Aereo, a startup that streams broadcast television over the internet, is headed to the Supreme Court tomorrow just two years after its debut, and stakeholders across the internet and television industries are watching closely.
The case is arguably the most important to hit the television industry since the landmark ruling over Sony’s Betamax format in 1984, which legalized home recordings. It will determine to some degree how broadcast television will be offered online in the future, and could restrict cloud storage services like Dropbox and Google Music as well.
Aereo assigns each user a tiny remote antenna stored in a warehouse full of antennas and makes a recording every time a user watches something. This unwieldy method was designed to fulfill very narrow legal conditions that supposedly allow Aereo to stream broadcast content without paying the networks for the privilege. The setup mimics "rabbit ears," the set-top antennas people use to improve reception, paired with a DVR — both ruled legal when used in a viewer’s home. Whether this is still legal when it’s used to deliver television over the internet is now up to the court to decide.
It's the most important TV industry-case since the fight over Sony's Betamax recorder
Aereo, which charges subscribers between $8 and $12 a month, is "not a piracy trick, as broadcasters have alleged, but a genuine innovation that consumers should be able to choose," writes Aereo investor Barry Diller, the media mogul credited with the creation of the Fox network.
"Aereo steals broadcast signals from the air and pipes them over the internet without paying a dime to the people who invested billions of dollars to produce that content," the broadcasters’ lawyers said in a statement sent to The Verge. "Were Aereo to get its way, copyright protection would be diluted, the value of copyrights in broadcast programming would decline, and there could be fewer programs created for the public to enjoy."
The Supreme Court agreed to hear arguments centered around a line from the Copyright Act of 1976, in which Congress granted copyright holders the exclusive right to "perform the copyrighted work publicly." That phrase is further defined to mean, among other things, "to transmit or otherwise communicate a performance or display of the work ... to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times." This is known as the "transmit clause."
The arguments against Aereo get pretty byzantine. The broadcasters say the service is a "textbook public performance under the transmit clause" because of the "separate places... at different times" language. The technical details are "irrelevant" because the law says the infringing transmission may be "by any means of device or process."
Go into the supporting briefs filed by interests from Cablevision to independent broadcasters to the White House, and the arguments get even more nuanced. For example, Cablevision, which is opposed to Aereo even though the startup depends on the legal reasoning from the eponymous case, argues that Aereo is a public performance because of the "potential" audience that can subscribe at any time.
"If a brother calls his sister one Saturday morning and asks her to sing ‘Happy Birthday’ over the phone, the performance is clearly private."
"If a brother calls his sister one Saturday morning and asks her to sing ‘Happy Birthday’ over the phone, the performance is clearly private," Cablevision’s lawyers write, in one of many logical contortions this case has inspired. "But if that same sister realizes she really enjoys singing ‘Happy Birthday’ over the phone and posts a sign in the grocery store that says, ‘Anyone who wishes to hear me sing Happy Birthday can call me this Saturday morning and I will sing it,’ the performance is public — even if her brother happens to be the only person who reads the sign and calls."
Even though cable networks oppose Aereo, some cable executives have said they will start offering Aereo-like services if it’s deemed legal. That would mean no longer paying the hefty fees to broadcasters to retransmit their content, which is the broadcast industry’s second-largest source of revenue after advertising. The mere existence of these services could also depress rates, broadcasters say. Meanwhile, cable networks are worried that their customers will drop their cable subscriptions and sign up for Aereo.
Aereo CEO Chet Kanojia says broadcasters are most concerned about Aereo undermining the lucrative "bundling" system, in which subscribers must subscribe to a bunch of niche channels they don’t necessarily want in order to get live news, sports, and premium channels like HBO.
"This is a business-model case masquerading as a copyright case," Kanojia says. "The real issue to them is that people don’t want to continue to pay the bundled outrageous prices. "If consumers get access through Aereo, and they can get 50 percent of the value of the bundle at $8 a month and then they have Netflix and a few other things, why on earth would anybody pay for that bundle? All these media companies are not just broadcasters, they’re broadcasters and they control lots of other media and content that is on that bundle. They don’t want a change in the status quo."
"This is a business-model case masquerading as a copyright case."
The Aereo case may also have implications for cloud storage services like Dropbox and Google Music, which store copyrighted works for streaming. A ruling against Aereo would turn "all cloud storage providers into infringers," the startup says. Mozilla and the Computer and Communications Industry Association, which includes Google, Facebook, Microsoft, and others, echo the fear that a ruling against Aereo could result in onerous requirements for the nascent cloud-computing industry and require costly litigation in order to straighten out how the law should apply.
A wide range of groups have weighed in on the case. The Obama administration, National Football League, and the Recording Industry Association of America have submitted supporting briefs in favor of the broadcasters (and the White House will actually be participating in oral arguments). The Electronic Frontier Foundation, Dish Network (which owns the ad-skipping Hopper DVR), and small independent broadcasters have filed briefs for Aereo.
The case will be heard tomorrow, but a ruling won’t come out for a few months. If Aereo wins, the broadcasters will probably try to pass legislation in Congress that requires the company to pay retransmission fees, and the battle will continue. It’s also possible that the Court will rule that Aereo must change some small thing about its model — add a longer time delay, for example — in order to make it legal, which would perpetuate the debate. But if the high court agrees completely with the broadcasters, it’s game over. "If it’s a total straight-up loss, then it’s dead. We’re done," Kanojia says.