Outside the Beltway

Aereo And Broadcast Networks Battle Over The Future Of Television

Tomorrow, the Supreme Court will hear argument in a case that will likely be this era's version of the Betamax case.

Doug Mataconis · Monday, April 21, 2014 · 19 comments

Tomorrow morning, the Supreme Court will hear oral argument in a case that promises to have a huge impact on the television industry and how Americans are able to view television programming, specifically programming that is offered over the air for free. On one side of the case we have each of the four major television broadcast networks, Fox, CBS, ABC, and NBC. On the side is Aereo, Inc., a company that allows people to watch time-shifted television broadcasting online by intercepting the over-the-air signals. Ironically, Aereo’s financial backer is Barry Diller, the man responsible for the founding of Fox Broadcasting and the USA cable network. The television networks and those arguing on their behalf contend that Aereo’s technology is essentially piracy and that the company is purporting to make money by stealing content. Aereo argues that the fact that the content is available over the air means that it’s available for anyone’s use. The networks, meanwhile, have threatened to end over-the-air broadcasting altogether if Aereo is not shut down, although it’s hard to tell just how serious a threat that actually is.

Whatever the Court decides after tomorrow’s hearing, though, it will shape the television and online entertainment industries for years to come

Since 2012, Chet Kanojia has been building a business, backed by the media mogul Barry Diller, with ambitions to join that cohort. His start-up, Aereo, uses tiny remote antennas to capture broadcast TV signals and store them in the cloud, where consumers can watch them on a device of their choosing — no cable box, no cable bundle and most important, no expensive cable bill.

Instead, consumers pay $8 to $12 a month to watch almost live — there is a delay of a few seconds — and recorded programs from the major broadcast networks and public television. It’s a threat to both the lucrative cable bundle and the networks that receive rich fees for being part of that cable package. Aereo would give so-called cord cutters the means to assemble a more affordable package of online streaming options like Amazon Prime, Apple TV or Netflix, and still spend a Sunday afternoon watching the N.F.L. and “60 Minutes” immediately afterward. As antenna-driven viewing has dropped and digital consumption has surged, Aereo is a way to put old wine in a new bottle.

It is a crafty workaround to existing regulations, which rides on the Cablevision court ruling in 2008, which held that consumers had the right, through their cable boxes, to record programming. But then, cable companies pay broadcasters billions in so-called retransmission fees while Aereo pays them exactly nothing. (And the case is not just about Aereo — it opens the gate for cable companies or others to build a similar service and skip the billions in payments to the networks.)

The broadcast networks have a technical legal term for this particular innovation — theft — and they have been trying to shut down Aereo from the start.

(…)

“This is the Sony Betamax of this century,” Mr. Kanojia said on the phone last week, citing a case that is likely to come up a lot on Tuesday.

The entertainment industry hated the Betamax decision and said it would lead to ruin — it didn’t — and the networks are just as opposed to a federal appeals court ruling last year to let what they see as Aereo’s chronic, classic infringement continue. In the broadcasters’ brief asking the Supreme Court to reverse that decision, Aereo was described as “an entire business model premised on massive and unauthorized commercial exploitation of copyrighted works.”

As a matter of copyright law, television programs can be shown only by those who have that right or a license to do so. That’s why bars and hotels must pay a fee for the programming they show on their televisions. And broadcasters say that Aereo is similarly a middleman that should pay for what they consider a public performance.

Aereo was conceived in the belief that because the consumer is the one who is pushing the button to watch live or recorded programming, that transaction is one-to-one and not a public performance. That the DVR is in the cloud and the antenna is remote is, in Aereo’s view, beside the point. In its arguments, Aereo embraces both the past (consumers have been using VCRs and then DVRs to record programming for decades) and the future (everything from Dropbox to Google Drive lets the consumer store what he wishes without any liability on the provider’s part).

Speaking on the phone on Thursday, Mr. Kanojia said he liked his facts but had no idea how things would play out.

“It’s a bit of a coin flip,” he said.

A lot of people will be watching to see how that coin lands, less because of what it means for Aereo specifically than what it portends for the broader media ecosystem. A decision is expected this summer.

Lyle Denniston previews the legal arguments in the case:

The broadcasters’ merits brief has two central themes:  an intense focus on the actual text of the Copyright Act’s “transmit” clause, and a broad copyright policy argument against allowing clever inventors to devise ever-new ways to pirate the protected works of creative entities like TV broadcasters.

Throughout the brief, the TV industry entities sought to keep the Court’s attention on what Aereo does with a system of its own creation:  it picks up programs off the air, and then re-transmits them, for a fee that seriously undercuts their competitors, to a public that can simultaneously watch the very same program — like the Super Bowl, for example — without paying a cent for the opportunity.  “That is a textbook public performance under the transmit clause,” the document asserted.

When Congress wrote the Copyright Act revisions in 1976, mainly to overturn Supreme Court decisions that gave broad exemptions to copyright protection, the industry brief said, it did so in a “technology-neutral” way, to cover modes of transmission that existed at the time, as well as any that might be invented in the future.

