Struck Down

06.25.14

What the Aereo Decision Means for You

The business model used by Aereo—the ‘Uber for television’—was ruled illegal by the Supreme Court on Wednesday.

This morning, the Supreme Court ruled that the business strategy used by Aereo, a tech company that provides digital-friendly access to cable TV, is illegal. Here’s what you need to know about the decision and its consequences.

What Is Aereo?

For a base subscription fee of $8 a month, Aereo allows users to watch around three dozen high-definition television channels directly on digital devices like iPhones, tablets, laptops, and telephones.

That doesn’t mean you can circumvent HBO and watch Game of Thrones, however. The channel list only includes publicly available major broadcasters like CBS, ABC, NBC, Fox, and PBS. So rather than paying Comcast or Time Warner for cable access, customers can go straight to Aereo—that is, if they live in one of the 11 major cities that the company currently covers.

Cloud-based, DVR-style recording comes standard with Aereo, and for higher subscription fees (which are still lower than the costs of even the most basic cable packages), multiple shows can be recorded at once. And in a time when over one-third of all Internet browsing is on mobile devices, Aereo untethers the TV, letting it follow you wherever you go. Reviews of the service have been largely positive. “It’s a joy to use, and everything works exactly the way you’d hope,” David Pogue wrote in Yahoo Tech.

Chet Kanojia, who previously sold a business called Navic Systems to Microsoft in 2008 for over $200 million, founded the company in 2012. Navic Systems worked with cable companies to gather subscriber data, so Kanojia has some experience with his competitors. Investors are bullish in Aereo, too; the company has raised almost $100 million in funding. (IAC is a lead investor in Aereo, and IAC Chairman Barry Diller sits on Aereo’s board. IAC is The Daily Beast’s parent company.)

The Supreme Court ruled in favor of the broadcasters, overturning the decision of the Second Circuit court that had upheld Aereo’s business model.

How Does Aereo Work?

Aereo is cutting out a huge swath of middlemen—the broadcasters as well as the big cable companies and local affiliates paying them for content—who stand between consumers and the media they’re consuming on television. (Think of it like Uber—which cuts out taxi companies—for TV.) In fact, any customer can carry out this disruption by buying their own antenna and HD tuner for less than the cost of a few months of cable, and receive the channels that Aereo gives its subscribers without paying any monthly fee.

Aereo’s trick is that it is building warehouses of dime-sized HD antennas at a high enough volume that every subscriber can have access to one at all times. Using those antennae, it’s bouncing the free cable signals to users’ devices, throwing in cloud storage services for DVR as well. This gambit means Aereo is avoiding paying anything to broadcasters or the middlemen it is replacing. That makes the old intermediaries, who are still forced to pay retransmission fees to broadcasters (which totaled $2.36 billion in 2012), very angry.

Who Sued Aereo?

On March 1, 2012, a consortium of broadcasting companies including CBS, NBC, ABC, and Fox sued Aereo for copyright infringement, arguing that Aereo’s rebroadcasting constitutes illegal “public performances” and seeking an injunction that would shut down Aereo’s services. Both an initial federal judge and a subsequent judge in the Second Circuit U.S. Court of Appeals ruled in favor of the defendant, finding that Aereo’s services did not constitute illegal rebroadcasting or copyright infringement. Legally, things were looking good for Aereo.

After the initial rulings, the broadcasters threatened to make their channels available only by paid subscription, protecting them from what they saw as Aereo’s thefts. While the FCC mandates that broadcasters keep certain kinds of television free to access—such as public safety information and educational children’s programming—the companies are free to pull programming like sports or primetime sitcoms. The MLB and NFL even threatened to remove their programs from free-to-access TV if Aereo wasn’t stopped.

How Did the Supreme Court Case Evolve?

In October 2013, the plaintiffs motioned to bring the case to the Supreme Court in a third attempt to beat Aereo as the tide began to turn against the technology upstart. In February of this year, Aereo was blocked in six Western states, with a 10th Circuit Court of Appeals judge ruling for an injunction until the Supreme Court made its decision. Then, the Justice Department and U.S. Copyright Office released a joint filing in March arguing that Aereo “transmits copyrighted broadcast programs to the public, without the authorization of the copyright holders, and is therefore liable for infringement.”

For its part, Aereo argued that it was not broadcasting content so much as providing access to tools for subscribers that allowed them to view the broadcasts. “We rent you technology. The length of the cord that connects a user's equipment should not be relevant. That's the crux of the case,” Kanojia recently said on CNBC.

What Was the Decision?

The Supreme Court ruled in favor of the broadcasters, overturning the decision of the Second Circuit court that had upheld Aereo’s business model. It’s a move that will likely force the business to shut down. It was a 6-3 decision, with Justice Steven Breyer writing the opinion and Antonin Scalia the dissent.

“Aereo ‘performs.’ It does not merely supply equipment that allows others to do so,” the opinion reads. "Behind-the-scenes technological differences do not distinguish Aereo's system from cable systems, which do perform publicly."

In other words, since Aereo is acting like a cable company, it’s going to have to follow the same rules and pay the same fees that cable companies do.

What Does the Outcome Mean?

The decision instantly makes Aereo’s business illegal and will shut it down across the country. It’s possible that the company could still rent out or sell its antennae facilities as a last-ditch attempt at profit.

“It’s not a big [financial] loss for us,” says Barry Diller, chairman and senior executive of IAC, one of Aereo’s lead investors. “I do believe blocking this technology is a big loss for consumers, and beyond that I only salute Chet Kanojia and his band of Aereo’lers for fighting the good fight.”

Importantly, the ruling is not relevant for other cloud-based services, which may have been impacted by a judgment on Aereo’s business. The Department of Justice amicus brief advised that the Aereo decision “need not call into question the legitimacy of innovative technologies that allow consumers to use the Internet to store, hear, and view their own lawfully acquired copies of copyright works.” The ruling today pointedly agrees that cloud storage issues can wait for another time.

IAC is a lead investor in Aereo, and IAC Chairman Barry Diller sits on Aereo’s board. IAC is The Daily Beast’s parent company.