In a major victory for the broadcast television industry, the Supreme Court ruled that Aereo — the start-up tech firm that distributes local television signals over the Internet — is illegal.
The 6-3 decision in the case of ABC vs. Aereo is likely to sound a death knell for the tiny company that launched in 2012 as a low-cost alternative to high-priced cable and satellite television. It promised to change the way that people watched TV.
Broadcasters — led by CBS, Fox, ABC and NBC — countered that the only thing Aereo was trying to change was having to comply with the Copyright Act.
If Aereo was found to be legal, broadcasters feared that consumers might cut the cord to their pay-TV service, which would mean they would get less money for their signals. Another concern was that cable and satellite operators, increasingly vocal about the rising costs of carrying broadcast signals, would use Aereo or a similar technology to get around those so-called retransmission fees.
But cable and satellite operators also had reason to be wary of Aereo. As monthly TV bills keep rising, in large part because of the cost of sports programming, consumers could opt out with a combination of Aereo and streaming services such as Netflix and Amazon. Such a move might mean having to wait until their favorite shows ended up on Netflix, but it would also save a significant amount of money.
"We think Aereo was on to something by filling a need for low-cost, flexible viewing options," said Ellen Bloom, a senior director at Consumers Union. "As cable prices keep skyrocketing, the consumer demand will continue to grow for more personalized, affordable ways to watch television."
Fearing that an Aereo win could threaten the lucrative rights fees they get from the broadcast networks, the National Football League also opposed Aereo, as did the Obama administration.
Aereo is available in 11 major metropolitan areas, including New York, Boston and Dallas, but it never launched in California because of a federal court injunction against a similar service.
Aereo streams the shows over the Internet using dime-size antennas stored in a remote facility. Subscribers can watch shows on tablets, computers or televisions.
Subscriptions run between $8 and $12 a month, and that fee includes a cloud-based digital video recorder. Aereo has never disclosed how many subscribers it has.
Aereo contended that it was merely an updated version of the antennas that people used to have on top of their television and roofs.
Broadcasters said Aereo was not the same thing as a traditional antenna because it retransmits their programming for profit and alters the format for streaming. They said Aereo should have to pay them for permission to transmit signals the way that other pay-TV distributors do.
A majority of the justices, led by Stephen Breyer, agreed with the broadcasters. Their decision Wednesday overturned a 2nd Circuit Court of Appeals ruling that found Aereo did not violate the Copyright Act.
"For all practical purposes," Aereo was acting like "a traditional cable system," Breyer said. "The many similarities between Aereo and cable companies, considered in light of Congress' basic purposes in amending the Copyright Act, convince us that this difference is not critical here."
If cable and satellite companies are required to pay licensing fees before transmitting copyrighted TV signals, so is Aereo, he concluded.
Chief Justice John G. Roberts Jr. and Justices Anthony M. Kennedy, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan agreed.
Protecting the revenue stream broadcasters get from pay-TV distributors is crucial to the industry. Consulting firm SNL Kagan has projected that broadcasters are expected to take in more than $5 billion next year in so-called retransmission consent fees. By 2019, that figure is expected to be nearly $8 billion.
Both CBS and Fox went as far as to threaten to exit the broadcasting business if the Supreme Court decision had gone the other way. CBS also suggested it would launch its own Internet-delivered version of its network if Aereo won.
The dissenters, led by Justice Antonin Scalia, said they were not convinced that Aereo was violating the Copyright Act as written.
It is not clear, Scalia said, why sending TV signals to an individual customer would be deemed a public performance. He also thought the court was distorting the Copyright Act to forbid it.
"It is not the role of this court to identify and plug loopholes. It is the role of good lawyers to identify and exploit them, and the role of Congress to eliminate them if it wishes. Congress can do that, I may add, in a much more targeted, better informed and less disruptive fashion than the crude 'looks-like-cable-TV' solution the court invents today," Scalia wrote.
The case will now go back to the judges in New York who will likely order Aereo to stop transmitting signals.
For broadcasters, the decision lifted a black cloud from their future. Stocks of CBS, Fox parent 21st Century Fox and ABC parent Walt Disney Co. were all up Wednesday, as were the stocks of local television giants Sinclair Broadcast Group and Nexstar.
"We're gratified the court upheld important copyright principles that help ensure that the high-quality creative content consumers expect and demand is protected and incentivized," ABC said in a statement. CBS said the ruling was "great news for content creators and their audiences."
Joining the big broadcast networks in the fight were PBS, Spanish-language broadcaster Univision and Tribune, one of the nation's largest owners of local TV stations and parent company of the Los Angeles Times.
Aereo Founder and Chief Executive Chet Kanojia said the court's decision is a "massive setback for the American consumer" and sends a "chilling message" to the technology industry and hurts consumers tired of big pay-TV bills.
"Free-to-air broadcast television should not be available only to those who can afford to pay for the cable or satellite bundle," he said.
Kanojia, an Indian-born engineer with 14 patents, developed Aereo when he was chief executive of Navic Networks, a data firm that collected viewing patters from cable TV boxes.
He realized that most people watch only a handful of the hundreds of channels they receive, and he developed Aereo so people could get their local TV stations without having to pay for cable or satellite.
Media mogul Barry Diller was an early backer of Aereo.
In a statement Wednesday, Diller said, "blocking this technology is a big loss for consumers."
Kanojia, who earlier this year said a Supreme Court loss would likely spell doom for his company, said Wednesday that the company will "continue to fight for our consumers and fight to create innovative technologies that have a meaningful and positive impact on our world."