Cable Companies Become Copyright Cops

David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The Internet has changed content distribution, both legal and otherwise, forever. You can stream and download just about every movie, book, and album ever made, whether you paid for it or not.

If you're torrenting anything, I hope you're sticking to Linux distributions and Creative Commons videos. Otherwise, it will be "six strikes and you're out" by the end of the year.

Some major cable providers, including Time Warner Cable (NYSE: TWC), Cablevision Systems (NYSE: CVC), Comcast (NASDAQ: CMCSA), and Verizon (NYSE: VZ) to implement "mitigation measures" to get their customers to stop downloading copyright materials.

When these companies first get a notice from a copyright holder that one of their customers might have broken the law, they'll send an e-mail to the account holder. If the violations continue, they'll redirect the customer to an "educational" page informing them about copyright law, which the user will have to click through in order to be able to continue to use the Internet. If the violations still keep going on, the ISPs will have to use more drastic methods, including reducing bandwidth. The providers could also cut the user off from the Internet.

Of course, that's not even counting the lawsuits, which copyright holders can pursue. Torrenting one of the latest movies will make the concession stand prices reasonable by comparison. Under the Copyright Act, rights holders can sue alleged infringers up to $150,000.

The move will add more costs to an already expensive and capital-intensive telecommunications industry. Time Warner Cable, for example, had selling, general and administrative costs of $3.3 billion last year, around 16 percent of its total sales. Its COGS alone was $9.1 billion. Cablevision's COGS and SG&A took bites of $2.96 billion and $1.5 billion respectively out of the company's $6.7 billion in sales. Comcast had sales of $55.84 billion, with a COGS of $37.48 billion. Verizon's SG&A ate up $65 billion of its $110.87 billion sales last year.

Taking on this new beat as copyright cops will only cost them more money, something these companies probably don't want.

There are a couple of problems with the agreement. The first problem is that it's not always easy to determine who downloaded what. The ISPs can track which IP address was downloading something, but most residential IP addresses are dynamic, which means the provider periodically reshuffles them. Furthermore, with everybody and their neighbor having a Wi-Fi hotspot, the account holder might not have actually been the one to torrent a movie or album.

Furthermore, it's possible for sufficiently motivated people to abuse the copyright system against people they don't like. It's not hypothetical. It's actually happened. In 2007, self-proclaimed psychic Uri Geller was able to bend copyright law as easily as he supposedly bent spoons with his mind, filing a DMCA takedown notice with YouTube, getting the popular video-sharing site to pull down a video of skeptic James Randi debunking his alleged paranormal abilities. Geller's plan backfired as he was sued because he didn't actually own the video in question.

Anyone with a vendetta could easily frame other Internet users if they had a dispute, whether they were neighbors or international figures.

On the other hand, since cable companies still provide TV service (remember that?), they have to stay in the good graces of Hollywood in order to keep operating. If they're going to wave a big stick in front of subscribers, they're going to have to have a bigger carrot if they're going to convince their customers to stay legal. Hulu, Netflix, Spotify and others already exist, but they're still for early adopters and will need to have more content if they're going to compete with free, illegal downloads.

David Delony has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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