Big Picture

Aereo: the cloud based content upstart that could upend the TV industry

October 15, 2013
Obsession
The Cloud
October 15, 2013

America’s most powerful broadcasters are trying to shut down an emerging TV recording service.  If their case is heard, the implications could be far reaching.

Late on Friday (Oct. 11) the major free-to-air broadcasters filed a petition in the US supreme court against Aereo, a start up backed by media billionaire Barry Diller (a founder of the Fox and USA networks). Aereo uses tiny antennae to capture broadcast television signals, which it then stores in the cloud and sells to subscribers. For a relatively low monthly fee, users can access just about anything broadcast on the public airwaves via the internet—which means they can watch broadcast TV without having a TV. The service is pitched at cord-cutters—the increasing number of Americans who are abandoning their expensive, all-you-can-eat cable subscriptions (at least for pay-TV access) and rebuilding their content menus “a la carte” using online streaming services like Netflix and Hulu.

The broadcasters’ gripe is that Aereo pays them nothing to access the content it sells to its customers. By contrast, cable companies pay the broadcasters big bucks to carry their channels; the two are in frequent dispute over these retransmission or “retrans” fees, as the Time Warner-CBS blackout earlier this year attests. Higher retrans fees are one of the reasons why cable bills keep increasing, in turn fueling the cord-cutting phenomenon.

The broadcast networks argue that Aereo is violating copyright laws by stealing their content and profiting from it; Aereo counters that its service is legally no different from using a TV with a normal antenna and a digital video recorder to capture and store broadcasts, which are free over the air.

A number of lower courts have ruled in favor of Aereo. The broadcast networks are worried that if the courts uphold Aereo’s side of the case, cable companies could eventually follow Aereo’s lead. By setting up similar services they could, in theory, avoid paying retrans fees, reducing pressure on cable bill prices.  Earlier this year Fox even threatened to abandon the public airwaves and only broadcast on cable if Aereo wasn’t outlawed. Not surprisingly, the cable companies aren’t too concerned about Aereo; Cablevision, the fourth biggest cable operator in the US, was quick to criticize the broadcasters’ supreme court petition.

It remains to be seen whether the case will be heard. The Supreme Court typically grants reviews to a very small percentage of petitions.  Until then, a lot of Americans unfamiliar with Aereo are likely to hear more about the service—something the broadcasters probably won’t like.

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