The Industry

Another Alternative for Local TV

One of the factors that is jacking up the price of cable TV is the retransmission fees paid to local networks. Cable companies pay hefty fees to local ABC, CBS, FOX, and NBC affiliates in order to carry the stations on a cable system. A decade ago this right was mostly granted for free, but cable companies now typically pay $12 to $15 per month per customer to carry the local network stations.

Locast has found an interesting way to put local networks on the Internet without paying the local retransmission fees. They have launched their service in New York, Philadelphia, Boston, Washington DC, Baltimore, Chicago, Houston, Dallas, Sioux Falls, Denver, Rapid City, Los Angeles, and San Francisco.

Locast is taking advantage of a loophole in the law that allows ‘broadcast translators’ to receive and transmit a local broadcast TV signal without a copyright license. In the US, a broadcast translator was traditionally a relay station that would receive TV signals from an antenna and then retransmit the signal to an area that couldn’t receive the signal. There are always places in and around cities that are in radio ‘holes’ that can’t get a signal, similar to dead areas for cellular coverage. Further, it’s common for folks living in areas with a lot of high rises to not be able to receive local TV through the air without access to rooftop antennas.

A law passed by Congress in 1976, 17 U.S.C. 111(a)(5), allows for a non-profit organization to make a secondary transmission of a local broadcast signal as long as the non-profit doesn’t receive any ‘direct or indirect commercial advantage’ from the process. Non-profits are allowed to charge a fee that allows them to recover actual and reasonable costs, but no more.

Locast is a non-profit that is operated by the Sports Fans Coalition NY, another non-profit that has been fighting to make sure that New York City residents can see local sports over the air. For example, the organization has fought to modify the blackout rules enforced by many major league sports.

In New York City the organization puts 14 local stations on the Internet that includes the major networks. Customers of the service receive the channels along with a traditional channel line-up for the local channels. Locast claims the service is of huge benefit in the city since there are many households who cannot receive signals over-the-air with access to roof-top antennas.

Locast also paints itself as being of benefit to local stations. They geofence each city and only make the internet feeds available to those that can verify they live in the specific metropolitan area. Locast says that they are reaching cord cutters and are providing benefit to local stations because they provide feedback of what people are watching. This gives stations verifiable ‘eyeballs’ that can be counted when selling advertising. Stations are otherwise not seeing any financial benefit from cord cutters.

Locast solicits donations – with the base suggested amount of $5 per month. Viewers are not required to donate, but reviews say that those that don’t donate are interrupted regularly asking for a donation.

It’s an interesting model. A few years ago, Aereo tried to do something similar and was selling low-cost access to local stations through a technology that beamed the signal directly to each viewer. The broadcasters hounded Aereo in court until they finally forced them out of business.

The interesting difference here is the non-profit loophole. It’s a little surprising that Locast hasn’t yet been sued, having started this business in early 2018. They admit on their website that they expect at some point to get sued. But perhaps they won’t get sued if the local stations see the benefit – Locast claims that some stations in Philadelphia are actively working with them since they bring verifiable customers and tracking of views.

The Industry

Another Alternative to Cable TV

In just the last few years we’ve seen a plethora of alternatives to cable TV. It was only a few years ago in 2014 when the Supreme Court rules against Aereo for offering a product that allowed people to bypass the cable company to watch local channels anywhere within a market. In retrospect is looks like Aereo’s biggest sin was being too early to market, because today Sling TV is offering a product that feels the same to customers.

Sling TV’s product is AirTV. The company provides several options, all which include a settop box that includes an antenna to receive local over-the-air networks. AirTV then integrates the local channels into the Sling TV OTT offering for a seamless mix of local and on-line channels. The box let’s a user watch the local channels on any device within range of the customer’s WiFi network. The box also will upload your local channels to the cloud to watch anywhere else while you are traveling.

The differences between AirTV and Aereo are subtle. Both companies avoided paying retransmission fees for the local networks. Both companies used antennas to receive off-air channels like ABC, CBS, FOX, NBC and PBS. AirTV places the antenna in the home while Aereo had an individual antenna for each customer at the central office and then beamed the shows to an Aereo box in the home. A non-technical customer would probably be hard pressed to describe the difference between the services, because from the end-user perspective the products offer the same end result.

The Supreme Court’s ruling again Aereo was also subtle. They ruled that Aereo had infringed on network copyrighted material by beaming the signal from an Aereo customer antenna located at a hub and the customer site. Now only four years later these same content owners seem to have no issues with AirTV beaming local content over the Internet to reach a customer who is traveling.

The big obvious difference between 2014 and now is the proliferation of numerous other OTT offerings that are using subsets of the traditional cable offerings to compete with cable companies. Some of the biggest ISPs like Comcast and Verizon even have their own OTT offering to compete against their own cable products.

It seems like the genie is out of the bag now and anything goes in the programming world. We recently saw Charter introduce a package that feels like a la carte programming where customers only get the channels they want. We see millions of customers opting for smaller packages by cutting the cord or migrating to smaller packages.

If you go back and read the big cable company complaints against Aereo you could make many of the same arguments against AirTV – and yet they are not being pushed out of business, as happened to Aereo. The cable companies can’t stop anybody from selling rabbit ears, but one would think they would have a valid complaint against a company that bundles the rabbit ears with other programming without paying retransmission fees.

