With June ticking away, the Supreme Court still has a handful of tech-related cases to decide. One is a case about software patents that could change the way businesses protect their intellectual property. Another pair of cases asks whether police can legally search the contents of your cell phone without a warrant. But the last such case of the summer promises to be far more important to our day-to-day lives. It could forever change the future of television. At the center of this lawsuit is a little company called Aereo.
Not familiar with the case? Read on.
New York-based Aereo is controversial because the company takes over-the-air broadcast programming, like shows on PBS, ABC or NBC, and streams them over the Internet to its customers. It does this without paying the networks that produce the content. Should Aereo have to pay these guys for transmitting their stuff? That's the question facing the Supreme Court.
A decision could come as early as today, or sometime next week. Which way could it break? Probably one of four ways.
To discuss how the court might rule, we have to understand the dispute between Aereo on the one hand and broadcasters on the other. The broadcasters say that Aereo is straight up stealing their programming and then making money on top of that by charging customers $8 a month. Aereo says it's doing nothing that consumers wouldn't do themselves if they had a cloud-based DVR hooked up to their TVs.
When you sign up with Aereo, the company configures a tiny antenna the size of a dime and sets it aside just for you. Now, any TV show you record will be saved in a digital locker for you to play back later.
Broadcasters say that Aereo's carriage of their signals over the Internet resembles the way cable companies carry broadcast TV signals over cable. In that industry, the cable operators pay broadcasters a fee for "retransmission." Retransmission fees are an important source of revenue for broadcasters, so the fact that cable pays retrans while Aereo doesn't seems a little unfair, according to the broadcasters.
Here's why the Supreme Court case is so important. If Aereo wins, it potentially upends the entire TV business. Suddenly, broadcasters would have to worry about a flood of customers starting to watch live TV over the Internet. As we've seen in the publishing industry, the minute content moves online, advertising rates start to fall. And as TV networks' ad revenue craters, they wouldn't be able to make up the shortfall by charging Aereo retransmission fees. That's a double whammy.
Meanwhile, the alliance of convenience between broadcasters and cable companies would start to crumble. Cable companies might point to Aereo and demand to pay lower retransmission fees to broadcasters. If cable succeeds in driving down the rates it pays, however, it could have a harder time explaining to consumers the continued rise in cable bills, which the industry blames on programming costs. Broadcasters would probably try to negotiate for even higher fees than cable pays today, with the disputes resulting in blackouts like last year's CBS-Time Warner Cable outage. In an effort to strangle Aereo's access to free content, networks like CBS could very well start streaming their own content over the Internet and stop transmitting over the airwaves. Analysts generally think CBS is bluffing here, but if it does follow through, then the networks would be tacitly admitting that the only way to survive is to compete with Aereo head-to-head.
If CBS or other networks start sending content over the Web, it creates all kinds of other problems. Like Netflix, the broadcasters would have to worry about net neutrality and interconnection. Maybe, instead of getting cable companies to pay them for retransmission, broadcasters would be forced to pay interconnection fees to the cable companies to deliver consistent streaming speeds to viewers. The relationship would then be reversed, with cable holding more of the cards.
Finally, a ruling for Aereo could prompt calls by the content industry to revise the Copyright Act. This group would likely include more than broadcasters: Anyone who felt that copyright protections were being weakened might join in.
"An Aereo victory means we're going to have to go Congress to get the law changed," warned Michael O'Neill, chief executive of Broadcast Music, Inc (BMI). "And we'll be behind a long line of others."
Intellectual property experts say groups like BMI would probably ask for a better definition of what retransmission means.
A ruling against Aereo isn't much simpler. Because Aereo works by taking advantage of cloud storage, its defenders argue that clamping down on Aereo would kill the cloud computing industry. This is an important and growing part of the economy, and the Supreme Court justices seemed loath in oral arguments to rule in a way that would harm the future.
So, what can the court do? It's got a few options. First, it could side with Aereo, saying that when the company streams video to its subscribers, each subscriber is playing back their own personal copy of the show they've recorded. The right to do this is well-established. Or, it could side with the broadcasters, saying that when Aereo streams the video to its subscribers, it's actually broadcasting or conducting a "public performance." The fact that Aereo isn't paying to do so would put it on the wrong side of the copyright law.
A third possibility is that the justices try to find some middle ground: Argue that Aereo did wrong, or has to pay, or punish the company in some other way, but at the same time isolate the consequences of the ruling so that the broader cloud computing industry gets left alone. This sounds great in theory, but many observers agree that it'll be really hard for the court in practice to draw the line between the two.
A negative outcome for Aereo wouldn't necessarily kill it immediately, even though the company has said it has no "Plan B" in the event of a loss. But the circling broadcasters would likely crush Aereo eventually and, more importantly, the ruling would deter other Aereo wannabes from launching, too.
If the broadcasters win, we keep the system we know. That's good for the networks and good for cable. But considering how much consumers hate the status quo, the public may wind up on the losing end.