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Aereo Is An Example Of The "Legal Test" Startup

Submitted by kmeisthax on Tue, 04/09/2013 - 21:55 in Rants

Rupert Murdoch's media empire is on the rampage again about a new tech startup called Aereo. Specifically, how Aereo is eating it's retransmission fees lunch; and how Fox (the affiliate network station, not Fox News Channel) will have to cease over-the-air broadcasts and go cable-only. This, of course, is bullshit: The over-the-air market is still a valuable component of Fox's affiliate network business; pushing Fox to cable-only would not only cut themselves out of a lot of funds, but it would also cut their affiliates out of the business entirely. It's simply not possible, nor advisable, for Fox to do this.

What Fox is doing, however, is a common example of the "I'll take my toys and go home" defense. It works fairly simply: in a particular legal battle involving copyright, patents, or other "intellectual property" laws, claim that the case not going their way would make it impossible for them to produce content under the existing monetization model and result in all the content going away. "Billy won't pay me $1.4 million up front plus 1% per-unit royalties, so I'm going to take my truck and go home!" But in reality, taking one's toys and going home is almost never a viable option, because in almost every copyright case, the choice isn't between content or no content, the choice is between someone being able or not able to charge certain royalties. In other words, it's not as dramatic as advertised. Stop sexying up copyright law.

Incidentally, the particular royalties being eaten in this case are cable system retransmission fees. Fox is a broadcast affiliate network, and they broadcast content over the air. However, rebroadcasting isn't permitted; copyright law ensures that. So cable networks that want to carry broadcast content need to pay retransmission fees to the broadcast network before any content can be distributed; same as for cable-only networks.

Aereo decided they didn't want to do that. Instead, they decided to retransmit over-the-air signals, unlicensed. You may have noticed that I just mentioned earlier that you can't rebroadcast signals like that. But Aereo has a solution - more antennas. According to their legal theory, if they have an array of ten bajillion antennas, and only rebroadcast one signal from one antenna to one user, then it's somehow now legal to rebroadcast content that previously required permission from the relevant copyright holder. I seriously don't understand how this could ever make sense under the spirit of copyright laws.

Strangely, however, a federal appeals court has upheld Aereo as legal, which... doesn't make sense. Copyright law isn't necessarily supposed to be so easily vulnerable to quick work-arounds like this. This would like if someone was tried for tax evasion, and their core argument was that one of the ratifiers of the 16th Amendment to the US Constitution (which allows the income tax) came from a state where ratifications of amendments to the US Constitution were considered null and void if the ratifier was wearing a powdered wig at the time the ratification was signed. Or, however the typical libertarian income tax evasion arguments go. And somehow the courts were to buy it. That's what Aereo is doing.

This brings me to my last point: Why is Aereo getting funding? Venture capitalists should already know by now that the content industries fight dirty when it comes to new technology. And Aereo isn't even particularly new. I can imagine the boardroom conversations with the VC firm. "Our business model is simple. We take over-the-air signals, rebroadcast them without permission, and charge people for this service - but it's okay, we worked out the legal issues. Instead of taking the signal once, we take it ten million times on an array of microantennas." What VC would think spending money on such an obviously illegal (at least until it was ruled legal) business would pass?

My current guess is that the VC specifically wanted to rattle the chains of the copyright maximalists. That is, that Aereo is a war in an ongoing proxy battle between VC funds (who think they, and only they, should be able to freely monetize other people's content) and copyright maximalists (who think any use of content, monetized or no, should require consent). That is, Aereo was funded (or even created) specifically to push the boundaries of the copyright world back a bit. I have a name for this: "Legal Test" Startups.

copyright law
venture capital

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