Bloomberg News

Aereo Violating Broadcaster Copyrights, High Court Says

June 25, 2014

The U.S. Supreme Court dealt what is likely to be a fatal blow to online-streaming service Aereo Inc. and its dream of transforming the TV industry, ruling that the Barry Diller-backed startup violates broadcasters’ copyrights.

The 6-3 ruling is a triumph for broadcast companies, including Walt Disney Co. (DIS:US)’s ABC, 21st Century Fox Inc., Comcast Corp. (CMCSA:US)’s NBCUniversal and CBS Corp. (CBS:US) They said Aereo was threatening the underpinnings of the industry by selling programming online without paying licensing fees.

Aereo sought to give consumers a new way to watch broadcast TV without buying cable or satellite packages. Aereo let each user stream over-the-air video using a tiny antenna stored at an Aereo facility and connected to the Internet. Customers in 11 cities have been able to watch live and recorded broadcast programs for as little as $8 a month.

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  • In the Real World, Aereo Is Illegal

“The Supreme Court’s opinion appears to be sweeping and definitive that Aereo is illegal, which we think takes Aereo out of operation as we know it,” said Marci Ryvicker, an analyst at Wells Fargo & Co., in a note today. “The ruling does not appear to leave Aereo much opportunity to maneuver.”

Aereo vowed to keep battling, though it didn’t specify how.

“We are disappointed in the outcome, but our work is not done,” the company’s chief executive officer, Chet Kanojia, said in a statement. “We will continue to fight for our consumers and fight to create innovative technologies that have a meaningful and positive impact on our world.”

Broadcasters Gain

CBS’s stock climbed 6.2 percent to $62.48 at the close in New York, the biggest gain since January 2013. Fox rose 2 percent to $34.88. Shares of IAC/InterActiveCorp., of which Diller is chairman, fell as much as 2.7 percent after the ruling, before closing at 68.93, down 0.4 percent.

“It’s not a big (financial) loss for us, but I do believe blocking this technology is a big loss for consumers,” Diller said in an e-mailed statement.

Broadcasters said Aereo threatened to create a blueprint that would let cable and satellite providers stop paying billions of dollars in retransmission fees each year to carry local programming. With those fees estimated to exceed $4 billion this year, some broadcasters said they might convert to cable channels if Aereo weren’t shut down.

CBS said in a statement, “We are pleased with today’s decision, which is great news for content creators and their audiences.”

Equipment Provider

The ruling is also a win for the National Football League and Major League Baseball, which said Aereo is exploiting their copyrighted telecasts. The NFL told the court that Aereo’s legal arguments would let the company provide distant signals as well as local ones, so customers could watch games from around the country without compensating the league.

Justice Stephen Breyer wrote the court’s majority opinion. Justices Antonin Scalia, Clarence Thomas and Samuel Alito dissented.

The court fight centered on a provision in the federal copyright law that gives owners the exclusive right to perform their works “publicly.”

Breyer said Aereo violated that provision, operating much like the cable TV providers that Congress intended to include when it updated the law in 1976.

“Aereo is not simply an equipment provider,” Breyer wrote. “Aereo sells a service that allows subscribers to watch television programs, many of which are copyrighted, almost as they are being broadcast.”

Small Antennas

Breyer rejected Aereo’s contention that its use of thousands of dime-sized antennas -- each delivering programming to a single customer -- meant the transmissions on its system were “private” ones.

“Viewed in terms of Congress’ regulatory objectives, why should any of these technological differences matter?” he wrote. “Congress would as much have intended to protect a copyright holder from the unlicensed activities of Aereo as from those of cable companies.”

Scalia said Aereo didn’t violate the “public performance” provision because it let subscribers choose which programs they were receiving. He said the justices should have sent the case back to a lower court to let the broadcasters press other copyright arguments. If necessary, he said, the broadcasters could have taken their concerns to Congress.

“I share the court’s evident feeling that what Aereo is doing (or enabling to be done) to the networks’ copyrighted programming ought not to be allowed,” Scalia wrote. “But perhaps we need not distort the Copyright Act to forbid it.”

Consumer Loss

The ruling is “very unfortunate for consumers,” Bartees Cox, a spokesman for the Washington-based policy group Public Knowledge, which urged the court to let Aereo operate, said in an e-mail. “Aereo is a true innovator in the TV industry and provides high-quality and affordable programming for its customers.”

Aereo contended that a ruling against the company would endanger cloud computing, the business of storing videos and other content for customers on remote servers. The majority today said the ruling was a limited one that wouldn’t affect cloud computing.

“We cannot now answer more precisely how” U.S. copyright law “will apply to technologies not before us,” Breyer wrote. He noted that cloud-based storage services offer people a way to play material they already received lawfully.

Les Moonves

CBS CEO Les Moonves said his opposition to Aereo’s service didn’t foreclose the possibility of working with cloud-computing providers.

“We’re not against the cloud. We never were,” he said in an interview. “We’re against people not paying us for our content.”

While Aereo said its system is legally indistinguishable from the antennas homeowners have placed on their own roofs for decades, the broadcasters said Aereo was trying to use a technical detail to circumvent well-established legal rights. The Obama administration backed the broadcasters.

In a statement, 21st Century Fox said the decision “affirms important copyright protections and ensures that real innovation in over-the-top video will continue to support what is already a vibrant and growing television landscape.”

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

The decision is a victory for local broadcasters, which negotiate their own deals with pay-TV providers. A ruling favoring Aereo might have undermined the value of billions of dollars in acquisitions.

The case is ABC 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 Laurie Asseo, Mark McQuillan


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