How Aereo's Case May Change TV Bills

Broadcasters are challenging the online video service next week in the Supreme Court.

The Supreme Court building in Washington, D.C.

A favorable Supreme Court ruling for Aereo could disrupt the entertainment industry business model.

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Aereo heads to the U.S. Supreme Court Tuesday to defend the legality of its online video service in a case that could affect what consumers pay for programming and disrupt the future of the television business.

A victory for Aereo over broadcasters has great appeal for consumers looking for more options to watch TV online at a lower price. Aereo retransmits a network TV signal onto a wireless device or computer, and users can watch or record programs for $8 a month. To put that into context, market research company The NPD Group says the average cable bill in the U.S. will reach $123 by 2015, although that cost includes premium channels and other trimmings instead of the standard broadcast channels Aereo retransmits. 

But if Aereo is found to be legal and expands its service, that could radically disrupt the entertainment industry, possibly enough for cable and broadcast services to eventually lower costs in order to compete.

“We have every hope and confidence that the Court will validate and preserve a consumer's right to access local over-the-air television using an individual antenna, make a personal recording with a DVR, and watch that recording on a device of their choice,” an emailed statement Thursday from Aereo CEO Chet Kanojia said. “The broadcasters’ positions in this case, if sustained, would impair cloud innovation and threaten the myriad benefits to individuals, companies, and the economy at large of the advances in cloud computing and cloud storage.” 

[READ: Silicon Valley Supports Aereo in Supreme Court]

Broadcast programming is available online through Hulu, but that video service does not offer sports telecasts or local news programs the way Aereo does. Aereo unveiled a website on Thursday as a resource for accessing court documents and briefs of support from groups such as the Computer & Communications Industry Association – a trade group with members that include Google, Microsoft and Yahoo.

Aereo pays no retransmission fees for using the TV signals, which broadcasters contend violates copyright law. Traditional broadcasters such as Fox, CBS and NBC support the challenge against Aereo.

While innovation and consumer choice could be at risk if Aereo loses, a victory for the company also could jeopardize the lucrative retransmission payment system that broadcasters collect from cable providers. Broadcasters may receive more than $6 billion in retransmission fees by 2018, according to an estimate by market research firm SNL Kagan.

Broadcasters are already losing audiences as services like Netflix are providing online video services so popular that they've inspired Internet companies to produce their own shows for the Web. A victory for Aereo could lead cable companies tired of retransmission fees to launch similar Internet video services, but they would be more likely to use that threat to gain better contract terms with broadcasters, says John Hane, a media lawyer at Pillsbury Winthrop Shaw Pittman, a law firm that specializes in business and technology law. 

Broadcasters also may respond to a victory by Aereo by taking programs off the free airwaves and selling them on cable services, which is a contingency option previously mentioned by Fox and Univision. Some could even start their own Internet video services similar to Aereo, as previously mentioned by CBS CEO Leslie Moonves.

[ALSO: Aereo Launches Android App Despite Supreme Court Threat]

Those contingency plans might give consumers more options, but they also could complicate the business model for affiliate broadcast stations that redistribute programming from those companies to boost their local news offerings. It may also be difficult for pay-TV services or broadcasters to compete with Aereo’s $8 subscription fee. 

A ruling in the case is difficult to predict, now that the high court announced on Wednesday that Justice Samuel Alito is back on the case after previously recusing himself. No explanation was given when Alito initially stepped aside, but conflicting financial investments are often a reason for such decisions. 

The Obama administration is Aereo’s most powerful critic as the case approaches, with a brief submitted to the high court in March accusing the company of violating copyright law. A ruling against Aereo “need not threaten the legality of cloud computing,” the brief says, arguing that cloud-computing services providing access to legal content would be protected by law.

“There is consequently no sound reason to suppose that a decision holding [Aereo] liable for copyright infringement will threaten the use of different technologies that assist consumers in hearing or viewing their own lawfully-owned copies,” the brief says.