Alex Sherman ?and Jonathan Erlichman
DirecTV, Time Warner Cable and Charter Communications are considering capturing free broadcast TV signals to avoid paying billions of dollars in so-called retransmission fees, said people with knowledge of the deliberations.
The moves would copy what has been done by a startup company called Aereo Inc., which charges $8 a month to subscribers for online access to broadcast TV.
Aereo is in a court battle with CBS Corp. and other media companies over the legality of its service. If Aereo prevails, cable companies could use the same approach to bypass the fees they now pay for network signals, said the people, who asked not to be identified because the discussions are at an early stage.
Time Warner Cable has even considered buying Aereo, said one of the people.
Broadcast TV companies petitioned the U.S. Supreme Court this month to rule that Aereo is an illegal operation. The startup, backed by billionaire Barry Diller, uses thousands of small antennas to capture free over-the-air signals and transmits the programming to paying subscribers over the Internet — without the permission of broadcasters.
“If found to be legal, the Aereo concept is very interesting, especially as it relates to retransmission consent fees,” said Maureen Huff, a spokeswoman for New York-based Time Warner Cable. She declined to comment on whether the cable company would consider buying Aereo.
Time Warner Cable’s third largest division covers Northeast Ohio and Western Pennsylvania customers and is based in Akron.
Justin Venech, a spokesman for Stamford, Conn.-based Charter, declined to comment, as did Aereo’s Virginia Lam. Darris Gringeri, a spokesman for El Segundo, Calif.-based DirecTV, didn’t return messages seeking comment.
Aereo’s legal fight pits the New York-based startup against some of the world’s largest media companies, including Walt Disney, 21st Century Fox and cable giant Comcast’s NBCUniversal division.
The broadcasters are trying to preserve their ability to charge retransmission fees, which allow pay TV companies to air programming by CBS, ABC, NBC and Fox on their systems.
“This threatens the [retransmission] gravy train,” said Rich Greenfield, an analyst with BTIG in New York. “As Aereo continues to win legal battles, it’s becoming more apparent it could survive these challenges.”
Federal regulators require pay-TV systems to gain consent from TV stations to rebroadcast their signals. The networks, including Spanish-language broadcasters Univision Communications and NBCUniversal’s Telemundo, own many of their stations. Others are affiliates owned by companies including Sinclair Broadcast Group, Tribune, Hearst and Gannett. The networks are beginning to share in the fees collected by their affiliates.
Retransmission fees in the U.S. are expected to double to $6.1 billion in 2018 from $3.01 billion this year, according to research firm SNL Kagan.
The fees are essential to the broadcast TV industry, Fox President and Chief Operating Officer Chase Carey said in April. If Aereo is permitted to stay in business, Fox’s broadcast network will convert into a cable channel and cease to provide over-the-air access, he said at the time.
CBS CEO Leslie Moonves said he would do the same, as did Univision Chairman Haim Saban.
Cable companies are within their rights seeking to match Aereo’s ability, if it stands up in court, to capture free broadcast signals rather than pay for land-based access, said Leo Hindery, managing partner of New York-based private equity fund InterMedia Partners and former chairman of the cable channel YES Network.
“It is intellectually and legally inconsistent to saddle the cable industry with billions of dollars each year of broadcast retransmission fees, while allowing a similarly for-profit company to pluck broadcast signals out of the air and sell them without paying any such fees,” Hindery said in an interview. “The cable companies are fully entitled to do everything in their power to stop this travesty.”