Aereo Lawfulness to be Determined by Supreme Court

By Gary Kim January 13, 2014

The U.S. Supreme Court has agreed to hear a case that will decide the legality of services such as Aereo, which collect broadcast TV signals on behalf of consumers and allow those customers to view that programming over the Internet.

Immediately at stake is the lawfulness of such services, the key issue being copyright.

Longer term, there could be other ramifications, though. Some over the air broadcasters have said they would stop broadcasting over the air and convert to distributor-delivered programming services, like other ad-supported programming networks.

Oddly enough, that would destroy Aereo’s business model as well.

Some might argue that what is at stake is much more than the future of Aereo, or even the business models that make sense for “local broadcasters.”

It would be reasonable to assume that if Aereo and similar services are declared lawful, that satellite, cable and telco TV service providers would consider similar approaches to deliver over the air TV signals on their networks.

That would ultimately slice about $4 billion a year from broadcaster revenue streams, and much more in the future. In fact, despite the historic reliance on advertising revenues, retransmission agreements have become a much more important source of broadcaster revenue.

RBC Capital Markets analyst David Bank estimates CBS negotiated a per-subscriber fee from Time Warner Cable of around $2 per subscriber by 2018, up from around $1. If that precedent holds when CBS renegotiates carriage agreements with other distributors, CBS would gain about $7 in share value.

At the moment, non-advertising revenues, primarily including retransmission fees, have grown to represent 43 percent of CBS revenue.

The flip side of the revenue equation is that only about 10 million U.S. homes rely on broadcast TV reception to get their TV. Of the 114 million U.S. TV homes, 103 million pay for cable, telco or satellite TV.

In an Internet age, businesses, entrepreneurs, lawmakers and jurists now must contend with technology and business possibilities that far outstrip the intent of 1930s laws about “broadcasting.”

Local TV broadcasters are created as local monopolies, even when technology long has made national markets feasible. That’s how most programming networks now work. Aereo’s business challenge might be among the first to pose key questions about older patterns of regulation and business possibility.

“Why?” and “so what?” might be key questions the Supreme Court might have to consider. All media has to adapt in new eras. Protecting older modes of content creation, distribution and consumption might not make sense, even if the immediate question is the application of copyright law.

Some local broadcasters might decide they are better off becoming “cable” program networks. Revenue streams might well have to be rethought, if retransmission revenue dwindles. A few local broadcasters could become the new equivalent of “superstations” like TBS pioneered, available everywhere in the United States, and not just in one local market.

The point is that new generations of media historically have reshaped revenue shares in the media business.  Broadcast TV might be at one such inflection point. 

Edited by Cassandra Tucker

Contributing Editor

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