If Fox and Univision go to cable, what happens to their stations?

Yesterday, both Fox's Chase Carey and Univision's Haim Saban said that they would move their networks from over-the-air broadcast to subscription cable distribution if Aereo is allowed to use their content without paying for retransmission rights. Both of these statements are empty threats, because the economic damage from going cable-only would be much greater than the loss of retransmission fees. Here's why:

• Fox owns 27 television stations, 17 of which are Fox affiliates. The 10 non-Fox stations are MyNetworkTV affiliates. If Fox goes cable-only, what happens to the 17 stations? Will Fox make them MyNetworkTV affiliates? Not likely, since it already owns MyNetworkTV affiliates in a number of the same markets. Will it sell them off? Perhaps, but not at the price it would like, since they'd be independents. (See Young Broadcasting's fiasco with San Francisco's KRON.)
• Univision owns 23 television stations, all of which carry the Univision network. They've got the same problems and issues as Fox--what will it program the stations with if they don't carry Univision, and who will it sell them to?
• In both cases, can the networks afford to lose viewers who can't afford or don't want to pay for a cable, satellite or IPTV video subscription?
• Finally, if either Fox or Univision goes cable-only, their affiliates will immediately go to the FCC and Congress to block the move. Just as with the networks themselves, the economic value of their stations would be dramatically reduced by losing their network affiliations.

There are several other reasons why a shift to cable is unlikely, especially for Fox. In any event, Carey's and Saban's threats are nothing more than that. If they can't stop Aereo in the courts, broadcasters will use their enormous clout to get legislation from Congress banning or greatly limiting Aereo. Lobbying, campaign contributions and Fox News' bully pulpit, not taking the broadcast networks to cable, will be the tools used to minimize or eliminate the threat from Aereo.

Aereo scores big court win and looks for distribution partners

Earlier today, the New York Times reported that Aereo, the Internet TV service that uses banks of tiny micro-antennas to give subscribers access to broadcast TV stations over the Internet, has scored an important Federal court victory. Shortly after the Aereo service launched in New York City, a group of broadcast stations and networks filed suit against the company, charging that it was retransmitting their content without permission. Aereo defended itself by referring to a U.S. Supreme Court decision that said that a similar system implemented by cable service Cablevision for providing DVR service to its customers didn't require permission from broadcasters, broadcast networks or cable networks.

U.S. District Court Judge Alison Nathan denied a request for an emergency injunction made by broadcasters to stop Aereo's service, saying that it was unlikely that they would prevail when the full case is heard by the court. The broadcasters then appealed to the Court of Appeals for the Second Circuit, which ruled 2-to-1 today that Aereo's video streams don't constitute a "public performance," because for the duration of a usage session, one antenna is dedicated to a single subscriber, and therefore, the broadcasters are unlikely to win their case.

The broadcasters are likely to request an "en banc" hearing from the Court of Appeals, where the entire Court of Appeals would hear the case. (Update, April 17, 2013: The broadcasters filed an appeal with Court of Appeals for an en banc review on April 15th.) No matter which side prevails, however, the case is likely to be appealed to the U.S. Supreme Court. At this point, the Court of Appeals' decision is only binding in the states that comprise the Second Circuit (Connecticut, New York and Vermont.) Judges in the Ninth Circuit have heard similar cases and have been considerably more sympathetic to the broadcasters' arguments; conflicting rulings in two districts would be another reason for the Supreme Court to take the case.

In other Aereo news, the Wall Street Journal reports that the company is in talks with several pay-TV companies and Internet service providers; the article names Dish Network and AT&T as two companies that Aereo has had discussions with. The discussions center on Aereo providing a low-cost, Internet-based video service that its partners would offer to customers who don't want or can't afford hundreds of channels. Most "basic cable" bundles include many cable networks; the Aereo package would presumably offer broadcast channels only, with a smattering of cable channels that are more interested in distribution than in carriage fees.

In addition, the Wall Street Journal writes that pay-TV companies could offload all of their broadcast channels to Aereo and supply subscribers with set-top boxes that get those channels from Aereo. That would eliminate the need for Aereo's partners to pay for retransmission rights from broadcasters. If the courts ultimately rule that Aereo also doesn't have to pay for them, that could cut off a great deal of income for broadcasters and broadcast networks.

The stakes are so high that if broadcasters lose in court, they're certain to lobby the U.S. Congress to change the law so that the same rules that cover cable, satellite and IPTV video services also cover Aereo and similar services. However, such a change would most likely also require the broadcasters (and possibly cable networks as well) to deal with Aereo and others on the same basis as cable, satellite and IPTV companies. Right now, content providers are free to ignore requests by Aereo and others to distribute their content, or they can set prices that would make services like Aereo uneconomical. Whether content suppliers are willing to pay that price in order to rein in Aereo remains to be seen.

