The Supreme Court will hear arguments Tuesday in a case that could shape the future of television and even the Internet.
All of the major TV networks are suing to shut down Aereo, a service that lets subscribers watch and record local TV channels on their computers, tablets, phones, and Internet-connected TVs for as little as $8 per month. The problem is that unlike cable providers, Aereo doesn't pay the TV stations for their content.
Everyone has the right to access over-the-air TV channels using an antenna. Aereo calls itself a "modern-day television antenna and DVR." But Aereo subscribers don't have antenna arms sticking out of their tablet computers. Instead, Aereo uses a cluster of thousands of tiny antennas to deliver video over the Internet to all of the subscribers in an area. Technically, subscribers are renting access to one of those antennas.
The company says it's just making it easier to watch over-the-air TV. The service, which is currently available in only 11 cities, is especially appealing to young people who want to drop their pricey cable packages for Netflix, Amazon Prime, and other online options, but don't want to miss out on sports and local news.
But ABC, NBC, CBS, and Fox have all sued, claiming that Aereo is stealing their content. The video site has won some decisions in the lower courts, but the Obama administration has weighed in with a brief on the side of the broadcasters.
The TV networks claim that their entire business model is in danger if Aereo wins, and they've hired the best lawyers money can buy. Paul Clement, a former solicitor general who argued before the Supreme Court to try to overturn the president's health care law, will represent the TV stations on Tuesday.
A host of technology companies have come to Aereo's defense, warning that a decision against the video service could threaten other "cloud" storage sites like Dropbox.
What Happens If Aereo Wins?
The TV broadcasters fear an Aereo victory could doom their whole industry. While broadcast TV is free over the air, most people watch their local TV channels through a subscription from their cable or satellite provider. Unlike Aereo, those providers pay the TV broadcasters for their channels.
Broadcasters have been negotiating for higher and higher payments in recent years, and so-called "retransmission fees" now account for an estimated $3.3 billion in revenue every year.
The fear is that if Aereo wins, cable providers could cut off those payments, either by entering into an agreement with Aereo or mimicking the company's technology. Even if cable companies don't follow through with that threat, an Aereo victory could give them leverage to drive down payments to broadcasters. Lower retransmission fees could mean lower cable bills for consumers (or just higher profits for the cable companies).
Executives at the major TV networks say they can't survive without retransmission fees. In a filing to the Supreme Court, the networks warned that Aereo "imperils … the viability of over-the-air broadcast television."
If the Supreme Court concludes that Aereo isn't violating the law, the first thing the broadcasters will probably try to do is get Congress to change the law. They argue that Aereo is trying to exploit a loophole in copyright law, and if the Court doesn't shut the company down, then Congress should just close the loophole. Broadcasters continue to have impressive clout on Capitol Hill and are used to getting what they want.
The broadcasters have already threatened that if the Court and Congress refuse to stop Aereo, they may pull their programming off the air.
"If we can't have our rights properly protected through legal and political avenues, we will pursue business solutions," News Corp. President Chase Carey said last year. "One such business solution would be to take the network and turn it into a subscription service."
It's unclear what that threat would mean exactly and whether broadcasters would consider shutting down entirely. A more likely result is that the networks would move popular programming like sports and prime-time shows to cable channels and leave lower-cost content (like re-runs) on their broadcast stations.
What If the TV Networks Win?
A loss in the Supreme Court is the end of the road for Aereo.
"If we lose, we're finished," Barry Diller, a media mogul and the main investor in Aereo, said in an interview this month on Bloomberg TV. "Aereo would probably not be able to continue in business."
But the case could have implications for more than just the one small Internet company. Some tech groups and Internet activists warn that the Supreme Court could throw cloud-computing companies into legal jeopardy.
Like Aereo, companies including Google, Amazon, Apple, and Dropbox allow users to remotely access copyrighted material. If the Court holds that Aereo's remote-antenna system qualifies as a "public performance," and therefore requires a copyright license, it could threaten companies with similar business models.
In a brief to the Supreme Court, the solicitor general argued that Aereo is different than other cloud providers because for other services, consumers are generally playing back a copyrighted work that they acquired legally in the first place.
The office, which represents the U.S. government before the Supreme Court, said the conclusion that Aereo is illegal "should not call into question the legitimacy of businesses that use the Internet to provide new ways for consumers to store, hear, and view their own lawfully acquired copies of copyrighted works."
But the Computer and Communications Industry Association, a lobbying group that includes Google, Microsoft, Yahoo, and Aereo, said the U.S. government's test is "unworkable and will endanger the thriving cloud computing industry just as it starts to mature."
Even if courts don't ultimately shut down other cloud companies, a ruling against Aereo could result in "years of costly litigation, chilling much valuable innovation in the meantime," the association warned.
This article appears in the April 21, 2014 edition of NJ Daily.