Entrenched Media Ready for DVR War

If the entertainment industry has its way, DVRs won't ever become a mass-market item. The industry fears the effect that DVRs will have on the way people watch television, especially with regards to digital piracy and lost advertising revenue.

And so, in October 2001, a consortium of industry heavyweights, including Viacom (VIA), Disney (DIS) and General Electric's (GE) NBC, filed a lawsuit against SonicBlue, maker of ReplayTV. At issue is the company's ReplayTV 4000 DVR unit, which allows users to share digitally recorded files and skip commercials automatically.

"Copying programming for playback with defendant's auto-skip feature effectively circumvents the means of payment to copyright owners for the programming being viewed," the suit said. "[ReplayTV] thus constitutes copyright infringement."

The legal battles are heating up. In December 2001, SonicBlue and TiVo filed a countersuit against the entertainment industry. Less than a month ago, the Electronic Frontier Foundation, a nonprofit group devoted to protecting digital civil liberties, sued entertainment companies to protect the interests of DVR consumers.

"Hollywood is trying to stick as many fingers in the dike as they can to hold this technology back as long as possible," says Fred von Lohmann, senior staff attorney for the Electronic Frontier Foundation. "It's a delay tactic."

Lawsuits may make life more difficult for DVR makers, but few believe that the courts will move to block the spread of technology and reverse its 1984 ruling that legalized VCR use, which entertainment companies wanted banned because of copyright issues.

"This is just an extension of what we have with VCRs," says Badding. "They're going to have a hard time getting the courts to believe them."

If You Can't Beat 'Em, Join 'Em

There's some hope that entertainment companies and advertisers will warm to the medium. TiVo, which doesn't allow commercial skipping and is partly owned by AOL Time Warner (AOL), Sony (SNE) and NBC, has been working closely with the entertainment industry to create interactive advertisements that utilize the DVR's advanced features.

In May, the company partnered with Best Buy (BBY) on the retailer's annual wireless gadget promotion, which featured Sheryl Crow as a pitchwoman.

Instead of a standard 30-second advertisement, TiVo viewers saw a spot that gave them the option to pause television and opt to see rehearsal footage of Crow performing, along with information about Best Buy's mobile offerings.

"Think of it as video 'advertainment.' The notion here is to take the 30-second spot and use it as a gateway to more interesting entertainment," says Morgan Gunther, president of TiVo. "You'll see us do a lot more of this going forward."

The ads were a major success. Nearly half of TiVo's 500,000 subscribers stopped what they were watching at the time to check out Best Buy's showcase. TiVo has paired with other advertisers as well, helping pitch BMWs and Adam Sandler's latest movie, Mr. Deeds.

Over the next year, Mollie Weston, manager for Best Buy's broadcast strategy, says the retailer plans to offer three more showcases, with a holiday promotion debuting in the late fall.

"We walked away with the feeling that it was a great accomplishment, but our goal is to learn how consumers are using this technology," Weston says. "People have been consuming content differently today than they were five years ago. I think as advertisers, we have to pay attention to that and find new ways to reach them. This is one avenue that works."

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