Score one for the cable guys…a big one.  A federal appeals court in New York has ruled that a cable company violates no copyrights when it provides virtual digital video recorder services, commonly known as "network DVRs".  Network DVRs store programming on the cable company’s computers.  That means TIVO-like service without the need of a separate box hooked up directly to the customer’s TV set.

The decision, from the Second Circuit U.S. Court of Appeals, potentially expands customer options, making any digital cable box or two-way TV into a DVR gateway.  For cable providers, it means the cost of providing DVR services will likely be less, potentially cutting the monthly fee needed for a solid return on investment.  If prices go down, subscriber numbers could go up, with a consequent increase in overall bottom-line for the cable guys.

In the traditional DVR-sitting-on-the-customer’s-TV approach, inventory, delivery, installation and setup of individual DVR boxes are all costly factors.  By contrast, network DVR services, once available, can be remotely installed without a home visit, and without the need for keeping stacks of DVRs on the shelves.

But for program providers – whether cable channels or over-the-air broadcasters – increased DVR use could mean more commercials get zapped.  DVR services make it very easy to fast forward through unwanted content, like commercials, in seconds or even split-seconds.   This means even more downward economic pressure on the traditional sponsorship model for broadcasters and many conventional cablecasters.

No word yet whether network DVR opponents involved in this case, including the four major broadcast nets and CNN, plan any further appeals.  Ultimately, the entire matter rests on a Supreme Court ruling from the early days of consumer video cassettes.  That decades-old decision held that "time shifting" by TV viewers recording on VCRs constituted "fair use" of copyrighted materials.  (Under copyright law, a "fair use" does not give rise to additional copyright royalty liability.)   A successful appeal would have to convince the court that there is a legally meaningful distinction between (a) speedy digital time-shifting by DVR and (b) the more cumbersome mechanical time-shifting via video tape.

The Second Circuit decision finds in effect that time-shifting is time-shifting is time-shifting.  Broadcasters and cablecasters are now confronted with essentially two choices:  find ways to maintain revenue streams despite increased commercial-zapping, or mount a persuasive, last-ditch attack in the courts showing that, for copyright law purposes, time-shifting on a DVR is not a "fair use".  If solid distinctions between digital and old-fashioned cassette recording technologies can’t be established, the appellants would likely have to get the VCR precedent overruled.  That would not be a small task.