June 6 (Bloomberg) -- Barry Diller is taking on the broadcasting industry -- again. This time his threat comes not from within, in the form of a fourth network, but from the outside, in the form of a dime-sized antenna.
Television broadcasters are fighting a court battle with Aereo, a service launched this year in New York. Aereo has set up thousands of tiny antennas in Brooklyn that receive over-the-air television signals and send them into short-term digital storage at users’ request. Residents of Manhattan can receive on any device their personal antenna’s digital signal -- translated into an almost-real-time online river of ones and zeros.
Aereo says it is providing customers, who pay $12 a month for the service, with a rented antenna attached to a personal “digital locker” for shows those same people could otherwise watch free of charge over the air. From Aereo’s perspective, its product is a newfangled videocassette recorder for personal use -- one that happens to have a very long cord.
From the broadcasters’ perspective, Aereo is a diabolical Rube Goldberg system engineered by lawyers to take advantage of a favorable 2008 federal court decision. That ruling said the operator of a remote digital video recorder is not liable for copyright infringement. There’s a reason you can’t sign up for Aereo if you live in Hoboken, New Jersey; it’s in a different federal jurisdiction where that case may not carry weight.
Although cloaked in hypertechnical copyright-ese, this lawsuit is really about the pitched battle between the highly concentrated programming-distribution industry and the Internet. (Adding to the intrigue is the presence of Diller, who helped found Fox Broadcasting in 1986 and is an investor in Aereo.) A host of incumbents -- broadcasters, cable channels, cable distributors -- have a strong interest in getting in the way of any firm that offers viewers potentially unlimited online options.
The broadcasters have benefited from 70 years of favorable regulatory treatment supporting free, local, over-the-air network television as the common public medium for the country. To keep this ideal in place, Congress gave broadcasters the right to demand payment from pay-TV systems (satellite, cable, telephone) for retransmission of their local signals. Payments to broadcasters could reach $3.6 billion by 2017.
But Congress’s rationale is obsolete: The broadcast networks are largely indistinguishable these days from cable channels. It’s not about local content or public service, it’s about money. And what broadcasters receive is peanuts compared with the tens of billions the cable channels receive annually in fees from cable systems. All the broadcast networks are owned by giant conglomerates that also own all of the most successful cable channels (and Comcast/NBC Universal owns the country’s largest cable distributor as well).
The continued success of this entire industry depends on the delivery of large bundles of channels for premium prices. With their wires already connected to most Americans’ homes, the large cable distributors can guarantee this delivery. TV programmers can charge cable distributors more, the distributors can pass these charges along to subscribers, and everyone involved can count exactly who’s watching what when (which makes the advertising market work).
The only losers in this system are the viewers. We are stuck with impenetrable bundles of shiny programming -- whether we want everything in that bundle or not.
Compare this system to an online service such as iTunes, which makes it possible to buy songs instead of albums, and episodes instead of channels. In short, the content has been “unbundled.” The broadcasters don’t like this, because if all their programming is available online by way of Aereo or iTunes, why would a cable distributor pay billions for it?
Without retransmission payments, the broadcasters will have to rely on advertising to survive. That’s not great for them when it comes to online streaming video, because Nielsen Co. isn’t yet set up to count online audiences accurately, and the broadcasters like using Nielsen.
Despite all this, the cable distributors may well be OK -- no matter what happens to Aereo. If the broadcasters win their case, all U.S. cloud-based online backup and storage services could be liable for copyright infringement. After all, these systems copy and store bits of data at the request of users, just like Aereo does. But the distributors themselves, with their strong negotiating position with TV programmers, would be in an ideal position to provide these services.
Even if Aereo wins, the cable distributors still have several sledgehammers with which to crush any real threat from online video. The real money is in cable channels, not broadcast. Cable distributors can remind television programmers that they won’t pay affiliate fees if any cable channel wanders out alone online. They can impose data caps on any online video that isn’t part of their stable, and remind their customers that independent programs and films (and games and video calls) will be expensive to watch. They have ample and growing market power with which to twist all the dials their way.
The broadcast networks like to remind us that a free over-the-air communications service is part of the U.S. social contract. But broadcasters retain few of the public obligations they took on in exchange for the public airwaves granted to them. (Have you watched local broadcast news recently?) At the same time, they are part of a powerful consolidated industry that is uninterested in having a free market in video (or any other high-bandwidth application) operate online.
The old common medium was broadcast. The new one is Internet access. It may take more than a court battle with Barry Diller to get U.S. media conglomerates to see things that way.
(Susan P. Crawford is a Bloomberg View columnist and a visiting professor at the Harvard Kennedy School of Government and Harvard Law School. She is a former special assistant to President Barack Obama for science, technology and innovation policy. The opinions expressed are her own.)
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