Supreme Court Ruling on Aereo Will Be Significant, No Matter Who Wins (Analysis)

Aereo Supreme Court
Sebastien Thibault for Variety

When the Supreme Court hears oral arguments in the battle over television streaming service Aereo on April 22, it will be against a backdrop of two competing narratives.

Broadcasters warn of the end of free TV as we know it if the start-up company is allowed to offer digital streams of TV-station signals and cloud-based DVR to mobile devices from broadcasters without having to pay them retransmission-consent fees. If ABC and the other networks win, Aereo and its allies warn of a lightning strike to cloud computing.

As much as either outcome may send shudders through Hollywood or Silicon Valley, the reality is that ABC Television Stations v. Aereo is a case about a specific clause of the Copyright Act, a legal interpretation of the notion of public vs. private performance. But the result is anybody’s guess. “Copyright cases have a way of being unpredictable,” says Blair Levin, a former FCC official and fellow at the Aspen Institute.

But the impact of a Supreme Court decision often turns out to be much different than the dire expectations that precede it. A little more than 30 years ago, as studios were challenging the VCR, MPAA chief Jack Valenti compared the technology to an offshore tidal wave, ready to upend the business. Instead, the opposite happened: The Supreme Court’s ruling in favor of Sony in the landmark 1984 Betamax decision was followed by an explosion in the homevideo market, generating a lucrative new revenue stream for the very studios that fought “time-shifting” of viewing habits.

The tech side has cried wolf on a number of occasions as well. The high court ruled against file-sharing company Grokster in 2005, but warnings that legal uncertainty would stifle future innovation don’t seem to have stopped the march of technology into new and varied formats for listening to music and watching movies.

Nevertheless, the justices’ decision on Aereo will have an impact. Barry Diller, a key investor in the company, is on record as saying that if his side loses, it’s likely the startup venture will end.

Ultimately, though, the decision could create an environment quite different than the one either party is predicting.

IF AEREO WINS 

Picture this: All football games, including the Super Bowl, are available only via pay TV. So are the Academy Awards, the Olympics — even the next presidential inauguration.

That was a scenario dangled by Fox last year, as Aereo was collecting court victories, and broadcasters were expressing alarm that their $2 billion-plus gravy train of retransmission revenue was under threat. If Aereo lasts, 21st Century Fox chief operating officer Chase Carey warned at the time, Fox would respond by becoming a subscription cable network. “We’re not going to sit idly by and let people steal our content,” he said.

The threat made headlines, but also was pretty quickly dismissed by the pro-Aereo side as a bit hollow. Their argument is that Washington wouldn’t sit idly by and let it happen (as much as the FCC needs the spectrum). Nor would Fox affiliates.

Some Wall Street analysts have suggested that, short of morphing into cable networks, broadcasters could migrate high-profile event programming to pay-TV platforms as a way to make up for any loss in retransmission revenue, leaving free TV a land of cheap reality shows and perhaps a hodgepodge of newsmagazines and talkshows. In urging the Supreme Court to take the Aereo case, the National Football League and Major League Baseball told the justices that the future of games on free TV was at stake.

But professional sports — not just baseball and football — have been migrating to cable for some time, and Aereo isn’t to blame. In Los Angeles, where the company has yet to enter the marketplace, once-free Dodgers and Lakers telecasts are now available only through Time Warner Cable-owned regional sports networks, with subscribers footing the bill regardless of whether they watch games or not.

The networks would have to think long and hard about risking the 30-second-spot windfall they get for a mass-audience event like the Super Bowl by placing it behind a paywall. But college sports has already taken the plunge: ESPN has aired the past four BCS Football Championship games (which regularly draw better ratings than the World Series). And in 2016, under an agreement between joint rights holders Turner and CBS, the NCAA men’s basketball championship will be telecast only on cable.

Some cable and satellite firms have hinted at launching their own Aereo-like services, but that’s easier said than done. There’s the question of contracts: Many retransmission and carriage agreements have years left on them. There’s also a hardware concern, says Brian Wieser, senior research analyst at Pivotal Research Group, noting that multichannel video programming distributors would face hurdles in inventing and deploying an alternative, particularly if that means reworking a set-top box.

Moreover, broadcaster protestations aren’t necessarily what they seem. One industry attorney, who asked not to be identified, says that such concerns are more about leverage in negotiations. The networks are in a much better position in retransmission talks when there is no option for MVPDs other than to have stations go dark. If cable and satellite providers can say that they’ll switch to Aereo-like broadcast streaming as an alternate signal source, it would likely put downward pressure on retrans fees.

But Aereo founder Chet Kanojia bristles at the notion his $8-per-month service is undercutting the retransmission revenue stream. “Aereo is not disrupting anything,” he maintains. “It is consumer habits and broadband that are disrupting everything.”

Aereo, he suggests, is capitalizing on consumer frustration over rapidly rising cable rates, and on the trend of cord-cutting, along with the continued demand for broadcast channels. Providing those stations solves “half the problem” for former-MVPD subscribers, he says.

