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Supremes Take ‘Aereo’ Out of Free OTT

The Supreme Court decision that effectively ends Aereo’s distinctive business plan to deliver broadcast signals will likely have little effect on the TV business — particularly on rising retransmission costs.

In last week’s 6-3 decision, which was panned by the American Cable Association, the Supreme Court concluded that Aereo was not simply the technological facilitator of remote subscriber access to free TV and fair use copying. Instead, it said, Aereo provided a public performance more akin to a cable operator.

“The broadcast networks will now get to keep their multibillion dollar retrans fees, and the TV industrial complex withstands yet another attack on its foundation,” Alan Wolk, global lead analyst for OTT services company Piksel, said.

Some ACA members had talked with Aereo about teaming up; the smaller and midsized operators represented by the association say they are getting squeezed hard by retrans payments and other programming costs.

“[I]t appears that the Supreme Court’s Aereo ruling negatively affects the rights of small cable operators to utilize individual antennabased delivery of broadcast services,” said a statement from the ACA. “Although the court attempts to preserve the ability of consumers to enjoy accessing a range of time-shifted programming in the convenient manner enabled by Aereo, the decision drew lines that are not clear as to what is acceptable and what is not and, as a result, will likely have a chilling effect on technology innovators.”

ACA said it was disappointed that “bold, forward-thinking Aereo lost the direct infringement fight in this case.” The group still held out hope that the court has “not slammed the door” on “other related pioneering technologies that enable online consumers to access freely available content.”

A National Cable & Telecommunications Association spokesperson said the trade group is an “interested observer” but had no comment on the decision.

David Wittenstein, a partner in law firm Cooley LLP’s Technology Transactions practice group advising cable operators, among others, said it was a mixed decision, but one cable operators should be OK with.

He said he thought cable operators had “some ambivalence” about Aereo — ACA filed a brief in support of Aereo, NCTA did not. “On the one hand, cable is finding the rising retransmission-consent fees difficult, and Aereo might have offered them some opportunity to ameliorate that,” Wittenstein said. “But I think, on balance, cable was not particularly enamored of Aereo because it was a business trying to do for free what cable has to pay for, and that wasn’t a very attractive prospect.”

Wittenstein said that means cable is back to holding the line as much as possible on retrans fees and “at the moment doesn’t have a particularly good way of doing it.”

The American Television Alliance, which has been pushing for retrans reforms, agreed. “Today’s Supreme Court ruling means that retransmission-consent reform is needed now more than ever,” it said following the decision, which it called “a reminder that broadcasters are interested in only one thing — protecting their government- sanctioned monopolies.”

Aereo founder Chet Kanojia vowed to fight on, and technically the court simply reversed and remanded a Second Circuit Court of Appeals decision not to block Aereo from operating. “[The] decision by the United States Supreme Court is a massive setback for the American consumer,” Kanojia said.

But it is tough to see where Aereo goes next, short of paying broadcasters. Investor Barry Diller had said that a decision against Aereo would likely be a death knell for the service, and he echoed that sentiment following the decision handed down last Wednesday (June 25). “We did try, but it’s over now,” he told CNBC.

The court signaled that the narrow decision should not threaten cloud storage or the Cablevision court decision upholding the cable company’s remote DVR functionality as a private, rather than public, performance. That decision was a key one for Aereo, which suggested it was following Cable vision’s lead.

“We agree with the Solicitor General that questions involving cloud computing, [remote- storage] DVRs and other novel issues not before the Court, as to which ‘Congress has not plainly marked [the] course,’ should await a case in which they are squarely presented,” the majority said.

The Software & Information Industry Association agreed that the court had succeeded in navigating between upholding copyright and harming innovation, saying the decision “protects legitimate cloud computing businesses from risks of infringement, while also protecting copyright owners and incentivizing them to continue innovating.”

Consumer Federation research director Mark Cooper was not convinced by the court’s suggestion the cloud was safe.

“A cloud of lawsuits now hangs over cloud computing,” he said. “This is the first step in the digital-age equivalent of the Sony Betmax decision and, unfortunately for consumers and the Internet economy, the Court got it wrong.”

The court suggested that anyone looking for more clarity about the legal status of other innovative technologies was free to petition Congress for new laws.

The leadership of the House Energy & Commerce Committee weighed in not long after the decision to say that it put an exclamation point on their ongoing efforts to revise communications laws, but that will likely be a years-long process.

“[T]o the extent commercial actors or other interested entities may be concerned with the relationship between the development and use of such technologies and the Copyright Act, they are, of course, free to seek action from Congress,” the court said, though Kanojia feared that would lead to something of a “Mother, may I?” approach to innovation — and Congress is not known for swift action even when dealing with issues not affected by Moore’s law.

The court’s conclusion that Aereo resembled a cable operator could also give the FCC some guidance on its open proceeding on defining a multichannel video programming distributor and whether over-the-top video services should get the same regulatory treatment as cable operators.

If it Quacks Like a Cable System…

The majority, with Justice Stephen Breyer writing the opinion, spent a lot of ink explaining why they thought Aereo was more like a multichannel video programming distributor and than a facilitating technology. The term “cable” was peppered (19 mentions) throughout the decision, as was “CATV” (22).

“Congress would as much have intended to protect a copyright holder from the unlicensed activities of Aereo as from those of cable companies,” Breyer wrote. In pointing out the similarities between Aereo’s remote antenna-based TV station-delivery service and community antenna TV systems, he wrote, “The CATV provider placed antennas on hills above the cities and used coaxial cables to carry the signals received by the antennas to the home television sets of its subscribers.”

Continuing on that issue, Breyer wrote: “This history makes clear that Aereo is not simply an equipment provider. Rather, Aereo, and not just its subscribers, ‘perform[s]’ (or ‘transmit[s]’). Aereo’s activities are substantially similar to those of the CATV companies that Congress amended the [Coypright] Act to reach. … [Aereo] is for all practical purposes a traditional cable system …”

Justices Antonin Scalia, Clarence Thomas and Samuel Alito disagreed with the majority, with Scalia writing the dissent, in which he said: “[A]ereo does not ‘perform’ at all. The Court manages to reach the opposite conclusion only by disregarding widely accepted rules for service- provider liability and adopting in their place an improvised standard (‘looks-like-cable-TV’) that will sow confusion for years to come.”

Striking a Hot Iron

Last week’s Supreme Court decision on Aereo was being leveraged against or for a variety of inside-the-Beltway causes.

The American Television Alliance pushed retrans reforms: “The broadcasters’ business model, which places blackouts ahead of consumers, is devoid of competition or incentive to innovate. We encourage Congress to take advantage of the opportunity that the Satellite Television Extension and Localism Act (STELA) provides to update our video rules to the 21st century, starting with retransmission consent.”

• Public Knowledge saw a chance to hammer Comcast/TWC: “We’re concerned that the court’s misreading of the law leaves consumers beholden to dominant entertainment and cable companies that constantly raise prices and gouge consumers. This decision, endangering a competitive choice for consumers, makes it all the more important for the Department of Justice and Federal Communications Commission to guard against anti-competitive consolidation, such as the Comcast/Time Warner Cable merger.”

• House Energy & Commerce Committee leaders pushed for Telecom Act reform: “This case underscores the mounting need to modernize the 80-year-old Communications Act, which serves as an important, yet outdated, framework for the communications industry.”