July 7, 2014
The Supreme Court handed network broadcasters a major victory on June 25, 2014 when it held that online television startup Aereo violated copyright laws [American Broadcasting Companies, Inc. v. Aereo, Inc., — S.Ct. —-, 2014 WL 2864485, U.S.,2014]. The 6 to 3 decision, which effectively shut down Aereo operations, will likely have long-term implications for companies looking to provide consumers with over-the-air broadcast television via the Internet.
Aereo provided free-to-air broadcast television to its paid subscribers via the web in eleven metropolitan areas. Its estimated 100,000 subscribers paid fees ranging from $8 to $12 per month to use the service. Users could stream “live” programming on their smartphones, tablets, computers and smart tv’s. By using a system of individual, miniature antennas, Aereo transcoded over-the-air broadcast signals into digital files and recorded them onto a hard drive to be accessed on demand by the individual subscriber. Aereo would only record and stream programs on demand by the user. It did not “constantly” stream programming, unlike cable and satellite television.
Each Aereo subscriber was assigned an individual antenna, warehoused locally with Aereo servers, which provided the streaming or recorded programs on demand to the individual user. Since the “live” streaming was actually delayed a few seconds from the over-the-air broadcast, technically the program was being recorded by the individual, and played back later in time. In this way, Aereo’s service was akin to a digital “recorder,” much like a cloud-based DVR. Essentially, the business model had Aereo subscribers “renting” the individual antenna and recording shows on demand as per the individual’s choice. Aereo believed its subscriber-driven model did not run afoul of the copyright statutes.
Broadcasters, however, saw things quite differently. By providing streaming copyrighted programming to its users, absent a licensing agreement [retransmission fees] with the broadcasters, Aereo violated 17 U.S.C. § 106(4) of the Copyright Act. The major networks: ABC, CBS, NBC, along with Disney and Fox sued seeking injunctions against Aereo, almost as soon as it commenced operations. Although Aereo was successful in staving-off several attempts at preliminary injunctions in various district courts, and in the Court of Appeals for the Second Circuit, it decided its best strategy was to bring the matter before the Supreme Court expeditiously for resolution.
The Court’s majority decision, delivered by Justice Breyer, focused on whether Aereo “performed” the copyrighted material publicly as clarified under Congress’ 1976 Amendments to the Copyright Act. These amendments were enacted to bring the cable television companies under the strictures of the Copyright Act. Under the Amendment’s Transmit Clause, an entity performs when it transmits an audiovisual work to the public. The Court concluded Aereo’s streaming was substantially similar in nature to cable television providers and without a licensing agreement from the broadcasters, its conduct infringed upon the networks exclusive right to perform their protected works publicly. It did not matter to the Court that the Aereo’s technology and model were dissimilar to those used by cable or satellite television. Most importantly, the Court concluded that its holding was limited to the facts at bar and should not impact or stifle innovation, including cloud technologies.
The dissent disagreed, stating that Aereo never “performed” at all because its conduct was not volitional within the terms of the statute. Aereo’s automated process was user driven; Aereo did not select the content. By analogy, the dissent described Aereo’s conduct as akin to a copy shop providing a patron with a library card. The copy shop owner was not directly responsible for what the library card holder placed on the copy machine. If the card holder placed copyrighted material on the machine, the holder was the infringer—not the machine provider.
What does this mean for the future of online, user-driven, broadcast programming? While networks and broadcasters applaud the decision (as it maintains a major source of network income through its retransmission fees), many technology and market analysts conclude that change is inevitably coming. Users of online media providers such as Netflix, Hulu, Amazon and Roku are bypassing traditional cable and satellite services for cheaper, on-demand programming platforms. If subscribers continue to migrate away from cable and satellite television, one can be sure that the broadcast networks will take notice. In the broadcast world, declining revenue never goes unnoticed.