost advertising revenue at the broadcast networks.
On the other hand, if consumers view the feature as a subtle improvement to existing DVR capabilities and it does not materially impact their choice of operator, it believes that Dish is more likely to use the feature for leverage in its upcoming retransmission negotiations, by offering to remove the feature in exchange for lower fees or smaller annual increases.
Either way it expects already contentious retransmission negotiations between broadcast networks and pay-TV providers to become even more challenging in the coming years and more stations are likely to go dark temporarily on Dish's service.
