The U.S. Supreme Court could settle the fate of a new technology company that television broadcasters fear would destroy their business.
On Friday, the high court said it would hear arguments that Aereo Inc., a start-up firm, violates copyright law by enabling its customers to stream local television stations over the Internet and that it should be shut down.
The major media companies seeking the court's review include CBS Corp., 21st Century Fox, Walt Disney Co. and Comcast Corp.
Launched in 2012 and backed by media mogul Barry Diller, Aereo is currently available in 10 cities, including New York, where it is based. It distributes broadcast signals via a tiny antenna and offers customers access to a cloud-based digital video recorder that holds up to 60 hours of content. The service costs $8 to $12 a month.
Broadcasters fear that Aereo, which does not pay them for their content, could grow in popularity and threaten the distribution fees it gets from pay-TV distributors, including cable and satellite companies, in return for carrying their channels. Aereo has argued that it is merely an antenna service and is no threat to the bottom line of broadcasters.
So far, the courts have agreed with Aereo. Last year the U.S. 2nd Circuit Court of Appeals in New York said Aereo's transmissions and recordings are not "public performances" of copyrighted material. That is the ruling broadcasters are seeking to have overturned by the Supreme Court.
"We believe that Aereo's business model, and similar offerings that operate on the same principle, are built on stealing the creative content of others," CBS said in a statement Friday. "We are pleased that our case will be heard, and we look forward to having our day in court."
Aereo founder and Chief Executive Chet Kanojia said his company has "every confidence that the court will validate and preserve a consumer's right to access local over-the-air television with an individual antenna, make a personal recording with a DVR and watch that recording on a device of their choice."
Consumers have always had the ability to buy an antenna to receive over-the-air television signals. Broadcasters say that Aereo is exploiting this arrangement by retransmitting the signals without compensating or getting the approval of the TV firms and by charging consumers for the service.
CBS and Fox have previously indicated that if Aereo's business is found to be legal, they will turn their over-the-air broadcast networks into cable channels.
"We simply cannot provide the type of quality sports, news and entertainment content that we do from an advertiser-supported-only business model," 21st Century Fox President Chase Carey told media analysts last year. CBS chief Leslie Moonves has made similar statements.
The broadcasters also worry that if Aereo passes legal muster, cable and satellite companies could use it or a similar technology to get around paying retransmission consent fees.
However, given that the parents of the major broadcast companies also own powerful cable channels, such a scenario is unlikely. For example, ABC is a sister company to ESPN, and NBC is part of the same media giant that owns the popular USA Network. Each can use that leverage while negotiating deals for their local TV stations. Aereo made that point this week to analysts.
It is unrealistic to think a pay-TV distributor is not going to be able to say to ABC, "I'm not going to pay your retransmission consent fees, but I want ESPN," Kanojia said.
He said that if the court rules against Aereo, it will hurt not only consumers but also the cloud computing industry.
"The broadcasters are asking the court to deny consumers the ability to use the cloud to access a more modern-day television antenna and DVR," Kanojia said.
The broadcasters counter that their opposition is not intended to trample on the tech industry, but rather to protect their own content and business model.
"We are confident the court will recognize that this has never been about stifling new video distribution technologies, but has always been about stopping a copyright violator who redistributes television programming without permission or compensation," Fox said in a statement.
The court's decision to hear the case raises the stakes for both sides. If it sides with Aereo, the broadcasters may "feel compelled to seek a legislative fix," Stifel Nicolaus analyst Christopher King said in a note to clients.
Only eight justices will hear the case, creating the possibility of a tie vote. A tie would have the effect of upholding the appeals court ruling in favor of Aereo. Justice Samuel A. Alito Jr. said he was sitting out the case.
Further complicating matters — and perhaps playing a part in the Supreme Court's decision to hear the case — is a decision by the 9th Circuit Court in California against a company offering a service similar to Aereo's. In that case, a preliminary injunction sought by broadcasters against the TV streaming service humorously named Aereokiller was granted.
Aereo has not disclosed how many subscribers it has. Diller said last year that he thought the company could eventually land 20 million to 30 million subscribers. Aereo is targeting people who don't want to pay large cable bills and want only a handful of channels.
This week, Aereo said it raised $34 million in a round of financing that it will use to expand its service.
Staff writer David Savage in Washington contributed to this report.Copyright © 2014, Los Angeles Times