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.

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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.

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 (19)

Wagner Pereira says:

January 31, 2014 at 3:45 pm

Broadcast will not suffer a loss based on the question that has been accepted by SCOTUS. Unfortunately, it will not answer the real question – does someone’s tuner have to be in the same place as the monitor, which will probably result in a totally different Company’s court case which will just leave the final question in limbo for years. Of course, given this precedent, the company would not be allowed to operate until that question is answered, but given the deep pockets of Aereo backers, they certainly have the funds.

Todd Barkes says:

January 31, 2014 at 3:50 pm

Harry, there is yet another option…a new broadcast platform. A capable and relevant broadcast platform does all you suggest is needed, and then more! Broadcasters need AAA (authentication, authorization, and accounting). We can get that with a new platform, and ‘the AEREO problem’ goes away. If it were aligned with other standards, it could be ubiquitous in the market place, and instead of ‘live streaming’ solutions…straight, OTA.

Christina Perez says:

January 31, 2014 at 4:05 pm

sorry, but to this veteran TV/print newsman your “solution” reeks of corporate fascism. Even with fragmentation, broadcasting is still the best means of attracting a mass audience. The only way to preserve that primacy is to continue to offer free universal service. Get them in the tent, then go minding for their data… but don’t throw the baby out with the bathwater by demanding that viewers “show their papers,” Herr Aitken.

January 31, 2014 at 4:06 pm

That’s “mining” for their data…

Brian Bussey says:

January 31, 2014 at 3:53 pm

Broadcasters have invested fortunes to be able to deliver their signal to 100% of their DMA. They are federally protected specifically for a civil defense purpose. No part of that is Negotiable . any other delivery service cannot infringe on that civil defense purpose. Free over the air TV will outlive the US economy. Battery operated TVs can receive a broadcasters 1080p signal for free. I have one on my desk. Why would anyone want to pay for what they already can get for free. The broadcasters will easily survive being dumped by the networks. They are called independent stations and they have existed for years. Lets just see if the Networks can survive trying to replace ad sales with subscriber fees.

Carole Easterling says:

January 31, 2014 at 4:11 pm

If broadcasting can be “hobbled and set on a path to quick obsolescence” by a court ruling, it’s being artificially propped up by current law. Are broadcasters providing value in line with the retrains fees they’re collecting? Is passing a network signal worth what consumers are paying for local channels?

What’s missing from the retrans debate is whether consumers get their money’s worth from local stations and if not, what stations are doing to fix that.

Michael Lam says:

January 31, 2014 at 4:31 pm

Mark Aitken is a solid visionary and his company’s dedicated to helping move the industry forward, along with others in the next-gen ATSC 3 effort. It warrants careful attention. If the Court sides with Aero, it’ll hurt broadcasters profoundly, making Barry Diller a few more billion but pulling tens of billions in valuations out of especially the independent TV station groups, the foundation of localism. Cable will quickly follow Aero and retransmission fees will mainly go away at the first retrans negotiation. Local broadcasters won’t get Internet rights to network content. Hulu will be enhanced, local broadcasters will be wrecked. If Aero wins it’ll be one of the worst days in the history of US television. Let’s hope the Supreme Court doesn’t follow their “hands off the market” theories, let’s hope they give a damn about destroying local media – it’ll take a few years but local broadcast TV and media localism as we know will be gone forever if these Aero schemers win.

Don Thompson says:

January 31, 2014 at 4:47 pm

Provocative column, HAJ.
My first observation: Isn’t a fact that only eight Supreme Court justices are participating because Justice Alito has recused himself? If that’s right, then the broadcasters lose if they lose four (not five) justices. A 4-4 tie in the Supreme Court, I believe, would go to Aereo because this technologically innovative spectrum-user won in lower court.

