Aereo Inc. lost big Wednesday when the Supreme Court ruled that the TV streaming startup was guilty of copyright infringement. But the ruling is a win for broadcasters like Hunt Valley-based Sinclair Broadcast Group Inc.
The justices said by a 6-3 vote that Aereo Inc. is violating the broadcasters’ copyrights by taking the signals for free. The ruling preserves the ability of the television networks to collect huge fees from cable and satellite systems that transmit their programming.
“This decision is important because it solidifies that right to be paid for that programming,” said Barry Faber, executive vice president and general counsel for Sinclair, in an interview Wednesday with The Daily Record. “We’re obviously pleased with the decision and we think the Supreme Court got it completely right.”
Sinclair’s stock jumped as high as $34.21 within 20 minutes of the ruling — an increase of about 18 percent from the opening price. The stock closed at $33.80, up 15.6 percent.
Aereo, founded in 2012, allows subscribers to use an individualized cloud-based antenna to watch live broadcasts or record them for later. Membership starts at $8 per month.
The service is available in nearly a dozen metropolitan areas, including Baltimore, where it launched in December. It had been planning to reach more than 20 markets in the near future.
Aereo looks a lot like a cable system, Justice Stephen Breyer wrote for the court in rejecting the company’s attempts to distinguish itself from cable and satellite TV.
“They were just taking content and putting it in a package and selling it to consumers,” said Faber. “Cable companies have to get our permission to do that. As a result, because we have valuable programming, they pay us for that programming.”
Sinclair had its own day in court against Aereo in February, and it won. The Maryland company, along with Nexstar Broadcasting and Fox Broadcasting and another channel, had filed an injunction against Aereo in the U.S. District Court in Utah, in order to prevent the company from streaming copyrighted material.
Wednesday’s Supreme Court ruling is a win for broadcast companies “because it reduces the attractiveness of cord-cutting,” said James Grimmelmann, a professor at the University of Maryland Francis King Carey School of Law and director of its intellectual property program.
But a result in favor of Aereo would not have been catastrophic for the broadcast companies, he said.
“That rhetoric was always overwrought,” he said. “At most, it would have accelerated the transition from television to streaming online by a couple of years.”
Howard Rosencrans, founder and chief research analyst at Value Advisory LLC, who follows the industry, agrees. And the broadcasters would have continued to fight, he said.
“It would have required quite a pivot in the business model,” said Rosencrans. “I think there are myriad ways that the broadcasters would have addressed both legally and potentially.”
But for Aereo, the ruling could be a death sentence, he said.
Aereo executives had said their business model would not survive a loss at the Supreme Court. Some justices worried during arguments in April that a ruling for the broadcasters could also harm the burgeoning world of cloud computing, which gives users access to a vast online computer network that stores and processes information.
Breyer said the court did not intend to call cloud computing into question, but even so, Grimmelmann expressed concern.
“This is going to be something that any entrepreneur working with video will have to worry about,” he said. “This makes me wonder about cloud computing companies.”
Justices Antonin Scalia, Samuel Alito and Clarence Thomas dissented. Scalia said he shares the majority’s feeling that what Aereo is doing “ought not to be allowed.” But he said the court has distorted federal copyright law to forbid it.
Broadcasters including ABC, CBS, Fox, NBC and PBS sued Aereo for copyright infringement, saying Aereo should pay for redistributing the programming in the same way cable and satellite systems must or risk high-profile blackouts of channels that anger their subscribers.
The National Association of Broadcasters praised the court for rejecting Aereo’s argument that the lawsuit was an attack on innovation.
The broadcasters and professional sports leagues also feared that nothing in the case would limit Aereo to local service. Major League Baseball and the National Football League have lucrative contracts with the television networks and closely guard the airing of their games. Aereo’s model would pose a threat if, say, a consumer in New York could watch NFL games from anywhere through his Aereo subscription.
The federal appeals court in New York ruled that Aereo did not violate the copyrights of broadcasters with its service, but a similar service has been blocked by judges in Los Angeles and Washington, D.C.
The New York-based 2nd U.S. Circuit Court of Appeals said its ruling stemmed from a 2008 decision in which it held that Cablevision Systems Corp. could offer a remote digital video recording service without paying additional licensing fees to broadcasters because each playback transmission was made to a single subscriber using a single unique copy produced by that subscriber. The Supreme Court declined to hear the appeal from movie studios, TV networks and cable TV channels.
With reporting by The Daily Record’s Lizzy McLellan and The Associated Press.