Aereo as Bargaining Chip in Broadcast Fees Battle

The contract dispute between CBS and Time Warner Cable is the first to unfold in the New York metropolitan area since Aereo came to market there last year. Last week, the companies warned that if the dispute was not resolved by Wednesday, CBS could be taken away from three million of Time Warner Cable’s 12 million subscribers.

Enter Aereo. The service, backed by Barry Diller and a number of other venture capitalists, uses giant arrays of antennas to pick up freely available television signals and stream them to the phones, computers and other screens of paying subscribers. By relying on the antennas, Aereo does not pay the kinds of retransmission fees that distributors like Time Warner Cable pay to broadcasters like CBS — an approach that Aereo says is legal, but that the broadcasters say is not.

Analysts have theorized that distributors could exploit Aereo, or a service like it, to avoid paying increasingly steep retransmission fees. Such fees are at the heart of the current fight with CBS.

While Time Warner Cable does not seem ready or willing to deploy Aereo-like technology, a spokeswoman, Maureen Huff, said Sunday that it would recommend Aereo to its New York subscribers if CBS was blacked out. The distributor may also underline the fact that Aereo, which normally costs $8 a month, offers a 30-day free trial. (Ms. Huff also pointed out that many CBS shows are available online on a delayed basis, and that “all of CBS’s broadcast TV programming is available free over-the-air,” so subscribers can use antennas.)

Time Warner Cable is treading carefully because Aereo is the subject of several lawsuits filed by major media companies. In this case, its invocation of Aereo might be particularly corrosive because CBS has helped lead the charge against Aereo in the courts.

To date, the service has been upheld by the Court of Appeals for the Second Circuit in New York; last week, in its third victory there, the appeals court declined to hear the broadcasters’ appeal.

Emboldened by the rulings, Aereo, which is so small that it has not shared any New York subscriber data, recently expanded to Boston and Atlanta; its next market is Chicago, it says, with many more to come. But it has not announced any plans in the West Coast markets covered by the Ninth Circuit Court, where a service similar to Aereo was rejected in December. Given the uncertain state of play, Aereo is of limited use to Time Warner Cable currently; along with New York, the fight with CBS affects subscribers in Los Angeles, Dallas and several smaller markets.

David Bank, a media analyst for RBC Capital Markets, said he would not be shocked if the distributor somehow used Aereo to skirt the blackout, or encouraged subscribers to do so. But he wrote in an e-mail message: “I think it would be more of ‘negotiating tactic’ than a real business solution.”

A CBS spokesman declined to comment. In a statement last week about the potential blackout, the company, whose broadcast network is the highest-rated network in the United States, said it “remains committed to working towards a mutually agreeable contract.”

“This conflict just further highlights the importance of having alternatives in the marketplace,” Chet Kanojia, the chief of Aereo, said in a statement. “It’s also a great reminder that consumers have the right to watch over-the-air television using an antenna. Whether they use Aereo or some other type of antenna, it’s their choice. That’s the beauty of having alternatives.”

Aereo Distributes Local TV Channels via the Internet

These were not your standard rabbit ears. They were thumbnail-size slivers, neatly arranged in rows. Behind Mr. Lipowski stretched rows of rectangular shelving units with dozens of sheets just like the first.

“There’s enough in here to accommodate a half million people,” he said. “And that’s just the beginning.”

The army of antennas is at the core of the ambitious service Aereo is introducing, first in New York and then across the country. Aereo picks up local broadcast channels like Fox and ABC and streams them over the Internet to mobile devices and TV sets. Its subscribers, who can record shows to watch later, pay fees starting at $8 a month.

Aereo executives say they are looking ahead to a future in which many “television” watchers have never had cable, or even a TV, and grab their favorite shows piecemeal from a number of online sources. In that sense they are joining the many other companies, including start-ups like Boxee and hardware juggernauts like Apple, that are trying to position themselves for the next wave of entertainment and media spending.

“The goal is not to recreate the cable companies but to create an alternative for people who are coming into television from the Net side first,” said Chet Kanojia, Aereo’s founder and chief executive. “There’s an emerging population of people who have never signed up for traditional cable packages, who are used to customizing their own TV experience.”

The rows of antennas are helping Aereo walk a fine legal line. Broadcasters want to shut the company down, claiming that it is violating copyright law.

Repackaging television transmissions without permission or payment would ordinarily be a blatantly illegal endeavor. But Aereo says it assigns each subscriber two antennas, allowing live viewing and recording at the same time, and lets a customer watch only the programming that those antennas pick up. It claims this is not so different from a person’s buying an antenna and a DVR at RadioShack and hooking them up to a TV at home.

Aereo’s headquarters are in clear view of the Empire State Building, the source of most of the local TV stations’ broadcasts. The signals are converted into an Internet-friendly format and streamed live or funneled to hard drives for playback — with individual copies for each subscriber who has requested a show.

“A single copy for a single user is not a copyright issue,” Mr. Kanojia said.

Broadcasters do not see it that way. Soon after Aereo introduced its service in February, a group of 17 stations, including Fox, NBC, CBS and CW, sued Aereo, accusing it of illegally capturing broadcast signals in New York and saying it was stealing copyrighted content.

But in July a judge ruled in Aereo’s favor, denying a temporary injunction to shut the company down and allowing it to keep operating — for now. The broadcasters have appealed the ruling and say they will not rest until Aereo is out of business.

“We believe that upon appeal, Aereo will be found to be a copyright infringer in violation of the law,” said Dennis Wharton, a spokesman for the National Association of Broadcasters.

The other significant problem Aereo faces is luring customers. Dan Rayburn, an analyst at the market research firm Frost & Sullivan, said that the company’s service would appeal to a niche audience at best.

“Aereo says a large market would be 300,000 subscribers, but that’s not even 1 percent of the entire market of people who pay for TV in the United States,” Mr. Rayburn said. “That’s not disruption.”

Mr. Rayburn cited the service’s sparse content — a handful of channels per city — and its technical requirements. For now, Aereo requires an Apple mobile device and, for those who want to watch on a TV, a Roku box.