In one of the biggest cases of the year for tech, a young start-up is taking on TV broadcasters in the Supreme Court. Depending on the outcome, the battle could either solidify TV networks' grip over their content or throw the doors open to a future where consumers will be able to get traditional, over-the-air programming over the Internet instead. Either way, the case promises to have huge implications for the way we watch TV. So here's a quick primer to get up to speed.
What is Aereo?
Based in New York City, Aereo was founded by chief executive Chet Kanojia in 2012. The company uses tiny antennas to grab TV signals out of the air. Those antennas feed the broadcast programming to a DVR, which then plays the programming back to you on your PC, tablet or phone on demand. The technology is cloud-based, meaning it works a lot like Dropbox or Google Drive: The TV shows are stored online, then served to you over the Internet. The service is available in roughly a dozen cities.
Why is it so controversial?
At issue is whether Aereo should have to pay money to TV broadcasters for their content. Right now, Aereo pays nothing — it gets the TV signals for free just as you or I might with our own televisions. But unlike us, Aereo gets to make money off of relaying those transmissions over the Web. Broadcasters have challenged Aereo on that around the country, accusing it in court of stealing their work and infringing their copyright. They'd much prefer Aereo do what cable companies do, which is to pay "retransmission" fees for the right to carry broadcast content on cable.
Retransmission fees? You've lost me.
Retrans is a huge issue in media right now. Cable companies complain they're getting squeezed by content networks over rising fees. Content networks say they're simply getting fair compensation for programming that the cable companies need in order to keep their offerings compelling. Federal regulators are starting to look more closely at this arrangement, though. In 2005, the agency said, the cable industry paid broadcasters $25 million in retrans fees. In 2012, that figure was close to $2.5 billion — "an 8,600-percent increase in seven years," according to Tom Wheeler, the chairman of the Federal Communications Commission.
Okay. So what's really at stake here?
The broadcast industry covers a lot of its expenses with retransmission fees. In fact, what you might consider television's big, traditional revenue source — advertising — accounts for only half of CBS' income. If Aereo is allowed to avoid paying retrans fees, and more people start watching TV on Aereo instead of their cable subscriptions, that's money the broadcasters are losing out on.
What's Aereo's response to all this?
Aereo believes its technology is simply an extension of ordinary DVR and VCR technology. The Supreme Court has had a longstanding precedent saying it's okay for consumers to record TV shows for later; that decision came down in a 30-year-old case called Betamax. So long as people aren't redistributing their copies of the show, they aren't committing copyright infringement. Aereo's system, the company argues, works much the same way. Each one of its tiny antennas are dedicated to a single subscriber, so what one person records can't be redistributed to another account. In other words, the shows Aereo records to DVR aren't stored in one giant repository for anyone to pick and choose from.
A later case called Cablevision made it legal for companies to use cloud-based DVR technology. That case was decided at the federal appeals level, but nevertheless had big implications for broadcasting.
Is anyone speaking up for Aereo?
Sure. Some in the cable industry have filed supporting briefs to the Supreme Court, as well as Dish Network and consumer advocates including the Electronic Frontier Foundation, Public Knowledge and the Consumer Electronics Association.
But lining up against Aereo are an array of others, such as the Justice Department, the recording industry, the NFL, labor unions and content companies such as Viacom and Warner Bros.
Suppose Aereo wins at the Supreme Court. Then what?
Aereo would still need to prove that it's a viable business. With more and more people turning to Internet video, the commercial odds appear to be in its favor. That could change, however, if the broadcasters themselves start getting into Internet-enabled, or "over-the-top" TV. CBS has said that it would be open to exploring over-the-top video if Aereo wins. On the one hand, that's a pretty unambiguous threat to squeeze Aereo out of the market; on the other, if CBS does go that route, Aereo will have successfully shaken up an entire industry and forced it to compete.