If TV's copyright infringement arguement is rejected by the High Court, it doesn't mean the end of over-the-air broadcasting as we know it. The doomsday scenario is flawed and broadcasters could counter with their own OTT service. The only certainty for broadcasters is the need to think it through and be prepared if they do come up short in court.
What Happens To Broadcasting If Aereo Wins?
From a lot of the talk around, you would think that broadcasters’ future rests on their winning the Aereo case now pending before the Supreme Court. (For a legal update on the case, click here.)
I’m not sure that it is. Yes, there is a doomsday scenario in which broadcasting is hobbled and set on a path to quick obsolescence. But that scenario is based on some dubious assumptions and there is at least one alternative scenario in which broadcasters reinvent themselves as an online video distributor and beat Aereo at its own game.
Let’s start by going over that doomsday scenario that I keep hearing about.
Broadcasters lose as at least five of the Supreme Court justices agree this summer that Aereo is not redistributing broadcast signal online without compensation, but simply providing an antenna service for remote, Internet-connected subscribers.
With that ruling, Aereo and its technology licensees stream broadcast signals throughout the land and start generating great heaps of revenue from subscription fees without cutting broadcasters in on the take.
Cable and satellite operators get onboard with supplemental Aereo sidecar services. They drop broadcasters from their conventional lineups and stop paying them retrans fees as contracts expires. The more than $3 billion in annual retrans revenue that broadcasters now enjoy begins to slip away.
Just the prospect of losing retrans crushes TV station stocks and valuations.
Feeling they have no choice, the broadcast networks stop broadcasting over the air and essentially become cable networks. Aereo is based on its ability to receive signals off air for free. No signals, no Aereo.
(At NAB last year, Fox and CBS warned that that is precisely what they would do if the courts don’t read the copyright law as they do.)
Converted to cable networks, the former broadcast networks can no longer charge retrans fees, but they can charge conventional programming fees just as ESPN, TNT and Discovery do. They survive, but in a diminished state without their longtime local partners and broadcast-only TV homes. They also have to write-down the value of their O&Os.
Abandoned by the networks, hundreds of affiliates are left to recreate themselves as independent stations. Perhaps one station per market, because of its strong local news, is strong enough to extract some retrans fees from cable and satellite operators, but the fees won’t be anywhere near what they were when the affiliates carried network programming. Most stations will try to make do without the second revenue stream and many will fail.
Reading all this back, I see that it is a grisly picture. But it doesn’t have to go this way. The scenario makes some dubious assumptions.
For one thing, I’m not sure that cable and satellite operators can get away with avoiding retrans payments by creating an Aereo-like sidecar service. The law says that operators have to compensate broadcasters for retransmitting their signals no matter how they are doing the retransmitting.
Second, the cable and satellite operators might be making a big mistake if they succeed in creating a retrans-proof sidecar service that is truly separate from the conventional service.
In so doing, the operators will be inviting their millions of subscribers to leave their closed systems and sample some of the other wonders of Internet video, otherwise known as OTT. They would, in effect, be encouraging cord-cutting, the bane of their industry today.
What I’m suggesting is that when it comes right down to it, cable and satellite operators may conclude that it is better to stick close to broadcasters and pay the retrans fees than it is to disrupt their lucrative video service.
Finally, the worst case doesn’t give broadcasters any points for their prowess in Washington. If things go bad at the Supreme Court, you can bet the NAB and the rest of the broadcast lobby will soon be busy on the other side of First Street NE looking for a fix from Congress.
And here’s an alternative scenario with a somewhat rosier ending for broadcasters.
It starts just like the doomsday scenario: Broadcasters lose in court, Aereo services proliferate, cable uses the technology to avoid retrans.
But the broadcasters reaction is different. Instead of giving up on over-the-air broadcasting, they supplement it.
Working with their affiliates, the networks launch their own rival OTT service that includes not only all the broadcast signals in a market, but also other non-broadcast services, maybe even some popular cable networks. They go head to head with Aereo and the cable and satellite operators, competing for paying subscribers.
Offering a direct-to-consumer service would be a big change for broadcasters, but not a particularly difficult one. The expertise to do it is out there for hire.
The broadcasters should be able to cooperate and offer a single national service for one monthly fee. I see a single app for smartphone and tablet users that would work everywhere. If a user is in New York, she’ll be able to access WABC, WCBS and WNBC. If she travels to Washington, she’ll get WJLA, WUSA and WRC using the same app.
The good news is that the networks are already developing the technology to provide their own online service. Right now, it’s meant for TV Everywhere, a service aimed at the mobile markets that the broadcasters are hoping to provide in partnership with cable and satellite.
But if cable and satellite turn on broadcasting by adopting an Aereo strategy, broadcasters can use the very same technology against them.
Broadcasters’ online service is not a perfect substitute for the present retrans regime. It would generate a new source of revenue, but there would be associated costs and the revenue would not match the billions it is getting from retrans for a very long while. Broadcasters would have to scratch for every $10-a-month subscriber and keep him happy.
You can play this what-if game all day long, and I suspect that big thinkers at the networks and the larger station groups do. They need to suss out what might happen if they actually do come up short at the Supreme Court and to figure out what their strategic response should be.
And at this point, coming up short is a definite possibility.