After Aereo: Why Dropbox is safe (but your DVR might not be) and networks need to embrace digital data

Aereo CEO Chet Kanojia leaves the U.S. Supreme Court after oral arguments April 22, 2014 in Washington, DC. (Photo by Alex Wong/Getty Images)

The Supreme Court’s decision in ABC v. Aereo is, as my colleague Jeff Roberts explained on Thursday morning, bad for consumers. Looking past the questionable rationale behind the case’s holding, the justices — Antonin Scalia included — left multiple doors open for further litigation.

What’s worse is the fact that the case happened at all shows how unwilling networks are to embrace new forms of distribution, even when they could mean access to valuable audience data not otherwise attainable.

Not all cloud storage is created equal

If there’s a silver lining it’s that in ruling against Aereo, the justices in the majority expressly stated this wasn’t a ruling about cloud storage. To some degree, I think they meant it.

It’s hard to see the Supreme Court ever finding generic cloud-storage companies such as Dropbox or Google (with Drive) liable for infringement — a suggestion that some commentators have made since the Aereo decision came out. Those types of services have applicability far beyond storing infringing material and they in no way appear to be encouraging infringement, factors that would seem to satisfy previous case law spanning from Napster and Grokster up to DMCA-based decisions in cases like Veohand even back to VCR-centric cases such as Sony v. Universal (aka Betamax).

Only laws like the proposed SOPA bill a couple years ago, which was handedly crushed, would seem to sting the likes of Dropbox and its ilk by turning them into content police liable if they don’t proactively seek and destroy infringing content stored by their users.

DVRs, on the other hand …

But that doesn’t mean all cloud storage services are safe. Many people assumed the issue of digital video recorders was settled after the Supreme Court denied to hear Cartoon Network’s appeal in a 2008 case against Cablevision, but the Court’s language in Aereo suggests it would be willing to hear a case about DVRs should the right one appear. Even Antonin Scalia, who has been unduly heralded as a would-be savior for innovation for his dissenting opinion in Aereo, made that pretty clear:

“I share the Court’s evident feeling that what Aereo is doing (or enabling to be done) to the Networks’ copyrighted programming ought not to be allowed. But perhaps we need not distort the Copyright Act to forbid it. As discussed at the outset, Aereo’s secondary liability for performance infringement is yet to be determined, as is its primary and secondary liability for reproduction infringement.”

Aereo servers

Aereo’s storage infrastructure could be as big a problem as its tiny antennas. (c) Rani Molla

“Secondary liability for performance infringement” means Aereo’s customers would be infringing on copyrighted material for deciding to view the networks’ content (an argument that might be as tenuous as many think the primary liability one was in this case) and Aereo would be in trouble for facilitating that behavior. “Primary and secondary liability for reproduction infringement” means Aereo could be liable for making a copy of the networks’ content and/or for any infringement by its customers in doing so.

Any type of ruling to that effect would certainly be trouble for anyone dealing directly in the business of recording and storing television programs. Sony legalized the recording of programs for personal use, but the technological differences and scale of DVR services — including the relative ease of sharing digital content — and their express purpose of storing television programming could lead to a different result.

Stop extracting cash, start extracting data

The saddest thing about this whole case, though, is that maybe it didn’t have to happen. If the pre-lawsuit discussions between Aereo and the networks only revolved around licensing fees, then the networks missed a great opportunity. Aereo represented a great chance for them to get data about what Aereo customers were watching, and they could have demanded that data in lieu of fees that no startup, no matter how well capitalized, could reasonably afford.

Because let’s be real: People without televisions (either at all, or just while sitting on the bus) are not watching live television. That means they’re not watching the commercials that make networks all their money. But people watching live television on mobile devices are seeing those ads. What’s more, Aereo likely knows how old they are, what else they watch and where they live. Even if viewers are time-shifting and skipping the ads, Aereo could still share sheer viewership numbers as well as all that demographic information.

That’s valuable information, both for people trying to sell ads and for people trying to determine which shows networks should buy, renew or produce. It’s the type of stuff networks already pay Nielsen a lot of money for, only for an audience not likely to be measured by Nielsen for a variety of reasons.

Aereo antennas

Aereo’s tiny antennas generate a lot of data about who’s watching what. (c) Rani Molla

And look at all the ridiculous fighting in the music industry over the royalties that streaming services such as Pandora pay to artists. Royalties amount to large chunk of change for Pandora but chump change for many artists. Smart artists, such as Zoë Keating back in 2012, have come to realize that because they make most of their money selling concert tickets and merchandise, it’s probably better to get information about who their fans are — data Pandora says it’s very willing to share — than to demand a larger fraction of a penny per play.

You’d think television networks might eventually come around to this way of thinking, too. Television is already very lucrative for networks and will continue to be so, but change is going to come whether they like it or not. It’s clear that consumers want streaming content. It’s clear that startups are generally better at delivering it. Networks know the value of data and that more of it is better.

Why not embrace the change and new ways of profiting from it? Fighting for the status quo while accusing would-be viewers and their preferred service providers of being pirates is not a great PR move. If that means they don’t watch your shows, or choose to pirate them instead, it’s an even worse business decision.

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