If, however, the Court might find itself looking to the role of the ultimate consumer, the  broadcasters’ brief lumps Aereo’s paying customers into a single whole that represents “the public” — precisely the mass audience that the broadcasters say Congress had in mind in 1976 when it curbed the opportunity to create new technologies to avoid paying royalties to the originators of copyrighted TV and other creations.

The federal government has entered the case as an amicus supporting the broadcasters’ plea to overturn the Second Circuit ruling.  However, it sought to add a note of caution, telling the Justices that they should craft a ruling that would not “call into question the legitimacy of innovative technologies that allow consumers to use the Internet to store, hear, and view their own lawfully acquired copies of copyrighted works.”

The key phrase in that suggestion, though, is “lawfully acquired.”  The government brief clearly sided with the broadcasters in condemning the Aereo system, arguing that, with the pervasive control that the company has over every facet of its system, it is directly infringing on copyrighted TV programs.  Aereo, it noted, “both owns and actively controls the individual antennas, centralized servers, and software that operate together to receive broadcast signals and transmit copyrighted content to the public.”

It does not make a difference, the government document argued, that individual customers of Aereo decide what they want to watch.  It is the “commercial actor” who serves those customers, with a system of its own devising, that counts the most for purposes of copyright law, the brief asserted.

On both the issue of what “performance” means, and on what transmission to “the public” means, according to the government, Aereo loses.

The cautionary note that the government put into its brief, it indicated, was designed to assure that the decision in this case does not “threaten the legality of cloud computing” — that is, the recently developed technology that gives digital consumers new ways to play back copies that they have obtained legally in the first place.  Contrasting that service with Aereo’s, the government argued that Aereo is illegally obtaining access to the copyrighted works in the first instance.

Aereo, throughout the briefing on this case, has regularly added in a reminder that the broadcast companies are the very special beneficiaries of the right to use the hugely valuable public broadcast spectrum, and that the price they must be willing to pay for that is to keep their programs available free.  Its brief on the merits seeks to add new emphasis to that point, presumably to try to show that these companies are hardly in a distressed condition, and to subtly hint that it takes some temerity for them to try to keep consumers from getting wider access to those programs at lower prices than they pay to cable TV companies now.

Very early in the new brief, Aereo commented upon the broadcasters “enforceable public obligations,” including the obligation to make even copyrighted programs that “will be made available to the entire public within range of [the broadcasters’] signals.”

That obligation has been long-standing, Aereo noted, but what has changed is that consumers regularly have been gaining new ways of getting access to those programs.  The service now provided by Aereo, it suggested, is merely another innovation in that history.  The difference with its service is that consumers no longer have to have receiving and recording equipment in their homes, because the shows they want will be stored on “the Internet ‘cloud.'”

What Aereo is doing, the brief added, is capitalizing on “widespread access to high-speed Internet connections.”

On the surface, it really doesn’t seem to me that Aereo has a very sympathetic case. Yes, the signals that they are intercepting for distribution online are there for anyone to “capture.” However, there’s a rather obvious difference between someone who has an antenna on their roof that captures the digital signals that the network’s affiliates broadcast so they can watch them on their television and Aereo taking those same signals, repackaging them into an online stream and charging users a subscription fee to access these signals in manners that they otherwise would not be able to do.  The first is using the signals for what they were intended, the second most clearly is not. Unlike the Betamax case, which many of Aereo’s supporters cite in support of their arguments, Aereo is not merely giving television viewers an additional tool they can use to record signals coming into their home. Instead what they are doing here is not all that dissimilar to the original Napster service, which allowed people to “share” their music collections with others in a manner that allowed people to obtain personal copies of music that they had not purchased. That version of the Napster service was, of course, eventually shut down after the music industry succeeded in obtaining court orders finding that the service was, in effect, piracy. The movie industry has pursued a similar strategy against sites that have allowed people to download digital copies of movies via services such as BitTorrent. In the end, there doesn’t seem to me to be much of a distinction between what Aereo is doing here and what Napster and the movie pirates did.

The consensus opinion from the legal analysts I’ve read as this case has made its way through the Federal Courts seems to be that the Supreme Court is unlikely to rule in Aereo’s favor, at least not to the extent of saying that the company is free to make money off of content that it isn’t paying for. Not only would such an outcome not make any logical sense for the reasons I note above, but it appears that the broadcasters have a fairly strong case under the Copyright Act for their claim that Aereo’s violates their rights under that law by not compensating the broadcasters and their affiliates for the content that it sells to its customers. If there is a ruling in Aereo’s favor, it is likely to be a fairly limited one that puts so many constraints on how Aereo may use the content it intercepts that it would make their business model rather impractical. In any case, we’ll get at least some indication of which way the Court is leaning at tomorrow’s oral argument. No doubt the Justices are already well aware that how they decide this case is going to have a huge impact on how Americans are able to access their entertainment, and whether the current business model that the broadcasters and cable companies are operating under can survive.