Another Reversal of the FilmOn X Decision

In the continuing saga of looking for alternate ways to get programming to the home, the U.S. Court of Appeals for the Ninth Circuit reversed an earlier ruling that said that FilmOn X had a right to retransmit over-the-air television signals.

FilmOn is a global provider of internet-based programming. They carry over 600 channels of broadcast TV from around the world. They also carry a big library of movies and offer a few of their own theme-based channels (such as Shockmasters that specialize in Alfred Hitchcock movies and television shows).

I won’t go through the history of the company and its attempts to carry the major US networks like ABC, NBC, CBS and Fox. The company was granted the right to carry this content several times in various courts and then had those decisions reversed by other courts. This case marks the third time that the company has been told it doesn’t have the right to retransmit these networks.

The company has tried several ways of delivering these networks to customers. They originally just grabbed the signals out of the air and put them on the internet. When told this wasn’t allowed by the courts they then set up satellite farms to wirelessly send individual signals to customers in a manner similar to Aereo.

This latest ruling said specifically that FilmOn is not eligible to call itself a cable company and to demand that local stations sell them content. That ruling hinged upon testimony provided by the US Patent office that said that such authority for internet-based retransmission was not clear. This differed from an earlier US Supreme Court ruling in the Aereo case that said that internet retransmission was equivalent to cable retransmission.

What’s really at the heart of this case is the definition of who is eligible to retransmit signals from the major over-the-air networks. Congress, through various laws, has given the right (and usually also the obligation) for landline-based cable companies to carry the major networks. Cable companies are obligated to carry those stations that are within certain distances from their customer base.

But over the years those that have been allowed to carry local programming has grown. Within the last decade the satellite cable companies began carrying local stations in many markets. I lived in the Caribbean for many years and some of the cable providers in Puerto Rico and the Virgin Islands somehow obtained the rights to carry some New York City local stations. Today there are a number of OTT providers like Sling TV and Playstation Vue that are carrying local network stations.

But the current rules draw a firm distinction between those that must carry local programming and everybody else. And this gives the flexibility to local stations to decide if they will sell their signal to those without the automatic rights. The big networks have decided to provide programming to Sling TV, but not to FilmOn or Aereo.

Originally both FilmOn and Aereo captured the broadcast signals from the air and put them onto their own networks. That obviously angered the big networks and they got that ruling reversed. But then these providers refused to sell their signal to these two companies. One has to think that was partly done to punish these companies for challenging them, and perhaps partly due to the cable companies who lobbied against competition.

This ruling could really stifle new OTT providers. It seems one part of the OTT appeal is the ability to deliver local network programming as part of their packages. This ruling gives local stations the ability to choose who can or cannot buy their signal, and to thus pick winners and losers in the competitive OTT battlefield.

It’s hard to think that this makes any sense. But Congress or the FCC could clarify this issue if they cared to tackle it. Just over two years ago the FCC put out a Notice for Proposed Rulemaking asking about this exact topic. The FCC wanted to clarify the rights for internet-based programmers to buy content, and in that docket the FCC had suggested that anybody ought to be allowed to buy programming if they agree to pay the market rates for it. But the FCC has never acted in that docket which has led to today’s situation where some providers are given programming and others not. The have-nots aren’t just companies like FilmOn and Aereo, and it’s been reported for years that Apple has been unable to get programming rights.

At some point this needs to be clarified. The last companies we want deciding who can or cannot offer programming services are the major networks, especially since some of them are owned by cable companies. I have no idea if the FCC will address this, but they need to.

Court Jumps into OTT Fray

Fatty_watching_himself_on_TVIn a really surprising ruling, a federal judge has ruled that FilmOn X should be able to get access to local network programming like a cable TV company. US District Court judge George Wu ordered that FilmOn X be treated like a cable company and is entitled to retransmit broadcaster’s content.

For those not familiar with FilmOn X, check them out on the web. They have a huge amount of  on-line content that includes local TV from around the world as well as 600 other channels. There is a little bit of everything from non-traditional sports, music from around the world, and channels of almost any topic you can imagine. They also carry a mountain of for-pay video-on-demand content that ranges from music to major league baseball. All of the free content is ad-supported. Viewers can also create their own channels.

