Aereo, the New York City–based online-video startup, has assembled an impressive run of legal victories over the top TV broadcasters, which clearly has the industry rattled. Now, Major League Baseball and the National Football League have issued a stark warning: if Aereo prevails, the leagues might move football and baseball broadcasts to pay-TV outlets like ESPN, TNT, or other cable or satellite outlets, they wrote in an brief filed last week supporting the broadcasters.
“The fact that the broadcasters are asking their most powerful allies, including the NFL and Major League Baseball, to support them in front of the Supreme Court, shows just how disruptive Aereo could be if the service is found legal,” says Rich Greenfield, a media and technology analyst at BTIG Research.
Launched in February 2012, after raising more than $20 million from media mogul Barry Diller’s Internet conglomerate IAC and other investors, Aereo picks up free, over-the-air broadcast signals using thousands of tiny antennas, and then sends those signals to its customers via the Internet for $8 per month. Aereo’s users technically lease the tiny antennas, which the company houses in nearby “antenna farms,” including a facility in Brooklyn, which picks up signals broadcast from the tower atop the Empire State Building.
Federal judges have repeatedly refused to issue an injunction shutting down Aereo, which has been expanding aggressively in cities around the country, including New York City, Boston, Atlanta, Salt Lake City, Miami, Houston and Dallas. The courts have repeatedly agreed with Aereo’s legal argument that it is transmitting “private performances” not copyright-protected “public performances.” In response, the broadcasters have asked the Supreme Court to intervene. Aereo has until Dec. 12 to respond to the broadcasters’ petition.
(MORE: Disruptive TV Startup Aereo Is Winning in Court)
The battle over Aereo underscores larger structural changes transforming the TV industry, as consumers increasingly have access to programming over the Internet and on their mobile devices. In particular, Aereo poses a threat to the existing TV business model, which involves cable and satellite companies paying billions of dollars in so-called retransmission consent fees to the broadcasters, for the right to carry popular programming like prime-time shows and sporting events.
Retransmission consent fees were at the heart of a recent dispute between CBS and Time Warner Cable that led to an unprecedented, monthlong CBS blackout for more than 3 million Time Warner Cable subscribers in New York City, Dallas and Los Angeles. Now, in the wake of Aereo’s legal victories, some of the largest cable and satellite companies, including Time Warner Cable, Charter Communications and DirecTV, are reportedly considering building their own Aereo-like services to avoid paying such fees. (In 2009, Time Warner Cable was spun off as a separate company from TIME parent Time Warner, which has filed a brief supporting the broadcasters.)
Such a move could have a dramatic impact on the existing TV-broadcasting landscape. In April, News Corp. chief operating officer Chase Carey said the media giant’s flagship Fox network might cease broadcasting over the U.S. public airwaves because of the Aereo dispute. He suggested that FOX — home of The Simpsons, Glee and American Idol — might simply move to pay-for-TV cable. CBS has also hinted that it might pursue a similar action, although company CEO Les Moonves recently poured a bit of cold water on the idea.
Still, there’s no doubt that such saber rattling reflects the growing unease in the broadcast industry over Aereo’s ascent. In an ominous warning, filed in an amicus brief in support of the broadcasters’ Supreme Court bid, Major League Baseball and the National Football League wrote that if Aereo prevails, they might move football and baseball broadcasts to pay-TV outlets like ESPN, TNT, or other cable or satellite outlets.
(MORE: CBS and Time Warner Cable Resolve Fee Spat, Ending Blackout)
“If copyright holders lose their exclusive retransmission licensing rights and the substantial benefits derived from those rights when they place programming on broadcast stations, those stations will become less attractive mediums for distributing copyrighted content,” the leagues said in their brief. “The option for copyright holders will be to move that content to paid cable networks [such as ESPN and TNT] where Aereo-like services cannot hijack and exploit their programming without authorization.”
“The court’s intervention is now necessary to restore clarity and certainty in this area and to prevent the unraveling of a marketplace built upon the licensing of rights rather than the expropriation of such rights through technological chicanery,” the leagues said, adding that Aereo’s lower-court victories provide “cable systems and satellite carriers with a road map to avoid paying these retransmission royalties. Cable systems and satellite carriers already have signaled their interest in following Aereo’s lead, should Aereo prevail.”
Broadcast honchos routinely dismiss Aereo. “How do you spell Aereo?” CBS chief operating officer Joe Ianniello quipped last week. His boss, CBS chief executive Moonves, chimed in with the following put-down: “More people talk about Aereo than subscribe to it,” Moonves said. “Right,” shot back Ted Hearn, vice president at the American Cable Association. “And way more people pay for CBS than watch it.”
The nation’s largest TV broadcasters, including Comcast-owned NBC, News Corp.–owned Fox, Disney-owned ABC and CBS, are sufficiently annoyed by Aereo that they’ve asked the U.S. Supreme Court to shut the service down, claiming it’s a flagrant violation of copyright law that amounts to outright theft. “It is illegal to take our signal,” Moonves said last week. CBS has enlisted the support of several powerful players, including the NFL and Major League Baseball, to help defeat Aereo. So far, the federal courts have ruled against the broadcasters, but the Supreme Court may issue the ultimate verdict.