“Free to air” really means that broadcasters have no case

Aereo-Logo-2013The US Supreme Court is currently hearing a fascinating copyright case. It has been brought be Aereo, a company that streams ‘free to air’ or broadcast television over the internet to people’s computers. It costs for $8 a month for them for which the broadcasters receive — dum dum dah — nothing. Well, except the advertising revenue from the people watching they programs so long as they don’t use the DVR function. The broadcasters would like Aereo to pay them for the privilege or, more likely, cut it out. Aereo would prefer not to cut it out or pay.

According to press coverage today, the Justices were really struggling with all this. On the one hand, they thought Aereo shouldn’t really exist. After all, what they are doing is putting up a separate antenna for every customer — and hence, officially only renting an antenna — and that seems really inefficient given that, once you are streaming, why bother with the antenna’s and just do it. On the other hand, a previous Cablevision decision allowed a company to record shows and show it to consumers later over the Internet. So when you think about it (a) Aereo is just doing that with their DVR functionality and (b) it is providing another option more likely to have viewers actually see ads. (And thank you Vox.com for all the links to explanatory cards on this one; I’m not pay for that, I’m just linking to it so that I don’t have to write or indeed research more in-depth topics to write this post!).

Well, let me see if I can help out. The first thing to do is to start with first principles and then see how the law might fit them. In this case, we have (a) broadcasters who have licenses that require them to broadcast for free over the air for which they receive, in return, barriers to any old person doing the same thing and (b) a whole lot of people — well, actually, pretty much everyone these days — who don’t like receiving television over the air because that involves fiddly antennas or they don’t have an antenna or some small child willing to stand there holding the rabbit ears so the picture is good (ahh memories). In that world, you would think that (a) broadcasters would just want more people watching because the more they are watching the more advertising revenue they get which is their only source of income and (b) to find ways for consumers to pay for the alternative means of piping the signal into their homes because if you did that using the Internet it costs money. (So yes, Aereo has costs).

Now you would think we would be done with that. It seems quite simple. No one is directly depriving broadcasters of ad revenue and, indeed, their are more options for consumers and hence, they would be more likely to receive even more viewers. Moreover, Aereo will have competitors so the consumers will get a good deal.

Of course, we have another fact: the broadcasters — well at least the large ones — are opposing this. Why? Because we are not in the first best world. We are in a world where they receive some money — from cable companies. And they likely receive quite a bit of it. It doesn’t take much of a leap to imagine how that gravy train could stop if Aereo got its way. Indeed, they are so worried about this that they have threatened to stop broadcasting and, basically, turn themselves into HBO (i.e., mere cable channels).

Now that little part of history (for which there is sadly no Vox card) was a result of the 1992 Cable Television Consumer Protection and Competition Act which said that (a) stations could force cable providers to carry their content (and forgo fees as a result); (b) that local channels be bundled in to basic cable and (c) some restrictions on joint ownership of stations. That sounds like a good deal for broadcasters who could basically force themselves onto cable even if consumers took down their antennas. But in 2005 they wanted more. They gave up the whole must carry bit (as they realised that they didn’t really have to force that) and instead pushed for retransmission fees. Retransmission fees were wonderful for broadcasters as they could demand more and not really effect the costs of cable providers too much and hence, individually, only a small amount would be passed on to consumers. Of course, that didn’t stop fees from rising to about $2.5 billion per annum and being paid for by consumers anyway who are now looking to avoid paying cable bills by using the Internet and still end up getting broadcast television stations — which is why Aereo exists in the first place. In other words, the broadcasters have brought Aereo on themselves.

So when you look at all of this in the cold light of day, it is very clear what is happening: broadcasters are seeking to keep a rent stream going that was essentially handed to them historically by license agreements with the government. They are using copyright law to do this where it is clear that the license agreement was intended to restrict those sources of revenue in the first place and to limit their options. Broadcasters have a simple choice: they can keep to the terms of the license agreement or just stop and give up the licenses and restore to themselves the full range of options under copyright. So in contrast to the views of Megan McArdle it is not Aereo who are confused but the broadcasters. And from what I can gather the lawyers are doing a good job of keeping the Justices confused as well.

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  1. If a company came to me and offered to put an antenna on my roof, connect it to a receiver/digital video recorder with a connection to the internet so that I could operate it via the web, and then charge me 8 bucks a month for that convenience, would the broadcasters be entitled to a fee? I think not. Aereo is nothing more than that.