Aereo Takes on the Cable Networks

by Christopher Eutaw
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Submitted by Wall St. Daily as part of our contributors program

Aereo Takes on the Cable Networks

Supreme Court Turns Grim Reaper, Kills Entire Industry

If you’re one of the many people who’ve grown tired of the current state of cable television, with its expensive channel bundles and oligarchical service offerings, then you may just be in luck.

That’s because the Supreme Court began hearing arguments today in a case that has the potential to alter the cable TV landscape forever.

You see, a streaming company called Aereo Inc. has been using tiny satellites to pick up TV programming from public airwaves and then stream shows to subscribers. And at just $8 a month, the subscription cost is miniscule compared to paying for cable television.

Not surprisingly, the nation’s major cable television broadcasters, such as ABC, CBS, Fox and NBC, are less than thrilled about Aereo’s business model . . .  especially because Aereo doesn’t pay licensing fees to the networks.

They’ve filed a civil lawsuit against Aereo claiming that the streaming startup is no different from other cable and satellite firms and must, therefore, pay the requisite fees to rebroadcast network shows.

A Matter of Semantics

Aereo’s case hinges on the difference between materials used for “public” performances – which are shown to multiple people at once – and “private” performances, which are shown to an individual.

Public performances are everywhere. Anytime a cable company rebroadcasts an NBC show, for example, it’s offering a public performance. And networks are increasingly reliant on the rebroadcast fees tied to public performances, which will be worth a whopping $7 billion by 2018, according to SNL Kagan.

On the other hand, when an antenna captures over-the-air programming and broadcasts it into a single TV for personal viewing, it’s considered a private performance . . . and is, therefore, not subject to rebroadcasting fees. Thus, Aereo has positioned itself as nothing more than an antenna rental service, which it’s hoping will keep it out of trouble with the court.

“All we’re doing is giving consumers an alternative to what is now an utterly irrational system where people have to pay too much for so many channels,” said Chet Kanojia, Aereo’s Chief Executive, in an interview with the Washington Post.

Kanojia’s mission has cable reform advocates excited. They’re dreaming of a new and wondrous future for TV viewing – one that doesn’t involve paying excessive fees for hundreds of channels that never get watched.

Frankly, it’s not hard to see why the current system is losing its appeal – and the numbers support this trend. According to the Washington Post, five million households have abandoned cable, up from two million in 2007. The proliferation of cheaper internet options, such as Hulu and Netflix (NFLX), have people ditching their exorbitant cable bills left and right.

An Aereo victory in the Supreme Court, therefore, has the potential to bury cable television as we know it, or at least force meaningful change.

Of course, the networks have a backup plan, which they’re calling the “nuclear option.” Essentially, it involves moving all programming to cable-only broadcast, thus killing over-the-air programming and the value of antenna-based services. But it’s not a great solution for anyone, the networks included.

Rather than triggering the nuclear option, the networks should reform their model to catch up with the times. It’s incredibly foolish to continue going all-in on a cable model that was fleshed out 40 years ago. The internet has changed everything in our lives, and television isn’t immune.

As a cable cutter myself, I’d be thrilled to see a more sensible, value-based approach to cable television. At this point, the change seems inevitable – but don’t tell the networks that.

In Pursuit of the Truth,

Christopher Eutaw

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