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Wednesday, April 10, 2013

Daily Report: Aereo’s Inroads Bring Sharp Reaction From Networks

Aereo is a service that scoops up the free signals of local television stations and streams them to the phones and computers of paying subscribers. Because Aereo cuts off the stations from the retransmission fees that they have grown to depend on, they are determined to shut down the service â€" even, the station owners say, if they have to go cable-only, Brian Stelter reports in Wednesday’s New York Times.

The networks aren’t just concerned about Aereo, which has a tiny following, but about copycats. “It’s Aereo today, but it could be something else tomorrow,” said Robin Flynn, a senior analyst at SNL Kagan.

For several decades companies that were lucky enough to own licenses for local TV stations thrived on advertising revenue alone, and because there was relatively little competition they enjoyed huge audiences and profit margins to match.

As cable and then the Internet introduced new competitors, station owners began to rely on a second revenue source, the so-called retransmission fees that come from the cable and satellite operators that pick up their signals and repackage them for subscribers. Now that they’ve had a taste of these fees, the stations aren’t willing â€" or able, they say â€" to go back to the old model of advertising alone.

SNL Kagan estimates that station owners took in $2.36 billion in retransmission fees from subscribers last year. (Some of that money is pocketed by owners, while a portion is paid to the network that the station is affiliated with, like Fox or CBS. Each of the networks also owns some stations outright.) The research firm projects the fee revenues to hit $6 billion by 2018. The trend lines for broadcasters are similar to those in the newspaper and music businesses â€" subscribers are paying a bigger and bigger piece of the overall cost of content creation.

That’s why the stations are doing battle with Aereo, because it doesn’t pay any fees, the same way antenna users do not. News Corporation, the Walt Disney Company, Comcast, the CBS Corporation and Univision, all of which own stations in New York, sued Aereo shortly after the service was announced last year, accusing it of copyright infringement. But the media giants failed to win a preliminary injunction against the service last summer, and their appeals were rejected last week in a 2-to-1 decision in the Second Circuit Court of Appeals in New York.

Aereo’s success in court could embolden cable and satellite providers to do their own end-runs around retransmission fees. So now the station owners are plotting their next moves.