The leaders of the world’s most successful technology companies know they always face a choice: continue to innovate or become irrelevant. New products and services are constantly upending the status quo, and companies that aren’t looking ahead get left behind. This fierce competition drives our economy and is the backbone of the American dream.
On April 22, the U.S. Supreme Court will face a similar choice involving innovation when it hears arguments in American Broadcasting Companies, Inc. v. Aereo, Inc. The case pits older businesses with strong political ties against a growing startup with a bright idea, presenting justices with an important opportunity to uphold legal precedent that protects innovators and entrepreneurs who dare to challenge the status quo.
The big television networks – ABC, NBC, and CBS – rake in lots of money by charging cable companies retransmission fees to carry their programming. This year alone, retransmission fees are expected to exceed $4 billion. Aereo threatens to undercut this model by giving consumers a choice. Broadcasters, fearing that cable and satellite companies will follow Aereo’s example, have been pushing back since Aereo’s launch in New York City two years ago.
The networks falsely claim Aereo is “stealing” their content and retransmitting it to viewers in violation of copyright law. The truth is, since the 1960s, TV broadcasters have controlled much of the available public spectrum, which they’re allowed to use for free. In exchange, broadcasters must provide free over-the-air television to local viewers — all that’s needed to tune in is an antenna. But in many cities — like New York — many tall buildings prevent people from getting a signal.
The networks’ position is especially befuddling since they make most of their revenue from advertising, and Nielsen now tracks TV viewership on mobile devices via services like Aereo.
Aereo offers a smart, innovative solution to the problem. It enables customers in 11 cities to lease a tiny antenna where over-the-air broadcasts can be streamed and watched on computers, tablets and smartphones. Aereo’s service is a low-cost alternative to cable subscriptions for city dwellers who want access to free over-the-air broadcasts.
This presents broadcasters with a critical opportunity to compete by creating their own innovative solutions. Rather than hiding behind a lawsuit, networks could benefit from Aereo’s technology, as the startup increases over-the-air viewership and offers opportunities for targeted advertising revenue. But broadcasters aren’t interested in the hard work of innovation; rather, they’re interested in protecting their revenue stream by maintaining the status quo and forcing Aereo out of business.
Ironically, the broadcasters’ argument boils down to saying; despite Aereo’s compliance with the law, broadcasters just don’t like it, and it violates the spirit of the law.
Innovators must be able to rely on the words of a law rather than the concerns of archaic businesses. The court must defer to Congress, not decide the law says what broadcasters want it to.
Utterly ignoring consumers’ right to choose, some network executives are threatening to remove their programming from the airwaves if Aereo wins. CBS CEO Leslie Moonves recently said his company might switch to over-the-top (OTT) service to undercut Aereo’s model. And last year Fox News Corporation threatened to move to subscription-only service if Aereo were allowed to stay in business.
Broadcasters are attacking more than just a single, small innovator — they’re pushing back against a landmark precedent set 30 years ago. In the 1984 case Sony Corp of America v. Universal City Studios, the Supreme Court ruled consumers could use video recorders to save their favorite TV shows and watch them later without violating copyright law. The justices said this was legal because the recordings were for private consumption and therefore constituted fair use. That understanding of fair use paved the way for innovations like the DVR and cloud-based storage services. A ruling that upsets the precedent set forth by Sony would have ramifications well beyond Aereo and its customers.
The broadcasters’ argument also flies in the face of the 2008 20th Century Fox v. Cablevision decision that remote DVR service is legal. Reversal of the Cablevision decision would threaten the burgeoning cloud-storage industry since services like Aereo allow users to play back cloud-stored content housed remotely.
Beyond that, the networks’ failure to innovate and play fair hurts consumers. Only 7 percent of consumers rely exclusively on over-the-air television using an antenna — the vast majority pay for a cable, fiber or satellite subscription. But subscription costs keep rising, in large part due to networks’ hefty retransmission fees. This is why more viewers are turning to the Internet or Web-connected devices to watch. Aereo is at the vanguard of this growing trend.
Aereo has spent the last two years battling broadcasting goliaths in the lower courts, winning most of those battles. Now, the Supreme Court will have the final say, deciding whether the old guard will be allowed to stifle innovation for the sake of protecting outdated business models.
Like any other business, broadcasters must play fair and either embrace innovate or face irrelevance. If they can’t compete and win consumers on their own merits, then they must learn to work with companies, like Aereo, that can.
Gary Shapiro is president and CEO of the Consumer Electronics Association (CEA)®, the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the New York Times best-selling book, Ninja Innovation: The Ten Killer Strategies of the World’s Most Successful Businesses.