Guest Article: Legal Developments / Over-The-Top TV

Aereo’s marketing materials. The service is now launching in the New York City area.

With Aereo now in launch mode, this unconventional service (based upon thousands of tiny television antenna–each smaller than a dime), the television industry is facing some interesting questions about even its most basic operating assumptions.

As a result of reader interest in the blog post “I Want to Watch TV on My iPad,” here’s a legal view of the Aereo situation.This material is used with permission of the law firm Drinker, Biddle & Reath, and it originally appeared in the firm’s Antenna newsletter as “Legal Developments Affecting Over-the-Top TV.” The article was written by DBR communications attorney Howard Liberman and and his associate, Jennifer T. Criss.

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The past several weeks have seen important developments regarding “over-the-top” television. More and more consumers are moving away from traditional means of watching television and are embracing services that provide access to television programming directly on computers, tablets, and mobile devices. While some services such as Hulu distribute copyrighted content with permission of copyright owners, other over-the-top services are providing access to copyrighted content without obtaining copyright licenses or paying retransmission fees to TV stations.

One such over-the-top service, Aereo, provides the signals of local broadcast stations to subscribers who “rent” one of thousands of miniature antennas located in Aereo’s facility, for a monthly fee. In March, numerous television broadcasters, including ABC, CBS, NBC, Fox, and PBS. brought suit against Aereo for copyright infringement. While local stations would ordinarily be available for free to any household with an antenna, today most consumers receive access to local stations through subscriptions with cable or satellite providers. The broadcast companies argue that Aereo, which is backed by Barry Diller, is infringing copyrighted material by allowing its users to access live broadcasts over the Internet. Aereo asserts that it is simply providing access to programming that consumers are able to receive for free by allowing consumers to rent its miniature antennas either on a recurring or a per-program basis.

On July 11,2012, Judge Alison J. Nathan of the U.S. District Court for the Southern District ofNew York ruled that Aereo can continue providing services to its subscribers while the case moves through the courts. Judge Nathan concluded that Aereo does not retransmit broadcast channels to its customers because the company provides an individual miniature antenna for each customer rather than offering access to a single, large antenna that transmits signals to all Aereo subscribers. The court disagreed with the television broadcasters’ claim that they would be irreparably harmed and lose numerous customers should Aereo continue its activity until a final ruling in the case.

For now, Aereo operates only in New York City. But Aereo is planning to expand into additional U.S. markets. Thus, it is important for all TV broadcasters to be aware of developments in this litigation. In the meantime, the FCC is considering what constitutes a “channel” within its definition of “multichannel video programming distributor” (“MVPD”). The FCC is questioning whether Internet-based services such as Aereo and Hulu should be considered MVPDs if they distribute more than one broadcast or cable television channel. Including these services as MVPDs could mean that television stations could seek retransmission consent payments for the delivery of their signals by these systems.

As the Aereo case and the FCC proceeding move forward, it is clear that consumer access to television is rapidly changing. With companies such as Google, Apple and Sony considering offering video channels directly to subscribers via the Internet and going “over the top” of cable and satellite providers, defining what constitutes a “retransmission” and what service qualifies as an MVPD is critical to shaping the next decade of television viewing. Today’s viewers don’t just want their MTV; they want their MTV available inexpensively, 24-7, and on their computers, tablets and smartphones. These two proceedings – the Aereo litigation and the

FCC’s effort to re-define “MVPD” – will have a major impact on the future of over-the-air broadcast television.

This issue also has the attention of Congress. Hearings have been held in both the House and the Senate in recent weeks, as lobbyists and trade associations are gearing up for the introduction of legislation — perhaps this year – to make substantial revisions in U.S. communications laws for the first time since the passage of the landmark 1996 Act. We will monitor all these proceedings and provide updates in future issues.

I Want to Watch TV on My iPad (The Plot Thickens)

Last week, a U.S. district judge provided Aereo with a go-ahead on TV that we’ll be able to watch on our mobile devices, but that oversimplifies an interesting story. Here’s the original article, plus an update that, I am certain, will be rewritten once again as the legal dust-up continues. Some of the issues are significant, and will resonate beyond this particular venture. Worth reading.

Here’s the original story published on March 6, 2012:

You’re looking at an array of television antennas. These antennas are used to capture local broadcast signals that you can watch, if you pay a monthly subscription fee, on your computer, tablet, or phone. Aereo (formerly Bamboom) is the company behind the scheme, and, as you might expect, they’ll be spending a lot of time in the legal system as they argue with broadcasters regarding the rights and wrongs of live retransmission (that is, if Aereo is to survive, the broadcast networks want to see monthly cash–just like they receive from the cable operators).

