Market Insight

Aereo scores in Red Sox country

October 09, 2013


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Aereo - the New York City-based service which retransmits live over-the air TV over the internet - won another court battle on 8 October in the District Court of Massachusetts, having successfully defended itself in the Second Circuit Court of Appeals in NY, in the summer of 2012 (see our commentary, OTT venture Aereo gets a stay of execution).

Scoring its latest legal victory inside the First Circuit, the Aereo victory brings the count to three wins and one losing recent prominent court cases. However, the picture hasn't been all rosy; not all circuit courts agree.

Upstart FilmOn X operated in several states was promptly challenged in the DC circuit, the result being an injunction from operation which was issued in September (see US court rules against live broadcast streaming service). The decision as ruled applied nationally, except in the Second circuit where Aereo was already in operation. In the District Court of Mass. ruling, Aereo was not found to be injurious to the operation of Hearst-owned WCVB, and is not ordered to remove the station's signal immediately. Having launched in several new cities including Salt Lake City, Aereo is frequently being challenged. A request for injunction has been filed against Aereo, through  the US District Court in Utah.

Aereo offers two levels of service costing $8 for 20 hours of DVR storage or $12 monthly for 60 hours.

The issue is expected to be taken up by the Supreme Court in the near future.

The victory in Boston is significant in that 59% more Americans now have official court sanction to use the Aereo service. The addition of the weight of the District Court of Mass. ruling may be an additional influence on the Supreme Court, but the question of harm is likely to be rationalised differently at a national level.

 

Taken in aggregate the potential customer base of Aereo/FilmOn X at a minimum can be represented by the growing disparity between TV households and pay TV households. IHS believes that this population of 'cord-nevers' is likely to be more receptive to the price point offered by OTT services like Aereo, Netflix and Hulu+. The monthly total for the three services (Aereo at $12) is a combined $28, compared with IHS's estimated 2013 average pay TV video ARPU of $80.15.

 

Yes, it is true that pure OTT customers will not achieve the same level of program diversity that a subscriber to a traditional pay TV video package will, but is that a problem? For cord-nevers the difference in content is likely to not be a significant factor in their OTT video consumption decisions. Cord-nevers are thought to be significant multitaskers, deriving significant satisfaction from sources of entertainment other than video.

 

If the Supreme Court sides with Aereo, it is likely that the company will grow and thrive at the $12 price point. The burning question is whether the Aereo/FilmOn X services will undermine the existing affiliate fee structure of pay TV, effectively undermining the key lever of exclusivity - that broadcasters enjoyed before the arrival of Aereo - in upcoming retransmission fee negotiations.

Geography
USA
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