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January 13, 2014

The U.S. Supreme Court on Friday agreed to consider the legality of online-video service Aereo Inc., a high-stakes copyright case that has the potential to upend the television industry.

The court, in a brief written order, said it would hear an appeal by the nation's four major broadcasters and others who are trying to shut down the Aereo service, which allows fee-paying subscribers to stream local TV stations' signals over the Web. The broadcasters, including Walt Disney Co.'s ABC, Comcast Corp.'s NBC, CBS Corp. and 21st Century Fox, say Aereo violates federal copyright law by retransmitting their broadcasts without permission. "There is no dispute that Aereo has developed a business model around the massive, for-profit exploitation of the copyrighted works of others," the broadcasters said in their petition to the Supreme Court.

Aereo, whose backers include media mogul Barry Diller, says its service makes it easier for viewers to access over-the-air broadcasts that they have the right to watch free. The company says its technology is the functional equivalent of consumers using an antenna and digital video recorder to watch broadcasts at the time of their choosing. The company, despite winning in lower courts, joined with the broadcasters in urging the Supreme Court to hear the case, citing its desire to resolve uncertainty stemming from multiple legal fights around the country. "We said from the beginning that it was our hope that this case would be decided on the merits and not through a wasteful war of attrition," Aereo chief executive and founder Chet Kanojia said in a statement. "We look forward to presenting our case to the Supreme Court."

Broadcasters said they were also pleased that the court will be weighing in. "We believe that Aereo's business model, and similar offerings that operate on the same principle, are built on stealing the creative content of others," CBS said. A consortium of plaintiffs including Fox Television Stations Inc. issued a statement saying the case "has never been about stifling new video distribution technologies, but has always been about stopping a copyright violator who redistributes television programming without permission or compensation." Until last summer, 21st Century Fox and News Corp, owner of The Wall Street Journal, were part of the same company.

A divided U.S. appeals court in New York refused to shut down Aereo last year, ruling the broadcasters were unlikely to win their case. The Supreme Court will review that ruling, with oral arguments likely in April. That timeline would set the stage for a potential blockbuster ruling by the end of June. Broadcasters warn that if Aereo is found legal, it could undercut the billions of dollars in revenue the networks receive from cable and satellite companies, which pay to retransmit the networks' programming. The networks said in their petition to the Supreme Court that some pay-TV companies already have threatened to use Aereo's lower-court win as a technological blueprint for how to retransmit broadcast signals without permission. New York's Second U.S. Circuit Court of Appeals relied heavily on the technological makeup of Aereo when it ruled in favor of the online service last April.

Aereo receives broadcasters' programming through thousands of individual dime-size antennas at its own facilities. It then assigns a different antenna to each of its users, meaning no two customers are sharing the same antenna or digital recording of a TV program, even if they are watching the same program at the same time. The Second Circuit ruled that because each Aereo customer is watching a unique copy of a broadcast, the service doesn't violate a provision of federal copyright law that gives the networks the exclusive right to transmit their copyrighted works to the public.

A dissenting judge called Aereo's technology a sham, saying its system was a "Rube Goldberg-like contrivance" designed to take advantage of a perceived loophole in U.S. copyright law. Lower courts have issued conflicting rulings on services like Aereo. A federal judge in Washington, D.C., last year barred a similar and competing service called FilmOn X from retransmitting broadcasts to subscribers. In another business case Friday, the Supreme Court said it would consider whether to make it easier to hold companies liable for encouraging others to commit patent infringement. A splintered federal appeals court ruled in 2012 that Akamai Technologies Inc. could proceed with allegations that Internet services company Limelight Networks Inc. encouraged its customers to infringe an Akamai patent about managing online traffic efficiently. Limelight denied the allegations. Wall Street Journal; more from Time and Los Angeles Times

Discovery Communications Inc. and Scripps Networks Interactive Inc. abandoned talks about a merger last week, people familiar with the matter said, ending the possibility that two big providers of nonfiction cable programming would combine. The discussions hadn't advanced beyond the early, exploratory stage, the people said, and Discovery hadn't made a formal offer for Scripps.

The Scripps portfolio of cable channels includes HGTV, Travel Channel and Cooking Channel, as well as a majority interest in Food Network. Discovery's outlets include Discovery Channel, Animal Planet and TLC. It wasn't clear why the talks ended, but the people familiar with the matter said the family that controls Scripps didn't appear ready to sell. "Each organization was coming from a different place," said one of the people. "Timing is everything in life,...and now is not the right time."

The talks didn't get far enough to consider terms or a price, the people said. Scripps has a market capitalization of around $12 billion, while Discovery has a market value of about $30 billion. Discovery is turning its attention back to expanding overseas, which had been its focus before the Scripps talks, the people said. The company is in talks to increase its stake in the Eurosport network of France's TF1 Group, one of the people said. Discovery acquired a 20% stake in Eurosport in late 2012. The talks were at least the second time that Discovery tried to negotiate a Scripps purchase. Scripps has long been seen as a takeover target for various media companies. Discovery approached the company about three years ago, but the family wasn't willing to sell then. Speculation that a deal was possible increased over the past year, after the end of the family trust that tightly controlled Scripps.

Through the trust the family owned most of the voting stock and a 43% overall economic interest, the company has said. The shares were distributed to descendants starting in March 2013. Still, the family shareholders remain signatories to an agreement governing how their shares are transferred at any time. That agreement also includes a mechanism for the family to vote as a bloc.

News of the Scripps talks surfaced about a month ago, coming as talk of consolidation among cable and satellite TV operators has been heating up. Acquiring Scripps would have given Discovery more scale, which would have enhanced its negotiating leverage with advertisers as well as cable and satellite operators, the person said. Increased scale will become particularly important if cable operators consolidate. Discovery also saw the potential of selling the Scripps channels into the faster growing overseas markets, which Scripps had been slow to tap. Wall Street Journal

The N.F.L. is looking to sell six to eight of the 13 games it carries Thursday nights on NFL Network to one of its existing broadcast or cable partners - CBS, Fox, NBC or ESPN - or TNT, which once carried games. The league, which has explored the idea of selling the games for a while, is awaiting formal responses from interested networks by Friday.

In a statement, Brian Rolapp, the chief operating officer of NFL Media, who will become the head of NFL Network in the spring, said the "network has done a great job turning Thursday into a night for N.F.L. football." "We want to make it even bigger and accelerate its promotion and growth with an additional partner," he said.

If the league likes an offer it receives, the winning network will televise the games in the first half of the season, which would ideally give a promotional boost to NFL Network for its later-season games. The league's preference would probably be a broadcast network like NBC, CBS or Fox, but it would also be pleased if a cable channel got the package. It is conceivable, for example, that ESPN would buy the deal and put the games on ABC, its sibling network in the Walt Disney empire. Each of the networks to receive the proposal from the league reaches more television homes than NFL Network's estimated 72 million. In 2013, NFL Network's games averaged eight million viewers, its most ever.

In the N.F.L. television universe, games are expensive and highly rated commodities. Before the N.F.L. decided to put eight games on its network in 2006, it contemplated selling them to Comcast-owned Versus (now NBCSN) for more than $400 million a year. The league decided to build its own network with the games, which allowed it to charge cable and satellite operators more each month. New York Times

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