Sunday, May 5, 2013

Will Aereo Kill TV?

I've lived in a series of apartments for the past couple of years, and since I've cut the cord, I've gone back to the old rabbit ear antenna model for live television viewing. And it's miserable. I can only pick up a couple of smaller stations, and never more than two of the major broadcast networks. Which two depends on where I am and what direction my building is facing, but for the last few years, I haven't had any access at all to FOX or ABC.

Now enter Aereo, a new service backed by IAC's Barry Diller that may solve my TV problems at last. Aereo will let you watch over-the-air broadcast channels live online for $8-12 a month through a variety of different devices, and they also throw in a couple hours of cloud-based DVR space for time shifted viewing. They take their streams directly from the airwaves, and the user is essentially renting their antennas, placed in a prime spot for television reception, to access broadcast television. Aereo currently features about two dozen channels in the New York area, but will be launching in Boston next month and expanding to the rest of the east coast soon after. The reviews have been great, and anticipation for its expansion are high. And the major broadcast networks like FOX and CBS are freaking out.

All the news about Aereo the past few months has been about the ongoing legal battles between Aereo and the networks. The biggest worry that the networks have is the potential loss of their retransmission fees. Back in the 1980s, when cable television was first starting to emerge, legislation was enacted that required cable operators to pay these fees to carry content taken from over-the-air broadcast networks. A good chunk of this is for live sports games, but cable will also pay for news coverage and other events. Aereo does not have to pay retransmission fees, however, because they're not considered a programming distributor in the traditional sense. Technically you're not buying content through Aereo. You're renting the equipment that allows you to access that content remotely over the internet.

This could have some big consequences for the networks, because they rely heavily on those retransmission fees, which are estimated to bring in about 10% of a network's income. The other 90% is advertising. It doesn't seem like much, but in many cases, that 10% network's entire profit margin. This is why FOX's Rupert Murdoch and other television executives have been threatening to leave the airwaves and become cable-only outfits if Aereo continues to expand. This is why they've been trying again and again to get injunctions to stop the service from operating under a multitude of legal arguments. Their most recent appeal, which argued that Aereo was engaging in copyright infringement, got turned down by the Second Circuit a few weeks ago. Now there's talk that the networks will try to lobby Congress to legislate Aereo out of existence. Suddenly the public airwaves have turned into a war zone, and free television may not be so free anymore.

Over the last decade we've slowly watched the internet take major bites out of nearly all the information-based industries, from journalism and publishing to movie rentals. Now, it's coming for live television content. The networks are looking at what happened to the newspapers and the recording industry, and trying to stave off what they perceive to be the potential end of their business model. If they can't generate the necessary revenue to keep television stations and networks profitable, then we're going to see the whole TV landscape change dramatically. My guess is we're going to end up with fewer free broadcast networks, an emphasis on cheaper content, and probably more ads to make up the difference. Some networks like FOX very well may move to cable, and if you want access to their content, you'll have to pay for it.

Then again, I don't know if I'd use Aereo very much even if I had it. The networks have been migrating most of their prime time content online, so I find I have reasonable access to most of the shows I want to see. I don't watch the local news regularly, I don't watch sports, and I don't really miss the morning shows or the late night shows. In fact there are only a couple of times a year when I really miss having access to broadcast television. The Oscars, for instance, are something I always want to watch live, and have to scramble to make arrangements to see every year, because my local ABC station has somehow never been in antenna range.

I just don't watch enough television anymore that Aereo would be all that useful to me. And I think that mindset is even scarier to the networks than the loss of their retransmission fees.

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