(Corrects retransmission history in 13th paragraph of story published yesterday.)
April 8 (Bloomberg) -- News Corp.’s Fox network will go off the air and become a cable channel if U.S. courts don’t stop Internet startup Aereo Inc. from retransmitting shows like “The Simpsons” without permission, said Chief Operating Officer Chase Carey.
Fox and its affiliate stations would stop broadcasting and serve only pay-TV customers to protect the billions of dollars spent annually on programs, along with advertising revenue and hard-won fees from pay-TV systems, Carey told TV executives today in Las Vegas. A U.S. appeals court last week rejected broadcasters’ pleas to shut down Barry Diller’s Aereo.
Carey is threatening to upend traditional broadcast TV to counter the peril posed by Aereo, a company backed by Diller, the former Fox network founder. If CBS, NBC and ABC follow, it would and mark an end to television as it’s been known since “The Honeymooners” aired in the 1950s. Fox and other networks are evaluating what to do next after the appeals court ruling.
“We need to be able to be fairly compensated for our content,” Carey said. “This is not an ideal path we look to pursue, but 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.”
News Corp., controlled by Chairman and Chief Executive Officer Rupert Murdoch, rose 2.5 percent to $31.41 at the close in New York. The stock has climbed 23 percent this year. CBS Corp., owner of the most-watched network, gained 2.2 percent to $46.19, and ABC owner Walt Disney Co. added 1.9 percent to $58.82. Comcast Corp., NBC’s owner, rose 0.2 percent to $41.63.
Owners of stations affiliated with networks also rose. Sinclair Broadcast Group Inc., with operations in 61 markets, advanced 2.9 percent to $21.03. Gray Television Inc., with outlets in 30 markets, advanced 5.4 percent to $4.85.
Carey garnered support from Univision Communications Inc., the largest U.S. Spanish-language broadcaster.
“We need to protect our product and revenue streams and therefore we too are considering all of our options, including converting to pay-TV,” Haim Saban, chairman of New York-based Univision, said in an e-mailed statement.
The broadcast networks sued Aereo in March 2012, claiming it infringed copyrights by capturing their over-the-air signals with tiny antennas and delivering shows to subscribers on computers and smartphones. Restricting the signals to pay-TV systems that can only be accessed by cable or satellite TV subscribers with encrypted boxes would effectively block Aereo.
“It’s disappointing to hear that Fox believes that consumers should not be permitted to use an antenna to access free-to-air broadcast television,” Virginia Lam, an Aereo spokeswoman, said in an e-mailed statement.
With the appeals court ruling, Aereo can go ahead with a planned national expansion of its service from its base in New York, Diller said in an e-mail last week. Bloomberg LP, which owns Bloomberg News, is an Aereo partner and offers its cable channel on the service.
“It’s a shot across the bow to the courts, and maybe to Congress, that broadcasters take this Aereo threat very seriously,” Paul Gallant, Washington-based managing director at Guggenheim Securities, said in an interview. “Eighty-five to 90 percent of homes are pay-TV homes, so the threat is more credible now than it was 10 years ago.”
Fox first won retransmission fees from a pay-TV service in 2010. While cable programmers routinely charged Comcast Corp. and DirecTV for their shows, the practice was still new for broadcasters.
This year, Fox is forecast to collect $472 million in payments from affiliate stations and fees from pay-TV systems in markets where it owns stations outright, according to Michael Morris, a Davenport & Co. analyst who recommends News Corp. shares.
“We will continue to aggressively pursue our rights in the courts, as well as pursue all relevant political avenues, and we believe we will prevail,” Carey said in a statement.
News Corp. owns 27 TV stations in nine of the biggest U.S. cities, according to its annual regulatory filing, second among the four major networks. Its signal is carried to the rest of the country by independent station operators such as Sinclair, based in Hunt Valley, Maryland.
CBS Corp. owns 30 local TV stations, Comcast Corp. has 25 and Walt Disney Co.’s ABC has eight, the companies said in regulatory filings. All also have affiliate relationships with independent station owners.
About 100 million of the 114 million U.S. homes with TV sets subscribe to cable, satellite or fiber-optic pay-TV system, according to Nielsen and SNL Kagan.
While challenged by cable TV programmers and Internet services like Netflix Inc. and Amazon.com Inc., the four major broadcast television networks remain the most popular source of home entertainment, regularly drawing the most viewers.
Together, the major broadcasters account for more than 21 percent of prime-time viewing in the current TV season, down from almost 75 percent in the early 1950s, before cable programmers emerged, according to Nielsen data.
Aereo, starting at $8 a month, said its service gives subscribers access to broadcast programming and lets them record it using remotely located individual antennas and digital video recorders for playback later. That constitutes a private performance under copyright law, the company said.
A move by Fox would challenge broadcast competitors to follow, and present thorny questions for regulators of the U.S.- owned airwaves. It also raises questions for professional and college sports.
“We are committed to our partnership with Fox.” Dan Masonson, a spokesman for the National Football League, said in an e-mailed statement.
Murdoch, 82, has defied media-industry norms over his career. In 1986, he founded Fox Broadcasting with stations acquired from Metromedia Inc. and eventually overtook CBS, NBC and ABC in the weekly Nielsen ratings.
In 1996, Murdoch started Fox News, a 24-hour cable news network that now dominates Time Warner Inc.’s CNN and Comcast’s MSNBC in viewers. When piracy began to threaten TV shows, Murdoch joined in 2007 with NBC Universal to create Hulu.com to provide ad-supported prime-time shows online.
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