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The spoiler: how an LA playboy threw a wrench into Aereo’s plan to take over TV

The television industry has its hands full, fighting forces that want to break up the lucrative “bundle model” in which consumers must pay for hundreds of channels in order to receive the dozen or so they actually watch. Bundle opponents include Senator John McCain, satellite TV provider Dish Networks(s dish) and an upstart streaming service called Aereo.

Aereo, which uses tiny antennas to stream and record shows to computers and mobile devices, has been a special worry to the TV industry because courts have said it’s protected by a loophole in copyright law. The industry, however, received an unexpected gift when an erratic billionaire named Alki David launched a streaming service of his own — without the legal firepower to back it up.

According to a source familiar with the case, Alki’s arrival came as a nasty surprise and wrecked a large part of the U.S. chessboard where Aereo’s investors want to remake the rules of TV. The billionaire doesn’t see it that way. Here’s how the drama that could change TV has unfolded so far:

Buttoned-up Barry takes on TV

On the surface, the story of Aereo is about a brave startup that uses tiny antennas to bring broadcast TV stations — which are free to receive in the first place — to laptops and mobile devices. The service allows people to watch and record local channels for $8/month and, unlike conventional TV subscriptions, lets customers come and go as they like without contracts or equipment.

But Aereo is also the tip of the spear for a bigger gambit by media mogul Barry Diller(s iaci) to blow up what journalist Peter Kafka calls the “TV Industrial Complex.”

This desire to remake TV led Diller to put $20.5 millon into Aereo’s fledgling service in early 2012. The money, Aereo antennashowever, wasn’t just an endorsement of Aereo’s technology; it was also an attempt to leverage a controversial 2008 court decision. The decision, which involved remote DVRs, inspired Aereo to create a “one antenna, one viewer” system that — in the company’s view — creates private TV streams that are legal under copyright law.

According to the source, who did not want to be identified, Aereo was “buttoned up” and ready for a legal fight even before it went live in New York City in early 2012. The company had court briefs at the ready, and made sure that all legally-discoverable facts of the case backed up its “private viewing” theory of TV streaming.

When to no one’s surprise the major broadcasters sued to shut it down, Aereo fought hard — and won. The company then won an even bigger ruling this April, when a split Second Circuit Court of Appeals upheld the decision, after finding that: “Aereo functions much like a television with a remote Digital Video Recorder (“DVR”) and Slingbox.”

Enter Alki

Alkiviades David — everyone calls him “Alki” — is a 45-year-old heir to a shipping fortune who likes to host Hollywood parties and dabble in the entertainment industry. He’s had small parts in films like The Bank Job, but also runs a U.K.-based company called FilmOn that plucks TV signals from the air and streams them to computers.

When FilmOn launched in the United States in 2010, Alki offered to pay retransmission fees like those that cable networks pay to broadcasters through a complicated regulatory system. The broadcasters, however, didn’t bite and sued him instead. They quickly obtained court orders and that was the end of it — until, that is, Aereo won in New York court two years later.

The Aereo victory irked Alki and prompted him to relaunch FilmOn’s TV service under new corporate names. The names, “Aereokiller” and “BarryDriller,” were not just a legal trick but also a finger in the eye of Diller, the media mogul who is backing Aereo. Predictably, the networks sued Alki all over again. (Diller sued too, over misuse of his name.)

According to the source familiar with the case, Alki’s approach to litigation is slapdash and reckless — the very opposite of Aereo’s buttoned-up style. As a result, Alki’s reborn Aereokiller was easy-pickings for TV industry lawyers who had no trouble persuading a Los Angeles judge to issue an injunction.

Click for larger image. Map by Rani Molla.
Rani Molla

“Bad facts make for bad law,” said the source, adding the ruling was a big blow for Aereo and its carefully planned legal strategy. This is hardly surprising; the injunction applies not just to Los Angeles but the entire 9th Circuit, which sprawls across most of the western United States (see map at right.)

The LA decision was a setback for Alki but even more so for Aereo, which declined to comment for this story. The playboy’s antics not only shut down an enormous market; they also provided a California-sized foothold for the broadcasters to launch what could turn into a Supreme Court challenge to the new technology. (The broadcasters also sued him in the District of Columbia last week, possibly in the hopes of getting to the top court even quicker; FilmOn has since retreated).

As for Alki, he doesn’t regret a thing.

Alki explains

Alki speaks in a posh but kind British accent and, in a recent phone call, his manner was gentle and patient. He shares Aereo’s frustration with the TV Industrial Complex but also see Diller and Aereo as parvenus next to his own operation.

“Barry and I share many mutual friends but have never met. I tried to reach out a few times before the launch of Aereo,” said Alki, adding that he chose to needle Diller with “Aereokiller” and “BarryDriller” because Aereo sounded too much like an earlier version of his streaming products called “Arrow.”

