Back in 1976, Congress included a "Transmit Clause" when they updated the Copyright Act. Without getting too deep into the legalese, the Transmit Clause was aimed at cable and satellite companies, and made the rebroadcast of "free," over the air antenna signals copyright infringement. Because of that clause, cable and satellite companies must license the content through negotiating and paying retransmission consent fees. However, there's a bit of a loophole in the Copyright Act of 1976. The law prohibits public displays of the material "at any place where a substantial number of persons" may be watching or listening, but it allows for private performances between "social acquaintances." Hence the reason why lawyers for Fox don't show up at your Super Bowl party to serve you with a lawsuit for gathering your friends together to watch the game. And the reason you can DVR a program and "time shift" watching it, or use a VCR to tape a broadcast and share it with a friend or someone you know.
Aereo, a startup backed by media mogul Barry Diller, has royally pissed off all of the broadcast networks (and their big studio, content provider owners) by attempting to use those exceptions to copyright law for subscription based, time-shifted streams of network television on internet connected devices. To do that, Aereo leases each subscriber within a given service area their own personal dime-sized antennae to either view live television or record programs to a cloud based "DVR." Since the company claims their actions are legal private viewership, because it's an individual antenna for every subscriber, and an individual copy of the content for each user, Aereo pays no retransmission consent fees. Those fees comprise a significant chunk of broadcaster revenue. CBS CEO Leslie Moonves, in one of his more diva-ish moments, threatened to take CBS off the air as a broadcast network if Aereo should win this case. In the same vein, both the National Football League and Major League Baseball have said they will consider removing their games from network television if Aereo should receive a favorable outcome.
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I'll leave it to Adam B and others to analyze the legal merits of the case when the time comes, but I thought it was a good jumping off point for looking at the changes that might be coming in the future. What's happening with Aereo and the networks touches on a lot of the market forces that have driven media innovations over the past 30 years. In short, choices have increased as consumers demand the ability to watch what they want, when they want, on whatever device they want.
It's not like it was 20 years ago, when if you wanted to see a particular television episode again or that you may have missed, you had to hope to catch it in a rerun. Hell it's not even like it was 10 years ago, when you had to buy the DVD box set or catch the episode in syndication.
- Cable and Network Losses: The fragmentation of television has been an issue for a while, as network after network chases the 18 to 49-year old advertising demo. Since the early 1980s, the broadcast networks have seen their audience decline, and shift to other outlets. A lot of shows that were cancelled as "busts" in the past would be certified hits in the present landscape where NBC and ABC are lucky if they can get five million people to tune in for one of their series. It's not unusual for AMC's The Walking Dead or a reality show on MTV to beat all of the broadcast offerings on a given night. However, in recent years, cable television has experienced declines. Cable bills have been increasing at around an annual five percent clip during a time of national economic downturn, with the cable companies justifying the rate hikes by complaining about increased licensing fees (like the retransmission fees discussed above) and the loss of subscribers to streaming services. According to at least one study, by 2015 the average cable bill will be $123 and may soar to $200 by 2020. If families have to cut back on expenditures, HBO and Showtime might be the first things to go. If people are losing their homes, they're also losing their cable subscription. So as Netflix, Hulu and Amazon's streaming services have grown, the question has become whether believing the broadcast and cable TV model is sustainable has reached the point of being the equivalent of thinking dial-up services like AOL were going to be relevant forever? And, oddly enough, Time-Warner has experience with investing in both cable television and AOL.
- The British Model versus the American Model: One thing that's been fairly apparent with the rise of cable dramas over the past 15 years has been how much the American network television model is detrimental to good storytelling. TV series on American networks are based around each season being 20+ episodes, with most of the meat in character story arcs happening during the season premier, sweeps periods (i.e. weeks where the Nielsen ratings are being measured and that advertisers pay particular attention to), and the season finale. The episodes in the weeks in-between those periods are usually filled with fluff and padding to stretch out the show over a season, leading to unevenness in quality. A lot of good shows burn through stories that may have worked much better under different circumstances where they weren't compacted to fit as background b-story. In contrast, the British model for television series is based on a limited, specific number of episodes that are sufficient to tell the story in a given season. Of course, the BBC can do that because they're supported by TV licenses instead of advertisers. But if you look at the most critically acclaimed American television dramas over the past decade or so (i.e. Breaking Bad, The Wire, Mad Men, The Sopranos, Game of Thrones, etc.), they're on cable television where they can have limited seasons (around 10 episodes), similar to the Brit's model.
- Binging v. Serialization: About two years ago, the creator of HBO's The Wire, David Simon, gave an interview where he objected to the idea of reviewing The Wire on an episode by episode basis. His argument was the stories for The Wire were season long arcs, and that each episode was like a chapter in a book. And no one reviews a book chapter by chapter. By and large, people seem to prefer the flexibility of Netflix's model for releasing TV series, where you can watch the material whenever and however you want, and it's all available at one time. And there's some evidence that TV series have benefited from streaming availability allowing viewers to "catch up" through binge watching. However, there are some publicists that see deficiencies in it. With a week to week rollout of a show on television, you can build momentum and excitement through word of mouth about the show over time. So the media is talking about it when it premieres, after each episode, and when the finale airs. Shows like Breaking Bad and recently True Detective benefited from that dynamic, where fans would take to Twitter and other forums to analyze what happened in each episode, and offer their theories for what would happen next. With Netflix's distribution model, you get most of that media coverage and buzz in the week of the premiere, and then it fades. For example, Amazon Prime has tried to split the difference with the release of their shows. Amazon releases multiple episodes when the series premiers, and then staggers the remaining episodes on a week to week basis.
