Aereo’s chief executive, Chet Kanojia, reacted to his loss at the Supreme Court by warning of the ruling’s potential chilling effect on technologists, and plenty of observers took up that call. Nicco Mele of Harvard’s Kennedy School of Government likened the decision to the demise of Napster, which in his view allowed music companies to end a short-term threat while ignoring broader shifts in consumer tastes. And we all know how that worked out.
So is Aereo the new Napster? To determine whether the decision will have more profound effects over time, you have to ask two questions:
• Will the ruling scare companies away from developing new ways to watch television?
• Will the ruling allow incumbents to sit on their laurels, deciding against making products that people want because those products would challenge their existing business models?
The answer to both of these questions seems to be no. It certainly seems as if the Supreme Court will scare Aereo away from its current course. The company could actually continue to operate its antenna farms and sell subscriptions to its users, but it would have to pay broadcast companies for the right to use their content. This would entail a monthly cost of about $1 per channel per customer in retransmission fees. Aereo probably couldn’t afford this unless it charged significantly more for its service; its business model was based on keeping prices low by not paying these fees.
But one of the company’s competitors, FilmOn, says the Supreme Court actually improved FilmOn’s own position by ruling that companies such as Aereo function as cable operators. Alki David, chief executive of FilmOn, says he has been unable to get broadcasters to allow the company to access their content even if it paid rebroadcast fees. Broadcasters are required to license their content to cable companies, he says, so some version of Aereo’s model could live on. “You charge people $15 for the service,” he says, “and then you figure out the costs.”
The Supreme Court may also have left some openings for businesses that are slightly different than Aereo. As Justice Antonin Scalia argues in his dissenting opinion, the majority ruling found that Aereo broke the law by offering live television, much like a cable company, but without paying the retransmission fees. If a service offers broadcast content on a delay, does it still fail this cable-comparison test? Scalia thinks not: “Consider the implications of that answer: Aereo would be free to do exactly what it is doing right now so long as it built mandatory time shifting into its ‘watch’ function,” he writes.
Given the increasing ubiquity of time-shifting behavior, where people watch shows on their own schedules, such a service might actually be very popular—even if any business pursuing such a model might want to factor in the possibility that it would spend a lot of time in court. But it would likely preclude innovation in one key area: live sports. In a brief supporting the broadcasters, the National Football League and Major League Baseball laid out a scenario in which Aereo could set up antennas across the country, then charge people for access to all local broadcasts. This is the kind of service that Mele is talking about when he compares Aereo to Napster: It would be appealing to viewers and threatening to broadcasters, who restrict access that customers want in order to protect their existing deals. If there’s one specific area where the court has cut off an attractive service, this is probably it.
So that’s how the decision will affect new companies. But will the presumed death of Aereo lull the incumbent television industry into complacency? Unlikely. Aereo was a minor player in the drama surrounding the television industry, which still has plenty to worry about. The number of people who paid for television through cable, satellite, or fiber providers fell last year for the first time, largely due to online services such as Netflix. There is a steady flow of new mobile TV offering and alternatives to the traditional cable bundle, such as Dish Network’s (DISH) deal with Disney (DIS) to provide an Internet-based competitor to cable.
Aereo did push broadcasters to think about how they could move more aggressively into new formats, if for no other reason than to deprive the company from accessing their content. “Some of these discussions that have been in the background for a long time came to the forefront,” says Robin Flynn of SNL Kagan. “Those things wouldn’t have happened if Aereo wasn’t pushing the model.”
But the industry knows a reckoning is coming, in one form or another.
