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Aereo TV: Why Waste the Supreme Court’s Time?

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[Editor's Note: I wrote this article a couple of days ago before news of how the trial had occurred. I deemed it more important to go with the Solar power article on Earth Day. So I'm publishing this today, with an update at the end.]

There was an interesting article on CNET yesterday that I think leads to an interesting thought exercise: Why the Aereo Supreme Court case over TV’s future is too tough to call? I encourage you to click that link which will open up in a new tab/window, read it or follow along. Ms. Solsman makes the big bucks explaining the issue and does a wonderful job. I don't want to take up the space here to do what she has done so well. Instead, I intend to continue making the little bucks for flexing my large logical cortex and solving the problem.

This is more of a legal/technology debate than a personal finance one, but if you stick me for a bit, I promise you some definite personal finance thoughts. Why would I tackle this on a site about personal finance? I simply have a natural interest in the role of legal nuances play. That's why I write about how MLMs attempt to blur the lines of pyramid schemes to remain legal. It's why I've written about promotions and illegal lotteries here, , and here.

Have you read the article? Good. Here's a very basic rundown of the conflict, because I know a few people won't click over and read the article.

Aereo TV runs a subscription service were people can stream and record broadcast television (CBS, ABC, NBC, Fox, etc.) over the Internet. They pay these broadcast companies nothing. Currently these broadcast companies charge cable and satellite providers billions for access to these channels. The companies either want Aereo to pay the same fees or have it declared illegal. They fear that cable and satellite will construct similar services (or even subcontract Aereo) to avoid paying billions for access to the channels. Broadcast companies are protecting their revenue stream and you can't fault them for that.

Aereo gets around paying for access to the broadcast channels by having individual antennas for each subscriber. The company argues that they are simply conveniently harnessing the free over-the-air broadcast signal for its customers. From a technology perspective, it isn't much different than a company setting up a bunch of solar panels at its facility and selling me the energy from them.

Create Your Own Aereo at Home

One of the important things to note is that consumers can create their own Aereo service with currently available technology. For under $10, you can get a Mediasonic HomeWorx Indoor HDTV Antenna that is highly rated. Got around $50 and you can get RCA Compact Outdoor Antenna that is almost flawlessly rated. For another $65 or so you can bring that signal through this Hauppauge WinTV Tuner Stick into a computer such as the SEXY Intel NUC. Pair that with some simple DVR software/program guides (MythTV, Windows Media Center, etc.) and use the HDMI output to view on your television. Add the Remote Potato application to stream it all over the home and on the road.

A set-up like this is tempting because there are no subscription fees. If you watch broadcast television most of the time (as most people do), this solution is a one-time charge of around $600 for television for life. Of course you can get more bells and whistles, but that's an article for another day. In fact, the details are probably best suited for websites specializing on such set-ups.

If all that got confusing and sounded like a lot of work, welcome to the club. Fortunately, devices like Simple.tv's Network Tuner DVR combine the computer, streaming, and conversion into one box. With that you need to add an antenna and a hard drive. Same goes for this highly rated Channel Master DVR+ (though there are few reviews). A company called Tablo is making another device that you can buy directly from its website (but I would wait for the four tuner model myself).

Aereo's subscription service does all this at its facility very efficiently for you. You don't have to have an antenna or install one. From a frugal perspective, it doesn't really compete with the above in the long run, because over time the subscription fees add up. However, it does help those who want to cut the cable do it a lot more cheaply and efficiently.

Public and Private Performance Confuse the Issue

Let's get back to the debate of Aereo's legality. The issue gets a little more complicated when viewed under the Copyright Act of 1976. That makes a distinction between public performances and private performances. Private performances aren't subject to copyright rules, while public ones are. For some reason it was decided that watching broadcast television in your living room was a private performance. However, a "cable or satellite company funneling channels to its customers en masse" (a quote from that CNET article), is considered a public performance.

I don't understand the basis of this distinction and why it exists. With the exception of NFL Sunday Ticket and some Pay Per View fighting events at bars, almost all the performances are indeed private, people watching television in their living rooms.

In fact, one could easily argue that a local NBC affiliate that funnels the channel via an over-the-air antenna en masse to its customers is just as much a public performance.

Such a distinction is arbitrary at best. At worst, I'd say it is completely unnecessary.

Most importantly, I'd go as far as to say that it is the cause of the issue here. If such a distinction was never made, broadcast channels wouldn't have been able to charge cable and satellite companies fees. This was a completely new revenue stream that came from technology changes. NBC didn't create cable or satellite companies but they benefited from being able to charge them fees. They no longer was as dependent on advertising as they were in the days of "rabbit ears."

So now the broadcast companies are upset that their benefit may get taken away from them. I say, "tough break. Go back to supporting your business on advertising revenues as you did the past. You still have the vast majority of Americans watching your shows, so it shouldn't be difficult."

Aereo's Side of the Story

Aereo has put up a website Protect My Antenna, which tells their side of the story. Essentially, it's a story of how they make the Create Your Own Aereo at Home paragraph above easier by doing most of it at their facility.

