The Anti-competitive DMCA: A Case Study

The New York Times reports on the latest way that the DMCA is stifling technological innovation:

The Internet, in theory, can offer a selection of video programming that even the most advanced cable systems cannot match, and technology is helping improve the often grainy quality of online video.

But the cable and satellite companies are becoming concerned about providers of video programming using the Internet to reach customers directly.

Larry Kramer, the president of CBS Digital Media, has explicitly called the network’s Internet video strategy a “cable bypass.”

Yuanzhe Cai, the director of broadband research at Parks Associates, said: “We are seeing a lot of experimentation in terms of video programming through the Internet, and a lot of people are going to want to sit back and watch it on their TV. The big hurdle now is the digital rights issues of the studios and content owners.”

TiVo is caught in the middle. Its current digital recorder is capable of viewing programming from the Internet. Indeed, it recently did a test that allowed its users to download movies offered by the Independent Film Channel. “There is more video content that is coming down the broadband pipes,” said Tom Rogers, TiVo’s chief executive, referring to high-speed connections. He argued that TiVo’s technology could be important in helping providers that put programs on the Internet to gain a wider audience.

So what’s the problem?

At the same time, TiVo depends on the very companies this technology bypasses. Two-thirds of TiVo’s 3.6 million subscribers use boxes distributed by the satellite television company DirecTV. But that relationship is unsteady because DirecTV is now offering its own video recorder. Now TiVo is working to build its recorder technology into set-top boxes to be deployed by Comcast, the nation’s largest cable company.

One sign of the sensitivity is that DirecTV will not let customers who have received its TiVo boxes use the Yahoo scheduling or programming features, even though they do not involve video.

Here’s the problem: the next-generation of high-definition cable services will all be in DRM-encumbered formats, such as the CableCARD. In order to get permission to build a CableCARD-compatible device, you have to get the approval of Cable Labs, which designed the Cable Card. If you build a device that accesses the content without CableLabs’s permission, you’re violating the DMCA. CableLabs is an industry consortium of… you guessed it… the cable industry.

So TiVo knows that if it doesn’t play nice, Comcast can have TiVo frozen out of the high-def cable market by having CableLabs refuse to approve next-generation TiVo products. Satellite companies will likely do something similar. But of course, DirectTV and Comcast don’t want their premium offerings competing head-to-head with Internet-based video services. So they’ve probably quietly informed TiVo that if they start offering direct video download services via the Internet, they’ll get frozen out of the cable industry.

If it weren’t for the DMCA, TiVo’s response would be easy: it would go ahead and build a next-generation TiVo. If Comcast tried to play hardball, it would always have the option, as a last resort, of reverse-engineering the CableCARD to ensure compatibility. That would dramatically strengthen TiVo’s hand and make it harder for Comcast to dictate how TiVo’s devices are designed. Obviously, its first choice would be to have a bundling deal with Comcast, but if Comcast refused, TiVo could still distribute the devices directly to consumers.

Instead, we get a crippled Yahoo/TiVo service that only receives TV listings, photos, and weather reports from Yahoo! No video, despite the fact that TiVo already has the ability to recieve video streams via the Internet. I bet Yahoo! would love to provide a variety of video content via the TiVo: movie traliers, independent films, music videos, etc. Indeed, Yahoo! could easily launch its own Internet TV channel, distributed via TiVo. But TiVo knows that if it pisses off the cable industry, it could be excluded from accessing cable content, which would amount to a death sentence since that’s how the vast majority of users currently get video content.

Notice how little any of this has to do with copyright infringement. A TiVo isn’t a piracy device. Yahoo is a respectable company that would probably obtain the rights to all video content it might offer through TiVo’s devices. To the contrary, what the DMCA does is give the cable industry the power to decide who may make devices that interoperate with its service. How is does that “promote the progress of science and the useful arts?”

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