By Erin Geiger Smith and Ronald Grover
April 1 A U.S. appeals court on Monday declined
to temporarily shut down Aereo Inc, an online television venture
backed by billionaire Barry Diller that broadcasters say is
infringing their copyrights.
The 2nd U.S. Circuit Court of Appeals disagreed with the
broadcasters, including Walt Disney Co's ABC and Comcast
Corp's NBCUniversal, that Aereo should discontinue its
service until litigation between the companies is resolved.
The television industry is closely watching the case to see
whether it could disrupt the traditional TV model. The industry
sees Aereo and other similar services as a threat to its ability
to control subscription fees and generate advertising income,
its two main sources of revenue.
Aereo does not pay licensing fees to the broadcasters, while
paid TV operators, such Comcast and Time Warner Cable,
shell out billions in retransmission consent fees to
"I can see cable operators trying to stretch out their
retransmission negotiations as long as they can to see how this
case is finally decided," said Alan Gould, an analyst with
Evercore Partners who follows CBS Corp, Walt Disney and
other large media companies that own TV stations.
Gould said analysts have modeled a large increase for
networks "retransmission fees" - monthly fees based on how many
subscribers each network reaches.
"Now it will depend on what happens when the trial begins,"
Retransmission fees make up a very small portion of a TV
station's revenue stream, which is still heavily dependent on
Subscribers to Aereo can stream live broadcasts of TV
channels on mobile devices using miniature antennas, each
assigned to one subscriber. The service was launched in March
2012 in the New York area at a cost to subscribers of $12 a
month. The company in January announced plans to expand to 22
Under U.S. law, copyright owners have the exclusive right to
publicly perform their work, and broadcasters argue that Aereo's
transmissions of television programs while the programs are
airing is a public performance of the broadcasters' copyrighted
UPHOLDING LOWER COURT
The appeals court, upholding a lower court ruling, concluded
that the broadcasters had not shown they were likely to prove
their claims of copyright infringement because Aereo's
transmissions are "unique copies" and are not "public
performances" of the broadcaster's copyrighted works.
Aereo's technology consists of thousands of antennas housed
in a facility in Brooklyn, New York, that are individually
assigned to users so that no two of them share the same antenna
at the same time.
In determining whether a performance is "public," it is
important to determine who is capable of receiving the
performance being transmitted, the court said.
Aereo's system creates a "unique copy" of a program and,
when a user chooses to watch it, the transmission sent by Aereo
is of that unique copy, the court said.
In a joint statement, News Corp's Fox, the Public
Broadcasting Service and its New York station WNET, also
plaintiffs in the litigation, called the decision "a loss for
the entire creative community."
The "court has ruled that it is OK to steal copyrighted
material and retransmit it without compensation," they said.
CBS, another plaintiff, said in a statement, "As the courts
continue to consider this case and others like it, we are
confident that the rights of content owners will be recognized,
and that we will prevail."
ABC and NBCUniversal issued a joint statement noting the
case is still in its early stages and that they are "confident"
the "rights of content owners will be protected."
Shares of CBS, Comcast, Disney and News Corp were all lower
in afternoon trading on Monday. CBS was down 2.2 percent and
Comcast was down 1.25 percent, while News Corp was down 0.8
percent and Disney was down 0.4 percent.
Aereo's chief executive, Chet Kanojia, said in a statement
that the appeals court decision "validates that Aereo's
technology falls square within the law" and called it "a great
thing for consumers."
Aereo had argued that its technology was designed to conform
to court precedent, specifically a 2008 2nd Circuit decision in
favor of Cablevision Systems Corp for its remote-storage
digital video recorder (RS-DVR) system.
Two of the three judges on the appeals court panel that
heard the case agreed with Aereo that its system conforms to the
Appeals court Judge Denny Chin dissented, writing that he
believes Aereo's transmissions constitute copyright
Aereo's technology platform is "a sham," Chin wrote, saying
there is "no technologically sound reason" to use a multitude of
antennas other than to take advantage of "a perceived loophole
in the law."
The cases are CBS Broadcasting Inc., et al v. AEREO, Inc.
and WNET, et al v. AEREO, Inc, 2nd U.S. Circuit Court of
Appeals, Nos. 12-2807 and 12-2786.