Aereo Ruling in Review: Impact on Sports Rights and What’s Next for Broadcasters

The gavel came down on the long-awaited Aereo Supreme Court ruling yesterday and, in the end, the broadcasters and sports-content owners came out on top.

The nation’s highest court ruled in a 6-3 vote that upstart TV-streaming provider Aereo is violating broadcasters’ copyrights by redistributing their signals without consent. The ruling not only preserves the billions of dollars in retransmission fees that broadcast networks collect from cable/satellite providers to transmit their programming, but also avoids the potential exodus of major sports programming from broadcast networks to cable, streaming, and pay-per-view outlets – a move that Major League Baseball, the NFL, and other leagues had threatened to make had Aereo won out in court.

Aereo, the Supreme Court said in the ruling, is violating copyright laws by capturing broadcast signals on thousands of miniature antennas that it houses in large warehouses and delivering these signals to subscribers for a $8-12 fee (depending on what market the subscriber is in). Aereo argued that since each antenna is assigned to a specific subscriber, it was no different than customers setting up their own rooftop antenna. In addition, Aereo provides subscribers with a cloud-based DVR service that allows users to record these feeds to view the content later.

Had the court ruled in Aereo’s favor, several broadcasters had threatened to move their networks’ programming to a cable or streaming model – including sports programming like MLB and NFL games. In addition, the NFL and MLB – as well as other leagues – had warned that they could transition their television rights to a cable, streaming, or pay-per-view model should the court rule in favor of Aereo.

The Impact on Sports Rights and Sports-Production Community
The ruling is, without question, a major win for sports leagues and teams that have continued to see the value of their live content skyrocket in recent rights deals with broadcast and cable networks. Live-sports content is particularly valuable because it is one of the major factors keeping U.S. viewers from cutting the cord on their traditional pay-TV subscriptions. The cost of live-sports rights has risen roughly 40% to 90% from prior contract levels over the last two renewal cycles, according to Janney Capital Markets. Expect that to continue as the NFL and MLB respective rights deals are just kicking off and the NBA’s current rights agreements with ESPN and TNT expire following the 2015-16 season.

The Aereo ruling looks to have insured that broadcast networks will continue to have the funds to fork out massive sums in order to keep high-profile programming like NFL games, the World Series, NBA Finals, and other big-time events on its airwaves for the foreseeable future. Had the Supreme Court sided with Aereo, the broadcasters would have been in danger of losing billions of dollars in retransmission fees – $3.3 billion last year and likely $7.6 billion by 2019, according to SNL Kagan – thereby preventing them from bidding on high-end sports rights that would likely go the way of cable, streaming, or pay-per-view.

As a result, expect the cost of live-sports rights will likely continue to rise. With that in mind, the scale and production budgets of these telecasts are likely to rise as well in order for networks to justify the sky-high costs of acquiring the right to produce this content – making it a good time to be in the live-sports-production business.

What’s Next for Aereo?
The future of Aereo, which is currently available in 11 markets and had previously announced plans to expand to more than a dozen additional cities, is now very much in doubt. Aereo was still operating as of Thursday morning since the Second Federal Circuit courts in New York City must still implement the Supreme Court’s findings.

Despite raising more than $100 million in venture capital and securing backing from media mogul Barry Diller’s IAC, Aereo CEO Chet Kanjia has openly spoken about the fact that the company has no plan B. While Diller told CNBC on Wednesday that “it’s over now,” Kanjia said in a statement sent to subscribers that, “We will continue to fight for our consumers and fight to create innovative technologies that have a meaningful and positive impact on our world.” What these efforts will entail is unclear, however.

One option would be to sell off the core technology and expertise behind the service to another player in the TV industry. Aereo’s workflow for capturing over-the-air TV signals and streaming them or storing them to the cloud could prove enticing to television companies looking to get into the TV Everywhere game.

Another option would be to continue its battle with the broadcasters, lobbying in D.C. to change the current Copyright Act, though that quest is likely a futile one, according to most experts.

Another alternative would be a complete turnabout – working with broadcasters in an effort to negotiate retransmission fees to carry their channels on the Aereo platform. However, after a long, contentious battle in court and the court of public opinion, broadcasters are not likely to offer Aereo friendly terms when it comes to retrains consent, especially considering it would likely alienate cable/satellite providers that already supply the broadcasters with billions in retransmission fees. In addition, Aereo’s entire business model is built around circumventing these feeds and would almost certainly make the $8-12/month cost per subscriber unviable.

What Does This Mean for Other Cloud-Based Services?

Despite Aereo’s arguments to the contrary, the Supreme Court pledged that the ruling would not impact future cloud-based or remote storage technology and the justices don’t believe the decision “will discourage the emergence or use of different kinds of technologies.”

However, in his letter to subscribers Kanojia, who warned during the proceedings that a ruling against Aereo could hinder future development of cloud-based technology and products, warned: “Are we moving towards a permission-based system for technology innovation?”

While the long-term ramifications of the Aereo ruling are likely years away, there will likely be an immediate impact cable/satellite providers that offer a remote storage DVR (RS-DVR) service or stream live TV programming over the Internet to their subscribers.

In 2008, the Second Circuit Court of Appeals overturned a lower court ruling, finding that Cablevision’s RS-DVR (which allows users to record TV programs and store them in the cloud) did not violate copyright laws. Last year, Cablevision castigated broadcasters when they compared its RS-DVR to Aereo’s cloud-stored DVR service and says that it is still confident that it protected despite the Aereo ruling.

In addition, the Aereo decision already is having an impact on Fox’s case against Dish Network, live streaming of TV programs and a function that enables its customers to copy programs onto iPad tablets for viewing outside the home. On Wednesday, Fox’s legal team submitted the Supreme Court’s Aereo decision to bolster its case, with oral arguments scheduled before the 9th Circuit Court of Appeals on July 7.

Where Do We Go From Here?
In the end, the result of the Supreme Court’s decision is the renewal of the status quo. Broadcasters will continue to reap the rewards of retransmission feeds, sports leagues will continue to see the value of their product – and the rights fees that go along with that – skyrocket, and cable bills will continue to get higher for consumers as these feeds grow. Nonetheless, in a world in which the way consumers watch video seems to change almost monthly, next Aereo-esque startup is likely not far down the road.

And regardless of what screen they watch it on or what subscription fee they must pay, fans will find a way to watch live sports programming and content owners will find a way to get it to them.

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