Aereo in a Nutshell

Posted By on Jan 28, 2014 | 4 comments

Recently, we published an in-depth, four-part series on understanding the Aereo case.  For those who are looking for a quicker understanding of the issues, we’re also providing this briefer overview.  (See also “Under Weight of #Superbowl…@Aereo Collapses” for a look at the implementation issues Aereo faces, and how they led to widespread problems for customers, during the Superbowl.)

In the interest of full disclosure, let me note that I, myself, am not an entirely disinterested party in this matter, inasmuch as I spent many years at Cablevision, and worked directly on Cablevision’s RS-DVR.  (See below for what this has to do with Aereo.)

Aereo’s System

Aereo allows users to access free, over-the-air television broadcasts, using equipment at Aereo facilities to receive and retransmit the broadcasts over the internet.  Aereo’s system records programs selected by the user, and streams them to the user for viewing (either live, or timeshifted) through a browser, a smartphone, a tablet, or to a television via devices such as Roku and AppleTV.

The Aereo system uses many miniaturized, individual antennas.  When a user submits a request to watch or record a program, one of the antennas is allocated to the user for the duration of the viewing/recording session.  The appropriate over-the-air channel is tuned, the program is transcoded for more efficient storage and transmission over the Internet (using an allocated transcoder) and is stored to disk storage that is allocated to the individual user.

The system was designed to comport with a court ruling holding that Cablevision’s RS-DVR (Remote Storage DVR), which allowed individual users to store individual recordings of programs on servers, did not infringe copyright.

What’s the Fuss?

While over-the-air broadcasts are available free to consumers who receive them over-the-air, cable, satellite and telco providers are required to pay broadcasters fees to retransmit over-the-air broadcasts to their customers.  In recent years, many broadcasters have used a nearly-two-decade-old law requiring retransmission consent to negotiate very substantial fees from those cable and satellite providers.  Today, retransmission consent fees are beginning to rival advertising revenues as a source of income for broadcasters, and broadcasters view those fees as essential to both their profits and to being able to purchase and produce high quality programs that compete effectively with cable networks.

Today, approximately 12% of households receive over-the-air broadcasts for free, over-the-air.  The other 88% of households, receive them via a cable, satellite or telco provider that pays fees to the broadcasters.

Aereo, on the other hand, pays no fees.  Instead, they designed their system to, effectively, rent an antenna and disk storage to users, in order to enable users to access over-the-air broadcasts without having to pay retransmission content fees.

The broadcasters view this as a major threat to their business model, not simply because of Aereo, itself, but because of fears that cable, satellite and telco operators could adopt similar technology to avoid paying retransmission consent fees.

The Legal Issues

The broadcasters sued Aereo, alleging that Aereo was infringing the Copyright Act.

This much is undisputed: in 1976, Congress amended the Copyright Act to require cable television companies to pay (at the time, low, compulsory) licensing fees to retransmit certain broadcast signals to their customers.  Congress crafted the language in an attempt to cover future changes in the specific technology used for such retransmission.

At the same time, Congress wanted to ensure that the new licensing requirements would not apply to individuals who were merely making private use of television or broadcasts (or other copyrighted content).  So Congress created a distinction between a public performance, such as that a cable television operator engaged in when retransmitting broadcast signals to its customers, and a private performance, such as that an individual engages in when using their own antenna, or playing a record album.

Aereo challenged this legal distinction by creating a service that functions, in practice, much like a cable, satellite, or telco operator, but which is structured as a system enabling individuals to rent equipment to privately receive, record and retransmit broadcast signals to themselves.

Many commentators have noted that the question of whether the retransmissions in the Aereo system are public or private is the central issue in the case.  In fact, it is one central issue in the case.  Another central issue is whether the act of receiving, recording and retransmitting a broadcast signal is attributable to Aereo, or to Aereo’s user.  (For, even if the retransmissions were public, if they are acts of Aereo’s users, and not of Aereo, then Aereo is not liable—or at least, not directly liable.)  Finally, the last central issue of the case is whether the language Congress used to attempt to cover future technology changes is sufficient to conclude that Aereo infringes, even if the prior two issues would result in a conclusion that Aereo does not infringe.

