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JUL
12
2 YEARS

Aereo Court Ruling Impact Could Be Swift (Analysis)

The case is not over, but the decision to allow the streaming TV service to continue is expected to influence negotiations between broadcasters and cable/satellite distributors.

Barry Diller
Jonathan Fickies/Bloomberg/Getty Images
Barry Diller.

Many media analysts are still attempting to grip the full ramifications of a New York judge's decision to deny broadcasters a requested injunction against Aereo, the streaming TV service that was funded in part by Barry Diller. But for a sense of the potential impact of a judge's words that broadcasters "have not demonstrated a likelihood of success," Time Warner Cable CEO Glenn Britt provided it in a conference call with analysts in late April:

"[Aereo], I think is a very interesting idea," said Britt. "If it's found to be legal, not paying retransmission consent, it's a very interesting thing."

Fears that cable and satellite companies would exploit Aereo to their own advantage was echoed by others inside the TV industry during the run-up to New York federal judge Alison Nathan's decision on Wednesday. To be certain, all of the major broadcasters needed to trot out a parade of horribles in order to prove "irreparable harm," typically the highest bar in gaining an injunction.

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But that doesn't fully account for the words spoken in the past few months, including a declaration from a Fox executive who told the court, "It is my understanding that cable companies have already referenced Aereo when discussing lowering their retransmission fees.”

This comment, and others, was enough to convince Judge Nathan that the broadcasters indeed suffered irreparable harm should Aereo be given a green light to continue operations. But the broadcasters couldn't meet the other test -- the likelihood that they would ultimately prevail on arguments that Aereo violated the "transmit clause" of the Copyright Act.

The decision surprised many media analysts. Paul Gallant at Guggenheim WRG had previously issued reports to investors that broadcasters had the "edge" in the court battle because they had the "stronger legal argument." (Gallant attended the hearing and later took back his comment that he thought broadcasters had the edge.)

Now, in the aftermath of the judge's decision, some analysts are trying to digest the significance.

"While the 'heart' of this case is not over, the language was clearly more negative than we had anticipated," said Marci Ryvicker at Wells Fargo.

"The opinion was strongly worded, forcing us to make a working assumption that Aereo's approach is legal," says Barton Crockett at Lazard Capital Markets.

Of course, Ryvicker is correct in acknowledging the case hasn't ended. The broadcasters have already said they will appeal. Despite all the bad things that broadcasters stated would occur if an injunction was not granted, they now say the true battle lies ahead. For instance, the statement issued by Disney/ABC reads, "The main event in this case has always been a decision by the Appeals Court. We remain confident in our position and look forward to the opportunity to present our argument to that Court."

The appeals process will take at least a year -- and perhaps longer. In the meantime, broadcasters will be dealing with the fallout. That's not necessarily with Aereo, whose spokesperson tells The Hollywood Reporter that the service currently has more than 3,500 members, a pretty low subscriber rate for a company that launched four months ago amid much fanfare and more than $20 million in funding.

But amid fights over retransmission fees that only seem to be getting more contentious -- see the current Viacom vs. DirecTV battle, for instance -- the danger lurks that the Aereo decision, even if it's preliminary, can be used as a leverage point. In past impasses over carriage contracts, companies like Time Warner Cable have done things like handing out tens of thousands of antennas to subscribers. What stops them now from pointing to the dawn of Internet TV streaming or setting up their own Aereo-like antennae farm?

E-mail: eriq.gardner@thr.com

Twitter: @eriqgardner