FilmOn X also had their own version of the Aereo model and they offered a premium subscription model in a few markets, which gave customers access to 120 HD channels on any computer or smartphone through the use of a dongle. Just like Aereo this was done from antenna farms.

The company has been in a battle with the major networks in the US since its inception. The company began carrying the local networks on the Internet in 2010. In 2011 they were ordered by a court to stop the practice. But in 2012, the local channels were all allowed back onto the system through a federal appeal and FilmOn X carried local content on its broadcast dongle product. But in 2013 the US District Court of the District of Columbia issued a nationwide injunction against the antenna service.

This latest ruling overturns that injunction and seemingly gives FilmOn X the same right to content as a cable company. Obviously this is going to be appealed further and one has to doubt that the networks are going to negotiate retransmission agreements with the company while the appeals are still being fought in court.

But the case raises serious questions. Although addressing a different set of issues than the Aereo case, it still sets up conflicting district court decisions. Aereo had taken the legal tactic of dancing around the issue of whether they were a cable company by concentrating on the issue of copyright infringement. FilmOn X took a more direct legal approach and argued that they had the rights to rebroadcast the content as a cable company. And apparently the court bought it.

Realistically nothing is going to happen in the area of on-line content until the FCC decides where it wants to go with this. Recall that in January of this year the FCC opened up a Notice for Proposed Rulemaking to look at the issue of on-line content. FilmOn X was mentioned several times in that document and the FCC is asking if on-line companies can have the same rights as cable companies to get content.

The FCC can put all of these lawsuits to rest by defining the rights, or lack of rights, of on-line providers. It’s fairly clear in reading the NPRM that the FCC has a bias towards allowing content on-line and is probably seeking a legal way to do that since they are required to follow the various cable laws that have been passed by Congress.

It’s hard to think that on-line content providers are ever going to be able to comply with all of the rules included in the current cable regulations. Those rules very rigidly define tiers of programming. They also define the retransmission process whereby cable companies can rebroadcast local content. But there are a ton of other requirements that range from closed captioning to emergency alert systems that also apply to cable companies. It’s going to be a challenge to give just a few of these rights to on-line providers while making cable providers continue to comply with all of the rules.

For now this ruling is just one more confusing court ruling that has defined the on-line broadcast industry so far. There have been several conflicting rulings as part of earlier cases with Aereo and FilmOn X that muddy the legal waters for the business model. But this is something that the general public very much wants and traditional cable will be in a lot of trouble if local content ends up on the Internet. It is that content along with sports that are the primary drivers behind maintaining the cable companies’ grips on customers.

Musings on the Aereo Shutdown

Rabbit_Ears)I was traveling last week when the Supreme Court ruled on the Aereo case, and that gave me a chance to read a lot of reactions to the ruling before I wrote about it. The Court said that the Aereo business plan was basically a gimmick and that they had to shut down. I will admit that I always thought the same thing and that it’s hard to build a business based upon a loophole. It’s too easy for your competition to attack the loophole and such arbitrage opportunities are rarely permanent.

But in reading articles about the industry reaction to the ruling I noticed that the executives from the major networks reacted in absolute glee over the shutdown and hailed it as a major victory. And frankly, I think they made some huge mistakes with the way they handled Aereo from the beginning. I think what they failed to realize is that Aereo was serving the niche of the market that gets their entertainment using laptops, tablets and cellphones. You know the industry doesn’t get this because they refer to these devices as the ‘second screen’, failing to recognize that for millions of viewers this is the primary screen.

The industry doesn’t seem to understand the demographics that Aereo was serving. It’s easy to think that this is just the cord cutters, but it’s also most of the kids in the country. Let me talk about the cord cutters first since I am one of them. I don’t think I have watched a network TV show live, other than football games in over a decade. Perhaps that makes me unusual, but my life no longer includes network TV shows, commercials or watching TV at a fixed time. They lost me many years ago. I know that the industry keeps their eyes on cord cutters like me, but we are still a small enough segment of the market and they are not yet truly worried about us.

