Broadcasters will get a U.S. Supreme Court hearing in their fight to stop Aereo, the company that is threatening the industry's decades-old business model by selling live TV programming over the internet.
The justices today agreed to hear an appeal by media companies including Walt Disney Co.'s ABC, 21st Century Fox, Comcast Corp.'s NBC Universal and CBS Corp. They contend that Aereo, which is backed by Barry Diller, is violating their copyrights by using thousands of dime-sized antennas to obtain broadcast signals without paying fees.
Broadcasters say a federal appeals ruling favoring Aereo created a blueprint that might let cable and satellite providers avoid paying "retransmission" fees to carry programming. With those fees estimated to exceed $4 billion this year, some broadcast companies say they may convert to cable channels if Aereo isn't shut down.
The lower court decision "is already transforming the industry and threatening the very fundamentals of broadcast television," the broadcasters argued in their appeal.
"We believe that Aereo's business model, and similar offerings that operate on the same principle, are built on stealing the creative content of others," CBS said today in a statement after the court agreed to settle the matter. "We are pleased that our case will be heard and we look forward to having our day in court."
Aereo said it too was happy to have the court's attention. "We said from the beginning that it was our hope that this case would be decided on the merits and not through a wasteful war of attrition," Aereo said in a statement. "We look forward to presenting our case to the Supreme Court and we have every confidence that the Court will validate and preserve a consumer's right to access local over-the-air television with an individual antenna, make a personal recording with a DVR, and watch that recording on a device of their choice.
Aereo had joined the broadcasters in urging Supreme Court review, saying the company needs legal clarity so it can pursue plans for growth. In separate cases, two federal trial judges ruled that another company's similar system was a copyright violation.
Litigation has "created uncertainty that undermines Aereo's efforts to expand its footprint and further develop its business," the New York-based company told the court. Aereo, which offers service in 10 cities, said Jan. 8 that it has raised $34 million to fund expansion.
Under its normal scheduling practices, the Supreme Court will hear arguments in April and rule by early July.
Retransmission fees have become increasingly important for broadcast networks as a supplement to advertising revenue.
Broadcasters are expected to reap more than $4.29 billion in fees paid by satellite and cable companies this year, a 30% gain from last year, according to research firm SNL Kagan. That revenue is estimated to reach $7.15 billion by 2018.
Fox and CBS have said they may abandon their broadcast signals and become cable networks if Aereo continues unabated.
"We need to be able to be fairly compensated for our content," 21st Century Fox President and Chief Operating Officer Chase Carey said at an industry conference last year. "We can't sit idly by and let an entity steal our signal. We will move to a subscription model if that's our only recourse."
Conversion to a cable network would mean that broadcast signals would no longer be freely available over the airwaves.
Mr. Diller, who helped create the Fox network, says Aereo may eventually get as much as 35% of U.S. households to subscribe if it overcomes legal challenges. The service charges customers $8 a month.
DirecTV, Time Warner Cable and Charter Communications are all considering using the same approach, capturing free broadcast-TV signals to avoid paying retransmission fees, according to people with knowledge of the companies' plans.
A Supreme Court ruling favoring Aereo also would affect local broadcasters, which negotiate their own deals with pay-TV operators. A victory for Aereo could undermine the value of billions of dollars in acquisitions.
The court fight centers on a provision in the federal copyright law that gives owners the exclusive right to perform their works "publicly." The appeals court said Aereo's service is legal because the separate antennas let each customer create a distinct copy of a broadcast program for viewing, so no public transmission takes place.
The broadcasters argued in their appeal that Aereo is trying to use a "technical detail" to circumvent well-established legal rights.
"There is no dispute that Aereo has developed a business model around the massive, for-profit exploitation of the copyrighted works of others," the broadcasters argued.
Aereo said it doesn't engage in public transmissions because each customer "captures a signal through an antenna available only to a particular user." Its technology "enables that user to make an individual copy from a unique data stream that can be viewed solely by that user at the user's direction."
The National Football League and Major League Baseball, whose games appear on broadcast TV, are backing the media companies. The broadcasters also have support at the high court from companies that produce programs, including Time Warner. and Viacom.
Cablevision Systems is taking a middle ground in the debate. It said that while Aereo's service violates the copyright laws, the broadcasters' arguments go too far and threaten legitimate services.
~ Bloomberg News ~