Why Aereo's Supreme Court Case Matters

Why Aereo's Supreme Court Case Matters

An upstart company that wants to change how you watch TV vs. broadcasters protecting billions

Aereo, a company hoping to change the way you watch TV forever, has spread quickly across the country since its 2012 debut.

TV broadcasters — who are perfectly happy with the way you watch TV now — hope the expansion will come to a hard stop Tuesday, when they will face off with Aereo before the Supreme Court.

Also read: Aereo CEO ‘Hoping for a Clear Decision’ From Supreme Court

The networks say Aereo is stealing their signals and reselling them to its subscribers. Aereo says it is merely harnessing the power of the humble antenna.

But Aereo isn't referring to the the hated antennas that pre-cableites once accessorized with coat hangers, scissors — anything metal, really — in hopes of getting a clearer picture of “M*A*S*H.”

Aereo uses millions of stamp-sized antennas to snatch broadcast signals from the air and route them to subscribers’ laptops, tablets, and other devices so they can watch shows just like they could with cable or satellite TV. It provides the same access to broadcast networks that cable providers do, but without the cable.

Also read: Aereo Defenders Say Broadcast Ban ‘Would Strip Away Commercial Freedom’

Cord cutters in areas with Aereo can pay $8 to $12 per month to watch the major broadcasters, and supplement their TV diet with Hulu, Netflix, Amazon, and other streaming services — and download shows from iTunes.

That's bad news for cable companies, which can no longer charge cord cutters to watch TV, and broadcasters, which charge cable companies retransmission fees to air their shows.

Retransmission fees are very important to broadcasters: The research firm SNL Kagan reported last year that broadcasters like ABC, CBS, Fox, NBC, The CW, Univision and Telemundo will earn $7.6 billion in retransmission fees by 2019.

Anything that cuts into that payout threatens broadcasters. Fox, for one, has threatened to become a cable station if Aereo prevails in court.

Aereo has moved fast since its 2012 debut in New York City. Backed by Barry Diller‘s IAC, it quickly expanded to Boston, Atlanta, Detroit and other cities — though its westward migration was slowed by a Utah judge who has temporarily barred it from six states until the Supreme Court case is resolved.

See video: Barry Diller: Aereo ‘Finished’ If It Loses Supreme Court Case

Barry Diller

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Diller is in the rare position of playing a large role in the creation of two of the litigants in the case. Besides supporting Aereo financially, he also helped launch Fox Broadcasting Co., one of the plaintiffs in the case. (The broadcasters declined to comment for this story.)

A win for the networks would be win for the status quo — and might stem, somewhat, the trend toward cord-cutting. But a win for Aereo would surely inspire similar companies. One of them, FilmOn, has filed briefs on Aereo's behalf despite a contentious rivalry.

Several past precedents will come into play Tuesday: In 1984, the high court ruled 5-4 that the sale of Betamax machines did not constitute contributory copyright infringement. That opened the doors to VCRs, and a generation of clocks set perpetually to 12:00 a.m.

In the 2008 Cablevision decision, the U.S. Court of Appeals for the Second Circuit found that DVR recordings don't infringe on copyright holders’ protections against their works being publicly performed. The court ruled that watching shows on DVR is not a public performance because the person who makes the recording is also the one who watches it. (Bars, for example, are supposed to pay to air a show.) The right of individual customers to play their own songs and shows has become a cornerstone of cloud computing, as Cablevision recently noted.

There's no telling how much the online TV business would be worth if the court rules in Aereo's favor. It isn't even clear how much Aereo is worth now, because the company isn't public and won't disclose its number of subscribers.

Also read: Aereo Slams Broadcast Networks in 100-Page Supreme Court Brief

Getty Images

Getty Images

In an interview with TheWrap last week, Aereo CEO Chet Kanojia said the company had fewer than 1 million subscribers. He has previously said the company would be profitable even with far fewer than 1 million subscribers.

“The purpose of Aereo is very consumer-centric — to create an alternative. If we fail to create an alternative, we fail at creating the alternative,” he told TheWrap. “We are not in this to do circus floppy silly stuff. Our goal is to be an alternative to the closed system.”

The company could crash down very quickly if the Supreme Court agrees that what it is doing is illegal. But Kanojia seemed to leave open the possibility that someone else might buy it.

“The technology we built is immensely valuable. I'm sure somebody will want it,” he said.

Ira Teinowitz contributed to this story.