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April 2, 2014

Barry Diller plans to expand Aereo Inc.'s streaming-TV service into every major U.S. city if the startup prevails in its fight with broadcasters before the nation's highest court. The Supreme Court is weighing the legality of the service, which takes over-the-air TV signals and redistributes them through the Internet without paying fees for the programming. The odds of the court supporting Aereo are 50-50 at best, Diller said. The company, which is backed by Diller, is facing off this month in arguments against the biggest broadcasters, including CBS Corp. and Walt Disney Co.'s ABC.

The issue is bigger than just Aereo, Diller, 72, said in an interview at Bloomberg's headquarters in New York. It's about the future of how TV is watched. At stake is an evolution of the TV industry that could give consumers more programming over the Internet and more opportunities to choose which channels they pay for and which they don't. It's akin to the court's 1984 ruling that paved the way for VCRs, he said. An Aereo win "allows technology and innovation to move forward, whoever benefits from it," Diller said. If there's a negative ruling, "it's over" for Aereo. Aereo is set up in 13 cities so far and operational in 11, using thousands of small antennas to capture free over-the-air TV signals and transmit them to subscribers on the Internet for $8 a month. Expansion is mostly on hold for now, Diller said. "You can't do it with an anvil over your head that is literally an off-on switch," he said. The Supreme Court will hear arguments April 22 and rule before its nine-month term ends in late June or early July.

Media companies including CBS, ABC, 21st Century Fox Inc. and Comcast Corp.'s NBCUniversal are fighting to maintain their business models, in which cable providers pay the broadcasters for the right to distribute their programming, even though it's available for free over the air with an antenna. Those payments are estimated to exceed $4 billion this year, according to research firm SNL Kagan. "This 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," Fox, Tribune Co., Univision Communications Inc., the Public Broadcasting Service and WNET said in January. Diller, chairman of the Internet company IAC/InterActiveCorp, has more than 40 years of experience in the media industry, including as chairman and chief executive officer of film studio Paramount Pictures Corp. and helping create the Fox broadcast network. He likens Aereo's challenge to a legal case three decades ago that disrupted the movie business.

The Supreme Court ruled in 1984, in a case involving Sony Corp.'s Betamax, that makers of videocassette recorders couldn't be held liable for contributing to consumer copyright infringement. The ruling helped put VCRs - and later digital video recorders - in tens of millions of homes. "Reverse the decision and tell me what you think," he said. "We've had 30-some odd years of history in one area that would be wiped out. Look what it would have done to this incredible revolution that we have participated in - that's what I think really is at stake."

This time, a ruling in favor of Aereo's new technology could mean more programming delivered through an Internet version of cable TV. More shows may be offered individually in a subscription model similar to Netflix Inc., or for individual purchase letting consumers pay only for what they want to watch, he said. "It'd be much less of wholesalers who buy the programming and sell it to you in a package, and much more a la carte," Diller said. "What's important is that we have another distribution methodology that is not part of the closed system." Bloomberg

Amazon.com Inc. Chief Executive Officer Jeff Bezos is stepping up the technology industry's push to reach customers in their living rooms.

The world's largest Internet retailer is set to unveil a television-viewing device for streaming movies, television shows and other video from the Web at an event today in New York, said people with knowledge of the plans, who asked not to be identified because the information is private. The device will put Amazon in closer competition with Apple Inc. and Google Inc., which offer their own Internet-connected gadgets for streaming video to a TV. The move will also escalate the company's rivalry with Netflix Inc. in video-streaming services. All of the companies are striving to reach into consumers' living rooms and to tie customers to a particular ecosystem of services. Kinley Pearsall, a spokeswoman for Seattle-based Amazon, didn't return calls seeking comment. Bloomberg News reported last year that Amazon was planning to release a television set-top box.

Amazon has been using free video streaming as way to lure more people to its two-day shipping subscription, called Prime. Prime members are typically among the company's most active online shoppers, said Michael Pachter, an analyst at Wedbush Securities Inc. in Los Angeles. "This is about selling Prime," said Pachter, who has the equivalent of a hold rating on the stock. "It really does open up their ability to deliver a lot of stuff." With its own box, Amazon can feature its library of video instead of depending on other TV manufacturers. Like Netflix, which produces shows such as "House of Cards," Amazon has been developing programming to attract customers with exclusive content. "Nobody else has a critical mass of content outside of Netflix," said Pachter. Bezos is pushing Amazon further into the manufacturing of hardware, including tablet computers, e-readers and package-delivering drones. A TV device provides a new platform for software developers to build games and other applications for the various digital devices.

