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Aereo loss protects $4 billion in fees for broadcasters

Bloomberg News

June 25. 2014 9:19PM
Aereo CEO and Founder Chet Kanojia departs the U.S. Supreme Court in Washington, in this April 22 photo. The U.S. Supreme Court on Wednesday ruled that online TV service Aereo Inc. violates copyright law by using tiny antennas to provide subscribers with broadcast network content via the Internet. (REUTERS FILE)
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NEW YORK — Broadcasters protected their TV turf by convincing the U.S. Supreme Court that Aereo Inc. went too far in converting their programming into a streaming-video service.

Aereo presented a threat, because it let customers watch live and recorded TV online for as little as $8 a month without having to subscribe to a cable TV package, which can cost $75. The 6-3 ruling supported broadcasters who said Aereo jeopardized the underpinnings of the TV industry by not paying licensing fees.

Aereo, whose equipment is made by contract manufacturer EIT in Salem, N.H., has been available in 11 U.S. cities, including the greater Boston/Southern New Hampshire area.

Broadcasters such as ABC get billions of dollars a year from cable providers for the right to air the same programming. An Aereo victory could have endangered that revenue by giving cable providers a blueprint to avoid making such payments. Instead, Aereo was dealt what’s likely to be a fatal blow, and the fees for broadcasters may now reach more than $7 billion by 2018, according to research firm SNL Kagan.

“It’s a clear win for the broadcasters, and the status quo remains,” said Vijay Jayant, an analyst at ISI Group in New York.

Aereo had roiled an industry already adapting to sweeping changes in how consumers watch video programming. Companies including Netflix and are vying for viewers as more people opt to get their shows over the Internet instead of traditional cable.

Aereo’s loss takes away a key product for consumers looking to eliminate their cable or satellite TV bills. Aereo provided live content only available on broadcast networks, particularly sports such as National Football League games.

People looking to cut the cord could have cobbled together a collection of services — Netflix, Hulu, Amazon’s Prime service and Aereo — that mimics most of what pay-TV companies offer at a lower cost.

“Now you don’t have the Aereo piece of the equation, and that hampers the ability of a consumer to put together their own cheaper package,” Jayant said.

The ruling is a triumph for broadcast companies and spells the likely end of Aereo. Aereo Chief Executive Officer Chet Kanojia has said previously that the startup didn’t have a Plan B if the Supreme Court ruled against it.

The court fight centered on a provision in the federal copyright law that gives owners the exclusive right to perform their works “publicly.” Justice Stephen Breyer, who wrote the court’s majority opinion, said Aereo violated that provision, operating much like a cable TV provider without paying fees.

“Aereo is not simply an equipment provider,” Breyer wrote. “Aereo sells a service that allows subscribers to watch television programs, many of which are copyrighted, almost as they are being broadcast.”

The court effectively protected the revenue from cable and satellite providers that 21st Century Fox Co-Chief Operating Officer Chase Carey said is essential to the broadcast-TV industry. The industry’s payments are estimated to exceed $4 billion this year, a 30 percent gain from last year, according to research firm SNL Kagan.

CBS’s $2.2 billion in affiliate and subscription fees accounted for about 15 percent of its total revenue last year. Comcast’s NBCUniversal unit got $1.4 billion in revenue for licensing broadcast content, making up 6.1 percent of NBCUniversal’s sales.

“The future of retransmission fees was definitely at stake in this battle,” Geetha Ranganathan, an analyst at Bloomberg Industries, said in a phone interview. “This is really a resounding victory for them. It’s great for the broadcast networks because they are so heavily reliant on advertising.”

Courts Business Technology