Tuesday, May 14, 2013

Despite Lawsuits, Aereo Marches Through Atlanta; Why Their Model Works

The folks at  are not cowed by broadcast television interests who are afraid of their efforts to repeat publicly broadcast television signals on the Web. Even as they are taking on legal battles with CBS and other major TV broadcasters in their initial pilot markets, Aerero is expanding their Internet-based broadcast TV retransmission program to the city of Atlanta, Georgia. While there are some potential legal pitfalls in Aereo's arguments for this strategy, in general their opportunity stems from broadcast TV interests refusing to acknowledge that the Internet has changed fundamentally how the "ether" of public communications works.

When radio frequencies were first allocated for commercial radio and television,
the idea of a wide-area dissemination of a broadcast required radio antennas transmitting a powerful signal - sometimes as much as 50,000 watts of power on U.S. radio frequencies. The physics of such powerful signals is such that they will tend to interfere with other signals over a broad area. You can get a sense of what this is like when you experience interference on a car radio, mobile phone or Bluetooth-equipped accessory right under a well-equipped cell phone or radio tower. So, one big signal on one particular frequency actually meant that in a given area you could have only a relative handful of powerful signals available.

The Internet turns this model on its head. Any broadcast on the Web connects

with a low-power signal that can be repeated endlessly around the world via the Web at similarly low power at any given point. So, instead of one publisher/broadcaster determining the bandwidth required for services, the overall design of the Web ensures good service for receiving any Internet signal anywhere in the world. The government doesn't have to allocate a public resource - radio waves - to enable a specific broadcast source to go anywhere in the world. Internet service providers provide one signal to an end point at a desired frequency of updates, and that is that. Thus, the entire design of the Internet is antithetical to the notion that one signal is more powerful than another from the perspective of someone receiving it. The only performance requirements revolve around how many individual signals an Internet broadcaster wants to support, how many signals people want in a given area and how much they're willing and able to pay for them - none of which requires government licensing.

So the fundamental economics of the Internet are built around the notion of paying for signal, not paying for

content. Looking at the business model of , the presumption that some basic level of signal can't be free to citizens is also turned on its head - basic Internet service (about 1.5MB downloads) is available via Google Fiber for free, provided that someone can pay to install a piece of equipment no more expensive than a common television set, a cost that is subsidized by people who are willing and able to pay a nominal fee for about 660 times more signal.

What this means in sum is that using the most likely standards for Internet service that are likely to emerge in the U.S. over the next decade, any person should be able to receive one clear basic video "signal" at a given time - the equivalent of channel flipping - and for a few dollars anyone should be able to receive as many basic video signals as a typical cable service could produce - regardless of their source. So, today's Internet is an ideal public medium for basic television service.

Aereo knows this, and argues that all it is doing is providing better reception for a publicly available radio signal via another public medium - the Internet. That the economics of the organizations behind that signal are different fundamentally than the economics of PSY posting a video on the Internet that's been viewed by over a billion people is irrelevant ultimately to the public. 

Broadcast television frequency allocation was designed to provide the public with optimal reception of the most available signals, so that there could be competition for people's need for information and entertainment. The government's radio frequency scheme was not designed to restrict signals, but to propagate as many of them to the public as is feasible (with some wrinkles thrown in by powerful broadcast interests). The Internet's signal-neutral design carries on this concept, providing the greatest choice to a person and providing a quality of service based on how much service they want at a given time. It doesn't make sense to use the power given to broadcasters based on an old scheme meant to maxmize competition to reduce the reach of their signal on the Web - they should be willing to compete in public signal space no matter what technology makes their signal available as public broadcasters, it would seem. There's pretty sound logic behind Aereo's argument, overall.

So where's the potential catch for Aereo's strategy? Today's courtrooms are a mine field for intellectual property litigation, enabling any scenario, strong or weak, to have a chance of catching at least one court's ear, so even rational arguments may go astray. The intellectual property infringement angle is probably not their weakness - that seems to have been weakened already in court, as Aereo's claim to being IP-neutral seems to have held up. If there's any gap in their plans I'd have to say that it's in their forcing of the issue of television broadcast licensing economics. Broadcasters pay a lot for the right to purchase a given broadcast frequency in a given regional or local market, and they pay the U.S. government for that right based on exclusive rights to broadcast in that market. So in effect the government is implicitly negating the potential economic value of those licenses - taking the money and then changing the game, you might say.

But so it goes with technology - the government doesn't make a guarantee that they won't find more efficient use of public resources. Frequencies used for TV broadcasts are licensed, not owned, and the terms of the license can change. However, you can see where this is going - the TV broadcasters are likely to seek damages from the government for the depreciation of the value of their licenses based on their opening the Internet to TV signal retransmissions. It's hard to say how soon this may happen, or if in fact this strategy may in fact surface at all outside of conference rooms in corporate and government offices, but a bit of "corporate welfare" may be the payoff required to push broadcast television into the Internet era. Since that would mean doing so on the government's terms, it's possible that broadcasters would rather fight it out, but time is slipping away, and they may be wise to take some government cash now - before interest in their programming slips even further away from the awareness of today's Web-savvy television audiences.
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