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MAY
30
2 YEARS

CBS Executive Grilled in Legal Hearing Over Barry Diller's Aereo

UPDATED: Broadcasters are being asked to defend their position that the media mogul's controversial new service must be stopped immediately. The central question: is cord-cutting less harmful than DVRs?

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

On Wednesday, Aereo got a chance to show that its controversial service that streams local TV stations to customers over the Internet won't cause irreparable harm to broadcasters.

In March, Fox, ABC, CBS and NBC sued Aereo, which launched with much fanfare the same month after raising $20.5 million in venture funding, including a large slice of that from media titan Barry Diller. A New York federal judge soon will decide whether to grant the networks' motion for a preliminary injunction against Aereo, and, to reach a determination, the judge is allowing both sides to call witnesses to testify about what Aereo represents.

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At Wednesday's hearing, one of the central questions was whether Aereo is more or less harmful to broadcasters than the advent of DVRs.

In response to that question, Martin Franks, CBS executive vp planning for policy and government affairs, said, "I just don't know."

To succeed in obtaining a preliminary injunction against Aereo, the plaintiffs have to show a likelihood of success on the merits of the claims and the prospect of irreparable injury. The networks have been making the case that if an injunction isn't granted, it will lead to TV viewers ditching cable and satellite services, an activity known as "cord cutting," which would then lead to the loss of advertising revenue, piracy, contentiousness with cable and satellite distributors, second thoughts on whether to invest huge money in content and new technology and overall hell.

But Michael Elkin, the attorney representing Aereo, pointed Franks' attention to testimony he gave during a deposition that suggested DVRs still represent more harm -- despite the industry's somewhat reluctant acceptance of them (notwithstanding certain ad-skipping technology).

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Broadcasters say they miss out on advertising revenue when TV viewers don't immediately watch their recorded programs. The networks have come to an agreement with Nielsen to measure DVR views and an agreement with ad buyers to pay for viewers who watch a program within three days of its initial broadcast. But to the disappointment of broadcasters, they haven't yet gotten the ad world to accept "Live+ 7" ratings (measuring those who watch shows within seven days of initial broadcast).

Franks agrees there's a lot of harm in this.

Pushed hard on whether DVRs cause more measurable harm to broadcasters than what's in dispute in this case, Franks responded there is a "benefit we derive from DVRs that we don't from Aereo, but on balance, yes."

The prospect of cord cutting worries broadcasters, who fear that because nobody is measuring those who watch Internet streams, ad buyers won't pay up for them without a verifiable ratings system.

But given time, circumstances could change, and Elkin attempted to score on this point by asking largely rhetorical questions to the TV exec witness. He asked: "Are you aware that 40 percent of TV households now use DVRs?" "Would you be surprised that for years, cable audiences weren't measured?" "How about all those who watch sports programming in bars?"

The judge also got into the act somewhat, addressing broadcasters' insistence that any customer who cancels his or her cable service to sign up with Aereo is a problem. How does subtracting one subscriber impact advertising, asked the judge, which caused the CBS executive to admit that it would have to be one Nielsen household that canceled for impact, and later that it would more likely have to be a substantial number of defections.

If the hearing over a possible injunction is primarily about figuring out what harm will come if Aereo isn't immediately stopped, an important side issue pertains to the industry's protocol in deciding how and when to take legal action when facing a threat.

Franks was asked to explain why he knew about the service since May 2011 yet directed a subordinate not to meet with Aereo, why concerns about the service were never relayed to officials there and why no cease-and-desist letter was ever sent.

Elkin introduced an e-mail from Franks to CBS Television president Peter Dunn and other correspondence from February 2012, when Aereo held a press conference to announce its service. The messages were to the effect: "We've been following Aereo for some time, but Diller's involvement adds a new wrinkle. This gives us an opportunity to move legally."

There was a bit of implication that the broadcasters decided to target Aereo upon seeing that the company had deep pockets to pay damages in a lawsuit, but Franks said it was more about the realization that Aereo was a full-blown company that was actually going to hit the marketplace.

"We don't sue lightly, especially not a company that might not survive," he said. "We only chose to sue after the February announcement where it became reality this was a company that wouldn't become vaporware."

The courtroom was so packed that -- ironically, in a case about TV streaming -- a closed-circuit televised telecast was provided so that additional individuals in another courtroom could watch what was happening.

Yet another bit of historical happenstance: At the same moment lawyers were fussing over whether an injunction against Aereo was warranted, almost within spitting distance in another courtroom, the 2bd Circuit Court of Appeals heard oral arguments over whether another judge rightfully granted broadcasters' motion for injunction against another TV streaming service, ivi. The two cases share many similarities and together will form key legal guideposts for vehicles that aim to push TV viewers down the road of cord cutting.

E-mail: eriq.gardner@yahoo.com

Twitter: @eriqgardner