Awaiting Aereo

Posted By on Jun 24, 2014 | 1 comment

As we await a ruling from the Supreme Court in ABC v. Aereo, a silly season of speculation has certainly descended upon us.  I’m on a road trip, currently in Jackson Hole, Wyoming, and about to head up to Yellowstone, but I couldn’t help but take a few minutes to address some of the silliness we’ve seen.

FierceCable has published multiple articles suggesting that Aereo is likely to lose.  The basis for these suggestions is thin to non-existent.  For example, they cite an attorney who “felt that the broadcasters have a slight edge over Aereo based on reports he heard on the strength of the arguments made by broadcasters in April.”  Wow.  This is newsworthy analysis to report?

Then also, they cite analyst Marci Ryvicker as having gone into oral arguments viewing the case as a toss-up, but having come out of such believing Aereo has only a 30% chance of prevailing, because “stringent grilling from the Justices, including Chief Justice John Roberts, have cast doubt, at least on Wall Street, about Aereo gaining a favorable ruling.”

In another piece, FierceCable reported that Aereo CEO Chet Kaonjia expressed the belief that “that the media and investment community have been lacking key context when analyzing the transcripts from April’s Supreme Court hearings” in an interview with Fortune magazine.  I don’t see him actually saying that in the published article, but there’s no question that this is the case.  Correctly understanding the justices questions and comments during oral argument requires a lot of context regarding the legal arguments, and specific arguments made in the many briefs submitted in the cases.  As we explained in our detailed analysis of oral argument, there were many cases where the press quite clearly did not understand the significance of an exchange, because they weren’t familiar with the references being made to various issues that had been briefed.

Those who have read our previous coverage of Aereo know well that I believe Aereo should prevail easily on the merits.  And while oral argument left significant concern over whether the justices actually understand the relevant technologies, in order to produce an accurately informed opinion, as we explained in our oral argument analysis, there appeared to be at least 5 justices (Alito, Breyer, Kagan, Kennedy, and Sotomayor) likely to rule for Aereo.  And unlike many other observers, to me it seems quite plausible (if not most likely) that Chief Justice Roberts could rule for Aereo.  Furthermore, if Scalia is true to his textualist philosophy, then he’ll reject manufacturing completely new law, given the absence of a textual basis, and rule for Aereo also.

So, to my view, an informed analysis of both the legal arguments, and what transpired during oral argument, leads to the conclusion that the chances for Aereo prevailing are, in fact, much better than the chances for the broadcasters prevailing.

But there’s a bigger issue that almost all analysts and press have missed, coming out of oral argument.  For based on what happened in oral argument, regardless of whether Aereo prevails on the legal question at issue, it now appears very unlikely that the outcome will stop Aereo from being able to proceed as a going entity.  For during oral arguments, multiple justices acknowledged that an argument Aereo competitor FilmOn X made in its amicus brief was pretty obviously correct: that if Aereo’s transmissions are public performances, then it qualifies as a cable system, under the Copyright Act.  As such, it would qualify for the (very low administrative cost) compulsory license for cable retransmission of local stations.  (And while we wouldn’t expect the Court to rule directly on this issue, it seems likely that they will give guidance on such, in dicta.)

This would be a devastating blow for the broadcasters’ chances to stop Aereo, in court.  It means that Aereo would, at a minimum, be able to reformulate its service to offer live channel feeds.  And if the Court were to rule against Aereo in the fashion most seem to expect—namely, attempting to distinguish Aereo’s “live” retransmissions from other cloud DVR and cloud storage services—then Aereo could almost certainly continue to offer full cloud DVR service, also.

In essence, it looks likely that Aereo (via FilmOn X’s argument) is likely to succeed in court where Ivi failed before it.  In fact, even if Aereo prevails in its case, it could decide to “become” a cable system, for the purposes of the Copyright Act, and make payments for the compulsory license.  Doing so would allow it to eliminate the need for separate antennas (and transcoders) for each user, very significantly reducing the cost and complexity to implement its service!

Meanwhile, Aereo still wouldn’t be subject to retransmission consent, and so wouldn’t have to pay retransmission fees, because under the Communications Act, they do not qualify as either a cable system, or as an MVPD (multichannel video programming distributor).  And changing that would require either legislative action by Congress, or regulatory action by the FCC to modify the interpretation of MVPD—with the latter carrying some significant baggage of additional consequences, that has kept the FCC from acting to this point.

So the practical reality is that while Aereo remains likely to directly prevail in court, win or lose on the legal question actually at issue, Aereo now seems very likely to be left with a viable legal path that still doesn’t require them to negotiate for retransmission rights.  And ironically, by bringing the case, the broadcasters have probably succeeded in making Aereo’s business simpler and cheaper to operate (and easier for new entrants to replicate).

For complete coverage of Aereo, see our Understanding Aereo page.