After getting sued by the major broadcast networks for alleged copyright infringement, TV streaming upstart Locast has responded with a counter-filing that claims the TV networks have colluded to prevent free access to broadcast TV, and strengthen their retransmission business.
“We believe the broadcasters’ lawsuit was brought without basis as part of a larger plan to unlawfully limit the public’s right to access that free programming,” Locast founder David Goodfriend and its legal counsel David Hosp declared in a statement Friday.
The broadcasters responded to the filing with a statement issued by their attorney Gerson Zweifach of Williams & Connolly, disputing Locast’s claim that they were sabotaging over-the-air TV. “Sixteen million households receive broadcast television free over the air, which represents a nearly 50 percent increase in the last eight years,” Zweifach said. “Locast does nothing for those households; it serves the interests of its pay-TV patrons, who have provided Locast and its founder with hundreds of thousands of dollars in lobbying fees, donations and nationwide distribution on certain pay-TV platforms.”
Locast offers consumers access to broadcast TV networks over the internet in a dozen markets. The upstart has been arguing that it doesn’t need to pay retransmission fees to compensate broadcasters for their programming due to the fact that it doesn’t operate as a for-profit entity. The argument is based on a clause in the copyright act that allows retransmissions made by “a governmental body, or other nonprofit organization, without any purpose of direct or indirect commercial advantage” without licenses or retransmission payments.
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In their lawsuit filed in July, the major broadcasters had argued that Locast was merely operating as a front for pay TV operators that were looking to gain leverage in retransmission consent negotiations. By helping consumers get access to broadcast TV for free, operators like Dish and AT&T were looking to lower the rates they had to pay to retransmit broadcast signals, the suit argued. It also pointed out that Locast’s chief executive had been a former Dish exec, and that AT&T had donated money to Locast.
In its counter-filing, Locast acknowledged that donation, as well as the fact that Locast’s Goodfriend continued to work as a consultant for Dish. However, the upstart also argued that Dish was set to lose if consumers were to switch to Locast, since the service encouraged cord cutting.
What’s more, Locast countered Friday that broadcasters had colluded to limit the access to free over-the-air signals, allowing them to profit from retransmission fees. “Broadcasters have worked to ensure that the signal strength is too low to access in certain areas so that the pay-TV model that they have created can be sustained and strengthened,” the non-profit stated in its filing, which also claimed that broadcasters were willfully using inferior transmission equipment to degrade local broadcast signals. “The pay TV providers get rich. Plaintiffs get rich. The public gets fleeced,” the non-profit claimed in its filing.
Locast also suggested that the broadcasters strategically waited to file their lawsuit until Locast had grown big enough, and that the companies had put pressure on potential partners not to do business with Locast. One of those claims: Cable provider RCN was ready to donate $750,000 to the non-profit, but that it changed its tune after the filing of the lawsuit.
Locast’s counter-filing is notable not only for the claims it makes, but also for the bigger implications it could have for the industry. Instead of just defending the service against the broadcasters’ copyright infringement lawsuit, the non-profit aims to put the focus squarely on retransmission fees. These have grown to become a major source of income for broadcasters in recent years, to the tune of more than $11 billion per year.
From the filing:
“Having deprived consumers of the reasonable opportunity and ability to access over-the-air signals in violation of their statutory obligations and against public policy, the broadcasters then use their market power to force consumers to pay for over-the-air programming that was intended to be free.”
That spotlight on retransmission fees also explains why Locast has received support from operators like AT&T; court-mandated changes to the the current retransmission rules could be a huge boon for operators who have long realized that the $100 cable bundle isn’t a sustainable business model.
Update: This post was updated with a statement from Gerson Zweifach of Williams & Connolly, who is representing the plaintiffs in the Locast case.