Aereo combat: Why the networks should be worried

Copyright There are certainly cheaper markets to operate in than New York City. And if you were preparing to launch a risky media startup, you might be expected to try opening out of town, where the downside would be smaller, before taking your show to Broadway. Not so for Aereo, the Barry Diller-backed startup formerly know as Bamboom, which offers to stream broadcast TV channels to subscribers over the Internet for viewing on connected devices for $12 a month. Subscribers will also be able to record programs as they would with a DVR and store them in the cloud for later viewing.

Perhaps Diller just craved the spotlight, and wanted to launch in center of the media universe. But a more likely reason for picking New York is that it’s the seat of the federal Second Circuit Court of Appeals, which in 2008 handed down an opinion in Cartoon Network, et. al. v. CSC Holdings, better known as the Cablevision remote-DVR case.  That case, in which the cable operator’s cloud-based DVR service was challenged unsuccessfully by the networks,  is rapidly becoming the Sony Betamax case of the digital era: a foundational  legal precedent that shapes all subsequent innovation around technology and copyrighted content, both in the U.S. and around the world.

Not surprisingly, the networks and broadcasters that have now sued Aereo would prefer to have no part of the Cablevision case. Neither complaint mentions Cablevision explicitly, and only one even mentions “cloud-DVR” recordings at all, and then only to dismiss the issue as irrelevant. Instead, the complaints focus almost entirely on the live-streaming feature of Aereo’s service, which the networks consider to be a cut-and-dried case of unlicensed retransmission — in copyright terms a public performance — of their copyrighted programs.

Diller isn’t about to let them forget it, though. Aereo’s terse reply and counterclaim filing mentions exactly two prior cases to support its position: Betamax and Cablevision. By incorporating Cablevision into a counterclaim, Aereo has made the case impossible for the court to ignore, even it were to find some way to rule in favor of the broadcasters without addressing it.

Not being a lawyer, I can’t offer a qualified opinion on the legal merits of the respective parties’ claims. But I do know this could be a very dangerous case for the networks should they lose.

The reason it’s so dangerous can be found in Aereo’s FAQs. Despite the broadcasters’ characterization of Aereo’s service as a simultaneous retransmission of their signals over the Internet, Aereo’s system does not appear to work that way, at least in Aereo’s telling. From the FAQ:

What happens when I tune to a live program?

When you tune to a live program from the Guide, you instruct your assigned antenna housed at the Aereo data center to tune to the channel the show is on and pass the digital broadcast stream to your remote DVR. The DVR consists of several components that process the program stream and prepare it for you to stream it to your internet-connected device. Your DVR records the program as you watch it, giving you the ability to pause or rewind the live stream. When you record, you record three separate unique copies of the show, each in a different bit rate optimized for different streaming conditions. The lowest bit rate file is ideal for streaming over 3G connections. The medium rate file will work well over most Wifi connections. The highest rate file is intended for really fast broadband connections. While watching, you can choose the Video Quality on your device. If you select “auto” you will automatically choose the best bit rate for your current network conditions. When you are finished watching the show, your recorded files are removed from your DVR and do not count against your DVR storage space allotment [emphasis added].

From that, it does not appear that Aereo performs a simple, on-the-fly re-encode and transmission of the broadcast signal (which might in fact be an infringement). Rather, each Aereo session — by design — creates a recording of the program being watched (actually three recordings). What the user actually gets to watch, technologically speaking, is not a “live” stream of the broadcast but on-demand stream of a personally directed recording.

That bit of technical legerdemain is clearly meant to bring Aereo within the scope of the Second Circuit’s opinion (cert. denied) in the Cablevision case, which held that playback of a discreet, individually initiated copy of a program, even if from a remote server, is not in fact a public performance. Instead, it’s no different, from a copyright perspective, from playing back a recording from a set-top DVR.

The networks no doubt will argue that Aereo’s legerdemain is just that: a subterfuge meant to disguise what is in every practical — and legal — sense a simultaneous retransmission. And in fairness, Aereo’s contention that this case involves “nothing more than the application of settled law to updated technology” is clearly a stretch. Cablevision, after all, was already a licensed retransmitter of the copyrighted works at issue in that case, and the playback of recorded programs occurred over Cablevision’s own, closed network, not over the public Internet.

Should the networks lose on that point, however, the effects could be devastating. It could establish that all a service provider need do to make a retransmission legal is to bounce it off a cloud-based DVR before passing it on to the user. That, in turn, could put a whole host of distribution scenarios the networks and content owners are no-doubt counting on to be license-able events outside the realm of license-able events.

Even if they prevail against Aereo, moreover, networks and rights owners are already losing the retransmission argument outside the U.S. Last month, the Federal Court of Australia — citing the U.S. Cablevision case — ruled in the Optus TV case linked above that a mere two minute delay between the remote recording of a broadcast and its streaming playback is enough to make it something other than a simultaneous retransmission and therefore not infringing. An Irish court has narrowed the gap further in that country.  A district court in New York narrowed it further in a case involving the use of Slingbox to stream Irish football games from Dublin to a pub in the U.S.

Another loss in the U.S. would likely mean the rest of the world falls as well.