US credit rating company Fitch Ratings (one of the so-called ‘Big Three’) has publicly stated its belief that a favourable court ruling for New York-based TV venture Aereo could provide cable operators with considerable negotiating leverage over broadcasters.
Aereo, which streams free-to-air television signals to any IP-connected device over the Internet for a monthly fee, won the right to continue operating while a federal judge considers allegations by some of the country’s major broadcasters that the service violates copyright law by reformatting and retransmitting broadcaster TV signals without consent or compensation.
Fitch believes that there is a key difference between the Aereo case and an ostensibly similar 2008 Cablevision case: Cablevision was paying licensing fees to content owners in order to broadcast the signals and offer the remote DVRs, while Aereo is not.
Fitch Ratings adds that the Aereo case calls into the whole retransmission consent model, in which pay-TV providers pay fees to broadcasters to include local broadcast content in their respective video services.
“We believe retransmission consent is arguably among the fastest-growing operating expense for pay-TV providers,” comments Fitch in a prepared statement. “On the other hand, it has been a material boon to the broadcast networks, as the fast-growing, high-margin revenue has provided an offset to stagnating advertising revenue growth.”
If the case is ultimately ruled in Aereo’s favour, Fitch predicts that other pay-TV providers could leverage the threat of offering a similar service to significantly lower their retransmission payments.
While a favourable ruling for Aereo would likely accelerate cord-cutting, a “significant” portion of the population will continue to ascribe substantial value to a full roster of cable channels and the wide array of new content available in one spot, according to Fitch.
Furthermore, while the migration of viewers from pay-TV to online and mobile platforms could pressure advertising revenue in the near term, due to their omission from Nielsen ratings, Fitch predicts that this dynamic could eventually drive a sustainable advertising model if Nielsen were to include them, which in turn would increase the likelihood of more broadcast networks transitioning to a cable network.
Following the judge’s rejection of an injunction against Aereo last Wednesday (July 11th), the service’s billionaire backer Barry Diller vowed to expand the service to most other large US cities – more details here.
Aereo costs US$ 12 per month and provides subscribers with access to their own dedicated, miniaturised free-to-air (FTA) antenna installed in its data centre, capable of streaming content via IP to the subscriber’s connected devices such as laptops, smart phones and tablets.