In the latest twist in a long and closely-watched copyright case brought by Viacom, U.S. District Judge Louis Stanton granted summary judgment to YouTube after finding executives at the video site did not have “red flag” knowledge that made them liable for content uploaded by users.

The ruling comes one year after the Second Court of Appeals reversed Stanton’s earlier decision in 2012 to dismiss the case, and ordered the judge to revisit his ruling in light of emails that suggested the YouTube founders had knowledge of copyright infringement. In his new decision, issued on Thursday Stanton rejected Viacom’s legal theory as “extravagant” and stated that “its foundation is an anachronistic [...] concept.”

On its surface, the case turned on whether YouTube had to pay damages to Viacom for thousands of unauthorized clips of shows like South Park and Seinfeld that appeared on the site. But on a deeper level, the case is significant because it is helping to determine what digital technology companies must do to protect copyright.

Under a law known as the DMCA, online services like YouTube are not responsible for the copyright infringement of their users. The law, which was crafted to ensure that new digital platforms didn’t get smothered by copyright claims, grants “safe harbors” to sites provided they provide a way for owners to take down their content, and so long as the site is not complicit in users’ copyright violations.

Viacom and the entertainment industry, which believes that YouTube have unfairly profited from copyrighted content, had hoped to shrink the scope of the “safe harbors” by drawing attention to the DMCA’s so-called “red flag” provision — a part of the law that means a site is liable if those controlling it are willfully blind to copyright violations.

In deciding to reinstate the case, the appeals court agreed that YouTube was not responsible for most of the clips for which Viacom was claiming over $1 billion dollars. However, it said the potentially incriminating emails required the lower court to examine if YouTube knew or should have known about specific pieces of infringing content.

In the new decision Stanton said Viacom, in its legal arguments, had conceded that it was unable to identify specific examples of specific copyright clips of which the YouTube founders should have been aware. He added that Viacom had tried to solve the situation by claiming that it was YouTube’s responsibility to show they did not know, but that this was a misinterpretation of the law.

Viacom is entitled to appeal Stanton’s decision a second time but its safe harbors argument may be running out of steam. In a similar case involving defunct video service, Veoh, a California appeals court emphatically concluded that the safe harbors applied.

The operator now wants to invalidate a deal the two parties struck just two months ago, and instead just get the good stuff. You know, Comedy Central, Nickelodeon, and maybe a little bit of MTV proper.

Cablevision sent out the following statement about the lawsuit:

“The manner in which Viacom sells its programming is illegal, anti-consumer, and wrong. Viacom effectively forces Cablevision’s customers to pay for and receive little-watched channels in order to get the channels they actually want. Viacom’s abuse of its market power is not only illegal, but also prevents Cablevision from delivering the programming that its customers want and that competes with Viacom’s less popular channels.”

A Viacom spokesperson sent us the following statement in response:

“At the request of distributors, Viacom and other programmers have long offered discounts to those who agree to provide additional network distribution. Many distributors take advantage of these win-win and pro-consumer arrangements. Reflecting the highly competitive cable programming business, these arrangements have been upheld by a number of federal courts and on appeal. Viacom will vigorously defend this transparent attempt by Cablevision to use the courts to renegotiate our existing two month old agreement.”

The lawsuit also alleges that Viacom threatened “massive financial penalties” if Cablevision refused to carry the 14 lesser-watched channels in question. The operator is asking for a permanent injunction that would bar Viacom from bundling its lesser-watched channels with its more popular core offerings.

On paper, this lawsuit is an interesting challenge to the cable bundle, which has been largely dictated by the broadcasters. Operators have long said that they would like to sell their customers smaller and more flexible bundles. Broadcasters have made this impossible by either directly bundling all their channels into one big package, or by other conditions that make sure operators can’t sell bundles without certain channels.

However, it’s unlikely that this lawsuit will be fought out until the bitter end. Because at the core, this is about something else: Broadcasters have in recent years significantly increased the carriage fees for their fares, leading to a number of nasty fights that left consumers without their favorite channels for weeks. In the end, content owners always won, and carriers caved in, agreeing to pay more before their customers have yet another reason to cut the cord.

Cablevision and Viacom negotiated a last-minute carriage agreement in late December. Details of that deal were not made public, but it’s obvious that Cablevision wasn’t happy with the outcome. Now it wants to get a better deal, and threatening the bundle is the biggest asset it has in this fight.

Image courtesy of Flickr user  nyghtowl.

