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Could Aereo Pop the TV Sports Bubble?

Aereo LogoWhen News Corporation president and COO Chase Carey stood before broadcasters last week and told them that Fox could shut down its broadcast network and become a cable-only channel, you could envision him twisting his handlebar mustache like a good Republic serial villain, describing his fiendish plot in great detail before carrying it out. All that was missing was a dashing hero to grab him by the lapels and shout, “YOU MONSTER! WHERE IS SHE?”

The hero, in this case, had already won the day a week earlier. Aereo, a new online video startup, was dragged into court by a consortium of broadcasters, including News Corporation-owned Fox. The broadcasters claimed that the company’s business model — renting out antennas that pick up over-the-air broadcast television signals and streaming them over the Internet for a monthly fee — was naked copyright infringement on the level of Napster and Limewire. On April 1, an appeals court told the broadcasters they were wrong.

We conclude that Aereo’s transmissions of unique copies of broadcast television programs created at its users’ requests and transmitted while the programs are still airing on broadcast television are not “public performances” of the Plaintiffs’ copyrighted works under Cablevision. As such, Plaintiffs have not demonstrated that they are likely to prevail on the merits on this claim in their copyright infringement action. Nor have they demonstrated serious questions as to the merits and a balance of hardships that tips decidedly in their favor.

On the surface, the networks’ dispute with Aereo dispute centers around retransmission consent fees, which the broadcast networks have started collecting recently from cable companies in an effort to decrease the revenue gap between pay TV networks and over-the-air broadcasters. One report estimated that broadcast networks could collect up to $3.6 billion in retransmission consent fees by 2017 — unless, of course, someone puts up a warehouse full of tiny antennas and rents them out individually to users. No consent or fees necessary! That’s what prompted Carey to suggest that Fox would “pursue a business solution…  to take the network and make it a subscription service.” CBS made similar threat a few days later.

Losing out on retransmission consent fees, however, isn’t what the networks fear the most. The real threat of Aereo is losing out on cable subscriber fees for all their cable channels — especially their sports channels.

As I noted in this article, the broadcast networks are all owned by the same corporations that control the rights to nearly all American sports on pay TV. These corporations have a vested interested in keeping customers tied to cable and satellite TV. The cord-cutting phenomenon is growing in spite of this, but until now, online options have been limited to on-demand streaming video.

Aereo changes that. Its $8/month service legitimately offers live TV, and its apps run on the same platforms as other on-demand services. Combine Aereo with Netflix, Hulu Plus, and YouTube, and suddenly, you’ve got all your local channels, 20 hours of DVR space for recording broadcast shows, and countless hours of on-demand video for roughly $25/month — far less than what most people pay for TV. What’s more, you’re no longer paying for a hundred channels you’ll never watch.

Sounds compelling already, doesn’t it? That’s just the opening pitch. Aereo is capable of offering channels beyond broadcast TV. Bloomberg TV is already on board. What happens when Aereo cuts a deal with some of the smaller cable networks who aren’t committed to sports, like Discovery Communications or Scripps Networks Interactive? What happens if, say, AMC Networks strikes a deal with Aereo?

“Wait, I can get my local channels AND my Mad Men and Walking Dead fixes? And I could watch those shows live, too?”

Shut up and take my money!

Keep in mind that the season 3 finale of The Walking Dead drew more than 12 million viewers, more than many shows on broadcast networks. If only a third of them dumped cable because they could stream that show live (or record it) with Aereo, ESPN would lose out on nearly $293 million in subscriber fees. That’s not an insignificant hit to Disney’s profits, and that’s just for 4 million people. What happens when 10 million cut the cord? 20 million? What happens to pro and college sports when all the sports channels suddenly find themselves with hundreds of millions less to spend on broadcast rights?

If there’s one thing that cable companies and big broadcasters hate the most, it’s competition. When the city of Wilson, North Carolina, launched its own fiber broadband network, Time Warner Cable’s response was to get a law passed in the state legislature preventing other cities from doing the same. Aereo has the potential to blossom into real competition for TV viewers, and that could force cable companies to lower prices and limit the growth of subscriber fees for popular channels. Sports fans might stick with pay TV, but non-sports fans would be more than happy to have an inexpensive alternative to cable and satellite, and that could cut deeply into every sports network’s bottom line.

Aereo is only available in New York City at the moment, but it’s expanding its service to 22 more cities later this year. Keep an eye on this company. It could be a game-changer.

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If Aereo were available in your city, would you give it a look? What would convince you to switch? Leave a comment below, or contact the author via email or Twitter. Also, if you’re curious about how much of your cable bill is funneled directly to pro and college sports leagues every year, check out our front-page web app.

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