Thursday, May 31, 2012

Internet multichannel video services go on the offensive

According to The Hollywood Reporter, Aereo, the Internet-based multichannel video service backed by Barry Diller, faced off against ABC, CBS and NBC yesterday in Federal Court in New York. The broadcast networks are asking for a preliminary injunction again Aereo. In an unusual move, the judge is allowing both sides to call witnesses--an opportunity that wasn't afforded to either ivi or FilmOn in previous cases. (The Second Circuit Court of Appeals began oral arguments about ivi's injunction yesterday.)

Part of yesterday's testimony centered on the damage that Aereo's service could do to broadcasters, since the networks have to demonstrate both a likelihood of prevailing on the merits of the case and irreparable harm if Aereo continues in operation in order to get a preliminary injunction. Martin Franks, CBS' Executive Vice-President of Planning for Policy and Government Affairs, was asked whether Aereo is more or less damaging to broadcasters than DVRs, and Franks replied that he didn't know. Michael Elkin, one of Aereo's attorneys, pointed to a deposition that Franks had given, in which he suggested that DVRs were more damaging than Aereo's technology, even though broadcasters have accepted DVRs as a "fact of life."

The comparison with DVRs is interesting, and it might well help Aereo avoid a preliminary injunction. However,  it's probably not going to be a major factor in the trial for a permanent injunction. Broadcasters want to be able to require Aereo to pay for retransmission rights, as cable, satellite and IPTV operators are required to do by law.  Aereo claims that its system is the same as reception through a roof-top antenna--the antenna is simply located across the open Internet--and that it's thus not bound by the same rules as other multichannel video programming distributors (MVPDs.) Broadcasters are concerned that if Aereo is allowed to continue to operate, it will lead to a flood of low-priced, over-the-top video distributors copying Aereo's model. Consumers will move to the new Internet-based distributors, and the revenues that broadcasters get from cable, satellite and IPTV providers will decline.

The FCC is considering whether to add over-the-top Internet video services like Aereo to the definition of MVPDs. That would partially address the issues in this case, since Aereo would be required to pay for broadcasters' programming. However, the broadcasters could still refuse to license their programming to Aereo, leaving the company without the content it needs to operate.

What's ultimately needed is a requirement that broadcasters make their programming available to all MVPDs at equitable prices. That would allow Internet-based MVPDs to compete on an even footing with other companies, but wouldn't penalize established MVPDs. It would also insure that broadcasters get retransmission revenues from all distributors.
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