An internet-only TV subscription with smaller, more customized bundles would be great news for cord cutters. However, one of the biggest issues that needs to be resolved seems to be the pricing. From the article:

“Dish wants to reach consumers around 18 to 28 who would rather pay $20 a month for a smaller package of channels to watch on computers or mobile devices, CEO Joseph Clayton said in an interview this month… Negotiations bog down because programmers aren’t willing to sell Dish the rights for a low enough price to make a service viable, he said.”

It makes sense that the price of any such offering would be a stumbling block. If it’s too low, Viacom won’t sign on. if it’s too high, consumers won’t bite. Of course, the question is: how much is too much? We figured we should ask our readers to find out.

Let’s assume, for now, that Dish would sell this type of internet-only offering with a much smaller bundle, which would mainly consist of Viacom channels. You’d pay $10, $20 or $30 a month in return get the ability to stream new episodes of the Daily Show, the Colbert Report and the MTV Music Awards live, when they air on traditional TV. How much would you pay for it? Please let us know by answering the poll below, and feel free to elaborate in the comments!

Want to learn more about watching TV without paying for cable? Then check out my book Cut the Cord: All You Need to Know to Drop Cable.

Partners so far include HBO, Sony Pictures Home Entertainment, STARZ, Viacom and Warner Bros. Entertainment, plus “favorite movies” from Walt Disney. “Other leading studios” will be announced soon, according to the release. For now, Paramount and NBC/Universal are missing.

Barnes & Noble is partnering with UltraViolet, the initiative from Hollywood studios that lets viewers watch content across devices and aims to break Apple’s stranglehold on the digital movie market. (Amazon is also an UltraViolet retail partner.)

Many details are missing from the press release, including prices, availability and free streaming options (if any). It’s also unclear which devices — Nooks and otherwise — will support Nook Video. Barnes & Noble is expected to release a new tablet soon, and the company also promises “soon-to-launch free Nook Video apps.”

The network said it has put into production 14 new cartoons, live-action shows and youth-oriented TV movies, all aimed to spark ratings on cable TV’s most widely viewed channel, which has seen steep ratings declines over the last three quarters.

By doing this, Viacom seems to be dismissing a popular theory put forth by media business analysts and pundits that viewing of Nickelodeon shows on Netflix has been siphoning away audience share from the channel.

In short, Viacom believes its Nick ratings drop had little to do with a mass migration of youthful audiences to subscription video-on-demand platforms. The kids just got tired of Spongebob.

Not that it helps Viacom in the near term.

Also read: paidContent50: The world’s most successful digital media companies

Also on Friday, the media conglomerate — which operates other popular cable channels, including Comedy Central and MTV, as well as movie studio Paramount Pictures — reported a 14 percent drop in revenue to $3.24 billion for its fiscal third quarter. Profits were down 12 percent to $512 million.

All in all, the traditional media business underperformed for the conglomerate.

Ad sales for Viacom’s cable channels — which have been impacted by Nick’s double-digit ratings dive — were down 5 percent in revenue to $2.27 billion.

Also read: Call it an upset? How DirecTV held its ground vs. Viacom

Global movie ticket revenue at Paramount, meanwhile, was down 29 percent to $1 billion, with distribution of DreamWorks Animation-produced title Madagascar 3: Europe’s Most Wanted, The Dictator and Titanic 3D unable to live up to last year’s industry-leading slate.

Home entertainment revenue slid 8 percent and global TV licensing declined 24 percent.

The good news: ancillary revenue, which includes digital distribution, was up 44 percent to $104 million.

The impact from Viacom’s one-week absence from No. 2 pay TV service DirecTV will not be accounted for until the conglomerate’s fiscal fourth quarter report. However, speaking to investment analysts Friday, Viacom CEO Philippe Dauman said the financial hit will roughly equal the ad revenue bonanza the company received for its BET Awards, which aired July 1.

You win some, you lose some.

It also marks the first time in recent memory that a major pay TV licensing dispute ended on the distributor’s terms.

Also read: Viacom and DirecTV end spat with new deal

According to several analyst reports, the core of the agreement calls for DirecTV to pay Viacom around $2.80 per each of its nearly 20 million subscribers to carry the programmers channels (up from somewhere between $2.08-$2.25, depending on the estimate).

According to Sanford Bernstein Research senior analysts Todd Juenger and Craig Moffett, who predicted this standoff in June, that’s right on target with DirecTV’s initial offer, and way below the nearly $3.68 cents per subscriber Viacom had been seeking.

