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Supreme Court Decision Suspends Aereo Operations

2 Jul, 2014 By: Doug McPherson

WASHINGTON – Just three days after the Supreme Court handed down its 6-3 decision on June 25 that online video service Aereo infringed copyright of TV shows, the company suspended operations.

Chet Kanojia, CEO and founder of Aereo, said in an E-mail sent to subscribers over the weekend, “We have decided to pause our operations temporarily as we consult with the court and map out our next steps.”

Analysts say the decision will likely force the Barry Diller-backed cord-cutting service to either shut down permanently or significantly revamp its business model.

After initially launching in New York, Aereo’s $8 per month service rolled out to 11 cities in the U.S. Subscribers streamed over-the-air TV shows to their smartphones and tablets.

A coalition of broadcasters sued to shut down Aereo, arguing the service shouldn’t be allowed to publicly perform TV shows without paying retransmission fees. Last Wednesday, the Supreme Court sided with the broadcasters and rejected Aereo’s contention that its architecture protected it from copyright infringement liability. Aereo used dime-size antennas to capture programs and stream them on an antenna-to-user basis. The start-up said the one-to-one nature of the streams meant they were “private,” and therefore didn’t require licenses.

But the court ruled Aereo’s underlying technology wasn’t relevant to whether it infringed copyright. “Why would a subscriber who wishes to watch a television show care much whether images and sounds are delivered to his screen via a large multi-subscriber antenna or one small dedicated antenna?” wrote Justice Stephen Breyer for the majority. “When an entity communicates the same contemporaneously perceptible images and sounds to multiple people, it transmits a performance to them regardless of the number of discrete communications it makes.”

Kanojia continues to defend the company’s business. “The spectrum that the broadcasters use to transmit over-the-air programming belongs to the American public, and we believe you should have a right to access that live programming whether your antenna sits on the roof of your home, on top of your television or in the cloud,” he wrote.

Kanojia thanked subscribers for their support in his E-mail and urged them to sign up for updates at “Our journey is far from done,” he added.

Others agree. Pivotal Research Group’s Brian Wieser wrote in a report that the ruling “should not be conveyed as suggesting that broadcasters are out of the woods yet with respect to technology. We expect that new technologies will continue to come to market, and from the vantage point of today’s broadcasters, they will still need to develop the capacity to iterate and adapt without relying on courts to solve disputes.”

Wieser also identified an additional, counterintuitive risk now faced by broadcasters – the “industry-wide risk that can follow from the stifling of technology-driven innovation.”

He wrote, “Depending on how this case is interpreted in the future, today’s action could impact how consumer electronics companies and related upstarts approach the video market in the future. This is unfortunate in the long run, as a vibrant video service business should help the industry expand overall, with most incumbents retaining dominance.”

For example, Wieser says, broadcasters weren’t happy to see VCRs emerge, but they ended up helping the industry to grow.

Other reactions to the court’s decision:

Rep. Fred Upton (R-MI), chairman of the House Energy and Commerce Committee: “While the court ruled that Aereo had overstepped, invention and innovation are at the heart of America’s global leadership in communications and technology development. This case underscores the mounting need to modernize the 80-year-old Communications Act.”

Gene Kimmelman, president and CEO at Public Knowledge, a digital rights group: “It is very unfortunate for consumers that the Supreme Court has ruled against Aereo, which has provided an innovative service that brings consumers more choices, more control over their programming, and lower prices. This decision, endangering a competitive choice for consumers, makes it all the more important for the Department of Justice and Federal Communications Commission to guard against anti-competitive consolidation, such as the Comcast/Time Warner Cable merger.”

Gordon Smith, president and CEO, National Association of Broadcasters: “NAB is pleased the Supreme Court has upheld the concept of copyright protection that is enshrined in the Constitution by standing with free and local television. Aereo characterized our lawsuit as an attack on innovation; that claim is demonstrably false. Broadcasters embrace innovation every day, as evidenced by our leadership in HDTV, social media, mobile apps, user-generated content, along with network TV backed ventures like Hulu. Television broadcasters will always welcome partnerships with companies who respect copyright law. Today’s decision sends an unmistakable message that businesses built on the theft of copyrighted material will not be tolerated.”

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