A federal judge has rejected a bid by major U.S. broadcasters to stop Aereo Inc, an online television venture backed by billionaire Barry Diller, to stop rebroadcasting some of its programming over the Internet.
The broadcasters sought to stop Aereo from streaming programs to phones, tablet computers and other devices, saying they would lose their right to retransmission fees from cable and other companies that rebroadcast their programming, and also lose critical advertising revenue.
Walt Disney Co's ABC, CBS Corp, Comcast Corp's NBCUniversal and Telemundo, News Corp's Fox, Univision Communications Inc and the Public Broadcasting Service had filed lawsuits accusing Aereo of copyright violations, even before the service was launched in the New York City area in March for $12 per month.
The launch of services like Aereo or Dish Network's ad-skipping Hopper device are seen as a threat to the TV industry's ability to control subscription fees and generate advertising revenue.
The $100 billion pay-TV business in particular is concerned that the delivery of TV signals over the Web will lead to customers dropping their expensive cable packages for cheaper, smaller Web TV packages which are being explored by technology companies like Apple Inc, Google Inc and Intel Corp.
U.S. District Judge Alison Nathan said on Wednesday that while the broadcasters demonstrated they faced irreparable financial damage if were the venture were allowed to continue, Aereo also showed it would face severe harm if the requested preliminary injunction were granted.
"First and foremost, the evidence establishes that an injunction may quickly mean the end of Aereo as a business," the Manhattan judge wrote in a 52-page opinion.
Broadcasters said they would appeal, and ISI Group analyst Vijay Jayant noted that while the judge's ruling was significant, the trial would be decided by jury and it would be a long road ahead before anyone could claim victory.
"It's not even the first inning," said CBS Corp CEO Les Moonves, speaking on the sidelines of the Allen & Co media conference in Sun Valley, Idaho.
CBS, ABC and NBC said separately they would appeal. Fox, PBS, Univision and the New York-area stations WNET and WPIX said in a joint statement they will appeal, calling the decision "a loss for the entire creative community".
Diller, whose IAC/InterActive Corp provided $20.5 million of start-up financing for Aereo, welcomed the decision.
"Of course I'm happy the judge denied the injunction, and now we can really begin telling television consumers they have an alternative," he said. Diller sits on Aereo's board.
Time Warner Cable CEO Glenn Britt said the ruling was of interest to cable operators as it raised questions about the practice of "retransmission consent" in which cable operators pay broadcast stations to carry their signals.
"If (Aereo is) found to be legal, then the idea of consumers having to pay for otherwise free broadcast signals is called into question," said Britt, also speaking from Sun Valley.
Nathan agreed that Aereo will damage the broadcasters' ability to negotiate advertising and retransmission agreements, given that the service could artificially lower Nielsen viewership ratings and force concessions.
She also said Aereo could reduce traffic to websites of the broadcasters themselves, damaging relationships with content providers and advertisers there.
But Nathan also said Aereo, in addition to facing the risk of closure, could lose employees, the ability to attract new investors, customer goodwill, and its "substantial investments" in the service.
"The balance of hardships certainly does not tip decidedly in favor of (the broadcasters)," she wrote.
The court concluded it was bound by a 2008 Second Circuit court's decision in favor of Cablevision Systems Corporation for its remote-storage digital video recorder (RS-DVR) system which also allowed consumers to record programs on remote servers. Broadcasters privately disputed the Cablevision ruling would apply to Aereo.
The cases are American Broadcasting Cos. et al v. Aereo Inc, U.S. District Court, Southern District of New York, No. 12-01540; and WNET et al v. Aereo Inc in the same court, No. 12-01543.
(Reporting by Jonathan Stempel, Yinka Adegoke in New York and Lisa Richwine in Sun Valley, Idaho; Editing by Steve Orlofsky and Edwina Gibbs)