The Bernstein analysts also note that DirecTV wasn’t forced to carry the lightly viewed premium channel Epix. And it also received a wide swath of TV Everywhere licensing wherewithal, enabling it to offer Viacom channels to its sub scribers on their digital devices.

Also read: DirecTV/Viacom battle will come down to digital rights

As we reported this morning, Viacom is now receiving an average of just over $600 million annually over seven years from DirecTV, a 20 percent yearly bump over the previous contract. Viacom had demanded a 30 percent increase.

“The Viacom/DirecTV dispute may be remembered as a critical turning point in programmer/distributor negotiations,” Juenger and Moffett wrote in a Friday morning reporter to media company investors. “For the first time in memory, it was the distributor that won the public relations war.”

(It should be noted that several analyst consider this a win for Viacom, too, given that the company did achieve fee increases in the face of ratings declines.)

So how did DirecTV win? The analysts believe big recent ratings declines on Viacom channels like Nickelodeon were a factor; so was the ubiquity of Viacom programming on over-the-top channels like Netflix.

Another possible factor: viewing is lighter in the summer months, and Viacom’s in-demand shows, like MTV reality series The Jersey Shore, are not in season.

“In fact, we believe DirecTV chose this specific battle for those reasons,” the Bernstein report states. “Traditionally, customers blame the company to whom they send the monthly check. Not this time. Judging by the blogs and consumer press, blame was shared much more evenly this time.”

It certainly has to be considered an upset, given the recent propensity of such impasses to go in favor of the programmer.

A document released Friday by the Federal Communications Commission, the group’s 14th “Video Competition Report,” illustrates what so-called “multichannel video program distributors” like DirecTV are up against.

Put simply, the infusion of so much consumer choice in the pay TV market means cable, satellite and telco TV companies can’t afford the competitive disadvantage of losing a major set of channels.

The rise of satellite services like DirecTV and Dish, as well as telco-based servies AT&T U-Verse and Verizon FiOS, has transformed a pay TV market that used to feature many regions serviced by only one cable provider.

In fee disputes with programming suppliers, cable companies used to have a lot more leverage, given their subscribers’ lack of options. But no more.

In 2006, the FCC found that only 6 million homes representing about 4.7 percent of the pay TV market had access to at least four pay TV services. By 2010, that number had ballooned to 42.9 million representing 32.8 percent of the market.

Meanwhile, there doesn’t appear to be any brotherhood among pay TV operators, with Comcast among competitors looking to exploit DirecTV’s Viacom impasse in ads and poach is subscribers

Based on comments from the two, DirecTV was paying about $500 million a year on Viacom when the seven-year-old contract ended at midnight July 12; DirecTV said it is spending $10 billion on programming and Viacom said it was delivering 20 percent of the viewed programming but only getting 5 percent of the money.

Nomura analyst Michael Nathanson estimated in a client note that Viacom is shifting from $2.25 per subscriber to more than $2.80. My understanding is there is a so-called “step-up” increase in the first year with points along the way when the fee would escalate. A source familiar with the situation said the first-year percentage increase is double the offer before Viacom said it would pull the channels and DirecTV dropped them.

Was the blackout worth it? It was for Viacom, which took a PR hit but is getting a significant double-digit increase in fees and is locked in with one of its largest carriers for a long-term deal that I’m told is comparable in length to the one that just ended.

All the channels in the previous agreement are to be restored immediately, ending the 10-day blackout that affected roughly 20 million DirecTV subscribers. Many of the channels are on basic packages and included with every subscription.

The deal comes less than a day after Viacom rejected DirecTV’s claims to customers than a deal was imminent. But that was also the day that DirecTV’s offer changed to one that was more attractive to Viacom.

Here’s the press release from Viacom:

Viacom today announced that the company has reached a long-term agreement to renew carriage with DIRECTV.

All 26 Viacom networks, including Nickelodeon, Comedy Central, MTV, BET, CMT, Logo, Spike, TV Land, MTV2, VH1, VH1 Classic, Palladia, Nick Jr., Nicktoons, TeenNick, Tr3s and Centric, will return to DIRECTV’s channel lineup immediately. As part of the overall carriage agreement, DIRECTV has an option to add the EPIX service to its entertainment offerings.

Viacom is extremely pleased to bring its programming back to DIRECTV subscribers, and thanks everyone affected by the disruption for their patience and understanding during this challenging period.