The television products from Amazon and others have largely served as a supplement to existing cable-television services instead of replacing them. The services don't offer much live programming for things like sports and are mainly an entry point for accessing catalogs of movies and TV shows for viewing on demand. Apple's TV product costs $99. While it provides access to videos from iTunes, Hulu LLC, YouTube and others, Amazon video isn't available. Google's TV product, called Chromecast, was introduced last year and costs $35. Others competing in the market include Microsoft Corp., with its Xbox game system, and Roku Inc. "This is their attack on Roku and Apple TV," said Brian Blair, an analyst at Wedge Partners. Bloomberg

Hulu will have exclusive rights to past seasons of several popular TV shows under a new multiyear pact with Comcast Corp.'s NBCUniversal, the latest in a series of deals struck by the streaming video outlet as it endeavors to become a more formidable rival to Netflix Inc. and Amazon.com Inc. The agreement, expected to be announced Wednesday, makes Hulu's $7.99-per-month subscription service the home for prior seasons of NBCU-produced shows such as comedies "The Mindy Project" and "Brooklyn Nine-Nine," both of which air on 21st Century Fox's Fox network, as well as reality programs like "Top Chef" and "Keeping Up With the Kardashians."

Hulu's specialty up to now has been offering the current seasons of TV shows, while Netflix and Amazon have been more focused on offering prior seasons of hit programs. That strategy has made Netflix and Amazon.com destinations for viewers to binge or catch up on shows. The shift by Hulu, which is owned by a group of entertainment conglomerates, comes as current-season shows are becoming more available through pay-TV operators' video-on-demand services and apps. That makes current season shows less of a selling point for Hulu. "The value of the current season to us has a limit," said Mike Hopkins, a former 21st Century Fox executive who took over as Hulu's chief executive last fall. "We have to do other things." That includes adding more prior-season content-which pay-TV providers typically don't have in their on-demand offerings-and investing in original programming, he said. In February, Hulu cut an exclusive deal with CBS Corp. that makes prior seasons of "Elementary," a modern-day Sherlock Holmes drama, available on Hulu Plus, the subscription service. The same month, Hulu got prior-season rights to the musical soap "Nashville," which airs on Walt Disney Co. 's ABC. Select episodes will be available on Hulu's free service. Hulu, which generated $1 billion in revenue last year, is controlled by Disney and 21st Century Fox, which until last June was part of the same media company as Wall Street Journal-owner News Corp. NBCU's parent Comcast also owns a stake but for regulatory reasons is barred from making management decisions.

Frances Manfredi, NBCU's president of television and new media distribution for the U.S. and Canada, said Hulu didn't get preferential treatment over other subscription video players because of NBCU's ties to Comcast. "It was part of a bidding process where there was no favoritism whatsoever," she said. Hulu's focus on bulking up on prior season content "makes them certainly more formidable as a competitor" in the subscription online video world, she said. In total, the NBCU deal will make more than 900 episodes available on Hulu Plus. The Fox comedies will become available on Wednesday, while reality shows from E! and Bravo will be posted on Hulu in coming weeks.

Challenging larger rivals won't be easy for Hulu, which has far fewer subscribers and fewer resources. The company has over five million Hulu Plus subscribers and got an injection of $750 million in capital from its owners last year. Netflix has nearly 32 million paid subscribers in the U.S. and expects to spend about $3 billion on content this year. Amazon has said it has "tens of millions" of subscribers to the Prime shipping program, which comes with access to streaming video. Mr. Hopkins said he is being disciplined. "You have to be flexible," he said. "You can't just buy everything." The 45-year-old Mr. Hopkins, who spent years heading up distribution at Fox, is sensitive to the concerns of big media companies, which don't want to do anything to jeopardize the pay-TV business that is their profit engine. "We're building this product to be complementary to the pay-TV business," he said.

That approach limits Hulu's ability to exploit its appeal to consumers who want to cut pay-TV subscriptions or young people who have never subscribed to pay-TV. But Mr. Hopkins says the service isn't really a good substitute for people looking to "cut the cord" since it doesn't have sports programming from broadcasters and since cable companies offer competitively priced packages of basic broadcast channels. Plus, he notes, "that stuff is available for free over the air today." Mr. Hopkins said Hulu is in discussions to have pay-TV distributors resell Hulu to their subscribers and integrate the streaming video service into their TV set-top boxes so it is easy to access from TV sets. "That's a big potential opportunity for us," he said. Wall Street Journal

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