Why Is Aereo Driving the TV Networks Crazy?

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What could be so bad about a startup firm that two broadcast networks are threatening to pull their free over-the-air signals? That’s exactly what is happening in response to Aereo, a company that is designed to help people cut the increasingly-expensive cable cord. Like almost every other controversy, it comes down to money.

Aereo is a simple idea. It takes over-the-air TV broadcasts and makes them available for streaming to any device over the Internet; PC, smart TV, tablet, or phone. Aereo’s twist is that each subscriber is receiving a broadcast taken from a tiny TV antenna that they rent from Aereo, and that antenna has to be located in the city where they live. So the company says it is only giving subscribers another way to access TV content they can already get.

Aereo on an iPadFor now, the service is available only in New York City. So why are broadcasters going berserk? Why are Fox and CBS threatening to pull their signals from the airwaves and just offer them on cable/satellite? The answer is dollars. Billions of dollars.

Cable and satellite operators pay what are called re-transmission fees for being able to take a direct feed from TV stations and offer it through their networks. They pay these fees to ABC, NBC, CBS, Fox, CW, etc. Aereo, on the other hand, isn’t paying these companies a dime because, as the company argues, it’s just letting people watch TV that comes off an antenna. That’s how it can offer its service for just $8 a month.

The re-transmission fees paid by cable/satellite operators come out to hundreds of billions of dollars per year, said Michael Maguire, research director with Gartner. It’s been a very nice revenue stream for the broadcasters and they are not about to give that up.

The Battle Is Building

Already the broadcasters have taken Aereo to court, but twice have failed to get an injunction on the grounds of copyright infringement. They could go to the FCC and ask for rebroadcast fees, said Maguire, but it could be a very long process legally.

Then there’s a wildcard no one has mentioned yet, said Maguire, and that’s pro sports. Sports packages are very popular with cable and dish subscribers, and games are often blacked out in local areas to encourage attendance. So what happens when Aereo starts broadcasting football games that the NFL doesn’t want given away for free? Aereo has 32 more enemies (the number of teams in the NFL).

Yanking all of the OTA signals would make villains out of the broadcasters, because there’s still a sizable chunk of people who depend on good old rabbit ears for their TV. Research by GfK Media last year found the number of Americans relying on OTA television reception actually increased to almost 54 million, up from 46 million just a year ago. When asked why, 70% said cable was too expensive. Only 20% cited Internet alternatives. Imagine how they’d feel if they turned on their TV and the only thing they could get was PBS?

“There’s dueling press releases and sabre rattling, but is this serious? Yes I think it is, and it would be a tremendous change if the retransmission rules were thrown out. In a perfect world, calmer minds and logic prevails. But when there’s that much money involved that might be asking too much,” said Maguire. “The only chance for a more orderly transition would be if FCC decides to get involved”, he added, “but thus far it has given no indications of doing that”.

In the meantime, Aereo continues to grow. It is planning on expanding to 22 new cities this year.



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