The website has one line that I think sums up the whole case, "Broadcasters should not be able to use the Courts to drive forward what they believe are their most lucrative business models."

The way I see it, it doesn't make any more sense for Aereo to pay fees to the broadcast companies any more than it makes sense for individuals to pay monthly fees to use an antenna on their own roof. And if you start make Aereo pay the fees you get into the dangerous territory of making Simple.tv and Tablo charge monthly fees with its product when they simply make using an antenna with DVR technology easier. If you make Aereo pay fees and not Simple.tv, you are essentially saying that putting an antenna in a remote location requires paying broadcasters fees. This not only doesn't make sense, it doesn't keep with the public and private performance guidelines of The Copyright Act of 1976.

Save the University of California Berkeley Law Students!

To bring this full circle, let's get back to the beginning of the article:

"On a final exam, University of California Berkeley law professor Pamela Samuelson asked her copyright class to answer whether Aereo is, essentially, a true technological innovation or just a legal one... '"My poor students were suffering enormously.' Samuelson said, after they complained about the difficulty of the Aereo question."

I feel terrible for what these law students at a top university have had to endure by trying to answer this question. I hope that I never have to hire them, because I certainly wouldn't want to trust them with even a tiny amount of my money or freedom.

Here's the simple answer: It is both. It is a minor technological innovation that disrupts the current legal precedents. It essentially points a finger at the nonsensical division between public and private performances in the legal system that simply shouldn't have existed in the first place.

So there you go... In under 1500 words I've:

  1. saved the Supreme Court a ton of time
  2. solved a problem that baffled law students at the University of Berkeley
  3. showed you a few solutions on how to save money cutting the cord

Since I've got nearly 100 words left, I humbly suggest that the Supreme Court use this saved to time to turn their attention to preventing million of people from getting scammed by unregulated pyramid schemes pretending to legitimate multi-level marketing businesses. Fair?

Update

Well it looks like I was wrong. Aereo looks like it is going to get railroaded by big business. Forbes had a pretty neutral article which included some of the questions that the justices asked and statements that they made. Here's a sampling:

"Justice Breyer still appeared unconvinced that the court could disentangle the Aereo verdict from the larger cloud-computing industry. 'I don’t see how to get out of it,' he lamented."

"Chief Justice Roberts didn’t appear to buy it. 'I mean, there’s no technological reason for you to have 10,000 dime-sized antenna, other than to get around copyright laws.'" (I would have loved for the lawyer to respond with, "This is what happens when you make nonsensical, arbitrary laws.")

"Justice Breyer continued to display anxiety. 'What disturbs me is I don’t understand what the decision for you or against you, when I write it is going to do to all kinds of other technologies. I’ve read the briefs fairly carefully, and I’m still uncertain that I understand it well enough.'" (This is always an encouraging sign for a lawyer. Gotta love when your fate is in the hands of someone who admits ignorance.)

"'That isn’t [Aereo's] problem,' [Justice Breyer] continued. 'But it might turn out to be.'" (Just when you thought Breyer embarrassed himself enough, he finds a new level of embarrassment.)

There's more from CNN Money's coverage:

"'This is really hard for me,' Justice Sonia Sotomayor remarked early on in the hour-long hearing." (Not that you want it to be easy, but it's not comforting to know that the Justices themselves are admitting difficulty.)

"Justice Antonin Scalia, on the other hand, seemed not to understand the difference between television networks that are beamed over the public airwaves, like ABC, and those that are only available through cable subscriptions, like HBO.

Scallia's hypothetical question to Frederick -- in the future, 'you could take HBO, right?' -- earned him some ribbing on blogs after the court session." (I'll pile it on. Clearly HBO is not broadcast television and available with an antenna. Can we recuse Scallia and get someone like Mark Cuban to sub in?)

It gets worse when you read the NY Times coverage:

"'Your technological model,' Chief Justice John G. Roberts Jr. told Aereo’s lawyer, 'is based solely on circumventing legal prohibitions that you don’t want to comply with.'" (So if they've circumvented the legal prohibitions why are they even in court? Isn't that admitting that no law has been broken?)

"Justice Ruth Bader Ginsburg said Aereo’s business was built on taking content without paying for it. 'You are the only player so far that doesn’t pay any royalties at any stage,' she told Mr. Frederick." (I don't believe this to be true. I doubt that Simple.TV, Tablo, and ChannelMaster pay any royalties on broadcast content at any stage either.)

"'I’m hearing everybody having the same problem,' [Justice Breyer] said of his fellow justices. 'I will be absolutely prepared, at least for argument’s sake, to assume' that Aereo’s service is unlawful.

'But then the problem is in the words that do that,' he said, referring to the decision the court will issue, probably in June. Justice Breyer went on to express concern that a ruling against Aereo might limit other innovations 'that will really change life,' such as the cloud."

(So the assumption is that it is illegal, but they really don't know why or how to word something clever enough to only impact Aereo's business. This is some kind of weird dream, right? It can't be real life, can it?)

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