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Summary:

Fox, PBS and other broadcasters filed for a New York appeals court to revisit a crucial ruling that permitted start-up Aereo to beam their signals. The appeal raises the stakes further in a battle for the future of TV.

Aereo's home screen

Fox and other broadcasters are asking a New York appeals court to reconsider its decision to give a green light to Aereo, a controversial start-up that uses tiny antennas to retransmit over-the-air TV to mobile devices for $8 a month.

In a new court filing (embedded below), the broadcasters claim the decision “threatens to cause massive disruption to the television industry” and “will wreak commercial havoc,” and request a full panel of the US Second Circuit Court of Appeals to revisit the ruling.

The start-up Aereo has been at the center of a storm in recent months because its technology threatens to blow-up the existing model of pay TV, which is based on selling viewers a bundle of channels, that include over-the-air stations like NBC, ABC, CBS and Fox. Aereo is backed by a $58 million investment from media mogul Barry Diller and others, and lets customers watch and record TV without a subscription for $1 a day or $8 a month.

In the past, other companies have retransmitted TV signals over the internet but broadcasters quickly smashed them for copyright infringement. Aereo, however, has survived two major court challenges thanks to its technology which assigns a mini-antenna (see pic below Aereo antennas) to each subscriber; the service is now live in New York City and is slated to arrive imminently in 22 more markets.

In the new filing, broadcasters howl that Aereo’s individual antenna system is just a loophole to get around a copyright regimes that requires any company that plays over-the-air signals, including cable and satellite firms, to pay retransmission fees. The brief also cites a paidContent story to warn that Aereo wants to team up with distributors like Dish network and Time Warner Cable to expand its reach.

On a broader level, the legal manœuvreing is part of a great game between Aereo and the broadcasters over the future of TV that could end up at the Supreme Court. In the coming battle, the broadcasters are pinning their hopes on a recent California court case, which shut down an Aereo clone and rejected the theory that a private antenna means a transmission is not “public” under copyright law – a theory accepted by two out three judges on the Second Circuit court.

In the new filing, the broadcasters rely heavily on the opinion of dissenting judge Denny Chin, who described Aereo’s technology as a “sham” and a “Rube Goldberg” device that “over-engineered” to dodge copyright.

While the dissent and the California case provide the broadcasters with ammunition, the request for a review by all of the judges on the New York court is a long shot. This is because, unlike other appeals courts, the Second Circuit almost never agrees to hear so-called “en banc” appeals; in the event it did rehear the case, the judges would be reluctant to accept the broadcasters’ invitation to declare that they were wrong on an earlier case that formed the basis of their opinion for Aereo.

This means the Supreme Court — or Congress — is the broadcasters’ best hope. Time is not on their side, however, because it would take years for the legal case to be heard and decided. By that time, technology and consumer habits for TV may have changed dramatically.

The CEO of Aereo will offer his two cents on the bigger picture of TV at paidContent Live which is taking place on Wednesday in New York City.

Legal types — here’s a marked up version of the broadcasters’ very well drafted legal brief:

Aereo en Banc Petition

  1. I fear that it is solely the attorneys benefiting from continuing these actions. When something new disrupts that which was old guard, there is always a massive hissy fit from the OG. But to no avail. More than likely, the OG hopes to drain the disruptors cash reserves before they get going.

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  2. It’s a cute loophole and it may even be an actual one, not an imagined one. But it fails the basic test of fairness. If someone is producing a product, they need to be in the loop for how it’s bought and sold. If you undercut their revenue stream– and this is a big chunk of money– they’re going to either disappear or go somewhere else.

    This could mean the end of free TV. (Not that I mind.)

    Where does Aereo think that the broadcasters will get the money to create the shows? Either the production quality drops or the broadcasters go out of business. There’s no such thing as a free lunch.

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    1. Martin Focazio Wednesday, April 17, 2013

      mtpdmblo – I don’t think it’s a loophole, I think it’s a literal interpretation of the settled law, and while the technology is laughably complex (I agree with the “Rube Goldberg” assessment in the 2nd circuit) it’s following the letter of the law – further, I think that Aereo actually has technical options to make the “antenna rental” and 1:1 DVR model even stronger.

      Let’s be clear on this: Free TV died years ago – if you’re paying for a wire or a dish that brings you television, that’s not free TV. The OTA broadcasts are hitting – at most – 11% of the DMA’s where the ATSC signal reaches (and that’s less than the old Analog broadcasts). Additionally, broadcasters don’t actually “create” many shows at all (local news and sports programming being the most obvious exception), so there’s less and less of an argument for that.

