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Supreme Court of the United States

Winners and losers in Aereo decision

Roger Yu and Mike Snider
USA TODAY
Aereo founder Chet Kanojia holding a tablet displaying his company's technology.

Fans of streaming prime-time network TV live will have to wait a bit longer.

In a 6-3 decision, the U.S. Supreme Court ruled Wednesday that Aereo, a start-up backed by media mogul Barry Diller, violated the copyrighted work of major TV networks by streaming their content to paid subscribers.

Its subscribers pay $8 to $12 a month to lease a small antenna that's stored in the company's warehouse. The antenna receives the TV signal and transforms it into data that can be streamed through the Internet. The service, which has been available in 11 markets, also allows subscribers to record content on Aereo's servers.

"It's not a big (financial) loss for us, but I do believe blocking this technology is a big loss for consumers, and beyond that, I only salute Aereo CEO and founder Chet Kanojia and his band of Aereo'lers for fighting the good fight," Diller told CNBC.

Here are some questions to consider as fans and opponents of Aereo chew on the ruling:

Q: Who are the winners?

A: Primarily, the major TV network owners — Disney (ABC), CBS Inc., Comcast (NBC) and 21st Century Fox (Fox) — which have argued in court that Aereo is stealing their content. They also have plans to stream TV over the Internet and don't want to see start-up technology companies get in the way.

Pay-TV providers are also breathing a sigh of relief. Aereo would have given consumers one more reason to "cut the cord" by getting rid of cable.

TV station owners support the decision, as the retransmission revenue they count on — paid by cable and satellite providers for the rights to broadcast their signals — will remain unaffected. (Gannett, which publishes USA TODAY, owns or operates 44 TV stations in the U.S.)

"Aereo characterized our lawsuit as an attack on innovation," said Gordon Smith, CEO of the National Association of Broadcasters. "That claim is demonstrably false. Today's decision sends an unmistakable message that businesses built on the theft of copyrighted material will not be tolerated."

Antenna makers will also cheer, since Aereo allowed its subscribers to bypass installing their own rabbit-ear antennas, which are often unreliable.

Q: Who loses the most?

Obviously, those associated with Aereo, including employees and primary investor Diller. But consumers are also complaining loudly on Twitter and other social-media channels, as they saw Aereo as a David charging up the hill against the Goliaths of the pay-TV business.

The passionate base of "a la carte TV" fans is cringing because Aereo represented the most tangible example of a new TV business model, in which consumers can choose to pay only for the channels they want without being tied to cable companies. If Aereo were allowed to continue, analysts believe, its existence would have motivated networks and TV providers to dig deeper and faster in their own attempts to stream "TV Everywhere."

"Instead of having to go out and buy a lot of equipment and (get broadcast TV) on your own, this was a cheap way to lease it," said Rich Greenfield, an analyst at BTIG Research. "This was using cloud innovation to lower the cost to the consumer. It's negative for the consumer more than it's negative to anyone else."

Q: What's next for Aereo?

A: Aereo hasn't revealed its plans going forward, but analysts believe it will have to shut down its service. It owns some technology that may be sold, licensed or transformed into a cloud DVR-like service. Diller is an old hand in the business and will look to benefit from it somehow.

"We are disappointed in the outcome, but our work is not done," Kanojia said in a statement. "We will continue to fight for our consumers and fight to create innovative technologies that have a meaningful and positive impact on our world."

Q: Why is copyright an issue when broadcast TV can be viewed for free using an antenna?

A: The Copyright Act of 1976 gives a copyright owner the "exclusive right" to "perform the copyrighted work publicly."

The Supreme Court said that Aereo was operating like a cable company and infringed on this right by selling a service that amounts to "public performance." Cable companies, to adhere to copyright law, must pay for TV content.

"Aereo neither owns the copyright in those works, nor holds a license from the copyright owners to perform those works publicly," Justice Stephen Breyer wrote in the majority opinion.

The justices found Aereo's cloud DVR feature — in which customers can record shows on Aereo's servers, watch almost in real time and skip commercials — particularly troublesome. "Rather than directly send the data to the subscriber, a server saves the data in a subscriber-specific folder on Aereo's hard drive," Breyer noted.

Q: What was Aereo's argument?

A: Aereo argued that its streaming doesn't amount to public performance, since it's grabbing over-the-air content and recording and storing it for subscribers on their own personal digital files.

The copy is the subscriber's own copy, and subscribers are assigned their own, unique antenna, it said.

Q: What was the key issue in the court's decision?

A: Breyer wrote that the justices had to answer two questions: Does Aereo "perform" at all? If so, does it do so "publicly"?

Aereo maintained that that it does not perform but merely supplies equipment that works like a home antenna and DVR. It is only the subscribers who "perform" when they use Aereo's equipment to stream TV programs to themselves, it said.

Aereo likened its role to merely providing its patrons with a library card.

The justices didn't buy it. "An entity that engages in activities like Aereo's performs," Breyer wrote.

The justices also determined that Aereo performs "publicly," since its transmitted data are available for viewing whenever subscribers watch a program. In that way, Aereo's set-up is no different than that of cable companies, whose transmissions have been long considered "public" performances.

Aereo CEO Chet Kanojia
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