Wible's Weekly: Aereo Decision Cements Status Quo

Janney/MediaEntertainment: Aereo Decision Cements Status Quo

The Supreme Court sided with broadcasters in a 6-3 decision that Aereo's service does infringe upon broadcasters' copyrights. The decision reverses the Second Circuit decision and the case has been remanded back to the lower court, although there appears to be little opportunity for Aereo to get around it. We believe this effectively kills the Aereo service and allows broadcasters to maintain current business operations. Although we listed Aereo as one of the bigger topics for 2014 in our outlook note, we have dismissed the threat as we saw it in a lose/lose position.

Cementing Status Quo - This win by the broadcasters will likely cause Aereo to collapse as we do not believe their business model could sustain retrans fee payments. It also effectively increases broadcaster's negotiating leverage over MVPDs in retrans discussions, which is critical given the weaker ad market and rising cost of content (see our note on sports cost inflation titled " Will Sports Save or Strain The System?" from yesterday). Current business practices between broadcast networks, affiliate stations, and MVPDs will continue as they had before. There is also no reason to contemplate the disruption to production companies and sports rights if the broadcasters were forced to migrate to cable networks.

Future Implications - In its decision, the Supreme Court likened Aereo's operations to that of a cable company in terms of intent and said that the difference in the technology behind it was not critical. This closes the door to any technological innovation that tries to get around the Copyright Act by focusing on the intent or commercial objectives of the provider. However, the Court only ruled on the "live" streaming of a broadcast, and did not issue an opinion on previously recorded content, as long as it was "lawfully acquired". This could still present opportunities for future innovation.

Tony Wible can be reached at twible@janney.com.

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