In a landmark ruling with ramifications for the entire broadcast industry, the U.S. Supreme Court has said that Aereo Inc., – which provides internet streaming of live network TV for a monthly $8 subscription fee – is operating in violation of U.S. copyright law.
In a 6-3 ruling, the Supreme Court said that because Aereo operates in a manner similar to cable systems, its internet streams of the ABC, CBS, Fos and NBC TV signals were in violation of the public performance clause of the Copyright Act.
Launched in New York in 2002 and subsequently rolled out to other markets across the country, Aereo’s system is comprised of servers, transcoders and thousands of dime-sized antennas housed in a central warehouse. When a subscriber wants to watch a show being broadcast on one of the major networks, they visit the Aereo website and select the program they wish to see from a menu highlighting local programming.
When the selection is made, Aereo’s servers select an antenna that is dedicated to the sole use of that particular subscriber for the duration of the show, and tunes it to the requested program.
When the antenna receives the broadcast, a transcoder translates the signal received into data that can be transmitted over the internet and accessed via PC, tablet or smartphone.
Aereo also operates a virtual PVR service that enables users to record shows for later playback, although that particular aspect of its business was not addressed in the Supreme Court ruling.
The Supreme Court ruling was based on whether Aero transmits a performance publicly, in violation of the Copyright Act, when a subscriber watches a show using its system.
It reversed an earlier decision by the Federal District Court in a suit brought against Aereo by TV broadcasters, producers, distributors and marketers who own copyrights in many of the programs streamed to Aereo subscribers. The Federal District Court had ruled that Aereo does not perform publicly because it doesn’t transmit to the public, instead sending a private transmission available only to a specific subscriber.
But while Aereo has depicted itself as nothing more than a supplier of equipment that responds to subscribers’ directives, the Supreme Court ruling deemed its activities “substantially similar” to those of cable companies. “Aereo neither owns the copyright in those works nor holds a license from the copyright owners to perform those works publicly,” said the ruling.
“The subscribers to whom Aereo transmits television programs constitute ‘the public,’” the ruling continued. “Aereo communicates the same contemporaneously perceptible images and sounds to a large number of people who are unrelated and unknown to each other. This matters because, although the [Copyright] Act does not define “the public,” it specifies that an entity performs publicly when it performs at “any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered.”
It is a devastating blow for Aereo, whose founder Chet Kanojia said in a statement earlier this year that a loss for his company in the Supreme Court would have “chilling” consequences for American consumers and the cloud industry.
“We have every confidence that the Court will validate and preserve a consumer’s right to access local over-the-air television using an individual antenna, make a personal recording with a DVR, and watch that recording on a device of their choice,” he said in the statement.
In January, Aereo closed a US$34 million round of Series C funding that was slated for nationwide expansion and increased investments in hiring and technology.
UPDATE (2:13 p.m.) – Kanojia this afternoon released a statement calling the ruling “a massive setback” for consumers.
“We’ve said all along that we worked diligently to create a technology that complies with the law, but today’s decision clearly states that how the technology works does not matter,” he said. “This sends a chilling message to the technology industry. It is troubling that the Court states in its decision that, ‘to the extent commercial actors or other interested entities may be concerned with the relationship between the development and use of such technologies and the Copyright Act, they are of course free to seek action from Congress.’ (Majority, page 17) That begs the question: Are we moving towards a permission-based system for technology innovation?”
The full statement can be found here.