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US telly big boys open fire on 'cloud streaming' biz Aereo

Ban sought on video service

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The US "free to stream" service Aereo has, as expected, run into a hail of legal fire within one week of its unveiling, as major networks NBC, ABC, CBS and Fox waste no time responding to what they consider a threat to revenues.

The broadcasters have requested a court injunction blocking Aereo’s service even before its first launch in the New York City area on 14 March, on the grounds that it does not have the rights to their copyrighted content.

Aereo, however, anticipated lawsuits and has its defence ready, which is that its streaming is logically the equivalent of subscribers each having their own roof-top antenna to receive the broadcaster’s service free to air, as many people do totally legally, and in the US without paying a TV licence fee.

Just another free-to-air network

To establish this logic, Aereo set up a huge network of miniature antennas each about the size of a small coin, allocating one for each customer. This network receives free-to-air (FTA) signals from the principal networks via this antenna grid, and streams them over the internet to Aereo-capable devices, which for now means just iOS, although with support for Roku boxes and Kindle Fire promised soon. As it happens the interface is an HTML5 web page, so in principle it can support a wide range of devices anyway.

The iPad is the immediate target, with subscribers launching an app to reveal a list of TV programmes, along with shows recorded for viewing on Aereo’s cloud based services. In effect then the service operates like a network DVR, and the resemblance does not stop there. In network DVR each user’s recorded content is stored independently, without taking advantage of the fact that many people will want to keep copies of the same popular programs. This wastes storage, since at any one time there will be many copies of popular content stored on the same server farm. But it gets round legal issues relating to re-broadcast of content as the system operates logically just the same as having local DVRs in each subscriber’s home.

Similarly Aereo aims to slip through the legal net by this process of dedicating mini antennas on a one-to-one basis to each subscriber, arguing that it is logically just like giving each consumer an antenna on your roof, the only difference being that the connection between the antenna and TV or set top box is a bit longer. Technically it would be much more efficient just to receive the signals via one single antenna system, especially as there is no on-demand element to the live broadcast, but then Aereo believed it would have no legal case.

The broadcasters though are arguing that deployment of this array of miniature antennas is just a gimmick that does not alter the substance of the rights issue. Their point is that a cable or satellite operator has to negotiate rights to redistribute its networked content under federal law, and pay rates up to $1 a month per subscriber to do so. What Aereo is doing is no different whether it uses one or many antennas, they say.

Can't pay won't pay

Aereo has no intention of paying such carriage rights, and on the face of it does not appear to have a strong case. Its argument that each user has control over its antenna via the internet – which in effect is therefore operating just as a long aerial lead – does sound like it is splitting hairs. Yet Aereo has attracted stronger backing than previous doomed ventures to retransmit broadcast signals over the internet, the last significant one being Ivi.tv, which started retransmitting over the air signals in the Seattle area in 2010. There was a big difference in that Ivi.tv tried to classify itself as a cable system and web system at the same time, which was a contradiction that ultimately would not wash with the federal court that heard the case against it brought by broadcasters.

Ivi.tv had argued it was like a cable system in that it had the right to rebroadcast free-to-air signals providing it paid an annual $100 fee to the US Copyright Office, but like an internet system in being im-mune to FCC (Federal Communications Commission) rules governing cable systems. Ivi.tv was ordered to shut down early in 2011.

Later in 2011, an equally naïve startup called Zediva came along with the idea of accumulating physical DVDs and then streaming them to customers, arguing it was operating a virtual rental service. There was not really even a loophole here, just a brazen idea lacking in any consideration of the legality, and it was not long before the MPAA (Motion Picture Association of America) came along with a lawsuit. Only a preliminary injunction was necessary as it was open and shut case.

Aereo has attracted stronger backers who believe that its argument will be harder to shoot down in court. Among its backers is Barry Diller, a founder of Fox Broadcasting, and chairman of internet commerce company IAC. This is a nice irony given that Fox is among the networks suing Aereo. Diller’s involvement suggests that Aereo must be in with a shout, even if at first sight its legal case looks dubious.

If Aereo succeeds it will open the door for carriage-free services to complement the on-demand offerings from the likes of Netflix and Hulu, bringing the prospect of full-blown pay OTT services in the US. Aereo, if it avoids closure, will charge $12 a month for web access to broadcast TV, alongside the ability to record shows.

At the same time, for networks it would mean losing control over internet distribution, depriving them of valuable revenue, even though their main income comes from advertising. In fact they see online distribution as a source of new revenue to reduce dependence on advertising. CBS has been in talks with Netflix over a possible deal to produce a dedicated show, so the last thing it wants if for an upstart like Aereo to start transmitting its content for free.

More widely the tide is flowing towards greater online distribution of video content, not least because it is now well understood there is a negative relationship between piracy and content availability. The easier content is to get, the less effort and risk people are prepared to expend on pirating it. Slowly rights-holders are coming to realise they will have to abandon cherished and previously lucrative business models to embrace the online world. The existence – however briefly – of services like Aereo highlights the pains of this journey between business models.

Copyright © 2012, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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