Why Aereo Loss Will Discourage Technology Innovation in Hollywood

It’s a long-term loss for the entertainment industry which can only survive by embracing change

Last Updated: July 16, 2014 @ 4:28 PM

The decision by the U.S. Supreme Court to back U.S. broadcasters against the upstart service Aereo will send a clear message to innovators: Don’t.

It makes a nice short-term win for the broadcasters who have legacy businesses and retransmission fees to protect.

But it’s a long-term loss for the entertainment industry, which can only survive by embracing change, encouraging innovation and being willing to blow up old business models to win in the brave new world of digital media in which we live.

Also read: Aereo’s Supreme Court Loss Leaves It in Salvage Mode (Analysis)

Aereo founder Chet Kanojia, an engineer, immediately grasped this in the decision, as it likely means the demise of his baby:

“We’ve said all along that we worked diligently to create a technology that complies with the law, but today’s decision clearly states that how the technology works does not matter,” Kinojia (pictured above) said in a statement. “This sends a chilling message to the technology industry.”

Broadcast television already faces a highly challenged business model. With overall broadcast ratings declining every year and the fragmentation of audience across basic cable, premium cable and a dizzying number of streaming services, the advertising money that is its lifeblood inexorably diminishes.

Also read: Aereo Supreme Court Ruling: Fox, Disney and Others React

As a result this industry desperately needs to understand and work with innovators, not shut them out. Change is coming anyway, Hollywood may as well drive it and maintain some sort of control over the pace and nature of that change.

This result of today is a lose-lose-lose. Aereo loses millions, consumers lose choice and broadcasters temporarily stave off a challenger that is bound to reappear.

The matter should not have gone to the courts in the first place. I understood both sides of the argument: Broadcasters are granted free access to the national airwaves and consumers should have the ability to watch that programming for free — that’s the deal.

On the other hand, it costs a great deal of money to create the programming on those networks, and Aereo was charging its subscribers while accessing that programming for free.

 Also read: Supreme Court Sides With Broadcasters Against Aereo

There should have been a compromise early on where Aereo shared its revenues with the networks, with this becoming one more revenue stream for broadcasters, like retransmission fees. Kanojia told me in an interview this year that he tried to strike this deal with the networks early on and they rebuffed him, so he went his own route.

This is much to be regretted. I wish I could say the Supreme Court decision feels like a win for content creators, since I’m always on their side and the justices weighed in with a copyright argument.  And as an industry, Hollywood needs to be focused on technologies that sustain the value of content, not undermine it.

But shutting down change never works. If you block the front door it will just come in the side window.

And in a weird reversal, it was the arch-conservatives on the court who backed Aereo’s argument that  barring content coming over the public airwaves and retrieved by antennas would raise inevitable questions over content sitting up in the cloud or bouncing off of satellites.

Justice Scalia wrote: “Free-to-air broadcast television should not be available only to those who can afford to pay for the cable or satellite bundle.”

Kanojia has been saying this for three years. And the sighs of relief from cloud-based services like NimbleTV, which issued a statement saying that “NimbleTV, servicing customers who have lawfully acquired the underlying content, do not raise the same issues” is not terribly convincing.

Hollywood needs to find ways to embrace change. And innovators need to bear in mind that technology alone cannot always win the day — diplomacy matters, too.


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