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Cablevision's DVR Scares Ad Sales Execs

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NEW YORK Two years after a lawsuit grounded Cablevision's early trials of a virtual digital-video-recorder service, a federal appeals court last week gave the cable operator the go-ahead for a remote server-based DVR.

And while the potential ramifications of the decision had some network executives panicked, some observers believe that the inherent disruptiveness of the offering could, in the long run, prove to be a catalyst for the creation of a more productive TV ad model.

On Aug. 4, a Second U.S. Circuit Court of Appeals panel vacated a lower court's decision of 16 months ago, ruling that Cablevision's remote-server/network-DVR product did not constitute a violation of copyright law.

Cablevision COO Tom Rutledge was clearly enthused by the court's decision. A long-standing advocate of the project, Rutledge called the ruling "a tremendous victory for consumers," adding that nDVR will allow Cablevision to make DVR functionality "available to many more people, faster and less expensively than would otherwise be possible."

The plaintiffs in the case -- a consortium of networks and studios including ABC, NBC, CBS, Fox, Universal, Paramount, Turner and Disney -- were mulling their options. An appeal is all but inevitable, which means the group's next step would be to file a petition for a writ of certiorari with the U.S. Supreme Court. In order for the grievance to be heard, four of the nine justices must agree that the case is sufficient to warrant review.

One network exec, who spoke on condition of anonymity, said that while the Cablevision decision was an unwelcome development, nDVR is just the latest threat to the TV ad model: "I've never been under the illusion that I was going to wake up one day and the DVR menace was just going to disappear. This just makes the ad-skipping problem even more urgent."

That's probably an understatement. Two weeks ago, TiVo reported that its second-by-second ad-measurement service, PowerWatch, revealed that about 66 percent of all ads on prime-time broadcast TV are skipped.

Without the operator expense of hardware installation and the associated truck rolls that can add up to a cost of $300-500 per box, time-shifted viewing could explode.

"The Appeals Court has opened the door to a massive increase in the penetration of DVR capabilities," said Bernstein Research analyst Craig Moffett. "Today, DVR penetration stands at roughly 25 percent of TV households. In short order, effective DVR penetration could now jump to north of 60 percent."

Tracey Scheppach, svp, video innovation director at Starcom, agrees nDVR could kill the TV ad business, although she sees a silver lining in the gloom. "We'll see an acceleration of DVR-type technology, and that will destroy the present ad model," Scheppach said. "But with remote storage, you have a greater capacity to deliver dynamic, addressable advertising, and that's an awfully big tradeoff."

In what tech wonks call "unicasting," requested content from the cable is sent to a single subscriber, which creates a unique channel between the server and the viewer. The ad insertion opportunities in that stream are endless.

"We're going to see some erosion of commercial viewing," Scheppach said. "But in the long run, there's a definite upside to this, as far as targeting goes. We're witnessing the rebirth of television."