Aereo Threat: Would Fox Really Yank Its Broadcast Signal?

Both 'Brilliant Posturing' and 'Not Unreasonable'

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It may seem extreme, but if Aereo prevails in court, Fox and its broadcast brethren could make the case for turning free, over-the-air networks, into paid cable channels, according to media experts.

"It's a legitimate option in the remote possibility Aereo is globally successful in court," said David Bank, analyst at RBC Capital Markets.

Will 'The Simpsons' leave broadcast for cable?
Will 'The Simpsons' leave broadcast for cable? Credit: Fox

News Corp. CEO Chase Carey warned at the National Association of Broadcasters' annual trade show that if Aereo prevails he would consider turning Fox into a subscription service. Aereo transmits broadcast signals to subscribers without a cable subscription by pulling signals out of the air with individual, dime-sized remote antennas.

"We believe that Aereo is pirating our broadcast signal," News Corp. said in a statement following Mr. Carey's remarks. "That said, we won't just sit idle and allow our content to be actively stolen. It is clear that the broadcast business needs a dual revenue stream from both ad and subscription to be viable. We simply cannot provide the type of quality sports, news and entertainment content that we do from an ad supported only business model. We have no choice but to develop business solutions that ensure we continue to remain in the driver's seat of our own destiny."

This isn't a new idea: in 2009, in the midst of the recession, a frequent topic of conversation in media circles was the idea of turning NBC into a cable network, according to Bernstein Research analyst Todd Juenger. Then the economy began to turn and CBS began to succeed in getting cable and satellite providers to pay it for the right to its signal, the same way they pay for cable channels, and the noise quieted down.

But if Aereo is found to be legal, it could make financial sense for broadcasters to consider leaving the broadcast airwaves.

"I don't think this is about Aereo as a standalone service," Mr. Bank said. "It's about what this would mean for retransmission fees." If Aereo can find a way around paying retransmission fees, it would harm the broadcast networks' negotiations with cable and satellite operators. Dish Network and AT&T have talked with Aereo about potentially carrying its service or signals, The Wall Street Journal reported last week.

"[Aereo is disappointed] to hear that Fox believes that consumers should not be permitted to use an antenna to access free-to-air broadcast television," said Virginia Lam, a spokeswoman for Aereo, in a statement today. "Over 50 million Americans today access television via an antenna. When broadcasters asked Congress for a free license to digitally broadcast on the public's airwaves, they did so with the promise that they would broadcast in the public interest and convenience, and that they would remain free-to-air. Having a television antenna is every American's right."

But it wouldn't be easy process for Fox to turn into a cable network. For one, there are affiliates to think about. News Corp. said if it goes this route it will work in collaboration with both content partner and affiliates, which could mean waiting until contracts with affiliates expire or compensating them for losing the signal, Mr. Bank said.

This all could just be Mr. Carey's way of negotiating with the federal government, Mr. Bank said. "He is saying, if you want to keep localism, you have to protect the industry to a certain level," he said. "This is brilliant posturing and not unreasonable."

NFL Sunday Football alone and its dependence on localized distribution via affiliates could also be enough to curtail this, Mr. Juenger wrote in a research note earlier in the year.

"While advertisers may profess not to care very much about those 10% of households who receive their TV via antenna, politicians do," Mr. Juenger wrote. "Not to mention the public policy benefits of having multiple, independent local news sources. And universal access to a TV signal was once seen as a vital cornerstone of national security."

There's also branding to think about. Local news teams and the community-oriented face the broadcast station brings to the network, often translates into sustained ratings dominance of those networks, Mr. Juenger said. "Lose that presence, and soon all those broadcast networks really do become just another channel on the dial."

Ultimately, it may not come down to this. While Aereo had another win in court last week, with the 2nd Circuit Court of Appeals refusing to block the service, Mr. Bank said it's unlikely this will be the outcome in all jurisdictions.

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