Aereo's Dramatic Idea Is Nothing New in TV

It's the Circumstances That Are Radically Different

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On Wednesday the broadcast TV networks will get a hearing in their lawsuit to shut down Aereo, the fledgling service backed by Barry Diller that captures over-the-air signals and streams them to subscribers paying $12 a month.

The fight comes at an interesting time. Although cable networks have long commanded carriage fees from cable, satellite and telco companies that carry them, broadcast networks have only recently begun to successfully agitate for similar payments. Last year broadcasters collectively received $1.5 billion in these retransmission fees, according to SNL Kagan. That amount is expected to double in four years. Now Aereo -- whose service includes a DVR that can play back programming that customers store in the cloud -- is threatening to encourage consumers to cut the (much more expensive) cord with cable, satellite and telco systems.

Aereo echoes a development, however, from the days when broadcasters wanted nothing more than help distributing their signals.

The act of capturing a broadcaster's signal and retransmitting it into a person's household dates back to the late 1940s, when John and Margaret Walson sold TV sets at their General Electric appliance store in Mahanoy City, Pa. Unfortunately for the Walsons' business, Mahanoy City was far from the closest city broadcasting -- Philadelphia, about 90 miles away -- and surrounded by mountains. Residents could receive little, if any, signals from the Philadelphia's three channels.

Watching the NFL online using Aereo's service
Watching the NFL online using Aereo's service Credit: Aereo

But John Walson had a degree in electronics. He placed a pole attached to a receiver on a nearby mountaintop and connected the apparatus to his store and several homes nearby, eventually convincing residents to pay a $100 installation fee and $2 per month for the service. He demonstrated the power of the new medium and, more importantly, began to sell TV sets. He has since been recognized by the U.S. Congress and the National Cable Television Association as the founder of the cable-TV industry.

Back then, though, TV was not the dominant entertainment medium in homes; that was radio. The number of TV sets in U.S. homes at the time of Walson's enterprise was 350,000, compared to about 350 million today. In 1948 only one in 10 Americans had actually seen a TV set. After granting 108 TV station licenses, mostly on the East Coast, and with 700 TV station applications pending, the Federal Communications Commission had also issued a freeze that would ultimately last four years. Thus any initiative that would get TV signals -- and TV sets -- into more homes would face little if any opposition.

The great irony is that the concept Walson initiated has evolved into the $100 billion cable-TV industry, while Aereo's very similar approach in a different era could prompt more consumers to cancel cable subscriptions altogether. First, though, Aereo has legal obstacles to overcome.

Brad Adgate is senior VP-research for Horizon Media.
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