Cable Companies Both Love and Hate Aereohttp://www.fool.com/investing/general/2013/11/23/cables-loves-and-hates-aereo.aspx Adam Levy
November 23, 2013
Aereo is an extremely interesting company, and it could potentially disrupt the entire TV entertainment ecosystem. The technology company captures free over-the-air television broadcasts and streams them over the Internet to its subscribers.
The company may eventually find itself in the Supreme Court facing charges of copyright infringement from the major network broadcasters. Pay-TV operators will be paying close attention, as some already have plans to copy Aereo's strategy.
We saw Time Warner Cable (NYSE: TWC) battle with CBS over these rates for a month while it blacked out the most popular network in America. It cost the company dearly, as it lost more than 300,000 video subscribers last quarter.
Aereo found a loophole in the law that requires pay-TV operators to compensate networks for their content. It leases a tiny antenna to each of its subscribers, which means it's technically no different than setting up an antenna of your own. Subscribers pay Aereo to lease the antenna, stream the content, and set up a cloud-based DVR.
DirecTV (NASDAQ: DTV), Time Warner Cable, and Charter Communications (NASDAQ: CHTR) are each considering copying Aereo's business model. Other cable companies will likely follow suit to avoid paying billions of dollars in retransmission fees.
Network executives have threatened to move their content to a subscription-only (read cable) model to avoid such a nightmare scenario, but there are quite a few speed bumps that will slow that transition. In the meantime, cable companies can push antenna-captured content to Internet-connected set-top boxes.
TV over the Internet
The biggest advantage of TV over the Internet is that there are no physical limitations as to where you can send your signal. Although Aereo currently limits its subscribers by metropolitan area, this is only a legal limitation, not a technological one.
Charter Communications already has the technological capability to stream its video over the top. Its new app allows subscribers to stream 100 live channels inside of their home. Again, the limiting factor is content rights. Several other cable companies have similar capabilities.
Aereo's growth may spur it to find new products to offer. That might include some sort of cable alternative. But the National Football League and Major League Baseball just gave Aereo a great idea when they filed an amicus brief with the Supreme Court.
NFL over the Internet
But Aereo represents a threat to that business model. Because every NFL game is broadcast over-the-air in local markets, Aereo could, theoretically, create its own NFL package while the NFL receives absolutely no compensation for its content. The only thing blocking it is a trial court