Diller-Backed Aereo Beats Network Bid to Close TV Service

Major U.S. television broadcasters failed to persuade an appeals court to shut down Aereo Inc., the Barry Diller-backed online TV service that they claim violates their copyrights.

Broadcasters including Walt Disney Co.’s ABC and Comcast Corp.’s NBC unsuccessfully petitioned the U.S. Court of Appeals in New York to overturn a lower-court order denying a preliminary injunction that would have put New York-based Aereo out of business.

The broadcast networks sued Aereo in March 2012, claiming that it infringed copyrights by capturing their over-the-air signals and retransmitting the programming to subscribers on computers and smartphones. Its service would devalue their programming and cut viewership, jeopardizing revenue from advertisers and retransmission payments from pay-TV providers, according to the networks. Aereo’s transmissions are public performances and require licenses, they said.

“Its transmissions are not public performances,” the judges said in a split decision. “If they are not public performances, it needs no such license.”

With the appeal 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.

U.S. District Judge Alison Nathan denied the networks an injunction in July, ruling that Aereo’s retransmissions weren’t public performances.

In an earlier case, television networks sued pay-TV provider Cablevision Systems Corp. for offering subscribers a remote digital video recording service for TV shows.

Prior Decision

The same New York appeals court ruled that Cablevision wasn’t providing public performances of copyrighted works. Nathan cited this case in denying the injunction against Aereo.

Two of the three judges participating in the appeal agreed with her. Circuit Judge Denny Chin dissented, calling Aereo’s system “a Rube Goldberg-like contrivance, over-engineered in an attempt to avoid the reach of the Copyright Act.”

The conditions of the Cablevision case don’t apply to Aereo, broadcasters argued. Cablevision provided a storage service not a retransmission service, they said.

Broadcasters receive retransmission payments from pay-TV providers to transmit broadcast signals and programming to subscribers, and that source of revenue could be jeopardized if many viewers choose to watch shows on Aereo.

“With Aereo prepping a major U.S. expansion, we believe investors should be increasingly concerned with the sustainability of broadcasters’ retrans gravy train,” Richard Greenfield, a New York-based analyst at BTIG, said in a report last month. “It may be about to hit a wall.”

NAB Disappointed

Dennis Wharton, a spokesman for the industry trade group National Association of Broadcasters, said in a statement the NAB was disappointed in the decision “allowing Aereo to continue its illegal operations while broadcasters’ copyright actions are heard. We agree with Judge Chin’s vigorous dissent and, along with our members, will be evaluating the opinions and options going forward.”

Aereo said that 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.

The appeals court agreed, comparing Aereo’s remote digital antennas to the rooftop antenna that captures broadcast signals and transmits them to the TV in the house.

‘Single User’

“Each user-associated copy of a program created by Aereo’s system is generated from a unique antenna assigned only to the user who required that the copy be made,” Circuit Judge Christopher Droney wrote in his decision. “The potential audience of each of Aereo’s transmissions was the single user to whom each antenna was assigned.”

The service began in March 2012, offering New York City subscribers access to broadcasts for $12 a month. After the injunction was denied by Nathan, the company announced plans to expand to other cities. In February, Aereo said it was providing service to counties in New York state, New Jersey, Connecticut and Pennsylvania. Membership plans start at $8 a month.

‘Validates’ Aereo

“Today’s decision from the Second Circuit Court of Appeals again validates that Aereo’s technology falls squarely within the law, and that’s a great thing for consumers who want more choice and flexibility in how, when and where they can watch television,” Chet Kanojia, the founder and chief executive officer of Aereo, said in a statement.

Before the service began, Aereo received support from Diller’s digital media company IAC/Interactive Corp., which led a $20.5 million round of financing for the startup. Diller, who is on Aereo’s board, once ran News Corp.’s Fox Broadcasting Co.

“We always thought our Aereo platform was permissible and I’m glad the court has denied the injunction -- now, we’ll build out the rest of the U.S.,” Diller said in an e-mail.

Other plaintiffs in the Aereo case include News Corp.’s Fox, CBS Corp., WNET and the Public Broadcasting Service.

“Plaintiffs have not demonstrated that they are likely to prevail on the merits on this claim in their copyright infringement action,” Droney said in the opinion.

The appeals are American Broadcasting Cos. v. Aereo, 12-02807, and WNET v. Aereo, 12-02786, U.S. Court of Appeals for the Second Circuit (Manhattan). The lower-court cases are American Broadcasting Cos. v. Aereo, 12-cv-01540, and WNET v. Aereo, 12-cv-01543, U.S. District Court, Southern District of New York (Manhattan).

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