And this is how DirecTV told its subscribers:

RT this: Viacom channels are back on DIRECTV in L-T deal. Thanks to our customers. #DIRECTVHasMyBack

— DIRECTV (@DIRECTV) July 20, 2012

But DirecTV went a little further in its press release, with Derek Chang, EVP of Content Strategy and Development, describing the blackout as “bullying”:

“It’s unfortunate that Viacom took the channels away from customers to try to gain leverage, but in the end, it’s clear our customers recognized that tactic for what it was.”

And trying a call to arms for all TV providers to resist blackouts as a bargaining tool:

“The attention surrounding this unnecessary and ill-advised blackout by Viacom has accomplished one key thing: it serves notice to all media companies that bullying TV providers and their customers with blackouts won’t get them a better deal. It’s high time programmers ended these anti-consumer blackouts once and for all and prove our industry is about enabling people to connect to their favorite programs rather than denying them access.”

DirecTV’s statement also played up the vocal support it had from some competitirs, including the American Cable Association, Cox Communications, Time Warner Cable, and Mediacom.

Bringing a retort from Viacom:

Despite the unnecessary drama, we’re very pleased with our agreement and we’re extremely thankful to have reconnected with our DIRECTV viewers.

Make no mistake, blackouts are a high-pressure tactic. So is threatening to drop channels or actually dropping them if a deal doesn’t match the pay TV provider’s goals.
We said it on day and it’s worth repeating: the subscribers are the ones hurt the most. Unfortunately, all too often negotiations that should be manageable without drama on either side wind up escalating in ways that hurt everyone.

Influential media technology analyst Richard Greenfield tweeted Thursday afternoon that DirecTV  ”appears to have caved” in its fee-negotiation standoff with Viacom, and that the satellite carrier’s customer service reps are telling subscribers a deal is “imminent.” That would, of course, put the conglomerate’s channels back onto the set-tops of DirecTV’s nearly 20 million U.S. subscribers.

Responded a Viacom spokesman: “That’s news to us.” Viacom has already accused DirecTV of “spinning” the negotiations to look like they’re closer to fruition than they actually are in order to hold off a subscriber exodus.

DirecTV has to yet to respond to paidContent’s inquiries seeking confirmation.

Viacom channels were pulled off the service a week ago after the two sides weren’t able to reach renewal terms.

Would DirecTV customer service reps really lie? Will I really be able to watch The Daily Show tonight?

More to come on this matter as it develops:

Here’s Greenfield’s tweet:

.@DirecTV appears to have caved and is signing deal with @Viacom – CSRs telling subs deal is imminent – Welcome back Dora and Daily Show

— Rich Greenfield (@richgreenfield1) July 19, 2012

But according to DirecTV, the sticking point in its ongoing carriage impasse with Viacom is … wait for it … the fledgling pay channel Epix.

On Wednesday — just more than a week after Viacom channels were pulled off the set-tops of DirecTV’s nearly 20 million subscribers — both sides ramped up the rhetoric.

Also read: Why doesn’t pay channel Epix switch to an over-the-top model?

Viacom hit first in a late-afternoon statement, dismissing any notion that a deal is close at hand and accusing DirecTV of “moving backwards” in negotiations.

Elaborating for paidContent, a Viacom spokesman called this notion “DirecTV spin,” adding, it’s “a fabrication designed to deceive their customers and discourage them from moving to other distributors.”

Also read: Analysts – DirecTV/Viacom battle will come down to digital rights

Responded DirecTV: “Viacom’s current statement on our negotiations is completely inaccurate. They made a proposal last night for our carriage of the 17 channels they pulled from DirecTV, and we accepted all material terms for those channels including an increase that was more than fair. We are ready to close this deal at anytime and restore those channels to our customers.

“However, as part of that offer, Viacom insists that we carry the Epix channel at an additional cost of more than half a billion dollars. We know our customers don’t want to pay such an extreme price for an extra channel, they simply want the ones they had returned to them.”

Also read: DirecTV – “Viacom is forcing this bundle on you, not us”

And on and on it went, with Viacom’s PR team later “updating” the company blog saying, essentially, that it also offered DirecTV proposals that didn’t include Epix, and the satellite carrier passed on those, too.

“Nothing in the [DirecTV] press release reflects the reality of the negotiations, which, sadly, are at an impasse,” the Viacom missive added.

Currently, Epix touts about 30 million subscribers, but it only counts carriage on four of the top 10 pay TV services — Dish Network, Verizon FiOS, Charter Communications and Cox Communications. It also has a licensing deal with Netflix.

The premium channel is a joint venture between Viacom, Lionsgate and Metro-Goldwyn-Mayer. And getting carriage on the No. 2 pay TV service in the U.S. would certainly be a vital next step in its evolution.

