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Broadcasters Fear the Music in Aereo Fight

Stocks in this article: DIS TWX AAPL NWSA CBS IAC CMCSA

NEW YORK ( TheStreet) -- Walt Disney (DIS) Chief Executive Robert Iger and CBS (CBS) Chief Executive Leslie Moonves have been getting red in the face lately about Aereo, the audacious startup that's trying to make a business out of re-transmitting broadcasters' free over-the-air signal to its online subscribers.

Iger and Moonves have already unleashed their lawyers to no avail to try to put a stop to Aereo. But if recent history is a suitable guide, Big Media ought to make sure to avoid the same mistakes the music industry made 12 years ago when it went after Napster.

Also see: Fox, Disney Talk Entertainment, Rely on Sports

Rather than the pay-TV bundle, it was the CD. Consumers were turning to new technologies to avoid paying for products they didn't want. Napster and other file-sharing platforms were daring to use the Internet to exchange recorded music. Its instant popularity was borne of consumer frustration with having to pay $15 or more for a CD when all they wanted was one or two tracks.

Aereo, which is backed by Barry Diller's IAC/InterActive (IAC), has already won two court decisions to defend its business of retransmitting over-the-air broadcast television for its Internet-based pay-subscription business.

Also see: TV Merger Deals to Hit $6 Billion

Like Napster, it's using new technologies to give consumers what they've been looking for: an alternative to the $50-plus pay-TV bundle. The $8 to $12 per month service began this year in New York and recently expanded to Boston and Atlanta as part of a 22-city expansion to be completed in the fall.

Aereo customers are paying a fraction of their pay-TV bill to access the most popular channels on the dial: Comcast's (CMCSA) NBC, Disney's ABC, CBS and News Corp.'s Fox Network, along with other channels including The CW Network, owned by CBS and Time Warner Corp. (TWX).

Also see: News Corp. Beats Estimates, Shares Rise After Close

Benjamin Lennett, a policy analyst at the New America Foundation in Washington, reminds the big media companies that consumers are willing to pay for content provided it's the content they really want.

"Ideally, media companies would learn from the music industry that when you make content more easily accessible and available through different avenues, people will try to access it in the legally accessible way," Lennett said in a phone interview. "The content industry needs to recognize that it's about volume now, not about exclusivity."

Aereo is still very much in its early phase, and Iger and Moonves surely realize that the vast majority of American consumers haven't heard of Aereo, and of those who have, most haven't signed-up for their service. Nonetheless, consumer choice is ever the rage, and politicians are listening.

Sen. John McCain (R-Ariz) introduced legislation earlier this month that would force pay-TV providers to allow customers to pay for channels a la carte, rather than in a bundle. His Television Consumer Freedom Act of 2013 would also revoke the license of any broadcaster that moved solely to pay-TV, a potential boost for Aereo. Moonves has hinted that he may limit CBS's better shows to pay-TV if Aereo becomes a serious option.

Michael McGuire, a media analyst at Gartner, cautions the media companies about turning to the courts or the Federal Communications Commission for decisions that could forever shape the industry. Doing so may invite troubles out of their control.

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