The over-the-air television streaming company Aereo and the major broadcasters — including ABC (DIS), CBS (CBS), FOX and NBC (CMCSA) — have had their day in court. Though a ruling on the company’s peculiar business model from the nation’s highest court isn’t expected until June, smaller broadcasters, industry groups and advertisers alike are trying to figure out how a decision in either direction will impact their business.
The case has fragmented the greater broadcasting industry in surprising ways. Though the National Association of Broadcasters expectedly issued a statement in support of the major broadcasters involved the case, many smaller or independent broadcasters around the country actually support Aereo’s position.
Fragmented broadcasters
Low power broadcasters are one such group. Low power stations aren’t typically carried on cable or satellite services, and when they are, they still don’t reap the rewards of retransmission fees like the bigger players. In their view, Aereo streaming content that originates from low power stations could actually mean more eyeballs, and potentially more ad revenue, at the local level.
“I am hoping that Aereo wins,” said Gary Cocola, president and founder of Cocola Broadcasting Companies. “I can’t get all my signals picked up on cable, as my stations take up too much bandwidth for the cable and satellite guys.”
Fresno, Calif.-based Cocola is one of several broadcasting companies in the U.S. that own low power stations, which require users to have an antenna to receive the signals.
“I have 53 streams of video in Fresno through the low power stations,” Cocola told Fortune. “The best thing that could ever happen to me is that Aereo picks up the signal in Fresno. Rabbit ears don’t work well for low power TV and you really need an external roof antenna. For those in apartments, this isn’t an option.”
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Not all independent TV stations are siding with Aereo. Some independent broadcast owners argue that the service could have a large negative impact on independent, free-to-the-home broadcasting.
Colby May, legal counsel for Tri-State Christian Television, which now operates a network of eight religious TV stations and their repeaters throughout the Midwest, says Aereo’s technology “appears to be a gimmick designed to simply circumvent the copyright laws.”
“Basically, the service turns broadcasting into a mere over-the-top content source — albeit a cherry-picked one — and divorces the integrated service of local television and format from its local context,” May said. “Would an author or publisher accept allowing the entire ‘work’ to be usurped by a third-party’s editing, or cutting The Mona Lisa down to just the corner of the smile?”
The advertising impact
While much of the Aereo case is built around the company’s skirting of retransmission fees, the world of free over-the-air broadcasting still reaps a lot of money from conventional advertising. Since the days of the VCR, broadcasters have worried how technology could impact the traditional 30-second spot; Aereo is only the latest technology to make waves.
Still, an Aereo victory could lead to major changes in the way advertisers approach broadcasters, said Andrea Marder, director of media planning and buying at Media Associates.
“There has already been a lot of talk from the broadcasting community to migrate to cable as well as OTT [over-the-top] services,” Marder said. “If they do migrate to cable, it will be a very different landscape for advertisers. Everything today as we know it with the networks is really about a broadcast audience. This could change the landscape.”
Those changes are already underway, albeit slowly, as younger viewers consider “cutting the cord” and using alternative means of watching television shows. “The cord-cutting isn’t actually happening in the millions yet,” Marder said. “But we are seeing a rise in second screens as being an alternative to the traditional living room set.”
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An Aereo win could also change the demand for local advertising sales. In this regard, it could affect the network affiliates the most, Marder said. “If the networks change their model,” she said, “then the locals need to find a new place for content. Without that content from the networks, the local stations look less desirable when it comes to advertising.”
An Aereo win could also raise questions about just how to measure those additional viewers so that low-power broadcasters can take advantage of them.
“Aereo doesn’t have measurement in place with Nielsen, so it would be interesting to see how the local stations can draw revenue through Aereo without the traditional ratings system,” Marder said. “Large advertisers want those metrics, as it sets the rates for ads. However, local mom-and-pop shops typically buy by the spot so for those local businesses this could be a bonus.”
Clouding the issue
The cloud computing industry is also closely watching how the Aereo case unfolds, for the potential ramifications of “general sloppiness” in an “over-reaching” ruling, said Martin C. Lafferty, CEO of the Distributed Computing Industry Association, an international trade organization focused on commercial advancement of cloud computing.
“At the very least, this is likely to put a pale over some venture capital in the cloud computing space,” Lafferty said.
An Aereo loss could pave the way for litigators in the broadcast market to go after people who are storing copyrighted content in the cloud, Lafferty said.
“It is going to be easier to go after a data center than going after 10 million users in the home,” he said. “Hosting services and cloud computing centers do try to ensure that they aren’t storing copyrighted material, but there is always a fringe element that tries to get around the laws. Really, this is about the broadcasters being at a point where they didn’t prepare for the future.”
MORE: What happens if broadcasters lose the Aereo case?
And that’s just it, really. Aereo is only the latest in a long line of technology that appears to threaten the business model of broadcasters. It wasn’t long ago that the TV industry was up in arms about ad-skipping DVRs, and it continues to have an uncomfortable relationship with streaming Internet TV.
Alkiviades “Alki” David knows this well. David is the founder of FilmOn, an Aereo-like company known for streaming over-the-air TV on the Internet. In September, a federal judge slapped his company with an injunction, barring it from retransmitting broadcast programming over the Internet in the U.S. after ABC, CBS, Fox, and NBC filed a copyright infringement lawsuit in the District of Columbia last May. Today, the company provides free and pay subscription packages that include access to more than 500 live streaming TV channels — but none from the major networks.
“The real problem lies in the fact that five corporations control virtually all the mainstream media,” David said. “They are further trying to control the flow of information.”
If Aereo wins in court and broadcasters remove their content from the airwaves — possibly in violation of agreements pertaining to it — the ruling would create a vacuum that would be filled by independent stations, David said.
“The broadcast networks have been mandated by the government to fill the spectrum that they’ve build their business on,” David said. “By Congressional order, they’ve been asked to make this information freely available to the public.”
A ruling in favor of Aereo could also change the way Nielsen, the TV ratings firm, measures viewership. “An Aereo win will encourage Nielsen to have a rating system that is based on truth instead of fiction,” David said.
He added: “Even if Aereo should lose in the courts, history has shown that technology always wins in the end. Ultimately that is where this goes.”