One reason that AirTV might not be getting push-back is because they are owned by Dish Networks. A lot of the alternative programming today is being offered by the biggest players in the industry, and perhaps Aereo was singled out because they were a brash outsider. Clients ask me all of the time about creating their own small packages and I regret having to tell them that the programmers won’t even talk to small companies about the possibility.

Smaller cable operators don’t have the same options as Comcast, Charter, Dish Networks or AT&T. Small cable providers must still follow FCC rules that require traditional cable TV packages and lineups. Any small cable provider that wants to buck these rules probably ends up on the wrong side of a lawsuit or else is threated by the programmers with losing their programming contracts. Small cable operators, who are already losing money on cable TV are not willing to risk a legal battle with one of the big programmers.

I love seeing companies like AirTV blazing new ground because I hope that what they are doing will eventually filter down to the rest of the market. Sling TV has made it clear that they don’t expect to make money on AirTV and their real goal is to create stickiness for the Sling TV product. I know a lot of small cable operators who would be thrilled to reach breakeven with a cable product, and I’m hopeful that in the next few years they might have the option to resale a bundle like Sling TV and AirTV rather than continuing to lose money with traditional cable.

The Industry

Starry Back in the News

You might remember Starry as the ISP that announced it was going to offer wireless broadband in Boston at the beginning of 2016. At the time the company began advertising and selling window receivers. But then the company went silent and just recently reemerged with an announcement that it’s ready to finally go into business.

Starry is founded by Chet Kanojia, the founder of Aereo. That company tried to wirelessly transmit local TV signals to subscribers but got shut down through a series of court challenges. But Kanojia is back now and ready to tackle the major ISPs with a competitive broadband product.

The company claims that it is going to be able to beam a 200 Mbps broadband connection for up to two miles from a transmitter (although the signal at the end of that distance probably won’t be that strong). Starry has opted to use the 802.11ac standard and is transmitting using the licensed 37 – 38.6 GHz frequency. The company has plans to upgrade soon to the new 802.11ax standard.

This frequency is licensed from the FCC in two ways. First, there is going to be one nationwide license for the 37 – 37.6 GHz bands that will be coordinated to share under the nationwide frequency holder, and that is likely to be used for mobile broadband. The rest of the frequency will be licensed to up to five license holders for each PEA (Partial Economic Area). These are geographic footprints of relatively the same size and there are 416 covering the whole country.

This same frequency is now also available for mobile broadband and it’s expected that 5G providers will grab a lot of the licenses in metropolitan areas where there is enough density to justify a 5G mobile data application.

The Starry deployment will need to deploy multiple transmitters in a given geographic area if they want to reach most of the customers. For instance, a transmitter than can only see the east side of a building won’t be able to serve somebody on the west side. And metropolitan areas also have a lot of wireless shadows where a taller building will hide transmissions to shorter buildings behind it.

The company still plans to deploy this network using receivers placed in a window. That will allow them to avoid issues involved with getting landlord permission or of serving a building with one transmitter and then somehow wiring to get to customers (the Webpass business model).

The company’s website is promoting a 200 Mbps connection for $50 per month, with no monthly usage cap and with no gimmicks or additional fees. This will include the customer receivers. The company says its receiver costs $150 and the customer CPE costs $200 – $220, with needed equipment included in the customer monthly price.

Starry is already operating in its test-bed market of Boston and announced new beta test deployments in Los Angeles and Washington DC. It says it plans to expand offerings by the end of the year to Atlanta, Chicago, Cleveland, Dallas, Denver, Detroit, Houston, Indianapolis, Miami, Minneapolis, New York City, Philadelphia, San Francisco and Seattle. I’ve seen a few analysts wondering where the company will get the money needed for a widespread deployment.

The technology is best suited to densely populated areas in order to maximize the number of potential customers that can be reached by the relatively short 2-mile radius from a given transmitter.

This technology won’t be easy for others to copy. At least for a while its unlikely that smaller ISPs are going to easily be able to obtain the licensed spectrum that Starry is using. Starry has also developed its own proprietary electronics, much like Kanojia did for Aereo. Maybe more importantly, the other big wireless companies are pursuing the 5G standard rather than the WiFi standard, meaning that Starry might be one of the few companies pursuing this using WiFi. Without frequency and equipment it’s going to be hard for others to copy this.

A competitive wireless product at $50 per month is going to bring real competition to urban ISPs. We’ve just recently seen Comcast raise the rates for standalone broadband to $75 and we’ll have to see how companies like Starry and new 5G competitors affect the big ISPs and their pricing. The one big drawback for Starry and other 5G providers might be the lack of a cable offering and the rest of the traditional bundle. While it’s easy to think that cable is a dying product, 75% of the homes in the country still have a traditional cable subscription. These wireless products are aimed at cord cutters and we’ll just have to see how much of the market is ready to make that leap to standalone broadband at a lower price. I know I’d try it!

Current News Regulation - What is it Good For?

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.

The Industry

Court Jumps into OTT Fray

In 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.

Current News

Musings on the Aereo Shutdown

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.

Current News The Industry

Chipping Away at the Cable Industry

It 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.

Current News

Aereo to Get their Day in Court

The 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.

The Industry

Who Will Be the Cable Killer?

It’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.

Current News Regulation - What is it Good For?

It’s All Up to the Courts

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, 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.

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