Free Cable a Reality With Aereo? Here Are the Facts.


Did you ever wish you could bring up broadcast TV on your tablet or smartphone? The game is on, and you're nowhere near a sports bar. You gotta catch your favorite local news show -- poolside. Or maybe you're stuck on a homebound commuter train, missing that new ABC sitcom you forgot to tell your DVR about.


Image source: Aereo.

Aereo just might be the tool you need -- if the controversial service survives the next couple of years.

What is this thing, anyway?
The service grabs regular broadcast signals off the air, using one tiny antenna per customer, and translates them into digital streams. For $8 a month, you can then access local broadcast TV content online or record shows in a cloud-based DVR (think TiVo, without the set-top box).

Whether recorded or live, Aereo streams can be viewed in popular Web browsers or via special apps on your Apple iPhone or iPad. No support yet for popular Android devices, but Aereo is reportedly working on that.


The tiny antennas that make Aereo's magic happen. Image source: Aereo.

Aereo is small but expanding, jumping from just New York City to also cover Boston and Atlanta so far. The entire state of Utah joins the club later this month, followed by three cities in Texas and Florida in September. The company aims to serve 22 markets by the end of the year.

The push into Dallas seems particularly timely, given that local cable provider Time Warner Cable has blacked out CBS from its cable network because of a contract dispute.

Aereo could become a handy alternative to buying rabbit-ear antennas for your Under the Dome fix in affected markets like Dallas and New York. Market watchers report that pirate downloads of Dome episodes more than doubled in affected markets this week. (Not that piracy is terrifying media gurus anymore, given the free marketing that follows. Still, pirates are supposed to be scary.)

I'd be curious to hear whether Aereo sign-ups in the Big Apple spiked when the CBS blackout started. A legit service should trump the piracy urge at least some of the time. You don't hear the RIAA complaining about rampant piracy now that Apple's iTunes and a plethora of streaming music services play an Aereo-like role in the music market.

There's disruption in the air, folks.

Can I invest in this disruptive model?
Sounds like the bee's knees, right? If you're still into over-the-air TV stations with local weather and news, Aereo provides a Swiss army knife to help you consume your favorite content in a modern way.

The company isn't publicly traded, but the consortium of backers includes Barry Diller's IAC/InterActiveCorp . If this thing takes off, IAC would be a big winner.

Unfortunately, that's a big "if."

The controversy
The broadcasters that provide Aereo's signals don't like the retransmission idea at all. The company expected this, and the cumbersome architecture of providing one antenna per user was designed to work around the problem.

Aereo isn't splitting one input into thousands or millions of billable streams, the way a cable provider would. This is your antenna, and you should be able to watch its content however you like -- it's not a "public performance."

But that's just empty semantics, if you ask the content providers. Doesn't matter if you're serving a million customers with a million antennas or just one -- the end result is the same and Aereo is trampling on the broadcasters' copyrights. The darn thing is pulling eyeballs away from traditional TV sets, is not a legit business, and should not exist.

So Aereo has been met with lawsuits in every new market, asking the courts to shut the service down. So far, district and appeals courts have overwhelmingly sided with Aereo's view.


A dizzying array of micro-antennas, each connected to a single customer's Aereo account. Should this model be necessary? Image source: Aereo.

As long as each antenna is matched with a unique customer, most judges have agreed that there's no "public performance" going on -- just some private consumption. But it's not a unanimous view. In the 2nd Circuit Court of Appeals' panel review of the broadcaster case against Aereo in New York, the Hon. Judge Chin dissented with the Aereo-friendly verdict. He called Aereo a "sham" and a "Rube Goldberg-like contrivance" that was designed to sidestep copyright laws with fancy technical footwork.

Aereo's copyright controversy might end up in the Supreme Court, or courts might decide to prefer Judge Chin's arguments over those of his prevailing peers. Even Barry Diller isn't sure how it's going to end, which is why IAC has only made minuscule investments in Aereo so far.

What's next?
Investing in IAC isn't likely to end in a big payoff. There's plenty of legal risk on the table, and IAC's investment is too small to be a game-changer for this $4.2 billion stock anyhow.

If you're excited about the rebroadcasting model, you're probably better off waiting for the court drama to play out. If Aereo's arguments hold, the company might go public on its own and become a directly investable thing. If they fall apart on further review, you won't charge headlong down a dead-end street.

And of course, a SCOTUS review might do something even better. Those public broadcast airwaves are there for the consumption, so why should it matter how Joe Consumer is enjoying them? The crucial "public performance" argument is becoming irrelevant in the digital age, and what if the justices do away with that language altogether?

Then it would be a trivial matter to set up Aereo-style services anywhere you like, using one antenna for entire markets. Time Warner Cable and friends would suddenly have a new crop of local content rivals, forced to compete on price and services rather than resting on laurels of monopoly protection.

Aereo itself might then become irrelevant and non-investable, or perhaps it'd become the leader in a brand-new industry. It's too early to tell, and we don't even have that sensible SCOTUS decision yet.

That's one more reason to sit tight and watch the Aereo saga closely. Adding IAC to your Foolwish watchlist will help you monitor the evolving legal situation.

Barry Diller may have stumbled on a brand new megatrend -- or maybe he's personally working to kick-start it. The future of television begins now -- with an all-out $2.2 trillion media war that pits cable companies such as Time Warner against technology giants such as Apple. The Motley Fool's shocking video presentation reveals the secret Steve Jobs took to his grave and explains why the only real winners are these three lesser-known power players that film your favorite shows. Click here to watch today!

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