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Aereo's Loss a Gain for TV Broadcasters

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Yesterday’s Supreme Court ruling on violation of Copyright Act, 1976 came as a setback for the TV-over-Internet service provider company, Aereo. The Supreme Court has reversed the verdict of lower court and agreed with the broadcasters’ and Justice Department’s claim that alleges Aereo’s services of violating broadcaster copyrights. The company has earlier revealed that it wouldn’t survive if the Supreme Court verdict goes against it as there is no plan B to keep it afloat.

On the other hand, the Supreme Court verdict came as a major relief for the broadcasting and media companies as they are now able to protect their subscriber base as well as revenues. Aereo’s low cost broadcasting service was a threat to these companies as it was eroding their subscriber base and revenues.

Some major media stocks rallied during yesterday’s trading session after the verdict. CBS Corporation (CBS - Free Report) gained 6.2%, Twenty-First Century Fox, Inc. (FOXA - Free Report) was up 2%, The Walt Disney Company (DIS - Free Report) rose 1.5%, The E. W. Scripps Company (SSP - Free Report) jumped 8.8% and Sinclair Broadcast Group, Inc. (SBGI - Free Report) soared 15.6%.

The New York-based company, Aereo, in Feb 2012 launched a new innovative technology in the broadcasting industry, which allows its customers to view live and recorded TV broadcasts on Internet-connected devices such as computers, smartphones or tablets. Media titan Barry Diller led IAC/InterActive Corp. has been financially backing this online TV broadcaster.

For this service, Aereo was charging as little as $8 to $12 a month as against the major TV broadcasters who charge up to $75 per month. Started in the New York City, the company has been able to expand its services in 11 cities in just less than two years.

Disney and Twenty-First Century Fox were the first broadcasters to file a case against Aereo. However, other broadcasters such as CBS Corp. and Comcast Corp. (CMCSA - Free Report) joined the lawsuit when federal court gave a clean chit to Aereo. They argued that Aereo’s way of capturing broadcast signals for free is illegal as other broadcasters have to pay a heavy transmission fee for receiving signals .

Aereo in its defence said that the company’s services are similar to that of a personal digital video recorder as its users get signal from a dime-sized antenna, which is individually assigned to them. However, the Supreme Court rejected the arguments by saying that the company is operating as a cable service provider.

We believe that the Supreme Court verdict is a loss for consumers who will now continue to pay heavy rentals for availing TV broadcast services.

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