Dear Aereo: Good luck. You'll need it. Signed, Napster and Grokster vets
Aereo's Supreme Court defeat stirred memories of Napster and Grokster, startups that faced media giants in court -- and lost. These are their lessons for the aftermath.
The veterans of the last knock-down, drag-out copyright wars have some words of wisdom for the chief and founder of streaming-TV startup Aereo, Chet Kanojia.
If you decide to keep up the fight, more power to you. And prepare to weather a siege.
Aereo's Supreme Court defeat last week harkened back to the cases against Napster and Grokster a decade ago. Those companies had enabled the widespread swapping of copyrighted digital files -- music in the case of Napster and many types in the case of Grokster and Morpheus -- while Aereo built individual mini antennas that grab free over-the-air TV signals to stream to paying subscribers. But the file-sharing companies, like Aereo, disrupted multibillion-dollar industries with technology to make entertainment cheaper, easier, and more convenient. By doing so without kissing the ring of the incumbents, Aereo and the file-sharing start-ups all faced David-versus-Goliath legal battles. And in all the cases, Goliath won.
But Aereo isn't history yet. Even if the Supreme Court decision is Aereo's death knell, the earlier peer-to-peer file-sharing services proved that legal downfall doesn't stop the disruption they spurred. In interviews with CNET News, executives integral to the Napster and Grokster cases reflected on the similarities to Aereo's circumstances and important differences, and offered their experiences for Aereo as it faces the question: what now?
Although Kanojia calls Aereo's current shutdown temporary and is marshalling customers to speak up about their support, his startup has yet to lay out its road map following the victory of the broadcasters that sued to shut it down, and things look grim. The Supreme Court's 6-3 split opinion said the 3-year-old company violates copyright law by failing to pay networks the same fees that cable companies must, rendering its current model illegal. (CBS, the parent company of CNET, is one of the broadcasters suing Aereo.) The case is bigger than just Aereo, though. The opinion writes the latest chapter in copyright precedent, and the moral of the latest story is that copyright protection trumps technological disruption.
What came before
Nearly 15 years ago, in another instance of tech disrupter against media incumbents, the record industry sued file-sharing pioneer Napster over its software that traded music files. The industry effectively won the case in 2001 when a US Court of Appeals affirmed that Napster encouraged and abetted infringement, and Napster settled with copyright owners after shutting down under an injunction. It attempted a shift to paid subscriptions, then bounced from owner to owner over the next decade until it merged with the Rhapsody music service, where it exists today.
Yet Napster had a significant, long-lasting effect: the mainstream proliferation of MP3s as the music format to start the new millennium, which paved the way for not only Rhapsody but also Apple's digital-download blockbuster iTunes. The Napster case also carved the path for Grokster and for Morpheus parent Streamcast Networks to push their iterations of file-sharing to the Supreme Court.
"Grokster was in a lot of respects a last-ditch battle in the shadow of the remnants of Napster," said Mark Cuban, a media-mogul billionaire who helped bankroll the Grokster/Streamcast defense at the Supreme Court.
Grokster and StreamCast also operated popular file-swapping applications but built a different technology with a decentralized network, eliminating the Napster's Achilles' heel. Studios and labels sued the companies in 2001, and the case reached the Supreme Court only for the startups to lose, again, in a unanimous 2005 opinion that they were liable for the infringement they promoted with their software. Grokster shut down later that year, and Streamcast continued to fight until filing for bankruptcy protection in 2008.
To be sure, the legal circumstances of the file-sharing cases differ from Aereo's. Cuban, for example, said that Aereo's reimagining of an old technology -- antennas -- in a way that "blew away anything that came before" isn't compatible with the peer-to-peer crusades. In addition, Aereo defended itself against a different type of infringement claim than Napster, Grokster and Streamcast. But those file-sharing companies were in the same boat then that Aereo is in now: figuring out a future after the courts say no.
"This is not a fun time," said Hank Barry, the chief executive of Napster in 2000 and 2001, the height of the legal affront. "But you have a really important decision to make, which is: Do you go forward, is it responsible to go forward, and where do you go?"
