Broken Aereo

By Sean P. FenlonJune 26, 2014

I first learned of the Aereo business during a VIP tradeshow dinner at LeadsCon Las Vegas 2013. I remember the conversation vividly. The topic was around the long-rumored Apple iTV. I was arguing that Apple should acquire Netflix and Slingbox with their hoards of cash in order to jumpstart a truly disruptive initiative around TV-viewing.

From across the table, David Klein of Klein Moynihan Turco, LLP spoke-up and suggested “Aereo” be included on the list of TV-disruptors. I had never heard of Aereo, so I responded harshly – something to the effect of “how can I include a company I’ve never even heard of to a list of titans such as Netflix and Slingbox?” David, to his credit, simply smiled and responded that I will certainly learn of this business soon enough. He was right.

Within days, I began hearing about Aereo from every direction. Aereo (based in NYC) allows subscribers to view live (or time-shifted/recorded) streams of “free” over-the-air television broadcasts on computers, tablets, and smartphones. Customers essentially “rent” individual remote/local antennas from Aereo in order to facilitate legal transmissions. Thus, a Redskins fan that wishes to watch live games that are streamed over-the-air for free in the Washington DC area may simply use Aereo to watch the games live (or recorded) while living in Phoenix. A brilliant mashup of online technology that adapts to the physical requirements of terrestrial broadcast TV.

Launched in 2012, Aereo was funded with $20MM from Barry Diller’s IAC/InterActiveCorp and quickly attracted the attention (and ire) broadcasters, cable companies, and media companies. Critics identified Aereo as a disruptive threat to their businesses by “re-transmitting” content while avoiding licensing and/or retransmission fees. In March 2012, Aereo was sued for copyright infringement by a consortium of major broadcasters, including CBS, Comcast/NBC, Disney/ABC and Fox.

Today, the Supreme Court decided in favor of the broadcasters in a 6-3 decision.

The decision describes Aereo as having an “overwhelming likeness to cable companies” that the service “performs petitioners' works publicly,” thus NOT being “simply an equipment provider.”

IMHO, the Supreme Court got this one wrong.

It’s possible that they feel conflicted about this decision as well, as they added that its decision should “not discourage the emergence or use of different kinds of technologies,” a conclusion that will remain to be seen.

We’ve actually seen this movie a few times before, no pun intended. The biggest landmark case of this type was the Motion Pictures Association of America (MPAA) vs. the Sony Betamax originating in 1976.

Companies were convinced that this convenient VCR technology offering for consumers would be a death knell for the Motion Pictures industry via copyright infringement. The brilliant decision of the Supreme Court found in favor of the new technology on the grounds the new technology demonstrated “significant non-infringing uses.” Thus, if the technology was used by consumers to commit copyright infringement, the copyright holders would need to defend their rights against the infringers and NOT the enabling technology. Perfect – a new (gigantic) profit center for IP holders was unleashed.

In 2000, The Recording Industry Association of America (RIAA) filed a similar copyright infringement suit against the explosively-popular file-sharing service Napster. The Napster attorney David Boies brilliantly used the Betamax case as the cornerstone for his defense. However, this time, the technology lost and Napster (as it was initially conceived) was shut down by the decision of the Ninth Circuit Court. Apparently, “spirit” and “intent” of the founders played a larger role in the decision than the Betamax precedent, as many communications were uncovered claiming intentions of destroying the record labels.

The Betamax precedent came up again when the Motion Pictures industry sued file-sharing service Grokster (maker of Morpheus) for copyright infringement in 2005. Again, the bullet-proof precedent set by the Betamax case failed to outweigh arguments of “sprit” and “intent” and the defendant service lost the decision and was subsequently shut down.

Which brings us full-circle to 2014 and the Supreme Court decision against Aereo. I do not know if the Betamax case was used in the Aereo defense, but I have to assume that a service such as Aereo has “significant non-infringing uses.” The decision will almost certainly force a shutdown of the popular service much to the grief and dismay of the customers of the service.

In the future, I hope that the Supreme Court finds a better and more appropriate balance between defending copyright and the blossoming of new technologies that can significantly benefit consumers like it did with the Betamax case three decades ago.

It’s just my pair of pennies, but I believe that the Aereo decision today is the wrong decision.

But then again, I’m just a biased tech entrepreneur. 🙂

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