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Inside the Battle for Internet TV

As more consumers tune in to watch network television online, networks and start-ups are butting heads over ownership of live Internet TV. Here are the current stakes.
TV Time: Start-ups are battling major broadcasters for the right to broadcast live TV over the Web.
Antennas used by Aereo to broadcast live TV over the Internet.

Courtesy company

Antennas used by Aereo to broadcast live TV over the Internet.

The stage is set for an all-out mêlée for the ownership of Internet TV.

The statistics are impressive: In 2009, 49.6 million Web users watched some form of television programming online. By 2011, more than 70 million users were watching shows online, which represented more than one-third of all Internet users, according to eMarketer. And by 2014, analysts predict the percentage of TV watchers on the Web to skyrocket to at least 60 percent of households, according to research from Bain.

Currently, several set-top boxes offer consumers the ability to stream content from a variety of sources. Roku, Apple TV, and Slingbox are just a few of many pieces of hardware that provide the physical means to access previously recorded TV shows.

But want live TV out of the box? That's another story completely. And if the amount of litigation at one moment can foretell an industry's disruption in the next, the market for live Internet TV is on the course of a tectonic shift. This is hardly a surprise: Even as early as the 1970s, broadcasters and private companies have been embroiled in battles over the ownership of content.

For example, in 1979, Universal Studios sued Sony, arguing that the company's newfangled piece of technology--the VCR--should be made illegal, because it was "a tool of piracy." It took five years of litigation, but eventually, the Supreme Court finally decided in 1984 that VCRs were lawful devices. Sony won the case. 

Some variation on the story plays out every few years: Large incumbents in the industry, typically national broadcasters with huge amounts of capital invested in particular sets of technology, go after smaller rivals that threaten to undercut their bottom line, many of whom bypass the broadcasters altogether.

That was the case, when, for example, in September 2010, major broadcasters including CBS, NBC, ABC, Fox and PBS sued a small and little-known start-up called ivi, a Seattle-based company that retransmitted broadcasters' signals over the Internet, allowing its consumers to watch live TV over the Web for a small fee. 

Days after the site launched, bloggers were quick to jump on the ivi bandwagon. Dave Taylor, writing for the Huffington Post, postured that ivi just might be "the future of television." 

But clearly, response from broadcasters was markedly more tepid. Days after the site launched, the broadcasters issued an injunction against ivi, accusing the company of infringing the Copyright Act. Essentially, the broadcasters argued that ivi was stealing its content and distributing it for profit.

"As soon as [the broadcasters] look at someone using the Internet to deliver a signal, they think of their signal being stolen," says one online TV industry entrepreneur who preferred not to be named.

Ivi's defense was that it was operating no differently than any other cable company, and that it is part of a new trend of vertically-integrated start-ups that are now being classified as Online Video Distributors. And, since it offered to pay royalties to the broadcasters, ivi felt it was justified in retransmitting the signal to consumers.

But Judge Naomi Buchwald thought otherwise, and ruled that ivi streaming over-the-air broadcasts was illegal.

"To place defendants' argument in a real world context," she wrote, "they assert that for the payment of approximately $100 a year to the Copyright Office (the payment for a Section 111 compulsory license) and without compliance with the strictures of the Communications Act or plaintiffs' consent, that they are entitled to use and profit from the plaintiffs’ copyrighted works."

Todd Weaver, the company’s founder said recently in an interview, "Judges are people. People make mistakes. We believe the judge made a mistake here. It is why the appeals process exists, and we will be appealing."

Meanwhile, liberal advocacy groups were gearing up for their own defense of ivi.

In February 2011, the Electronic Frontier Foundation, in conjunction with several other activist groups filed a brief with the U.S. District Court in New York City in support of ivi.

In it, they state that "ivi's service is functionally identical to other cable systems, such as Comcast's or AT&T's U-Verse," and that ivi's technology satisfies the five criteria under the The Copyright Office’s Section 111 definition of a cable system.

