Aereo\u2019s legal loophole<\/h2>\n
Aereo<\/a> captures over-the-air TV signals by means of tiny antennas and streams them to subscribers who watch and record shows on their mobile devices or computer browsers. Aereo\u2019s antennas are not just a marvel of technology (see photos here<\/a>) \u2014 they\u2019re also the key to a legal strategy that helps the company avoid copyright infringement.<\/p>\n To get a better idea of both Aereo\u2019s technology and its legal strategy, it\u2019s helpful to consider how it works for consumers. According to the Second Aereo argues that its \u201cone antenna for one subscriber\u201d operation means it\u2019s just like a personal recording tool. \u00a0The country\u2019s broadcasters disagreed and sued Aereo, arguing that it\u2019s illegally retransmitting their signals to the public.<\/p>\n Aereo won the first round<\/a> last year when a US District Court in New York refused to grant the broadcasters \u00a0a preliminary injunction, saying that Aereo\u2019s service was on all-fours with a previous Second Circuit ruling that found Cablevision\u2019s\u00a0remote DVR\u2019s to be legal because they involved one copy of a show being transmitted to one subscriber.<\/p>\n On appeal, the broadcasters repeated their argument that Aereo\u2019s mini-antenna system was built specifically to get around copyright law and that Aereo was different than the situation in Cablevision\u00a0<\/em>because Aereo offers live TV without a license.<\/p>\n The Second Circuit, however, ruled on Monday in a two-to-one decision that each Aereo subscriber controls the TV stream they receive \u2014 including the ability to pause, rewind or record any given show. This means that Aereo is not<\/em> transmitting to the public and that the service is consistent with the Cablevision decision. The court added that it didn\u2019t matter if Aereo didn\u2019t have a license to show the original programming or that it had created the mini-antenna service specifically to take advantage of the copyright loophole.<\/p>\n The decision was not unanimous, however. In a lengthy dissent, Judge Denny Chin blasted Aereo\u2019s service as a \u201csham\u201d and \u201ca Rube Goldberg-like contrivance, over-engineered in an attempt to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law.\u201d<\/p>\n The TV business has long been based on selling customers large bundles of channels at ever-increasing prices. Unlike the music industry, which has been thoroughly disintermediated by services like iTunes, the television incumbents have so far been able to resist the forces of digital disruption.<\/p>\n The arrival of Aereo thus represented a major threat to the TV business because it offered consumers a way to get broadcast channels where and when they wanted. And unlike other would-be disruptors, Aereo arrived well-funded and prepared to fight: it has top-notch lawyers and has already received at least $58 million in backing from\u00a0media mogul Barry Diller and others.<\/p>\n For now, the broadcasters still have the upper hand in one way in that they own many popular cable channels such as ESPN that they can withhold from Aereo. This may help them in the short term but it does not address the bigger problem of changing TV-watching behavior of the sort that Aereo is ushering in. And\u00a0in the meantime, Aereo has added one speciality channel (Bloomberg TV) and is likely to add others soon.<\/p>\n In the long run, Aereo\u2019s CEO, Chet Kanojia, has vowed to break the current system<\/a> which he has described as \u201can abusive system set up in an artificial way\u201d and instead offer \u201crational bundles.\u201d<\/p>\n The significance of Aereo\u2019s win at the Second Circuit is not just that can it continue operating. It\u2019s also a big symbolic boost from the country\u2019s most influential appeals court.<\/p>\n This symbolic support is likely to draw in more investment money and to facilitate Aereo\u2019s expansion. Right now, the service is only available in New York City with plans to open soon in 22 more cities<\/a> \u2014 Aereo is likely to treat the court ruling as a greenlight to open shop in the new cities sooner than later. At the same time, the new legal legitimacy is likely to speed Aereo\u2019s existing partnership discussions<\/a> with distributors like AT&T and Dish Networks.<\/p>\n Things aren\u2019t all smooth sailing for Aereo, of course. The ruling only addresses a preliminary injunction, and the broadcasters will almost certainly appeal to a full panel of the Second Circuit and to the Supreme Court. At the same time, a California court has already ruled<\/a> that a service offered by a would-be Aereo competitor amounts to copyright infringement \u2014 meaning that Aereo has no hope of coast-to-coast distribution for the foreseeable future. (The California case is at an earlier stage and could still be overturned; if not, it could set up a circuit split to be resolved by the Supreme Court).<\/p>\n But while it\u2019s legal status remains uncertain, Aereo now has time on its side. Any future court decisions are likely to occur a year or more from now, providing the company with ample time to further ramp up its service. As it does so, consumers will become more familiar with Aereo and other over-the-top TV options \u2014 meaning it will be harder than ever for the traditional TV industry to persuade consumers to stick with an expensive bundle-of-channels model.<\/p>\n![\"Aereo](\"http:\/\/gigaom2.files.wordpress.com\/2013\/02\/dsc_0191.jpg?w=300&h=199\")
<\/a>Circuit, \u201cAereo functions much like a television with a remote Digital Video\u00a0Recorder (\u201cDVR\u201d) and Slingbox\u201d \u2014 allowing subscribers to use internet technology to capture live broadcasts on stations like CBS or Fox and and watch them later.<\/p>\nA major blow for the TV industry<\/h2>\n
![\"Aereo](\"http:\/\/gigaom2.files.wordpress.com\/2013\/02\/dsc_0161.jpg?w=300&h=199\")
<\/a>Aereo alarms the TV industry not only because it encourages subscribers to watch shows where and when they want to, but also because it refuses to pay \u201cretransmission\u201d fees that cable and satellite companies give broadcast networks to retransmit over-the-air shows. At the same time, Aereo is promising to upend the cable industry by training users to come and go as they please \u2014 without expensive set-top boxes or installation fees or contracts. Instead, Aereo users can simply $1 a day or $8 a month.<\/p>\nIs the genie out of the bottle?<\/h2>\n