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The Aereo Decision: 5 Likely Scenarios for What’s Next

In the hours after the Supreme Court ruling in Aereo, consumer groups declared a victory for rising cable prices. Public interest groups declared it a win for big media dominance. And Aereo’s CEO declared that the decision sends a “chilling message” to the tech industry.

Does the decision really spell that dire of an impact for innovation?

Justice Stephen Breyer, in writing the majority opinion, went to great lengths to say that they were not ruling on such things as cloud computing or remote storage, going so far as to affirm that the justices do not believe the decision “will discourage the emergence or use of different kinds of technologies.”

RELATED: Could Aereo Get Relief From Congress? Don’t Bet on It

That was met with some doubt from Justice Antonin Scalia, who is not wild about Aereo but even less so about the way the majority reached its decision, by concluding that because it was like a cable TV service, it had to get permission to carry broadcast signals. “The court vows that its ruling will not affect cloud-storage providers and cable television systems, but it cannot deliver on that promise given the imprecision of its result-driven rule,” he wrote.

Supreme Court decisions have a history of delivering impacts far different than those predicted. Scalia even noted the warnings that the VCR would “wreak all manner of havoc on the TV and movie industries,” only to see those very businesses flourish with the growth of homevideo after the Supreme Court, by only one vote, upheld the legality of the VCR and Betamax in 1984.

That’s not to say there won’t be any impact. As Brad Newberg, partner at Reed Smith in Falls Church, Va., says, “There is no Supreme Court decision that is only limited to the issue at hand. This will definitely be used in cases outside of Aereo.”

ANALYSIS: Broadcasters Need to Embrace Innovation Now That Aereo Fog Has Lifted

With that in mind, here’s where the win for broadcasters is most likely to make a difference.

Retransmission fees rise: The reason TV networks took this case all the way to the Supreme Court was the fear that Aereo would undercut their growing revenue stream from fees paid by cable and satellite distributors to carry their signals. Aereo challenged that scenario, and Scalia even made light of it, but now that broadcasters have a definitive win, they get some certainty that the multi-billion dollar stream of money may very well grow into a river.

“This ruling is a broad victory for the broadcasters, and the implications appear clear – irrespective of tech platform and user-model (single copy or broadcast), any system that is substantially similar to cable TV must negotiate with broadcasters for the right to retransmit broadcast signals,” Morgan Stanley’s Benjamin Swinburne, Ryan Fiftal and Hersh Khadilkar wrote in a research report. They wrote that their predictions of of the growth in the retrans revenue stream are unchanged: from $3.4 billion this year to nearly $8 billion in 2017.

No more ‘deploy first, ask questions later’: After the ruling, Aereo’s Chet Kanojia asked, “Are we moving towards a permission-based system for technology innovation?” In the eyes of many in Hollywood, when it comes to using their content, the answer is yes, and that is how it should be. That’s one of the reasons why groups like SAG-AFTRA and BMI praised the decision, as they characterized it as one that ultimately could have an impact on the ability of artists to collect royalties and residuals in the digital age.

Aereo Founder: Supreme Court Ruling ‘Chilling’ To Technology Industry

Aereo wasn’t the first to offer subscribers digital streams of broadcast signals without first getting the permission from the content owner. It had a different technology as an alternate legal rationale. But it’s likely that any new iteration will proceed only with some kind of licensing agreements or other kind of pacts in place, especially if new products are to gain investors.

David Wittenstein, partner at Cooley LLP, said that he didn’t think that Aereo “presented a particularly sympathetic image” to the court. “They seemed to have more sympathy for other cloud-based services,” he added, but where the content was licensed from the copyright owner.

“The status quo prior to today’s decision was that you can’t take someone’s intellectual property without permission,” said Robert McDowell, a former FCC commissioner and now a visiting fellow at the Hudson Institute. “All this does is reinforce that. It does give more clarity, and that is actually good to everyone involved to understand the rules of the road going forward.”

He added, “I think over-the-top technology remains alive and well. The only caveat is you can’t use property without permission.”

Cloud computing, remote DVR safe for now: The Aereo case has its roots in Cablevision’s unveiling of a remote DVR, in which its subscribers could select programs to record and store their content on remote servers or in the cloud. In reaction to the ruling, Cablevision expressed confidence that its RS-DVR is protected.

Some Wall Street analysts aren’t so sure about that, but the question is whether networks will press the issue. After all, the landscape has changed. Comcast now owns NBC, and may have an interest in cloud-based technology of its own.

The decision already is having an impact on existing litigation, however. Fox is challenging Dish Network’s offering of streams of live TV programming over the Internet to its subscribers, as well as another function that enables its customers to copy programs onto iPad tablets for viewing outside the home. On Wednesday, Fox’s legal team submitted the Supreme Court’s Aereo decision to bolster its case, with oral arguments scheduled before the 9th Circuit Court of Appeals on July 7.

“Dish, which engages in virtually identical conduct when it streams Fox’s programming to Dish subscribers over the Internet — albeit also in violation of an express contractual prohibition — has repeatedly raised the same defenses as Aereo which have now been rejected by the Supreme Court,” wrote Richard L. Stone, partner at Jenner & Block.

It may seem ‘private,’ but it’s really ‘public’: The case came down to whether Aereo’s transmissions of broadcast streams were public performances, and therefore fell within the scope of the Copyright Act. The majority of the court said yes, the streams were public performances, even as Aereo contended that it was merely supplying remote equipment so their subscribers were in control of  what they watched, and when and where they chose to view it.

The Copyright Act  defines public performances in a traditional way: A play on stage, a movie screened in a theater, a band playing songs to an audience. But largely in response to the growth of cable television in the middle 1970s, Congress also added a “transmit” clause to copyright law’s definition of public performances  in an attempt to cover new technologies. The Supreme Court on Wednesday essentially said that because an intent of the “transmit” clause was to prevent cable operators from just freely beaming broadcast signals into homes, Aereo’s service was akin to something that Congress sought to prevent.

There are potential implications on what is the definition of a public performance, but the court didn’t exactly spell out what they were.

As Newberg says, “The court did make it clear that just because you are transmitting the work via many different antennas or other technological means doesn’t mean you get out of it being a public performance.”

Hillel Parness, of Parness Law in New York, noted that Breyer “did reject the argument that Aereo cannot be a direct infringer because the subscriber selects what to watch.” But he noted that Breyer also wrote that “in other cases involving different kinds of service or technology providers, a user’s involvement in the operation of the provider’s equipment and selection of the content transmitted may well bear on whether the provider performs within the meaning of the [Copyright] Act.”

In other words, just because a consumer is put in control — pushing a  button or hitting ‘record’ to access content — doesn’t absolve a company from liability. But it doesn’t mean that the company is liable, either. In Scalia’s eyes, the decision just made things more confusing.

And … monthly bills continue to go up, up, up: The Consumer Federation of America blasted the decision, with the organization’s Mark Cooper saying it was “bad for video consumers, who have lost an important low cost option for viewing the programming they want whenever, wherever and on the device they prefer.”

Yes, they have lost the Aereo option, but consumers still have Netflix, Apple TV and other over-the-top services, and they can still set up an antenna. Moreover, it’s unclear as to the extent to which Aereo even drove cord-cutting, although Kanojia said that the combination of different services was a viable, cheaper alternative to cable subscriptions.

Where consumer groups are right is that cable and satellite prices are going up. That has been abundantly clear with the hearings on the proposed combinations of DirecTV and AT&T and Comcast and Time Warner Cable, where the companies haven’t promised that monthly subscriptions will fall, but that their rate of increase may be slowed. Aereo, it appears, has nothing to do with it.

 

 

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