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Cable Aereo Emulation Complicated, Analysts Say

NEW YORK — Wells Fargo analysts are skeptical about reports that cable companies are considering adopting Aereo’s mode of retransmitting over-the-air TV signals.

“While we don’t doubt that wheels are turning here, we just don’t view Aereo or an Aereo-type service as that simple of a solution—for a number of reasons,” Wells Fargo analysts said on Monday.

DirecTV and Time Warner Cable are mulling the Aereo model, according to Bloomberg. Aereo picks up broadcast signals using large arrays of tiny antennas that it says are individually leased to subscribers, who are able to pull content through cloud servers via app-enabled mobile devices. By renting these antennas individually, Aereo claims it is exempt from retransmission consent law by which broadcasters receive a fee for their signals.

Aereo’s hybrid broadcast-IP distribution technology was not yet conceived of when retrans law was established in the 1996 Telecommunications Act, which lays out rights and rules for multichannel video program distributors, or MVPDs. The law’s definition of an “MVPD” would be the biggest hang-up for traditional pay TV providers considering the Aereo model because it specifically names them, the analysts said. An MPVD s defined a “person such as, but not limited to, a cable operator, a multichannel, multipoint distribution service, a direct broadcast satellite service or a television receiver-only satellite program distributor, who makes available for purchase, by subscribers or customers, multiple channels of video programming.”

The Wells Fargo team notes that MPVDs are afforded program access rights in addition to being subject to retrans fees. Those would presumably disappear under an Aereo model, unless the law is amended to include over-the-top TV providers like Aereo in the MVPD definition. The Federal Communications Commission put out a Public Notice in March 2012 seeking feedback on the issue, but little has happened since.

“While this issue seems to have fallen by the wayside—there have been no updates since May of 2012—we do think the FCC might be forced to revisit,” the analysts said. “One big important take-away here is that if OTT providers are eventually considered to be MVPDs, then the question of Aereo’s legality becomes moot, since, as an MVPD, it would be required to pay retransmission consent to every broadcaster in every market.”

Another obstacle for MVPD Aereoization involves the contracts that are already in place.

“Recall that most MVPDs are at the beginning of newly signed retransmission consent deals, with a bunch around the corner,” the analysts aid. “To us, we don’t think an Aereo-type implementation would be viable until 2017 or even after, for an incumbent MPVD.”

The National Football League also may have a thing or two to say about it. The NFL gets around $3 billion a year from broadcast rights, which will climb to around $5 billion in 2014.

“We wonder how the NFL might feel with both Aereo and MVPDs retransmitting its games without payment,” the team said. “Our gut says not so good.”

Broadcasters are challenging Aereo’s assumption in federal courts in markets where the service has launched. They have failed so far in securing an injunction to shut it down while copyright violation charges are considered. (Retrans law is based on the premise that TV signal content is copyrighted.) However, a similar service launched by Los Angeles-based FilmOn X was enjoined by the courts from operating, creating a circuit split, something that can trigger a review by the Supreme Court. Broadcasters requested such a review in early October.

In the meantime, Aereo continues to launch in new markets and to get sued by more broadcasters. Nexstar has joined in suing Aereo in Utah, where it picked up Nexstar-owned KTVX and KUCW for its mid-August Salt Lake City launch. The service is going live today in Detroit, making it the eighth market where Aereo has launched, behind New York, Boston, Salt Lake City, Dallas, Atlanta, Houston and Miami.