Alki makes a legitimate case against TV industry inertia and a Nielsen ratings system that, in his eyes, is considered broken by everyone in Hollywood.  He is rational on our call — even though that is not his reputation.

The source familiar with the legal case says Alki is an erratic, bull-in-a-china-shop strategist. A different source who knows Alki slightly recalls receiving a bizarre, rambling phone call at four in the morning. And an October profile in the Hollywood Reporter portrays Alki as a sincere but volatile personality who likes to cultivate controversy and run with outsiders.

“I haven’t drunk alcohol in 15 years. I like to have fun and play practical jokes,” Alki says. As for suggestions that he is derailing Barry Diller’s careful campaign to remake TV, Alki is all magnanimity.

“FilmOn has been in live TV much longer and is doing a better job … We’re not trying to ruin Aereo’s game. We’re very grateful for Aereo’s success with the [DVR] concept.”

It’s doubtful Aereo feels as generous but, for better or worse, the future of the TV bundle could well be determined by the playboy who crashed the party.

Next moves

In early January, Aereo announced plans to expand to 22 more cities with the help of $38 million in new funding from Diller and others. The expansion was supposed to take place in “late spring” but, as of June, Aereo has only expanded to Boston.

Gossip Girl on Aereo on iPadThe Aereo investors may be holding back on releasing more money, and turning on more antennas, until California’s 9th Circuit rules on Alki’s appeal later this summer — but that is only speculation. If the 9th Circuit follows the New York courts’ reasoning, and lifts the injunction, Aereo will have a green light on both coasts; most lawyers, however, say that’s a longshot.

As for Alki, he is busy issuing a strange stream of fulminations about the TV industry’s plot to get him.  On May 30, he shared what he says is a “death threat” that warns him to “leave the networks and Aereo alone.”

Consumers, meanwhile, are stuck with expensive cable bundles for the foreseeable future. Aereo has taken the most clever, calculated shot to date at the TV Industrial Complex but, for now, both Aereo and Alki are a ways from forcing the industry to sell rational bundles of channels at a rational price.

23 Responses to “The spoiler: how an LA playboy threw a wrench into Aereo’s plan to take over TV”

  1. I think the TV companies should just give up on broadcast. Only a few people watch it and if Aereo is going to make money without sharing with the people doing the work, the people doing the work should just go do something else. Let Aereo figure out how to produce the content stream that they’re pirating.

  2. Gregg Lindahl

    The Aero and FilmOn services are classic stopgaps. Television has been slow to embrace IP distribution but gravity is rapidly pulling them there – everything streamed, all the time. Once that happens, there is no need for the antenna to IP interface.

    But, aggregaters do have a place. This is analogous to what has happened in radio – early to stream programming but discovery and navigation by single channel is clunky. TuneIn and IHeartRadio are tremendously convenient aggregators. The situation is ripe for more, and new video content models to emerge. This is where we can hope for bundles by show or channel of the consumer’s choosing.

    What’s to stop ESPN from offering their own cable-like bundle by partnering with others? The existing lucrative sub fee model, of course. As we know, the current market is always a drag on innovation which allows courageous companies like Netflix to become early leaders. But others will follow – especially those producing a relative volume of quality content, or those that can afford to pay those that do. At the heart of it, I suspect this is Mr. Diller’s play and Aero is there to create leverage.

  3. Mike Land

    Here’s what you do. You get together with some buds and form a television cooperative. You need four to six buddies to do this and one that you trust the most. You can install mini headend at his/her home. Your internet back haul may not be enough to serve up to six sling boxes for the subscribers. Usually a business has a commercial level internet service and they won’t even look twice at that kind of bandwidth. That means you may have to up your home internet to commercial level service. So you pool all the bills from running a five LNB dish with six receivers with a premium package. You may not need a sling box for every receiver because Dish does give you a mobile app to use per receiver. So a five room setup runs $80 per month with the 200 channel package. After 12 months, your bill goes up about 50 percent. But you can split all costs and wind up with each person paying around $25 to 30.

  4. Big Guy

    Let’s face it–isn’t bundling anti-trust. And I am not talking about pay-tv–it is that they big powers want to lock you in with a long-term contract for TV-Internet-mobile devices (phone, computer-tablet) with discounts if you get at least two. I don’t need another service if ATT U-Verse promises me Wi-Fi in many areas, through out my house and I still have my TV’s (I grandfathered in 3) and a DVR. I go to battle with them to get discount promotions and they counter it with raising prices and now enacted a modem rental fee–duh, can this thing work without a modem–and only their modem? And if I brought in my own equipment–which I can’t–I would be blamed for any breaks in service. Like, the day this year of Pres. Obama’s to inauguration and U-Verse–TV and Internet went totally dead–and they will not explain to you, the customer why. If you live in a house, with a family–you need this service and pay for it because–it really is not a luxury.. If you are a College Student (1) don’t you have too much to do without wasting your time? (2) you are still on your parent’s cell phone plan (2) you can get internet anywhere. Post-College and you are in a studio apartment–all you need is to overpay for your smart’ phone service–which you probably are still mooching on your parent’s phone plan.

