Aereo 2.0: Why a New Online TV Service May Disrupt the Cable Industry

JULIAN MEJIA-GOMEZ—In 2013, the Supreme Court held that Aereo, a New York startup that retransmitted cable television content over the internet, was engaging in conduct in violation of the Copyright Act. The Court held that Aereo was committing copyright infringement because it publicly transmitted copyrighted material (programming) over the internet, without the owner’s (broadcasting companies like ABC, NBC or CBS) authorization. This business model, which attempts to shift users from standard cable television to computers and mobile devices, had been tried before. And unlike services like Netflix, Amazon or Hulu, these rebroadcasting services merely provide an alternative (and cheaper) way to access the same content that is being transmitted via regular cable channels.

This year, a new company, Locast.org, has promised to be the legal alternative to those who suffered with Aereo’s demise. Locast essentially accomplishes the same purpose as Aereo did—it provides cable television programming over the internet. However, there is a key distinction that differentiates it from the now defunct TV startup, one which may be the key for an interesting legal battle: Locast is a free service.

While the Copyright Act protects cable companies from “secondary transmitters” who simply hijack their signals and retransmit their content for a subscription fee, it grants an exception for secondary transmissions “that operate on a completely nonprofit basis.” In the House Report accompanying 17 U.S.C. § 111, the purpose of this exception is laid out as a protection for transmitters “which do nothing more than amplify broadcast signals and retransmit them to everyone in an area for free reception . . . .”  Locast currently operates in the New York metropolitan area.

Nonetheless, David Goodfriend (founder of the Sports Fans Coalition, the organization behind Locast) says that the only difference between the exception laid out in § 111, and the way in which Locast operates, is that Locast retransmits signals over the Internet. In response, the National Association of Broadcasters has issued a statement expressing their skepticism that Locast will be able to survive legal scrutiny.

If, and when, Locast’s business model is put under legal scrutiny, the judge on the matter will most likely have to rely on the Supreme Court’s decision in American Broadcasting Companies, Inc. v. Aereo, Inc, 134 S.Ct. 2498 (2014). In Aereo, the Court reasoned that one of the Copyright Act’s purposes was to establish that performances by cable systems were subject to copyright protection, and that by performing like a cable provider, without licensing the transmitted material, Aereo was committing copyright infringement. The Court relied heavily on the House Report, and its reasoning behind the statutory provisions.

Following this line of reasoning, Goodfirend and Locast’s argument that their service falls under the nonprofit protection may not be convincing enough. First, the House Report specifically delineates that the nonprofit exception is meant to protect services that provide cable programming to remote areas without cable access. Locast, on the other hand, is currently functioning in one of the most populated areas of the country. The House Report would provide little support for Goodfriend’s argument and would most likely shift the balance in the Plaintiff’s favor.

Second, Locust—like Aereo—provides services like a cable provider. But, while Locust currently provides access to sports, news and weather reports, Aereo provided access to original programming as well. Nonetheless, the fact remains that Locust is taking over material that, according to the Supreme Court, ought to be protected. While Locust may have a valid argument in proposing that news stories are of public interest, and therefore access thereto should not be restricted, the same argument would be hard to sustain for sports events, which are jealously protected by cable broadcasters and sports organizations.

Goodfriend proposes one interesting public policy argument that may eventually be a big part of their eventual defense; he says he’s “trying to restore the social contract between the public and broadcasters, who were given a license to use airwaves that belonged to the public.” While in essence this is true, it is hard to see this argument succeeding over a highly protected and regulated industry that has been functioning for several years, and which faces very realistic threats.

Moreover, even if Locast successfully defeats the likely legal challenges and is able to maintain its business model as a nonprofit service, two additional problems may arise for the New York startup. First, it’s hard to see how the service may survive without a revenue source. Aereo filed for bankruptcy after the Supreme Court decision in 2013, and Locast may follow the same path if it remains a nonprofit; it may have to do so because doing otherwise would render the service illegal. Additionally, even if Locast is permitted to continue its operations, broadcasters may still be able to go after users of the service. In the Aereo decision, the Court made it clear that a public performance is executed by both the service and its users. Broadcasters may take a page from the music industry’s book and sue Locast’s users for illegal public performance of copyrighted material. Even though this resulted in a public relations disaster for the music industry, it may serve as the necessary deterrent that the broadcasters need to drive Locast into bankruptcy.

Whether Locast is allowed to continue operations will provide an interesting issue for the court that inevitably takes on the case. Notwithstanding the eventual result, one thing remains clear. The digital age is constantly finding ways to disrupt the established business models of all industries. It is up to these industries to embrace change and try to push for innovation, or they will be stuck in legal battles for years to come.

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