By Peter Suciu
By Peter Suciu
FORTUNE -- On Tuesday, the United States Supreme Court will hear arguments in a case that could very well reshape the entire broadcast TV business. The major broadcasters -- led by ABC (DIS), CBS (CBS), Fox (FOX), and NBC (CMCSA) -- are challenging the legality of Aereo, a startup streaming service backed by IAC (IACI), chief Barry Diller.
Aereo has been signing up subscribers in markets around the country since it first launched in New York City in February 2012. Aereo utilizes antenna farms to "grab" local free over-the-air (OTA) broadcasts, which are recoded and sent out to subscribers who pay $8 a month to view and even record the content on a PC or smartphone.
Should Aereo win the right to retransmit the OTA signals, other operators could use similar technologies to also avoid paying the retransmission fees, and that, say some legal experts, could undermine the entire broadcast business model. The rumors of the death of broadcast TV could be greatly exaggerated however.
"When cases are in litigation, litigants often exaggerate the impacts a ruling will have on the affected industry. These claims seem like bluster to me," said Pamela Samuelson, professor of law at UC Berkeley School of Law. "If Aereo wins, the more likely scenario is that ABC et al go to Congress for a fix."
She added: "My prediction is that the court will split on the case, but Aereo will win on statutory interpretation and the court will say, If you don't like this result, tell it to Congress. Aereo has on its side that Microsoft and other tech companies think that many cloud services companies would be at risk if ABC's interpretation of the statute prevails."
However, the broadcasters may instead opt for what some have called the "nuclear option." Last summer, executives at Fox threatened to pull its prime-time content and move it to a cable offering, while last week CBS hinted it might also consider such a strategy. The question becomes whether broadcasters could really make the jump to cable.
"The broadcasters of course are saying that they would become cable providers, but they may also start a subscription-based service that would compete with Aereo," said Orly Lobel, professor of law at the University of San Diego.
While that would certainly hurt Aereo, it could in fact hurt the broadcasters more, as revenue from subscriptions would pale to that of what the broadcasters make from ads.
"The large majority of revenue comes from advertisement, not from subscription fees/retrans," Lobel added. "It's questionable whether they won't be able to continue with the same business model, along with the existence of such services like Aereo. The NFL and other sports content are claiming it could change the nature of live viewing and take away from the value of ads, but this is an argument that was made for the VCR, DVR and it hasn't proven to be true in reality."
For this reason the broadcasters might be better off accepting Aereo, as it could mean more eyeballs on those ads.
"One option for the broadcasters would be to work with Aereo so those viewers are counted by Nielsen, and in that way Aereo could become an additive for the broadcasters," said Colin Dixon, principal analyst with nScreenMedia, who added that the broadcasters do remain short-sighted of all new technology that has the potential to be a disrupter. "That is absolutely true. This is just another example of the broadcasters seeing their traditional models changing as they are under threat from different places. However, the broadcasters would be foolish to actually do anything."
The bigger worry, Dixon said, is other operators could try to do something along the lines to how Aereo currently operates as a way to get around paying for the local broadcast content. Though Aereo is a niche service, it could impact the negotiating position of cable and satellite operators in their regular showdowns with broadcasters over retransmission fees and other details.
"In the case of Aereo, even they'll tell you they have a very small segment of the market," Dixon told Fortune. "For that small percentage of people that don't pay for cable and can't get a broadcast signal it makes sense, but the broadcasters are worried where it goes from here."
In other words, an Aereo victory could open up a can of worms that the broadcasters don't want to deal with -- and it could be local stations that are hit first. An Aereo victory could leave local stations in the dark, or at least without the broadcast networks' content. Given the state of the local TV market Aereo could thus serve as a convenient "out" for the broadcasters.
"Local is shrinking, and revenue has been down year over year," said Joel Espelien, senior analyst for TV technologies at The Diffusion Group. "Right now the retransmission rights are all that is sustaining local, so it is clearly on the decline without any help from Aereo. Even O&O [owned and operated] stations might not be enough to keep CBS from jumping out of local."
Should the Supreme Court rule in favor of Aereo this week, viewers might not see any changes, at least not immediately. But in time, the classic "broadcast" channels may come to resemble their cable counterparts -- not that difficult to imagine given that all the networks already have numerous cable offerings and/or partners.
"In the long run, broadcasting will go away, and Aereo will go away with it," said James Grimmelmann, professor of law at the University of Maryland, Francis King Carey School of Law. "The FCC's incentive auctions are the writing on the wall: Broadcasting is a terrible use of spectrum compared with the other things we're now capable of doing with it.
"In the future, video will be delivered primarily point-to-point and on-demand -- with clever engineering work to prevent overload for programs with high simultaneous viewership, like the Super Bowl," Grimmelmann said. "The networks will evolve to look more like cable channels -- they're already all parts of diversified media companies. Local affiliates will do the corporate equivalent of retiring. The question is not whether, but when and how. The networks' threat, then, is that they might do something a little earlier than they otherwise would. It's hardly the end of the media world."