Logic, of course, says this impasse can’t exist for much longer: DirecTV provides Viacom with about 20 percent of its U.S. coverage, and Viacom channels deliver DirecTV about 20 percent of its viewing.

In a note to investors Monday, Bernstein Research senior analysts Todd Juenger and Craig Moffett wrote that the haggling will inevitably end. But that it might go on for a while, with no “Linsanity” moment on the horizon.

(For those of you who missed out in February, an entrenched Time Warner Cable caved into the demands of regional sports network MSG after dissonant fans of a moribund New York Knicks pro basketball team suddenly became energized by the emergence of point guard Jeremy Lin, father of the so-called “Linsanity” media phenomenon. Astoundingly but perhaps not surprisingly, MSG/Knicks/Cablevision impressario James Dolan on Wednesday allowed Lin to sign with another team, the Houston Rockets, choosing not to match a contract offer.)

Back on subject, we see one very definitive signpost up ahead for DirecTV — its August 2nd second-quarter earnings report. Should the El Segundo, Calif.-based carrier report significant subscriber losses and no dealmaking progress to investors, we DirecTV subscribers might have access to Epix very soon.

Those predictions come courtesy of Bernstein Research senior analysts Todd Juenger and Craig Moffett, who on Monday published a report outlining how they see this rather landmark carriage impasse unfolding.

Also read: DirecTV CEO – “Viacom is forcing this bundle on you, not us”

For now, these analysts believe, the rift is wide. And they’ve published some of the best speculative data on the subject yet to illustrate the point.

There are few publicly confirmed data points in this rift, but Juenger and Moffett speculate that under the just expired carriage deal, DirecTV paid about $500 million in affiliate fees to Viacom, or around $2.08 per its 20 million subscribers — a good deal, considering Viacom averages around $2.50 per subscriber for the rest of its affiliate deals.

They believe Viacom is asking for a one-time fee increase of 30 percent in the first year of a new five-year arrangement, plus annual increases of 8 percent over the remaining four years. This would result in a compound annual growth rate of 12 percent and increase its per-DirecTV-subscriber carriage rate by $1.60 to $3.68. The total revenue increases adds up to around $1 billion.

Also read: Fighting DirecTV, Viacom takes down its shows for everyone

DirecTV’s bid, they believe, is for a first-year bump-up of around 12 percent and annual “inflators” of around 4 percent, bringing the per-subscriber nut to around $2.83.

As is typical in carriage disputes, Moffett and Juenger write, the two sides will inevitably settle, on terms closer to Viacom’s than DirecTV’s, with the satellite programmer in the tougher position of having to replace unique programming like Comedy Central’s Daily Show With Jon Stewart.

“This dispute is more than run of the mill for a variety of reasons, however. And may go on a long time,” they add.

For one, the analysts note, there is no natural programming catalyst, like the sudden emergence last winter of soon-to-be former New York Knicks star Jeremy Lin, who almost single-handedly pushed an entrenched carriage dispute between regional sports network MSG and Time Warner Cable in the programmer’s favor, resulting in a deal.

In fact, evidenced by DirecTV’s carriage acquisition last week of Disney Jr., which caters to the same kids 2-5 demographic that Viacom’s Nickelodeon does, the satellite carrier seems to be digging in.

“DirecTV has singled out Viacom as the target for the inevitable battle over affiliate fees that one of the big [multi-channel video program distributors] had to take on at some point.”

However, with Viacom’s 26 channels supplying around 20 percent of DirecTV’s viewing,  it will have to make a deal at some point.

Moffett and Juenger believe that, by Viacom curtailing some of the programming it offers to over-the-top channels — or even crafting exclusive digital deals with DirecTV — a solution could be achieved. DirecTV could save face and claim victory, even though it had to capitulate on fee increases, by saying it’s getting more value out of its investment.

In fact, the key to the deal could rest in Viacom’s decision last week to pull its its in-season programming off streaming channels.

“Perhaps Viacom’s decision to pull its content off the web, while initially a negotiating tactic, will be a catalyst to motivate Viacom to keep that content off permanently,” they wrote. “Surely they don’t want to continually pull it up/down every time they are negotiating a distribution agreement. And surely DirecTV would not be satisfied to have signed an agreement, paying a significant increase for the right to distribute Viacom’s content, only to have Viacom return to making much of that same content freely available to anyone with a high-speed Internet connection (whether they subscribe to a pay-tv service or not).”