The Supreme Court Is Going To Make A Decision This Week That Could Change The Future Of The TV Industry

Aereo CEO
Aereo CEO Chet Kanojia. AP

On Thursday, the Supreme Court is expected to make a ruling that will determine the fate of Aereo, a startup that lets you watch live network TV over the internet through your smartphone, tablet, or PC.

The case could have lasting implications for the way we watch TV in the future, especially when it comes to content delivered over the internet.

Here’s a look at what’s at stake.

What Is Aereo And How Does It Work?

Aereo is a service that lets you watch live network TV over the internet for $US8 per month. The company assigns each subscriber an antenna that can access network TV over the air. The signal is then transmitted over the internet to your PC, tablet, smartphone, and some internet set-top boxes boxes like Roku. Aereo also doubles as a virtual DVR, meaning you can record shows on the company’s servers and stream them later to your device.

Aereo is only available in a handful of U.S. cities, but the company will likely ramp up expansion if it wins the Supreme Court case.

Aereo has received $US100 million in funding so far. Its CEO is Chet Kanojia. Before Aereo, Kanojia was founder and CEO of Navic Networks, which was a TV advertising company Microsoft bought in 2008. InterActiveCorp (IAC), the big collection of digital companies, owns a 10% stake in Aereo.

What Does Barry Diller Have To Do With All Of This? (And, Who Is Barry Diller?)

Barry Diller has had a long, successful career in the media industry. He worked at ABC, Paramount, Fox, and USA Networks before he founded IAC. IAC has made Diller a billionaire, and he’s become the face of Aereo in its fight because he’s a well-known media figure.

Wait, How Does Aereo Get All That Content For Free?

It might seem strange in the cable/satellite TV era, but a lot of programming is, and has always been, available for free over the air if you have an antenna. Think back to the days when everyone had “rabbit ear” antennas. You can still do that today and get networks like NBC, CBS, ABC, and Fox for free.

Aereo’s workaround was to invent a tiny HD antenna that can access over-the-air networks, just like those rabbit ear antennas once did. The antenna itself is pretty impressive. It’s about the size of your thumbnail, so Aereo can pack a bunch of them into a tiny space. The signal from the antenna assigned to you is transmitted over the internet to your device.

Who’s Suing Aereo And Why?

The case heading to the Supreme Court is American Broadcasting Companies v. Aereo, but it will have implications for all networks, not just ABC.

ABC and the networks argue that Aereo is violating copyright by retransmitting their signals over the internet. Typically, networks get retransmission fees from cable and satellite companies that carry network TV, even though users can get those channels for free over the air. The networks likely want a retransmission fee from Aereo, too. If they can’t get that retransmission fee, then they will probably try to find a way to shut Aereo down.

What’s Aereo’s Defence?

Aereo’s argument is that its technology is no different from putting a regular TV antenna on your roof and running a wire down to your TV. But in this case, the “wire” is the internet. Since Aereo only works if you access it within your town, the company says it’s not violating any copyright laws.

Aereo also says it has a right to provide its virtual DVR service. A previous case in 2008 involving Cablevision determined such remote DVR services are legal.

According to Aereo, its service is similar to a company that rents antennas and DVRs to customers and installs those devices in the home. No one can argue such a company operates illegally. In Aereo’s view, it’s doing the same thing, but simply storing the antenna and DVR equipment remotely and sending the content over the internet.

Does Aereo Have A Chance? And What Does This Mean For The Future Of TV?

The big question in this case is whether Aereo has the right to let users store copyrighted content on remote servers and then beam it back to themselves on a connected device. Aereo seems to have come up with a clever workaround for existing regulations, but the networks have a strong argument, considering cable and satellite companies have to pay retransmission fees for content.

There are implications for other cloud-content companies, too.

The big question the Supreme Court will have to decide is whether watching a recorded show from Aereo constitutes a public or private performance. Private performances are legal under existing copyright law. Since Aereo says it assigns each customer his or her own antenna plus a unique file for each recording, its customers are taking part in private performances.

According to Aereo, companies and services like Dropbox, Google Drive, and Box could be in trouble if Aereo loses the case. In Aereo’s mind, the Supreme Court court would be making it illegal to store content in the cloud through those services and then beam it back to yourself.

If Aereo wins, the case could open the doors for a viable alternative to cable and satellite TV. Imagine just paying a few dollars per month to get all your favourite sitcoms and sports that are already broadcast for free on network TV delivered to you over the internet. If you augment that with other services like Netflix and Amazon Instant Video, there’s very little incentive for many people to pay full price for a cable subscription.

On the other hand, you could argue Aereo isn’t very useful since you can just spend $US20 or less on an HD antenna and attach it to your TV to get network programming for free. You may not get the virtual DVR service, but you’d still be saving a lot of cash.

What Will The Networks Do If They Lose?

Some networks have made a bold threat to stop broadcasting shows over the air for free if Aereo wins. That means you’d have to start paying for those channels either directly to the broadcasters or through your cable provider. If you’re already a cable subscriber, nothing will change.

However, Aereo argues that’s not very likely to happen since the networks would lose a massive amount of valuable spectrum it gets from the government. When broadcast TV began decades ago, the networks cut a deal with the government that let them use that spectrum as long as they provided their content for free. (Supported by ads, of course.) And if the networks do make good on their threat to remove their free broadcasts, it would be tough for those who can’t afford cable to get news and information. The government likely wouldn’t go for that.

The most likely scenario would be for the networks to create their own Aereo-like services. For example, you’d be able to open a CBS app on your phone or tablet and start streaming live TV.

What Happens To Aereo If It Loses The Case?

Aereo has said multiple times in recent months that it doesn’t have a Plan B if it loses the Supreme Court case. On the other hand, Aereo CEO Chet Kanojia told Fortune this week that it may be open to paying retransmission fees just like cable and satellite companies do.