Broadcasters warn of the end of free TV as we know it if the start-up company is allowed to offer digital streams of TV-station signals and cloud-based DVR to mobile devices from broadcasters without having to pay them retransmission-consent fees. If ABC and the other networks win, Aereo and its allies warn of a lighting strike to cloud computing.
FCC official and fellow at the Aspen Institute.
But the impact of a Supreme Court decision often turns out to be much different than the dire expectations that precede it. A little more than 30 years ago, as studios were challenging the VCR, MPAA chief Jack Valenti compared the technology to an offshore tidal wave, ready to upend the business. Instead, the opposite happened: The Supreme Court's ruling in favor of Sony in the landmark 1984 Betamax decision was followed by an explosion in the homevideo market, generating a lucrative new revenue stream for the very studios that fought "time-shifting" of viewing habits.
The tech side has cried wolf on a number of occasions as well. The high court ruled against file-sharing company Grokster in 2005, but warnings that legal uncertainty would stifle future innovation don't seem to have stopped the march of technology into new and varied formats for listening to music and watching movies.
Nevertheless, the justices' decision on Aereo will have an impact. Barry Diller, a key investor in the company, is on record as saying that if his side loses, it's likely the startup venture will end.
Ultimately, though, the decision could create an environment quite different than the one either party is predicting.
IF AEREO WINSPicture this: All football games, including the Super Bowl, are available only via pay TV. So are the Academy Awards, the Olympics -- even the next presidential inauguration.
That was a scenario dangled by Fox last year, as Aereo was collecting court victories, and broadcasters were expressing alarm that their $2 billion-plus gravy train of retransmission revenue was under threat. If Aereo lasts, 21st Century Fox chief operating officer Chase Carey warned at the time, Fox would respond by becoming a subscription cable network. "We're not going to sit idly by and let people steal our content," he said.
The threat made headlines, but also was pretty quickly dismissed by the pro-Aereo side as a bit hollow. Their argument is that Washington wouldn't sit idly by and let it happen (as much as the FCC needs the spectrum). Nor would Fox affiliates.
Some Wall Street analysts have suggested that, short of morphing into cable networks, broadcasters could migrate high-profile event programming to pay-TV platforms as a way to make up for any loss in retransmission revenue, leaving free TV a land of cheap reality shows and perhaps a hodgepodge of newsmagazines and talkshows. In urging the Supreme Court to take the Aereo case, the National Football League and Major League Baseball told the justices that the future of games on free TV was at stake.
But professional sports -- not just baseball and football -- have been migrating to cable for some time, and Aereo isn't to blame. In Los Angeles, where the company has yet to enter the marketplace, once-free Dodgers and Lakers telecasts are now available only through Time Warner Cable-owned regional sports networks, with subscribers footing the bill regardless of whether they watch games or not.
The networks would have to think long and hard about risking the 30-second-spot windfall they get for a mass-audience event like the Super Bowl by placing it behind a paywall. But college sports has already taken the plunge: ESPN has aired the past four BCS Football Championship games (which regularly draw better ratings than the World Series). And in 2016, under an agreement between joint rights holders Turner and CBS, the NCAA men's basketball championship will be telecast only on cable.
Some cable and satellite firms have hinted at launching their own Aereo-like services, but that's easier said than done. There's the question of contracts: Many retransmission and carriage agreements have years left on them. There's also a hardware concern, says Brian Wieser, senior research analyst at Pivotal Research Group, noting that multichannel video programming distributors would face hurdles in inventing and deploying an alternative, particularly if that means reworking a set-top box.
Moreover, broadcaster protestations aren't necessarily what they seem. One industry attorney, who asked not to be identified, says that such concerns are more about leverage in negotiations. The networks are in a much better position in retransmission talks when there is no option for MVPDs other than to have stations go dark. If cable and satellite providers can say that they'll switch to Aereo-like broadcast streaming as an alternate signal source, it would likely put downward pressure on retrans fees.
But Aereo founder Chet Kanojia bristles at the notion his $8-per-month service is undercutting the retransmission revenue stream. "Aereo is not disrupting anything," he maintains. "It is consumer habits and broadband that are disrupting everything."
Aereo, he suggests, is capitalizing on consumer frustration over rapidly rising cable rates, and on the trend of cord-cutting, along with the continued demand for broadcast channels. Providing those stations solves "half the problem" for former-MVPD subscribers, he says.
So what replaces the "other half" -- HBO, or any other cable channel? Amazon or Netflix, Kanojia says. Much of what else is found on cable, from home and gardening to musicvideos to reality shows, can be found online in clips or some other kind of substitute, he maintains.
As for sports, he says: "The only guy you cannot help is the guy who really needs ESPN. That's a third of the country. Two-thirds of the country is subsidizing."