Aereo Actually Has A Shot At Beating The Broadcast Networks

If you aren’t paying attention to the unfolding Aereo case, you should be. It will have industry-changing consequences — if not now, in the not-so-distant future. Why? For those unfamiliar, Aereo is a New York City-based startup that, at a rate of $12 a month, promises to stream over 20 channels of local, broadcast television to consumers in the New York area.

As to how this works? Aereo essentially uses arrays of tiny TV antennas to capture broadcasts over the public airwaves (most networks have been forced by standards to update to high-def) and then transmits the signal to customers, who can rent out their own individual (tiny!) antennas. Of course, that signal is limited, as users are only able to stream one broadcast channel at a time. But, that signal comes streaming over the Web — straight to you — on any of your web-enabled devices.

Of course, as exciting as miniature TV antennas in the cloud may sound, the idea didn’t sit well with the major broadcast networks. In theory, Aereo raised $20 million pre-launch from IAC, Barry Diller and others because it expected legal push-back. Last week, the broadcast networks met expectations, filing two lawsuits and an injunction meant to not only prevent Aereo from launching, but also to require it to pay damages for violating the Copyright Act. The broadcasters filing the lawsuit include pretty much every major broadcast TV network one would care to mention. (You can find the lawsuit on Scribd here.)

In a somewhat similar approach to Slingbox, Aereo assumes it can get around legal barriers because it’s just tuning into live TV, not re-broadcasting it without permission (which would be summarily illegal), and is licensing one TV antenna per-person, to be streamed one broadcast channel at a time. Not on-demand content for mass consumption, which would be a no-no in this case. So, upon news of the lawsuits, Aereo promptly responded with a denial, saying that the broadcasters lawsuits did not “have any merit,” essentially the equivalent of … “thank you very much, we’ll see you in court.”

After reporting Aereo’s response to the lawsuits, we received a number of tweets basically saying “of course they’re going to get sued, what were they thinking?” While it may seem like a fool’s errand, Aereo is not the first startup to go down this road, nor will they be the last. Many of its predecessors have been sued out of existence by those very same broadcasters. But the stakes are high enough to be worth it, and Aereo is closer than those that have come before it to a model that could win in court.

When you get right down to it, the airwaves that television broadcasters use to transmit are public property. To oversimplify, the government allowed private radio to broadcast over our airwaves to serve “the public convenience and necessity,” according to the The Radio Act of 1927. That right was given (not charged) to television broadcasters in licenses as part of the Communications Act of 1934. So it should be OUR right, should it not? Not exactly.

Things have gotten more complicated since, but fast forward to today, and cable networks are requiring millions of dollars to have their broadcasts transmitted. Naturally, the major TV broadcasters want some of the pie too, and have been demanding retransmission fees be paid by those cable, satellite, and telecom providers — and winning. As Daniel Frankel of paidContent has pointed out, these retransmission fees have become a big part of network broadcasters’ bottom lines.

Many of the cable networks are (in the big picture) hanging on by a thread, and so companies like Aereo represent a major threat to these bottom lines, which is why they fight them tooth-and-nail based on the old retransmission without consent argument. What’s more, being the holders of the government’s (qua public’s) license to public airwaves, both local and national outlets/networks have a big voice on Capitol Hill. They are a public service, they are massive, and so the government wants nothing to do with someone holding them up at gunpoint.

In relation to Aereo, one could consider the example of TiVo, which records live television for later viewing — or, tweak the language, for later re-broadcast. TiVo had to deal with legal issues when it first came on the scene, and then was of course eclipsed once cable companies were able to offer their own DVRs.

But what about the Internet? What happens now that TV content is starting to be captured on cable network cloud systems that allow viewers to capture, and rebroadcast live TV through their DVRs? Interestingly, Cablevision was able to defend its remote DVR network in court (against, who else? Broadcasters!) by saying that it was the same thing consumers had been doing for years themselves (taping live television, recording the radio) — just moved to the cloud.

If they had been recording and archiving every TV program out there, and then serving them on-demand, well yes that would have been illegal. Viewers had to initiate everything on their own, they had to seek out the content, choose to record and view it. So, the court ruled that Cablevision did not own the content on its servers, and was not infringing against the Copyright Act.

What’s being overlooked, however, is a recent landmark court ruling that has people chattering up a storm in Australia. It has direct application to Aereo’s case, and although (to be clear) the company hasn’t said so, I wouldn’t be surprised if this had in some way (in combination with Cablevision’s victory in court) been an inspiration for Aereo.

At the beginning of the month, Optus (the second largest telecom in Australia) won a landmark case in federal court allowing it to bypass the exclusive rights holders of broadcast content to essentially record TV online or on mobile through a cloud network and watch it back, just minutes after airing on live TV. Whoa.

This is especially relevant given Ruslan’s post on Sunday about how sports programming has been the last to push onto the Web in streaming form. The group disputing Optus’ cloud network was none other than Telstra, the Australian telecom company which had won exclusive rights to air the content of the Australian Football League (AFL) and National Rugby League (NRL).

That might not sound big to American viewers, but Aussies like these sports more than a little and understand just how lucrative those contracts were supposed to be for Telstra. And to add insult to injury, the AFL, NRL, and Telstra were ordered to pay Optus’ court fees.

Again, at the crux of the judge’s ruling on this was that he saw no essential difference in what Optus was doing with what people everywhere do to record their favorite shows, news, or games with their own personal equipment, like DVRs.

Of course, there will be appeals, and the court had not decided on the legality of Optus livestreaming that TV content to mobile devices — on whether or not that constituted a violation of copyright laws. Likely, this decision will drag on in appeals for the foreseeable future. Just as Cablevision’s case did. But, the implications could be seen clearly in the headlines bouncing around the Web, with some saying the ruling completely “changed the face of TV and Internet broadcasting.”

Well, in the Land Down Under at least.

The point is that these are examples (Cablevision/Optus) of two distinct, federal judicial systems finding no real significance to where digital recording happens, in the cloud, in a box, on a table, or from beneath the sea. As long as only one copy of the content being recorded is made, and it is only viewed by the person licensing that box (or in the case of Aereo, that pair of antenna), and thus not redistributed outside of that home, well … you see where I’m going.

There is, of course, no doubt that the broadcast networks aren’t following the same logic here, and their gold-plated legal teams will no doubt raise hell for Aereo. But, the fact of the matter is that Aereo seems to have a real shot to win this case, which could have a very real, very significant effect on digital TV broadcasting on the Web in this country.

That being said, there’s a very good chance that, even if Aereo wins the initial ruling, it’ll get so bogged down in appeals and legal issues over the next 1, 3, maybe 5 years that they never get a fair shot at building an empire. How far can $20 million go? Farther when you have Barry Diller on your team, but maybe not far enough? However, a victory would open the door, and give consumers of a shaky industry hanging by threads the real kick they need to cut the cord once and for good.

Why? Because you’re a human being, and you’re mad as hell and you’re not gonna take it anymore!