Two fledgling technologies could dramatically reshape the $60
billion-a-year television broadcast industry as they challenge the
business model that has helped keep broadcasters on the lucrative end of
the media spectrum.
On April 1, a US appeals court rejected a
petition by the major broadcasters including Comcast's NBC, News Corp's
FOX, Disney's ABC and CBS, to stop a service called Aereo, which offers a
cut-rate TV subscription for consumers by capturing broadcast signals
over thousands of antennas at one time.
It was the second time in
recent months that TV broadcasters failed to block a new technology that
undercuts revenue they generate for their television shows.
November, a California court struck down Fox's request to ban Dish
Network's ad-eliminating video recording device called the Hopper.
two services strike at the heart of the TV broadcast model, whose
future will be up for debate at the National Association of Broadcasters
show, which 90,000 people were expected to attend in Las Vegas this
The most touted feature of the Hopper makes TV commercials
disappear completely when watching recorded prime-time broadcast
television, unlike prior DVRs and other devices that require the viewer
to fast forward through ads.
Aereo could cut the numbers of people
who need or want a more expensive cable video subscription, which would
eat into the $3 billion in so-called "retransmission fees" that
research firm SNL Kagan says broadcasters get from cable and satellite
systems, based on the number of their subscribers.
The threat so
far is limited. The number of people using Aereo - backed by media
heavyweight Barry Diller, who launched the Fox network in 1986 - is
miniscule compared to the number of pay TV customers in the United
States. Dish's Hopper is a more mainstream device that Dish's 14 million
subscribers have access to.
But broadcasters fear the services will continue to expand, cutting into their viewing audience and advertising revenue.
though courts have made preliminary decisions in favour of Dish and
Aereo, both cases are still in the early stages and those decisions
could ultimately be reversed.
outcome for Aereo and the Hopper in court would push TV operators to
dramatically reshape themselves. It could even force them to trade in
their broadcast towers and become cable channels alongside networks such
as Bravo, AMC and ESPN, says Garth Ancier, who has been the top TV
programmer at Fox, NBC and the WB networks.
"They won't have a choice," Ancier said. "When someone attacks your business, sometimes you do something radical."
of the top four major networks have been considering just such a move
for months, and the emergence of the two technology threats could
accelerate their decisions, according to Ancier.
That would keep
the broadcasters' signals away from Aereo and their ads free from the
Hopper, which for now only zaps broadcast ads in recorded television.
downside? Broadcasters would have to turn their backs on the 11.1
million homes that Nielsen estimates still receives their TV signals
from rabbit ears and rooftop antennas and do not have cable
Spokesmen for Fox, CBS, NBC and ABC declined to
comment on their plans. Last week, following the Aereo ruling, Fox said
"the court has ruled that it is OK to steal copyrighted material and
retransmit it without compensation."
All the broadcasters also
said they plan to keep fighting Aereo and said they were confident that
the rights of content owners would be protected.
New viewing habits
the Hopper and Aereo take advantage of changes in how TV viewers get
their shows. Increasing numbers are "binge watching," or tuning into
libraries of recorded episodes on their DVRs or on the Internet. As many
as 5 million homes now "cut the cord" and get their TV shows from
sources such as streaming on the Internet or watching DVDs or game
consoles, according to a March 11 Nielsen study.
For now, the number of people using either the Hopper or Aereo is small but growing.
Hopper is the free DVR for new Dish customers and is the focus of
Dish's current ad campaigns. Dish has 14 million customers, making it
one of the biggest U.S. pay TV companies behind Comcast and DirecTV, the
Aereo has never revealed its subscriber numbers but
it is expanding quickly. In February, Aereo said it was available to 19
million people, mostly in the New York area, and it embarked on an
outdoor advertising campaign. It plans to expand to 22 other cities this
year including major markets such as Chicago and Houston.
before Aereo and the Hopper appeared, the percentage of viewers who
watch TV from the traditional networks was crashing, down from 69
percent in 1993 to 42 percent today in February, according to Nielsen.
further jolt to the broadcasters' dwindling audience would empower
advertisers, who last year spent $27 billion on broadcasting
commercials, to negotiate tougher on price hikes and could take some of
that money elsewhere.
Just as troubling for the broadcasters, if
ratings continue to decline, the TV networks will have smaller captive
audience to whom they can promote their new programming slate, which
would likely accelerate the downward cycle.
"It's like the music
business," said BTIG media analyst Rich Greenfield. "They decline and
decline and one day the bottom falls out."
The networks might
fight back. CBS Chief Executive Leslie Moonves told an investor
conference last fall that he may pull CBS off the Dish's system,
depriving the service's subscribers of NFL football and "CSI" if the
satellite operator continued to promote the Hopper's commercial skipping
On March 26, CBS said it acquired a 50 percent stake in
the cable channel TVGN, formerly the TV Guide Network, adding a cable
channel that would be safe from Aereo.
TVGN and its fellow cable
channels are so far safe from the Hopper. Dish's chairman Charlie Ergen
said in February that Dish does not yet have the technology to zap
commercials on cable and the company has not announced any intention to
Broadcasters still hope to cut off both services by persuading the courts that they violate copyright laws and breach contracts.
now, Aero and the Hopper will only get more popular as the cases wind
their way through court, said intellectual property attorney Andrew
Goldstein, a partner with the Chicago firm of Freeborn & Peters.
"It will be hard to put that genie back in the bottle," Goldstein said.
© Thomson Reuters 2013