A Tiny Antenna Threatens Broadcasters

Chet Kanojia’s Aereo have shaken up the Television Industry. A 43 Year old immigrant from India, who as an outsider saw a system that most took for granted and who knew he could build a better mousetrap, or at least a different one. Aereo, Mr. Kanojia’s two-year-old company, has figured out how to grab over-the-air television signals and stream them to subscribers on the Internet. It is an invention that could topple titans.

The man at the center of this movement is Mr. Kanojia, a self-described “back bencher” in his youth, who spent too much time smoking and drinking and too little time studying in his hometown, Bhopal. Now he has transformed himself into a lean long-distance runner and workaholic pursuing what he describes as a simple ambition: improving the world through technology.

Mr. Kanojia does not fit the profile of a poor immigrant bootstrapper. He grew up in an upper-middle-class household in Bhopal where his parents were so conscious of his future that they largely spoke English instead of the native Urdu.

After earning an undergraduate degree in mechanical engineering in India, he came to the United States and earned a master’s in computer systems engineering from Northeastern University.

His aspirations are idealistic and democratic, as well. Aereo, he says, is not so much about making money — after all he made plenty after he sold his first company, Navic Systems, which made software that helped cable companies interact with their customers, to Microsoft in 2008 for a reported $250 million.

Aereo- a technology company based in New York City that allows subscribers to view live as well as time-shifted streams of over-the-air televisionon Internet-connected devices. The service launched in February 2012and is backed by Barry Diller’s IAC.

Aereo works by setting up thousands of tiny antennas, then it sends the signals received by those antennas to subscribers over the Internet. (Bloomberg LP, which owns Bloomberg Business week, is an Aereo partner and offers its cable channel on the service.) Because each antenna is assigned to a specific customer, Aereo says it’s not providing a public broadcast, allowing the company to avoid retransmission fees.

As of October 2012, Aereo could be used on Windows, Mac, and Linux PCs  with a compatible browser or iOS devices including the iPhone, iPad, iPod Touch or Apple TV (2nd & 3rd Gen) via AirPlay. As of January 21, 2013, Aereo can be watched on Roku without the use of iOS device via a stand-alone app.

As of June 2012, the service offered 28 channels, including all major broadcast channels. In August 2012, the company announced new monthly and yearly pricing options, $1 a day and ‘Aereo Try for Free.’ Monthly plans start at $8 for 20 hours of DVR storage, there are also yearly subscriptions.

Aereo provides this service by leasing to each user an individual remote antenna. This distinguishes Aereo from purely internet-based streaming services.

Immediately following Aereo’s launch in New York City the company was sued by a consortium of major broadcasters, including CBSComcast‘s NBCDisney‘s ABC and 21st Century Fox‘s Fox for copyright infringement.

To entertainment companies, this is Cheating. According to Copyright Law- An individual can watch anything with the help of an Antenna as long as it is for their personal use. But according to the Broadcasters, Aereos transmissions constitute a “public performance” that requires Aereo to pay for retransmitting them.  Further they claim that Aereo is violating copyright and stealing their content.

Broadcasters say that Aereo is taking advantage of a legal loophole and that the transmission of content without a license is a copyright violation. Because the broadcasters expect to bring in more than $4 billion in retransmission fees this year, the stakes are high. DirecTV (DTV), Time Warner Cable (TWC), and Charter Communications (CHTR) have all said they would consider using similar technology to avoid paying fees if Aereo’s techniques were deemed legal.

The top court in the country on Friday agreed to hear the case pitting television broadcasters against Aereo, an online subscription service with arrays of miniature antennas that grab over-the-air programming, stream it online to paying members, and store it for them in a remote DVR.

Although, Aereo is pretty confident it can win as two courts have already ruled that its service is legal. It wants the Supreme Court to put an end to the controversy so it can move on, as Aereo says the uncertainty is holding it back from what would otherwise be a fruitful future. The company this week said it has raised $34 million to fund further expansion.

Table stakes :

Copyright law distinguishes between private performances and a public ones. Pulling up “The Walking Dead” on your DVR and watching it on your couch — that’s a private performance, and kosher with copyright law. Your cable company providing you with AMC so you and millions of others can watch “The Walking Dead,” that’s public performance.

