Will an Internet Upstart Inherit the Wind in its Fight with Big Television?

08Apr14

The biggest legal battle in the history of broadcast television is about to take place, and almost nobody knows anything about it.

Later this month, the Supreme Court of the United States will hear a case that could have a profound impact on the television broadcasting industry and the type of access customers have to televised content. The ramifications of the case could see the biggest changes in television delivery since significant over-the-air TV broadcasting started in 1947.

On one side of this lawsuit are the four big television networks: CBS, NBC, ABC and Fox. On the other side is a two-year-old internet video-streaming company called Aereo. Aereo sells subscriptions to users for the ability to stream network television broadcasting directly to their computer, mobile device, or internet-equipped TV set.

At first glance, this seem pretty innocuous. Streaming TV content over the internet is common nowadays. Netflix, Hulu, Amazon and others provide television programming to millions of customers every day on all sorts of internet-enabled devices. A year ago, I wrote about how I ditched cable TV to go “internet-only” with my TV viewing, and it’s working just fine.

This is not your father's TV antenna.

This is not your father’s TV antenna.

What Aereo is doing is different. Unlike the satellite and cable TV companies, Aereo sends network broadcast content to subscribers without paying rebroadcasting fees to the networks. They accomplish this by building server farms filled with thousands of tiny television antennas, each about the size of a dime. Each antenna is assigned to an individual Aereo subscriber; broadcast content is picked up by the antenna and streamed to the user. For this, the subscriber pays a monthly fee of between $8 and $12, depending on the market location.

The networks are livid about this. To them, Aereo is illegally rebroadcasting their copyrighted content without paying the proper fees. They say its a business plan based on theft.

Aereo argues that they are not, in fact, rebroadcasting anything and that their system works in a legal manner that dates back to the beginning of television.

Years ago, before cable and satellite TV became common, gaining access to television broadcasting content was a simple affair. You purchased a TV set. The set often had its own built-in antenna, the “rabbit ears” many of us remember. If you lived far away from a TV broadcasting location, you purchased a separate antenna and attached it to the roof of your house or atop a tower in your yard. You connected the antenna to your TV set with a wire and voila!, you got free television content grabbed out of thin air. At that point, until you decided to upgrade your TV set, you were essentially done paying for stuff. Sure, the antenna and the TV set needed periodic maintenance and repair, but the content itself was as free as the wind.

Aereo antenna farm. Each subscriber has their own tiny antenna to grab network TV content.

Aereo antenna farm. Each subscriber has their own tiny antenna to grab network TV content.

Aereo’s position is that they are essentially leasing an antenna to each of its subscribers and that it’s completely legal. The antenna is tiny and lives in a server farm, the wire is the internet, but the “free TV over the airwaves” model is the same as it ever was. Since each subscriber has a single antenna, the sending of video content to their device constitutes what is known as a “private performance” in copyright legalese. Rebroadcasting, which is what the cable and satellite companies do, is considered a “public performance,” and requires the permission of the copyright holder.

So far, Aereo’s legal argument has prevailed, forcing the networks to appeal the case all the way to the Supreme Court. The networks are considering the possibility of losing their final appeal, so now they’re raising the stakes.

The networks are now saying that if they lose to Aereo in the Supreme Court they will stop broadcasting their popular programs over the airwaves. In essence, this would render Aereo’s victory meaningless, as their business model would collapse just as it would if the networks prevailed in the case. It’s unclear which programs would be pulled from the air and what might remain, but the gist is that Aereo would have nothing of value to sell.

Is this threat for real or is it a high-stakes bluff? If the threat is real, Aereo is out of business whether they win or lose. If the networks are bluffing and Aereo wins, they will expand to more major metropolitan markets and continue their successful growth (the service has proven hugely popular). For the networks, this has two dangerous consequences. First, more folks will dump their cable or satellite TV providers if they feel that Aereo, along with other internet TV sources, can replace them. This would threaten the billions in rebroadcasting fees the networks now enjoy. Second, it’s entirely plausible that the satellite and cable companies would consider adopting Aereo’s strategy to avoid paying the fees anyway.

If Aereo prevails, they'll continue to expand their operations.

If Aereo prevails, they’ll continue to expand their operations.

My thought is that these threats are a last-minute attempt to get Aereo to negotiate some sort of licensing fee with the networks. For the networks, this would be the next best thing to an outright court victory—if they can’t destroy Aereo, at least they can make money off of them. My guess is that the network marketers and accountants are furiously crunching the numbers to see if they can actually afford to follow through on this threat.

If Aereo refuses to negotiate, wins the case, and the networks actually pull their over-the-air programming, the effect will be far more significant than the demise of an internet service company. It would be the end of television broadcasting itself, if you go by the traditional definition of the term.

People like me would hardly notice. I’ve been a cable user for most of my adult life and get everything from Netflix, Amazon, and iTunes these days. My colleagues are tech-savvy people who likewise can get the television they want on their chosen device, usually by paying either a monthly fee to a streaming service or by purchasing individual television programs. For us, this is no big deal.

There are others, however, who would be profoundly affected. There are people who live in places where there is no cable TV and no reliable high-speed internet. There are viewers who are resistant to change or simply don’t want to pay to watch TV. For them, their old antenna works just fine, and “if it ain’t broke, don’t fix it.” And there are folks, largely ignored by the digerati and tech press, that just don’t have the money to subscribe to cable or satellite TV. For them, if TV over the airwaves stops, their screens will show nothing.

It would be the end of free television, something we’ve taken for granted for almost 70 years. Something that’s always been there for the one-time price of a TV set and antenna. It would be the beginning of what I can only describe as a “pay as you go, for everything, forever” paradigm. I suppose folks aren’t particularly bothered by this—as long as they’ve got the money to spend. I recall a friend of mine saying years ago that some day all the televised sporting events that fans enjoy would become pay-per-view items. No more free stuff. That time may be closer than he thought.

Why isn’t this news story more widely known? To me, it comes down to a couple of things. First, it’s a complex story, one that can’t easily be explained by a 50-word soundbite on the evening news show. Second, I’m not sure that the networks want to broadcast a story about how they’re considering ending broadcasting.

In any case, viewers will await the outcome. The case goes before the Court  on April 22 and a ruling won’t be announced for months. If Aereo loses, only their subscribers will notice. If the networks and Aereo strike a deal, their subscribers will likely notice a monthly fee increase. If Aereo wins and the airwaves fall silent, things will have forever changed, with millions of TV antennas reaching into the sky, catching nothing but the wind.

Update: 2014-06-04

Today, the United States Supreme Court ruled 6-3 against Aereo, siding with the major TV broadcasters. My opinion is that Aereo’s argument was sound, but that the Court wasn’t willing to find out what would happen if the networks pulled their over-the-air programming in the event of their defeat in the case. Moving forward, I’d guess that Aereo will cease to exist, but the threat to broadcast television’s dominance will continue.

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