Aereo: The App that Could Chase Sports from Broadcast TV

Published on 19-Nov-2013 by J Square Humboldt
Football - NFL / NFL Daily Update

Wave goodbye to over-the-air sports coverage.

As a sports fan, have you ever taken the time to thank one of your non-sports fan friends who have -- at the very least -- a basic cable subscription?

You should.

Programing providers charge fees to cable systems that carry their network content. ESPN is far and away the leader in this practice. Cable subscribers fork over $5.80-and-change every month because ESPN's main channel is part of the basic package. So your non-sports fan friend is helping to subsidize your ability to watch ESPN. This puts over $6billion into the Worldwide Leader's pocket, separate from the $3billion they get in ad revenue.

If this sounds like how insurance companies spread risk -- and yes, that would include how the Affordable Care Act is designed to operate -- you're right.

Who knows if the business model for insurance will ever change? But, here and now, technology is rapidly altering how sports fans will get their video fix.

And the leader in the clubhouse for this sea-change is currently an app called Aereo. In summary, here's what it does:

  • It places refrigerator-sized storage units in key reception areas in a given region;
  • The units contain thousands of TV antennas the size of a contact lens.
  • Users who download the Aereo app rent one of those apps for $8-$12 per month.
  • Over-the-air TV broadcasts are then received by those antennas and re-transmitted to each user via his or her own personal app for live viewing or DVR storage.

What makes this so different from apps like Hulu or Apple TV is Aereo is giving each user a unique antenna that can only be accessed by that user. This also makes it different from cable-TV systems, where large groups of users share a single antenna.

What makes this so threatening to the current broadcast business model? Well, start with the content of this announcement that sports fans have heard so often, it's long since faded into their cognitive background:

All networks control their re-transmission rights. It's what makes sports broadcasts so valuable. Broadcasters these days receive $300million in rights fees per year, and $100million of that amount, for example, goes to the NFL and MLB. So do know they're extremely protective of re-transmission rights.

This is the world Aereo is changing. If it is providing one antenna to one user, it isn't re-transmitting anything, just like rabbit ears on a TV set aren't re-transmitting anything. Each antenna is just picking up a signal and allowing its user to view it.

If Aereo catches on, over-the-air networks like ABC, CBS, Fox, and NBC won't be able to charge for those re-transmission rights. That gives them less money to bid for the rights to the likes of NFL and MLB games, so they'll either offer those leagues less money or stop bidding for them.

Obviously, the broadcast establishment is alarmed. It's lost lawsuit after lawsuit in the lower courts, who have found that the one-antenna-per-user' concept is not a re-transmission. Furthermore, there's now a bill in the United States Senate proposing to protect services like Aereo from copyright infringement laws. Since mega-money is involved, broadcasters are petitioning the Supreme Court to hear their argument, with both the NFL and MLB filing supporting briefs.

Frankly, the Aereo business model of one product per user isn't breaking new legal ground, so the chances of the Supreme Court deciding against it are 50-50 only if the argument that copyright laws are being violated is found to have merit. So the next alternative for the broadcast establishment will probably be to execute a tried-and-true principle of business:

If you can't beat them, buy them.

The upshot is the video world looks to be making a major evolutionary step where viewers will ultimately choose what channels they want to pay for and not be herded into paying for the ones they don't want. How this affects the bottom line for NFL and MLB games on free television and even cable monoliths such as ESPN remains unknown, but do know there will be a noticeable effect.

The most prominent will be sports viewers paying more if the NFL, MLB, NCAA, and others move their games to their own premium networks.

And here's another: freed from being forced to pay for networks like ESPN they don't want to see, your non-sports fans will be thanking you.

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