By Cutting Out Content Providers, Is Aereo Gaming the System? Startup's streaming of live TV content on the internet will be at the center of a Supreme Court case soon.
By Michael Moroney Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
The Supreme Court will hear oral arguments in a potential landmark case later this month that could determine the future of TV broadcasting and copyrights in America. A New York-based tech startup called Aereo is under fire for streaming live television content on the internet, seemingly exploiting a loophole in copyright law that allows it to "broadcast" without having to pay retransmission fees, as every other TV service provider does. Regardless of whether Aereo's business model is technically legal, it's anti-competitive and dangerous for entrepreneurs, innovators and consumers alike.
Over-the-air broadcasters -- including CBS, ABC, NBC, PBS, Fox and the CW -- make their programming available for free through broadcast signals, which home antennas within the range of a local affiliate station can pick up. For decades, this was the only avenue through that Americans could watch television, and although millions still use an antenna, the majority of Americans now pay for cable or satellite service. Cable and satellite companies pay broadcasters and their local affiliates fees in exchange for permission to retransmit their content.
Related: Aereo to Supreme Court: Our Streaming TV Service 'Falls Squarely Within the Law'
For years, consumers could either watch antenna TV for free or pay for cable or satellite service, but Aereo is among a group of entrepreneurial services expanding the market by creating additional options. The company live-streams broadcast TV on the internet, and charges customers $8 per month for access. Under most circumstances, this would be blatant piracy, but Aereo cleverly exploits a loophole by assigning each of its customers a miniature antenna at its headquarters. The $8 fee allows customers to "lease" the antenna from Aereo, which converts the antenna signal into a digital stream and sends each customer the content from "their" antenna, effectively selling broadcast TV without paying for it.
Each step in Aereo's process is arguably legal -- federal judges have offered differing opinions on the matter -- but the sum of parts is an anti-competitive business practice that cuts corners instead of fairly compensating the creators who make TV programming happen. Exploiting loopholes isn't entrepreneurship -- it's a fly-by-night tactic that leaves a business prone to collapse should that loophole ever be fixed. The entrepreneurs behind Aereo deserve credit for trying to create a new way to deliver television service, but their decision to take the work and creativity of others -- specifically, TV shows funded by the broadcasting companies -- without paying compensation is indefensible.
Aereo isn't the only company experimenting with ways to make television better -- services such as Hulu Plus, Netflix, iTunes and Amazon Prime all offer access to TV shows for a similar monthly price, and paid services MLB.tv and WatchESPN offer live sports content. But unlike Aereo, these services worked with broadcasters from the beginning and agreed to pay retransmission fees. The growth of Hulu, Netflix and their competitors has been a win-win for all parties involved -- consumers have more options, entrepreneurs succeed, and broadcasters are compensated -- but Aereo missed its opportunity to join in this success by opting to game the system, not work with it.
Related: Aereo Just Raised $34 Million to Expand 50 Percent in Next 3 Months
Television programming is a form of intellectual property, and a program -- whether a scripted show such as a sitcom or a live news or sports broadcast -- belongs to its producer, who sells the program's rights to a broadcaster. That broadcaster holds exclusive rights to distribute the product, and cable and satellite companies must pay the broadcaster in order to stream the program. If producers and broadcasters don't have avenues to recoup their investments and profit off their creative content, they'll have little incentive to continue innovating.
It's one thing to copy a business model and build off a great idea to make it better. It's another to blatantly copy a digital product and sell it as your own to consumers.The entrepreneurs behind Aereo can't be faulted for trying to make television more consumer friendly, but they made the fatal mistake of trying to reproduce the work of others for a quick buck instead of building something original and sustainable.
Now, instead of being on a path to long-term growth, Aereo's fate hinges on the outcome of a Supreme Court case that could force it to shut down. A win for Aereo would be a loss for everyone else, weakening IP protections and opening the door for more firms to bend the rules and profit off the creativity of others.
Related: Aereo to Broadcasters: Bring It On
