Broadcasters Appeal To Supreme Court For Aereo Shutdown

October 24th, 2013 by Trefis Team
CBS: CBS logo
CBS
CBS

Major television broadcasters including CBS (NYSE:CBS), 21st Century Fox, Disney’s (NYSE:DIS) ABC and Comcast’s (NASDAQ:CMCSA) NBC filed a petition with the U.S. Supreme Court recently requesting it to stop streaming service Aereo. [1] A U.S. appeals court earlier in April this year declined an injunction that would have shut down Aereo in the 2nd circuit. [2] Since then the company has been expanding its services in different states. While cable companies pay broadcasters billions of dollars in fees for the right to re-broadcast network TV shows, Aereo pays them nothing. However, the concerns are over the retransmission fees that pay-TV operators pay, which is an important revenue source for the broadcasters and Aereo’s legality could end that revenue stream.


See our complete analysis for CBS

Aereo’s Business Model

Relevant Articles
  1. A 3x Expected Rise In Mounjaro Sales Is Likely To Drive Eli Lilly’s Q1
  2. What Should You Do With Danaher Stock At $250 After Q1 Beat?
  3. Will A Macau Recovery Drive MGM Stock Higher Following Q1 Results?
  4. Lockheed Martin Stock Will Likely Remain In Focus After A Stellar Q1
  5. Up 17% YTD, What To Expect From eBay Q1 Results?
  6. Rising 21% This Year, What Lies Ahead For Exxon Stock Following Q1 Earnings?

Aereo is the controversial streaming service that threatens to upend the pay-TV industry’s lucrative business model. It allows streaming of live as well as time shifted over-the-air television to its subscribers. It captures TV signals using thousands of tiny antennas and then transmits the playbacks individually to each of its customers for a subscription fee. Aereo offers recording of programs and easy access to television content on PC, tablet or smartphone for $8 a month. [3]

Soon after its launch in New York in early 2012, Aereo was sued by broadcasters for copyright infringement. Broadcasters claim that Aereo is stealing their content and retransmitting it to its subscribers. However, Aereo claims that it is using the freely available signals so there is no copyright infringement, and the airing itself is not a ‘public performance’ but limited to its private subscribers. [2] The latest petition from broadcasters to the Supreme Court is another attempt to resolve conflicting lower-court decisions on whether Aereo’s model violates copyright law.

Does It Impact CBS?

CBS is the most popular broadcasting network, which usually remains at the top of ratings for its popular sporting events and TV series. Aereo’s survival or shut down will have little impact on CBS’ viewership. A couple of months back, Time Warner Cable (NYSE:TWC) blacked out CBS over the issue of retrans fees. Despite losing 3.2 million viewers for a month, CBS remained the top network with the highest viewership. [4] This gives us a glimpse of the popularity of the network and demand for the content it airs. Even if Aereo were to survive, it may find it difficult to gain a huge subscriber base primarily because of on-demand video services such as Netflix (NASDAQ:NFLX), which offer a wide bouquet of content sourced from various content owners and features original programming such as House of Cards for a similar price as charged by Aereo.

However, the big impact for CBS lies in retransmission fees. Broadcasters charge retransmission fees to cable operators for carrying their networks. Overall, broadcast retransmission fees rose from $500 million in 2008 to an estimated $2.4 billion in 2012, and is expected to reach $6 billion by 2018. [5] If Aereo is proved to be legal, it may bring an end to the concept of retransmission fees and all pay-TV operators will use such technology to air broadcasting content. DirecTV (NASDAQ:DTV) has already been testing a new set-top box that incorporates an antenna allowing customers to access over-the-air broadcast signals. [6] It will be interesting to see how this story develops if the Supreme Court decides to hear the case.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. Broadcasters Ask Supreme Court To Stop Aereo, Huffington Post, Oct 11, 2013 [↩]
  2. Second circuit court of appeals upholds district court decision in favor of Aereo, Aereo Press Release, Apr 1, 2013 [↩] [↩]
  3. Aereo’s Website [↩]
  4. CBS’ Ratings Are Immune To The First Week Of Blackouts, Trefis, Aug 19, 2013 [↩]
  5. Kagan: Retrans to Top $6 Billion by 2018, Broadcasting and Cable, Nov 5, 2012 [↩]
  6. Is DirecTV Testing Antennas To Circumvent Re-Transmission Fees?, Trefis, May 20, 2013 [↩]