Analyzing Aereo: What are the Outcomes?

On Tuesday, April 22, 2014, Internet television distribution service Aereo, a small Brooklyn-based startup, will make an appearance in front of the U.S. Supreme Court. Launched in February 2012, the business quickly made waves in the broadcast industry with its subscription model, allowing users to receive live programming from major networks like ABC, CBS, FOX and NBC streamed over the web for an $8-12 monthly fee.

Those waves turned out to be tidal.

What is Aereo?

At the original press conference introducing Aereo to the masses, Barry Diller, known for creating the Fox Broadcasting Company and USA Broadcasting, and who serves on Aereo’s board, stated “it is my belief that the world really deserves a la carte programming.”

CEO Chet Kanojia concurs, believing that it is “irrational that it should cost hundreds of dollars a month [to watch TV],” and that overall, the current system is “abusive.”

The company utilizes an array of miniature antennas – two per subscriber – to capture free broadcast television signals from the air. They then retransmit the shows digitally, to whatever device the end user desires. This allows someone without a cable subscription to receive their local station on second screens, and they also acquire the ability to rewind and pause it, just like a DVR.

This is a process that network affiliates themselves have failed to adopt, as they charge cable companies to retransmit their offerings, which amounts to billions in revenues.

The Legal Dispute

Station owners believe that Aereo is violating the Copyright Act of 1976, infringing upon their content. They assert that like cable companies, Aereo should be subject to paying fees for the transmission of their material. Aereo contends that their arrangement of antennae circumvents the legal label “public performance,” as technically each recipient is getting private communications. Therein lies the conflict.

New York broadcasters sued Aereo in 2012, but the federal judge ruled in favor of the defendant.

Of course, the stations quickly appealed the decision, and in 2013 Aereo was again validated by the court.

Continuing to disagree with the courts’ rulings, last autumn the broadcasters, along with the NFL and MLB, requested the Supremes take up the case, and that’s where we are today.

The Potential Outcomes

Provided Aereo’s argument is successful, the aftermath will be intriguing. Here’s what industry experts, legal analysts, and the participants themselves believe could happen:

 “All hell breaks loose in the TV industry” – Jim Nail, TV and online video analyst at Forrester

“The Aereo case could blow up the economics of the broadcast TV business … you’ll still have network television, but all the good programming will be on cable.” – John K. Hane, partner at D.C. law firm Pillsbury

“[Congress should] respond by amending the Copyright Act to bring Aereo, and others like it, into the same licensing regime as other [multichannel video programming distributors] … Congress should take the opportunity to reform the current regime of retransmission consent (as well as the closely-related regime for negotiating carriage of non-broadcast networks), in order to create a more balanced marketplace that serves consumers much better than the current one. – J.S. Greenfield, cable/telecom expert

“The option for copyright holders will be to move [sporting events] to paid cable networks (such as ESPN and TNT) where Aereo-like services cannot hijack and exploit their programming without authorization.” – NFL and MLB, in an amicus brief to the U.S. Supreme Court

“One option could be converting the Fox broadcast network to a pay channel, which we would do in collaboration with both our content partners and affiliates.” – Fox COO Chase Carey

“It would launch a race by cable and satellite companies to develop competing methods to capture copyrighted content and re-sell it without paying for the right to do so.” – ABC, in a brief

“If Aereo should work, if they should win, which we don’t think will happen, we can go OTT [over the top] with CBS.” – CBS CEO Leslie Moonves

“If the broadcasters succeed, the consequences to American consumers and the cloud industry are chilling … A decision against Aereo would upend and cripple the entire cloud industry.” – Aereo

“If we lose we’re finished … Aereo would probably not be able to continue in business … We could probably pay retransmission consent dollars if we could make a deal with the broadcasters … but the value proposition would go out of the game.” – media mogul Barry Diller

“If Aereo is found to be legit, it will hasten the advent of unbundled, "good-enough" TV solutions that would use a basic OTA broadcast bundle of programming (including multi-cast channels) as an inexpensive gateway to other subscription programming that could be added to it via over-the-top (OTT) and pay TV subscription. Operators will waste no time in seeking to unbundle broadcast signals from their channel packages using an OTA antenna-like approach like Aereo’s (something Dish Network’s Hopper platform has been pushing for some time).”  The Vertere Group

Indeed, it will be interesting to see the outcome upon which the Justices arrive, and how each side reacts. To keep up with the case as it develops, check out the SCOTUSblog.

Author: Brian Cameron


1 comment:

  1. Major networks generate income by airing commercials. The fees collected depend on viewership numbers. So why are they complaining about a company who is attempting to increase their viewership without charging them for it.......