Professor Warren S. Grimes, an antitrust expert now widely quoted in the mass media about economic aspects of the television broadcast industry, sat down at the request of the Biederman Blog with editor Valerie A. Roque for a recent Q.-and-A. discussion of American Broadcasting Company v. Aereo, the pending U..S. Supreme Court case on TV and copyright that has generated considerable buzz and legal attention. Grimes authored a recently published an on-line Forbes editorial “Heel or Hero? Aereo and Television Distribution.”
Q. — What is Aereo?
A. — Aereo is a firm that allows you to stream live-television broadcasts with a few seconds delay through the Internet; you can connect your own television set, computer, or mobile device and watch TV. Aereo charges $8- to $12-per-month. The only channels you can get are those that you can receive with a television antenna or over-the-air broadcasting. You cannot get channels only available on a subscription basis through conventional pay TV (such as ESPN or HBO).
Q. — How does Aereo work?
A. — Aereo sets up hundreds of miniature (dime-sized) antennas, one for each customer, in a tall building that has clear sight lines to the transmitters of the local television stations. The facility antennas receive a clear, unimpeded digital signal. You get better reception than with a home antenna. With the traditional antenna, reception can be impeded by distance or by buildings or other tall obstructions. Aereo can guarantee a clear signal, transmitted to you by Internet streaming.
Q. — Why will the Aereo decision matter?
A. — From the point-of-view of the broadcasters, they fear loss of subscription revenues from pay TV. If the broadcasters could have their way, they would presumably eliminate all free, over-the-air television. That way they could charge subscription fees on top of advertising revenues and make more money. But if we in this country still believe in free over-the-air television, Aereo is a way of providing that service, less expensively and better. From the point-of-view of communications policy, it is important to make television more accessible to people less well off, and also, to provide clear reception. So Aereo’s entry serves the values underlying free, over-the-air television. The only weakness in the argument that [this service] helps lower-income people watch television more inexpensively is that many of these individuals cannot afford Internet access. Still, many younger people who cannot or do not wish to pay for monthly pay TV subscriptions already have Internet access. For them, Aereo is a good deal.
The policy arguments in favor of the broadcasters are really pretty thin, but they do have a few points. One is that more and more people are watching television programming on a time-delayed basis and they fast forward through the commercials. For free, over-the air broadcasting, the major source of revenue is advertising. But if people aren’t watching the advertisements … then it is harder for broadcasters to sustain their operations. I presume one of their strongest policy arguments will be that we have to be able to charge retransmission fees – without them, the broadcasters arguably could not support their over-the-air television.
Q. — What are the legal stakes?
A. — The fight is about copyright. It is whether the Aereo service constitutes a public performance requiring a copyright license. The [U. S. Court of Appeals for the] Second Circuit said it was not a public performance. A recent Utah [federal] court decision disagreed and held that it was a public performance. Aereo’s argument, on the copyright issue, is that the Aereo service just duplicates having your own antenna and DVR at home and is not a public performance.
Q. – What’s your interest in this case?
A. — I am assisting on an amicus brief on the side of Aereo. Our approach is to leave the copyright issue – whether or not Aereo’s service constitutes a public performance – to others. Our interest in the issue is that I think it serves First Amendment values, Competition Law values, and even Copyright Law values, to allow Aereo to do this. There are so many people out there [who] cannot afford pay TV, or are revolted by its high cost. If you’re living in place where you don’t have adequate over-the-air digital reception, you have to pay a minimum $35 per month just to get cable to provide you with the basic, local area channels. And Aereo will provide that to you for a fraction of that amount.
Q. — Aereo has said its service does not differ from what happens if consumers have a DVR and a Radio Shack antenna?
A. — Except, in our amicus brief, we will be pointing out that Aereo can provide better service than you can buy with an antenna.
Q. — What do you say about broadcasters, like Fox and CBS, threatening to quit if they lose this case?
A. — If they do, they would be giving up broadcast spectrum that other people would want to use. I just don’t know if they really would do that because they are still getting substantial ad revenue. I have seen figures that over 30 million customers get access to television only through over-the-air broadcasting. So, if the broadcasters discontinue those broadcasts, they are giving up that share of the advertising market. That still has to be worth something.
Q. — Is Aereo part of watershed changes in TV altogether?
A. — What is going on now with television is sort of like what happened 15- to 20-years-ago with sound recordings. The model for selling sound records was CDs, then all of sudden people started downloading music online. The recording industry went crazy and ultimately had to adjust. Their business model was destroyed. People still go to stores to buy CDs, but many stores like Tower Records, don’t exist anymore. I think that day is coming fast in television. The traditional role of pay TV distributors is threatened. The end will come faster if people have a guaranteed low-cost Internet pipeline. But that’s another issue!
Q. — Bottom line: If Aereo prevails, what will this mean to broadcasters and consumers?
A. — The Supreme Court’s decision will be very interesting. I think the momentum is sort swinging a little bit toward the broadcasters with the decision in Utah. But the Second Circuit’s decision is well reasoned and there are a lot of people on the side of Aereo. Aereo is doing what any good firm in the free market system should do. They see an opportunity to offer a service to consumers for a lower price than they are paying for local channels through pay TV subscriptions. And if you already have your Internet, which many of us do, at least the middle-class [does], then it is only going to cost $8- to $12-per-month more to get all of the local channels. And there won’t be any fears of blackouts anymore like last summer with the fight between Time Warner Cable and CBS. So – bottom line – an Aereo victory will increase pressures on programmers and distributors to abandon the existing TV distribution model. In the longer term, consumers will no longer be forced to purchase elephantine bundles of channels, most of which they do not watch and do not wish to pay for.
Grimes is a Professor at Southwestern Law School and co-author of a definitive antitrust law text for lawyers and law students, The Law of Antitrust: An Integrated Handbook with the late Professor Lawrence Sullivan.