The Internet video battle is the wrong fight in the wrong venue

Last week, over-the-top Internet video company Aereo faced the major U.S. television networks in a Federal court of appeals in New York. Last July, a Federal court denied the broadcasters an emergency injunction to stop Aereo from offering its service, which enables consumers in New York City to watch, record and replay live broadcast television over the Internet. Aereo assigns a tiny, thumbnail-sized antenna to each active user, specifically to circumvent objections that resulted in court injunctions against ivi and FilmOn, two similar services that preceded Aereo. The appeals court hasn't made its ruling as of this writing, but based on court arguments, it looks like the appellate court will be less sympathetic to Aereo's arguments than was U.S. District Judge Alison Nathan.

In my opinion, both sides are fighting over the wrong issue, in the wrong venue. Aereo, and both ivi and FilmOn before it, took the approaches that they did because broadcasters and cable operators either refused to negotiate with them for rights to their content, or demanded fees that they couldn't possibly pay. There are conflicts in current laws that bring into question whether broadcasters must license their content to cable operators under what's termed a compulsory license. However, as the laws are generally interpreted, broadcasters can either make their content available to cable operators for free (in which case the cable operators must assign the broadcasters a channel,) or the broadcasters can ask for compensation for their content, in the form of payment and/or an agreement to carry other content from the broadcasters' parent companies (for example, CBS could require a cable operator to offer Showtime, which it owns, in order to get the right to broadcast its local television station(s).) Broadcasters can withhold their content from any cable operator that doesn't agree to their terms.

The real issue is whether broadcasters, if not cable networks, should be required to license their content under fair, reasonable and non-discriminatory (FRAND) terms to all distributors. I think that it's time for such a requirement. The rules that define who can be considered a Multichannel Video Programming Distributor (MVPD) were written before the Internet became a viable medium for distributing live video. There's no technical reason why Internet video companies can't compete with cable, satellite and IPTV operators, but very few broadcasters, and even fewer cable networks, are willing to sell them their programming.

Here's an example of a FRAND compulsory licensing scheme that could work: Over-the-top Internet services could license content from broadcasters on a tiered pricing scheme based on each service's number of active subscribers--for example, companies with 1-249,000 subscribers would pay a given per-subscriber fee for each broadcast station, and additional tiers with higher fees would be established at 250,000-499,999, 500,000-749,999 and 750,000-999,999 subscribers. Once a video service reaches one million subscribers, it would be subject to the same rules as cable, satellite and IPTV companies. For their part, cable, satellite and IPTV operators would also be eligible for the same FRAND compulsory licenses, at the same rates, until they too reach the one million subscriber mark. According to the most recent statistics from the National Cable Television Association, that would make all but the top 12 MVPD companies in the U.S. eligible for compulsory licenses. Finally, broadcasters could make their programming available to Internet services for free, under the same "must-carry" rules that apply to cable, satellite and IPTV services.

This approach would enable innovative Internet video startups to gain a foothold and compete against larger cable, satellite and IPTV companies, and it would allow smaller legacy MVPDs to compete on a level playing field. I'd also propose that cable networks that are owned by MVPDs (such as NBCUniversal, which is owned by Comcast) be required to follow the same FRAND compulsory licensing rules. Other cable networks could choose to make their programming available to smaller MVPDs, including Internet companies, under FRAND licenses.

The courts can't implement a FRAND compulsory licensing scheme; it has to be done by the U.S. Congress, in conjunction with the U.S. Copyright Office. No court ruling in the Aereo case, even if it goes all the way to the U.S. Supreme Court, will fully resolve the case--if Aereo wins, broadcasters will push for legislation, and if the broadcasters win, Aereo and its allies will do the same. It's time to recognize that the public Internet works for live video distribution, that startups should be able to compete with existing cable, satellite and IPTV companies, and that content providers should get fair compensation, no matter how their content is distributed.

Aereo opens the floodgates in New York, while FilmOn comes back around for another run

According to CNET News, Aereo, the "broadcast TV over the Internet" startup partially funded by IAC, is opening its service to anyone in New York City, and has announced new pricing plans, including a free tier. Aereo's original $12/month plan is still offered, with online viewing of most broadcast stations in the New York metropolitan area and 40 hours of HD DVR space. Today, Aereo announced three new plans: An $8/month plan with 20 hours of DVR space, a $1/day plan with 3 hours of DVR space, and a free plan that allows viewing of up to one hour a day, with no DVR space. In addition, Aereo is offering an annual plan with the features of the original $12/month plan, for $80/year. The free plan is a "no-brainer" way for potential subscribers to try out Aereo.

On the West Coast, The Hollywood Reporter writes that FilmOn, which has been in a three-year battle with broadcasters, broadcast and cable networks over its over-the-top Internet service, has entered into a settlement in which the company reportedly agreed to pay $1.6 million and accepted a permanent injunction on FilmOn's service. However, that hasn't stopped company owner Alki David, who claims that he's deployed "more than 2.6 million television antennas and large RAID drives in major cities all over the country," and intends to relaunch the FilmOn service using the same technology and legal arguments as Aereo. David doesn't believe that the permanent injunction covers his new service. In addition, he plans to launch an "over-the-air premium channel" by the end of the year, starting with station KHIZ in Los Angeles.