If Aereo continues in the courts
Since last week's decision returns the case to a lower court, Aereo has the option of taking the suit to full trial, using a different line of argument than the one presented to the Supreme Court.
Mike Weiss, the chief executive of Morpheus-owner Streamcast from 2000 through seven years of legal travails, said the tough prospect of tech innovators disrupting incumbents only gets tougher when the innovator is a small company. Though he didn't surrender for years, there is an inescapable reality of paying for the fight, he said.
"Don't give up, Chet, but get some deep pockets. You're going to need them," he said.
In the case of Napster, ongoing legal faceoffs handicapped the service before it could fulfill its promise, he said. Dodge noted that everything the company did had to be measured against legal implication rather than what would be the best experience for the user.
Don Dodge, the vice president of Napster product development in 2000, suggested that a better approach for Aereo would be to return with a more limited service, something that works within the boundaries of the legal opinion and flies under the radar, rather than "appeal, raise more money, and charge the castle again."
The fight also entrenched the record companies in an oppositional stance. Even with the backing of German entertainment giant Bertelsmann, the owner of the BMG music label that had sued Napster, Dodge said Napster's efforts to be copyright-legal never seemed to satisfy the labels and the courts.
"It became clear to me, this is not a winnable fight," he said.
If Aereo takes the fight to Congress
Aereo could also plead its case before Congress, seeking to convince lawmakers that a bill should be written to modernize the major law on the books, the Copyright Act of 1976. The company has already indicated moves in Capitol Hill's direction. While rallying supporters in a statement on Tuesday, Aereo encouraged them to tell elected officials about their disappointment in the Supreme Court's decision "that could deny you the right to use the antenna of your choice."
"Today, I'm asking you to raise your hands and make your voices heard," Kanojia said.
Weiss, the former CEO of Streamcast, remembers that sensation. "Good for him, I felt that way too," he said. "The reality is, these congressional hearings...they're not there to seek the truth."
Congress, as many who try to get legislation passed and fail will note, is an uphill climb. In addition to the gridlock facing almost all legislation, the companies suing Aereo are among the most active on Capitol Hill. Comcast, which owns NBC, spent $18.8 million on lobbying in 2013, ranking it seventh out of more than 4,000 groups, according to the Center for Responsive Politics.
"If the court didn't side with the broadcasters, Congress would," said Wayne Rosso, the president of Grokster from 2002 to 2003. "There's no way you can win."
If Aereo works with the broadcasters
Finally, Aereo could turn to the companies suing it with hat in hand, willing to pay for the right to retransmit their programming or collaborate in another way.
"I see one avenue, one and only one, and that's basically paying for the transmission rights," said Rosso. But he recounted the walls Grokster hit as it attempted to work with the music industry, getting the response either of opposition on principle ("We don't deal with pirates") or demands that failed to grasp the fundamentals or value of the technology ("Shut down the network and we'll talk.")
"They all thought we had a switch somewhere that we could just turn off," he added.
Weiss noted similar Streamcast experiences of record companies making outrageous demands, asking for equity stakes in the company that, like a comedy sketch, would have meant Streamcast was selling 120% of itself. On the flip side, the times are different now, Weiss said. When Morpheus began, mobile devices to access the Internet were essentially nonexistent, and the newer generation of consumers that has grown up with the Internet simply expects media companies to offer their products there.
But Rosso underscored three lessons he learned from the Grokster case that may hold true today.
"When it comes to licensing entertainment properties specifically, No.1 it's extremely expensive, No. 2 it's all about control, their control, and No. 3 they're Luddites," said Rosso. "None of these corporate knuckleheads get fired for saying no."
One thing binds Aereo not only to Groster, Napster and Streamcast but also to pioneering media technology stretching back more than a hundred years, be it rolls of perforated paper instructing pianos to automatically play songs or home-recording devices that make copies of movies and TV shows. Unfortunately for them, that common thread is unbridled opposition.
"It's gone over and over throughout history, it's old media versus new media," Weiss said. "At end of the day, technology is sure as hell getting there, but there's a lot of arrows in our back."