MAGNA GLOBAL Flash POV: Supreme Court Dubs Aereo’s Service Illegal, Broadcasters Rejoice

Over-the-top video service Aereo was effectively shut down today after the U.S. Supreme Court declared their business model illegal.  While CEO Chet Kanojia vowed to continue the fight to develop consumer-centric video solutions, the company’s main investor, Barry Diller, said the fight was over.  Indeed, there is no way Aereo could continue in its current form without paying the same substantial retransmission fees that cable, satellite, and telco providers currently pay, eliminating its position as an inexpensive alternative.

To recap, in 2012, a temporary injunction filed by several broadcasters was denied by the Federal court in New York, citing a previous case involving Cablevision’s remote DVR service.  The consensus among the judges was that since Aereo is designed to send signals to individual consumers, it is not broadcasting publicly and therefore not violating any copyright laws.  That decision was upheld by a federal appeals court in April of last year.

While three of the Supreme Court Justices agreed with that assessment, the majority did not.  In their minds, Aereo operates in the same way as any other multichannel provider, because it “receives programs that have been released to the public and carr[ies] them by private channels to additional viewers.” (You can read the full decision here).  Because of that, said the Court, it too must comply with the Copyright Act of 1976, which is the law that enables broadcasters to collect retransmission fees from said providers.

Justice Scalia, one of the dissenters, expressed concern that the Court’s “improvised standard” will “sow confusion for years to come.”  The fear in the technology world is that this will strongly discourage any innovative new over-the-top solutions for fear of being squashed by the broadcasters.  For consumers, it whittles down the less expensive alternatives to having a traditional multichannel subscription—but the fact of the matter is, there is no evidence that current cable subscribers have any interest in abandoning their service.

Our latest estimates show that multichannel subscriptions are quite stable—while some consumers may switch providers, very few are abandoning their cable altogether.  Which means that OTT options like Roku, Apple TV, and video game consoles are largely supplemental, and that the viewers that rely strictly on broadband for their video never had a multichannel subscription in the first place.  But—as we’ve pointed out before—they must often relay on the same cable companies for their broadband connection.

Bottom Line: This decision is not surprising; the broadcasters have deep pockets and powerful lobbies in Washington.  The truth of the matter is that even if Aereo had won, it wouldn’t have presented much of a threat to the broadcasters—at least not in and of itself.  What could have been disruptive is the inevitable efforts by MVPDs to avoid retransmission fees by adopting a similar model.  Even then, though, those services are likely to have appealed to a small contingent of consumers that never had a multichannel subscription to begin with, as those who have it don’t seem to be in any hurry to part with it.