    If you are single an in a studio apartment waiting for life to happen–same thing. .

  5. saturnman

    leave it to the media, who monopolizes what you can see, what you can watch, no free market here, just get a truckload of Hollywood money, an attorney and the 9th district court of appeals and impose your will and ideology on whoever you wish. These are the same people that scream about 1st amendment rights, and then squash every competing voice that isn’t in unison with them.

  6. Sounds like a shill doe Diller. The Cablevision case which Diller rests his case on has always been viewed as an outlier in its treatment of copyright. No District other than the 2nd has ever ruled that way.

    That’s why Diller was clever, but clever doesn’t mean right. He’s banking on winning in the Supreme Court and/or the court of Silicon Valley option (which has been focused on disrupting OTA broadcasting in favor of more profitable ventures of their own)

  7. Bruce Collins

    Ummm. The story is carefully, not sloppily, written. Read the injunction, which was accurately described (and the article contains a link to it). Also, one commenter appears not to understand how judge-made law works among the several circuits. As it now stands, there is one rule regarding public performances on the East Coast, and an entirely different rule on the West Coast (i.e., 9th Circuit). That is why Aereo is “hobbled.” Although it can continue to operate legally in the East, it will almost certainly be shut down if it tries to expand in the West.

    • Work Avoidance Log

      “Read the injunction?” The Log has no quarrel with other commenters and won’t start one, but dropping a link to the ruling into the text and moving on to other business is not explanatory journalism (which is what paidContent promises in general and the headline atop this story promised specifically).

      Your comment, Bruce Collins, actually contains detail that the story does not, but you also point out the dots without connecting them.

      We shouldn’t presuppose too much insider knowledge on the part of readers/users/listeners/viewers when we write stories about arcane or highly technical subjects. The real insiders already know what’s going on and don’t need this story. It’s the rest of us who look to paidContent to connect the dots. Usually, paidContent does that extraordinarily well, which is what earned this story The Log’s initial critique.

      Back to work:

      • Thanks everyone for taking the time to comment. As for the level of specificity in the story, I’ll just point out that paidContent is read by a wide variety of people, most of whom don’t have legal backgrounds.

        I’m a lawyer (NY and Ont bars) and am happy to get deep into the legal weeds. But keep in mind there’s a reason why law journal articles have a minuscule audience – they are arcane and largely unreadable. I’m glad to take the technical discussion to a law blog or Branch — but here the idea is explore bigger picture stuff related to the future of content control and the TV industry.

        • Work Avoidance Log

          Jeff, thanks for checking back and for getting involved in the conversation. Totally agree with you that pC’s audience is general and that staying out of the weeds is the right course. My point was that the there’s a middle ground between the weeds and no explanation at all. But I fear PETA will be all over me if I don’t stop [figuratively] beating this [metaphorical] deceased equine, so I’ll leave it there and reiterate my overall appreciation for the excellent work you and your pC colleagues do every day.

          Back to work:

  8. Work Avoidance Log

    This story is so sloppily written it all but forces the reader to wonder if it is a plant–a stalking horse for one of the actors in this drama.

    The specifics of Aereo’s legal arguments are explained in detail–not difficult; that story has been told many times by many outlets. But the writer dispenses with the court case involving Alki David–the litigation that the headline claims prompted this story in the first place–in just two illumination-free sentences:

    “Alki’s reborn Aereokiller was easy-pickings for TV industry lawyers who had no trouble persuading a Los Angeles judge to issue an injunction. ‘Bad facts make for bad law,’ said the source, adding the ruling was a big blow for Aereo and its carefully planned legal strategy.”

    Um, what?

    How does the ruling in the “Aerokiller” suit hobble Aereo? And what, exactly, was the ruling? (An injunction, yes. Banning what? On what grounds? And why does this mystery ruling also apply to Aereo, which–at least according to the story–was not a party to the lawsuit?)

    Alki David sounds like an interesting guy (in the same way that Joe Francis sounds like an interesting guy. “Interesting,” from the Latin meaning “hope I never have to meet him”), but probably doesn’t [yet] merit a personality profile–which is really all this story amounts to, given the appalling lack of detail in its reporting of its alleged news peg.

    Want to take another whack at it, paidContent?

    Back to work:

  9. Big difference is in the fundamentals between filmOn and Aereo.
    One antenna per unique user is what will keep Aeroe out of hot water unlike FilmOn.
    Aereo has patents and prior decisions to back their method unlike FilmOn.