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Aereo likely to face fight over its plans to distribute broadcast TV

February 14, 2012 |  2:52 pm

Barry Diller is betting on Aereo
It's hard to tell who has more to potentially worry about from Aereo -- a new service that enables  consumers to get broadcast TV without a cable -- the broadcasters or the cable industry. 

Aereo is a distribution service launching later this spring that will give people access to broadcast television via smartphones and tablets and Internet-friendly TVs. It does this with a tiny antenna that picks up the over-the-air signals of broadcasters.

Aereo, originally called Bamboom, unveiled plans Tuesday to offer its service in New York City on March 14. The company also announced that it had completed a $20.5-million round of financing led by IAC/InterActiveCorp., the Internet company headed by Chairman Barry Diller. Diller, the architect of the Fox Network, is also joining Aereo's board of directors.

Aereo will charge customers $12 a month. For that, they get an antenna to receive not only broadcast TV signals, but also a digital video recorder in the sky that can store up to 40 hours of shows. Cable channels are not available because their content is transmitted through wires and satellites and not over the public airwaves.

For cable programmers and distributors, any new service that provides people a reason to cut the cord is bad news. Aereo is no doubt banking on people being frustrated with rising cable bills and willing to pay less for broadcast signals, figuring they can eventually catch cable content via Netflix or another streaming service, or on DVD. 

But broadcasters will also be wary of Aereo. Although consumers can get broadcast TV free, most Americans get it through their multichannel video program distributors, such as Time Warner Cable or DirecTV. The networks now charge cable and satellite operators fees to carry their content.

The development of this crucial second revenue stream is what the broadcast networks are counting on to cover rising programming costs -- particularly of sports -- at time when their audience is shrinking.

IAC's Diller, who prior to building the Fox Network for News Corp. was a top executive at ABC and Paramount Pictures, called Aereo a "potentially transformative technology" and "revolutionary product."

The broadcasters and their lawyers are likely working on other phrases to describe Aereo as copyright thieves. The networks protect their signals the way the Colts used to protect Peyton Manning and are expected to launch a legal assault as soon as Aereo goes live.The broadcasters have been successful in the past when it comes to shutting down companies trying to stream their signals.

Aereo is banking on a 2008 decision by the United States Court of Appeals in New York's Second Circuit to thwart any efforts to derail its plans. That ruling cleared the way for the New York-based cable operator Cablevision Systems Corp. to offer its subscribers a remote DVR, as opposed to a DVR built into the cable boxes in their homes. That may solve their cloud DVR plans but perhaps not the reselling of broadcast TV signals.

The broadcasters -- ABC, CBS, NBC and Fox -- declined to officially comment about Aereo. However, one network legal eagle said the Cablevision case won't wash here.

For starters, Cablevision already had negotiated permission to distribute the content to its subscribers, which Aereo has not. Furthermore, this executive noted that Aereo is not just taking its signals out of the air but is rather manipulating the signals to offer them on platforms other than a traditional television set without permission or payment. That, the executive said, may not fly in court.

In writing about Aereo's plans last April, Los Angeles Times editorial writer Jon Healey opined that it is a "lawsuit waiting to happen."

While the lawyers will rake in big fees fighting Aereo, it remains to be seen if there will be a consumer demand for it. If people are so frustrated with cable costs then they can get their own antennas to receive broadcast signals.

The DVR in the sky is a nice add-on. But at $12 a month, that's roughly what one from a cable operator costs. For another $100 or so you can also get tons of channels. As Healy put it, "maybe it's a solution to a problem not many people are eager to solve."

BTIG analyst Rich Greenfield said Aereo could be a game changer in the media industry that could radically alter the economic models of the business. It is "distribution at its finest" Greenfield wrote, before adding, "if Aereo is in fact legal."

RELATED:

A new, barred window for pay-TV movies

Bamboom takes broadcast TV over the top

Online TV service Ivi loses first round in court

-- Joe Flint

Photo: Barry Diller. Credit: Bloomberg

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