So what replaces the “other half” — HBO, or any other cable channel? Amazon or Netflix, Kanojia says. Much of what else is found on cable, from home and gardening to musicvideos to reality shows, can be found online in clips or some other kind of substitute, he maintains.

As for sports, he says: “The only guy you cannot help is the guy who really needs ESPN. That’s a third of the country. Two-thirds of the country is subsidizing.”

A risk for Aereo is that a Supreme Court victory will give tech giants like Apple, Amazon and Hulu ideas. What’s to stop them from adding their own Aereo-like services?

Like TiVo, which introduced the DVR to America’s living rooms only to see cable set-top boxes with similar functionality proliferate, Aereo, too, might well face deep-pocketed competitors.

“When I think of true disrupters, I think, ‘Is the offering sufficient enough to have a true impact on the market?’ ” says Jason Krikorian, co-founder of Sling Media and now general partner at venture capital firm DCM. “It is not a gimme with Aereo.”

CBS’ Leslie Moonves, in a recent CNBC interview, even suggested that the broadcaster might form its own Aereo with the other networks. “Lots of solutions. No fear on my part,” he said.

What, me worry? That’s quite a contrast to some of the other rhetoric coming from the free TV side.

IF ABC (AND BROADCASTERS) WIN

Cablevision has a word for what will happen if the justices issue too sweeping a ruling in favor of broadcasters: “Catastrophic,” as the company argued in its brief to the Supreme Court.

In fact, the high court’s docket is chock-full of warnings that a pro-broadcast decision could threaten the innovation of the cloud. To see why, you have to go back to the Sony Betamax decision. The Supreme Court held in 1984 that recording TV with a VCR for later viewing is a fair use, and does not infringe on copyright. The legality of “time-shifting” paved the way 15 years later for the introduction of the DVR. Studios and networks watched time-shifted viewing flourish, but they put their foot down in 2006, suing Cablevision over the introduction of a DVR that stored recordings not on a home machine but on company servers.

The result has been a long, hard-fought legal slog over when private consumer technology crosses the line into becoming a public performance. The Copyright Act of 1976 spells this out in two conceptual ways. The direct: a play, a movie screening, a concert. And the indirect: designed to cover transmission of performances “by means of any device or process.” The act made clear that a performance could be considered public whether the members of the public capable of receiving it did so “in the same place or in separate places, and at the same time or at different times.”

That’s a mouthful, but the inclusion of this language undoubtedly has helped Hollywood win some important legal victories over the years. But in 2008, the 2nd Circuit Court of Appeals found that Cablevision’s remote DVR was legal, much to the dismay of studios and networks. It held that because its service was designed to transmit a copy of a TV show made by a single subscriber, it was not a public performance.

To Cablevision, that made perfect sense. The focus was placed on potential audience: VOD is public because it is offered to anyone who wants to receive it; the remote DVR is private because the content stored by Cablevision is available only to the person who originally did the recording.

The Supreme Court refused to hear the networks’ appeal.

The Cablevision decision may have nudged along the development of cloud storage services of copyrighted material. A Harvard study cited by the MVPD calculated that the ruling led to an additional $728 million-$1.3 billion in investment in cloud computing firms in the following 2½ years — and it was the impetus for the creation of Aereo.

Aereo contends that its system is, essentially, a remote DVR. A subscriber cannot actually watch a channel simultaneously with its broadcast, but has to wait at least several seconds. When the viewer selects a station, it tunes a dime-sized antenna assigned to that user and a remote hard drive starts recording the feed before it is transmitted to the individual’s device.

What worries groups like the Consumer Electronics Assn. and CTIA — the Wireless Assn. is that if the Supreme Court, in shutting down Aereo, also overturns the Cablevision decision, cloud computing could be jeopardized, especially if the court defines a public performance as separate transmissions of a copyrighted work over the same technological system.

But would the Supreme Court suddenly render all sorts of storage services, like Apple and Google music lockers, illegal? “If they do rule for broadcasters, it is not going to be a broad decision that would shut down cloud computing,” maintains Jonathan Steinsapir, a partner at Kinsella, Weitzman, Iser, Kump & Aldisert who specializes in intellectual property and copyright litigation.

Broadcasters, too, along with the U.S. solicitor general, believe the alarmist rhetoric is just that. In contrast with copyrighted content stored and later transmitted on Aereo, such content on iTunes, Google Play and the like already has been legally obtained.

Aereo, on the other hand, the solicitor general has argued, “provides a means by which consumers can gain access to copyrighted content in the first instance — the same service that cable companies have traditionally provided.”

Pratik Shah, who heads Akin Gump’s Supreme Court practice in Washington, says the brief in favor of broadcasters from the solicitor general, who reps the U.S. government’s position in the matter, is significant. With conflicting narratives of what might happen, Shah says the high court gives weight to what the government thinks, and could rely on the solicitor general’s reassurance to issue a narrow decision holding that Aereo is unlawful, but adding that the ruling would not logically preclude the development of cloud computing. “The court could very explicitly put that in their opinion,” Shah notes.

