Aereo is based on a very simple idea: That over-the-air television, the kind one can get from a regular TV antenna, can be made available over the Internet. Based on that premise, the company built out data centers with small antennas that could capture TV signal off the air and redistribute them over the internet. Adding a small software layer to the technology allows the company to provide DVR services along with regular broadcast, which means its subscribers can record one TV show while they’re watching another one live. Customers can watch live TV on Apple iOS devices, Roku boxes, and soon Android-powered devices.
And best of all, it’s perfectly legal: the company found an interesting loophole in the way the TV business model currently works: The broadcast networks receive broadcasting licenses from the FCC, allowing them to send their signal out over the air to millions of customers. For over half a century, this was a great deal for TV companies as they could reach large pools of customers without having to worry about building out infrastructure to get programming to those customers. Then cable and satellite TV came along and were required to carry those broadcast channels too.
TV stations were thus able to distribute their signal to local audiences via either cable or antenna. But the internet changed all that, as distances were erased. First, the idea of needed to sit in front of a TV to experience a program was chipped at with VCR (which still were relatively complicated to operate) and then DVRs, which made most TV an on-demand model. This represented an issue for TV broadcasters, who look to amass audiences at a particular time so they can sell those eyeballs to advertisers. They sell this aggregation to affiliates, who pay them broadcast fees, and cable companies, who pay them carry fees.
Enters Aereo with a new model that take viewers and moves them from a TV screen to tablet and phone screens. The company went to great pain to design a system that would meet all the legal requirements of an existing over the air TV receiver, even going as far as creating limitations for customers in terms of geographical areas in which they can use the service. And Aereo is taking existing signal from the affiliates, without having to pay the broadcast networks.
Such a development, to many of the incumbents, is not welcomed. Broadcast transmission fees are now a multi-billion dollar business and Aereo could be upending this stream of revenue for the big broadcasters. If the broadcasters allow Aereo to get its broadcasting programming for free, this may lead to other companies retransmitting signal (eg. the cable companies) to request that broadcast retransmission fees be eliminated or at least lowered drastically.
So the big broadcast networks, and a large group of traditional content owners ranging from sport leagues to movie studios, sued Aereo based on the idea that the company was stealing their intellectual property. And this week, the courts ruled in Aereo’s favor, declaring:
“It is beyond dispute that the transmission of a broadcast TV program received by an individual’s rooftop antenna to the TV in his living room is private, because only that individual can receive the transmission from that antenna, ensuring that the potential audience of that transmission is only one person. Plaintiffs have presented no reason why the result should be any different when that rooftop antenna is rented from Aereo and its signals transmitted over the internet.”
But while Internet activist and Aereo saw this as a major victory, the TV industry is now seeing red. Fox Network, CBS, and Univision are all considering becoming cable only channels. Such a move would leave the United States with only three network TV systems: ABC, NBC (ironically, those were the first two TV networks in the country), and PBS.
Questions could arise as to the business model for Fox and CBS as they have been relying on affiliates to carry their signal in the past. Those affiliates would now be left without a broadcast advantage. For example, a company like Sinclair Broadcasting, which carries 24 Fox affiliates and 11 CBS affiliates (along with another 57 other stations) could be forced to drastically change their business model as over a third of their business turns former partners in potential competitors.
The ownership of broadcast licenses that come with those channels could also be brought into question. If Fox, CBS, or Univision go to a cable-only model, would they have to return their broadcasting licenses back to the FCC or would they be allowed to resell them to third parties? This could drastically alter the telecommunication landscape, as the FCC is on a search for more spectrum.
On the Aereo side, it is clear that the company will expand its physical footprint (it is currently only available in New York but looks to expand to 26 other markets this year). Going beyond the core set of TV services, the company may then look at providing other cable station in a live form. The company could, for example, start offering an a-la-carte service, on a premium tier to customers, pitting it against traditional cable companies. And when that collision happens, TV will be forced to change yet again.
So while Netflix is busy working hard on becoming the next type of TV station, Aereo is working on becoming the next type of cable company. These days, the battle for your TV set is raging on and a variety of new models are emerging. The only question that remains is whether the incumbents will adapt or die.