Aereo is now a little over two-years old and in that time has stirred up a lot of controversy. Aereo offers a package of network programming and web programming delivered directly to customers devices such as a pad, computer or cell phone. They have been very successful in the market so far and have announced recently that they have sold all they can in several markets like New York City and Baltimore.
But the reason that they are so controversial is that they have assembled their package without paying retransmission fees to the networks. Retransmission fees are those fees paid to the major networks – ABC, CBS, FOX and NBC – for the right to carry their programming. These fees are gigantic. In most markets the cost to now carry a local affiliate station is in the range of $2 per customer per month. And that is a remarkable figure since as recently as five years ago there was no charge to most cable companies for carrying these networks.
These fees are a significant part of the reason why cable rates are climbing so quickly. At $2 per network channel, these fees have increased the cost of cable by $96 per year to a cable subscriber. And nationwide these fees drive over $7 billion per year in revenues.
Aereo found a way around retransmission fees. The networks all use public spectrum, and for the use of that spectrum they broadcast their shows through the air for anybody with a set of rabbit ears to get free. Aereo uses a technology that basically uses a separate set of rabbit ears (actually a tiny one-inch antenna) for each customer. They receive the programming at a centralized hub and then send it to the customer’s devices.
Customers love this. The one thing you can’t get when you try to wean off cable is a live version of the network shows. People by the millions have dropped cable or downsized cable packages. At home such customers can get programming on their TVs for free with an antenna. But there is no easy way for them to get this to tablets and smartphones, which has become a very popular way of watching TV.
I like what Aereo is doing. Certainly as a customer I think this is a good thing. If I can receive this programming for free at my house then I feel I ought to have the right to pay somebody to help me get that free programming onto my iPad. That is really all that Aereo is doing. I certainly am offended that the network channels want me to pay $96 per year for programming that I can get with a $50 set of rabbit ears.
Some network execs have said that if Aereo wins at the Supreme Court they will pull their channels off the free airwaves and only sell them through cable TV. I have a hard time believing that any network would have enough hubris to do this. I am picturing a big political backlash when the networks that carry local sports and the local NFL teams disappears from the airwaves.
The networks are making huge gobs of money today, and while the money from retransmission fees is making them fatter, they still derive most of their revenues from advertising. One would have to think that their advertising model would change drastically if they were to suddenly become just another of the many cable channels. Personally, I hope one of them tries this and then loses their ass and their customer base. Because we would all benefit from using the spectrum they will vacate.