So Does Aereo Infringe?

This observer believes that the answer is, clearly, Aereo does not infringe.  For a detailed explanation of why, see part 4 of the in-depth series, but here’s the short version.

To conclude that Aereo does infringe requires either eviscerating the notion that there is such a thing as a private performance, or the fabrication of an arbitrary exception to distinguish Aereo from “acceptable” forms of private performance.

The former would clearly run afoul of both Congress’s intent, and the actual text of the Copyright Act.  The latter would have the courts fashioning their own remedy for a (perceived) failure of Congress to successfully address this future development, by the language they adopted in 1976.

There’s little question that Congress in 1976 would have intended to include the likes of Aereo among those required to obtain a license for retransmission.  Nor is there any question that Congress attempted to do its best to foreclose avoidance of such obligations by the development of new technologies.  But nonetheless, Congress failed to create a statute that was successful in foreclosing this particular development.

The error is one that Congress could easily rectify, assuming it still shares the same goal Congress held in 1976.  The courts, on the other hand, cannot easily rectify the error, and it is not their place to do so.

The proper outcome in this case is to conclude that Aereo does not infringe, and let Congress step in to change the law, if it sees fit.

What Will Happen If Aereo Wins?

If Aereo wins, the results are not likely to be as dramatic as some observers have claimed.

First, there’s a high likelihood that Congress will step in to modify the law.  (And this particular observer believes that they should.  But at the same time, they should also fix the retransmission consent regime, which is badly broken and which is the root cause of this dispute, in the first place.)

Secondly, it’s unlikely that cable, satellite or telco operators will adopt Aereo-like delivery anytime soon.  The economics for delivering individualized streams of broadcast channels, at the scale of large operators, will be prohibitive for a considerable time to come.

Rather, the legality of Aereo is more likely to simply give cable, satellite and telco operators a bit of additional leverage in retransmission consent negotiations with broadcaster.  This would be in some part because of the potential threat of adopting Aereo-like technology, but in larger part because of the ability to use services like Aereo to supply service to consumers during a retransmission content blackout.  Given that, at present, the leverage in retransmission consent negotiations is very badly skewed in favor of broadcasters, an adjustment to that imbalance would actually be beneficial, from a societal perspective.

If Congress did not intervene, there would be a significant chance that some broadcasters would stop broadcasting over-the-air and become cable networks.  That would strand the current 12% who still use over-the-air broadcasts.  On the other hand, it would free up an enormous amount of over-the-air bandwidth that is, currently, being used quite inefficiently for legacy broadcast television.  Reallocating that bandwidth for other uses would both provide significant benefits, and inject a lot of cash into government coffers.

What Will Happen If Aereo Loses?

If Aereo loses, Aereo can be expected to go out of business.  It’s not likely that Congress will intervene to change the law to protect Aereo, and it seems unlikely that Aereo is positioned to transition to a business model where they have to negotiate retransmission consent.

The bigger question would be what other implications there are from the ruling.  There’s a high risk that such a ruling would threaten services such as Cablevision’s RS-DVR, cloud-based personal storage and streaming systems such as those offered by Amazon and Apple, and potentially even in-home systems such as Dish’s Hopper, Tivo’s Roamio, and other in-home DVRs.

An Aereo loss would also avoid an impetus for Congress to revisit the current regime of retransmission consent.  As noted previously, this is a system that is badly broken (from the standpoint of everybody other than the broadcasters).  It has been the primary driver of rapidly inflating cable television costs, over the past two decades.

(None of which is to suggest that the decision should go one way or the other because of such consequences.  The decision should, of course, be made based on the law.)

For an update on the legal outlook for Aereo, see Why Aereo Will Win, and Win Easily (at the Supreme Court).  Or, for a discussion of how Aereo-like delivery poses challenges, see “Under Weight of #Superbowl…@Aereo Collapses.”