Bloomberg News

DirecTV, Time Warner Cable Are Said to Weigh Aereo-Type Services

October 26, 2013

Aereo CEO Chet Kanojia

Aereo Inc. Chief Executive Officer and Founder Chet Kanojia. Aereo, which charges $8 a month for online access to broadcast TV, is locked in a court battle with CBS Corp. and other media companies over the legality of its service. Photographer: Jin Lee/Bloomberg

DirecTV, Time Warner Cable Inc. (TWC:US) and Charter Communications Inc. (CHTR:US), taking a page from Aereo Inc., are considering capturing free broadcast-TV signals to avoid paying billions of dollars in so-called retransmission fees, said people with knowledge of the deliberations.

Aereo, which charges $8 a month for online access to broadcast TV, is locked in a court battle with CBS Corp. (CBS:US) and other media companies over the legality of its service. If Aereo prevails, cable companies could use the same approach to bypass the fees they now pay for network signals, said the people, who asked not to be identified because the discussions are at an early stage. Time Warner Cable has even considered buying Aereo, said one of the people.

Broadcast TV companies petitioned the U.S. Supreme Court this month to rule that Aereo is an illegal operation. The startup, backed by billionaire Barry Diller, uses thousands of small antennas to capture free over-the-air signals and transmits the programming to paying subscribers over the Internet -- without the permission of broadcasters.

“If found to be legal, the Aereo concept is very interesting, especially as it relates to retransmission consent fees,” Maureen Huff, a spokeswoman for New York-based Time Warner Cable, said yesterday. She declined to comment on whether the cable company would consider buying Aereo.

Justin Venech, a spokesman for Stamford, Connecticut-based Charter, declined to comment, as did Aereo’s Virginia Lam. Darris Gringeri, a spokesman for El Segundo, California-based DirecTV, didn’t return messages seeking comment.

‘Gravy Train’

Aereo’s legal fight pits the New York-based startup against some of the world’s largest media companies, including Walt Disney Co., 21st Century Fox Inc. and Comcast Corp. (CMCSA:US)’s NBCUniversal. The broadcasters are trying to preserve their ability to charge retransmission fees, which let pay-TV companies air CBS, ABC, NBC and Fox on their systems.

“This threatens the retrans gravy train,” said Rich Greenfield, an analyst with BTIG LLC in New York. “As Aereo continues to win legal battles, it’s becoming more apparent it could survive these challenges.”

Federal regulators require pay-TV systems to gain consent from TV stations to rebroadcast their signals. The networks, including Spanish-language broadcasters Univision Communications Inc. and NBCUniversal’s Telemundo, own many of their stations. Others are affiliates owned by companies including Sinclair Broadcast Group, Tribune Co. (TRBAA:US), Hearst Corp. and Gannett Co. The networks are beginning to share in the fees collected by their affiliates.

‘Plucking’ Signals

Retransmission fees in the U.S. are expected to double to $6.1 billion in 2018 from $3.01 billion this year, according to research firm SNL Kagan.

The fees are essential to the broadcast TV industry, Fox President and Chief Operating Officer Chase Carey said in April. If Aereo is permitted to stay in business, Fox’s broadcast network will convert into a cable channel and cease to provide over-the-air access, he said at the time.

CBS CEO Leslie Moonves said he would do the same, as did Univision Chairman Haim Saban.

Cable companies are within their rights seeking to match Aereo’s ability, if it stands up in court, to capture free broadcast signals rather than pay for land-based access, said Leo Hindery, managing partner of New York-based private equity fund InterMedia Partners and former chairman of the YES Network.

“It is intellectually and legally inconsistent to saddle the cable industry with billions of dollars each year of broadcast retransmission fees, while allowing a similarly for-profit company to pluck broadcast signals out of the air and sell them without paying any such fees,” Hindery said in an interview. “The cable companies are fully entitled to do everything in their power to stop this travesty.”

Shares of Time Warner Cable, the second-biggest U.S. cable system, were little changed yesterday in New York, closing at $119.44. Charter rose 0.4 percent to $138.58. DirecTV (DTV:US), the biggest U.S. satellite-TV system, fell 0.3 percent to $62.81.

To contact the reporters on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Alex Sherman in New York at asherman6@bloomberg.net; Jonathan Erlichman in New York at jerlichman1@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net; Anthony Palazzo at apalazzo@bloomberg.net


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