The Aereo Case Could Have Huge Impact to Local TV Station


There are a number of cases headed to the Supreme Court, but one case could have the biggest impact on the TV Industry, than any case in years.

The LA Times writes that the big television networks have faced all number of challenges in recent years. But they could be done in by something called Aereo.

Most people probably haven't heard of Aereo, which has been rolling out its video service for just over a year and still serves only 10 cities, none further west than Salt Lake. But millions will be hearing about it now, because on Jan. 10, the Supreme Court agreed to hear the broadcasters' complaints that Aereo's business dramatically breaches telecommunications and copyright law.

The New York start-up offers its subscribers signals from their local over-the-air broadcasters in a way that is either a minor tweak of how they can get those signals on their own (that's Aereo's version), or a novel business model that will destroy civilization, or at least the TV industry (the broadcasters' version).

What's not debatable is that Aereo dramatically alters the balance of power between broadcasters and cable companies, which have been fighting each other to a draw over broadcast fees — the most recent example being this summer's standoff between Time Warner Cable and CBS that resulted in CBS programming getting blacked out for 3 million Time Warner subscribers for a month. Nor is there any secret about who stands to lose if Aereo wins. Here's a clue: The plaintiffs suing Aereo include ABC, CBS, NBC, Fox and PBS.

In the never-ending war between cable and broadcasters, "both sides have had a way of inflicting punishment on the other," observes Blair Levin, a telecommunications expert at the Aspen Institute. "But the amount of punishment cable can inflict on broadcasters will be greater if Aereo wins the case."

Here's how Aereo works. The company uses tiny antennas, each about the size of a dime, to pull in local broadcast stations in the cities where it operates. (Los Angeles might see service later this year, the company says.) The antennas, each assigned to a subscriber, are centrally located at an Aereo facility. For $8 a month the subscriber can tune in to any of the stations and watch it on a computer, tablet or smartphone, or direct it onto a TV screen via a Roku or AppleTV box. The content streams through a DVR-like device at Aereo, so the programming also can be recorded, paused, rewound or fast-forwarded.

Aereo's prime market is what its founder, Chet Kanojia, calls cord cutters or "cord shavers." Some have replaced their cable subscriptions with a patchwork of streaming video services like Netflix, Hulu and Amazon Prime, and need a reliable source of local TV programming. Others are cable subscribers who don't want to pay for multiple cable boxes for their multiple TVs. They can save money by paying their cable firm for one box and servicing the others with Aereo.

"It's for people whose usage pattern is changing," Kanojia told me. A private company, Aereo doesn't release its customer statistics.

Broadcasters have sued Aereo everywhere it offers service, asserting that Aereo's business model amounts to copyright infringement. The broadcasters say Aereo's service is a "public performance" of copyrighted material without a license, which is illegal.

The company's defense is that it merely enables private performances of broadcast programming for each of its thousands of customers — after all, it's nothing the subscribers couldn't do for themselves with a DVR and a digital antenna from Radio Shack.

You'd be mistaken, however, to think that this is a copyright issue. It's really a much broader fight in a war that has been going on for years, and will go on for years more. The business models of broadcasting and cable are inexorably changing, and every tiny tweak that shifts the wind in one direction or another means the redirection of billions of dollars from someone's pocket to someone else's. Aereo isn't the first service to try driving a wedge between the broadcasters and cable firms. But unlike its predecessors, it has run up an unbroken string of victories in lower courts.

As Levin suggested, until Aereo arrived, the cable and broadcasting companies had reached an uneasy equilibrium. Under federal law, two rules govern how local TV stations get to your cable grid. One is "must-carry," which requires a cable company to transmit virtually all local over-the-air stations for free. The other is "retransmission," which allows those local stations to waive must-carry and instead demand a fee from the cable firm to carry their signals.

For network affiliates, retransmission is more important, for they typically offer programming that cable subscribers insist on having. That's the cause of all blackouts such as the Time Warner/CBS affair — they're about how big a retrans fee the network stations can mulct out of the cable systems. If Aereo gives cable subscribers a way to get their programs without cable, the broadcasters lose leverage. Hence, the lawsuit.

Even more at the LA Times