TV Broadcasters Warn of Huge Industry Shakeup If Barry Diller's Aereo Isn't Stopped

Barry Diller - television interview in New York - P - 2010
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All of the major TV broadcasters are fighting a legal battle against Aereo, an upstart company backed by Barry Diller that seeks to distribute stations online to paying customers. If Aereo is successful in fending off the lawsuit, will cable and satellite distributors shake up their own approach to delivering TV to consumers?

On Wednesday, Matt Bond, executive vp content distribution at NBCUniversal, told a New York federal court that the answer is an unequivocal yes.

"It makes little economic sense for cable systems and satellite broadcasters to continue to pay for NBCU content on a per-subscriber basis when, with a relatively modest investment, they can simply modify their operations to mirror Aereo's 'individual antenna' scheme and retransmit, for free, over-the-air local broadcast programming," Bond says in a declaration. "I know for a fact that cable companies have already considered such a model."

Bond's declaration was one of many court filings Wednesday as broadcasters seek to persuade the judge to order a preliminary injunction against Aereo's service. If that doesn't happen, the broadcasters warn that the TV industry will be totally changed -- making it less likely that broadcasters would ever pay billions of dollars for the rights to live NFL games, that retransmission negotiations between stations and cable/satellite companies could get even more contentious and that Aereo's service would threaten advertising money and piracy protection and the growth of Internet-based video on demand market. In short, they say television would never look the same.

To succeed in attaining a preliminary injunction against Aereo, the plaintiffs have to show, among other things, a likelihood of success and the prospect of irreparable injury. If the former calls for some legal nuance, the latter requires some drama about the potential revolution.

On the first point, the parties are debating the meaning of the landmark 2008 ruling by the Second Circuit Court of Appeals in content holders' fight against Cablevision over a remote-storage DVR service. That case dealt with a number of important and complex topics, including the nature of "copies" in a system that buffers, volitional control over copying and the differences between public and private performance. The appellate circuit determined that remote DVR was not a public performance and was merely acting at the behest of its users.

The broadcasters say the Cablevision decision only addressed time-shifting, not the retransmission of over-the-air broadcasts by "free-riders" like Aereo. According to the broadcasters' memorandum to support a preliminary injunction:

"Because the Second Circuit did not have before it the question of real-time streaming or whether using a buffer copy to facilitate such retransmissions has the effect of converting a public performance into a private one, there is no basis for reading Cablevision as applicable to real-time retransmissions simply because Aereo's 'device or process' employs a buffer copy and a streaming server. ... To the extent that a service provider chooses to uniquely associate a buffer with a user, Aereo's theory would allow the provider to assert that all of its obviously public performances are, therefore, 'private.' "

If that happens, the broadcasters say, it would pretty much destroy the underpinnings of the modern TV industry, including the "transmit clause" in Section 101 of the Copyright Act.

Giving his own declaration, NBCU's Bond says a victory by Aereo also would undercut another backbone of why the TV industry looks the way it does today: the Cable Television Consumer Protection and Competition Act of 1992.

This law, passed by Congress over President George H.W. Bush's veto, allowed stations to bypass "must-carry" status and elect instead to negotiate retransmission consent deals with cable and satellite operators. The 1992 law, and the 1999 follow-up for satellite companies, became the impetus behind many contentious negotiations and blackouts, most recently a dispute between Tribune and DirecTV on the opening day of Major League Baseball last month.

But Bond frames this as a good thing. Without the potential for blackouts, programmers would have no leverage to demand a portion of revenue from distributors. And he says that could influence the decisions to invest in content. As an example, he points to the $10 billion that NBCU paid to the National Football League for rights to Sunday Night Football over the next nine years, something he implies wouldn't have happened before the 1992 Act where cable systems purportedly bore no cost of productions.

"Congress recognized the inequity of that situation and that, over time, a system where television stations and networks bore the costs of production without adequate compensation would result in the end of free over-the-air television," he writes.

Bond says that if a preliminary injunction isn't handed down, it will lead to "cord cutting." And while he won't give any estimates on numbers, he says, "Once those subscribers migrate from traditional MVPDs [multichannel video programming distributors], there is no guarantee they will come back, even if Aereo's service ultimately is found to be illegal at trial."

The warnings from the broadcasters go on to wave the red flags about loss of control over new-media distribution (Aereo allegedly threatens broadcasters' licensing to Hulu or their investing in a venture to transmit signals securely to mobile platforms called DYLE), the loss of advertising revenue (the broadcasters say there is no accurate, verifiable way to measure viewership online) and the risk of piracy (as Internet transmissions are allegedly "notoriously insecure").

If cord cutting is the future of the industry, the broadcasters prefer that it be on their own pace and under their own thumb. A judge's decision on whether to grant a preliminary injunction will be coming shortly, and the stakes are pretty high.

Read court documents on the following page.


Twitter: @eriqgardner