The Bizarre World of TV and Aereo

by on April 24, 2014 · 1 comment

Aereo’s antenna system is frequently characterized perjoratively as a Rube Goldberg contraption, including in the Supreme Court oral arguments. Funny enough, Preston Padden, a veteran television executive, has characterized the legal system producing over-the-air broadcast television–Aereo’s chief legal opponents–precisely the same way. It’s also ironic that Aereo is in a fight for its life over alleged copyright violations since communications law diminishes the import of copyright law and makes copyright almost incomprehensible. Larry Downes calls the legal arguments for and against Aereo a “tangled mess.” David Post at the Volokh Conspiracy likewise concluded the situation is “pretty bizarre, when you think about it” after briefly exploring how copyright law interacts with communications law.

I agree, but Post actually understates how distorted the copyright law becomes when TV programs pass through a broadcaster’s towers, as opposed to a cable company’s headend. In particular, a broadcaster, which is mostly a passive transmitter of TV programs, gains more control over the programs than the copyright owners. It’s nearly impossible to separate the communications law distortions from the copyright issues, but the Aereo issue could be solved relatively painlessly by the FCC. It’s unfortunate copyright and television law intertwine like this because a ruling adverse to Aereo could potentially–and unnecessarily–upend copyright law.

This week I’ve seen many commentators, even Supreme Court justices, mischaracterize the state of television law when discussing the Aereo case. This is a very complex area and below is my attempt to lay out some of the deeper legal issues driving trends in the television industry that gave rise to the Aereo dispute. Crucially, the law is even more complex than most people realize, which benefits industry insiders and prevents sensible reforms.

The FCC, and Congress to a lesser extent, has gone to great lengths to protect broadcasters from competition from other television distributors, as the Copyright Office has said. You wouldn’t know it based on FCC actions since the 1960s, but there is nothing magical about free broadcast television. It’s simply another distribution platform that competes with several other TV platforms, including cable, satellite, IPTV (like Verizon FiOS), and, increasingly, over-the-top streaming (like Netflix and Amazon Prime Instant Video).

Hundreds of channels and thousands of copyrighted programs are distributed by these non-broadcast distributors (mostly) through marketplace negotiations.

Strange things happen to copyrights when programs are delivered via the circuitous route 1) through a broadcast tower and 2) to a cable/satellite operator. Namely, copyright owners, by law, lose direct control over their intellectual property when local broadcasters transmit it. At that point, regulators, not copyright holders, determine the nature of bargaining and the prices paid.

Right away, an oddity arises. Copyright treatment of local broadcasts differs from distant (non-local) broadcasts. Cable and satellite companies have never paid copyright royalties for signals from a local broadcast. (This is one reason the broadcast lawyer denied that Aereo is a cable company during Supreme Court oral arguments–Aereo merely transmits local broadcast signals.) But if a cable or satellite company retransmits signals from a distant broadcaster, the company pays the Copyright Office for a copyright license. However, this license is not bargained for with the copyright holder; it is a compulsory license. Programmers are compelled to license their program and in return receive the price set by the panel of Copyright Office bureaucrats.

The Copyright Office has asked Congress for over 30 years to eliminate the compulsory license system for distant broadcasts. There are few major distant broadcasters carried by cable companies but the most popular is WGN, a Chicago broadcaster that is carried on many cable systems across the country. The programmers complain they’re underpaid and the Copyright Office has the impossible task of deciding a fair price for a compulsory copyright license. Alleged underpayment is partly why TBS, in 1998, converted from a distant broadcast network to a pure cable network, where TBS could bargain with cable and satellite companies directly.

Yet things get even stranger when you examine how local broadcasts are treated. Copyrights are essentially, as best as I can tell, a nullity when a program is distributed by a local broadcaster. Until 1992, no payments passed from cable companies to either the broadcaster or copyright holder of broadcast programs. Congress made the retransmission of locally broadcasted programs royalty-free. Cable companies captured the free over-the-air signals and sold those channels along with cable channels to subscribers.

Why would broadcasters and programmers stand for this? They tolerated this for decades because broadcasting is “free”–that is, an ad-based revenue model. They benefited from cable distribution because their programs and ads were reaching more eyeballs via cable than they would reach on their own.

Then in 1992, Congress decided cable companies were getting dominant. To rebalance the competitive scales, Congress created a new property right that ensured local broadcasters got paid by cable companies–the retransmission right. Congress did not require a copyright royalty payment. So cable (and later satellite) still didn’t pay copyright royalties for local broadcasts. The “retransmission right” is held by, not the copyright owner, but the owner of the broadcast tower. This is a remarkable and bizarre situation where, as the Copyright Office says, Congress accords a “licensee of copyrighted works (broadcasters) greater proprietary rights than the owner of copyright.”

Welcome to the bizarro world of broadcast television that Aereo finds itself. On the bright side, perhaps the very public outcry over Aereo means the laws that permitted Aereo’s regulatory arbitrage will be scrutinized and rationalized. In the short term, I’m hoping the Supreme Court, as Downes mentions, punts the case to a lower court for more fact-finding. Aereo is a communications law case disguised as a copyright case. These issues really need to be before the FCC for a determination about what is a “cable operator” and an “MVPD.” A finding that Aereo is either one would end this dangerous copyright dispute.

  • Chuck Roast

    It’s legal to rent a car in America.
    It’s legal to rent a TV in America.
    It’s legal to rent a DVD in America.
    It should be legal to rent an antenna in America.

    I can legally buy and use a DVR. I can legally buy and use an antenna. Why shouldn’t I be allowed to instead rent them from Aereo? Aereo passes the broadcast signal to their customers unmolested. They don’t add anything to the signal (like their own commercials) nor do they delete anything from the signal (like the the sponsors’ commercials).

    What if instead of my putting an antenna on my roof, Aereo offered to put one of their own on my roof and rent it to me? Would the broadcasters suing Aereo oppose that too? Why?

    All across America there are millions of households that can’t get a decent signal from their local broadcasters. Lots of people in New York City can’t get any or all of the New York stations because the signals are blocked by tall buildings. Why should they have to pay $25 or more for basic cable?

    The broadcasters are stepping on their own cranks. A generation ago cable brought them more eyeballs to their advertisers. Today Aereo wants to do the same thing.
    I’m surprised the car companies, cereal companies, big pharma and other big advertisers haven’t filed amicus briefs taking Aereo’s side.

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