NEW YORK (TheStreet) –– After a long legal battle culminating in a bruising defeat before the Supreme Court, Aereo's attempt at a comeback may constitute a classic longshot, but is legally sound, say legal observers.
On June 25, the U.S. Supreme Court ruled that Aereo, a video-streaming company backed by Barry Diller, violated U.S. copyright law by selling broadcasters' programming through an online subscription service. While that programming is broadcast free over the air, the country's largest broadcasters, including CBS (CBS - Get Report), Disney's (DIS - Get Report) ABC, Comcast's (CMCSA) NBC, and 21st Century Fox (FOXA), argued that Aereo should be required to pay broadcasters licensing fees. The Court agreed, ruling 6-3 that Aereo was "substantially similar" to a cable TV system and therefore should have to pay the broadcasters to carry their signal.
Today's news that Time Warner Cable (TWC) rejected an $80 billion offer reinforces the high stakes on both sides: with programming increasingly expensive to produce, the media industry has tended toward consolidation to cut costs, while consumers search for a cheaper alternative to expensive cable and Internet packages.
Three days after the decision was announced, Aereo shut down its operations, describing it as a temporary condition. In a letter to subscribers. Aereo CEO Chet Kanojia wrote that the three-year-old company was pausing to "consult with the court and map out our next steps." Ever defiant, Kanojia took another swing at the highly concentrated monolith that is Big Media."The spectrum that the broadcasters use to transmit over the air programming belongs to the American public and we believe you should have the right to access that live programming whether your antenna sits on the roof of your home, on top of your television or in the cloud," wrote Kanojia, an engineer turned entrepreneur. Despite the SCOTUS decision, Aereo subsequently announced that it was fighting back by, paradoxically, embracing the court's decision. If Aereo is indeed a cable company, as the Supreme Court implied it was, then under the 1976 Copyright Act, the company argued that it should qualify for a "compulsory license," the limited royalties paid in exchange for the right to broadcast content.
Aereo, which had avoided being classified as a cable system in order to avoid paying re-transmission fees, is now arguing that it is just that. According to legal experts, Aereo's strategy may just work, said Henry D. Levine of Levine Blaszak Block & Boothby who argued that the broadcasters' arguments are just as circuitous as Aereo's.
"What's funny about this case is not watching what Aereo does, but watching what the major networks do," he said in an interview. "Speaking as a lawyer, it's fascinating to watch, particularly watching the broadcasting companies twisting, claiming 'You are X,' and after the Supreme Court says 'OK, you're X,' they say 'Wait, you're not X!'"
Of course, if Aereo is successful and qualifies for a compulsory license to distribute programming online, then over-the-top Internet television services like those from Sony (SNE), Apple (AAPL), and Roku could follow suit. Aereo's attorneys wrote as much in a letter to a lower court judge.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts