Aereo Case is early 21st Century Equivalent of Betamax Decision

Aereo, and the broadcast TV networks and their local affiliates, will have a key U.S. Supreme Court hearing on April 22, 2014, when broadcasters challenge the legality of Aereo's “subscription broadcast TV online” service.

It would not be inappropriate to argue that the outcome of the case will reshape "broadcast TV" as much as the Betamax decision reshaped video entertainment in the 1980s, when broadcasters argued that use of a VCR was similarly illegal.

ABC, CBS, NBC and other major broadcasters allege that Aereo is no different from cable and satellite firms that “retransmit” broadcast TV content, and therefore must pay the same sorts of fees as video entertainment distributors.

Aereo argues it is simply providing an over the air antenna on behalf of its customers, who stream the signals over the Internet.

Aereo might lose, and discover its business model is untenable. Aereo might be deemed lawful, undoubtedly leading broadcasters to try and get the U.S. Congress to pass a new law making Aereo unlawful.

Ultimately, if the Supreme Court decides in favor of Aereo, and the Congress declines to make such services unlawful, all sorts of new business models might emerge. Broadcast networks might decide to create their own version of Aereo. Telcos and cable companies might do the same. One or more broadcasters might try to buy Aereo.

In virtually all of those scenarios, local TV broadcast affiliates probably lose, as distribution would then bypass them. In other words, many local TV stations, which are distribution networks for video entertainment, might find it difficult to impossible to exist, after most video entertainment has shifted from linear to on-demand and Internet-delivered modes.

The value of a local TV station arguably lies in the network programs supplied to it by the national TV networks. If those networks shift to on-demand delivery, what role remains for a local broadcaster?

Though national TV networks have a huge stake in the outcome of the case, local broadcasters face an existential crisis.

Already, local TV broadcasters face a long-term structural decline, as viewership and advertising revenues drop, even if not so dramatically, yet.

New sources of revenue, especially “retransmission consent” revenue (payments to broadcasters by video service providers for the right to retransmit their signals) has provided an offset to advertising dips.

In 2012 BIA/Kelsey estimates that retransmission consent contributed an average 6.5 percent of total local television stations revenues.

Such payments are expected to grow to 9.5 percent by 2017. Video distributors now pay at least $3.3 billion in retransmission fees to local broadcasters. That might go away, should Aereo be deemed lawful.

The national broadcast networks have threatened to abandon over the air broadcasting and  become the equivalent of “cable networks.” Already, though there are about 117 million U.S. homes theoretically able to receive local over the air signals, about 102 million U.S. homes get those signals from a video distributor.

Loss of network programming likely would doom most local TV broadcasters, eventually.

There would be other ripples. If broadcasters abandoned their spectrum, would it be repurposed for mobile and other services?

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