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Aereo Ruling Reaffirms Broadcast Television Revenue Model

There is an old expression that says, “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.”

It seems the U.S. Supreme Court applied the “duck test” when on June 25th, in a 6-3 ruling, the Court determined that Aereo, an online video streaming service, was in essence a “cable TV provider.”

Speaking for the majority, Justice Stephen Breyer said, “Aereo’s system is, for all practical purposes, identical to a cable system.”

Aereo picks up the over-the-air broadcast signals from the major networks and then, through a subscription service, and a cloud-based DVR, allowed users to view them as they saw fit on their desktops, smartphones and tablets. In the areas it was available, Aereo employed a series of proprietary “micro antennas” to pick up the broadcasters’ signals. When someone signed up for Aereo, it assigned that individual only one of the dime-sized antennas, arguing, therefore, that it was no different than if that individual put a single antenna on his or her roof to pick up over-air broadcasts.

The Court did not agree, and ruled that Aereo was in violation of the broadcasters’ copyrights by obtaining their signals for free, and in essence, re-broadcasting them, the same way cable and satellite systems do who pay substantial fees to re-transmit network programming. Based on the market revenue reports that it prepares for nearly 70 television markets, Miller Kaplan understands the importance of this revenue stream, and the impact this ruling has on both the individual stations and the broadcast groups alike.

The National Association of Broadcasters, (NAB) was pleased that the court rejected Aereo’s claim that the lawsuit was intended to stifle innovation. “Broadcasters embrace innovation every day, as evidenced by our leadership in HDTV, social media, mobile apps, user-generated content, along with network TV backed ventures like Hulu,” said NAB President Gordon Smith.

It is important to note that Aereo’s business model differs greatly from such online streaming services such as Hulu and Netflix, which offer television programs on-demand only after they have already aired with the blessing of the networks. Aereo subscribers could view programs “live,” which is why the Court found them to be “for all practical purposes a traditional cable system.”

Revenue Streams

The Broadcast Television revenue model has evolved considerably over the past 30 years. Up until around the 1980’s, virtually all of a given TV station’s revenue came from the sale of spot advertisements — hence the name “commercial television.” The commercial model was king with 80% of households watching the then 3, now 4, major networks in prime-time.

Today less than half of households watch the 4 major networks in prime-time. With the advent of time-shifting technologies, and original series being streamed not only by Netflix but by many online providers such as Yahoo! TV, it is an era of practically unlimited choice of when and where to watch network content.

Add to that commercial skipping technology, and the entire landscape of television has evolved, as has its revenue streams. Product placement, tie-ins, and long form infomercials are all growing alternatives to traditional commercial spots. Augmenting traditional spot revenue with retransmission revenue has become central to today’s television station revenue model.

Media research firm SNL Kagan estimates that re-transmission revenue was close to $3.5 Billion last year, and expects that figure to double over the next five years.

The ruling not only preserves retransmission income for the broadcasters, it will likely mean they can grab a bigger piece themselves of the evolving “TV Everywhere” market. In fact, Disney-ABC and Dish already announced the launch of an online video streaming service of their programming, which now, thanks to this ruling, presumably could include local programming, as long as it is subject to all the rules and regulations governing cable.

Some might see the Court’s ruling as simply made to maintain the status quo. When in fact, by protecting the inherent value of original content, it will allow the traditional television model to continue to evolve along with new and emerging technologies. Ultimately, the decision allows broadcasters to do what they do best, provide consumers with a wide choice of quality programing — whenever, and wherever they want it.