Will a Court Win for Aereo Mean Malone Missed Out?

Source: Thinkstock

Source: Thinkstock

As the controversial streaming service Aereo’s Supreme Court battle heats up, it has been revealed that the company at one time held the interest of famed cable investor John Malone. According to a report from Variety, Malone’s conglomerate Liberty Global (NASDAQ:LBTYA) considered investing in Aereo, Liberty’s chief technology officer Balan Nair said at the 2014 Cable Show this week. Nair didn’t go on to say why Liberty passed up investing in the company, though the certain legal trouble Aereo was destined to get into was likely a deterrent.

Malone has advocated for consolidation in the cable industry and is generally a supporter of traditional pay-TV, which makes it interesting that he would consider investing in a company that’s entire purpose is to disrupt traditional television. The Liberty Media (NASDAQ:LMCA) branch of Liberty Global owns the cable company Charter Communications (NASDAQ:CHTR), which tried to buy Time Warner Cable (NYSE:TWC) recently, but had the rug swept out from under it by Comcast (NASDAQ:CMCSA).

Aereo provides its users with super-cheap access to network TV that would be available for free by using ‘bunny-ears’ attached to a TV set. The company collects the signals of channels that media companies send out over public airwaves, including Comcast’s NBC, Disney’s (NYSE:DIS) ABC, CBS (NYSE:CBS), and News Corp’s (NASDAQ:NWSA) Fox. It then distributes the content from those signals to its customers via the Internet. The controversial thing about the service is that the company doesn’t pay the expensive retransmission fees that cable providers do, because by using tens of thousands of small antennae Aereo argues that its service does not constitute a public performance.

All the aforementioned networks are involved in the lawsuit, which is currently before the Supreme Court. The networks are looking to squash the service because if it catches on they could lose their lucrative retransmission fees and ad dollars, since the service also allows for users to record and store programming as well as skip over commercials. Aereo has had some wins and some losses in smaller courts and the Supreme Court’s decision on the matter could have a big effect on how we watch TV.

Opening arguments were heard in court last week and if you feel confused over the specifics of Aereo’s argument don’t feel bad because some of the Supreme Court judges are, too. Aereo says that its service is not infringing copyright law because the separate antennae stop it from constituting a public performance of copyrighted work. The service compares itself to a DVR, but one that operates online for a monthly fee. Networks are arguing that Aereo is ripping them off by not paying fees.

The opening arguments from lawyers representing the networks and Aereo were made before the Supreme Court justices, who expressed confusion over whether or not Aereo could be categorized as a cable company and how the case will effect the cloud computing industry as a whole. “What disturbs me is I don’t understand what the decision for you or against you, when I write it, is going to do to all kinds of other technologies. I’ve read the briefs fairly carefully, and I’m still uncertain that I understand it well enough,” said Justice Breyer.

Lawyer David Frederick, who represents Aereo, said that ruling in favor of the networks would negatively affect the entire cloud computing industry. He also said that the thousands of tiny antennae are used not to circumvent copyright law, but to keep costs down for the company. Chief Justice Roberts didn’t buy the argument, saying, “I mean, there’s no technological reason for you to have 10,000 dime-sized antenna, other than to get around copyright laws.”

If Aereo ends up finding a victory in court, it will begin expanding into twenty-two more cities, but it won’t mean the company is in the clear. Some of the networks have threatened to pull their programming from the public airwaves entirely if the Supreme Court does not find Aereo guilty of infringing copyright, meaning Aereo could lose all the programming it offers anyway. Given that leverage the networks have over the service, it’s possible that passing on Aereo was a good idea for Malone, but if the service wins in court and the networks don’t make good on those threats, Malone could be missing out on the next big thing in online streaming.

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