There are those who predict the Internet will eventually kill television. Few expect broadcasters themselves to pull the plug. Yet Rupert Murdoch’s News Corp. (NWS) said on April 8 that it may end Fox’s 26-year run as a free broadcast channel if U.S. courts continue to allow Web startup Aereo to retransmit its costly programming. Aereo—backed by IAC (IACI) Chairman Barry Diller—uses a network of antennas to obtain Fox’s free signal and resells it. If CBS (CBS), NBC Universal (CMCSA), and ABC (DIS) follow suit and curtail free broadcast fare, it would hasten the end of the TV system that’s endured since CBS, NBC, and ABC went on the air in the ’40s. “We need to be able to be fairly compensated for our content,” News Corp. Chief Operating Officer Chase Carey said at an industry conference. “We can’t sit idly by and let an entity steal our signal. We will move to a subscription model if that’s our only recourse.”
CBS may also follow Fox to cable, says Chief Executive Officer Les Moonves. “Trust me, the cable guys would love for us to do that,” he told Bloomberg Businessweek. Representatives for ABC and NBC declined to comment. But Univision Communications, the largest U.S. Spanish-language broadcaster, is also talking tough. “We need to protect our product and revenue streams, and therefore we too are considering all of our options, including converting to pay TV,” Chairman Haim Saban said in a statement.
With about 100 million of the 114 million U.S. homes with TVs already subscribing to cable, satellite, or fiber-optic pay TV, according to Nielsen and SNL Kagan, such talk can’t be dismissed as just bluster. “It’s a shot across the bow to the courts, and maybe to Congress, that broadcasters take this Aereo threat very seriously,” says Paul Gallant, a managing director at Guggenheim Securities.
Aereo says the law is on its side. “When broadcasters asked Congress for a free license to digitally broadcast on the public’s airwaves,” the startup said in a statement, “they did so with the promise that they would broadcast in the public interest and convenience, and that they would remain free-to-air.”
News Corp. and Aereo are opposite extremes of the evolving television landscape. News Corp. pays billions for some of the most popular TV content, from NFL games to The Simpsons. Aereo pays nothing for that content; it captures over-the-air broadcasts and resells them for $8 a month to subscribers who use its digital video recording service to manage shows on computers or smartphones.
News Corp. wants to protect the fees it charges local cable and satellite operators to pick up its signal, even if it means losing broadcast viewers. This year, Fox will collect $472 million in such fees, forecasts Davenport analyst Michael Morris. The broadcast networks sued Aereo in March 2012, claiming it infringed copyrights. After losing a lower court ruling last summer, a U.S. appeals court in New York on April 1 again rejected broadcasters’ pleas to shut down Aereo. Now Aereo can go ahead with a planned national expansion of its service from its initial market in New York, Diller said in an e-mail. (Bloomberg LP, which owns Bloomberg Businessweek, has an agreement with Aereo to stream Bloomberg TV on its service for a fee. It also competes with News Corp. in providing financial news and information.)
While the four major broadcast networks still account for more than 21 percent of prime time viewing in the current TV season—down from 75 percent in the 1950s—they face a more crowded field, including Internet services like Netflix (NFLX) and Amazon.com (AMZN).