Wednesday, June 25, 2014

The Supreme Court disrupts Aereo

Just when you thought Silicon Valley has cornered the market in disruption, SCOTUS pops up and does a little disruption all of it's own:
CBS and other broadcasting and media stocks are up in early Wednesday trading after the U.S. Supreme Court ruled that Web TV startup  Aereo could no longer capture their signals  and stream them over the Internet to subscribers.
The court ruling upholds contentions by broadcasters and the Justice Dept. that Aereo’s streaming service violates broadcasters’ copyrights. The Supreme Court agreed, reversing a lower court ruling that sided with Aereo and would have cut into broadcasters’ retransmission fee revenue stream.
Aereo is a service which let customers view programs that were once broadcast over-the-air via the internet. They positioned this as a "cloud DVR" hoping that since DVR was OK (via the original Betamax case 30 odd years ago) and cloud is OK, cloud + DVR was OK. Apparantly the majority on the Supreme Court disagreed.

I'm not going to argue the merits of the case or the decision -- legal history around copyright, broadcast rights, cable and fairly insane -- but I would like to highlight a couple of things which I think are interesting in light of the media discussions I see around the tech industry currently (which I did not see in the late 90s bubble).

1. The CEO of Aereo, while rightly disappointed at the ruling, is a little over-the-top in his public response:
Court decision denies consumers the ability to use a cloud-based antenna to access free over-the-air television, further eliminating choice and competition in the television marketplace
New York, New York (June 25, 2014) – The following statement can be attributed to Aereo CEO and Founder, Chet Kanojia:
What is a cloud based antenna? Sounds like a rhetorical device used to make a bunch of hard drives recording content in various warehouses seem like a metal rod sticking up into the sky. I'm sure Kanojia would like this to be true, but it's certainly open to interpretation, and that incidently is exactly what the Supreme Court did.

Also, I don't think lack of choice in media options is a major issue in the US today. There are genuinely oppressed people in the US, but not TV watchers.
“Today’s decision by the United States Supreme Court is a massive setback for the American consumer. We’ve said all along that we worked diligently to create a technology that complies with the law, but today’s decision clearly states that how the technology works does not matter. This sends a chilling message to the technology industry.  It is troubling that the Court states in its decision that, ‘to the extent commercial actors or other interested entities may be concerned with the relationship between the development and use of such technologies and the Copyright Act, they are of course free to seek action from Congress.’ (Majority, page 17) That begs the question: Are we moving towards a permission-based system for technology innovation?
I'm sure the decision is a massive setback for Aereo and it's investors, but I'm not sure the American consumer will feel set back very much. Aereo's goal to comply with the law is a good one, and the law probably makes no sense, but they didn't meet the mark and I'm pretty sure they knew they were skating close to the lines. That might be why their taglines are "Record & Stream Live TV Online with Aereo Cloud DVR" and "Watch live TV online. Save shows for later. No cable required" -- they were aware that this was going to be a potential issue and were careful to position it was something different.

I cannot see why Aereo's business was a disruptive one in the Clay Christensen sense, it seems more like regulatory arbitrage in the same vein as Uber and AirBnB. “Consumer access to free-to-air broadcast television is an essential part of our country’s fabric," which is politically uncontroversial, although may not be actually that true, but following it with "using an antenna to access free-to-air broadcast television is still meaningful for more than 60 million Americans across the United States" is the kind of wrapping the flag exercise which has been used to justify all kinds of nuttiness in regulating communications in the US.

Most importantly, the tech industry needs to realize that it's in the same boat as all the non-tech people around them, regardless of how much they may wish to exit. Getting to grips with that reality, and learning how to navigate it skillfully, may be the next major milestone as the industry continues to mature.

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