JESSELL AT LARGE

Aereo Still Trying To Get By Without Paying

After its loss at the Supreme Court, Aereo's new tack is to declare itself a cable system with the ability to use the compulsory license to cover the liability just as every regular cable systems does. The problem with that is that it has still not acknowledged in any forum that it is willing to accept not only the privileges of being a cable system, most notably the compulsory license, but also the obligations, most notably retransmission consent. Without a commitment to pay retrans, Aereo is simply playing the same old game, trying to skate by without paying for programming.

Desperate to save itself, Aereo is now rolling out Plan B.

In the wake of the June 25 Supreme Court ruling that shot down its juvenile low-tech scheme for circumventing copyright law, the online distributor of local broadcast signals this week told the federal district court in New York that is now overseeing the case that it wants to continue operating in a more conventional manner, with the cable compulsory license.

Created by Congress in 1976, the compulsory license enables bona fide cable systems to retransmit local broadcast signals without violating copyrights by paying a token fee to the Copyright Office of the Library of Congress.

As required by law, Aereo said it is going ahead with the necessary paperwork with the Copyright Office.

But is Aereo a bona fide cable system entitled to the license?

In making the case to the district court that it is, Aereo is relying somewhat ironically on the Supreme Court ruling that has pushed it to the precipice. The ruling found that Aereo was nothing novel, that is was  “for all practical purposes” a cable system and liable for copyright.

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Well, the never-say-die Aereo execs and lawyers figured, if the high court says Aereo is “substantially similar” and bears an “overwhelming likeness” to a cable system, let’s declare ourselves one, acknowledge the copyright liability and then use the compulsory license to cover the liability just as every regular cable systems does.

In its letter to the district court, Aereo said the Supreme Court ruling trumps the 2012 federal appeals court ruling that denied the compulsory license to another online distributor of broadcast signals, ivi.tv.

Aereo asked the court for an immediate ruling on its eligibility for the compulsory license, saying its survival was in “jeopardy” because of the Supreme Court ruling. “Aereo is taking in no new revenue, and continuing to incur enormous costs such as employee salaries, equipment and lease payments and vendor payments.”

The problem with Plan B — and evidence that Aereo is not ready to grow up and play by the rules — is that it has still not acknowledged in any forum that it is willing to accept not only the privileges of being a cable system, most notably the compulsory license, but also the obligations, most notably retransmission consent and things like must-carry, network non-dupe, syndex and sports blackout.

The Communications Act and FCC rules require, among other things, bona fide cable systems to pay broadcasters if they carry their signals and the broadcasters demand payment.

Aereo didn’t say anything about paying retrans to the district court and it declined to speak to me about it this week.

Without a commitment to pay retrans, Aereo is simply playing the same old game, trying to skate by without paying for programming. It’s behaving like the ridiculous FilmOn, which has been claiming cable status for the compulsory license, while avoiding retrans payments.

My guess is that Aereo’s business model collapses if it has to pay, say, $1.50 per sub per month for each of the four network O&Os or affiliates in each market. That would add $6 to the cost of a basic service that was retailing for $8.

Aereo can’t have it both ways. It can’t be a cable system for purposes of the compulsory license and not be a cable system for purposes of retrans. Let me be more precise: Broadcasters can’t allow Aereo to have it both ways.

Broadcast attorneys I spoke with this week think Aereo’s compulsory license gambit is a long shot. They cite the ivi.tv case and say that just because the Supreme Court said that Aereo is similar to a cable system doesn’t mean that it is a cable system.

But if Aereo does get a favorable ruling on the compulsory license, it will be imperative that broadcasters race to the FCC and get that agency to dub Aereo a cable system so that it has to pay retrans and comply with other cable rules and regulations. (The FCC already has a proceeding open addressing how to handle online video distributors, but it’s been gathering dust.)

As I said, Aereo and its ilk cannot be allowed to have it both ways.

However, as I said in this space two weeks ago, I believe it that it is in the best interest of TV stations to nurture a class of online video distributors with all the rights and obligations of conventional cable and satellite operators — that is, distributors with the compulsory license and the duty to pay retrans if demanded.

