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The Aereo Paradox

2/15/2012 11:16 AM

Aereo, the Barry Diller-funded startup that’s trying to avoid paying for TV content by using teensy-weensy antennas in massive arrays, is a walking contradiction (see ‘Aereo’ To Test Copyright Law With Internet-Streaming TV Service).

It’s offering TV it argues consumers have every right to get for free — for $12 per month. In Aereo’s logic, the 12 bucks is like a convenience fee for packaging up the free content and slinging it to multiple devices.

In a more subtle inconsistency, Aereo is licensing the metadata about broadcast TV from Tribune Media Services — but it doesn’t want to spend a dime on the actual programming. (As a side note, this also points to the crucial nature of metadata for the future of TV: It’s central to how we find, record and share television, and how content owners monetize it.)

But will Aereo fly, legally speaking? Broadcasters are bound to argue that the subscription service misappropriates their content. (The NAB has declined to comment on Aereo, for now.)

Aereo micro-antennaThe well-financed company — it’s raised $25 million from Diller’s IAC and others — clearly will be leaning on the precedent of the Cablevision RS-DVR case. But it’s not clear Aereo will prevail.

In 2009, the U.S. Supreme Court declined to review a decision upholding Cablevision’s right to offer a DVR service “in the cloud.” The case boiled down to an appeals court agreeing with the MSO’s argument that RS-DVR was exactly the same as a conventional in-home DVR — with the key technical requirement that each subscriber must have a dedicated physical disk in the headend.

Aereo is taking that precedent and applying it to over-the-air TV reception: Each antenna is dedicated to an individual Aereo subscriber, so the service isn’t like community antenna (CATV) and therefore not subject to federal retransmission laws. Here’s Diller: “Every little antenna essentially has a consumer’s name on it.” In a similar fashion, the Aereo DVR service allocates dedicated storage for every subscriber, just like the RS-DVR.

But I see a pretty big distinction between Aereo (née Bamboom) and the Cablevision RS-DVR.

Aereo is creating a brand-new experience that is otherwise unavailable to a consumer with a regular over-the-air antenna. The strength of Cablevision’s case was that it was simply replicating an existing capability available to subscribers.

To me, Aereo’s approach seems closer to the failed gambit launched by Zediva, a startup whose Internet streaming-DVD service was thwarted by the movie industry (see Judge Grants Preliminary Injunction Against Zediva and Startup’s DVD-Streamed-Over-the-Net Service Called ‘Cute But Illegal’).

Like Aereo, Zediva had cited the Cablevision RS-DVR case as justifying its service. But in an amicus brief siding with the MPAA, Cablevision argued that Zediva was more like a new VOD service that offers individual movies for rent, whereas the RS-DVR, again, delivers the same service a cable TV subscriber could already get in a different way (see Cablevision Draws Distinction Between Zediva And Its Remote DVR Service).

Could you argue that Aereo’s business model is like Google’s? After all, Aereo is just providing pointers to stuff that’s already free, wrapped in HTML5. It doesn’t break the over-the-air business model (Aereo would argue) because the ads are preserved. Indeed, the startup could claim it’s expanding the reach for local TV channels.

But there’s no such thing as a free lunch, notwithstanding Google’s spectacularly profitable business model. Aereo may prove to be a bridge too far — a question it appears that the legal system will have to answer.

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