Angie McClimon says:

January 31, 2014 at 5:56 pm

That is correct.
However, wouldn’t supplementing the OTA accessibility with other cable channels (like Aereo is with Bloomberg) technically make them a MVPD, not unlike cable or satellite, regardless of the technology behind it? If Aereo is letting users use individual tuners and antennas (as they say), wouldn’t they also have to provide that same methodology to receiving Bloomberg? The user controls the satellite receiver too?

Linda Stewart says:

January 31, 2014 at 10:19 pm

I defer to you. I assumed you needed a majority even with eight justices.

Ellen Samrock says:

January 31, 2014 at 6:06 pm

If Aereo’s business model is renting antennas, then they need broadcast television. If the MVPDs want to do a retrans workaround side-car scheme or are simply receiving programming via a headend , then they need broadcast television. That’s the bottom line of it. There is a finely balanced economic ecosystem going on here in which everyone thrives. But it’s an ecosystem that can be damaged if something disruptive, like a Supreme Court win for Aereo, took place. Broadcasters, particularly the networks, claim that they cannot exist without retrans revenue, that news, scripted programming and sports would suffer if they relied only on advertising dollars to pay the bills. Fair enough. Let’s hope Aereo and the MVPDs realize that before they go into retrans-schirking mode. Because stations or networks without compelling OTA programming are not going to draw subscribers, particularly not to Aereo–or as Fox has threatened save their best programming for online-only distribution. On the other hand, stations and networks should begin thinking about raising ad rates and finding other revenue streams just in case. As both Harry and Mark Aitken point out, at some point, broadcasters will have their own Aereo-type system and the Aereo service will become redundant and wither away. You know, maybe all parties involved should just sit down over a few beers and hash out their differences and develop a win-win strategy before something really bad happens.

Russell Fielder says:

January 31, 2014 at 6:08 pm

Every single TV Group, Station and Network should be on the phone trying to get Zuus for their markets ASAP. No matter which way this goes for OTT, OTA, or Cable, I would be all over Zuus Media trying get this product on my station or station group. The smart money sees what the future is. Right now you could triple your DR dollars by doing nothing. Providing programming vs. DR is the way to go. Zuus Media comes out smelling like roses no matter who wins this battle. I’d rotate their programming just a few days a week to start and see the results. For me this is common sense. Unless you’re blocked from getting them because someone in your DMA got them first.

Julie Caracciola says:

February 1, 2014 at 7:19 pm

Aereo’s model is entirely irrelevant to the broadcast delivery model. It’s only net effect will be to enhance the unique ability of television broadcasters to deliver a signal to anyone, anywhere without wires or cost. All of these internet-based delivery systems are limited by the user’s local bandwidth. While loaded, the local bandwidth is too small to permit any significant competition to high quality OTA broadcast delivery. So the only time these services mean anything at all is during daylight hours and at locations where for one reason or another there is no means to watch live OTA TV. In the real world, this is due mostly to the lack of available hardware with a DTV tuner. Services like Aereo effectively convert iPhones and iPads into useful TV sets and allow viewers to watch local TV at locations and at times when they otherwise would miss the broadcast. These internet-delivered services are sufficiently good to light up a small screen with a good quality image that’s entirely adequate for one person to watch. What is not stated, but what is firmly believed by the uninformed, is that internet-delivery is a viable alternate to direct OTA, cable or satellite TV. It most certainly is not. Such services work fine as long as the user is satisfied with a 5 inch wide image. As a desktop TV, these services do a fine job of providing a handy glimpse of local TV while at work or while commuting. That is the extent of it. The internet has no viable means to improve its delivery bandwidth to meet the extensive demand of simultaneous viewing, so it should be viewed for what it is. Aereo and similar services are a great way to reintroduce OTA broadcast television to a generation of viewers who are oblivious to what is offered for free by local OTA stations 24/7. All of this nonsense about loss of revenue from cable, etc. is just that. No one is going to cancel their cable TV subscription in favor of the marginal quality available from the best internet bit rate. The only issue of any relevance about Aereo et al. is: their unlawful degradation to broadcast signals by downconversion to SD; their unlawful charging for reception of local free TV while refusing to acknowledge the right of consent-carriage stations to share in this renenue; the current poor level (or complete absence of) of encryption used while transporting copyrighted material over a potentially world-wide internet connection; and a disrespect for the absolute right of owners of copyrighted works to control the time of performance of this content. The latter forms the most agregious abuse of black-letter copyright law by Aereo or any service which facilitates store-and-forward recording (and commercial skipping) of live television. Focusing on these matters will solve what can ultimately destroy the broadcast model over time.

