TV Networks Can't Fight The Web


Imagine you're an avid Aussie Rules fan and want to watch your team, but you're not near a TV. You go down to the local pub, but they're broadcasting a golf tournament. Frustrated, you flick your laptop or smartphone out, intending to watch the Channel 7 broadcast. But there's no way to do that unless you sign up to Foxtel for however long and have a hundred bundled channels you will never watch. All you want is to watch this one game. Free-to-air? Anti-siphoning? Yeah right! Instead of glorying in victory you watch Adam Scott over a lonely pint and ponder: what's wrong with the world?

In the US an Appeal Court decision in the Aereo case has caused serious ructions in the TV industry over this exact issue – retransmission rights.

Aereo got around US copyright laws by essentially connecting users to their own television signal. For US$8 a month, Aereo's massive data centres digitise standard free-to-air TV signals and stream them, via a purpose-built web interface, to a computer, smartphone or tablet.

The reaction in the US from the big cable networks has been, unsurprisingly, hostile. The CEO of News Corp, Chase Carey, is prepared to take drastic action. “We can’t sit idly by and let [Aereo] steal our signal. We will move [popular conservative TV channel Fox]to a subscription model if that’s our only recourse.”

The depth of frustration fuelling this response stems from the belief by Carey, and the networks generally, that the free-to-air broadcast networks had won the retransmission wars against cable and satellite pay-TV providers. The peace settlement has not been perfect, but the revenue generated in the US by the retransmission fees deal (the so-called "must carry" regime we'll get to shortly) is now very much keeping the broadcasts networks afloat.

The threat to this settlement by an organisation like Aereo was foreseen in the 2005 US/AUS Free Trade Agreement, which sought to protect broadcast free-to-air television networks from the introduction of any form of compulsory retransmission rights via the Internet. But the Aereo decision creates an exception under US law that gets around the Free Trade Agreement embargo. It is almost certain that the decision would not stand up in an Australian court in light of the Federal Court appeal decision in NRL v Singtel Optus in 2012.

Even if the Aereo decision has no application under Australian law at an industry and regulatory level it cannot be ignored. A comparison of the history and issues that led to the differing retransmission regimes in Australia and the US reveals some of those implications.

Back in the 1950s, cable TV companies operating in the western United States retransmitted the existing free-to-air broadcast signals on the assumption that they could do so without permission, because they were "free-to-air". After all, they were only providing the signal to the same audience, at the same time, but with a better reception.

The free-to-air broadcasters sued them for infringement of copyright in their broadcasts. The same dispute arose in Australia — but not until the 1990s when cable and satellite pay TV took off here. In both the US and Australia the broadcasters and copyright owners won.

Governments and regulators in the US and Australia acknowledged that a retransmission right would help free-to-air broadcast content reach areas with poor reception. In the US a “must carry” retransmission consent operates, whereby cable operators and other "multichannel video programming distributors" are required to obtain permission from broadcasters to carry their programming.

US broadcasters in return are entitled to ask for cash to carry the station or for any other form of consideration. If the cable/multichannel operator refuses the broadcaster's proposal they cannot carry the programming.

However, in Australia, the broadcasters are subject to a compulsory license to cable and satellite TV operators (Foxtel and so on) and are not remunerated. The copyright owners in the programs are paid a retransmission royalty administrated by the Audiovisual Copyright Society, also called Screenrights. 

The respective regimes are a result of the differing economic viabilities of cable/pay TV in Australian and the US. In the US pay TV reaches something like 90 per cent of the population. In Australia, according to Australian Subscription Television and Radio Association (ASTRA), the peak body that represents the subscription television industry in Australia, about a third of all Australians have a subscription TV service.

The majority of the US Circuit Appeal Court followed their 2008 decision in Cablevision, in which a cloud-based personal video recording service was found not to infringe copyright. The court said that the recording and storage on a user's personal cloud storage was not a public performance of the recorded broadcast. In Aereo, the majority held that Aereo was in effect a Cablevision-style cloud-based personal video recorder, with the additional facility to stream the recordings to an Internet connected device.

That streaming facility, they found, was similar to a “Slingbox”, a legally available home-installed web videostream server, that connects a personal cable, satellite set-top box or DVR to the Internet, allowing the user to watch live or recorded programs on an internet-connected mobile device, such as a laptop or tablet.

The US Cablevision precedent was rejected by the Australian Federal Court on appeal in NRL v Singtel Optus. In that case, the Court was looking at the Optus TV Now service, almost identical to Aereo's, save that Optus used its own aerials and tuners to receive the signal from which individual copies were made as requested for each individual user, which were then stored on a cloud server. Aereo provides banks of thousands of dime sized aerials; one at any time to a user.

So due to an anomaly in US law, US companies like Aereo and Cablevision are allowed to operate with impunity, doing what in Australia would otherwise been in breach of the Free Trade Agreement.

It is little wonder then that Chase Carey is upset. But why is moving to a subscription model his only recourse? Why not bite the bullet and run Fox's own superior internet TV service? Aereo has to use sub-premium aerials; Fox would be able to deliver a perfect picture. Aereo is only available is New York; Fox could head Aereo off across the US.

First, broadcasters would have to acquire the internet transmission rights. Retransmission by the internet is not covered by the retransmission exceptions to copyright in Australia or the US.

Second, broadcasters say they don't want to tool up to be internet TV providers too. But as audience inevitably is sucked from free-to-air into the vortex created by the internet, perhaps  Carey should consider it — especially if he is already prepared to take his bat and ball to cable subscription services.

Third, the main issue for free-to-air broadcast networks is fear of the unknown: advertising metrics and the uncertainty of a reliable advertising revenue model for TV from the Internet. The metrics for advertising on free-to-air, using ratings and ad rates for broadcast to TV sets in homes, is an established and to date very viable system. The internet, on the other hand, is the enemy that has been eating up audience numbers and killing ad revenue. 

Audiences are accustomed to accessing content via the internet on multiple devices and expect access to all of the media all of the time and anywhere at all. The days of families cuddled on the couch at primetime, passively absorbing their favourite shows and glued to the ads, are all but over. So is the guaranteed prime-time “ad spend” that targets a big consolidated audience. Convergence of media is fragmenting that audience.

The content and audience are now granular. The metrics are changing too: how many times a day is a particular slice of the audience checking Facebook to see what is happening on TV? Are they tweeting about the show, or sharing content with their social networks? Can they readily access the content for a convenient price, at a convenient time?

Recently appointed Seven Network CEO Tim Worner at his company's annual investor day announced that "We're at the start of a revolution and it's television's would-be murderer, the internet, that will power it." Well let's just say it remains to be seen.

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