Aereo TV Fights Against Paying Retransmission Fees

Aereo, the online television service that streams broadcast TV to your phone, is before the Supreme Court fighting for survival. At risk are broadcast retransmission fees, which Aereo simply does not pay. Broadcasters want that money.

Aereo works by charging customers a monthly fee to “rent” a mini-antenna that picks up the existing broadcast airwaves, and converting them to play on a mobile device. The key problem is that when cable or satellite TV want to show broadcast television (like your local channels) they have to pay retransmission fees to the broadcast companies. While not the mainstay of broadcast revenues, they are pretty significant, amounting to over $3 billion in 2013. According to the plaintiffs in this case, the broadcast companies, Aereo’s business model is built on avoiding these fees.

This is a question of copyright law regarding public performances, which include retransmission to the public. Aereo TV’s argument is essentially that (1) their antenna is no different than the “bunny ears” antennas individuals use anyway; and (2) that streaming information through their servers is no different than cloud computing in that you can buy a copyrighted song on iTunes, and then stream it to your phone via Google Drive, for example. Either way, it’s not a public performance, just equipment, so Aereo does not have to pay transmission fees.

The Justices Seem Skeptical

So far, the justices haven’t been convinced by the first argument. Justice Sotomayor said, “It’s not logical to me that you can make these millions of copies and essentially sell them to the public.” Justice Ginsburg pointed out that Aereo TV was “the only player so far that doesn’t pay any royalties at any stage.” This case actually arrives to the Supreme Court via appeal from a U.S. Court of Appeals for the Second Circuit decision which denied the broadcasters request for a preliminary injunction. While the case ostensibly favored Aereo, Judge Denny Chin’s dissent described Aereo as “a Rube Goldberg-like contrivance, over-engineered in an effort to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law.”

However, to the second point, everyone seemed very cautious. While all the justices seem very skeptical of Aereo’s business model, and Justice Breyer even said he was prepared to rule against the company, they are all equally keen to make a legal distinction between Aereo and cloud computing. A ruling that affects cloud computing could have major impacts on a large and innovative form of technology, while a rule that hurts broadcast television could be a blow to localized media content.

Beware of Loopholes as a Business

I have had numerous people discuss business ideas that involve exploiting legal loopholes like this one, and this case reminds me of what I usually tell them. The problem with a business that relies on a loophole is that if the loophole is closed, then so is the business. And either way, there will be a long, expensive legal battle to find out.

Ultimately, it sounds like the justices wish to shut down Aereo, but only if they can find the legal language that does not impact existing cloud computing. Unfortunately, we will not know the answer until probably June. The case is American Broadcasting Companies Inc, et al, v. Aereo Inc, U.S. Supreme Court, No. 13-461.

Reuters – U.S. justices show little support for Aereo TV in copyright fight

Electronic Frontier Foundation – Second Circuit’s Opinion