The FCC Wants to Let Aereo Become a Cable Service

Photograph by Andrew Burton/Getty Images

Aereo wants to reinvent itself, and the Federal Communications Commission is willing to help.

As it prepared to face the Supreme Court, Aereo argued that its streaming television service was fundamentally different from cable TV, and therefore it shouldn’t have to pay broadcasters to transmit their content over the Internet. The court rejected that argument, and it looked like Aereo was going to be forced to shut down, so it made a 180-degree turn and started arguing that because it was a lot like a cable company, broadcasters couldn’t simply refuse to license their content to it. On Tuesday the chairman of the FCC said he agreed with Aereo and began the process of changing the rules to accommodate it.

In a blog post, Tom Wheeler echoed many of the things Aereo has been saying for years: People don’t think they should have to buy cable channels they’ll never watch, and regulations shouldn’t get in the way of new Internet television services. Twenty years ago, Washington kept the cable companies from smothering their satellite-TV rivals by saying the incumbents couldn’t simply refuse to license their content to the upstarts. Wheeler is proposing to further expand the definition of what the FCC calls multichannel video programming distributors, or MVPDs, and thus extend the same protections to Internet TV players. Wheeler is referring only to linear video businesses like Aereo, not on-demand services like Hulu or Netflix.

“Taking advantage of this rule, new [Internet video services] may offer smaller or specialized packages of video programming, so consumers will be able to mix-and-match to suit their tastes,” he wrote. “Aereo recently visited the Commission to make exactly this point—that updating the definition of an MVPD will provide consumers with new choices. And perhaps consumers will not be forced to pay for channels they never watch.”

Aereo wasted no time in calling this a huge step forward. “Innovation will flourish and new video products and service will emerge,” Chet Kanojia, the company’s chief executive, said in a statement. Consumer groups also praised the decision. Even Aereo’s main foil, the National Association of Broadcasters, views Wheeler’s move positively. This should probably raise doubts that the FCC’s rules will be as disruptive to the status quo as Aereo would like to believe.

The reason that the broadcast industry seems sanguine about this decision? It adds legal certainty to the economic framework that it would like to keep in place. The details of the FCC’s proposal are still unknown, but in broad strokes, it would prohibit broadcasters and cable companies from refusing to license their content to Internet television services. It wouldn’t require them to give the content away for free. This means that Aereo could very likely be legal, but unsustainable. “From what I see, this doesn’t fix anything for Aereo,” says Dan Rayburn, an analyst at Frost & Sullivan. “They can’t afford to license the content, and then only charge $8 a month. It would cost them a few dollars per channel just in licensing.”

Robin Flynn, an analyst at SNL Kagan, says the main impact will be to keep pressure on the major players in the industry to offer customers what they want. Even if Aereo’s specific formula doesn’t work, in other words, the industry is being dragged further toward something that resembles its broader vision.

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