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What’s At Stake in the Aereo Case? Maybe the Future of the Cloud

On Tuesday, the Supreme Court heard oral arguments in a major technology case, ABC v. Aereo. The case attracted a huge amount of attention – “Aereo” was the #1 Google search on Tuesday. And that isn’t really surprising. What the Court decides in Aereo could have profound effects on the future not only of television, but of the Internet as well.

Aereo’s business model is clever and, potentially, very disruptive. As they have done since the dawn of television, the major networks – ABC, NBC, CBS, and FOX – broadcast their signals over the air. You can receive these signals with a digital antenna – the modern equivalent of rabbit ears – and millions of Americans who don’t subscribe to cable or satellite still do.

Aereo is nominally in the antenna business. Aereo owns thousands of tiny digital antennas – each about the size of a dime – on the roof of a building in Brooklyn. In exchange for a monthly fee that ranges from $8-$12, an Aereo subscriber can dial into one of these antennas to watch whatever she wants.

The trick is that this antenna is connected to both the internet and cloud-based servers. So when she uses Aereo to select a program to watch on her smartphone, computer, tablet, or even TV (using a Roku or AppleTV device), Aereo tunes one of the tiny antennas to the relevant broadcast signal, and routes that signal to the subscriber over the Internet. And with Aereo’s “cloud DVR,” subscribers can record programs that they can watch later on those same devices. In short, with Aereo you can watch TV anywhere and anytime on virtually any device.

The broadcast networks hate this. Since Aereo’s little antennas simply grab the signals out of the air, the company doesn’t pay the kind of retransmission fees to the networks for carrying their signal that, say, a cable company would.

And so the networks sued, arguing that Aereo’s transmission of television programming is a “public performance” under American copyright law. The concept of public performance is key to the legal case, because American copyright law differentiates between “private performances” such as watching a movie at home, for which no license is required, and “public performances,” such as showing a movie in a theater, for which a separate license is required. The nub of the legal question, in short, is whether Aereo’s “antenna farm” model is one big public performance or thousands of tiny private performances.

Aereo says that it’s not publicly performing anything. Rather, it’s just renting subscribers an antenna and a cloud DVR. Unlike a cable or satellite company, it doesn’t transmit one signal to many people, which would be a public performance. Each subscriber’s service is based on a separate signal viewable only by that subscriber’s household. QED: it’s a private performance. The networks say this argument is completely bogus. Aereo is obviously in the broadcast game, and is simply using a clever workaround to gut the business model of traditional broadcast TV.

At one level this dispute is familiar: a legacy media business fights a radical new technology that appears to upend its traditional approach and destroy its profits.  In the early 1980s, when the VCR began to become really popular in American homes, the same basic battle played out in the Supreme Court. Was home copying fundamentally illegal under copyright law? Hollywood thought so, and it fought the VCR tooth and nail. Chief lobbyist Jack Valenti famously likened the device to a “rapist” bent on destruction.

In a close shave, the Supreme Court decided VCRs were OK. The result? Americans got to watch “Miami Vice” at their convenience, video stores popped up on every corner, and of course—the great irony–Hollywood went on to make billions in the DVD market.

In a similar fashion, the Aereo case is about the future of one of the biggest technological shifts of recent years: the rise of cloud computing. At the oral argument on Tuesday, the justices zeroed in on the possible dangers that a ruling against Aereo would cause for the cloud computing revolution now underway. Services like Dropbox, iCloud, Google Drive, and Microsoft’s SkyDrive allow people to store and retrieve their content from the web using cloud systems.

By the logic of the networks’ argument, if Aereo is making public performances of copyrighted works, then Dropbox is, too – for example, every time a user plays a song that he has stored on the cloud service. Because Dropbox and most other cloud services rely on user-generated content, the rules that apply are somewhat different—in particular, under the 1998 Digital Millennium Copyright Act, Dropbox-like services have to remove copyright-infringing material placed there by a user, but are not themselves liable for it. But exactly how a ruling against Aereo would intersect with the DMCA is not clear, and that is why so many computer industry heavyweights have been following this case so closely. Indeed, this is also why the Computer and Communications Industry Association filed an amicus brief in support of Aereo.

So what’s likely to happen? Legally, the case is a toss-up. Lower courts have been mixed, but mostly have sided with Aereo. The copyright statute itself, written in 1976, doesn’t provide much guidance. And the oral argument at the Supreme Court seemed pretty well-matched, with both Aereo and the networks scoring points. The justices pressed Aereo to explain why they aren’t just a business that free-rides on the broadcasters and avoids copyright liability through a technicality. But the justices also pressed the networks to explain how they could rule against Aereo without causing enormous mischief for the Internet.

Whoever wins, the Aereo case will be vital to the future of both television and the Internet.

If Aereo prevails, its business will spread, and while the networks are fighting it now, the cable companies may well be the ultimate losers. Once Aereo achieves significant scale, watch for it to start striking deals with programmers like Viacom and HBO. Suddenly, the cable companies will have an Internet-enabled competitor on their hands. Aereo will make it very attractive to dial back cable service, and with it the ballooning size of the average American’s cable bill. And if there is one thing that unites Americans in our hyper-partisan, divided age, it is hatred for the cable companies.

If the networks win, a lot of promising and popular new technologies will fall under a haze of copyright liability. The cloud may seem like technical mumbo-jumbo to many of us, but without it we would have to buy huge external hard drives for all the files we own, and, more importantly, would lose the mobile access to those files that we currently enjoy through services like Dropbox and iCloud.  Can these businesses survive if any copyright holder can sue them for “public performances” of their songs, shows, or other works?  It’s doubtful, but that may be one casualty of a win by the networks.

On Tuesday, Justice Stephen Breyer—no novice with regard to copyright—made a remark to the lawyer for Aereo that sums up the difficulties in this case. “I don’t understand,” Breyer said, “what the decision for you or against you when I write it is going to do to all kinds of other technologies.” That statement is going to make a lot of executives and lawyers in both Hollywood and Silicon Valley very nervous.