June 12th, 2012

Wall Street Journal

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Amid Aereo Legal Battle, Upstart Rivals Emerge

As broadcasters attempt to shut down TV streaming service Aereo in court, several other start-ups are launching comparable services that risk undermining the lucrative retransmission fees charged by networks.

The new technology suggests that broadcasters face a long fight to preserve the fees they charge distributors to air their content, which can be between 5% and 10% of their total revenue, even if they succeed in barring Aereo.

Broadcasters are unlikely to battle every new streaming venture like Aereo, as such ventures may lack the financial backing to gain traction, broadcast executives and copyright lawyers said.

But they are likely to take action when new technology spurs big distributors to reconsider how much they will pay for retransmission consent, as was the case with Aereo, backed by Barry Diller’s firm IAC/InterActiveCorp. (IACI).

“We don’t rush to sue people because we don’t like their ideas,” said Sherry Brennan, a senior vice president at News Corp.’s (NWS, NWSA) Fox, testifying last week at a court hearing for Aereo. But “there’s little reason to think other distributors who are paying us those fees would continue to do so.” Ms. Brennan is responsible for overseeing distribution deals at Fox.

News Corp. also owns Dow Jones & Co., publisher of Dow Jones Newswires.

The broadcasters–including Fox, Comcast Corp.’s (CMCSA, CMCSK) NBC, Walt Disney Co.’s (DIS) ABC, CBS Corp. (CBS) and a unit of Univision Communications Inc.–are suing Aereo on grounds of copyright infringement and seek an injunction to bar Aereo’s service. A ruling isn’t expected until later this month at the earliest.

Meanwhile, other rival services also threaten the networks’ retransmission fees and advertising revenue. Nielsen’s benchmark ratings for the TV industry still don’t calculate viewing on tablets and mobile devices targeted by new services like Really Simple Software Inc.’s Simple.TV.

“The story right now is Aereo, but Aereo is just the tip of the iceberg,” said Mark Lieberman, chief executive of TRA Inc., a consulting firm for the advertising industry.

Simple.TV doesn’t plan to pay broadcasters to stream shows in near-live show times to iPads and other mobile devices, by way of a device that sits in viewers’ homes.

The service, which launches in August and begins testing in San Francisco this week, captures broadcast signals and transmits shows to viewers’ tablets and mobile devices using an Internet signal. The service faces fewer legal hurdles than Aereo because its home-installed device only picks up the broadcast or basic cable signals a viewer could already access at home, according to its creators.

“We feel like we are in a pretty safe, well-trodden legal area,” said CEO Mark Ely at SimpleTV.

None of the broadcasters would comment on the potential legality of the Simple.TV service or say if they would fight the company in court.

Bryan Sullivan, a Los Angeles copyright attorney, agreed that Simple.TV raised fewer legal questions because it is only a device sold to viewers, as opposed to a broadcast service. “That’s an important distinction from Aereo.”

In Aereo’s case, lawyers are debating whether the use of tiny antennas and data buffering qualifies it as a recording service for individual subscribers or rather, as the networks argue, as a public broadcasting service that requires a special license.

Another startup, Skitter Inc., has already caught broadcasters’ attention in its Portland, Ore., launch market. Local network affiliates have balked at its plans to broadcast content over the Internet, using an application developed for Roku Inc. and Western Digital Corp. (WDC) set-top boxes.

Skitter President Bob Saunders says he plans to expand the service to around 100 markets nationwide by the end of the year. He argues the service is legal because Skitter pays some fees to carry content it broadcasts separately through a local telephone operator and is willing to pay other retransmission fees.

“We have to do what is required by law and get retransmission consent,” said Mr. Saunders. Skitter also has the capability to broadcast live shows to tablets and mobile phones, but only transmits through TV set-top box devices for legal reasons, he said.

Patrick McCreery, the general manager at Meredith Corp.’s (MDP) KPTV Fox 12 and KPDX in the Portland area, said his networks wouldn’t pursue any retransmission agreements with Skitter. The other affiliates didn’t return calls or offer comment.

Other TV streaming companies have already gone to court over attempts to capitalize on legal loopholes governing retransmission fees. Ivi Inc. awaits a ruling from the 2nd Circuit Court of Appeals to continue operating, following a court injunction two years ago.

“I don’t know if any of them will pass legal muster,” said Bernstein Research analyst Todd Juenger. But “distribution companies are thinking very strongly about an option where they no longer carry broadcast TV.”

Source: William Launder, Wall Street Journal