Aereo Meets Its Maker

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Photo: G. Giraldo/Courtesy of Aereo

Back in April, I made the case that Aereo, the Barry Diller–backed streaming-TV start-up, deserved to die. My reasoning was simple: Even Aereo's fans will admit that the service is premised on a regulatory hack, one that exploits a longstanding hole in copyright law to bring broadcast TV to remote users with the assistance of thousands of dime-size antennas. Since then, I've gotten a fuller explanation of the relevant bits of copyright law from experts, and heard lots of cases for why outlawing Aereo would set a dangerous precedent that might compromise other cloud-based Internet services. I even started to believe some of them.

But the Supreme Court has had no such change of heart. Today, it ruled 6-3 against Aereo, effectively putting the young start-up six feet under.

Here's the full decision (PDF). It's a fairly decisive death stroke – the Court's liberal wing clearly didn't buy Aereo's argument that its Rube Goldberg–esque antenna arrangement means that it's simply an equipment provider, rather than a cablelike retransmission service. The relevant paragraph is this:

Viewed in terms of Congress’ regulatory objectives, these behind-the-scenes technological differences do not distinguish Aereo’s system from cable systems, which do perform publicly. Congress would as much have intended to protect a copyright holder from the unlicensed activities of Aereo as from those of cable companies.

The Court was also clearly sensitive to the slippery-slope argument that Aereo had been making, writing that it didn't think the Aereo decision would step on the toes of other, more legitimate cloud services:

Given the limited nature of this holding, the Court does not believe its decision will discourage the emergence or use of different kinds of technologies.

A few quick thoughts:

— The Court's ruling was really a finding against letter-of-the-law cleverness. Aereo's tiny-antenna gambit was a legal stroke of genius, but its technological justification, aside from getting around the Transmit clause, was essentially nonexistent. The Justices saw the back-end jujitsu Aereo had invented, and judged it completely unimportant: "This difference means nothing to the subscriber," the majority opinion reads. "It means nothing to the broadcaster."

— Aereo is probably done. Aereo's backers have said there's "no plan B" for the company in the aftermath of today's loss. The tens of millions of dollars the company raised so far have largely gone to pay legal costs, and the road forward for the company is probably either a fire-sale of the core technology or a quick pivot into some other, DVR-like function. Aereo's CEO claims that "our work is not done," but it's tough to know what that means. Without the ability to skip out on retransmission fees, Aereo's entire business model is gone.

— Aereo won't be the last tech company whose business model is undercut by the courts. As tech companies begin to experiment with heavily regulated sectors like health care and education, there will be more and more situations in which start-ups exploit holes in the law, only to be told to shut down. Investors will be more cautious, now that they've seen that betting on these types of companies can be tantamount to making a binary gamble on the opinions of five Supreme Court justices.

— Expect some backlash from the tech community, which finds itself in the odd position (given Silicon Valley's largely liberal bent) of agreeing with dissenter Justice Scalia on the Aereo matter. This backlash will have no real teeth — there's no lobbying the Supreme Court to reverse itself — but it could give ammunition to the anti-regulatory movement within the tech world.