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Crazy like a Fox: how broadcast networks could rake in billions by going cable-only

Crazy like a Fox: how broadcast networks could rake in billions by going cable-only

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The FCC's upcoming incentive auctions are a convenient opportunity for broadcasters to stick it to Aereo — and make a quick buck doing it

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Aereo antennas
Aereo antennas

An array of Aereo's coin-sized antennas, designed to pick up TV signals and retransmit them to paying subscribers.

The bluster-fueled battle between upstart Aereo and incumbent over-the-air broadcasters has reached a fever pitch in recent days, most recently with a legal complaint designed to prevent CBS from filing another copyright lawsuit against the service as it prepares to launch in Boston later this month.

There's no love lost, and little hope for a truce. Legacy broadcasters fundamentally believe that Aereo is outright stealing their content, which it retransmits over the internet to paying subscribers. The legal system has thus far disagreed, leading executives at both Fox and CBS to posit a nearly unthinkable "nuclear option": pulling their networks off the airwaves altogether and moving to a cable-only model, just like TBS, CNN, or AMC.

A crazy — but lucrative — idea

It's easy to dismiss the notion of America's over-the-air stalwarts going dark — it seems unthinkable. For decades, Americans have been able to buy any television, plug in a set of rabbit ears (more recently, digital rabbit ears), and get the basics: ABC, NBC, CBS. More recently, Fox and CW joined the fold. It practically seems like a basic right.

But it's not. "If we go to cable, if we are forced to, then about 10 percent of America will not get our signal and I don't think they will like that," CBS chief Leslie Moonves said at a recent panel. And for Moonves, it could be a win-win: what if CBS and its fellow broadcasters are financially incentivized to the tune of billions of dollars in exchange for going off the air?

It's not as far fetched as it sounds. The FCC's so-called incentive auctions, which have been in development for several years, are designed to give television broadcasters a voluntary, opt-in opportunity to sell the lucrative RF spectrum that they own. The idea is simple: having run out of easy ways to keep up with exponential growth in the demand for high-speed wireless data — e.g., your LTE smartphone — the FCC is turning to television stations to pony up any airwaves they're not using or could live without in exchange for cash.

Considering how hard high-quality spectrum is to come by, these auctions could generate billions upon billions of dollars for TV stations, possibly $20 billion or more by some estimates.

It's not as far-fetched as it sounds

The traditional logic is that major broadcasters in major markets carrying big-name networks consumed by millions of households wouldn't relinquish their spectrum, no matter the price. Instead, unused or underused licenses would be the first to sell, after which the FCC would "repack" the remaining stations to make room for a nice, fat, contiguous block of airwaves for LTE and other broadband technologies that wireless carriers can use. But the Aereo situation could be a game-changer: suddenly, the white-hot bluster coming out of the mouths of CBS and Fox executives is backed by a $20 to $30 billion payday.

Conveniently, CBS directly owns 29 stations, most in major markets, while Fox parent News Corporation owns 27. Every station sits on a lucrative license to regional spectrum that it uses to broadcast its signal. By submitting those licenses to the FCC's auction, these networks would stand to see a windfall, shutting the door on Aereo (which relies on over-the-air signals to collect its source content) in the process. Meanwhile, American households that rely entirely on over-the-air television — a recent GfK report estimates them at 17.8 percent of the viewing public — would be the pawns in the game.

Rules for the incentive auctions aren't even set to be ratified until later this year with an actual auction not likely until 2014, so broadcasters still have plenty of time to stew on the concept. But for Aereo and consumers, the promise of a multi-billion-dollar payout to any network bold enough to turn off the switch should certainly be cause for alarm.

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