the Supreme Court ruled against Aereo yesterday

Aereo, the antenna company

As Aereo would describe itself, it’s kind of like a company that rents storage lockers to individuals–only it rents TV antennas.  Each customer has his own individual micro-antenna, located in a central antenna farm.  These micro-antennas receive the free over-the-air broadcasts from the major TV networks and retransmit them over the internet to a customer device, where TV programs can be viewed in real time.

If Aereo had started up ten years ago, this might not have been a big deal.  But in today’s world the TV networks collect hundreds of millions of dollars in annual retransmission fees from cable networks in return for allowing them to stream network content in real time to cable customers.  In the current cord-cutting environment, Aereo offers/ed an easy and cheap way for getting TV content (sports programming is the key) without having a cable subscription.

Aereo had two claims:

–it was acting just as if it were putting a rental antenna on each customer’s roof, only the antenna is located in a warehouse somewhere with good reception, and

–because each customer was choosing what to have streamed to him, even if there were copyright issues, the networks’ beef is with the individual customer, not Aereo.

prior lawsuits

The networks sued Aereo in Federal court in New York   …and lost.  They sued an Aereo knockoff  in Utah   …and won.

Both Aereo and the networks urged the Supreme Court to take the case and decide.

the ruling

The decision, 6 – 3 against Aereo, with the most conservative justices dissenting, came yesterday.

If I understand the ruling (don’t bet the farm that I do), the decision came in a way that Aereo hadn’t expected.

The majority said that back in the day, cable companies set up their own antennas to capture over-the-air network content and deliver it to cable customers without paying the networks for doing so.  Congress expressly made this illegal in 1976, through a revision to the Copyright Act .  So it didn’t matter if Aereo owned one humongous antenna or a gazillion teeny-tiny ones.  It also didn’t matter that the customer ordered his personal antenna to send the content or not.  All that mattered was that Congress outlawed delivering real-time network content without paying retransmission fees.

The majority also made a point of distinguishing real time delivery from time-shifting, where a customer records content for later viewing.

stock market implications

Take the Aereo IPO off your calendar for now.

It’s a big win for the broadcasters, protecting their cable retransmission fees for at least several years.

Unfortunately for them, it also leaves a lot up in the air.  We now know what Aereo can’t do, which is stream network content in real time, or with a brief delay.  But could it stream content with an hour lag?   …or the next day?  What about someone who records copyrighted content and shares it through Dropbox?  Is Dropbox responsible, or is it only the user who’s in trouble?

This case seems to show that operating through a big bunch of teeny antennas is colorful, but provided no legal protection.

My guess is that someone, maybe not Aereo, but someone, will try to revive the service, building in a time delay.  I’m not sure how much people would be willing to pay for time-shifted content, but my hunch is the audience would be surprisingly large.

Anyway, I think this possibility will prevent the content companies from running away to the upside.

 

 

 

Aereo’s courtroom win–what it means

Aereo?

It’s a company in the Barry Diller stable.   Aereo has assembled a ton of tiny little over-the-air television antennas deep in the bowels of Brooklyn, each tagged with the name of the individual customer Aereo rents it to.  The antennas capture the signals of the traditional broadcasters that use public airwaves.  Aereo repackages these signals, adds pause, rewind and record features–and then streams them to each renter’s computer, tablet, smartphone, Apple TV or Roku box.

(For what it’s worth, in addition to all the over-the-air channels, Aereo tosses in Bloomberg TV.)

The service is currently available in New York City, Long Island, plus seven NY counties in/around the Hudson Valley. Thirteen counties in New Jersey qualify as well, as do Fairfield County in Connecticut and Pike County in Pennsylvania.

how much does it cost?

You can “try” Aereo for an hour a day, with (so far) no limitations, for free.  No DVR, though.

You can buy a Day Pass for $1.  That gets you 24 continuous hours of viewing and three hours of recording (lasts ten days).

You can subscribe for $8 a month and get unlimited viewing + 20 hours of DVR space.  $12 a month gets you 40 hours of DVRing.  You can also plunk down $80 for a year’s worth of watching–plus three free months.

the lawsuit

All the big TV networks have sued Aereo, maintaining that the firm is making an unauthorized public transmission of their content (translation: Aereo isn’t paying retransmission fees the way cable/satellite companies do).  Aereo says its service is no different from a guy putting an old-fashioned TV antenna on his roof–except that in this case it’s super-tiny and lives in the lower intestinal tract of Kings County.

On Monday, an appeals court reaffirmed a lower court ruling that Aereo is right and that the networks are unlikely to win in a trial.  So the court isn’t going to shut the service down, like the networks wanted.

The networks say they’re going to bring the case to trial anyway.  Even if they do, and eventually prevail, that will be years–and lots of potential damage–down the road.

my take

1.  After its court wins, Aereo is going to expand its service to 22 new cities (the list is on the Aereo blog).  To me, this means that Aereo is soon going to be more than a minor annoyance.  (Note, however, that there are no plans to set foot in California–perhaps because a court there has already shut down an Aereo-like service, according to the New York Times.)

Aereo has already spawned imitators, so the phenomenon could spread much faster than anyone now suspects.

There’s also nothing to prevent unaffiliated content providers from selling their offerings to Aereo, either (but don’t hold your breath for network-controlled programmers like ESPN).  So Aereo-like services could turn out to be bigger than anyone now thinks.

2.  All the cord-cutters in my family have line-of-sight access to digital broadcast sources–something that’s not common in New York.  So $8 a month is a lot more expensive for us than buying the $35 digital antennas we hook up to our TVs.  But we’re unusually lucky.

Of course, an hour a day of live TV may be enough for many folks, supplemented by the occasional $1 to view, say, important sports events.

And Aereo is an awful lot cheaper than getting the lowest-level cable service.

So Aereo may have a surprisingly large impact on the cord-cutting decision.

3.  If I were a cable company paying retransmission fees to the networks, I’d certainly want to negotiate them down.  After all, I could always try to cut a deal with Aereo if I didn’t get a favorable response.

4.  Original content, à la Netflix, on Aereo?  …shouldn’t be too hard for Diller, who ran Paramount and built Fox Broadcasting.

investment significance

If I didn’t have my trusty digital antenna, I’d be an Aereo customer today.

If I could invest in Aereo today on reasonable terms, I’m pretty sure I’d do it.

Buy into an Aereo IPO?  –harder to say, since if the service gets rolling, the offering price might be crazy-high–even Zynga- or Groupon-high (convulsive trembling!).

At the very least, Aereo may well be the stone that starts the avalanche–and which forces the network broadcasters and cable/satellite companies to scramble to avoid/minimize damage, if they can.

I think it’s an important phenomenon to monitor.