When Chase Carey, Rupert Murdoch’s top deputy at News Corp., told broadcasters this week about his contingency plan to turn the Fox network into something only available on cable, he knew lawmakers would be listening, too. But a few were tied up at the time, meeting with Chet Kanojia, the man who provoked Carey’s warning.
Kanojia had come to Washington to sell lawmakers on the virtues of his upstart service, Aereo, which scoops up the free signals of local television stations and streams them to the phones and computers of paying subscribers. Because Aereo cuts off the stations from the retransmission fees that they have grown dependent on, they are determined to shut down the service — even, the station owners say, if they have to take their signals off the airwaves to do so.
Carey’s suggestion was dismissed by some as a hollow threat intended to scare the courts — which have ruled twice in favor of Aereo so far — and maybe prod congressional action. But it revealed a lot about the state of broadcasting, which appears increasingly antiquated in an age when wireless companies like AT&T and Verizon — instead of TV stations — are snapping up spectrum and using it to deliver Internet services like Aereo.
For the stations, the threats seem to be multiplying.
“It’s Aereo today, but it could be something else tomorrow,” said Robin Flynn, a senior analyst at SNL Kagan.
For several decades, companies lucky enough to own licenses for local TV stations subsisted on advertising revenue alone, and because there was relatively little competition they enjoyed huge audiences and profit margins to match. As cable and then the Internet introduced new competitors, station owners began to rely on a second revenue source, the so-called retransmission fees that come from the cable and satellite operators that pick up their signals and repackage them for subscribers.
Now that they have had a taste of these fees, the stations are not willing — or, they say, able — to go back to the old model of advertising alone.
SNL Kagan estimates that station owners took in $2.36 billion in fees from subscribers last year. (Some of that money is pocketed by owners, while a portion is paid to the network that it is affiliated with, like Fox or CBS. Each of the networks also own some stations outright.) The research firm projects fee revenue to hit $6 billion by 2018.
The trend lines are similar to those in the news and music businesses — subscribers are paying a bigger and bigger piece of the overall cost of content creation.
That is why the stations are doing battle with Aereo, because it does not pay any fees. News Corp., the Walt Disney Co., Comcast, the CBS Corp. and Univision, all of which own stations in New York, sued Aereo shortly after the service was announced last year, accusing it of copyright infringement. But the media giants failed to win a preliminary injunction against the service last summer, and their appeals were rejected in a New York court last week.
Aereo’s success in court could embolden cable and satellite providers to do their own end-runs around retransmission fees. So now station owners are plotting their next moves.