GÃ¼nter Marksteiner, Dipl. Ing.-Dr.
President and CEO
WHDT World Television Service
(group operator of WHDT (WPB); WHDN (Boston); WHDT (Miami); WYDT (Naples)

Robert Case says:

February 1, 2014 at 8:35 pm

I’m skeptical that either of the two scenarios proposed are the most likely outcomes if Aereo prevails.

Aereo should prevail, on the merits. But in my view, the most likely outcome would be for Congress to intervene, revising the Copyright Act to bring systems such as Aereo’s within the purview of the transmit clause. (And I would hope that they would take the opportunity, at the same time, to reform the currently-broken retransmission consent regime, which is the root cause for Aereo’s existence, in the first place.)

If Congress did not intervene, I think it’s unlikely that MVPDs would adopt Aereo-like technology anytime soon. That’s not because it would require a sidecar, or push customers toward OTT. Aereo technologies could be implemented, at least by cable operators and telcos, using existing set-top boxes(as demonstrated by Cablevision’s RS-DVR). However, it’s not going to be cost-effective to scale Aereo-like technology to the masses anytime soon. What’s more likely is that MVPDs would use the potential threat for adopting such an approach, together with the ability to leverage Aereo (and any copycat services) to weather blackouts, to gain some additional leverage in retransmission consent negotiations.

For more on these issues, see:

http://cimc-greenfield.com/2014/01/28/aereo-in-a-nutshell/

Thomas Herwitz says:

February 3, 2014 at 3:25 pm

I hope it isn’t lost on anyone that none of this would be happening if Digital TV was available as a mobile service. Reintroduce kids to local broadcast TV? I have two teenagers that watch the bulk of their content on cellphones and are glad to have it – because generally it is content that no local station would EVER carry (generally anime and manga stuff – things that were never available to our generation.) Aereo gives local TV something that 8VSB took away – mobile distribution of content in a one-stop-shop manner (not balkanization, as in every-TV-station-has-their-own-webfeed.) My bet is that Aereo wins in the SC on the merits and then the NAB does the smart thing and makes some sort of deal with the Diller, if you catch my meaning. I can’t wait for Aereo to open up in my market – I love local TV and can’t wait to be able to watch it on my cellphone.

Robert Vincent says:

February 3, 2014 at 3:36 pm

I have a slingbox and I watch my home tv tuner system from anywhere in the USA or world where the bandwidth is high enough to carry the stream. Am I guilty of contravening re-trans fees? I do the same thing Aereo does except I own all the equipment. I’m not as bad as my buds who do Slingbox with Dishnet. They can slingbox their movies and sports features to the summer cabin without having a receiver at the cabin. Now they do incur a lot of extra data fees but most of them have a high data plan. I’m just saying there are a lot of slingboxes out there being used by people for the same reason as Aereo. I want to go with Aereo some day but I’m waiting for them to actually enter my market. That way I don’t have to leave all my equipment on at home like tuner, computer, router, etc when I’m gone on long business or vacation trips.

