A top executive at News Corp. dropped a bombshell this week when he said the company is considering taking Fox's over-the-air network to cable. The announcement follows a court win for a startup company that streams broadcast channels online.
That startup's CEO, arguably the most feared man in television right now, is soft-spoken and rather techy.
Chet Kanojia launched the service Aereo about a year ago. It's only in the New York City area right now. For a monthly fee, Aereo takes broadcast TV signals and streams them over the Internet. With a tap on an iPad, the local Fox station pops up on the screen.
This is what has networks like Fox up in arms. For $8 a month, Aereo will provide a high-definition feed of the basic over-the-air channels: CBS, NBC, Fox and the like. If you're tech savvy, you can even watch it on your TV. Kanojia says he saw a demand for a cable alternative.
"Most people watch seven or eight channels, even though they have 500 channels, and a third of the households effectively just watched network television," he says.
The problem, the stations say, is that they don't get a penny of Aereo's monthly fees.
"The fear is that if Aereo is allowed to continue, really, the new economic foundation of the broadcast business is threatened," says Robin Flynn, a senior analyst at SNL Kagan, which researches the media business.
That new economic foundation is something called a "retransmission fee." It used to be that cable companies didn't pay anything to deliver you the basic broadcast channels. That changed about five years ago. Flynn says as part of their cable bills, customers now pay about $1 a month for each station.
That's turned into a big source of revenue for local affiliates, totaling $2.3 billion last year, on top of all the money stations get from advertising.
"The networks have really started to depend on the dual revenue stream to enable them to pay for programming, including sports programming and scripted dramas," Flynn says.
Of course, if you had rabbit ears on your TV, you wouldn't pay anything for the stations, either. That's the loophole Aereo thinks it's found. Aereo actually assigns subscribers their own dime-sized antennas in its data center. Each one sends a signal over the Internet to just one user.
So when the networks say Aereo should be paying them fees just like the cable companies do, Kanojia says his service is no different than having an antenna at home.
"We're not a cable company. We're an antenna technology," he says. "Ever since broadcasting started, no antenna manufacturer, no television manufacturer has been required any kind of transmission fee."
So far, an appeals court agrees with Kanojia. A consortium of networks tried to block Aereo, accusing the company of profiting off the copyrighted shows it spent millions to produce and air. But Aereo prevailed in the case.
It was after that ruling that News Corp. President Chase Carey called Aereo a pirate and threatened to take Fox off the airwaves in retaliation. Soon, Univision said the same.
Most think this is saber-rattling, but media lawyer Matthew DelNero says there's some precedent for the stations' argument. He was not involved in the Aereo case, though he does work with some of the networks that filed suit. He says, years ago, cable companies made similar arguments to the ones Aereo makes now.
"They said, 'We're simply delivering broadcast signals that someone could get just as easily over the air.' And Congress looked at that and said, 'Well, wait a minute, you're obviously delivering some value with that because subscribers are willing to pay you monthly fees for that,' " DelNero says.
It was then that over-the-air stations gained the right to charge for their channels.
If Aereo continues to prevail in court, DelNero says cable companies could copy its model and free themselves from the fees. And after another court ruled against a similar service in California, all this may ultimately end up in the Supreme Court.
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