Starting on April 22nd, The US Supreme Court will begin to hear opposing arguments from the broadcast television industry to determine if Aereo, a streaming television subscription service for set-tops, PCs and mobile devices is illegal.
The broadcast TV industry lawsuit against Aereo, which includes CBS (the parent company of ZDNet), NBC/Universal, FOX and Disney/ABC as plaintiffs has been brewing for two years. The culmination of this suit will not just determine whether or not Aereo itself has a future, but it will also likely fundamentally change the way the TV industry as a whole distributes and "broadcasts" content, regardless of what side of the coin the judgment eventually lands on.
However, while Hulu is a business partnership between NBC, FOX and ABC, Aereo pays no rebroadcast or distribution royalties to these companies whatsoever. How does Aereo do this?
Aereo's technology approach to distributing content is different than other streaming services such as Google Play, XBOX Video and iTunes, where one might purchase a subscription to a specific TV show or pay-per-view for each episode.
Aereo is closer in functionality to Hulu+, which is a service that has monthly subscription charge for access to a wide variety of broadcast television programming. However, while Hulu is a business partnership between NBC, FOX and ABC, all of who own most of the content in question, Aereo pays no rebroadcast or distribution royalties to these companies whatsoever.
How does Aereo do this? The company uses giant clusters of tiny antennas located in targeted markets attached to Over-the-Air TV tuners, which are remotely assigned to individual subscribers. The broadcast TV content is then recorded to "Remote DVRs" living in datacenters controlled by the subscribers, which is then streamed over the Internet to the subscriber endpoint device.
Aereo maintains that what it does is perfectly legal. The broadcasters beg to differ. Hence, the big lawsuit.
I'm not going to pontificate on who may be right or who may be wrong and where the decision is likely to end up. That's purely in the hands of the Supreme Court now. However, one can extrapolate on what is likely to happen should Aereo prevail, or if Aereo loses.
If Aereo prevails in the eyes of the Supreme Court, it will almost certainly force the broadcast TV industry to abandon Over-the-Air. The CEO of CBS, Les Moonves, has stated that the company is likely to distribute its content via the internet and through relationships with content providers such as telecoms and cable companies should Aereo be deemed legal.
If CBS carries good on its threat, then it is a virtual certainty the other broadcast giants are to follow.
So if Aereo's activities are deemed legal, the source of its life is almost certainly going to be sucked out as the digital broadcast airwaves go dark. And if it is deemed illegal, in the words of one of its prime investors, Chairman of InterActiveCorp Barry Diller, the company is probably "finished."
But even if the Supreme Court puts a fork in Aereo and calls it done, the broadcast industry will still move on to the greener pastures of the Cloud. The tools that will be at their disposal and a superior ability to monetize their content are far too alluring to stay in the Over-the-Air and time-scheduled broadcast business for very long.
An Aereo win will greatly accelerate the demise of broadcast, but even an Aereo loss will see broadcast die in less than seven years.
"Going Dark" will mean that all will likely be left of broadcast television will be news coverage, which stations in local markets will be obligated to transmit under FCC rules if network owned and operated stations stay in business and maintain TV broadcast capability.
However, that requirement almost certainly does not extend to other content such as live sporting events, network news and network TV shows. And it is also possible for local news content to be created but streamed exclusively to content providers if the networks shut their towers down and relinquished their broadcast spectrum.
There's the Public Broadcast System, but of course, nobody expects Aereo or a local news market to survive on PBS. Local news costs money to produce and it is currently paid for through advertising.
The FCC maintains a list of rules and regulations that impose limitations on how much broadcast capability a media company may own. However, as far as I am aware there is no FCC regulation that forces a network to maintain broadcast infrastructure, especially if they release their ownership of the frequency spectrum they broadcast on back to the government.
I mean, if a network decides that broadcast TV is a money losing proposition, we can't force a network to be in the broadcast business, right?
It has always been assumed they would be compelled to do it for their own self-interest and also because their spectrum ownership requires them to. Now the driving force of that self-interest and the value of that freqeuency spectrum is being called into question.
Potentially, the local news that used to be produced by network owned and operated stations could end up as spun-off, independent content-creation companies that have no broadcast assets, period. They will simply sell the content to the networks and the content distribution providers. Stations that are already independently and locally owned are likely to end up in the same boat.
The future for the TV industry is an On-Demand one. Read more on the next page.
Assuming the original programming created by the networks becomes avaliable only to content providers, what exactly does that mean for monetization? How does advertising work? How does a network or a content producer evaluate ratings when time slots become irrelevant?
I pondered some of these things four years ago when Conan O'Brien and Jay Leno became the subject of a highly publicised kerfuffle regarding their employment contracts, ratings, and schedule shifting of The Tonight Show.
Here's the juicy bits of that article which I beleive are still relevant today:
Ratings will no longer be about timeslots, but about the number of downloads and targeted audiences, and the metrics that content providers will be able to gather and data mine will be tremendous. Suddenly, NBC will realize that 70 percent of what gets shown on Saturday Night Live sucks ass, and they'll be able to do sophisticated trends analysis to tell them to ditch the consistently stupid skits and the people that produce them or star in them, because they'll know exactly when people tune in and tune out to very granular levels of detail.
Produced television content will have to survive based on raw viewership and downloads, not by what time slot they occupy. The success of television programming in 2016 will be measured not unlike the way we measure the success of New Media today. Old Media Television will have to adapt to an instantaneous gratification model, or die.
Of course back in 2010, Cloud Computing as well as Big Data were not industry buzzwords as they are now. But I understood even four years ago that such technologies would be critical to move television into the 21st century.
Will the TV broadcast industry cease to exist and go "Over the Top", as Les Moonves predicts?
Rapid provisioning (and de-provisioning) of servers and storage to provide geo-redundant capacity for the content streaming is one part of the equation, certainly. No television network will want to pay for spare datacenter capacity and the CAPEX and OPEX that goes along with it when they can just buy it on demand as a cheap utility from their choice of Cloud providers.
Sophisticated analysis and Big Data decision making tools will guide the networks in how to target advertising to who is viewing that streamed content, providing more of a precision guided muniton to the eyeballs than the shotgun blast that they have today.
For the advertisers, that's way better than the tools they have now. Today all they have is time slots, ratings and audience popularity based on Neilsen and perhaps DVR data, as well as local demographics.
All of that is legacy technology and vestigial old school business when Over-the-Air is gone. Depending on the viewer, who will be profiled based on their social network footprint and historical viewing data supplied by all of their content providers (presumably through business partnerships) they will receive customized TV ads dynamically inserted into their streams. And they will be told what other programs to watch.
Nothing will be DVRed, as content will be dropped onto the CDNs for the content provider as soon as it is ready and the endpoints will only need enough local storage for an encrypted stream cache, eliminating a great deal of content piracy. And it will be difficult to bypass embedded advertisements in some cases depending on how the content was licensed.
If the activities of the NSA snooping on your emails and phone call history creep you out, just think about what the networks are going to do with the information that details what you like and do not like to watch, what parts of it you liked or disliked, all of your favorite things on Facebook, what you've been saying on Twitter, what websites you look at, what products you've been buying, what books you read and what games and music you play on your devices.
One thing is for certain. Aereo will be a mere footnote in a decade hence, a long-forgotten startup that made a poor bet that the industry it used for the basis of its offerings would not adapt to the changing lifestyle and technology preferences of its content consumers.
Will the TV broadcast industry cease to exist and go "Over the Top", as Les Moonves predicts? Talk Back and Let Me Know.