From Spencer Kornhaber's interview with Beau Willimon, the creator of Netflix's House of Cards, at The Atlantic:
Willimon: I think that you might see more innovation in what’s possible in terms of form in the years to come. It’s certainly something I’d like to experiment with.
I don’t know how much longer the idea of a “season” will be something that we feel like we need to adhere to in television. Even the idea of an episode. I think with streaming, you might have shows in the future where you have three or four hours released. And then three months later you’ll get another couple hours. And then nine months later you might get six more hours. I mean, do all of those constitute a season, or do you sort of dispense with the notion of seasons altogether?
I’ve toyed with the idea for a show that doesn’t have episodes at all. That would simply be one eight-hour stream for a season, and the viewer decides when they want to pause, if at all. That definitely could affect the writing of a show. But we’re in an in-between period now,where we have traditional broadcast networks on one end of the spectrum and streaming on the other, meaning that shows kind of have to be able to live in both worlds.
- Does An "a-la-carte" System Make Things Worse?: I'm guessing everyone that's reading this sentence, and has cable television, would probably prefer it if they could somehow not pay for Fox News Channel to watch MSNBC, ESPN, TNT or Bravo. As the thinking goes, if I never watch QVC or MTV, why should I have to pay for it as part of my cable/satellite package? Cable channels are bundled together in the current system, where the costs of ABC Family and The Travel Channel are supported in part by the demand for ESPN and other popular channels. Senator John McCain has been pushing a bill to allow consumers to pick and choose the channels on an a-la-carte basis. However, many analysts believe that it would only make consumers' cable bills worse, as well as limit the revenue that content providers have to create new shows. The production costs for critically acclaimed shows like Mad Men, which has never had a huge audience, can be justified by the bundled cable subscriptions that include AMC, even though the revenue is coming from people who may have never watched a second of AMC. If you un-bundle the channels, the weaker networks will likely die off, and the popular networks will demand more for their material. So instead of getting 500 channels for $100, you'll get 30 channels for $90. And since costs are no longer spread across the bundled package, many of the best cable shows would no longer be able to justify their production budgets, and cease to exist. This is also what would happen if the broadcast and cable system of television totally collapsed tomorrow. If every network became an "app" on smart TVs, Apple TV, Xboxs, PlayStations, or Roku boxes, the same cost/revenue dynamics would be at work, and consumers would probably pay more for less.
- The Limits of Streaming: The streaming services are still in their infancy, and a lot of what people like about them is based on the services being supplements instead of true competitors to networks and cable channels. Netflix, Hulu and Amazon Prime are largely dependent on the preexisting system for content and distribution. The reason Netflix and Hulu can offer the movies and TV shows they can is because it pays licensing fees for those shows, which have already been created and supported by the fees and revenue associated with network and cable television. And with their original offerings like House of Cards and Orange is the New Black, Netflix is still dependent on the cable/phone companies for broadband service. Netflix eats up 32 percent of the downstream traffic in North America, and just made a deal with Comcast for faster service. Also, if I want to watch HBO Go or ESPN on my Xbox or iPad, I can because it's based on my DirecTV subscription and the bundled fees and licensing of the preexisting system. If you throw that system out the window, you get back to what was touched on in the preceding bullet-point, in that there's no way it can operate in the same way without having to pay more.
- The Future of News and Political Ads: Newspapers and news magazines have struggled to survive, and the idea of the nightly network news broadcast being the center of a day's news cycle has shifted to 24-hour cycle of cable news and online blogs. Research claims that younger people “graze” on news stories online throughout the day, rather than tune in for broadcasts at scheduled times. If TV-based news shifts to be more like the internet, then some of the same dynamics of internet-based news are likely to take hold. News info will likely come down to 140 character or less Twitter-like updates, further fragmentation of the audience among ideological lines, news producers trying to find viral moments that may or may not be "news," and the ability to pick and choose which segments you want to watch and learn more about rather than sitting through an entire broadcast and theoretically being "informed" about everything going on in the world. Also, if television moves away from its current broadcast model, the effect on political advertising is an interesting issue to consider. Even though every campaign wants a lot of money to drown their opponent in ads, there's considerable debate over how effective those ads actually are. But the streaming services claim they can target and reach voters much more effectively than the TV networks. According to one study, almost one-third of television viewers in 2012 battleground states were not watching scheduled television, and relied on DVRs, TiVo, Apple TV, Roku and services like Hulu. Political campaigns, like President Obama's, ran zip code based ads on Hulu, for shows popular within certain demographics, because of data that indicated 70 to 80 percent of Hulu users cast a ballot in both the 2008 and 2010 elections. Political ads are running on Pandora as well, since Pandora claims it can predict with "75-80 percent accuracy" how an individual will vote based on age, location and music preference.