It’s been a great year for Comcast so far. For the second consecutive quarter, Comcast Corp. has added cable television consumers, as well as Internet and telephone subscribers, at a time when other cable providers have been losing customers. Earnings reported Tuesday show a 13.7 percent increase in revenue from last year, and its proposed $45 billion purchase of Time Warner Cable Inc. seems to be moving forward.
However, “cord-cutters” threaten to stop Comcast’s growth cold.
In one case being considered by the U.S. Supreme Court, the future of the “cord-cutter” trend — the movement away from subscription-based cable and satellite television toward Internet video — may be decided. On Tuesday, the justices heard oral arguments in the case of American Broadcasting Companies, Inc. v. Aereo, in which ABC argues that Aereo’s services violate ABC’s control over the retransmission of its programming.
Aereo is a startup Internet broadcaster that operates arrays of small television over-the-air antennas in select cities. Assigning one dedicated antenna per subscriber, Aereo transmits local over-the-air free programming to the user via Internet video for about $8 to $12 a month. This service addresses the primary factor keeping many users from completely switching from cable television to Internet video. In combination with Netflix and Hulu, which is partially owned by NBCUniversal, a component company of Comcast, Aereo makes it possible for cable users to replace most of their television programming menu at a fraction of the cost. This hurts broadcasters because Aereo does not pay a retransmission fee to them.
Aereo argues that because the user has a dedicated antenna for his or her own use, accessing free over-the-air programming through its service is no different from using “rabbit-ear” antennas arranged atop a TV set.
“Nobody disputes that you can have an antenna. Nobody disputes that you can make a personal recording. Nobody disputes that you can have a cord that connects that antenna,” said Aereo founder and CEO Chet Kanojia. “As a factual manner, Aereo’s technology does the same thing.”
ABC is joined in its lawsuit by CBS, NBC, Fox and PBS, as the major broadcasters likely sense that Aereo is the key to accelerating cable abandonment. This is a major concern for them, as cable abandonment, for example, would cut ABC’s revenue for not only ABC programming shown over cable, but also other Disney-owned broadcast properties, such as ESPN and the Disney Channel.
ABC argues in the suit that Aereo’s service violates copyright law, which requires the copyright owner’s permission for “public performances” of owned works — including retransmission to the public.
“It is difficult to conceive of a more clear-cut case of infringement of the public performance right. This case really is as simple as that,” wrote the major broadcasters in their brief. “If that is the world in which broadcasters must live, then they may be forced to reconsider whether they can afford to continue making the same quantity and quality of programming available to the public for free in the first place.”
A ruling against Aereo would likely send ripples throughout the entire cloud computing industry. If express permission is required for the use and access to remote equipment via the Internet, this would effectively freeze not only Internet video — which is physically situated on a remote server — but also Internet music, “cloud-based” gaming and “cloud-based” applications, such as Google Docs, and video-on-demand and digital video recording services. This would also represent a de facto ban on non-broadcaster-run Internet media sharing.
The justices are keenly aware of this point. Justice Stephen Breyer reflected the sentiment of many on the court when he said that “what disturbs me on the other side is, I don’t understand what a decision” against Aereo “should mean for other technologies.”
Last year, a split federal appeals court in New York ruled 2-1 in favor of Aereo.
“If we don’t win, we have other ways of making up for it,” Les Moonves, chairman and CEO of CBS Corp., told CNBC last month. “Putting our shows directly on cable, forming our own Aereo with other networks, going over the top. Lots of solutions. No fear on my part.”