But the big mistake they are making is with the kids. The majority of kids do not like and will not tolerate the linear nature of broadcast TV. I’ve written many times how kids prefer YouTube, Vine and numerous other sources of entertainment and that they are largely walking away from traditional programming. The various industry surveys may show that kids still watch traditional TV, but only a few of the more detailed surveys show the truth, which is that even while they might be watching the big box TV, they are also watching something else on their ‘second screen’.

TV executives are looking at the Aereo decision as an indicator that they are free to keep on doing business as usual. And that is a huge mistake that is going to bite them hard one of these days. Instead of suing Aereo they should have purchased them a few years back and then embraced this as the way to get to the younger demographic.

Aereo didn’t just bring network TV to the second screens. It also came with a built-in DVR letting people with other screens watch what they want where they want and when they want. Aereo was the industry’s best chance at staying relevant with the kids under 16. True, Aereo wasn’t paying retransmission fees, but it was doing the networks a favor by bringing their content to people who obviously don’t want to watch TV on the big box. I guess the TV executives assume that these people will now flood back to their TVs, but I am going to guess that most of them are going to be more like me and they will decide that if they can’t have Aereo they will just forego network TV. There are enough alternatives to keep us second screen people happy whether we are old cord cutters or teenagers.

I really find it hard to believe that the industry and Aereo couldn’t have worked out a compromise solution. It certainly would have been relatively inexpensive for the networks to buy Aereo, and if that wasn’t possible then they certainly could have worked out some kind of reduced retransmission fees that could have kept the company functioning. Instead, the networks gleefully poked a lot of cord cutters and second screen viewers in the eye and I really don’t think most of them are coming back.

I don’t think that the networks understand how easy it is for them to lose a whole generation of TV viewers. Kids have already decided for the most part that they don’t like the constraints of traditional TV and it would be very easy for this whole generation to just walk away from the networks. To some degree they already have. The average age of network viewers keeps climbing. Surveys show that the networks barely register with this generation in their list of favorite sources of programming.

It’s too late to keep Aereo going, but it’s not too late for the TV networks to find some way to remain relevant. But I don’t see them doing anything that is going to enamor them to the younger generation and I think the clock is ticking on a whole generation of viewers. At some point the advertisers that support TV are going to realize that they aren’t getting to the right demographic, and that could bring about the demise of the networks in a big hurry.

Chipping Away at the Cable Industry

Digital-tv-antenna-620x400It seems that every day I read a story about some big company who is working very hard to break the cable monopoly and to bring alternate programming packages to the market. Aereo is at the Supreme Court this week for trying just that – for bringing a small package of network channels to cell phones and tablets in major metropolitan areas.

Yesterday I read that Dish Networks expects to have a new service out by late this summer that is going to further chip away at the cable industry. They plan to offer a smaller package of programs over the web that are aimed at Millennials that will let them watch TV on smartphones and tablets for $20 – $30 per month. But I think a package like that is going to be appealing to a lot of households and is going to lead to a lot more cord cutters.

Dish has already signed up Disney, which brings them Disney, ESPN and ABC. They have reportedly been in negotiations with A&E, Turner, Comcast (which includes NBC) and CBS. The largest content providers have reportedly placed some contractual conditions on Dish getting such a package. They must include at least two of the major networks of ABC, CBS, FOX and NBC. They also must include at least ten of the highest-rated other networks in the package.

This concept is not new for Dish and they already sell packages on the web in fifteen different languages that they market under the name of DishWorld. This includes packages at $14.95 per month in Arabic, Hindi, Cantonese, Urdu, Filipino, Punjabi and many other languages and is a great way for emigrants to see programming from their home countries.

In another announcement that came out today, HBO, a division of Time Warner agreed to sell its library of original content to AmazonPrime. This is the first time that HBO or any cable network has made such a deal. This content has been made available on the web to people who subscribe to HBO at a major cable company like Comcast or Verizon. But the content has never been available to people who did not subscribe to HBO.

No one of these deals is going to break the cable industry. However, these two particular deals will chip away at the subscribers who buy traditional cable packages. These are deals that will let people get content on the web in a way they could not get it before. I think it is these sorts of deals that will chip away at the cable industry, and the industry won’t die in a big bang but will die from a thousand cuts.

