Bruce Springsteen may have been ahead of his times with his song "57 Channels (And Nothin' On)," released in 1992. These days there are hundreds of channels, and whether you like it or not, you get most of them in your basic cable package. On Tuesday, that economic model is being challenged in the Supreme Court in a high-stakes legal battle between the broadcast television networks and a tiny startup, or at least tiny by broadcast standards.
The issues focus on copyright law, but the outcome could alter the face of broadcasting in the United States.
The startup, Aereo Inc., is just 3 years old but is already making money, offering consumers in 11 cities a cheap way to watch local stations that deliver network TV shows as well as local programming. The company contends it is innovating to give people a choice both in how they watch TV and how much they pay for it. The networks contend that the startup is using a gimmick to thwart the economic vitality of their business.
So serious is the economic threat that two major networks, CBS and Fox, have said they would consider abandoning over-the-air free broadcasting if they lose, and instead broadcast only on pay cable channels. And the NFL and Major League Baseball have similarly threatened to abandon broadcasting on free local channels.
The essence of the legal argument is this: Federal law requires that anyone rebroadcasting what is known as a "public performance" let's say NCIS, or Modern Family, or the local news is required to pay copyright fees. Those rebroadcasting fees will provide an estimated $4 billion for the networks this year and double that amount in four years.
Enter Aereo Inc., with a novel idea and a new technology. It has created tiny, dime-sized antennas that pick up over-the-air signals of the network affiliate in New York, Atlanta, Boston and eight other cities. The antennas are centralized on circuit boards at Aereo locations in each city and activated remotely by individuals with an Aereo subscription. Using this system, subscribers can live-stream local stations and record programming onto a mobile device or a TV for a fraction of what it would cost to watch via cable $8 a month for 20 hours of storage, $12 for 60 hours.
CEO Chet Kanojia compares his service to TiVo; he maintains that his company similarly is not retransmitting public performances because each antenna is controlled by an individual, and the broadcast that is watched or recorded is a "private one," controlled by a single subscriber.
"There is a clear distinction between technology providers that are allowed to sell technology to enhance the consumer experience and cable companies," Kanojia said.
The Aereo business model is based on the idea that most people regularly watch only a small number of channels, and, according to Kanojia, half of those most frequently watched channels are major network affiliates. Therefore, a remote antenna service that allows subscribers to live-stream and record onto any mobile device is cheap and has a built-in audience of people who don't want to pay hundreds of dollars for cable bundles.
He won't say how many subscribers the company has, but he observes that the use of regular old-fashioned antennas is increasing too, now serving some 60 million people.
"Why?" he asks. "Because they can't afford a $250 cable bill."
Increasingly, he says, people are looking at TV offerings and saying, "I've got Netflix for 8 bucks a month, and if I can get my local TV to give me sports, news, weather, basic lifeline services, that makes sense to me."
But does the law allow a company like Aereo to essentially skim the network and local programming cream off for its own use without paying for it?
No, say the networks, observing that their programming costs lots to produce, and that local stations pay lots for it, in addition to spending big bucks on local news and other programming. Erin Murphy, one of the lawyers representing the networks, says that what Aereo is doing has nothing to do with the public good. It has to do with circumventing copyright law.
"If Aereo can do this, there's really no reason that a cable company and a satellite company can't turn around and create their own Aereo-like workaround," says Murphy.
Tom Goldstein, publisher of Scotusblog, the leading Supreme Court blog, agrees that Aereo's legal argument is an attempt to find a loophole in the copyright law. But will it work?
"Is the Supreme Court going to say, 'Oh, you came up with a good trick and you've worked your way around the statute'? Or is it going to say, 'Oh, come on, give us a break'?"
An answer to that question is expected by June.