As the company battles in court, its services are left in a quagmire, and a sad reminder to entrepreneurs about the difficulties of challenging major industry incumbants.  Today, ivi's site is nothing more than a simple blog detailing the company's appeals process.

"This fight is for the people and their right to choice and control over their own entertainment--and it will continue," said the company in a statement. "The oppressive big media networks must open their doors to innovators or they will inevitably fall. People want responsible choice, not the one-size-fits-all television offerings imposed by powerful media interests."

But the tide may be beginning to change.

Aereo, a New York City-based start-up, is attempting to do what ivi did--that is, allow consumers to watch live, broadcast television online, on any device, for a small fee. Only instead of merely grabbing the signal from the air and diverting it to users' homes, Aereo is going about it differently.

The company has rented a warehouse in Brooklyn, New York, and filled it with millions of tiny digital antennas.

"These are tiny, modern-day versions of the old bunny ears that people have used to watch over-the-air television since time immemorial," quipped one writer recently. By logging in to an Aereo account, users, which are limited to New York City right now, can watch live television on a computer, iPad, or iPhone.

The company offers several pricing plans, from $1 per day for limited service to $12 per month for access. Right now, service is limited to New York City.

But Aereo is not without its own legal troubles.

Once again, broadcasters, including Fox, ABC, CBS, and NBC brought suit against Aereo in February 2012, and asked for an injunction against the company from the New York district court. As was the case in ivi, the broadcasters claimed Aereo was operating illegally by retransmitting content without permission.

Only this time the judge had a different opinion.

In her July 2012 decision, Judge Alison Nathan wrote that "although [the plaintiffs] have demonstrated that they face irreparable harm, they have not demonstrated that the balance of hardships decidedly tips in their favor." And because Aereo licenses one antenna per user, it's really no different than how Slingbox works. (Ironically, Aereo raised a significant stake of its $20.5 million first round of funding from none other than Barry Diller, one of the original architects of the Fox network.)

This was great news for Aereo, at least in the short term.

"Had the decision gone the other way "it could have marked the end of Aereo," Barclays Equity Research’s analyst Anthony DiClemente said after the decision.

Aereo's founder, Chet Kanojia, says the decision confirmed the fact that his company's technology not only works, but is legal.

"I viewed that as a green light to go and start the next phase of the company," he says.

Although the broadcasters will likely come back with another suit, Kanojia is bullish on his company's prospects of changing the TV landscape.

"You're going to see us lead that charge, and hopefully others will come along," he says.

Before Aereo, Kanojia founded Navic Networks, which built technology that offered TV networks tools that use real-time audience measurement data. The company was acquired by Microsoft in 2008, but Kanojia said the experience made him realize some core fundamentals about the way people watch television.

Some argue that basic network television is an insignificant percentage of overall TV consumption--there are literally thousands of cable TV channels, after all--Kanojia argues the data says otherwise.

"When I looked at the data, it was obvious that a good 25% to 27% of the people that had cable only watched broadcast channels," he says. "Eighty percent of the people were satisfied with seven or eight channels, and all of these people had 500 channels."

Other start-ups are playing in the live TV arena as well. Skitter TV, based in Atlanta, Georgia, is making a bid to offer live, streaming TV on Roku and other set-top boxes. Unlike Aereo, Skitter negotiated with for retransmission rights, which has paved a legal pathway for the company.

"People want great content," says the company’s founder, Robert Saunders. "We're building something we want in our own house. I want access to a vast amount of content. I don't have a lot of time to watch time to watch television, and when I do, I want to watch what I want to watch."

As Internet TV begins its inevitable expansion, founders entrenched in the space must say they're optimistic about the prospects, even if the current incumbents are trying to scare them off.

"I don't think about how to disrupt anything," Chet Kanojia. "I have pragmatic attitude. I'm an engineer by training. Whenever the lack of choice in large incumbency promotes a poor experience, there is an opportunity because there is a dissatisfied customer."

 

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