What the Aereo Supreme Court Case Means for the Future of TV

The high court's decision will have far-reaching consequences for Internet video, cloud computing, and the television business

  • Share
  • Read Later
Bebeto Matthews / AP

Chet Kanojia, founder and CEO of Aereo, Inc., stands next to a server array of antennas in New York, Dec. 20, 2012.

The U.S. Supreme Court’s decision to consider a lawsuit brought by the nation’s largest TV broadcasters against Aereo, the upstart streaming video service, lays the foundation for a landmark verdict that could have important implications for Internet streaming, cloud computing, and the future of the TV industry itself. Aereo has infuriated the major broadcasters because the two-year-old startup pays nothing to pick up their free, over-the-air TV signals, which it then sends to its customers over the Internet.

If the high court rules that Aereo’s service is legal, the decision could one day upend the highly lucrative broadcast TV business model, which is based on cable and satellite companies paying billions for the right to broadcast popular programming. That could prompt the broadcasters to yank their most-watched shows and sporting events from free TV and move them to pay TV channels like Showtime or ESPN. Late last year, the National Football League and Major League Baseball warned that if Aereo prevails, the leagues might move high-profile broadcasts like the Super Bowl and World Series to cable.

“The Aereo case could blow up the economics of the broadcast TV business,” says John K. Hane, a D.C.-based partner at the law firm Pillsbury, where he specializes in technology and telecommunications policy. Hane, who has represented the big broadcasters in the past, compares an Aereo victory to a “neutron bomb” that kills human beings but leaves basic infrastructure around them unaffected. “You’ll still have network television, but all the good programming will be on cable.”

If Aereo wins, the big cable companies might develop similar services to avoid paying an estimated $4 billion in annual “retransmission consent” fees to the broadcasters. “An Aereo victory has far-reaching consequences tied to retransmission consent and the profitability of over-the-air broadcasting, while a loss cements retrans fees and imperils cloud computing and storage,” Rich Greenfield, a technology and media analyst at BTIG Research, wrote in a recent note to clients. Greenfield believes that Aereo will ultimately prevail.

(MOREAereo, Broadcasters’ Foe, Just Got a Huge Cash Boost)

Aereo, which launched in February 2012 after raising more than $20 million from media mogul Barry Diller’s Internet conglomerate IAC, uses thousands of tiny, dime-sized antennas to pick up free, over-the-air TV signals, which it sends to customers via the Internet for $8 to $12 per month. Aereo’s users technically lease the tiny antennas, which are housed in nearby “antenna farms.” In New York, Aereo’s antennas are located in a warehouse in Brooklyn with a direct line of sight to the Empire State Building, the city’s tallest broadcast transmission tower.

Shortly after it launched, Aereo was sued by the major broadcasting titans, including NBC, FOX, ABC and CBS. The broadcasters say that Aereo’s service amounts to blatant theft, because the company doesn’t pay retransmission fees. Federal courts in New York and Boston, however, have thus far agreed with Aereo’s argument that it is transmitting “private performances” to individual users over their own leased antennas, not copyright-protected “public performances.”

Those rulings have relied on principles of federal copyright law affirmed by the U.S. Court of Appeals for the Second Circuit in its 2008 Cablevision remote-storage DVR decision. That verdict established the legal basis for remote, or “cloud-based,” video storage and playback systems. BTIG tech analyst Rich Greenfield predicts that the lower court rulings will be upheld. “Similar to our view in the Cablevision remote storage-DVR case several years ago, we believe the court will side with innovation that complies with copyright law.”

Last October, the broadcasters asked the Supreme Court to step in. “We believe that Aereo’s business model, and similar offerings that operate on the same principle, are built on stealing the creative content of others,” a CBS spokesperson said Friday in an emailed statement. A FOX spokesperson said: “We are confident the Court will recognize that this has never been about stifling new video distribution technologies, but has always been about stopping a copyright violator who redistributes television programming without permission or compensation.” (TIME parent Time Warner has filed a brief supporting the broadcasters.)

(MOREAereo CEO to Broadcasters: Go Ahead, Make My Day)

In December, Aereo asked the high court to grant the broadcasters’ petition. “We said from the beginning that it was our hope that this case would be decided on the merits and not through a wasteful war of attrition,” Aereo CEO and Founder Chet Kanojia said in a statement. “We look forward to presenting our case to the Supreme Court and we have every confidence that the Court will validate and preserve a consumer’s right to access local over-the-air television with an individual antenna, make a personal recording with a DVR, and watch that recording on a device of their choice.”

Last April, Chase Carey, a top FOX executive, warned that his network might yank “The Simpsons,” “Glee” and “American Idol” off the U.S. public airwaves and move the shows to cable if Aereo’s technology is ruled legal. Many analysts saw those comments as saber-rattling, because FOX makes so much money off retransmission fees, but the fact that Carey even floated the possibility illustrates how annoyed the broadcasters are by Aereo. Those fees were at the heart of a recent spat between CBS and Time Warner Cable that led to an unprecedented, monthlong CBS blackout for more than 3 million Time Warner Cable subscribers. Not surprisingly, some of the largest cable and satellite companies are reportedly considering building their own Aereo-like services to avoid paying such fees.