Ah, the free airwaves, the ones that broadcasters use for the public good. Ah, the intellectual property that broadcasters carry over those airwaves, the IP that cable service providers pay to carry. Ah, the unresolved legal gotcha!! Any company that attempts to make those signals available via a secondary distribution scheme must pay for the right, or so say the broadcast networks.

The price for the service? $12 per month. The debut date? March 12. The place: for now, the New York metropolitan area.

For cord cutters, this may be a terrific deal. But it’s unclear whether the courts will block Aereo’s progress, as they have with ivi.tv and others who attempted to climb the walls of the castle without paying the required tribute (or, as I’m adding in my updated version of this article… others who attempted to challenge the current system of copyright and payments for distribution rights to intellectual property).

Slingbox? That’s okay. Over-the-air mobile TV? That’s not ready yet, except in a few markets on a test basis. Watch over-the-air TV? Sure. Watch via cable or satellite? As long as you’re paying for the privilege. Watch on another device? Nope, not yet. Or, maybe the answer is yes. We’ll find out in a few weeks.

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Here’s the update that I wrote on March 12, 2012:

From Bloomberg: Predicting a “great fight” with traditional media companies, billionaire Barry Diller said he plans to expand his new Aereo Web-based television service to 75 to 100 cities within a year, reports Bloomberg.

Diller, speaking at the South by Southwest Interactive festival in Austin, Texas, noted that efforts by Walt Disney Co. and other media companies to cite copyright violations were “absolutely predictable,” since entrenched companies always protect their turf, the story says.

Want to know more? Here’s a bunch of links:

The tech explanation:

http://www.techspot.com/news/47467-aereo-offers-tv-over-internet-with-antennas-engineered-to-comply-with-law.html

The consumer angle:

http://www.forbes.com/sites/dorothypomerantz/2012/02/29/how-much-are-you-willing-to-pay-to-cut-the-cord/

The business story:

http://online.wsj.com/article/SB10001424052970204059804577229451364593094.html?mod=wsj_share_tweet#printMode

The investment story:

http://www.bizjournals.com/sanfrancisco/news/2012/02/14/iac-l20-million-aereo-barry-diller-vc.html?s=print

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Here’s the update as of July 17, 2012

Again from Bloomberg (July 13, 2012): “A U.S. district judge this week allowed Aereo to continue operating while television networks pursue a copyright lawsuit against the company. Aereo captures broadcast signals with small antennas and streams them to devices such as Apple Inc. (AAPL)’s iPad, without paying for the programming.” As a result of the ruling, Diller is now planning a nationwide rollout.

As I pondered what all of this might mean, I read an essay on TV NewsCheck’s website, written by television executive Lee Spieckerman. I contacted him, and we spoke for a while about the ruling and its implications. In short, he believes that Judge Nathan bungled the decision:

“We see loopy rulings from Federal judges all the time, and I think this fits into that category… She misread the governing law!”

Spieckerman’s argument is based in part upon law and in part upon common industry practice. His legal argument tracks back to a 1993 law which requires operators of paid television systems to secure the necessary rights from local broadcasters. The concept is called “retransmission consent” and that ruling has proven to be something of a windfall for local broadcasters as a result of the fees paid by cable operators in exchange for this consent. According to  Spieckerman, these fees are now worth about $2 billion to the commercial broadcast network, plus an additional several billion dollars to local stations. This, plus the additional revenues from political advertising resulting from the Citizens United decision, provide the advertising base necessary for local television news to survive. (Seems to me, we should all understand the economics and consequences of this new approach to journalism funding–a worthwhile topic for a future article). Back to his other argument: “there is no tradition in this country for renting antennas–nobody rents antennas!”

Digging deeper with Mr. Spieckerman, and the real argument emerges. This is all about copyright infringement, and protection of distribution rights associated with intellectual property. Judge Nathan’s ruling begins to disrupt a system by which cable operators compensate owners of cable networks and local stations. ESPN receives $4.69 per cable subscriber–do the math and that’s about $50 per year per subscriber multiplied by 100 million subscribers, and that’s $5 billion per year in subscription fees. Spieckerman believes local broadcast station fees to be 20-50 cents, but acknowledges that these deals are confidential. (Consider that Comcast, Time Warner, and other cable operators charge consumers charge those 100 million subscribers over $1,000 per year–1o0 million x $100 = $100,0o0,000,000, or $100 billion, also good raw material for another Digital Insider article.)

Of course, the local station operators are anxious to negotiate with Diller’s Aereo. And Diller is anxious to go with the Judge’s ruling because it requires no fees. For now, according to Bloomberg,

We’re going to really start marketing… Within a year and a half, certainly by ’13, we’ll be in most major markets.”

To which Mr. Spieckerman counters:

Who is going to be next? This is a pandora’s box, and when you start circumventing and tearing down the few elements there are in the industry and inviting the destruction of an important industry. If I have any intellectual property that I want to distribute, I do not want anybody able to steal my material.”

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