Could an Internet Streaming Service Kill Broadcast Television?

By Pedro Celis

That’s what ABC, NBC, CBS, and FOX claim in their petition to the Supreme Court. The four major broadcasters are seeking an injunction against a service that streams broadcast television over the Internet. The service, called Aereo, charges users $8 a month to stream broadcast television to their computers, mobile devices, or TVs (via Roku or Apple TV). Users can watch programs live (with a 6–7 second buffering delay) or record up to 20 hours of programming to stream later. But neither Aereo nor its users pay any copyright licensing fees.

Aereo avoids paying fees by using thousands of small antennas in their data centers. When a user selects a program, one antenna tunes in to that station and either streams the content exclusively to that customer, or records the program in a hard drive space partitioned to that customer. And each of Aereo’s data centers streams only to customers that live within the range of the broadcast coverage it receives. According to Aereo, the company essentially just rents antennas and DVR space to its customers. But networks believe Aereo essentially rebroadcasts their programming without paying any licensing fees.

The major networks, along with some local television stations, are suing Aereo in federal court in the Southern District of New York. But while the litigation proceeds, Aereo will be free to continue providing services, unless the Supreme Court intervenes. The networks asked the district court to enjoin Aereo from providing its services. Yet despite finding that the broadcasters “demonstrated a likelihood that they would suffer irreparable harm,” the court denied the injunction, finding that they “were unlikely to prevail on the merits.” The Second Circuit upheld the district court’s decision and declined to rehear the case en banc. The Second Circuit reasoned Aereo was unlikely to prevail in light of the court’s earlier decision in Cartoon Network LP, LLLP v. CSC Holdings, Inc, (commonly known as Cablevision). In that case, the court held that a cable provider could offer its customers a remotely located DVR service without having to pay additional copyright fees. The cable provider paid broadcasters licensing fees for their content, but allowed its customers to record programs on off-site hard drives and view those recordings via their cable boxes. The court ruled that the cable providers did not have to pay to send the programs from its remote hard drives to customers because the company was merely transmitting copies of the programs created by particular customers to those same customers. Like Aereo, Cablevision assigned each customer hard drive space, and only recordings on that space were transmitted to the customer. But unlike Aereo, Cablevision still paid broadcasters licensing fees for the live content it offered its consumers. Because Aereo only transmits free broadcast television, it avoids paying any fees. In their petition, the networks argue that Aereo used Cablevision  as the blueprint for its business model.

Unless the Supreme Court grants the broadcaster’s petition, Aereo will continue to stream broadcast television for the foreseeable future. If the Supreme Court denies the petition, the broadcasters may have to petition the Supreme Court again after the lower court proceedings finish. Although the networks haven’t lost yet, the reasoning in the opinions by the district court and the Court of Appeals suggest that Aereo will prevail, at least in the Second Circuit. It would be extremely unusual for the Supreme Court to hear an appeal from the denial of a preliminary injunction, but in this case there is a nascent circuit split. Thanks to decisions by district courts in California and Washington D.C., an Aereo copycat is enjoined from providing services outside the Second Circuit. Because this case involves only legal questions and has significant financial implications, the Supreme Court might make an exception and hear the case.

Aereo’s operations are already having financial effects on broadcasters. According to their Supreme Court petition, Time Warner Cable threatened to develop its own Aereo-like system while negotiating for lower fees, and Dish Networks has looked into buying Aereo. If they lose the Aereo case, the networks may try to end free broadcast TV to preserve some of their licensing fees. Broadcasters would be able to earn fees on advertising even if they lost their licensing fees, but Aereo may force broadcasters into a new business model. It’s hard to know what the new business model would look like, but Fox is threatening to use a paywall to charge customers for broadcast TV.  Alternatively, networks could end broadcast TV altogether and attempt to preserve advertising revenue by redirecting viewers to free online content. Regardless, unless the Supreme Court acts, broadcast TV as we know it may be over.