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Cable Technology Feature Article

June 27, 2014

Aereo Decision: Unlikely to Stifle Innovation

By Tara Seals, TMCnet Contributor

As we’ve covered elsewhere at TMC (News - Alert), the Supreme Court ruled this week in the case of ABC. v. Aereo, holding that the start-up service, which re-transmits over-the-air TV signals to subscribers via the Internet at $8 per month, does indeed transmit performances to the public within the meaning of the Copyright Act. That means that Aereo’s in violation. But while the reaction as to the decision has been decidedly mixed, many legal experts and analysts say that the court actually took a step to ensure continued innovation when it comes to the future application of copyright law, by enforcing an application of copyright understanding that protects the economic engine behind content creation.

Other online start-ups have come and quickly gone for failing to pay content owners for their goods while making money on it themselves. But Aereo instead opted to essentially engineer its system around the law by using individual micro-antennas assigned to each subscriber, arguing that it is, in effect, analogous to rabbit ears. There’s one hitch to that though: Aereo was charging subscription fees; something that free-to-air by its very definition does not incorporate into the model. Accordingly, an appellate judge described this system as a “Rube Goldberg-like contrivance.”

Others agree. “Aereo’s system was a case of legal engineering rather than technical innovation, as it was hard to see any purpose for its design beyond exploiting perceived loopholes in the law,” said Mark Schultz, co-founder of the Center for the Protection of Intellectual Property at George Mason University School of Law. He’s firmly in the broadcaster camp on this one, but on the basis of his interpretation of the Copyright Act itself. In fact, he says, the implications for cloud computing and all of the rest of it should have nothing to do with anything.

“The Court today chose to look to the clear result and commercial purpose of Aereo’s system, rather than the superficial appearances created by Aereo’s technical design,” he said. “In doing so, it returns to Congress’s intent under the 1976 Copyright Act to define the rights of copyright owners in a technologically neutral way.”

He added, “Contrary to critics, it is important to note that this decision does not make Aereo or its technology, illegal.  Instead, it simply confirms that copyright owners and broadcasters continue to have the right to decide how their property is used and sold by commercial resellers.”

So, in other words, he’s arguing that the decision merely means that Aereo must play by the rules just like everybody else does –cable systems, Netflix, and broadcasters themselves—when it comes to reselling content. Emphasis on “selling.”

According to Schultz, taken from a legal perspective, the decision is a boon, not a threat, to innovation, despite the high-profile war of words from stakeholders on the Aereo side who say that cloud computing as a whole, if not the Internet itself, has become threatened.

“Studios and TV networks are investing hundreds of millions of dollars into new business models and are licensing their creative works to dozens of new entrants,” he said. “They can now continue to make these innovative investments with greater certainty that they won’t be undermined by overly-technical interpretations of their rights.”

SNL Kagan Research Director Robin Flynn, long a champion of over-the-top (OTT) distribution models, took a similar tack. “The Aereo decision protects not only the tens of billions of dollars broadcast networks and TV station owners have invested in programming content, but also the transmission of that valuable sports and video content over the air for the foreseeable future,” she noted “It does not stifle multichannel operators' continued strategic imperative to deliver licensed video content to consumers over multiple devices at the time of consumers' choosing, with the goal of responding to how their subscribers prefer to watch video today.  Innovation will no doubt continue in the video space.”

The Court itself underscored that this is meant to be only a narrow ruling, with few ramifications on cloud models. It said it was dealing, at this point, only with Aereo’s system so far as it enabled its viewers to view copyrighted TV programs “live,” or after only a brief delay. Justice Breyer stressed that the decision said nothing about downloading a TV program in order to recover it and keep it on hand for somewhat later viewing.

An offshoot of the Screen Actor’s Guild, SAG-AFTRA, unsurprisingly, came out in support of the decision on much the same basis. “By adopting a practical analysis that recognizes the extraordinary similarity between Aereo and the cable systems Congress expressly regulated in the Act, the Court rightly focuses on the use of copyrighted works and refused to be sidetracked by the inconsequential technical details with which Aereo attempted to cloak itself. But in doing so, the Court properly limited the scope of the decision so that cloud services and other technological innovations are neither inhibited nor limited. This decision gives the creative community greater confidence that copyright law cannot be so simply evaded and restores the proper balance to the system.”

That may be all well and good, but others say that it’s not that cut and dried. The Electronic Frontier Foundation (EFF), which filed an amicus brief in the case, believes that the court got it wrong, and that it’s more than Internet innovation that’s at stake.

"With this ruling, the Supreme Court said that technology companies can't rely on the words of the Copyright Act—companies can follow the letter of the law but still get shut down if a court decides that their business is somehow similar to a cable company," said EFF staff attorney Mitch Stoltz. "This decision will make it harder for new independent media technologies to get launched and funded without the blessing of major media companies, and that's a loss for all of us."

Alan Wolk, global lead analyst at Piksel, said that the decision certainly favored the status quo, but pointed out that content will continue to be funded only if it can be adequately monetized, which means having a distribution model in which those content creators actually get paid for their wares. If this is undermined, and only the very successful content producers are able to get their wares into production because of their sheer scale, that in and of itself has a chilling effect on consumer choice and the future of independent media.

“Aereo was a direct and immediate threat to the content industry’s revenue,” said Wolk. “The decision hints at the fact that the justices have understood that Aereo was invented to circumvent the retransmission fees that cable and satellite companies pay the TV networks to distribute their content. This may be a setback for Barry Diller and other Aereo investors, but it is certainly a good day for broadcast networks, which will stay assured of their revenue as the TV industrial complex withstands yet another attack on its foundation. It is unlikely, however, that Aereo will be the last initiative to bring broadcast TV to the internet for free, so this remains a fascinating space to continue watching.”

Edited by Maurice Nagle

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