Aereo, broadcasters await Supreme Court ruling

Chet Kanojia is waiting for the Supreme Court to tell him whether he has a business or needs to have a going-out-of-business sale.

Kanojia is the founder and chief executive of Aereo, a start-up company that records and streams the signals of local broadcasters over the Internet. Subscribers pick up shows via remotely stored antennas, and then watch them on their tablets, computers or televisions.

Broadcasters, led by CBS and Fox, say Aereo violates copyright laws and have asked the nation’s highest court to shut it down. A ruling could arrive as early as Thursday or next week at the latest.

Launched in 2012 and backed by media heavyweights Barry Diller and Gordie Crawford, Aereo costs $8 to $12 a month, and that fee includes access to a cloud-based digital video recorder that can hold up to 60 hours of content. It is available in 11 cities including New York, Boston and Dallas. Aereo has not disclosed its customer count.

Aereo says its service is nothing more than an advancement on the old rooftop antenna and perfectly legal. But the broadcasters have the Obama administration on their side. It told the Supreme Court in April that Aereo “must obtain license to perform the copyrighted content on which its business relies.”

If the court sides with broadcasters, Aereo probably will go away.

“It may mean the end of our company,” Kanojia said just before the oral arguments two months ago.

But if Aereo wins it would be able to attract more investors and launch its service around the country including in California. Media analyst Rich Greenfield of BTIG Research thinks that would lead to more consumers cutting the cord to their pay-TV provider in favor of Aereo’s low-cost service.

That would be bad news for broadcasters, and the cable and satellite providers as well.

“More markets and more marketing muscle will mean an increase in cord cutting across the U.S.,” Greenfield wrote in a report this week. If that happens, he added, it could force cable and satellite providers to offer more low-cost video packages to retain subscribers.

Broadcasters fear that if people drop their pay service in favor of Aereo, it would cost the networks money. Pay-TV distributors pay broadcasters retransmission consent fees to carry their signals. According to industry consulting firm SNL Kagan, those fees will reach $4 billion this year and close to $8 billion in 2019.

If the high court sides with Aereo, Greenfield said, “the only true winner will be the consumer.”

Others looking to stop Aereo in its tracks include the National Football League, which wants to protect the billions of dollars it gets in rights fees from CBS, Fox, NBC and ESPN.

Should the Supreme Court side with Aereo, broadcasters could move the fight out of the courts to Capitol Hill and the Federal Communications Commission.

In Congress, broadcasters would probably try to make the case that copyright law needs to be rewritten to include new technologies such as Aereo, otherwise the future of local television could be in peril.

Another route for broadcasters would be to convince the FCC that Aereo needs to be classified as a multichannel video programming distributor. Such a classification would mean that Aereo would have to comply with the same retransmission consent rules that apply to Comcast, DirecTV and other traditional pay-TV distributors.

CBS Chief Executive Leslie Moonves and 21st Century Fox President Chase Cary have threatened to turn their networks into cable channels if Aereo were to survive legal challenges. CBS also has indicated it could launch its own version of Aereo.

But those scenarios wouldn’t happen overnight. Going cable is the “nuclear option,” according to Bernstein Research Senior Analyst Todd Juenger.

Juenger argued in a recent report that Aereo could help broadcasters in the long run. If the typical Aereo customer is someone who otherwise wouldn’t subscribe to pay-TV, the service could increase their ratings.

“Certainly any investor who argues that one of the major threats to traditional TV is the migration of ad dollars to digital platforms should be rooting for Aereo to help the broadcast networks participate with those digital audiences,” Juenger wrote. “If Aereo is blessed by the court, the short-term reaction will be negative, but we think the actual financial impact to the networks is more likely to be positive than negative.”