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.

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.

Closing the cable television statutory licensing loophole

Over the last few months, FilmOn and ivi, two Internet-based services that retransmitted broadcast television stations from multiple cities, have been effectively shut down by preliminary injunctions issued by a U.S. Federal court. In both cases, the issue was that the U.S. Copyright Office has a regulation dating back more than 20 years (Section 111 of the Copyright Act) permitting cable systems to retransmit broadcast signals locally in return for the payment of statutory royalties to the Copyright Office. That regulation was effectively superseded by the Communications Act of 1996, which requires cable and satellite systems to obtain permission from and pay compensation directly to broadcast stations in order to retransmit their signals.

In ivi's case in particular, the company argued that it was a cable system for the purposes of Section 111 of the Copyright Act, but it wasn't a cable system under the definition of the Federal Communication Commission, and therefore wasn't subject to the Communications Act of 1996. In both ivi's and FilmOn's cases, the Federal court ruled that they weren't cable systems under any established definition, and therefore weren't entitled to take advantage of Section 111. They could negotiate directly with television stations for retransmission rights, as IPTV operators such as Verizon and AT&T do, but they had no right to retransmit their signals under a statutory license.

Both cases are still in litigation and have not been finally decided by the courts, but an action announced last week by the U.S. Copyright Office may may the entire argument moot. The right of satellite services such as Dish Network and DirecTV to retransmit signals from broadcast stations outside a subscriber's local area was renewed last year, in the Satellite Television Extension and Localism Act of 2010 (STELA). A section was included in STELA that requires the statutory licensing requirements in Section 111, as well as additional requirements in Sections 119 and 122 (covering satellite services), to be phased out, and it gives the Copyright Office responsibility for coming up with a phase-out plan. Here's what the section says:

Not later than 18 months after the enactment of this Act, and after consultation with the Federal Communication Commission, the Register of Copyrights shall submit to the appropriate Congressional committees a report containing the following:

1. proposed mechanisms, methods, and recommendations on how to implement a phase-out of the statutory licensing requirements set forth in sections 111, 119, and 122 of title 17, United States Code, by making such sections inapplicable to the secondary transmission of a performance or display of a work embodied in a primary transmission of a broadcast station that is authorized to license the same secondary transmission directly with respect to all of the performances and displays embodied in such primary transmission

2. any recommendations for alternative means to implement a timely and effective phase-out of the statutory licensing requirements set forth in sections 111, 119, and 122 of title 17, United States Code

3. any recommendations for legislative or administrative actions as may be appropriate to achieve such a phase-out

Last week, the Copyright Office announced a timetable for requesting comments and replies to comments to help it formulate a phase-out plan. By the time the FilmOn and ivi cases wind their ways through the Federal court system, it's likely that the phase-out plan will be adopted, and even possible that the phase-out date will be reached. Thus, even if they win in court, there won't be any statutory license, and they'll still have to negotiate station by station for retransmission rights and compensation.

ivi TV could be "off the air" soon

Yesterday, a Federal judge in Seattle dismissed a suit filed by ivi TV, the company that sent programming from broadcast stations in New York, Seattle, Los Angeles, Chicago and other markets over the Internet without permission. The court ruled that ivi improperly filed the case in Seattle to avoid being sued by broadcasters and networks in New York.

FilmOn, which followed ivi into the U.S. market, was enjoined from retransmitting most U.S. broadcast networks last year. The Seattle lawsuit was the only thing preventing the broadcast stations and networks from demanding the same relief from ivi. Now that the way is clear for a trial in New York, ivi could be enjoined from broadcasting most of its stations and networks in as little as a week.

Ivi can still argue that the U.S. Copyright Office gives it the right to retransmit broadcast signals, but most of its subscribers will drop the service while the arguments go on. It's unlikely that ivi has the financial resources to fight a drawn-out court battle, so the Seattle court's decision is likely to be the beginning of the end for ivi.