If David launches his new incarnation of FilmOn before the Aereo case is resolved, it's very likely that the plaintiffs that he just settled with will file for an emergency injunction and request damages, and the court with which the confidential settlement was filed may go after David for contempt of court, which could lead to additional damages and possibly even some jail time. In addition, FilmOn's service may violate some of Aereo's patents.

It's unclear why David doesn't just wait until the New York Federal Court rules on Aereo. If the court allows Aereo to continue in operation, David could safely launch a similar service based on the same principles, so long as it doesn't violate Aereo's patents. If the court shuts down Aereo, FilmOn will likely be shut down as well. I don't want to try to figure out his logic, but he's acting like a rich guy who doesn't really care what U.S. courts say.

Aereo avoids a preliminary injunction

Aereo, the New York-based Internet rebroadcasting service backed by Barry Diller's IAC, has won a round in U.S. District Court. According to Reuters, Judge Alison Nathan rejected requests by ABC, CBS, NBC, Fox and other networks and local broadcasters for a preliminary injunction to halt Aereo's service. The broadcasters argued that they would suffer irreparable harm if they didn't get an injunction, while Aereo argued that it would suffer irreparable harm if the injunction was issued. The judge decided that the "balance of hardships" didn't tip decidedly in the broadcasters' favor, and denied the injunction.

Update, July 12, 2012: CED provided more details of Judge Nathan's decision. She wrote that she most likely would have upheld the broadcasters' request for a preliminary injunction, but couldn't, due to the ruling of the U.S. 2nd Circuit Court of Appeals in Manhattan in a case challenging Cablevision's RS-DVR system. In that case, the court found that Cablevision's network DVR system didn't violate broadcasters' and cable networks' copyrights. Aereo is relying on the Cablevision decision in its defense, and Judge Nathan wrote that the arguments made by the broadcasters were "profoundly similar to those already considered and rejected" by the Court of Appeals.

Broadcasters have already begun the process of appealing Nathan's decision, but assuming that Judge Nathan's decision is upheld, they're going to have to come up with a different approach to the case.

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.

Aereo: Another "cable killer"?

Companies have been trying for years to offer cable television-like services over the Internet, without having to either get permission from broadcasters or pay them to retransmit their shows. FilmOn and Ivi are two companies that tried last year, but are both currently "off the air" as the result of court injunctions. Aereo, a New York-based company, is the latest to try. The company launched its service today in New York City. According to the company, Aereo is designed specifically to get around the legal limitations that shut both FilmOn and Ivi down.

Aereo will stream the signals from 20 New York City-area broadcast stations to its subscribers for $12/month, and will include a network-based DVR service that was upheld as legal by the U.S. Supreme Court last year in a case against Cablevision. All the major broadcast networks, including ABC, CBS, Fox, NBC and PBS, will be included, but cable-only networks such as USA, TNT and CNN won't be. That's one big difference between Aereo's service and those of FilmOn and Ivi, both of which offered a selection of basic cable networks. In addition, Aereo will initially only be available in New York City, and Aereo will only carry signals from local television stations--another difference from its predecessors, which made signals from stations in Los Angeles and New York available to subscribers around the U.S.

Aereo is doing one more thing that it hopes will make its service ligitation-proof: For every subscriber, Aereo will install a tiny, thumb-sized antenna in an undisclosed location in New York City. (Correction, February 15, 2012: Aereo is going to allocate each subscriber their own antenna from a pool of antennas while they're using the service, not install a dedicated antenna for every subscriber.) The idea is that each subscriber will receive the signal from their own antenna, not from a "community" antenna, and therefore, Aereo isn't a cable system and isn't bound by cable retransmission rules. It's an interesting way to try to get around the regulations, but whether the courts will agree is an open question.

Aereo has one more card to play: One of its investors is IAC, and company Chairman Barry Diller will join Aereo's Board of Directors. Diller is a former VP of development at ABC Television, former Chairman and CEO of Paramount Pictures and former Chairman and CEO of Fox, where he founded the Fox Television Network. At one time he owned USA Network. Diller is one of the best-connected executives in the media industry, and he has the experience in running and working with television networks and movie studios that neither FilmOn nor Ivi had. However, it's unclear if that's going to be of any help if the New York television stations go to court against Aereo.

Update, March 1, 2012: The Hollywood Reporter reports that not one, but two, lawsuits were filed against Aereo today to stop it from launching on March 14th. The first lawsuit, asking for a permanent injunction and statutory damages, was filed by Fox, Telemundo and PBS and their New York affiliates. The second lawsuit, asking for pretty much the same thing, was filed by CBS, NBC and ABC and their local affiliates. The Hollywood Reporter says that the two lawsuits are likely to be consolidated.

If you live in New York, have poor television reception and don't care about cable networks (or can get what you want from Netflix), it may be worth considering Aereo as an alternative to cable. If you live outside New York, don't hold your breath--Aereo's unlikely to spread to other cities until the courts determine whether or not its service is legal.