A Deadly Blow For Aereo As Supreme Court Rules That The Service Violates The Copyrights On Programming

Major television broadcasters, including CBS Corporation (NYSE:CBS), 21st Century Fox (NASDAQ:FOX), Disney’s (NYSE:DIS) ABC and Comcast’s (NASDAQ:CMCSA) NBC, are relieved with the ruling of the Supreme Court, which agreed that Aereo violated copyrights on programming. ^[1] While the ruling is a deadly blow for Aereo, broadcasters will continue to enjoy their retransmission consent fees, which was once threatened by Aereo.

Last year, broadcasters had filed a petition with the U.S. Supreme Court  requesting it to stop streaming service Aereo. The concerns were primarily over the retransmission fees that pay-TV operators pay to broadcasters. While cable companies pay broadcasters billions of dollars in fees for the right to re-broadcast network TV shows, Aereo paid them nothing. Aereo’s legality could have ended an important source of revenue for broadcasters. However, with the recent ruling, broadcasters can breathe a sigh of relief.

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What Was The Issue Over Aereo?

Aereo is a controversial streaming service that once threatened to upend the pay-TV industry’s lucrative business model. It allowed 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 as low as $8 a month. ^[2]

Soon after its launch in New York in early 2012, Aereo was sued by broadcasters for copyright infringement. Broadcasters claimed that Aereo was stealing their content and retransmitting it to its subscribers. However, Aereo made 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.

How Did Aereo’s Business Model Impact Broadcasters?

Aereo’s business model threatened to kill the concept of retransmission consent fees. Re-transmission consent refers to the provision that requires cable and multi-system operators (MSOs) to obtain permission from broadcasters before carrying their programming. Usually these operators would pay cash to the broadcasters in exchange of carrying their programming. If Aereo’s business model was found to be legal, it could have opened the door for other pay-TV operators either to partner with Aereo or create a similar technology of their own, thereby bypassing the need to pay any re-transmission consent fee.

While Aereo argued that its service is a technological advancement for customers to watch programs they were anyways entitled to watch over the air for free, the Supreme Court ruling stated that Aereo is more then an equipment supplier and it resembles to cable companies, which pay large fees to retransmit the programming. ^[1]

For broadcasters this is a big victory as they succeeded in preserving their important revenue stream, which has been growing rapidly over the past few years. Overall, broadcast retransmission fees rose from $500 million in 2008 to $3.3 billion in 2013, and is expected to reach close to $8 billion by 2019, according to a research by SNL Kagan. ^[3] Given the billions of dollars involved in retransmission, it gave clear reasons for broadcasters to go after Aereo.

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1. Supreme Court Rules Aereo Violates Broadcasters’ Copyrights, The Wall Street Journal, Jun 25, 2014 [↩] [↩]
2. Aereo’s Website [↩]
3. SNL Kagan Releases Updated Industry Retransmission Fee Projections, SNL Kagan, Nov 22, 2014 [↩]