The United States Supreme Court Chief Justice John Roberts on 22nd April has attacked Aereo, the controversial video streaming company, as the firm squared off with the US’s biggest broadcasters in front of the court.
In a case that could end in a radical shakeup of the future of TV and cloud computing, Roberts and others questioned why Aereo should not pay fees to broadcasters, as its cable company rivals do. Roberts said its technological model was “solely based on circumventing legal prohibitions you don’t want to comply with.”
But the justices seemed concerned about how any ruling could affect cloud computing in general – a concern many of Aereo’s supporters have expressed. Justice Stephen Breyer said the case threw up some “serious problems” and he was “nervous” about making a ruling that would impact how people store their legally obtained media in the cloud.
Aereo, which launched its service on a limited basis, currently allows New York City residents to watch broadcast (but not cable) TV shows on their iPhones, iPads and web browsers, and to tape those shows and play them back later. The company has been sued for copyright infringement by all the major networks and local New York TV stations, including Disney's (DIS) ABC, NBC Universal (CMCSA), CBS (CBS), Fox (NWS), Telemundo and Univision. The plaintiffs claim that Aereo is engaged in the unauthorized, public retransmission of their over-the-air programming, and they seek a preliminary injunction to shut it down.
What is Aereo
Aereo basically uses small, cloud-based antennas to grab over-the-air television broadcast, which it then makes accessible via the Internet.
Until now, watching free, over-the-air television required a giant rooftop antenna or awkward rabbit ears. Aereo changed all that. Now, your TV antenna is unbelievably small. So small it can fit on the tip of your finger. But it still gets awesome HD reception. Your antenna is in the cloud. With lots of other antennas, all connected to DVRs and super-fast Internet connections.
For $8 a month, users can watch non-cable TV, live on any device, or DVR those shows for later viewing. So far, the service is only available in 11 U.S. cities.
The company rents space in a warehouse in Brooklyn and fills it with custom-made, wine cooler-sized computer hardware jammed with vertically aligned blades. Projecting from the blades are thousands of thumbnail-sized television antennas. These are tiny, modern-day versions of the old bunny ears that people have used to watch over-the-air television since time immemorial.
Aereo then effectively rents each customer one of these antennas and all the other off-site hardware needed to operate her own individualized remote DVR using her Apple (AAPL) iPhone or iPad. As with most DVRs, the customer can choose to watch live (with a pause-function available) or watch later. The signal reaches the customer's device over the Internet.
It works eerily well, though at the moment it's only up and running in the New York City DMA, or "designated market area." That's a funny story, too. Basically, Aereo uses FCC maps to determine the maximum perimeter around the New York City metropolitan area from which someone with a typical residential TV antenna on her roof would be able to pick up over-the-air signals from New York City. If the customer ventures outside that range, her phone's GPS or wi-fi systems will eventually detect that fact, and Aereo will dutifully cut off reception. Since it's ordinarily not possible to receive New York's over-the-air signals with an antenna beyond a certain distance, Aereo imposes analogous, if artificial, limitations on its users.
Aereo falls in legal hurdles
Aereo, a two-year-old startup backed by media mogul Barry Diller, uses a large number of antennae one for each customer to capture the output of network TV channels and re-transmits them over the internet to customers’ devices. Those customers, who can also store shows on a cloud-based DVR, pay $8-12 per month, a fraction of the average cable TV bill, for the service. Aereo pays nothing to the broadcaster.
Media companies including ABC, CBS, Fox and PBS, accuse Aereo of blatant theft. Their arguments have been backed by the White House and sports groups including the National Football League, which threatened to move the Super Bowl to pay TV channels if the broadcasters lose the case.
As Fox co-chief operating officer James Murdoch, Diller, Aereo chief executive Chet Kanojia and others looked on, the justices asked why Aereo shouldn’t be considered the equivalent of a cable company, which would give them the right to transmit TV programming – but also require them to pay for it.
Cable and satellite companies pay networks billions for the right to broadcast their programming. Brian Wieser, a senior research analyst at Pivotal Research, said that by 2020 CBS’s retransmission fees will top $2bn, more than half the company’s cash flow.
Aereo argues consumers have a “fundamental right to watch over-the-air broadcast television via an individual antenna, and they have had the right to record copies for their personal use since the Supreme Court Sony Betamax decision in 1984.”
Broadcasters also fought the mass introduction of Betamax tapes, which was the first technology to allow people to easily make home recordings of TV shows.
That landmark case, which ushered in a revolution in television consumption, centered around “private” versus “public” performances of TV shows. Watching a video at home or a show on a DVR constitutes a private performance and is not covered by the Copyright Act. A public performance of a TV show –which is what cable companies do and what broadcasters claim Aereo is doing too – would violate the Copyright Act.
Aereo argues that each individual antenna provides a private performance and that they are being penalised simply because those consumers are using modern technology. Their argument, backed by groups including the Electronic Frontier Foundation, Public Knowledge and others, also claims a ruling against them could have a detrimental impact on the cloud computing industry, and prevent people storing their lawfully purchased media online.
The case has reached the Supreme Court after a hard-fought state-by-state battle that ended in mixed verdicts at the lower levels of the judicial system. Last year, two federal courts agreed with Aereo. In February, a federal judge in Utah sided with the broadcasters.
Aereo’s victories relied on a landmark 2008 ruling in a case that pitted Cablevision against 20th Century Fox and others. The fight came after Cablevision set up a “remote DVR” for customers allowing them to store their TV shows in the cloud. The media firms sued, claiming copyright infringement, and lost. Ironically, Cablevision is now backing Fox and friends to fight Aereo – to a degree.
Cablevision argues Aereo is “functionally identical to a cable system” and should pay broadcasters for the right to retransmit their over-the-air signals. But Cablevision warns that broadcasters have overreached in their arguments about their copyright protections in a way that could “imperil nearly any cloud technology that enables remote storage and playback”.
American Cable Association supports Aereo
The American Cable Association (ACA) has become the latest trade body to come out in support of Internet TV streaming service Aereo in the forthcoming copyright action.
The ACA which represents some 850 smaller and medium-sized, independent cable companies has filed an amicus (friend of court) brief urging the high court to uphold the legality of Aereo’s technology as safely fitting within the tradition of maintaining the public’s ability to access freely available local broadcast TV signals, and reject their creative use of copyright claims to protect business models and erect pay walls.
In its brief, ACA asserted that the goal of the lawsuit is to suppress public access to free over-the-air television on the calculation that the copyright owners may extract more profit from broadcasters by relying less on advertising revenue and more on retransmission consent fees. Broadcasters and copyright owners, who until now have no right to prevent anyone from tuning in, want the right to veto any new method of receiving free broadcasts that go beyond an antenna in the home. Emphasising that the copyright owner has no right to control who may join the audience, ACA asked the Court to leave the airwaves as freely accessible to local viewers via over-the-air broadcasts as they have always been.
The outcome of the case is an important business matter for the independent cable community, ACA added, because it could have a substantial impact on the ability of ACA’s members to compete effectively with larger cable providers by partnering with third parties that develop technologies beyond ACA members’ own in-house capabilities. Aereo’s technology is particularly compelling when it enables members of the public to use broadband Internet access to join the lawful audience of free, over-the-air broadcasts using the public’s airwaves.
Fundamentally, ACA stressed that the freedom to receive a performance must not be sacrificed to protect existing market positions. Further, that there is no basis for treating Aereo as a cable service provider. Aereo is not competing as a cable operator, nor will cable subscribers confuse Aereo with a cable operator.