The battle over Aereo underscores larger changes transforming the TV industry, as consumers increasingly have access to programming over the Internet and on their mobile devices. Last week, Aereo announced that it has raised $34 million in new funding, which should help it expand beyond the ten cities where it currently offers service. Now, Aereo is headed to the Supreme Court, where Justice Samuel Alito has recused himself from the case. No reason was given, per Supreme Court rules. If the high court’s deliberation ends in a 4-4 tie, the Second Circuit ruling in favor of Aereo would automatically be affirmed.

10 comments
ethan1
ethan1

If Aereo succeeds, TV will be gone as we know it, we would have too use the internet for now what could possibly seem like everything, but why TV? The TV has been around for so damn long that if let's say some place in China or Europe does not have internet, it just so happen that the people live in San Marino and they had just made it to the world cup, what the hell are they gonna do, it wouldn't be on the TV. Would they walk to one of the "ancient" internet cafes? They would miss the worst (right now at least) team make it to the World Cup. Also, what is the necessary point if they win, they wouldn't pay the companies/TV shows to broadcast so therefore they would go into debt, not make any new episodes, and eventually stop making the series. If Aereo TV wins, they had better enjoy themselves while they can because in the long run, they really will truly lose and go into debt for the subscriber's favorite TV show will no longer be available and later stop subscribing. If Aereo succeeds, it will change TV on the face of the Earth as us humans know it: except it would change the Earth for the bad. I am hoping Fox and all those other big TV providers win the lawsuit for i enjoy watching my favorite TV shows and sports teams: even if I have to pay for it I would never subscribe to Aereo TV for I would rather die.     

alberto1
alberto1

The  broadcasters say this is a copyright issue, nonsense!! All Aereo does is ensure that I can watch my local tv channels with a  low level of grief. Netflix and Hulu pay a copyright fee, but they  show movies, shows etc. All Aereo does is show local TV in the local area, not outside of it. Local stations know most households can't recieve digital tv 100% of the time. Now if they would install a TV CABLE in my house for reception, no one would need Aereo in the FIRST PLACE!!

TyroneSmith
TyroneSmith

Broadcast television is supposed to be paid for by advertisers. If it is free over the air to anyone, it should be free over the air to anyone. Also, they would never move the Super Bowl to cable, as the audience would be much smaller, and there would be no justifying charging a million dollars for a thirty second commercial.


Cable should not have to pay to retransmit broadcast television, they should be charging broadcasters for the valuable service of delivering the advertisers' message to a wider audience. It is the same for Aereo. Broadcasters should pay them for delivering the advertisers' message to a wider audience as well.


ScottUmsteadt
ScottUmsteadt

Well, there goes television as we know it. It was decided a very long time ago that the airways belong to everyone. That's why it was determined wrong and illegal to charge people for radio & television broadcasts. This is why content has always been paid by sponsors/advertisers. I've always been amazed that cable companies have been able to use the public airways to send and receive their satellite signals and basically get paid twice in the process. Cable subscribers pay to watch these channels and the cable companies charge advertisers for airing their commercials. 


Internet access is the same. Those signals travel though public airways and consumers pay for it. It's like a landlord paying his tenant to live in his property.


Boy, has the common way of thinking changed


C'est la vie.

CarolGronli
CarolGronli

This is the future of television.  Streaming.  The reason networks are so upset as well as cable/satellite companies is they want first in on the money.  The same thing happened to the auto industry.  Detroit paid for all the innovative inventions for non-fossil fuel engines then held off on producing these until it became vital to do so (in other words Japan beat them to the punch).  Streaming tv is coming it just won't be free anymore.

TimRobinsonAus
TimRobinsonAus

@TyroneSmith hallelujah to that bit of logic... to take it one more step, the advertisers them selves could pay extra to know that in perpetuity there adverts will be played again and again


net streaming free tv is basically a concept people want now and Aereo provides it

TimRobinsonAus
TimRobinsonAus

@ScottUmsteadt theyre not public airways any more than oxygen is a public asset


government auctions for spectrum/bandwidth are a form a deny able taxation. the government does nothing to posses or own them before the licence them out to interested parties. the government knows these companies will make money out of thin air and demand that it be taxed. then they get their share from that companies activities, employees taxation and corporate taxes


internet access unless wireless comes through a network, a man made network that has probably been subsidised heavily through the public purse... same as satelitites


wireless is the only analogy. to be honest if you had a non luddite type approach to chznge youd find the web streaming format is excellent and indeed as game changing as ITunes, digital cameras and Japanese cars

TimRobinsonAus
TimRobinsonAus

@zen4fingcynics really again??. kennedy has been wrong on near every one of her predictions and is made a from a middle, upper middle class view... many cant get cable and many choose not to. net streaming is an excellent affordable alternative. hope youre not betting the house on it

TimRobinsonAus
TimRobinsonAus

@CarolGronli automotive, entertainment and photographic industries are all as bad and the tv networks will be next(records, cds, tapes etc)


Rupert Murdoch knows this and has run active campaigns to stop internet expansion where it will compete too efficiently with his entertainment channels