Editors Note: The first of three Deadline posts that lay out the issues in the Aereo case, which Deadline Legal Editor Dominic Patten will cover from the Supreme Court next week. Today: A primer about Aereo and what’s at stake in the dispute with broadcasters.
U.S. Supreme Court justices are so mistrustful of technology that they bar TV cameras from their proceedings and require visitors to check their smartphones at the door. But on April 22 they will take an hour to hear arguments in a case that could re-shape television and the Internet. All of the major broadcast companies are challenging the legality of an upstart streaming service: Aereo, a company backed by IAC chief Barry Diller that began to sign up subscribers in New York City in February 2012. The issues both sides will raise are complicated. But the controversy boils down to an important question: What rights do broadcasters and citizens have to content on the publicly owned airwaves?
Q: How does Aereo work?
A: Subscribers in the cities Aereo serves pay a minimum of $8 a month. That gives them exclusive access to one of its thousands of dime-sized antennas that pick up free, local, over-the-air broadcasts. The company then streams the live programming in the same local market to subscribers’ Web-connected TVs, computers, or mobile devices.
Q: Does it just stream live TV?
A: Aereo also offers a remote storage DVR. Just like with a home DVR, each customer can choose programs to record, and then watch later with the same fast-forward and rewind capabilities. The difference is that the digital files are kept on Aereo’s servers, not on a hard drive in the home. Those who pay $8 per month get 20 hours of DVR storage each month and access to one antenna, while those paying $12 get 60 hours and access to two antennas.
Q: Where can people subscribe?
A: Aereo began in New York, and now also is available in Boston, Atlanta, Detroit, Cincinnati, Baltimore, Dallas, Austin, Houston, Miami, and San Antonio. It plans to launch in cities including Washington, DC, Philadelphia, Pittsburgh, Cleveland, Chicago, Indianapolis, Minneapolis, and Kansas City.
Q: Why does that bother broadcasters?
A: Aereo doesn’t pay local TV stations when it streams their programming. Broadcasters say that infringes on their copyrights.
Q: So it’s just about legal theory?
A: Broadcasters also fear that they could lose a fortune. If Aereo can air popular shows from ABC, CBS, Fox, NBC and others, the thinking goes, then cable and satellite companies might try to do the same thing. If they did, then it potentially could ruin broadcasters’ efforts to collect retransmission consent fees from them. That should represent $7.1B in revenues for the broadcast industry in 2018, up from $3.3B last year, RBC Capital Markets analyst David Bank estimates.
Q: What does Aereo say?
A: Broadcasters already distribute their signals for free to anyone who has an antenna. Aereo says it simply leases the technology that consumers need to take advantage of their right to access free, over-the-air TV.
Q: What issues will shape the eventual ruling?
A: There are several. But fundamentally Aereo wants to demonstrate that it’s a neutral part of a consumer-controlled TV reception process. Broadcasters argue that Aereo’s technology influences what goes to subscribers. In other words, it isn’t simply a remote antenna — it’s more akin to a cable or satellite service that packages channels for subscribers.
Q: Well, Aereo has that remote DVR function.
A: Yes, but the U.S. District Court ruled in 2008, in a case involving Cablevision, that the remote DVR doesn’t violate broadcasters’ copyrights.
Q: Is Aereo a serious threat to broadcasters?
A: Depends on who’s talking, and to whom they’re speaking. In February, CBS chief Les Moonves told investors that he has plenty of options and if Aereo wins “we’re not going to be financially handicapped at all.” He predicts that his company will collect $2B in restransmission consent revenues in 2020 and “we will hit that number regardless of what happens with Aereo.” But in a legal brief to the Supreme Court, the broadcasters say that if Aereo prevails then it “would launch a race by cable and satellite companies to develop competing methods to capture copyrighted content and re-sell it without paying for the right to do so.” If that happens, then broadcasters would have little choice but to “reconsider the quality and quantity of the programs they broadcast for free over the air.”
Q: What does that mean?
A: Broadcast execs say that they might take their most popular primetime shows off of free TV, and just make them available to the 85% of households that subscribe to pay TV.
Q: Who supports the broadcasters?
A: A lot of people were surprised when the Obama administration, through the U.S. Solicitor General, filed a friend of the court brief supporting their case. Others siding with them include ASCAP, the Copyright Alliance, International Center for Law and Economics, Major League Baseball, National Association of Broadcasters, the NFL, SAG, Time Warner, Viacom, and the Washington Legal Foundation.
Q: What happens if Aereo loses the case?
A: Then “Aereo is finished” says Diller. What’s more, the company says it would create a legal precedent that could endanger the ability of consumers to store and access music or videos from cloud storage destinations such as Google Drive.
Q: Who supports Aereo?
A: The American Cable Association, Computer and Communications Industry Association, Consumer Electronics Association, Consumer Federation of America, Consumers Union, Dish Network, Electronic Frontier Foundation, Engine Advocacy, Mozilla, Public Knowledge, and some small broadcasters all filed briefs backing Aereo.
Q: What have lower courts said?
A: The core case against Aereo hasn’t gone to trial yet. But many of the issues were raised after broadcasters asked courts to issue an injunction that would bar Aereo from doing business while the main case is litigated. The streaming service prevailed in two U.S. District Court jurisdictions: New York and Boston. In February a District Court judge in Utah sided with the broadcasters, and last month the Appeals Court there refused to overturn the injunction.
Q: What’s the case that’s going to the Supreme Court?
A: Broadcasters want it to overturn a New York Appeals Court ruling from April 2013 that rejected the plaintiffs’ plea to shut Aereo while the case about its legality proceeds.
Q: Who exactly is suing Aereo?
A: Disney (ABC and Disney Enterprises), CBS (CBS Broadcasting and CBS Studios), Comcast (NBCUniversal Media, NBC Studios, Universal Network Television, and Telemundo Network Group), WNJU, WNET and Thirteen Productions, Fox (Fox Television Stations, Twentieth Century Fox Film Corp), WPIX, Univision (Univision Television Group and the Univision Network Limited Partnership), and the Public Broadcasting Service.
Q: Who’s likely to prevail at the Supreme Court?
A: Who knows? But Aereo could benefit from the fact that Justice Samuel Alito recused himself — likely because he has owned, and perhaps still does own, stock in Disney, one of the plaintiffs. If the remaining eight justices split evenly, then the Appeals Court decision favoring Aereo would stand. Put another way, broadcasters need five of the eight judges to win. Whatever the outcome, it is expected the SCOTUS will reveal its decision by early summer.
Q: Would a Supreme Court decision end the debate?
A: Probably not. The world is filled with clever lawyers, lobbyists, and entrepreneurs. If broadcasters lose, then don’t be surprised if they ask Congress to change the law to make services like Aereo illegal. And if Aereo loses, either it — or someone else — could look at the rationale behind the Court’s decision and then engineer a service that would still stream free TV in a way that complies with the new guidelines.
Q: How much cash does Aereo have?
A: Investors have kicked in $97M. In addition to IAC, backers include FirstMark Capital, First Round Capital, Highland Capital Partners, High Line Venture Partners, Lauder Partners, SV Angel, Gordon Crawford, and Himalaya Capital Management.
Next Up: On Thursday we’ll explore the broadcasters’ arguments in an interview with former Acting U.S. Solicitor General Neal Katyal. On Friday we’ll hear from Aereo CEO Chet Kanojia.