This past week, the US Supreme court ruled that Aereo is infringing on copyright laws by redistributing free over-the-air (OTA) TV channels to subscribers over the web. The Court basically deemed Aereo’s service to be a “public performance”, similar to a cable TV service. Therefore, Aereo is legally subject to retransmission fees to be paid to the Broadcast TV networks, such as ABC and CBS, which Aereo allows its customers to access over cloud-based antennas. According to Barry Diller, a major Aereo stakeholder, this decision basically kills the Aereo business model. For what it’s worth, I don’t agree with some of the basic principles of the SCOTUS decision. I don’t believe Aereo conducted a public performance and I don’t believe Aereo really “looks like cable TV.” I do think this is a “win” for continued big media dominance and it likely means higher cable prices for consumers. But it is what it is, so what do we do now?
What are the implications of the Aereo decision for the “OTT” TV industry and consumer television overall? Will this decision basically solidify the “cable TV bundle” for years to come, and stifle the innovation of alternative TV technologies, and digital media overall for that matter? Will retransmission and content licensing fees accelerate with this decision? Many analysts now say to expect 2-3x rise in retrans fees in next 3-5 years, which is bad for consumers. At the same time, consumers are effectively left with fewer TV choices, also bad.
But despite the Supreme Court’s decision against Aereo, won’t consumers ultimately get what they want, one way or the other? Doesn’t the music industry give the TV industry fair warning that you can’t just keep cramming the “old way” down consumers’ throats forever? They will find a way around you if they don't value you. Cable companies are some of the most poorly rated companies by consumers. Why is that?
Is there any question that consumers are, in fact, finding new and better ways to access and consume their “TV”? Isn’t the very idea of what “TV” means changing before our very eyes? The technology, the networks, the content, the business models, ultimately consumer viewing behavior, all changing. And, people are beginning to figure out they CAN live without cable TV. 84% of cord cutters, people who have cancelled their pay TV service, are happy with their decision and do not miss their pay TV service, according to a recent nScreenMedia study. Then there's the next generation of adult consumers. Millenials strongly prefer digital media over traditional TV. They are much more likely to subscribe to Internet subscription video services to get their TV. As this shift toward the Internet is happening in a massive way, doesn’t that naturally disrupt the old traditional TV model, whether Big Media or the government like it or not, in our "free market economy"?
One of the very reasons broadcast TV fought so hard against Aereo is because they need to protect retransmission fees, which on the surface is understandable. This is interesting because retrans fees are on the rise due mainly to declines in broadcast TV advertising revenue. The broadcast networks have to make up for the dollars disappearing from the advertisers, who are in turn allocating more and more of their ad spend to online channels. Doesn’t this say loud and clear that consumers are migrating online? Doesn’t this also say that the Aereo decision goes against the paradigm shift that is occurring in consumer "TV" viewing? If so, the Court decided for big media and not for the people.
So with this ruling and possible demise of Aereo, is the OTT-TV model (in particular, the redistribution of OTA channels) now dead or is this a speed bump that the industry (and consumers) will be able to get over?
What are the alternative strategies for current and would-be OTT service providers, in light of the Aereo decision? Here are a couple ideas that require further investigation and creative thinking...
Legislation – Is it time to review and change TV copyright and distribution legislation that dates back to 1976? Do “big media” opponents have the money and clout to cause change at the legislative level? The law eventually will need to catch up with technology and market conditions, but it’ll be tough to put down a bet that this will happen any time soon.
Compulsory License Fees - Are companies who want to redistribute TV channels online able to obtain lower cost compulsory licenses that are available to cable companies under Section 111 of the statute? Does this require the provider to be declared a MVPD, and therefor also bear the additional burdens of such a classification, in order to qualify for compulsory licenses?
Free Services - Within the law, is it possible to provide technology that will help deliver an individual’s own OTA TV signal over the Internet, for free? If so, and within context of the entire ecosystem of OTT content and technologies, isn’t there a solution and business model that can work here? This will require some creative thinking and may be very tough to defend in the lower courts with the Aereo decision in place.
Technology – Even though the Supreme Court basically decided that how the technology works doesn’t matter, is there a technology solution that legally allows for OTA channels to be authenticated and delivered over the Internet and broadband networks? Can the market come up with a delivery method that is not considered a public performance? That probably just got more difficult to do, although the Aereo ruling did not make this case clear.
Content - Netflix has proven that you can build a very large audience of "TV" viewers without the big broadcast networks. Granted, Netflix has invested hundreds of millions of dollars on exclusive content, but there is an emerging universe of content that is seeking alternative distribution and I believe there is a world of opportunity opening up for deals that make sense for smaller operators and OTT distributors. Other than for live sports, the broadcast networks are losing their vice grip on consumers.
So, is the Aereo decision a TV innovation killer or speed bump? Time will tell, but the market is telling us it’s time for innovation, even though the government and big media apparently want to stifle it.
That’s how I see it. What are your thoughts?
- Paul D Hamm