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

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.

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

  1. Has any one heard of Slingbox. Aereo is using the same concept except your just renting the antenna and box. So If I lived in a 500 unit building and hooked up to the buildings antenna then the building owners would be liable for content delivery. ( I don’t own the direct connection or antenna)
    If i had a PC in a different city with a TV card hooked to an antenna and to the internet and used windows media center to record free to air TV then remotely watched my shows. I can do that legally? Or just as long as I don’t rent all that equipment from Aereo.
    Aereo isn’t removing commercials you still have to watch or fast forward.

  2. SillyRabbit

    I’m not sure that there’s a lot of public visibility into it, but the networks do have a ton of digital data on owned sites and apps, and data delivery is always going to be part of a license agreement with third-party digital distributors for any sophisticated programmer. That data is also linked to affiliated gaming and socially-enabled sites that these companies might own. Behavioral data from Aereo would not be much of an incremental add without an attractive monetization plan.

    And, that’s sort of what gets me about these arguments – you’ll rarely see a tech journalist call on Aereo to actually develop that plan – it’s always the job of the incumbent to figure out how to get a “disrupter” like Chet Kanojia to cross the final finish line with a real business. I appreciate that you’ve at least referenced Aereo’s need to work on that.

    Finally, with respect to the free-rider issue, Nielsen does consider total viewers in the universe (including OTA) when reporting its data. So, while it doesn’t know *what* you’re watching if you don’t have a Nielsen box, it does generally know how many people have antennas overall and constructs viewership ratings based on the size of that universe. If Aereo pre-worked with Nielsen to have its viewers represented in the universe, some (definitely not most) of their pushback could have been resolved. But, fundamentally, the broadcasters (and the Supreme Court) saw Aereo functioning as just another cable service. Cable services pay for broadcast content.

    There’s always this boogedyman notion among the VC crowd (and those they influence) that the broadcast execs are cackling in their big boardrooms twirling their mustaches. It’s just not true. All they want to do is make more popular programming, and grow earnings at their company. Aereo could have figured out how to work with them to do that, just like Netflix or Amazon or Hulu or any of the others. As it stood, Aereo created an illegal service that didn’t provide anything for the people who created its product, so this outcome should be a surprise to nobody.

  3. SillyRabbit

    There’s a huge hole in this argument, obviously. The only way that Aereo data is useful is if it’s monetizable. Aereo was not providing a way to monetize that data.

    So, it’s all well and good to rage against broadcasters in the safe bubble of Gigaom and its narrow slice of readers – you’ll find a pre-convinced audience. But to the rest of the world, if you suggest that a company should be able to free-ride off of another, with the only compensation being details about the nature of the free-riding, you’d be laughed out of the room.

    Without dynamic ad insertion or other creative, higher margin ad solutions, this data is basically useless, and a terrible trade-off for actual money. Networks have *plenty* of data about their audiences already from licensed digital distributors, their owned apps and sites and, yes, Nielsen.

    • Derrick Harris

      Thanks for the comment. Obviously, I disagree in part, but not entirely. There is a burden on companies like Aereo to sweeten the pot, I think, both by giving good data and, as you suggested, perhaps some sort of ad products.

      But I don’t believe data itself is worthless and I don’t believe networks are getting quality data from their websites or apps. I know a growing number of young well-off families with small children — prime advertising demographics — that are cutting the cord and essentially off the grid WRT ratings. That’s not to mention young, single urbanites.

      FInally, I’ll admit I don’t fully understand the “free-rider” financial argument you make. If all I needed to watch Modern Family as it aired was a TV and an antenna — neither of which ABC sells me — how is it bad for the network’s business if I instead watch it on a laptop? Still seeing the same ads.

      What’s bad is making someone wait months to buy it on DVD or get it on Netflix and having them decide in the meantime to just not watch it at all or get it illegally.

    • Derrick Harris

      That is a little disturbing. Although, Dish is already a cable provider and already licenses content from networks. Different facts with an arguably more-disturbing result should FOX win.

      • Dave Z

        Impact to end-user would be different If DISH loses – fewer channels to watch, higher rates over (time) which we already see. Fox would extra more cash from DISH for placeshifting licensing as many of these guys already do for ‘tv everywhere’ mobile apps and the like.

