Aereo and “Free” Broadcasting

Broadcast networks Fox, ABC, Univision, along with PBS, are suing Aereo, a service that retransmits broadcast signals to paying subscribers over the internet, for copyright infringement. Such suits are regularly deployed by legacy industries against emerging technologies (Napster, VCRs, CATV, radio, player pianos) desperate to protect their old distribution systems and business models.

Setting aside the question of the viability of the broadcasters’ legal case, as well as the question of how useful Aereo might be for audiences, I’d like to consider the larger historical context of the broadcasters’ objections to Aereo. How might this case reflect how broadcasters are revising their commitment to “free” over-the-air (OTA) broadcasting? And how might this case reveal something about the shifting business models of OTA broadcasting, historically reliant solely on advertising revenues?

As other scholars have noted, proponents of advertising-supported U.S. broadcasting have since its origins in the 1920s-30s identified commercialism with freedom, both economic and political. Broadcasters get free spectrum, and the public gets programming free of cost to themselves and free from government control. They pay only with their attention to advertisers’ messages, attention organized and sold by broadcasters to advertisers. To address the criticism that a public resource, the spectrum, is being used for private gain, lawmakers require stations to serve the “public interest, convenience, and necessity”–a slight limitation on broadcasters’ First Amendment rights.

For nearly a century, competition to OTA has been regularly characterized not as a threat to broadcasters’ oligopoly but to “free” broadcasting and American liberty. For example, William Benton’s effort to create a subscription wired audio programming service (an early version of Muzak) was attacked for undermining “free” broadcasting, for attempting to impose a “tax” on listeners. Until 1977 or so, broadcasters prevented competition from cable television services by prevailing on the FCC to ban the importation of distant signals–an effort that, although it was actually designed to secure broadcasters’ oligopolistic control, was dressed up as the preservation of “free” programming from the threat of “pay TV.”

Today only about 10 percent of US households receive free OTA broadcasts. Most subscribe to multichannel video program distributors (cable operators, telcos, DBS, collectively known as MVPDs) and pay for the privilege of choosing among hundreds of program providers (most of which also carry advertising). After many court battles, some over copyright, others over the First Amendment, and many regulatory changes, the television industry has integrated broadcasting and cable networking in such a way as to allow the traditional OTA networks (ABC, CBS, NBC, Fox, CW) to receive a share of MVPD subscription revenues, known as retransmission consent (operators must compensate broadcasters for the retransmission of broadcast signals). These fees, as many have pointed out, are at stake if a disruptor like Aereo does not pay them to OTA networks.

When NewsCorp COO Chase Carey claims that, “Aereo is stealing our signal,” he ignores the fact the signal is still free to individual households (Aereo’s “theft” is based on a theory of “public performance”; Aereo claims its retransmission is a private performance). The exemption from fees, which in past eras was used to justify the ad-supported business model, is fading from memory: the industry now expects that audiences must pay. Since 85-87% of households do pay for television, the industry wants to believe this will remain the norm. However, over the top (OTT) services, such as Netflix, are providing options for cord cutters, “cord nevers,” and zero-TV households to opt out of the pay-TV bundles. (As broadband providers, the MVPDs are less endangered by this shift than the TV networks are.)

Carey’s threat to cut off Fox’s OTA signal and make the network available only through a MVPD subscription also indicates that many in the industry may be ready to discard the network/affiliate model of distribution. The technological need to use affiliates to retransmit network feeds has long since ended. Leaving the “free” broadcast spectrum would allow Fox to program without the onus of serving the public interest. Most view this threat as saber rattling, but it may be logical from both technological and economic perspectives: why continue to share retransmission fees with affiliates when Fox doesn’t need local stations or spectrum for national distribution?

Rather than embrace Aereo as a way to expand viewership (especially among cord cutters and cord nevers) and thus raise advertising airtime prices, broadcasters seem to be caught up in the fantasy that they are owed money for their transmissions–despite their continuing use of free public spectrum. Instead of relying on ad revenues fully to subsidize their programming, as they have for decades, broadcast networks today are expecting retransmission fees to become a greater percentage of their revenues (from about $2B/year to perhaps $6/B). Instead of embracing the possibilities of emerging business models, some of which rely on giving content away for free and so resemble the legacy broadcast business model, these broadcast networks are apparently throwing in their lot with the closed MVPD oligopolies, counting on retransmission fees to carry them, despite signs of consumer demand for alternate business models.

So, is the broadcasting business model dead if it is no longer “free” to most audiences and can no longer justify itself as promoting freedom and democracy as a uniquely “American system”? Should broadcasters be reminded that “free” programming is exactly what they are supposed to provide in exchange for their free (unpaid) use of the spectrum? Or is it time to take back the spectrum from commercial broadcasters and, perhaps, allow the development of a different use of the spectrum?

Tags: Aereo, broadcasting, regulation, Restransmission Fees