Broadcasters, Aereo to Face Off Next Week Over Copyrights

Stakes are high for preserving broadcast business model

Broadcasters will face off with pay TV upstart Aereo next week over claims that Aereo is retransmitting TV signals without permission in violation of the U.S. Copyright Act.

The U.S. District Court for the Southern District of New York will hear arguments May 30 from two separate cases from two groups of network TV station owners that filed against Aereo prior to the service's March launch in New York City. They have asked for a preliminary injunction to halt the service.

Aereo uses tiny antennas the size of a dime to pull down local TV station signals and deliver them over the Internet. The company argues it doesn't have to comply with the copyright law because it is leasing an antenna (albeit a tiny one) to consumers.

Because the service is backed by the IAC's Barry Diller, a former network executive, it has drawn a lot of attention. Diller recently defended the service before a Senate Commerce hearing on the future of video.

One of the claims of unfair competition filed by a group of broadcaster companies that includes News Corp. and PBS was dismissed Monday by Judge Alison Nathan. Nathan dismissed the claim because it was inconsistent with the copyright claim.

Privately, broadcasters don't seem worried, brushing off the setback as small. "Copyright has always been the main claim, so it's not a big loss," said one broadcast exec who requested anonymity.

If Aereo prevails, it could upend a a well-entrenched business model where cable and satellite TV services must negotiate retransmission consent agreements with TV owners and pay a fee to carry station programming. Such retransmission consent fees have grown to be a lucrative revenue stream for TV owners.

Broadcasters will argue that Aereo is not only retransmitting the TV signals without a copyright license, it is also illegally copying the programming to transmit it over the Internet.

Aereo's argument will depend on whether the court buys the company's argument that it is merely leasing equipment and not retransmitting broadcast signals.

"We think it's more likely the broadcasters will win their case than lose," wrote David Bank, an analyst with RBC Capital Markets, based on his conversations with legal experts. "While we think there is a less than 50 percent chance that Aereo will win this case, we think it is quite likely that the injunction could be rejected.

A ruling on the injunction based on Monday's arguments could come as soon as June, but the trial could drag on for months.  

While broadcasters ponder the outcome of their case against Aereo, they are also considering taking to court another new service, Dish Network's Auto Hop, which (gasp) allows viewers to completely skip commercials. If a service like that catches on, it could also change broadcast TV business models, forcing broadcasters to find other ways to pay for TV programming, including charging higher carriage fees to pay TV services.