How Aereo’s Supreme Court Loss Could Kick-start Innovation And Spur Online Piracy


Customers lost their best alternative to rising cable bills this week when the U.S. Supreme Court ruled against online TV startup Aereo, deeming it illegal. But the decision raises a crucial question: When will customers insatiable demand for online content override broadcasters’ and cable-Internet companies’ desire to hold on to old technology?

In the immediate aftermath of the Court’s verdict, cable companies are still going to pressure consumers to buy into the bundle — cable and telephone service, Internet access, and mobile video streaming, Michael Carroll, a cyberlaw professor at American University in Washington, D.C., told ThinkProgress. And even though Aereo’s “particular way of trying to get broadcast online is not going to work, what broadcasters need to look at is that [Aereo] was meeting a demand. People wanted to look at live TV online.”

Carroll said, “Netflix has already shown that you can take a TV show and stream it online,” emphasizing that to survive, Aereo might have to fall back on existing means of streaming TV online with a delay. “But how long should we [as a society] dedicate [so much] of the TV broadcast spectrum to the old over-the-air ways rather than giving it all to the Internet,” he asked.

Filling The Void

Aereo was filling a void in the market — and was succeeding, operating in over 10 markets nationwide. And it’s not surprising, over 5 million American households don’t have a TV set and even those that do are increasingly going online to stream live events. Almost 2 million people have been watching the World Cup online, according to Bleacher Report. Another one in three people tuned into the 2012 Olympics via online or through social media, a 2013 Pew Research survey found.

Media companies have noticed the trend but are still invested in the traditional TV model. To compensate, they’ve begun offering online solutions such as video on demand to keep customers happy.

“A lot of the incumbents say ‘trust us we’ll innovate,’ but their pace and their structure are based on the old model [of TV],” Carroll said. “The copyright owners perspective is that ‘only we can create a VOD service’ and they’re worried about services that come along and undercut that argument.”

Because innovation is slow, it often doesn’t meet the cord-cutting standard customers crave. Referencing “Innovator’s Dilemma” author Clay Christiansen, University of Virginia copyright and intellectual property law professor Dotan Oliar said, “Innovation comes from left field. Not incremental innovation, improving on yesterday, but destructive innovation. Coming at something from a brand new way never comes from the incumbent, but always comes from an outsider.”

Because Aereo was an outsider, the case involved “tension and tradeoffs,” Oliar, based in Charlottesville, Va., told ThinkProgress.

The case highlights society’s constant battle with technology and content creators — the artists, filmmakers, musicians and even athletes. It pit technological innovators against content creators and it’s up to society — through laws and future cases — to decide which is more important.

Legal Roadblocks Foster Innovation

Unfortunately, the law is often decades behind technology and consumers’ needs.

“The law, even though it tries to be technology neutral, is limited to the existing technology,” Oliar said. “It’s hard to look to the future. It’s hard to capture language for things that don’t yet exist.”

Even when the Supreme Court rules in favor of new technology, copyright owners turn to Congress to pass a new law, he said. When that happens, it “dis-incentivizes” tech companies because they have to pay exorbitant fees. Contrarily when tech companies win in court, it discourages artists from producing quality content because they feel they’re being ripped off.

With Aereo, the Court was very careful to limit its decision to just Aereo’s model and any similar businesses acting as cable copycats, charging customers for network programming but not paying the licensing fees. The justices wanted to make sure their ruling wouldn’t discourage future development of technology.

“But the reality of the matter is as much as the Court is trying to avoid an adverse impact, there will be one,” Oliar said. “Aereo is like a test case. It’s a startup, rising in popularity because they are offering a service that people like.”

Before Aereo, there were several Supreme Court cases involving betamax video tapes, photo copiers and even the right to make films out of books, that forced the Court to choose between tech innovators and copyright owners, Oliar said. The same thing happened in the music industry when music companies sued record stores, and later file-sharing startup Napster, for copyright infringement.

When radio first appeared, disc jockeys just played music over the air and didn’t get permission from record companies or the artists, Oliar said. They went to court and Congress, and as a result the music and radio broadcast industry have arrangements and follow a series of regulations that allow copyright owners and artists to get paid based on airplay.

Aereo’s Supreme Court loss mimics that of file-sharing company Napster, which held all shared files in a central server. The Supreme Court deemed the company was illegal in 2001. But instead of the folding, tech innovators pressed on. In the wake of the Napster verdict, similar file-sharing services popped up, learning from the case and instead of using a central server, devised software that would take pieces of a file and reassemble them before they were shared.

The trend persisted until 2005, when Napster successor, Grokster, went to the Supreme Court. Then the justices decided such a company is illegal if it knowingly provides a service in which it expects customers to break the law. In the meantime, customers kept illegally downloading music through copyright infringing sites because it fit their needs.

Without those legal battles, companies and services such as Pandora, Spotify and iTunes wouldn’t exist. TV has yet to see a similar revolution, but the Aereo decision could be the catalyst needed to spur innovation from tech companies.

“There’s so much activity out there and so much of it is infringing [on copyrighted material, the media industry] has to give them a way,” Oliar said.

The Supreme Court felt like Aereo was getting a “free ride on broadcasters,” Carroll said. For time being, customers can stream live shows with a delay, and there will still be pirate sites. That will, in turn, put pressure on broadcasters and cable companies to figure out how to fill Aereo’s void. And maybe, just maybe, Aereo’s demise will spark more tech startups to break through the longstanding legal barriers keeping customers bound to yesterday’s TV technology.