The Real Reason Why Broadcasters Shut Down Aereo

Streaming video is big business. Broadcasters want their share.

Jul 9, 2014 at 9:24PM

Last month, Aereo and its subscribers were dealt a death blow by the Supreme Court. The streaming television service was found guilty of copyright infringement against broadcasters like CBS (NYSE:CBS), Twenty-First Century Fox (NASDAQ:FOXA), Disney (NYSE:DIS), and Comcast (NASDAQ:CMCSA).

Many believed that the broadcasting companies filed suit to protect themselves against pay-TV operators that use tactics similar to those of Aereo to avoid high retransmission fees. Broadcasters have strategic measures they could take, however, to avoid such a fate.

The real reason why broadcasters shut down Aereo is because there's more money in it if they stream the video themselves.

TV -- now with 20% more ad revenue!
Chief Research Officer at CBS David Poltrack stated earlier this month that the broadcaster actually makes more money per viewer on streaming content than it does on traditional television. On average, the company makes 10%-20% more ad dollars per viewer on streaming content, and Poltrack expects that number to keep increasing.

Aereo brought more eyeballs to the broadcaster's shows, but those viewers technically still counted as traditional television viewers. Disney couldn't harness the power of the Internet to better target its ads to Aereo users like it can with the WatchABC app.

What's more, Aereo's DVR feature allowed subscribers to fast forward through ads altogether. The broadcasters' streams have compulsory ads regardless of whether they're live or time-shifted.

Broadcasters obviously have more to gain by offering more streaming content themselves rather than letting a company like Aereo do it for them. Nonetheless, they're remarkably hesitant to provide more access to their content. None of the major broadcasters offer live streams of their channels without a cable subscription.

No free TV!
Even though they can make more money on streaming audiences than broadcast audiences, the biggest reason why broadcasters are hesitant to offer streaming versions of their channels is because it weakens their positions with cable operators.

Presently, broadcasters are negotiating terms with pay-TV companies for over-the-top streaming. If anyone can already do that, what grounds do the broadcasters have to charge the cable companies for the privilege?

One operator has found a loophole that allows it to stream live broadcasts to its subscribers through a mechanism similar to that of Aereo. Fox is now taking steps to shut down that service after the ruling on the Aereo case.

Indeed, offering live streaming for free to anyone who wants it isn't a viable model for the broadcasters even if they make more ad revenue per viewer than they do on their free over-the-air broadcasts.

But what if they charged?
Aereo proved that people are willing to pay for better access to free over-the-air television. Tech-savvy cord cutters could hack together their own private cloud TV setups, but Aereo offered a convenience that people were willing to pay for.

The broadcasters can offer a similar convenience for a similar fee. Cable operators could receive a discount from the individual rate and include live streaming as part of their bundles. Everybody wins -- broadcasters get more money, consumers get more access, and cable companies get a better product.

Note that the only reason why this model works is because network broadcasts represent an anomaly in the unbundling problem. By their nature, over-the-air broadcasts can already be unbundled, and the people interested in such a product have probably already cut the cord. More importantly, networks make most of their money through advertising, so the premium for a-la-carte service over the bundle doesn't need to be too high.

Time to capitalize
The victory over Aereo was great for broadcasters, and the market rewarded them appropriately. Now it's time for them to capitalize on that and take more control of streaming television. They have an opportunity to significantly boost their revenues through better ad placement and additional fees on individuals and cable companies.

If they don't act, however, it's only a matter of time before consumers find a better alternative like they did with Aereo.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 

Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers