In a 6-3 ruling Wednesday, the Supreme Court stated that Aereo's antenna-to-DVR-to-consumer service violates broadcasters' copyrights, a loss that could spell the end of the road for the SVOD provider.
The Court determined that Aereo's technology was similar to that used by cable companies to retransmit broadcaster signals, citing the 1976 Copyright Act amendment in issuing its opinion.
"This history makes clear that Aereo is not simply an equipment provider. Rather, Aereo, and not just its subscribers, "perform[s]" (or "transmit[s]"). Aereo's activities are substantially similar to those of the CATV companies that Congress amended the Act to reach," the Court wrote in its opinion on "American Broadcasting Cos., Inc., et al, vs. Aereo Inc., FKA Bamboom Labs Inc."
Justice Antonin Scalia dissented, writing that the majority's opinion was "built on the shakiest of foundations" and that the Court cannot promise that the ruling will not affect cloud storage providers and cable TV systems.
Chet Kanojia, CEO and founder of Aereo, was understandably disappointed, calling the decision a "massive setback for the American consumer." He felt that the Supreme Court states that the technology used to receive and send a signal doesn't matter.
"It is troubling that the Court states in its decision that, 'to the extent commercial actors or other interested entities may be concerned with the relationship between the development and use of such technologies and the Copyright Act, they are of course free to seek action from Congress.' (Majority, page 17) That begs the question: Are we moving towards a permission-based system for technology innovation?" he said.
Analysts' take on the decision was as expected, as most had felt that the broadcasters had an edge over Aereo.
"I think it's a much bigger positive for the smaller broadcasters… as well as (larger broadcasters) and their ability to drive retrans (fees)," said David Bank of RBC Capital Markets, in a CNBC interview immediately after the decision was issued. "For Aereo itself, the reality is (regarding) VC, not a massive amount has gone into Aereo. It has to be very painful for Diller and Chet Kanojia. … It's just that the (decision) didn't turn out like they hoped it would."
Barry Diller is a lead backer for Aereo.
"I think the court got it right," David Wittenstein, a partner in Cooley LLP's Technology Transactions group, told FierceOnlineVideo. "Aereo was trying to set up a commercial video distribution business without any of the obligations of other (similar) video distribution businesses. The court said it was a public performance and therefore an infringement."
What this means for Aereo is that it likely must shut down its business, Wittenstein said.
"Unless it radically changes its business model, I don't think it has any way to recast itself as a viable business."
But not everyone is counting them out.
"The interesting thing is I believe Aereo is somehow going to say, we've got this service, we're going to offer this service, but you're going to have to house your antenna … separate from (Aereo)," said David Fannon, EVP of Popcornflix, in an interview with FierceOnlineVideo last week. He suggested that Aereo could offer the antenna or DVR as separate items or services and in a way that is in line with the 2008 Cablevision decision, "…and then things will be OK."
"The people running Aereo are not dumb. This to me seems like a simple solution to this problem. But they didn't. They must have a reason why they didn't (choose this solution)," he added.
Wittenstein was skeptical that Aereo can or will pivot its business model to other options, like getting direct permission from broadcast or non-broadcast entities to stream their content.
"I don't think it's a practical option for Aereo. What Aereo wants to carry is broadcast programming. … I don't think there's a clear licensing path today to do that," he said.
"Aereo was a gambit to be disruptive. There was a potential upside if they won, that they didn't manage to realize," Wittenstein added.
Cablevision (NYSE: CVC), which inadvertently had a dog in this fight with Aereo referring to its landmark 2008 case, expressed a measure of relief that the Court concentrated on the issue of copyright.
"We are gratified that the Court's decision adopted a sensible middle ground, holding that unlicensed retransmission services like Aereo violate the copyright law, while protecting consumer-friendly, cloud-based technologies, such as RS-DVR," the cable provider said in a statement to media. "The real winner today is the consumer who will continue to benefit from future innovation."
We'll continue updating this story with any additional information.
For more:
- see the Supreme Court opinion (.pdf)
- Reuters has this story
- see Aereo's statement
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Win or lose, Aereo's impact could change OTT market
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This article has been updated with additional reaction.