A Fox broadcast network executive threatened to convert the network to a pay-TV-only channel on Monday if Internet startup Aereo Inc. continues to "steal" Fox's over-the-air signal and sell it to consumers without paying for rights.
Although anyone with an antenna can pick up a TV station's signals for free, cable and satellite companies typically pay stations and networks for the right to distribute their programming to subscribers. Industrywide, those retransmission fees add up to billions of dollars every year.
Last week, that business was shaken after a federal appeals court issued a preliminary ruling siding with Aereo, which contends that it doesn't have to pay those fees because it relies on thousands of tiny antennas.
News Corp. Chief Operating Officer Chase Carey said that not being paid by Aereo jeopardizes the economics of broadcast TV, which relies on both retransmission fees and advertising.
"This is not an ideal path we look to pursue, but we can't sit idly by and let an entity steal our signal," Carey said at the annual gathering of broadcasters, called NAB Show, in Las Vegas. "If we can't do a fair deal, we could take the whole network to a subscription model."
If realized, Carey's proposal would amount to a sea change in how Fox does business. Currently, Fox sends its signal to TV stations across the country, including 27 that it owns directly. Those stations relay Fox programming such as "Glee" and "Family Guy" for free over the airwaves in local markets and add their own local news and other programming. While most people get Fox through a pay TV provider anyway, millions of other Americans rely on the free signal coming over their own antennas.
Carey didn't explain how TV stations would be affected if Fox shut off the signals it sent to broadcasters and went straight to a pay TV model. Later, the company said in a statement that any change would occur "in collaboration with both our content partners and affiliates."
Aereo takes broadcast signals for free from the air with thousands of little antennas, recodes them for Internet use and feeds that to subscribers' computers, tablets and smartphones. Plans start at $8 a month, which is much cheaper than a cable package, though the service is mostly limited to broadcast channels.
Last week, the 2nd U.S. Circuit Court of Appeals in New York said that Aereo could continue its service despite a legal challenge by broadcast networks Fox, ABC, NBC and CBS.
In a split ruling, the court accepted Aereo's position that having individual antennas meant that Aereo wasn't retransmitting signals. Rather, the appeals court said that Aereo enabled its subscribers to do what they already could on their own with their own antenna and video recorder.
In a separate case, broadcasters are suing a different Internet company called Aereokiller LLC. It also takes broadcast signals using mini antennas and transmits them to paying customers. That case is now before the 9th U.S. Circuit Court of Appeals in San Francisco.
Gordon Smith, president of the National Association of Broadcasters, was interviewing Carey onstage when he made the comments. Smith said he hopes that the courts will eventually rule against Aereo and force it to get in line with other pay TV operators.
"We think in the end, we'll be on the right side of the law and we will never get to the `what-if' scenarios," Smith said.
Smith said he hopes that a different ruling at the 9th Circuit will prompt the U.S. Supreme Court to take over the matter.
Ultimately, Congress could step in and update a cable law governing retransmission fees. It was passed in 1992, before the world even had a commercial Web browser let alone viable Internet video technology.
Aereo, backed by billionaire Barry Diller, was limited to New York City when it debuted early last year, but has since expanded to the New York City suburbs, including parts of New Jersey and Connecticut. It plans to expand to Boston, Chicago, Philadelphia, Washington and 18 other U.S. markets this spring.
Aereo Chief Executive Chet Kanojia said the legal OK for Aereo's service is now the "law of the land" with or without Fox.
"We believe that broadcasting in this country, irrespective of Fox, is a very powerful, fundamental presence," he said. If Fox exits the space, "we think somebody will be there to take advantage of that great idea of reaching this mass audience."
Analyst Todd Juenger of Bernstein Research speculated in a research note in January on what would make broadcast networks transition to a pay TV model.
Such a system would result in the loss of local news programs, broadcast personalities and advertising. But a pay TV system could be better for network owners such as Fox if services like Aereo were to thrive, because doing so would cut off technology that siphons away customers from pay TV operators, he wrote.
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