  4. btrichards

    Dropbox is the anthesis of safe…
    It’s a hole from the internet to your computer that bypasses any firewalls and virus scanning. There’s no logging going to system admins to trace what you’ve done. No entity can pass a security audit if they allow drop box. Period.
    Secondly, when you get all those phishing emails trying to get you to buy crap that will infect you computer… where’s the link? Ya, dropbox.

  5. Gary Dauphin

    Broadcasters are stuck in a old financial model that they cannot conceive of breaking. Here’s the reality in case they need to hear it again:

    I will watch quality programming if you provide it, either supported through advertising or through paid programming. But, you have to be willing to make it available to me when I want to watch it, and on whatever device I have available at the time, and at a reasonable cost.

    If you are willing to meet my needs, I am willing to pay for your programming. Otherwise, you are going out of business, albeit very, very slowly.

  6. Dave Z

    Of course the vast majority of DVRs are provided by entities who license content… and the general failure of retail DVRs to gain traction limit its danger and appeal as a target.

  7. realjjj

    “In the last 20 years, the median age of Americans has increased from 34 to 37. The median age of broadcast TV viewers has increased from 41 to 54. Not a three-year jump, but a 13-year jump.
    In the 1993-94 broadcast season, Home Improvement was the most-watched show, with a median viewer of 34, Commercial Appeal reports. Today, it’s NCIS, with a median viewer who is 61.”

    The networks are losing the war to … everything else. Broadcast TV is for old people, everybody else is shifting to other devices,other sources or just watching less media. And this is not speculation, all kind of data is available . Worse, by addressing the current audience with their programing, they alienate further the “non-customers”.
    The only reason they are still alive is poorly regulated market and inertia but that won’t keep them alive forever, original content is shifting and addressing the needs that broadcasters aren’t. Now if only the internet providers market was functional…

    • Derrick Harris

      Thanks for the link. The Chromecast question is an interesting one, albeit a bit of a stretch. This ruling on public performance grounds was questionable, but based pretty heavily on Aereo acting like a cable provider.

      • Derrick, I’ll buy “bit of a stretch”; it’s what I trade in professionally, both in terms of traffic/controversy and as a consultant to businesses trying to find their way to “what’s next”.

        But it isn’t THAT MUCH of a stretch. The SCOTUS/Aereo decision was seriously THAT bad; the antenna part of Aereo is … well, seriously it’s just an antenna; some people have antennas ON their TVs, some on their roofs, some further away. So seriously I see gigging Aereo as a HOW DARE YOU kind of distinction … until the remote DVR is added to the conversation at which point the correlation to public performance starts taking on meaning.

        If that’s all so (umm … it IS all so … ), the idea that I “have” a file and stream it to somewhere else without a permanent/ownership connection of all parts of the pipeline becomes suspect. And sure, it’s unlikely that the media police will come knocking on my door. But it isn’t impossible. And even if it never happens that way what this decision means is that there will be a lot of legal wrangling over the issue and lawyers being lawyers it will extend to stupid places.

        Looks like less of a stretch now, huh?

    • What kills me is that the six judges who said Aereo “performs” either a) intentionally ignored Aereo’s technology, or b) just don’t understand technology. I think b) can lead to a), so SCOTUS probably are guilty of both a) and b).

      So here it goes:

      I. A DVR stores and delivers recorded video to a playback device configured to receive signals (e.g. a TV). The delivery is performed by pushing the video stream to the requesting device. This video stream is transferred over wires and cables within the DVR device to the connected device (the TV).

      II. Aereo stores and delivers recorded video to a playback device configured to receive signals (e.g. an App). The delivery is performed by pushing the video stream to the requesting device. This video stream is transferred over wires and cables over the Internet to the connected device (the App).

      In both cases, the delivery is an individual delivery.

      So if SCOTUS just declared via the Aereo decision that such a delivery “performs”, then all DVRs also “perform”.

      Nilay nails it:

      Particularly this drawing — — saying that SCOTUS justly blindly said that Aereo and Comcast are the same with their “magic”.