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Aereo, Ivi and the Legal Road That Will Determine the Future of TV Cord-Cutting

A new Barry Diller-backed service promises to revolutionize digital streaming of TV. Can it survive legal challenges?

Barry Diller Headshot - P 2012
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Barry Diller

On Tuesday, a new service named Aereo was unveiled with plans to offer consumers the ability to watch broadcast television through digital streaming. Services like this have popped up in recent years, but this one potentially poses the greatest threat to the cable/satellite/broadcast industry. The company has raised $20.5 million in funding and is being backed by media mogul Barry Diller, who helped launch the Fox network and has also been a top executive at ABC, Paramount, and lately, his new company, IAC/InterActiveCorp.

Since yesterday's press conference to introduce Aereo, which will cost consumers $12 a month and include the ability to store up to 40 hours of shows, observers are curiously anticipating the reaction by major broadcasters over what digital media analyst Richard Greenfield has termed a potential "Retrans Killer."

So far, CBS, NBC, ABC and Fox are remaining mum on the subject of what legal action they might take. And Aereo itself is being careful about describing how it's going to avoid legal jeopardy. But one case going before the 2nd Circuit Court of Appeals next month could play a major role in determining whether Diller's investment, in his own words, "pries over-the-air broadcast television out of [a] closed system.”

The case involves ivi, Inc., which touts itself as the "first online cable system."  After this company announced in 2010 that it had raised $1 million in venture funding and had a "legal strategy" to rebroadcast television online without the permission of broadcasters or content-owners, it was sued by all of the major broadcasters.

The company's strategy entailed making use of Section 111 of the Copyright Act, which authorizes cable TV companies to make secondary transmissions of copyrighted works embodied in primary transmissions so long as a nominal statutory licensing fee is paid.

Last February, a New York federal judge rejected the company's interpretation that Section 111 allowed it to stream, granting the networks a preliminary injunction. "No technology...has been allowed to take advantage of Section 111 to retransmit copyrighted programming to a national audience while not complying with the rules and regulations of the FCC and without consent of the copyright holder," the judge wrote.

Here's where Aereo comes in.

In making its announcement, Aereo noted that it would be offering its initial service next month in New York, before expanding “a step at a time, a market at a time.”

This is potentially a big distinction.

In the ivi dispute, the district court judge noted that when Congress enacted Section 111, it was doing so with the "understanding of the cable industry as a highly localized medium" and ivi's service, in contrast, "retransmits broadcast signals nationwide, rather than specific local areas."

Does this mean that Aereo has learned from ivi's initial failings and has found the legal opening by focusing on local markets? Maybe, maybe not.

Ivi has appealed its case up to the 2nd Circuit, which will review the case sometime next month. In a brief to the 2nd Circuit, the broadcasters repeatedly stress that the nationwide vs. localized distinction is an important one, but also come very close to asking the appellate circuit to reject any notion that Internet services get the same statutory treatment as cable-based ones. For example, the brief says:

"Extending a compulsory license to ivi (and anyone else that wishes to deliver broadcast programming over the Internet),without being subject to any FCC rules whatsoever, would vest Internet services with an enormous competitive advantage over the cable industry. And it would subject any programming that program owners placed on broadcast stations (rather than non-broadcast cable networks such as the USA Network, TNT or ESPN) to wholly uncontrolled dissemination across the country and beyond. Congress never intended such a result, which, among other adverse consequences, would place the United States in violation of its obligations under various international treaties."

Elsewhere in the brief, the broadcasters make an argument that might be applied similarly to the operation of Aereo. To quote another passage from the brief:

"Because ivi has no control over any of the thousands of diverse routers and switches that comprise the Internet, its streaming content might be routed anywhere around the globe. Moreover ivi initially marketed its service worldwide, promising potential subscribers that they could 'watch local content anywhere in the world, such as viewing New York City broadcast channels anywhere from Paris to Perth to Peru.' ivi says it discontinued its worldwide service in favor of a nationwide service, but ivi has the technical ability to resume that worldwide service at any time. ivi’s services thus are inherently global..."

Aereo is touting thousands of tiny antennae in Brooklyn, with each subscriber assigned one. Will this argument fly to convince a court that its new service constrains exhibition of copyrighted material? It didn't last year for Zediva, which offered a DVD rental service where customers were supposedly assigned individual DVD players, but was unsuccessful in convincing a judge that the service wasn't a public video on-demand service.

Aereo's service opens up other legal questions too.

For example, the company's DVR plans are sure to raise objections. In 2008, the 2nd Circuit largely blessed Cablevision's plans to offer remote-DVR functionality to its subscribers, but the cable company already had negotiated at least some distribution rights with broadcasters. Further, Aereo says that its new service will give its customers the ability to view television on smartphones and tablets -- a subject that's sparked litigation between Viacom and Time Warner Cable. Viacom has stated that such activity potentially "cannibalizes" audiences on traditional platforms and therefore is entitled to a mobile fee.

Aereo's service is set to launch on March 14th. The 2nd Circuit hearing date in the ivi case, meanwhile, hasn't been finalized yet due to some scheduling difficulties by the attorneys involved, but we're told that the oral arguments could commence as early as the week of March 5th. Next month could be an important one for the TV industry and the future of cord-cutting.

E-mail: eriqgardner@yahoo.com

Twitter: @eriqgardner