On the surface, Aereo’s business seems akin to the latter example, a public performance. But Aereo has an individual antenna for every subscriber, and an individual copy of the content for each user. It’s setting up each member’s antenna of his or her behalf, connecting it to the Web, and letting that member use the antenna however they see fit, as though it were an antenna in their own home. Aereo calls that private.

Strictly speaking, retransmission fees are the reason broadcasters are suing Aereo. Today, nearly all US viewers watch TV via a paid distributor like cable — estimates put it at more than 90 percent. You pay the cable company to watch free broadcast shows, and as a result, the cable company must pay the networks for retransmitting their content.

Aereo’s model circumvents these big payments, and broadcast networks are incensed.

Networks relish their retransmission fees. Though most of their sales still comes from advertising, retransmission fees are a revenue innovation and are growing fast. Where retransmission fees didn’t exist a few years ago, they’ve grown to an estimated $3.3 billion last year and may be worth more than $7 billion a few years from now.

 Cable stakes :

Aereo is tiny, however. The retransmission fees networks are missing out on are a drop in the bucket. The networks’ bigger fear is their giant distributors will do the same.

“Broadcasters are worried not so much about Aereo but the Aereo principle applying to their big retrans consent accounts,” like cable, satellite and fiber-optic TV companies, said David Wittenstein, a media and information technology lawyer at Cooley in Washington DC.

In other words, the networks aren’t worried about the drop in the bucket. They’re worried Aereo will kick the whole bucket over.

Copyright owners like them collect about $100 million a year from the licensing charges distributors pay when they retransmit broadcast programming, the brief said. If retransmission fees disappear, pro leagues risk losing those millions too. That could force rights holders to move to paid cable networks, “where Aereo-like services cannot hijack and exploit their programming.”

 Distributor stakes:

Pay-TV operators, meanwhile, are loathe to keep paying skyrocketing retransmission fees. Time Warner Cable’s willingness to temporarily remove CBS channels from its lineup during their fee negotiations this summer illustrated that. But most cable clients of Wittenstein don’t want Aereo to win, because Aereo offers a low-cost alternative to their video service, and they’re worried about generational viewing shift.

“Cord cutters,” people who forsake traditional pay-TV service for Internet-based alternatives, are still a rare breed, but those who cut the cord are young. If today’s kids become accustomed to Internet-based TV, tomorrow’s households will turn to the Internet rather than cable or satellite.

Adding another wrinkle for pay TV, the Aereo case could imperil a precedent known as the Cablevision case. In 2008, the cable provider Cablevision won its court battles against media companies to offer network DVR, a cloud-based recording system that doesn’t require recording hardware in the home. Without network DVR, you can’t access your recorded shows on the go, and the content is locked to the box attached to your TV. The Supreme Court declined to hear an appeal of the Cablevision case in 2009, and pay-TV operators have been rolling out the cloud-based services ever since.

If the Supreme Court rules against Aereo, it could do so by striking down the Cablevision decision.

Dark clouds elsewhere:

The worries about cloud storage don’t stop with remote DVR. Cablevision, Aereo, and others have argued that the broadcasters are challenging the legal underpinning of all cloud-based services. That means Dropbox, or your Amazon cloud-storage locker.

Most cloud-locker companies don’t hold any licenses for the content. Why would they? If customers store their own movies or MP3s and stream them from the lockers, those are private performances.

Aereo’s single-antenna, single-copy setup is the basis for its claim of being a private transmission too.

So which way will it go? 

Who is likely to come out on top: the broadcasters or Aereo? As with any case before the bench, it’s a difficult call.

Aereo has been victorious in courts thus far. In April, the Second Circuit Court of Appeals denied a preliminary injunction sought by the television networks, and denied a motion it be reheard before a full panel of judges. A judge in Boston ruled along the same line.

However, FilmonX, a company offering a service similar to Aereo’s, hasn’t had as much success, failing to deflect injunctions in Los Angeles, D.C., and Boston courts. While it’s unclear whether Aereo and FilmonX are based on the same technology, the latter’s court failures cast uncertainty on Aereo’s record.

No matter who wins, one thing is certain — Aereo will be changing the course of television history, just as it wanted.

About the Author: Ms Sheetal Tiwari, Trademark Attorney at Khurana and Khurana and can be reached at: sheetal@khuranaandkhurana.com

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