The US Supreme Court ruled Wednesday that Aereo, a 2-year-old startup that relies on tiny antennas to stream broadcast television over the Internet, is illegal.
In a 6-3 decision, the court concluded that Aereo, whose technology grabs over-the-air TV signals without the company paying broadcasters any fees, is effectively the same as the very first cable companies but with fancier technology.
"Behind-the-scenes technological differences do not distinguish Aereo's system from cable systems," Justice Stephen Breyer, writing for the majority, said in the 35-page ruling. "Congress would as much have intended to protect a copyright holder from the unlicensed activities of Aereo as from those of cable companies."
Aereo is thus publicly performing copyrighted works. And that means it owes money to the broadcasters, who had argued that the startup was stealing their programming. Cable and satellite companies pay billions in fees for the right to retransmit programming on broadcast television -- the most-watched channels in the country -- and some networks said they would have moved their shows onto paid cable channels from free over-the-air signals if Aereo had won.
The decision could be the death knell for Aereo, which charges subscribers $8 to $12 a month for the service. Subscribers control an individual mini antenna to watch TV shows and other content over the Internet in their homes or record it for future viewing. The content is stored on a DVR in the cloud rather at the user's own device.
Chief Executive Chet Kanojia said Wednesday that Aereo's "work is not done."
"We will continue to fight for our consumers and fight to create innovative technologies that have a meaningful and positive impact on our world," he said. Previously, he had said that Aereo has no Plan B if the court determines it is illegal.
IAC Chairman Barry Diller, outspoken backer of the startup, commended Kanojia and the Aereo team "for fighting the good fight."
"It's not a big [financial] loss for us, but I do believe blocking this technology is a big loss for consumers," Diller said in a statement.
The decision in favor of the broadcasters -- including CBS, the parent company of CNET -- could go beyond just Aereo and have wide-reaching effects in the television industry and for cloud computing companies, which offer services that store digital information and software remotely to be accessed over the Internet.
Aereo had argued that a decision against it could endanger a copyright premise essential to the broader cloud-computing industry: private versus public performance. The cloud-computing industry built itself on the idea that streaming services are abiding by copyright law so long as the streamed work was originally obtained legally and is delivered at the request of an individual to that individual in private.
Breyer's opinion specified that this decision should not be applied beyond the circumstances of Aereo, saying the court "cannot now answer more precisely" how provisions of the Copyright Act apply to technologies not before the court in this case.
And in his dissenting opinion Justice Antonin Scalia wrote, "The court vows that its ruling will not affect cloud-storage providers and cable-television systems...but it cannot deliver on that promise." Scalia was joined by Justices Clarence Thomas and Samuel Alito in concluding that Aereo wasn't performing the copyrighted works at all.
The broadcasters called the decision a victory for consumers. "The court has sent a clear message that it will uphold the letter and spirit of the law just as Congress intended," they said in a statement.
In the television realm, a decision allowing Aereo to continue could have opened the door to companies like Comcast and DirecTV setting up their own Aereo-like systems that grab over-the-air signals. That could let cable and satellite companies circumvent payments called retransmission fees, a lucrative revenue stream for broadcasters and one that's grown rapidly in recent years. Though most of their sales still comes from advertising, retransmission fees are a new, significant and growing fast. SNL Kagan estimated they were worth $3.3 billion industry-wide last year and may be worth more than $7 billion by 2019.
However, pay-TV operators have pegged rising content costs, including those fees, as the main reason cable and satellite bills have gone up for consumers.
For now, the decision ordering Aereo to start paying copyright licensing fees eliminates the danger to traditional TV broadcasters of losing out on retransmission money.
First word of the decision came from the Supreme Court's SCOTUSblog.
Procedurally, the majority opinion means Aereo's previous court wins have been reversed and the case will be remanded to lower courts. The Second Circuit Court of Appeals, which originally denied the broadcasters' attempt to shut Aereo down, has very little wiggle room to do anything other than grant the preliminary injunction halting the company.
Broadcaster stocks rose on the news. CBS shares rose 5.3 percent, to $61.93; ABC parent Disney was 1.2 percent higher at $83.67; NBC parent Comcast increased 1.2 percent, to $53.27; and 21st Century Fox stock was up 1.6 percent, to $33.89.
Before the decision, analysts anticipated that a ruling against Aereo could kill the startup, while a ruling in favor could have multifaceted implications.
"If Aereo loses we doubt they will continue to exist," BTIG analyst Rich Greenfield said in a note.
Jessica Litman, a professor at the University of Michigan's law school and author of "Digital Copyright," said the decision is unequivocal in its determination that Aereo is violating copyright but that the opinion creates a lot of uncertainty about possible implications.
"The Supreme Court made very clear what it wants the results to be: Aereo is illegal [but] nothing else that existed before is illegal," she said. "But [the ruling] gives us only vague instructions about the routes the courts should use. It is now opening a whole can of worms that I don't even know how to think about."