When it was announced last month, Internet television service Aereo looked like a good idea waiting for a lawsuit. And in fact Chet Kanojia, the founder and CEO of Aereo, told The New York Times, “We understand that when you try to take something meaningful on, you have to be prepared for challenges.”
In fairly short order, two lawsuits were indeed filed by local affiliates and station owners, both challenging Aereo’s plan to capture over-the-air TV signals and stream them to subscribers, each of whom will be assigned a tiny antenna to receive the programming and a set-top DVR to record it.
A not-so-tiny irony here is that Aereo, which will launch this month, is based at the Manhattan headquarters of IAC/InterActive (NASDAQ:IACI), the media company run by Fox television network (NYSE:NWS) founder Barry Diller. IAC led a $20 million round of financing for Aereo, which is scheduled to begin service on March 14 in Brooklyn. Diller also is expected to join the company’s board.
Parsing retransmission methods
One complaint was filed by affiliates of Fox television, the CW, Univision, and PBS; the other was filed by affiliates of ABC (NYSE:DIS), NBC (NASDAQ:CMCSA), and CBS (NYSE:CBS).
As one plaintiff put it, “It simply does not matter whether Aereo uses one big antenna to receive Plaintiffs’ broadcasts and retransmit them to subscribers, or ‘tons’ of ‘tiny’ antennas, as Aereo claims it does. Simply put, Aereo is an unauthorized Internet delivery service that is receiving, converting and retransmitting broadcast signals to its subscribers for a fee.”
Retransmission fees paid by cable companies to content creators, including the major broadcast networks, are important sources of revenue. The plaintiffs see Aereo, whose subscribers must watch programming as it’s broadcast or record it on the DVR for viewing later – one channel at a time; there is no “on demand” feature to the service – as a distribution of copyrighted material without permission and without a compensation agreement between Aereo and the networks. In other words, Aereo amounts to “illegal use of our content,” according to the plaintiffs.
Aereo’s Kanojia says that, technically, all his company is doing is “providing a use license for the antenna and the cloud DVR.” So it is, essentially, a streaming device that equips users with a DVR that allows them to view broadcasts online, as they would any other online video content, and to do so via their Web-enabled devices, including their smartphones. It is just “tuning in” to signals broadcast over public airways, not rebroadcasting the content in the usual sense. Right?
All the stakeholders, including the cable companies, are watching this one closely.