But it is a landmark moment that could place broadcast contracts -- such as those with professional sports leagues -- in review.
"As for the NFL and MLB, additional issues arise because the leagues are structured around the television contracts and revenue," added Lobel. "Owners give players and coaches multimillion dollar contracts based upon the TV deals currently in place. Publicly the NFL and MLB support the broadcasters going cable-only -- they said so in their brief -- but it would seem they would lose from such a shift."
If they lose, CBS and the other broadcasters likely already have three- or five-year plans in place. But what of Aereo? Is a victory even a good thing?
"They're trying get something for nothing. This could be a tragedy of the commons, as their business involves strip-mining the public commons while charging money for it, but it could ruin the commons for everyone and it goes away," Espelien said. "By winning, Aereo could absolutely kill its golden goose. The only reason its business exists is through the gray market, but by forcing the issue in the court it could kill free-to-air and kill its business in the process."
The major film studios think they've found a way to sell and deliver movies online. Will consumers buy it?
By Robert Levine, contributor
FORTUNE -- Consumers who recently purchased Warner Brothers' final Harry Potter film on DVD or Blu-ray found a surprise in the package: a digital copy of the movie in the new UltraViolet format. Although the name is not yet familiar, UltraViolet represents Hollywood's first step into the cloud MOREFeb 3, 2012 5:00 AM ET
In the never ending flux of content providers that are enabling their content on GoogleTV, the product lost a major network but signed a movie studio.
First the bad news: Fox took its content off of GoogleTV today, telling users that "This content is not compatible with your device". Fox was the only major network to leave its content on GoogleTV (GOOG). No more Simpsons or Glee!
There's still lots of content MORESeth Weintraub - Nov 10, 2010 10:37 PM ET
It appears that the networks are letting some content through to GoogleTV users.
Yesterday, GoogleTV users were greeted with messages that ABC, CBS and NBC would not work. This morning however, I had a look around and was able to watch an episode of 30 Rock on NBC as well as a few minutes of Talk (my threshold, not GoogleTV) and Medium on CBS. Disney-owned ABC and Hulu are still blocked, MORESeth Weintraub - Oct 22, 2010 9:26 AM ET
When the cable providers and the companies providing the shows fight over fees -- as Cablevision and News Corp currently are -- the viewers lose. But those who enjoy their business bare knuckled definitely win.
As the "Cablevision vs. News Corp." feud escalates, more than three million subscribers remain without Fox programming. Cablevision blames News Corp. for demanding an extortionate increase in retransmission fees; News Corp. argues Cablevision isn't negotiating MOREJP Mangalindan, Writer - Oct 18, 2010 1:26 PM ET
Every day, the Fortune staff spends hours poring over tech stories, posts, and reviews from all over the Web to keep tabs on the companies that matter. We've assembled the weekend's most newsworthy bits below.
In yet another situation of cable negotiations gone awry, News Corp. yanked Fox programming from Cablevision. "This is an unfortunate attempt to extort unreasonable and unfair fee increases from Cablevision and our customers," stated a Cablevision email MOREJP Mangalindan, Writer - Oct 18, 2010 6:30 AM ET
Rather than a "best of TV" subscription service, Apple will be streaming programs a la carte
[UPDATE: The event is actually scheduled for Sept. 1. See here.]
Fuzzy rumors about Steve Jobs' next move in the TV market have been swirling for the better part of a year, but the picture snapped into focus on Tuesday.
A report by Peter Burrows, a veteran BusinessWeek reporter now writing for Bloomberg Businessweek, lays out the MOREPhilip Elmer-DeWitt - Aug 24, 2010 6:28 PM ET
The video streaming service's new premium model lacks the chops to justify its monthly fees.
As a writer and hopeless Internet addict, I probably spend more time in front of my laptop than I'd like to admit, banging out articles, reading blogs, instant messaging co-workers and friends, and viewing media. Whereas the average American now spends an estimated 34 hours a week in front of the television, it's fair to say MOREJP Mangalindan, Writer - Jul 14, 2010 1:45 PM ET
News Corp. vs Cablevision. Cablevision vs. Disney. The list goes on and on. An updated tally of cable licensing deals gone horribly awry.
As the Cablevision and News Corp. feud continues, more than three million subscribers remain without Fox programming. Cablevision blames News Corp. for demanding an extortionate increase in retransmission fees; News Corp. argues Cablevision isn't negotiating in good faith. Regardless of which party is at fault, the cable MOREJP Mangalindan, Writer - Jun 3, 2010 11:41 AM ET
Fancy driving the A-Team van around San Francisco? There's a Google Map app for that.
Fox and Google teamed up to create a YouTube microsite application to get people excited about the upcoming A-Team movie. According to the (unofficial) Google Maps blog, Planet in Action was contracted along with Google engineers to build the application, which incidentally is quite fun.
Using the 3D renderings of cities like San Francisco and New York you MORESeth Weintraub - May 17, 2010 1:44 PM ET
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