Supreme Court to decide on Aereo, obscure start-up that could reshape TV industry

The Supreme Court will decide the fate of Aereo, an Internet start-up that's frightening the TV industry with an old-school technology: the antenna. Technology reporter Cecilia Kang and Supreme Court reporter Robert Barnes explain what you need to know about the technology and legal implications behind Aereo. (Davin Coburn and Kate M. Tobey/The Washington Post)

An obscure Internet start-up is roiling the television industry with an old-school technology: the antenna.

The start-up, Aereo, uses thousands of tiny antennas to capture broadcast television programs, then converts the shows into online video streams for subscribers in 11 cities.

What Aereo does not do is pay licensing fees to the broadcast networks that produce the programs. And that has put Aereo at the center of a debate over the reach of copyright laws, the accessibility of public airwaves and the future of television.

The Supreme Court on Tuesday will hear arguments in a civil case filed against the two-year-old private firm by ABC, CBS, NBC and other major broadcasters alleging that Aereo is no different from cable and satellite firms that are required to pay hefty fees to rebroadcast their shows.

“Quite simply, Aereo takes copyrighted material, profits from it and does so without compensating copyright holders,” said Gordon Smith, the president of the National Association of Broadcasters.

Aereo argues that it is entitled to draw freely from programs transmitted on public airwaves. If successful, the argument has the potential to blow apart the expensive channel bundles that have been forced on American cable consumers and to radically reduce the cost of watching television.

“Aereo has a shot at changing the TV business model,” said Gene Kimmelman, president of the consumer advocacy group Public Knowledge and a former antitrust official at the Justice Department. “Behind the technical and legal arguments of the case is a fundamental question of whether consumers will be able to take advantage of new technology to access programming in a convenient and low-cost fashion.”

An Aereo victory could dramatically change the way people watch their favorite programs. Live sports and other popular shows that are available only on broadcast TV or cable television could be accessed more conveniently and cheaply over the Internet. That could lead many consumers to cut the cable cord in favor of a much cheaper alternative: a broadband Internet connection and subscriptions to Aereo and other video service providers such as Netflix and Hulu. The average price of basic cable is nearly $100 a month. Broadband Internet plus subscriptions to Aereo and Netflix totals less than $60.

Funded by IAC Chairman Barry Diller, Aereo operates in Atlanta, Austin, Baltimore, Boston, Cincinnati, Dallas, Detroit, Houston, Miami, New York and San Antonio. Plans for the Washington area were held up last fall by problems negotiating space for a local “farm” of antennas and servers. The company hopes to launch in the District later this year and eventually expand nationwide.

District residents Katrin Verclas and Bob Boorstin are eager for a way to cut their cable subscription, but they have kept it for baseball games and some other broadcast programs. They cringe at the thought of paying $130 a month for cable so Boorstin won’t miss Nationals games.

With Aereo, baseball streaming site MLB.TV and maybe another app, they would gladly use the Internet for all their video news and entertainment.

“I never watch TV — all online all the time,” Verclas said. “I’d rather spend money on faster Internet than hundreds of channels we never watch.”

As legal teams for both sides prepare to make their arguments before the court, analysts say it is unclear which side will prevail. At the heart of the case is the question of whether Aereo violates a four-decades-old copyright law written during the birth of cable television.

That law prohibits the use of copyrighted material broadcast over public airwaves without the approval — and compensation — of its owner. But the law distinguishes between material used for “public” performances, shown to multiple people at once, and “private” performances, shown to a single individual.

When a cable company rebroadcasts an ABC show, it is offering a “public” performance and therefore must pay the network retransmission fees. But because licensing payments are not required for private performances, people without cable can continue to use antennas to capture and record over-the-air television programs for their personal viewing.

Aereo argues that it is no more than an antenna rental service. Its customers pick the shows they want to watch, and Aereo assigns them an antenna and positions it to capture the desired show from local airwaves. The shows are then transformed into digital streaming video for viewing on tablets, smartphones and laptops. That makes Aereo merely a mediator of “private” performances, the company argues, because each antenna rebroadcasts a show to just one subscriber.

“Consumers have the legal ability to access the public airwaves, and they have the right to have their own antennas, which is what we are supplying,” said Aereo chief executive Chet Kanojia.

Subscribers still see the advertisements, Kanojia argued, so the company is not denying the networks their main source of revenue.

“Broadcasters can’t double-dip,” he said. “They had the same complaints when the VCR came. The sky didn’t fall then, and in fact a huge business around VCRs and DVRs bloomed from that technology. The same will happen with our technology, and the sky won’t fall on broadcasters today, either.”

In their two-year legal battle against Aereo, the networks have argued that the company transmits public performances and is therefore more like the cable and satellite firms that are required to pay retransmission fees. Such fees have been a huge boon to broadcasters, reaching $3.3 billion last year. They are expected to nearly double over the next five years, growing to $7.6 billion, according to media research firm SNL Kagan.

Even if Aereo prevails, it is not clear whether some of the most valuable programming by HBO and sports leagues would be accessible to non-cable subscribers.

Two years ago, New York City resident Kai MacMahon dropped his cable subscription, determined to cobble together various Internet video subscriptions and use a rabbit-ear antenna for live sports.

But he quickly returned to Time Warner Cable because there were not enough live sports programs on the main networks and HBO was available only through cable. He hopes Aereo will force HBO, major sports networks and other exclusive cable programmers to consider partnering with new online alternatives.

“It is clearly ridiculous that I have to pay for hundreds of channels I don’t want just to get the handful that I do,” he said. “The lack of choice and meaningful competition in the cable space is shameful, really.”

With fortunes at stake, the case has drawn the passionate support and opposition of dozens of groups representing powerful technology and media firms, consumer advocates and even the Obama administration, which has weighed in on the side of the broadcasters.

Aereo “transmits copyrighted broadcast programs to the public, without the authorization of the copyright holders, and is therefore liable for infringement,” the Obama administration said in a brief filed in support of the networks.

Smaller cable companies, on the other hand, are backing Aereo. They hope to partner with the firm or create similar technologies that would enable them to compete more effectively with bigger cable companies. The satellite firm Dish Network compares Aereo’s antennas to dumbwaiters that simply act on a human’s commands.

Their support has raised fears that copycat businesses will emerge if the court sides with Aereo. A decision is not likely before the court’s term ends in June.

“It would open the floodgates to more copyright being violated and free and local television being undermined,” said Smith, of the national broadcasters group. Broadcasters have vowed to fight an adverse decision in the halls of Congress, seeking to stop companies such as Aereo through legislation if litigation fails.

IAC’s Diller has said Aereo is unlikely to survive if it does not win the case. And given the solicitor general’s surprisingly strong support for broadcasters, said media and telecommunications analyst David Kaut, the justices may lean heavily on the government’s position that Aereo operates much like a cable firm and should be subject to the same obligations.

“Ultimately,” Kaut said, “it may come down to a ‘it looks like duck and quacks like a duck’ decision.”

Cecilia Kang is a national technology reporter, writing about tech and Internet policies at the Federal Communications Commission and Federal Trade Commission and how regulations affect businesses and consumers.
Robert Barnes has been a Washington Post reporter and editor since 1987. He has covered the Supreme Court since November 2006.
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