Shapiro: Consumers Win When Innovators Are Able to Innovate

Posted July 11, 2012 at 3:42pm

In the classic 1942 film “Casablanca,” police Capt. Louis Renault says he is “shocked to find that gambling is going on” at Rick’s Café Américain — as he quietly accepts a pile of money from one of the gaming table dealers. TV networks are reacting in much the same way this month, expressing shock that any of their viewers would ever skip commercials, even while they expect other payment for their content.

In early May, DISH Network introduced a new digital video recorder feature that allows a subscriber using its new Hopper DVR to choose whether to watch TV commercials during playback of prime-time shows on the day after they are recorded. The commercial skipping feature is called “AutoHop” and must be activated by the viewer for each program.

Reaction from the TV networks was swift and overblown, predicting that this consumer-friendly innovation would “destroy the advertising-supported ecosystem, labeling it “tampering ” and somehow “unlawful.”

The battle recently moved to the courts with a flurry of lawsuits.

In reality, the Hopper upgrades the long-standing — and entirely legal — DVR technology that allows users to fast-forward commercials. Yet the networks argue the Hopper undermines their advertising model, thus threatening their existence. Readers of a certain age will feel like they’re experiencing triple déjà vu because they’ve heard this melodramatic lament twice before: first in the 1970s when VCRs revolutionized the industry and again in the 2000s when DVRs first appeared.

In reality, TV networks can no more force you to watch TV commercials than a newspaper can force you to examine every ad on your way to the sports page. And anyone suggesting that drivers should be forced to read every billboard would be scoffed at as a lunatic.

Yet the TV networks are making these same ridiculous claims in their lawsuits against DISH, which is only trying to give subscribers what they want — the freedom to watch TV as they wish.

For the uninitiated, a history lesson: In 1976, Hollywood studios sued Sony over the Betamax video cassette recorder, claiming that allowing consumers to record over-the-air broadcast television for free violated their copyright and made Sony a “contributory infringer” through its innovation. The case relied on advertisers’ testimony that they would be less likely to buy TV ad time. The Supreme Court sided with innovation in its 1984 Sony Corp. of America v. Universal Studios Inc. decision. The Supreme Court Betamax decision has governed controversies over copyright infringement and fair use ever since. It’s the Magna Carta for the innovation industry.

Today’s backlash against the newest DVR technology is nothing more than a rehashing of the Betamax case. The case set the specific and clear precedent that consumers have the right to “time shift” — record programming to watch it later — and businesses have the right to provide time-shifting devices. In fact, NBC owner Comcast provides customers with DVRs that enable them to skip a 30-second ad with one click.

Whether it’s the VCR, the DVR or the Hopper, what the entrenched interests see as a threat to their survival is nothing more than technological progress. The VCR marked the first time consumers had control over what they could watch and when they could watch it — and yet the movie studios survived. The DVR upgraded the viewing experience by taking the same concept off magnetic tapes and putting it onto hard drives and digital menus — and yet the television industry survived.

Innovators have the right to innovate, and consumers have the right to enjoy the products of that innovation, within the legal limits.

The burden is on the old media to adapt. Sadly, the broadcasters are trying to use the courts to stifle progress. Why don’t they instead use technology creatively? Work with advertisers to produce commercials that viewers won’t want to skip — offer promotion codes, sales and other creative solutions that can only be gained by watching the commercial.

Therein lies the most troubling aspect of this case. At its core, the suit is about how business, consumers and government view technology. The establishment often views technology as a threat rather than a tool. The networks view progress as the enemy, when the true enemy is their own passivity in innovation.

Innovation always undermines the status quo. It can destroy jobs, markets and entire industries. For every consumer who drooled at the VCR concept, there was a well-connected power broker (with the ear of Washington) determined to block it. What the power brokers fail to realize is that innovation also by its nature creates new jobs, new markets and new industries.

With their attack on DISH Network, Hollywood is using a familiar script — decrying DISH’s innovative PrimeTime Anytime service and AutoHop function as “bootleg copying.”

This is nothing but legal mumbo-jumbo, and I believe DISH has the Supreme Court on its side.

It’s time to salute — not criticize — DISH Network for giving consumers the commercial-free choice they really want.

Gary Shapiro is president and CEO of the Consumer Electronics Association and author of “The Comeback: How Innovation Will Restore the American Dream.”