NETWORKS, STUDIOS FEAR PVR COULD RESHAPE HOME ENTERTAINMENT

Device hasn’t even hit store shelves yet, but already plaintiffs are seeking injunction to stop it from ever reaching consumers. Sonicblue CEO Ken Potashner responded: “They [plaintiffs] clearly see the writing on the wall.” He said his company had every intention of shipping ReplayTV 4000 to consumer electronic stores in time for Christmas and already is doing brisk business for them on its web site. “Our order rate doubled the day we got sued,” Potashner said. Device sells for $699-$1,999, depending on model.

Sonicblue has been hit with 3 lawsuits over ReplayTV 4000 --one from ABC, CBS, NBC, UPN, Disney and Viacom, 2nd from AOL-Time Warner, 3rd from Fox, MGM, Paramount. All cite copyright protection as being at heart of matter. U.S. Dist. Court, L.A., hasn’t yet set schedule for filing of briefs and possible trial. Viacom spokesman said device would allow subscribers of certain cable pay-TV services such as Showtime to transmit Showtime programming to others without subscriptions, threatening solvency of network and diminishing revenues needed to produce its shows. “In the end, there are not going to be any farmers if no one is paying for the meat,” spokesman said.

Asked why copyright infringement suit was filed when product wasn’t even on market yet, network official told us technology had “huge implications” for ad-supported free TV and “we moved now before the damage is done… Protection of our product is the key issue here.” Official of another network said suit was filed now “for the same reason you use a condom,” meaning prophylactically.

CEA Pres. Gary Shapiro said copyright owners’ suit posed “a direct attack” on fair use doctrine for such material. He said commercial-skip functions had been available to consumers for several years on VCRs that hadn’t been challenged in court. He promised CEA would monitor progress of court action closely because if its “many troubling implications” for consumers.

Sonicblue’s Potashner discounted plaintiffs’ comparison with Napster, saying PVR allows viewers to send content to only 15 other people who have device and said sender must know “address” of receiving PVR, so only friends and family members could receive it. “Think of it as e-mail,” he said, and such usage qualifies as “fair use” under law. (Since introduction of VCR technology, law has allowed consumers to use programming tapes at home for their own personal use.) Potashner said those who received program couldn’t in turn send it to others. Viacom spokesman and legal filings indicate that plaintiffs believe otherwise, that original receivers can in fact re-send programs to others. Napster, before it was shut down by courts, allowed users to transmit music to virtually anyone with e-mail address and those who received music could turn around and transmit it again.

Potashner said ReplayTV 4000 recognized Macrovision encryption, kind of computer language or key that said particular show or movie was copyright protected. In such situation, ReplayTV 4000 won’t allow viewer to transmit that content to others. Viacom spokesman said it didn’t believe that particular encryption technology was secure enough. However, Sonicblue spokeswoman Tracy Perry said Macrovision encryption was industry standard and pointed to other products on market that already allow consumers to skip commercials, such as Panasonic 4-head VCR, which, according to current Circuit City advertisement, “automatically fast- forwards through all those annoying station breaks.” Only difference between ReplayTV 4000 and others, Potashner said, is that none of others skip commercials “as efficiently.” With ReplayTV 4000, viewers can see continuous play of program, meaning without interruption of having to fast forward through commercials.

Potashner admitted device would “challenge” advertising- based entertainment, but said company was merely giving consumers option not to watch commercials. “We're not forcing them to watch it without commercials,” although he conceded that most viewers would choose to skip them. Viacom spokesman said loss of commercials would have substantial economic effects on industry. “We're in the business to sell stuff and we want people to pay for it,” spokesman said. Potashner said Sonicblue had been sued before over its technology breakthroughs, and each time plaintiffs eventually had become partners. In fact, Disney, NBC, Time Warner and Viacom’s Showtime were among original investors in ReplayTV, which was acquired earlier this year by Sonicblue. Potashner said company believed plaintiffs simply “want to control it [ReplayTV 4000] themselves and decide what the consumer has and when.” Viacom spokesman said those investments were in $1-$5 million range long ago and that today those investments didn’t “matter enough” to significantly benefit those companies when balancing harm that PVR could do. Plaintiff companies indicated they had no intention of partnering with Sonicblue on PVR.

Another company that has similar capabilities, TiVo, made “conscious decision” to hold back on certain technologies because of current copyright laws, spokeswoman said. TiVo box has hard drive that can store 20-60 hours of programming depending on model. Through phone line, boxes with receiver can fast-forward through commercials, moving at 30-sec. intervals. TiVo allows no digital output, so programs can’t be transmitted elsewhere and “enclosed environment” doesn’t threaten content providers. Although spokeswoman Rebecca Baer said technology used by ReplayTV wouldn’t be difficult to integrate in TiVo product, her company decided not to. “We felt like it was better to strike a balance between providing something that was really useful for consumers and doing something that was not going to alienate the providers of the content,” she said.

Asked why plaintiffs were suing Sonicblue and not other companies that had similar technology, Viacom spokesman said PVR in question was being advertised specifically for its commercial-skipping feature and that product automatically moved to commercial skip mode. Acknowledging that 30-sec. automatic skip was “slippery slope” that copyright holders would prefer not be available, spokesman said that it at least required consumers to take certain active steps to skip commercials.

Former FCC Cable Bureau Chief Deborah Lathen, asked about case, noted that entertainment industry initially fought VCRs and today relies on that technology for millions of dollars in additional revenue. She said she was particularly concerned that banning device could infringe on manufacturer’s First Amendment rights. “It’s almost like a prior restraint,” Lathen said, because device has “the potential” to infringe on intellectual property. She said there might be remedies besides banning product. What’s more, she said, Sonicblue’s technology already was “out there” and courts historically had been disinclined to ban new technologies, knowing that innovations eventually could lead to others. “If you start banning things in their infancy, you have no idea of what you are depriving the American consumer of. What might grow out of this technology?”