News Corp. exec threatens to make Fox subscription-only

Chase Carey, COO of News Corp., says at the NAB Show that Aereo is stealing broadcasters' content. And if the courts don't step in, they'll have to introduce a subscription model for TV shows and live broadcasts.

News Corp. COO Chase Carey (right) tells NAB CEO Gordon Smith at the NAB Show 2013 that broadcasters need "retransmission fees" to survive. CNET/Marguerite Reardon

LAS VEGAS--One major U.S. broadcaster upset with last week's court decision that upheld the right of Internet TV company Aereo to stream broadcast TV to its customers in New York without paying retransmission fees says his company will find new ways to monetize its content if the courts don't protect its copyright interests.

Speaking at the opening session of the National Association of Broadcasters' annual trade show here today, Chase Carey, chief operations officer of News Corp., said that his broadcast network, Fox, will change its business model to ensure it gets paid for TV content it produces, if the courts and the politicians in Washington don't protect its current revenue model. Specifically, he said that Fox and other broadcasters may require a subscription model for its broadcast TV service.

"We need the dual revenue stream model of retransmission fees and advertising to sustain our business," Chase said. "We will pursue our rights fully both legally and politically to protect our rights. But if we can't get our rights protected, we will pursue business solutions to take our network and turn it into a subscription service."

Carey clarified what he meant by this in a statement that was released this morning. In it Carey stated that News Corp. would work with affiliates and partners to stop broadcasting the Fox channel for free and would instead make it only accessible by paid subscription.

"It is clear that the broadcast business needs a dual revenue stream from both ad and subscription to be viable," he said in the statement. "We simply cannot provide the type of quality sports, news, and entertainment content that we do from an ad supported only business model. We have no choice but to develop business solutions that ensure we continue to remain in the driver's seat of our own destiny. One option could be converting the Fox broadcast network to a pay channel, which we would do in collaboration with both our content partners and affiliates."

Today, broadcasters make money not only from airing traditional advertising but also for charging cable operators and other paid TV providers fees for retransmitting its content on their networks. These so-called retransmission fees have become a major source of revenue for broadcast TV networks. And without them, Chase argued, the broadcasters will not be able to offer their programming, especially expensive live programs such as national sports events.

Aereo offers live TV streaming.
Aereo offers live TV streaming. John Falcone/CNET

Carey's comments were in response to a decision by a federal appeals court in New York last week that upheld a lower court ruling in favor of Aereo. Broadcasters, including ABC, NBC, CBS, which owns CNET, and Fox, which is owned by News Corp., have filed two lawsuits against Aereo for infringing on their copyrights by streaming their broadcast content without paying retransmission fees.

Aereo operates an array of tiny antennas that pick up over-the-air broadcast signals, which it then streams over the Internet to its subscribers' Internet-connected devices. Aereo charges its subscribers $8 a month for the service, which essentially turns computers, tablets, and smartphones into small TVs, without the need for rabbit-ear antennas.

Broadcasters argue that Aereo should have to pay the same retransmission fees to offer this programming to its customers as other paid TV providers must pay, such as Time Warner Cable and DirecTV.

The broadcasters asked a court in New York for a preliminary injunction on Aereo's service before it launched last summer. But the district court denied the injunction. And the broadcasters lost again last week on appeal.

Carey said that last week's legal decision was disappointing. But he said it's only one step in the legal process. He said that the broadcasters prevailed with similar arguments in the California courts. And he said that the broadcasters will continue to fight for their rights to be paid for their content.

"Aereo is stealing our signal," he said. "We are going to pursue our legal rights. And we believe we will prevail."

He said that his company doesn't want to change its business model to a subscription service that would require network affiliates to pay a subscription for its broadcast content. But he said the company would do what it could to make sure it gets paid for producing its TV programming.

"Our retransmission fees are woefully undervalued if you compare them to what cable charges," he said. "We need to get fair value for our content. We have the best programming, and we need to be fairly compensated."

Meanwhile, Aereo has argued that the company's service is not stealing content. The company maintains that it uses an antenna to pick up broadcast signals as any TV is able to do. And that service is offered free of charge by broadcasters.

"Aereo has invented a simple, convenient way for consumers to utilize an antenna to access free-to-air broadcast television, bringing television access into the modern era for millions of consumers," Virginia Lam, a spokeswoman for Aereo, said in a statement. "It's disappointing to hear that Fox believes that consumers should not be permitted to use an antenna to access free-to-air broadcast television. Over 50 million Americans today access television via an antenna. When broadcasters asked Congress for a free license to digitally broadcast on the public's airwaves, they did so with the promise that they would broadcast in the public interest and convenience, and that they would remain free-to-air. Having a television antenna is every American's right."

Update, 1 p.m. PT: with additional comments from New Corp.'s Chase Carey as well as an official statement from Aereo.

 

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