Thursday, June 26, 2014

Impact of the Aereo Supreme Court Decision on Broadcasters, Cloud Content Storage

 
              Broadcast stocks rose as much as double digits on the day the Supreme Court released its Aereo decision.  The decision underscores the value in broadcasters’ copyrighted content, but also the importance—and staying power—of income streams accruing to broadcasters.  Any venture seeking commercially to exploit broadcaster content will not readily find a way to avoid having to secure retransmission/copyright consent.

              Because new ventures cannot easily cut out local broadcasters, perhaps network content creators might consider ways to deal directly with new distributors.  Regardless of the technology delivering content to end users, a payment likely will flow upstream.  Accordingly it appears even more unlikely that local broadcasters will participate in an incentive auction to part with all or a portion of their 6MHz channels.  Why abandon recurring and growing compensation for a one time infusion of cash?  Bad news for the FCC and others keen on extracting large swaths of additional spectrum for wireless broadband service.

              The Aereo decision also suggests that one cannot underestimate the power of broadcasters to establish themselves, even now, as benefactors of the public interest, localism, “free” content and candidates for elective office.  In the 1970s Congress amended the Copyright Act to mandate community antenna television (“CATV”) operator payments to broadcasters in exchange for a compulsory copyright license for retransmission, now deemed a public performance.  At that time, candidates for elective office heavily relied on television and radio to get their message out.  The National Association of Broadcasters ("NAB") was considered one of the most effective lobbying organizations on Capitol Hill.  NAB framed the cable issue as one of "siphoning," market fragmentation, a threat to localism and outright thievery. 

        While CATV actually helped expand market penetration into fringe, hinterland locations, it also "imported" signals and jeopardized local broadcasters' shared monopoly.  As Justice Scalia noted in dissent, incumbents have a history of forecasting disaster, e.g., the demise of “free television.”

        In short order (at least for Congress) local broadcasters got relief, including the right to force cable operators to block channels containing duplicative networks and syndicated content, such as Jeopardy and Wheel of Fortune.  Perhaps amending the Copyright Act was the most expedient legislative option to devise a mechanism whereby broadcasters received compensation and consumers, including first time, rural residents, continued to have the opportunity to view content.

        Reliance on 1976 Copyright Act amendments may have an adverse impact on new technologies and entrepreneurial business plans.  Any venture offering cloud-based storage of content now has to consider whether it may incur secondary liability for the direct infringement of their customers.  My free advice: make sure copyrighted content travels a round trip from the content source/distributor to the consumer and then back upstream to the cloud for storage.  In this bandwidth doubling routing, the cloud locker operator has a better legal argument for associating with consumers’ copyright fair use, or non-infringing use.

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