What the Court Ruling Against Fox in DISH Hopper Case Means for Streaming TV Services

The decision keeps the Dish Hopper online while paving the way for further court battles.

Jul 17, 2014 at 7:31AM

Despite the recent Supreme Court decision that shut down Aereo, a service that allowed subscribers to stream broadcast TV to mobile devices, a federal appeals court struck a blow to Fox Broadcasting Company's (NASDAQ:FOX) efforts to shut down a similar service from Dish Network (NASDAQ:DISH).

The latest ruling -- which upheld a lower court's decision -- did not end the dispute. It merely pushed it toward a full trial. Fox had asked for a preliminary injunction to shut down the Dish service for the time being. The court rejected Fox's claim that it would be "irreparably harmed" without an immediate block to Dish's Hopper service, which allows customers to move shows from their Dish receiver to a tablet for later viewing without an Internet connection.

Winning the appeal does not prove Dish has a stronger argument than Fox. It just shows that Dish made no technical mistakes in its earlier case, and since Hopper has been around since 2012, there's no merit to Fox's argument that it needs an immediate shutdown of the service in order to not be irreparably harmed. As the case moves toward a full trial, it seems highly likely that the Aereo decision will be a factor.

How are Aereo and Dish similar?
Aereo sold customers dedicated micro-antennas that were housed in various warehouses. Those antennas were used to pick up free, over-the-air broadcast signals -- the ones anyone can get on a TV without cable -- and re-transmit them to subscribers over the Internet. Aereo argued it was simply providing access to something its customers had legal rights to. The opposing litigants, including Fox, argued that the company was acting as a cable provider without paying retransmission fees.

The court sided against Aereo. 

In some ways, what Aereo did and what Dish is doing are similar. Both are technical solutions that allow customers to access broadcast network programming in ways the networks did not necessarily intend. 
There are a number of Dish services being contested in the case. Dish Anywhere provides subscribers the capability to remotely view their TV signal from a single Internet-connected device. Also at issue is the Hopper Transfer feature, which allows Dish customers to move or copy some recordings made using the Hopper DVR to an Apple iPad for later viewing without an Internet connection.

The major difference between what Aereo did and what Dish is doing is that Aereo did not have any agreement with the networks. Dish has deals with all the content providers it works with -- but those deals do not specifically provide it with rights for the above-mentioned services. Dish has been making deals with companies including Walt Disney (NYSE:DIS), which owns ABC, ESPN, and other channels, to launch a digital streaming service that would offer channels that normally require a cable subscription.

The battle will conitnue
Dish was happy with the ruling, even though Fox is continuing the legal battle.

"DISH is pleased that the Court has sided again with consumer choice and control by rejecting Fox's efforts to deny our customers access to the DISH Anywhere and Hopper Transfers features," the company said in a statement. "We will continue to vigorously defend consumers' right to choice and control over their viewing experience."

Fox was less pleased with the decision, but released a statement saying that the company had not expected to win.

"The decision had nothing to do with the merits of our claim and does not address the fact that 'DISH Anywhere' is both illegal and in violation of our existing distribution agreement," Fox said. "We will now move forward and fully expect to prevail at trial." 

The real issue here is not whether people will eventually be able to watch network programming on mobile devices with or without an Internet connection. That future seems inevitable. The question is whether a cable or satellite company already paying for retransmission rights has the right to offer that content in ways that go beyond the traditional DVR. The networks and content providers want to get paid for that, while Dish would prefer to see it as an extension of its current agreements.

This is also a case where technology might make the fight irrelevant, which could be bad for both sides. When DVRs were first invented, content providers were against them because they replaced the relatively inefficient process of taping a show on a VHS tape. DVRs made it easy to save a lot of programming and watch it while fast-forwarding through the commercials. Cable companies might have held off on offering DVRs for that reason, but the launch of TiVo -- a third party DVR -- put them in a position where they either sold the technology or watched customers buy it elsewhere.

The same is likely to happen here, whether it's a more carefully executed take on Aereo or a new company with different workaround. Once it escapes, it's very hard to put the technology genie back inside the bottle.

What will ultimately happen?
While they are fighting in court, Dish and Fox are also partners. In making its deal with Disney, Dish has shown itself amenable to compromise with a company it had been battling in court. In the Disney deal, the company agreed to disable ad-skipping technology in Disney shows until four days after the program had been originally broadcast.

Fox will likely keep fighting in court because winning would give it leverage in a future deal. Whoever wins, it is inevitable that Dish and rival DirecTV are headed toward offering cable-like services that don't require cable subscriptions. This is a change from current offerings like HBO Go, which allows HBO subscribers to watch on a mobile device, but only if that person also has a traditional cable subscription.

Without compromise, the cable/satellite providers and content companies risk creating a landscape like the one that ruined the music industry, where pirates and quasi-pirates found ways to give the public what it wanted. Once that happens, it's hard to get people to go back to paying full price for something they were getting on the cheap -- or free.

Aereo came perilously close to being that tipping-point company for the television market. If Fox and Dish don't find a way to compromise, it's only a matter of time before the next clever workaround disrupts the industry. 

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Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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