Dish will lure away a pile of cord-cutters with this package. Verizon Wireless will lure away another pile. Google, or somebody non-traditional will get the rights to the NFL Sunday package and will lure away a pile. Somebody will make a deal with ESPN and the other key sports networks and take a pretty big pile. The Dish deal is the first major OTT deal but it will not be the last. As the programmers find a way to monetize their content over the web we are going to see more and more people dropping the giant packages. Virtually nobody is happy about paying for content they never watch.

Interestingly, not everybody sees the world in this same way. Here is one guy who sees a rebound for the traditional cable providers. He sees an increase in both customers and penetrations through 2019 for the cable industry. Nothing is impossible and we don’t have to wait long to see if he is right, but just about everybody else predicts that the large cable companies are going to keep losing customers and that the rate of loss will accelerate. Every little side deal made with Dish Networks or Verizon Wireless or Google is going to drag another pile of customers away from the big dollar, big-channel packages.

And at some point, the big line-up model starts breaking when programmers start getting less revenues for the less popular channels that are not being included in the new Internet-only alternatives. ESPN and Disney and the other popular networks are going to do just fine since they will probably be viewed by more people than ever. But the other 80% of networks have to be very worried about the trend towards OTT.

Aereo to Get their Day in Court

Digital-tv-antenna-620x400The various Aereo cases have finally worked their way up to the Supreme Court who will hear the case on April 22. There have been a number of District Court findings on Aereo, some for and some against them, prompting the Supreme Court to arbitrate the differences.

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.

Who Will Be the Cable Killer?

Cable OutletIt’s a given these days that people are dropping cable subscriptions in favor of other sources of content. For now the exodus from cable is a trickle, but as we have seen with other industries, things can change into a flood quickly if there is a widely-acceptable alternative to an older technology.

This leads me to speculate about what company might be the one to break the cable monopoly. My crystal ball is no better than anybody else’s and this is just speculation. But it is not purely a mental exercise, because the odds are that somebody is going to be the cable killer.

One can first look at the characteristics that any cable killer must have. Number one is that they are going to need to have access to large number of potential customers. Today there are only a handful of companies that can make such a claim, although we have seen that when something new comes along that a new industry entrant can attract millions of customers in a very short period of time. The cable industry has a handful of large providers including Comcast with 23 million, Time Warner with 12 million, Direct TV with 20 million and Dish Networks with 14 million. And Charter would join this group if they are able to buy Time Warner.

So who can compete with those kinds of numbers? I can think of several that already have more customers than Comcast. Netflix is one, with over 33 million subscribers. It is not much of a stretch to see NetFlix as a cable killer if they can get enough additional programming to lure people permanently away from cable.

Interestingly, the company that has quietly built a huge pile of potential customers is Apple. They have sold over 20 million Apple TVs. And worldwide they have sold over 170 million iPads, many of them in the US. It’s been rumored for years that Apple was on the verge of announcing a programming blockbuster, and perhaps they have just been waiting to get enough Apple hardware platforms into the marketplace before trying to lure the programmers. This company destroyed the music industry in just a few years and perhaps they can do it again with cable.

And we can’t forget Google. Google has been rumored to be thinking about bidding on the NFL Sunday Package when it comes up for renewal. One thing that Google has that nobody else has is the ability to throw billions at launching a new effort in a hurry. Sports programming is one thing that could lure people off of traditional cable and it is not too hard to imagine Google outbidding everybody else for the NFL and a few other sports networks and then also swinging a deal with ESPN.

There is also the upstart Aereo. Assuming the courts don’t stop them, they will be in every medium and large tier market within a few years and building up a big customer base that is already spending money for alternate programming. While they are only streaming a limited line-up today, they already have the technology in place to support a huge line-up through the air.

It seems to me like it is going to be very hard for programmers to keep ignoring some of these companies. Now that traditional cable is losing customers every quarter it is going to become easier and easier for programmers to do the math and to see that they could get revenues from both the traditional cable operators and the new upstarts. There is no love lost between the programmers and the cable companies and the programmers will make new deals when the math looks right.

If I had to pick a winner from that pile of candidates it would be either Google or Apple. Google is capable of buying the sports market and luring away the many sports fans. Apple could begin offering alternate programming in a hurry through its huge embedded hardware base. And perhaps, the real answer is – all of the above. Once a few programmers decide to break the traditional monopoly they are likely to make a deal with anybody who will give them money for their content. If that happens, the traditional cable companies are toast in terms of keeping any cable monopoly. But they will always be relevant as the largest ISPs in the country.

