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Volume 21 No. 1
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Broadcasters challenge Aereo over signal distribution

The ability of broadcasters to afford sports media rights could be threatened if broadcasters lose their case against Aereo.

Aereo is the upstart service that charges a small monthly fee to deliver broadcast signals via the Internet. It also offers a cloud-based DVR service.

Unlike cable operators, which pay broadcasters a retransmission consent fee for access to their signals, Aereo operates on the theory that it is an antenna-rental business, not a cable system, and broadcast signals are free over the air. It does not access cable network signals.

An Aereo customer who wants to watch a broadcast show is assigned one of Aereo’s thousands of dime-sized antennas for that viewing session. The customer gets to decide whether to watch the show at that time or later, via a DVR.

“Aereo’s theory is that the customer is doing everything that’s going on here,” said David Wittenstein, co-head of Dow Lohnes’ media and information technology practice.

Broadcasters contend that Aereo is retransmitting broadcast signals, which would entitle broadcasters to retransmission consent fees. Broadcasters’ first challenges to the legality of Aereo’s business plan have been based on copyrights. Since they own the copyrights to the programming, broadcasters say Aereo can’t make a business out of transmitting them.

Implications for the sports industry are significant. The rapid rise in sports media rights fees has corresponded with cable

Aereo founder Chet Kanojia shows a tablet displaying the company’s technology.
Photo by: AP Images
operators paying a significant amount of retransmission consent fees to broadcasters.

If Aereo emerges victorious from the courts, cable operators almost certainly would try to figure out how to transmit broadcast signals the same way, allowing them to evade paying the fees. If that happens, broadcasters would lose a revenue stream that they have been using to bid up sports rights.

“The reason these big networks pay the money they pay for sports is because of these retransmission payments,” said Matthew DelNero, a partner at Covington & Burling. “If Aereo prevails, you’d more than likely see big sports events end up on cable.”

The case is in its beginning stages. The broadcast plaintiffs have asked the 2nd U.S. Circuit Court of Appeals to stop Aereo from operating while its lawsuit is being heard.