Aereo Wins Again…But Victory Won’t Last Long

Aereo has won yet another decision. This time, it was a court denying a motion to re-hear a case that originally ruled it was okay for Aereo to go about their business of re-transmitting broadcasters content via the internet to people who pay for them to do so.

Naturally, the broadcasters hate this. And even as the forward-thinking, pro-digital, SOPA-hating hippy that I consider myself to be, I can’t believe that Aereo can get away with what it is doing.

Does it make any sense to you that Aereo could be allowed to not only freely-transmit content that they don’t have permission to transmit, but then they have the audacity to turn around and charge their customers for transmitting it?

Aereo, and subsequently the courts, say this is allowed because the company is providing customers with a way to access something that is already free, and they are doing so through the “same” distribution method in which the content can be garnered freely.

But that ruling essentially would legalize NYC’s famed DVD bootlegging business. By the logic of the courts, if I am a DVD bootlegger, and I record a movie playing on broadcast television, put it on a DVD and sell it, that should be legal. I’m sure the judge who came to this decision would find some hole in the scenario I have just created. However, if you leave the semantics out of it, that is essentially what the courts are saying by allowing Aereo to distribute broadcast content merely because they are attaining the content through a free means of distribution.

The funny thing about all of this is that cable companies are paying broadcast companies for the same content that Aereo is getting for free. So if you are a cable company, and this Aereo thing becomes something that is ultimately deemed legal, then at what point do the cable companies say, “to hell with re-transmission fees,” and just follow Aereo’s lead and subsequently not pay the broadcasters for their content anymore.

Well, being the expert game-theorist that I am (not), the next move in this chain of events would have the broadcasters saying, “to hell with being broadcasters anymore!” Broadcasters could simply move their channels to cable, get off the FCC’s teat, and start making real money by charging some of the highest per subscriber fees the cablers can pay, probably right up there with ESPN, given that the broadcasters own so much of the valuable sports programming.

But wait…there’s more!

Cable companies can’t afford to pay those fees! While broadcasters would certainly lose some of their lure by no longer having the ability to reach anyone and everyone in the U.S., they still would command big dollars. And in doing so, cable companies would lose billions in payouts to these broadcasters, and their margins would inevitably come crashing down to levels that would all but guarantee that their competitive advantage in the media industry is going to be diluted.

What happens at this point? Neither my intelligence, nor my ego, is grand enough to suggest that I can even fathom the most likely outcome. But the pool of likely outcomes includes:

  1. Further consolidation of the cable industry
  2. The elimination of second and third-tier cable channels
  3. The end of bundling crappy channels with good channels
  4. The end of bundling…period
  5. The end of cable companies and the rise of internet-based pay-TV companies
  6. Less premium content if broadcasters (the primary buyers of premium television content) are no longer incentivized to appeal to bigger audiences
  7. Better and more targeted content as broadcasters are more incentivized to reach targeted audiences (i.e., HBO, Showtime, USA)
  8. Cable companies and broadcasters combine to create a service resembling Aereo

I’m sure there are many more ¬†outcomes that I haven’t thought of. But the main takeaway here is that the survival of Aereo is a threat to the cable and broadcasting businesses.

However, I believe that, in the long run, there is no way Aereo can get away with not paying for content that every other (legal) entity is paying for. Which brings me to one last outcome that I didn’t mention. If all major broadcasters decide to become cable channels, that’s the end of Aereo…period. Because one thing has surely been established, and that is that Aereo is not allowed to re-transmit content from cable channels.

So rest assure, as much as Aereo is winning the legal battle now, they are not going to win their battle in the business arena for much longer. Their only positive outcomes are; (1) generating a ton of profit while they can, (2) getting bought by one or all of the broadcasters, or (3) praying to the TV gods that having a content catalog full of local TV station programming is worth $10 a month to subscribers. I bet against it all. Aereo won’t make it. But if it does , I’m entering the DVD bootlegging business.

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