Aereo: The Mouse That Roared

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The Aereo litigation in the Southern District Court in New York is the hottest topic of conversation in telecom. Aereo’s service allows its subscribers to view local broadcast signals on mobile devices. It maintains that, unlike cable systems, it need not obtain retransmission consent from broadcasters.

Thus far, Aereo has defeated the broadcast industry’s attempts to impose a preliminary injunction against Aereo’s business as well as broadcaster efforts to have a U.S. District Court re-hear the injunction motion. Buoyed by its victories, Aereo has petitioned for a declaratory ruling that its activities are perfectly legal outside the 2nd District.

Many commentators interpret Aereo’s victories as a harbinger of substantial change in the way the broadcast and cable industries relate to each other and foresee a mammoth decline in broadcaster retransmission-consent revenue. Such expectations may be woefully premature.

First, there has been no trial on the merits yet. The standards for prevailing in a preliminary injunction hearing are far greater than for a trial. It is hardly inconceivable that after all the evidence is presented at trial the broadcasters will obtain a favorable verdict based on a “preponderance of the evidence” standard.

Second, a 9th Circuit judge has already rejected Judge Alison J. Nathan’s analysis, which had favored Aereo. In a similar business to Aereo’s, the 9th Circuit did grant the plaintiff s a preliminary injunction and would likely deem Aereo to be a copyright infringer. Therefore, even if Aereo prevailed throughout the entire trial and appeals process in the 2nd Circuit, there may be a split in the circuit courts on the issue. That means Aereo will have to engage in lengthy and costly litigation all over the country to conduct its business.

Ultimately, it could be up to the U.S. Supreme Court to decide the matter, and that is at least three years away.

Third, assuming Aereo wins all the way up to and through a Supreme Court decision — and that all cable systems strike a deal with Aereo to provide broadcast signals to cable subscribers, thus eliminating the payment of retransmission-consent fees — what will prevent a broadcaster from recouping the “missing” fees to the license fee its corporate parent charges cable companies for retransmission of its affiliated services, such as ESPN? You may assume freely that there is no possibility ABC would ever do a deal with Aereo permitting Aereo to retransmit ESPN. Fox can pursue the same approach by increasing Fox News Channel license fees, and so can broadcasters with regional sports networks or other desirable cable programming services.

Fourth, as far as continued retransmission of the broadcast signals themselves, the networks can simply elect mustcarry status, thus guaranteeing the continued airing of their signals by cable operators. So what will the cable systems have gained by eliminating the retransmission-consent fees they previously paid to broadcasters? Other than being able to eliminate the broadcaster retransmission consent fees from a few independent broadcast stations, not much.

If Aereo prevails in court, the relationship between network broadcasters and cable operators may be reconfigured to a limited extent, but ultimately the cable operators will not save much money in the process.

Gil Ehrenkranz was VP, legal affairs, for Discovery Communications and assistant general counsel to Cablevision Industries. He is now a solo practitioner specializing in telecom law in Washington, D.C.

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