Curiously, Cablevision disagrees with broadcasters’ legal rationale for shutting down Aereo — but still thinks Aereo should be shut down. It argues that Aereo is no different from a cable system or video-on-demand provider. Taken as a whole, it is still “retransmitting television programming to the public.”

A recent push to classify online video services as MVPDs could gain some momentum under another scenario: if the justices decide Aereo can remain in service, but must pay to retransmit content, just as cable and satellite firms do. (Whether the company would be willing to do that is another question.)

Marci Ryvicker, senior analyst at Wells Fargo Securities, said in a research report that there could be wide-ranging implications if such a decision ignites a drive to classify over-the-top video providers like Aereo as MVPDs. That in and of itself would have a big impact on the video marketplace, and would come as lawmakers are in the early stages of looking at an overhaul of communications regulations.

And like so many Supreme Court copyright decisions, it wouldn’t mean the end of the world as we know it, but rather would help accelerate a trend that’s already started.

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  1. mr says:

    What’s the difference between what aereo does and digital tv? I checked the listings and all the channels I get with a digital antenna are the same feeds for aereo. Its not like I’m getting hbo for free. ABC, CBS and NBC are ALL free and need to remain free. Cable has become insulting with the exorbitant rates they charge and if the networks want to make their public service private, well then I guess they’re ok with losing advertising because not many will be willing to pay for something that used to be free. SCOTUS will rule in favor of aereo but will require them to pay transmission fee like the cable companies. If its anything over $25/month, we’re dropping the service.

  2. jz says:

    A victory for Aereo would give Hulu ideas? Isn’t Hulu owned by the same broadcast companies suing Aereo? So couldn’t they already make such a product/service if they wanted to?

  3. Bob Shapiro says:

    The whole thing to me is the fact that the local stations make a conscience decision to send out their
    programming via public airways, meaning that the material that is sent out is now in the public domain and should not be subject to copyright infringement for redistribution of the material. This in my personal opinion goes against first amendment rights and freedom of speech when BIG MEDIA cries copyright infringement, by calling copyright infringement they are inhibiting the free flow of information, which is against the first amendment and freedom of speech.

  4. Brandon Garlock says:

    I am not a lawyer but the logical standing of Aereo is rock solid.

    I can rent an apartment in one place in NYC, place a slingbox in it hooked up to an antenna. Then use this setup to stream the television to myself in another apartment I own. This is legal. All Aereo is doing is renting me a tiny space with a slingbox and an antenna in it.

    Another logical argument is that I can rent a server hosted anywhere I want. I can also hook in an antenna to said network. How is it possible that I can’t look at the radio waves that are hitting the antenna?

  5. jamesd1234 says:

    The fact is these broadcasters are double dipping. They were given their spectrum for free, and we now know it is prime real estate that could be used for mobile data. Yet they are acting like a cable only network and charging customers that they know for a fact are in their territory to access these channels, even though they can get them free if they have an antenna.

    If they want to be a cable only network and charge retransmission fees, then they should turn over their spectrum back to the FCC and become one.

  6. Nanny Mo says:

    “Picture this: All football games, including the Super Bowl, are available only via pay TV. So are the Academy Awards, the Olympics — even the next presidential inauguration.” Actually, Picture this: Me NOT paying for these things and then advertising companies refusing to pay huge costs for ads that people are then paying to see. Can you imagine how many people would NOT watch the Academy Awards? And then the network not being able to change crazy fees to Coca-Cola?

  7. Kata Kimbe says:

    ABC is against it because of Broadcast news not being free? Ridiculous. Nothing free anymore. And if you want to watch a show on the internet these days they want you to show who your provider is and FREE is not one of them. I hope Aereo wins, because I am sick of paying close to $100 to watch 10 channels and support all those I don’t. This is like Obamacare… and being forced to pay for things you don’t need. I am sick and tired of paying for sports or whatever. If you want to watch the Superbowl once a year… pay a few dollars. It should be free anyway… commercial supported.

  8. Jacques Strappe says:

    Well, I suspect the SCOTUS will ultimately rule as vaguely as possible, so either side can claim at least partial victory, allowing lawyers and lobbyists to milk this issue and profit hugely for a very long time.

    If Aereo won decisively, the biggest losers, as far as I can see, would be a behemoth like Comcast which might stand to lose additional customers who mainly subscribe for basic cable services due to bad antennae reception in large cities and rural areas to primarily access network and local television broadcasts, not several hundred cable channels that are never watched.

    If broadcast nets win decisively, the biggest losers are consumers who will be stuck paying large sums of money to cable each month for most content that is not consumed or not watching television content live on an actual television. And cable companies, now complicit with broadcast networks, will continue their fleecing of consumers

    I suppose a “workable” compromise might be for Aereo to pay a small fee to the broadcast nets but even that seems like extortion since the Aereo content carries the same commercials that air along with the “free” program content which is already paid for entirely by advertising dollars.

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