A bet that Diller-backed Aereo TV startup wins its day in court

The broadcasters suing the startup predict doom for free TV if the video service is allowed to operate. But some industry experts ask "so what"?

Aereo's dime-sized antennas may be huge trouble for TV broadcasters. Aereo

commentary I don't expect the presiding judge in the Aereo case to issue a preliminary injunction against the service.

On Thursday, at the conclusion of a two-day hearing, U.S. District Court Judge Alison Nathan still sounded skeptical of many of the arguments made by the TV broadcasters who have accused Aereo of copyright violations in two separate lawsuits.

The broadcasters have asked the court to force Aereo to stop distributing their programming immediately. If Nathan denies the broadcasters' request, the case isn't over. It just means Aereo can continue operating at least until a final judgment is rendered.

Steven Fabrizio, an attorney representing the TV broadcasters said the sector is 'under siege' from technologies such as Aereo and Dish Network's Hopper. James Martin/CNET

Aereo is a tiny startup that has made big noise in online-video distribution this year. The company, which is backed by media mogul Barry Diller , offers a service that uses the Web to connect subscribers to live, over-the-air (OTA) broadcasts. If Aereo ultimately prevails, the case could go a long way to reshaping copyright law and possibly mangle the broadcast TV business. A revolution in this area wouldn't necessarily be bad, according to some experts (we'll get to that in a second).

Nathan isn't expected to render her decision on the injunction until late next month, according to The Wall Street Journal.

If I'm wrong and Nathan does order Aereo to shut down, then I have to believe what swayed her was the broadcasters' claims that an Aereo victory would strip them of their ability to sell programming. The broadcasters make money through the sale of advertising and by charging distributors, such as cable companies, to retransmit their shows. The broadcasters predict that if Aereo is allowed to redistribute their content without paying, then no one else will pay.

That seems logical.

"[Nathan] is a very smart judge and she wants to get this right," Steve Fabrizio, one of the attorneys representing the broadcasters, told me after the conclusion of Thursday's hearing. "I don't think she wants to issue an opinion that eviscerates the public-performance right.

"I think she recognizes as we all do right now that this is a period in our time when broadcast television is really under siege," Fabrizio continued. "And it's not just from Aereo, although God knows that's enough, but you've got companies that are taking commercials out. You got Dish [with the company's Hopper DVR and Primetime service] where they're recording everything all the time and then letting you play it back without commercials. We're at a point in time that we need courts to recognize that these rights mean something and if you don't honor them it's a big deal."

In case you were wondering, some of the major networks filed a copyright suit nearly two weeks ago against Dish.

Sherry Brennan, a Fox executive. Michael Becker / Fox Cable

Threat to retransmission fees
Aereo rejects the idea that its service would harm the broadcasters. On Wednesday, Michael Elkin, one of Aereo's attorneys, told the judge that the predictions of doom coming from the broadcasters were nothing but speculation. He succeeded at getting a CBS executive to acknowledge that he didn't possess any hard evidence that Aereo's service had affected the network's revenues. Chalk one up for Aereo.

But Thursday's proceeding was a different story. The broadcasters introduced a surprise witness.

Sherry Brennan, a senior vice president for sales strategy & development at Fox, took the stand and not only was she articulate and insightful, she offered plenty of credibility on the question of irreparable harm. Before she started at Fox, Brennan was an executive at Cablevision systems, the nation's 8th largest cable company.

When it came time for Elkin to question Brennan, the two sparred over her assertions that Aereo's service would prompt the cable companies to stop paying retransmission fees. Things got tense.

"Why are you badgering me?" Brennan asked Elkin during one exchange.

"There's little reason to think distributors who are paying us those fees would continue to do so [if Aereo was able to acquire the content for free]," Brennan told the court. She sounded confident when she said she knew how the cable companies would respond to an Aereo victory. After all, she spent a lot of years on that side of the negotiating table.

She suggested that the cable guys are already circling. She cited comments made by Glenn Britt, the Time Warner Cable CEO, who said in April during a conference call with analysts: "Obviously we've been quite interested in the whole retransmission front. So if [Aereo is] found to be legal -- not paying retransmission consent -- it's a very interesting thing."

Broadcasters shouldn't be protected
Let's add some analysts to the chorus of doomsayers.

Dan Rayburn, a long-time streaming-media analyst, says the broadcasters couldn't care less about Aereo. He says the company's technology and service are unlikely to attract a large audience. "I haven't been impressed with Aereo at all," Rayburn told me. "It doesn't work very well and they would need to raise a lot more money to get to any significant size."

But Rayburn said the networks are wise to be concerned about the precedent Aereo could set if it triumphs in court. He described a scenario whereby Aereo wins the case and other deep-pocketed companies march in to start Aereo-like services.

Jeff Kagan, an analyst who covers cable TV and the Internet, said regardless of who takes advantage of an Aereo victory, the result would be the same: a new and disruptive business model would slam into broadcast TV like a wrecking ball.

"This is a real threat to TV but it doesn't mean you have to stop it," Kagan said. "We didn't stop it with music or movies or the wireless industry. That's our history in technology, the history of our nation. Existing companies fail and the industry moves forward. Sometimes [legacy businesses] can recreate themselves and succeed if they can wrap their arms around innovation...that's why I don't see the courts trying to stand in the way. I think they will see that these other industries didn't receive protection. That was progress."

 

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