It’s All Up to the Courts

Seal of the United States Court of Appeals for...

Seal of the United States Court of Appeals for the Second Circuit. (Photo credit: Wikipedia)

As often happens with many controversial topics in our society, the fates of Aereo and its clone FilmOn X are now in the courts. These companies supply antenna receivers to customers and let them receive live, local, over-the-air television from the local network affiliates of ABC, CBS, FOX and NBC on internet connected devices including TVs, tablets and smartphones. These companies are claiming that since the signal goes directly on a single antenna to only one customer that they don’t have any obligation to pay retransmission fees to the network affiliates for the programming.

Of course the large networks disagree vehemently with that interpretation and have sued the two companies. In April, Aereo won a suit in New York, which was then upheld later in July in the Second Circuit Court. The judge who ruled in the Aereo suit concentrated on the way that Aereo transmits the signal rather than rule on the issue of copyright infringement that was brought by the networks.

The networks also sued FilmOn X using the same arguments that they had used against Aereo. FilmOn X is an odd company in some ways because in the past it went by the names of Aereokiller and BarryDriller.com, both names that are a dig at Barry Diller, the founder of Aereo. In fact, there are conspiracy theories flying around the Internet that FilmOn X was secretly founded by the networks for the purposes of being sued and losing on the Aereo issue.

A week ago the District Court of Washington DC ruled against FilmOn X saying that the company had violated the copyrights of the networks. A week later the same court refused to accept an appeal on the issue. The suit puts an injunction on FilmOn X from operating.

So now there are two district courts with differing opinions on the same topic. The two courts heard essentially the same arguments and came to different conclusions. Generally the only way to resolve this kind of dichotomy is for the Supreme Court to hear the case and to resolve the issue.

But until then both companies are in legal limbo. Aereo came out this week and publicly advised FilmOn X to ignore the injunction. Aereo also made an effort to distinguish that its technology is different than that of FilmOn X, but the differences are subtle. Aereo continues to expand to new markets and continues to face additional lawsuits in each new market it enters.

As somebody on the sideline I really don’t know how I hope this case resolves. Part of me says that this suit is a result of the greed of the networks which are now pushing to get as much as $2 per month per subscriber in retransmission fees for each local channel. Everybody in the industry understands that we are starting to price cable TV service out of the range of a lot of households, and yet the networks and every other programmer keep pushing for higher and higher fees. As a whole the industry is laying the foundation of its own decline, and if the fees weren’t this high, then Aereo wouldn’t have a business plan.

But the other side of me says that the networks are right, at least under the current cable rules at the FCC. Of course, those rules were made in a very different time a few decades ago when nobody contemplated the ability for somebody to bypass the cable companies as Aereo has done. Certainly the FCC ought to take another look at cable regulations and update them to account for the realities of TV over the Internet.

But from what I understand, nothing is likely to happen since Washington is in gridlock. The FCC is not free to change the rules too much without authority from Congress, and there does not seem to be any impetus for Congress to look at the cable rules. So, like often happens when policy makers don’t make policy, it’s all up to the courts.

What is Behind the Aereo Controversy?

Image representing iPad as depicted in CrunchBase

The Aereo ruling on April 1 certainly has the cable industry in an uproar. In that ruling a federal appeals court upheld a lower court ruling that Aereo’s wireless streams to customers are not a ‘public performance’ and thus do not constitute copyright infringement. On Friday Glenn Britt, the CEO of Time Warner, said that his company was considering pulling the broadcast networks off of his cable TV systems and sending them to customers over a radio in the same way that is being done by Aereo. And recently, in response to the Aereo ruling the broadcast networks threatened to pull all of their content off the air and move their programming to cable TV. So what is up with Aereo, and can these companies do what they have threatened?