Such distributors will provide local broadcasters with new outlets for their programming and new sources of revenue. By their nature, these outlets will reach viewers where broadcast signals can’t– on their desktops and, more important, on their smartphones and other mobile devices. Broadcasting will be truly ubiquitous again, available on every screen.

This is tricky legal business. Broadcasters will have to play it smart to get the result they want — compulsory license plus retrans.  They can ill afford to have Aereo, FilmOn and others running around armed with the license and no obligation to pay broadcasters.

Retrans also gives broadcasters the right to pick and choose who they want to do business with. They can deny carriage rights to any online distributor that doesn’t meet their standards for signal security and for maintaining market exclusivity.

This could also be another of those issues that divides the networks and their affiliates. As one broadcast attorney said, it could create “a tension” between them.

The tension flows from the fact that the networks are not just broadcasters anymore. They are parts of enormous media conglomerates that also own Hollywood studios, cable systems or cable networks.

Because of their non-broadcast interests, the networks are not so keen about breeding cable-like online video distributors. For their parent companies, they represent a further loss of control over their content and more competition for their cable holdings.

Aereo also has a Plan C. In its letter to the court, it suggests that the Supreme Court ruling is so narrowly written that Aereo might come back as an online DVR service, recording broadcast programs and playing them back to subscribers on demand.

But the fate of Aereo doesn’t matter anymore. What matters is that local broadcasters working through their affiliate groups and the NAB manage the legal and regulatory process (and their relationship with the networks) in such a way as to create online video distributors that extend the their reach and their profitability.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or [email protected]. You can read earlier columns here.


Comments (8)

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Jay Miller says:

July 11, 2014 at 4:27 pm

What do you expect from Barry Diller????

Terry Dreher says:

July 11, 2014 at 4:41 pm

Jessell, a question if I may: Are you saying if an Aereo subscriber is willing to pay $1.50 per month for each local OTA signal that it wouldn’t and shouldn’t be enough? If not enough, what price point would be reasonable for an OTA channel? If that wasn’t the point can you dumb it down for this OTA-Only viewer who only wants a clean, local affiliate signal to watch?

Mary Goodspeed says:

July 11, 2014 at 4:45 pm

What about “must carry” for all the infomercial channels , under the ruling I imagine the must add them ..? They have a rough rode ahead

Amneris Vargas says:

July 11, 2014 at 5:17 pm

There is some decent tech underneath Aereo’s incorrect legal interpretation and business model(s) based on it.

Warren Harmon says:

July 11, 2014 at 6:01 pm

You realize that there is not a shred of honesty in Barry Diller, just like Charlie Eagan he will always be a THIEF and line his pockets at the expense of the content providers. Eventually AEREO will go defunct just like LightSquared’s attempt to destroy our GPS system. His investors will sue his axx just like Philip Falcone’s investors are for the LightSquared fiasco that resulted in HUGE losses to the investors. ONCE A THIEF ALWAYS A THIEF. I have been saying this for over a year now, you remember my constant posts of “AEREO=THEFT” so don’t be surprised by the attempt of AEREO to steal more programming.

Ellen Samrock says:

July 11, 2014 at 9:15 pm

What?! Chet said Aereo had no plan B. I guess when their back is against the wall and they have investors to answer to they can come up with one (or two). Again, I urge networks and broadcasters to let Aereo go. Make the necessary agreements with them and let them do business. A much bigger fight is looming and it is one that requires all our attention and resources.

Celeste Champagne says:

July 11, 2014 at 9:16 pm

Just fold up your tent and go away already. Nobody wants to play with you.

Thomas Herwitz says:

July 14, 2014 at 8:42 pm

Once again the broadcasters miss the forest for the trees. There will never be an ATSC-based mobile DTV system, and no station should have to cough up 35% of their soon-to-be-subdivided bandwidth to feed a Dyle kludge that no one in the public will ever pay for. Aereo is mobile local DTV, deployable now, that will let anyone with a smartphone (tech that people WILL buy) watch Action News anywhere in your market. Please explain to me how that is a bad thing! How much per month do cable companies pay per sub for Station X’s signal? Charge that to Aereo, see if they can make a business model out of it, and get it going.


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