      Like all good market disruptions, this is playing out quickly and painfully for some, but to the advantage of consumers. This isn’t the fall of broadcasting (that’s already happened), it’s the rise of the American version of the “Television Licence” model we see in the UK and other places. TV means a fee. That’s the simplest model. Will Fox and CBS etc. go “premium” and turn off the broadcast? Not in this decade, they won’t. But it’s not like they don’t have options now to bring up new programming on paid unicast distribution platforms – IP based platforms like Aereo are one. Intel’s new platform as well as hundreds of others are rapidly maturing as consumers increasingly don’t connect to the old models of content distribution anymore. Every MVPD is working on or has launched an IPTV/unicast option for programming, klugeing together things like TV Everywhere, Cloud DVR, EST and truly awful replications of the broadcast ad-supported interruption model. This isn’t by choice – it’s by necessity – when 83% of new households created in the USA in 2012 didn’t sign up for a “classic” pay TV subscription, but there was north of 57% growth in IP delivered sVOD (Netflix) and VOD content in general – well it makes sense to change the business of distribution.

      This is a great time to be in the content business, because it’s a multi-billion dollar business that, after massive and abrupt disruption, will be a multi-billion dollar business. What could be more fun than to be in the middle of all this?

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      1. Great comment. Bring on the havoc and disruption.

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      2. The television licence in the UK only funds the BBC’s Public Service channels and, soon, S4C (Sianel Pedwar Cymru, the Welsh-language station in Wales). The BBC also raise some money from BBC America and similar channels in other countries, from rebroadcasting archive content on commercial UK TV channels under the ‘UKTV’ umbrella (a joint venture with Scripps, owners of Food Network), sales of DVDs, streaming on Netflix etc, and sales of tie-in products (e.g. ‘Doctor Who’ action figures).

        All other channels in the UK are either wholly funded from advertising, or partly from advertising and partly from subscription fees.

        One thing is completely opposite from how the US model works: in the UK, satellite and cable operators do not pay channels for rebroadcasting their content (unless part of subscription-only packages). Instead, free-to-air broadcasters must pay the operator to carry their content. Sky charge ‘Platform Contribution Charges’ proportional to the channel’s viewing figures (though Public Service Broadcasting channels pay a lower rate), as well as ‘EPG Charges’ for appearing in Sky’s Electronic Programme Guide. These are counted as distribution costs for the channels.

        The result is that the BBC pay millions of pounds of money raised from the licence fee to Sky, who use it to outbid the BBC for later seasons of programmes that the BBC have developed a market for (e.g. Mad Men).

        Unfortunately much of the population do not realise that the subscription fees they are paying to Sky are only partially funding the few subscription channels in their packages, which have low viewing figures, rather than the popular free-to-air channels. In fact often the sums paid by Sky to subscription channels are outweighed by the Platform Contribution Charge clawed back by Sky.

        I would be happy to have a model where the redistributor pays its own costs and the channels don’t pay them anything for the privilege!

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    2. I can buy a phone or a laptop with a built-in TV receiver and watch their content whenever I’m in the broadcast area – how do they make their money then? Through selling advertising, product placement, etc.

      Likewise I could set up an antenna and a Slingbox at home and watch the content wherever I am. Aereo just means I don’t need to worry about that setup, and can just log in and watch free-to-air TV anywhere I can get an Internet connection.

      The broadcaster isn’t making any less money in this scenario than the ones where I use a portable receiver or a Slingbox. It does mean they’re less able to gouge customers for transmitting the same content over a different medium, but that’s just good old-fashioned competition in action.

      If you want to ban Aereo on the basis of “fairness”, you pretty much have to ban Slingbox and portable TV receivers, since they offer essentially the same capability, albeit in a less convenient implementation.

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    3. > Where does Aereo think that the broadcasters will get the money to create the shows?

      How about the same place they get their money for all the other people who watch over-the-air television, the advertisers.

      You know, the way they they have ever since the beginning of television?

      Why should I have to pay for something that they broadcast for anyone to watch for free?

      This isn’t the end of Television, it’s just the start of the end of the TV stations getting paid twice, once by the advertisers, and a second time by the cable/sattelite providers for the ‘privilege’ of exposing their advertisers to a wider audience.

      As for the claim that it’s unfair because of DVR technology, I’ll point out that DVR technology works for OTA television just as well as it does for any other source of programming.

