Bloomberg News

Broadcasters Get U.S. Supreme Court Review in Bid to Stop Aereo

January 11, 2014

Broadcasters Get Supreme Court Review in Bid to Stop Aereo

Chet Kanojia, left, founder and chief executive of Aereo, with Joe Lipowski, chief technology officer, who is holding dozens of small antennas, in New York, on Aug. 31, 2012. Photographer: Kirsten Luce/The New York Times via Redux

Broadcasters will get a U.S. Supreme Court hearing in their fight to stop Aereo Inc., the company that is threatening the industry’s decades-old business model by selling live television programming over the Internet.

The justices yesterday agreed to hear an appeal by media companies including Walt Disney Co. (DIS:US)’s ABC, 21st Century Fox Inc. (FOX:US), Comcast Corp. (CMCSA:US)’s NBCUniversal and CBS Corp. (CBS:US) They contend that Aereo, which is backed by Barry Diller, violates their copyrights by using thousands of dime-sized antennas to obtain broadcast signals without paying fees.

Broadcasters say a federal appeals court ruling favoring Aereo created a blueprint that might let cable and satellite providers avoid paying “retransmission” fees to carry programming. With those fees estimated to exceed $4 billion this year, some broadcast companies say they may convert to cable channels if Aereo isn’t shut down.

“This has never been about stifling new video distribution technologies, but has always been about stopping a copyright violator who redistributes television programming without permission or compensation,” Fox, Tribune Co., Univision Communications Inc., the Public Broadcasting Service and WNET said yesterday in an e-mailed statement.

Aereo joined the broadcasters in urging Supreme Court review, saying the company needs legal clarity so it can pursue plans for growth. In separate cases, two federal trial judges ruled that another company’s similar system was a copyright violation.

Aereo Confident

“We have every confidence that the court will validate and preserve a consumer’s right to access local over-the-air television with an individual antenna, make a personal recording with a DVR, and watch that recording on a device of their choice,” Chet Kanojia, Aereo’s founder and chief executive officer, said in a statement.

Litigation has “created uncertainty that undermines Aereo’s efforts to expand its footprint and further develop its business,” the New York-based company told the court. Aereo, which offers service in 10 cities, said Jan. 8 that it has raised $34 million to fund expansion.

Under its normal scheduling practices, the Supreme Court will hear arguments in April and rule by early July. Justice Samuel Alito didn’t take part in the decision to hear the case.

Retransmission fees have become increasingly important for broadcast networks to supplement advertising revenue.

Fee Forecast

Broadcasters are expected to reap more than $4.29 billion in fees paid by satellite and cable companies this year, a 30 percent gain from last year, according to research firm SNL Kagan. That revenue is projected to reach $7.15 billion by 2018.

“We are gratified that the Supreme Court has granted our petition to review issues that both sides recognize as significant,” ABC and NBC said in a joint statement.

Fox and CBS have said they may abandon their broadcast signals and become cable networks if Aereo continues unabated.

“We believe that Aereo’s business model, and similar offerings that operate on the same principle, are built on stealing the creative content of others,” CBS said in a statement.

Conversion to a cable network would mean that broadcast signals would no longer be freely available over the airwaves.

Diller, who helped create the Fox network, says Aereo may eventually get as much as 35 percent of U.S. households to subscribe if it overcomes legal challenges. The service, available in 10 cities, charges customers $8 a month.

Aereo also distributes Bloomberg TV to subscribers. Bloomberg LP is the parent company of both Bloomberg News and Bloomberg TV.

Domino Effect?

DirecTV, Time Warner Cable Inc. and Charter Communications Inc. are all considering using the same approach, capturing free broadcast-TV signals to avoid paying retransmission fees, according to people with knowledge of the companies’ plans.

A Supreme Court ruling favoring Aereo also would affect local broadcasters, which negotiate their own deals with pay-TV operators. A victory for Aereo could undermine the value of billions of dollars in acquisitions.

The court fight centers on a provision in the federal copyright law that gives owners the exclusive right to perform their works “publicly.” The appeals court said Aereo’s service is legal because the separate antennas let each customer create a distinct copy of a broadcast program for viewing, so no public transmission takes place.

Circumvent Rights

The broadcasters argued in their appeal that Aereo is trying to use a “technical detail” to circumvent well-established legal rights.

“There is no dispute that Aereo has developed a business model around the massive, for-profit exploitation of the copyrighted works of others,” the broadcasters argued.

Aereo said it doesn’t engage in public transmissions because each customer “captures a signal through an antenna available only to a particular user.” Its technology “enables that user to make an individual copy from a unique data stream that can be viewed solely by that user at the user’s direction.”

The National Football League and Major League Baseball, whose games appear on broadcast TV, are backing the media companies. The broadcasters also have support at the high court from companies that produce programs, including Time Warner Inc. (TWX:US) and Viacom Inc.

Cablevision Systems Corp. (CVC:US) is taking a middle ground in the debate. It said that while Aereo’s service violates the copyright laws, the broadcasters’ arguments go too far and threaten legitimate services.

The case is American Broadcasting Cos. v. Aereo, 13-461.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editors responsible for this story: Patrick Oster at poster@bloomberg.net; Anthony Palazzo at apalazzo@bloomberg.net


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