Tech upstarts threaten TV broadcast model
By Liana B. Baker and Ronald Grover
Sun Apr 7, 2013 7:57pm EDT
(Reuters) - Two fledgling technologies could dramatically
reshape the $60 billion-a-year television broadcast industry as they challenge
the business model that has helped keep broadcasters on the lucrative end of
the media spectrum.
On April 1, a U.S. appeals court rejected a petition by
the major broadcasters including Comcast's NBC, News Corp's FOX, Disney's ABC
and CBS, to stop a service called Aereo, which offers a cut-rate TV
subscription for consumers by capturing broadcast signals over thousands of
antennas at one time.
It was the second time in recent months that TV
broadcasters failed to block a new technology that undercuts revenue they
generate for their television shows.
In November, a California court struck down Fox's request
to ban Dish Network's ad-eliminating video recording device called the Hopper.
The two services strike at the heart of the TV broadcast
model, whose future will be up for debate at the National Association of
Broadcasters show, which 90,000 people were expected to attend in Las Vegas
this week.
The most touted feature of the Hopper makes TV
commercials disappear completely when watching recorded prime-time broadcast
television, unlike prior DVRs and other devices that require the viewer to fast
forward through ads.
Aereo could cut the numbers of people who need or want a
more expensive cable video subscription, which would eat into the $3 billion in
so-called "retransmission fees" that research firm SNL Kagan says
broadcasters get from cable and satellite systems, based on the number of their
subscribers.
The threat so far is limited. The number of people using
Aereo - backed by media heavyweight Barry Diller, who launched the Fox network
in 1986 - is miniscule compared to the number of pay TV customers in the United
States. Dish's Hopper is a more mainstream device that Dish's 14 million
subscribers have access to.
But broadcasters fear the services will continue to
expand, cutting into their viewing audience and advertising revenue.
Even though courts have made preliminary decisions in
favor of Dish and Aereo, both cases are still in the early stages and those
decisions could ultimately be reversed.
FORCING CHANGE
A favorable outcome for Aereo and the Hopper in court
would push TV operators to dramatically reshape themselves. It could even force
them to trade in their broadcast towers and become cable channels alongside
networks such as Bravo, AMC and ESPN, says Garth Ancier, who has been the top
TV programmer at Fox, NBC and the WB networks.
"They won't have a choice," Ancier said.
"When someone attacks your business, sometimes you do something
radical."
Some of the top four major networks have been considering
just such a move for months, and the emergence of the two technology threats
could accelerate their decisions, according to Ancier.
That would keep the broadcasters' signals away from Aereo
and their ads free from the Hopper, which for now only zaps broadcast ads in
recorded television.
The downside? Broadcasters would have to turn their backs
on the 11.1 million homes that Nielsen estimates still receives their TV
signals from rabbit ears and rooftop antennas and do not have cable
subscriptions.
Spokesmen for Fox, CBS, NBC and ABC declined to comment
on their plans. Last week, following the Aereo ruling, Fox said "the court
has ruled that it is OK to steal copyrighted material and retransmit it without
compensation."
All the broadcasters also said they plan to keep fighting
Aereo and said they were confident that the rights of content owners would be
protected.
NEW VIEWING HABITS
Both the Hopper and Aereo take advantage of changes in
how TV viewers get their shows. Increasing numbers are "binge
watching," or tuning into libraries of recorded episodes on their DVRs or
on the Internet. As many as 5 million homes now "cut the cord" and
get their TV shows from sources such as streaming on the Internet or watching
DVDs or game consoles, according to a March 11 Nielsen study.
For now, the number of people using either the Hopper or
Aereo is small but growing.
The Hopper is the free DVR for new Dish customers and is
the focus of Dish's current ad campaigns. Dish has 14 million customers, making
it one of the biggest U.S. pay TV companies behind Comcast and DirecTV, the
company says.
Aereo has never revealed its subscriber numbers but it is
expanding quickly. In February, Aereo said it was available to 19 million
people, mostly in the New York area, and it embarked on an outdoor advertising
campaign. It plans to expand to 22 other cities this year including major
markets such as Chicago and Houston.
Even before Aereo and the Hopper appeared, the percentage
of viewers who watch TV from the traditional networks was crashing, down from
69 percent in 1993 to 42 percent today in February, according to Nielsen.
A further jolt to the broadcasters' dwindling audience
would empower advertisers, who last year spent $27 billion on broadcasting
commercials, to negotiate tougher on price hikes and could take some of that
money elsewhere.
Just as troubling for the broadcasters, if ratings
continue to decline, the TV networks will have smaller captive audience to whom
they can promote their new programming slate, which would likely accelerate the
downward cycle.
"It's like the music business," said BTIG media
analyst Rich Greenfield. "They decline and decline and one day the bottom
falls out."
The networks might fight back. CBS Chief Executive Leslie
Moonves told an investor conference last fall that he may pull CBS off the
Dish's system, depriving the service's subscribers of NFL football and
"CSI" if the satellite operator continued to promote the Hopper's
commercial skipping feature.
On March 26, CBS said it acquired a 50 percent stake in
the cable channel TVGN, formerly the TV Guide Network, adding a cable channel
that would be safe from Aereo.
TVGN and its fellow cable channels are so far safe from
the Hopper. Dish's chairman Charlie Ergen said in February that Dish does not
yet have the technology to zap commercials on cable and the company has not
announced any intention to do so.
Broadcasters still hope to cut off both services by
persuading the courts that they violate copyright laws and breach contracts.
For now, Aero and the Hopper will only get more popular
as the cases wind their way through court, said intellectual property attorney
Andrew Goldstein, a partner with the Chicago firm of Freeborn & Peters.
"It will be hard to put that genie back in the
bottle," Goldstein said.
(Reporting By Liana B. Baker in New York and Ronald
Grover in Los Angeles; Editing by Frances Kerry and Doina Chiacu)
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