      I agree that Aereo’s system is far more complex than it should be, but that’s because silly laws (and greedy TV execs who have sued such simpler systems out of buisness) prohibit the simpler, greener solution.

      you know what the worst possible thing that can happen to any TV show is? The worst possible thing is not reaching viewers who are interested in it. Even if the show itself is ‘pirated’ , viewers will buy it when it comes out on disk, buy show branded merchandise, and even if they skip some of the advertisements that interrupt the show, they’ll still see the advertisements that are embedded in the show (it’s just that such advertisements need to be smarter, which requires work)

      Look at what has happened with DRM free music, performers who could never make a living before are getting heard. The same thing is starting to happen with indie publishing of books. In these cases, just like with videos, the worst possible thing is not getting to the people who are interested.

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    4. Oh – you must mean all those high-quality reality shows like “the bachelor” or “survivor” that cost SO much to produce, or maybe you mean those outstanding shows like “honey boo-boo” or “toddlers and tiaras”, Pawn Stars, or World’s Worst Tattoos.

      Quality in broadcasting is practically non-existent – and, for cryin’ out loud, don ‘t even try to counter with “Game of Thrones” – what crap *that* is! Incest, screwing , a lot of very dirty people and fighting – yep, that’s real quality. (or is that sports? – I tend to get the 2 confused…)

      The broadcasters can moan about losing quality all they like – just look at what’s being broadcast. Ain’t a bit of quality in any of it…. what they are *really* moaning about is losing their multimillion dollar salaries and bonuses…

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  3. Hmm. Is system that decries newcomers wreaking commercial havoc a capitalist system? Hmm?

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    1. Could be. But it’s less likely to be a free market system.

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      1. Yes. Encumbents get advantages.

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  4. Martin Focazio Wednesday, April 17, 2013

    The real threat of Aereo (and every other 1:1 media delivery system) – it can do much more than kill retransmission fees (which, relatively speaking, are tiny compared to ad revenue), it can expose the reality of the audience’s viewing habits – and lower the price advertisers are willing to pay if evidence shows that the ads are not actually reaching the audience they want. Aereo is one of an arsenal of evidence-generating media consumption tools that are growing in popularity.

    Aereo and every other IP-delivered digital video system bring content to consumers and evidence to advertisers – and that’s going to change everything.

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  5. I feel like I’m the only PC reader that uses an old fashioned (but very powerful) antenna to get free over the air channels. This is not stealing, nor is it a loophole, and it is not disincentivizing content production (ad revenue, not trans fees). Why should I be prevented from renting space to put up a secondary antenna on the roof of my friends house? This is TV as the networks originally intended it.

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  6. Martin – I’m right there with you. I was finally watching Mad Men on Netflix and saw my old school Radio Shack double bow-tie on one of the episodes. My wife said, “Hey, don’t we use that same antenna?” I said, “Yes, but you would never have been able to see it so clearly on TV in the 60s.” You gotta love technology. Aereo is just today’s version of asking and paying my neighbor to mount my antenna on his antenna tower because a) I have a tree blocking my line of sight to the broadcast towers (not that you need line of sight, but trees do reek havoc with ATSC at times) and b) his tower is bigger and taller than anything I would ever want to put up on my property.

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  7. It’s the end of the world, blah, blah, blah. We’ve heard this argument a hundred times from every content provider. Cassette recorders, then VCR’s, DVD’s, etc. All were to spell the doom of the content industry. As long as the service is sold only to the residents of a particular broadcast area, then the providers should just be happy that someone is watching.

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  8. If you think this a “Rube Goldberg” device, then you have no idea what a “Rube Goldberg” device is. What Comcast is doing to basic cable is more akin to Rube Goldberg then Aereo (and no, that really is not Rube Goldberg either).

    If you think it is a “sham” … wow, you have no clue what a sham is. The case of those who oppose what Aereo is doing is a sham.

    If you think it is “over-engineered”, then you don’t know what engineering is, let alone “over-engineered”.

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  9. Well, the broadcasters put those shows on the air for free. And they make about 90% of their money from advertising based on SNL Kagan’s figures–about 85% of the people watch thru Cable or Satellite and pay the retransmission fees, and about 15% watch over the air and do not.

    So what the broadcasters are risking is not ALL the money they make, only a percentage of it. I doubt a 10% reduction in CBS’s earnings would cause the kind of seismic shift you’re suggesting here.

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  10. The Sky is Falling the Sky is Falling…. Seriously most of the stuff thats on is crap anyway. Maybe they should fix their content problem first before they work on delivery.

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