Media

What If the Supreme Court Chooses Aereo Over Big TV?


Broadcasters will get their chance to convince the U.S. Supreme Court to give them some legal relief in their fight against Aereo, the Internet television company. On Friday the court said it would hear the appeal brought by ABC (DIS), 21st Century Fox (FOXA), NBCUniversal (CMCSA), and CBS (CBS), paving the way for a final determination this summer of whether Aereo’s flavor of Internet TV is legal.

If the broadcasters win, it will be the end of Aereo as we know it. Even if they lose, Aereo’s future is far from certain: The industry has already threatened to kill the company through technical measures.

But first, the court case. Aereo and its antagonists agree on three things: 1) Aereo has come up with a really clever technical trick on which to build a business. 2) The company poses a fundamental threat to the business model of the existing broadcast television industry. 3) This case should be heard by the Supreme Court.

Aereo works by setting up thousands of tiny antennas, then it sends the signals received by those antennas to subscribers over the Internet. (Bloomberg LP, which owns Bloomberg Businessweek, is an Aereo partner and offers its cable channel on the service.) Because each antenna is assigned to a specific customer, Aereo says it’s not providing a public broadcast, allowing the company to avoid retransmission fees.

Broadcasters say that Aereo is taking advantage of a legal loophole and that the transmission of content without a license is a copyright violation. Because the broadcasters expect to bring in more than $4 billion in retransmission fees this year, the stakes are high. DirecTV (DTV), Time Warner Cable (TWC), and Charter Communications (CHTR) have all said they would consider using similar technology to avoid paying fees if Aereo’s techniques were deemed legal.

Aereo is pretty confident it can win. Two courts have already ruled that its service is legal (although a similar case against a bizarre copycat company called Aereokiller reached the opposite conclusion). It wants the Supreme Court to put an end to the controversy so it can move on, as Aereo says the uncertainty is holding it back from what would otherwise be a fruitful future. The company this week said it has raised $34 million to fund further expansion.

If the Supreme Court rules for Aereo, that’s when things will get really interesting. Broadcasters have threatened to stop sending content over the airwaves, relying instead on cable transmissions that Aereo’s antenna’s can’t get to. The National Football League and Major League Baseball say they might pull games from broadcast television.

It’s unclear how many people would be impacted if broadcasters did abandon the airwaves. People who already have cable wouldn’t notice. The National Association of Broadcasters touts statistics from GfK Media & Entertainment claiming that less than 20 percent of the population relies on broadcast signals alone for television service, while other estimates are lower. People who don’t have cable are generally poorer and older than those who do, so these businesses would be sacrificing the least-profitable segment of their viewership.

There is one major reason not to pull this card: Regulators and politicians would hate it. The most obvious consequence might be that the Federal Communications Commission could decide that the broadcasters aren’t using the spectrum licenses they’ve signed, but there would be a range of other actions available to irked policymakers. If the Supreme Court calls the broadcasters’ bluff, they’ll have to decide how big a threat Aereo really is, and whether to make themselves an easy target for lawmakers.

Brustein is a writer for Businessweek.com in New York.

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Companies Mentioned

  • DIS
    (Walt Disney Co/The)
    • $83.83 USD
    • 2.09
    • 2.49%
  • FOXA
    (Twenty-First Century Fox Inc)
    • $32.7 USD
    • 0.20
    • 0.61%
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