Aereo has an interesting product that seems to have found a market niche, at least in New York City where it is now operating. Aereo sets up a radio link to each customer and sends them a 28 channel packagethat includes the major networks, some other low-cost networks and some spanish and asian-language channels. Aereo can be installed on any Windows or Mac computer and can then be streamed to iOS devices like the iPhone, iPad or Apple TV. It can also be made to work with a Roku box. And one would imagine it will soon be made to work with other pads and tablets. The service also lets a consumer record some programming for later playback. The pricing is cheap compared to cable TV with a $1 per day plan, monthly or annual plans, including a monthly plan for $8 that lets a customer watch everything live plus record and play back 20 hours of programming per month.

Why does this controversy even exist? Can’t people just receive the broadcast networks over the air? On June 12, 2009 all full-power analog television transmissions ended and starting with that date the full-power television stations, which include all of the major networks like ABC, CBS, NBC and Fox could only broadcast in digital. Customer now need a Digital Television Adapter (DTA) to receive the signals and any home that is near to a station can receive it for free. But it is not easy for the average consumer to get these signals from the TV to mobile devices, and Aereo’s real marketing niche is providing signals to computers, iPhones and iPads.

Why are Time Warner and the cable companies so stirred up over Aereo? Aereo seems to have found the niche of people who want to watch mainstream programming without being tethered to their TV. If Aereo was limited to New York City this probably wouldn’t be a huge deal, but they have announced that the service is coming to 22 other major markets in 2013.

As is the case with all big business controversies it all comes down to money. In the 1992 Cable Television Consumer Protection and Competition Act, Congress required that all cable operators obtain the permission from broadcasters before carrying their signals on their cable systems. For a while this permission was granted for free, but in recent years the broadcasters have asked for significant fees and it is not unusual to see each local broadcast network charging $1 or more per customer per month for retransmission consent. So a cable system now has to pay that much each for ABC, CBS, NBC and Fox, and in some markets multiple stations of some of these. This has driven large increases in cable rates and is now a point of huge contention between broadcasters and the cable companies.

The broadcasters are angry that Aereo is able to bypass their fees since retransmission fees currently make up as much as 10% of their revenue. And the cable companies are angry that Aereo has gotten out of paying the same fees that they must pay. And they are worried that Aereo will accelerate the trend of customers who are ditching traditional cable TV in favor of programming from the web and elsewhere, the trend referred to as the cord-cutters.

Can Time Warner really do the same thing that Aereo is doing? Certainly Time Warner or anybody could form a company that does the same thing as Aereo and compete with them. Such a company could sell the same sort of line-up and do it using radios like Aereo has done. But they first must recognize that it’s important that Aereo is using radios because this is what allows them to not be a cable TV company, which is defined as somebody who delivers cable content using cables. So Time Warner would have to use radios also. And Time Warner is still hoping that the Supreme Court will look at the issue so it’s not entirely certain that Aereo, or anybody, has the legal last word that this is okay.

So Time Warner could establish an Aereo-clone company and do exactly what Aereo is doing. But they could not do this as an alternative to putting the network channels onto their cable system. In the aforementioned 1992 Cable Act, Congress set forth the rules for cable systems to carry broadcast channels, referred to as the must-carry rules. Congress said that a cable system with 12 or fewer channels must carry at least three local broadcast channels. Larger cable systems must carry all local broadcast channels, up to a maximum of 1/3 of their system. This means that Time Warner could not pull the local broadcast networks off of their cable and deliver it in a different way. But Time Warner could probably sell an Aereo-like product to somebody if that is the only product they sell to that customer.

Finally, can the broadcast networks pull their signals off the air and move them to be cable only? I can’t think of any reason why not. At that point they would no longer be a broadcaster and they would avoid all of the FCC rules applicable to over-the-air broadcasters. But if they do this they would become like any other cable network, and so ABC would be treated the same as HBO or TBS or any other cable network. It is likely that such a change would infuriate Congress since around 15% of the people in cities still receive free TV over the air. There would certainly be political repercussions from a broadcast network deciding to become just another cable network. For instance, might they lose their ability to carry professional football?

At the bottom of this controversy are huge dollars and also the underlying fear of the cable industry that Aereo is one more factor that is accelerating the bypass of their systems. It seems like Aereo might be in a similar position to MCI back when they broke the long distance monopoly. Aereo has stuck a sharp stick in the eyes of both the cable companies and the broadcasters and there is one hell of an interesting fight yet to come.