February 3, 2014 at 5:32 pm

Difference: Aereo is market-only. You cannot access your home market from anywhere else. You are leashed to your hometown. But does their technology actually use the one-antenna per user scheme or are all the dime-sized units working in concert? With Slingbox, you are only using your antenna or cable. And you pay a one-time price and it’s all yours. It’s stupid to pay $8-$12 a month to watch what is free TV. I can see why broadcasters are in an uproar. Cable and Satellite profit off of it, but retrans shares the wealth (in effect). But Aereo can walk in and just start charging to watch OTA TV? I’m surprised cable operators haven’t started whining about it.

Rebecca Barry says:

February 4, 2014 at 2:25 pm

Broadcasters and OTA networks need to step back and examine what the issue is before making a stupid move of throwing their local affiliates out with the bath water. The major problem as I see it is cable and satellite bills are far out pacing people income driving them to make choices between life necessities and paying a $150 plus cable or satellite bill. By and large the average person has no clue they can install a current antenna and buy a TiVo DDR to replace their providers rented DDR tuner. Additionally current model TiVo’s will interface with most current internet provided services like Nexflix filling the bill of cord cutters to keep their internet while ditching cable and satellite.

To jump into bed with the biggest culprits that being cable networks that often add channels to drive up their bottom line by forcing service providers to take all or get none of their dozens of channels of offerings. Service providers like Comcast are breaking out retransmission fees to show their customers where these cost increases are coming from while positioning themselves to make OTA an optional package. While retransmission fees are a drop compared to Cable networks but every time retransmission fees are increased its like adding a drop of gas onto a growing fire.

For networks to even threat to shoot off their own foot, that being their loyal local affiliates is about the dumbest thing I have every heard and read. If people continue to cut the TV cord so they can afford their internet and hand held 3G/4G then networks will become like the post office, increase rates to make up for lost business. They will have to buy advertisement local stations now promote hoping they can attract viewers. Broadcasters needs to become part of the solution rather than threatening to become part of the problem while they still enjoy that 88% viewership over cable networks.

Everyone in Broadcasting needs to read articles such as “Pay-TV Prices Are at the Breaking Point – And They’re Only Going to Get ; To understand the future of TV, look in your pocket and Cable Is No Longer About TV the latter pointing to Cable providers building out their infrastructure to handle more internet provided TV services changing their internet pricing structure to bill on data usage to make up for lost TV service cord cutters.

If local broadcasters think their network is their friend you need to read the recent press release ” CBS extends Amazon Prime Instant Deal”. Among the series covered under the expanded agreement are Medium, The Tudors, the complete Star Trek franchise, I Love Lucy, Criminal Minds, Suspect Behavior, Penn & Teller and Vegas to go along with Amazon recently announcement that they will be the exclusive digital video-on-demand platform for CBS’ upcoming limited drama Extant, mirroring its deal for Dome, which will return to CBS and Prime Instant this summer with season 2.

“We are very pleased to continue expanding our partnership with Amazon” said Scott Koondel chief corporate licensing officer for CBS Corp. “CBS content is clearly a match with Prime Instant Video’s growing user base, including The Good Wife being the service’s #1 show this past fourth quarter as well as strong viewership of Under the Dome over the summer. We look forward to Under the Dome Season 2 this summer, along with Extant, and all that we will continue to do to provide great programming to our mutual customers.”

If I was still in the local broadcasting business I would be hard at work protecting my blind side by making my viewers aware of advancements in TV antenna technology, Antenna/internet connected TiVo’s to the point of contracting with people to assist my viewers in maintaining their local TV connectivity instead of having them subscribe to a service that offers up my prime time programs via the internet thereby reducing my revenue stream.

solange attwood says:

February 4, 2014 at 7:32 pm

It’s so simple, yet apparently so hard to do. Listen up broadcasteers… stop gouging MVPDs and subsequently the consumer and then all can live and prosper. Whether you think it”s fair or not, ESPn took 30 years to earn their current fee, You can’t do it in five or ten. And how about some local avails for the MVPD to sell? The more money an MVPD makes from TV the more resources are available to pay the broadcasters a fair retrans fee.