Lawsuits Pose Major Tests of Broadcast TV Business Model

A couple major tests of the business relationship between over-the-air broadcast networks and video distributors have started bubbling through the courts, with direct major consequences for Dish Network, a start-up known as Aereo, and the major broadcast TV networks.

At least in principle, the outcome of those two court cases could reset broadcast network revenue expectations and content carriage costs for for all telco and cable distributions of broadcast TV network programming as well.

SNL Kagan, for example, says that the broadcast networks and local television stations will be pulling in more than $3.6 billion annually in so-called retransmission consent fees from cable and satellite operators by the end of 2017. In 2010, SNL Kagan said retransmission consent generated about $1.14 billion.

None of the cases are unprecedented. Broadcasters and cable companies have sparred for years over the commercial agreements around “retransmission consent,” the ability of a video distributor to re-transmit broadcast network programming.

And lawsuits about the lawfulness of ad-skipping technology, as well as other technologies such as VCRs, have been filed in the past, as well.

In the first set of lawsuits, Dish Network and leading TV networks are suing each other over Dish’s plan to allow automatic skipping of all ads on broadcast network prime time shows.

The second set of lawsuits have been levied by broadcast networks against Aereo, a streaming service that charges $12 a month to stream the local broadcast signals of TV stations over the Web to consumers' iPads or computers. It is currently available only in New York City.

The lawsuits against Dish Network’s “Hopper” set-top and integrated DVR are not the first time networks have sued DVR suppliers over ad-skipping. By my reading it is at least the third time, with lots of skirmishes.

Sonicblue was put out of business, while TiVo simply stopped offering the ad-skipping feature.

Aereo insists what it is doing is legal. In essence, its service includes a dedicated off-air antenna for each customer, much as a homeowner might mount a rooftop antenna. The difference is that Aereo records and stores that video. A consumer has the legal right to do that using a digital video recorder.

The issue, the broadcasters claim, is that Aereo reformats the signals, a traditionally key distinction in broadcast law. By reformatting, Aereo incurs the obligation to get permission from the broadcasters.

But that’s the perpetual issue: is the use of new technology to accomplish older operations an infraction of copyright, or not?

The issue with Hopper is only partly “whether it is legal” for a DVR to skip commercials. It might well be found legal. The issue is whether the broadcast TV business will be disrupted.