NEW YORK -- A federal appeals judge warned that the revenue streams that finance free television were being undermined by court rulings permitting a startup company to offer live television broadcasts over the Internet without paying fees to broadcasters.
U.S. Circuit Judge Denny Chin included the warning in a blistering dissent after the full 2nd U.S. Circuit Court of Appeals in Manhattan refused to make the Aereo Inc. case one of the rare instances when it assembles all of its judges to decide an issue.
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A three-judge panel which included Chin ruled 2-to-1 in April that the billionaire Barry Diller-backed Aereo did not violate the copyrights of broadcasters with its service, which lets customers watch live programs on small portable devices for as little as $8 per month.
Chin dissented from that decision as well, though he went farther Tuesday, describing how the April 1 decision had damaged the financial landscape of free television. He said it "eviscerates the Copyright Act" and "upends settled industry expectations and established law."
Aereo has expanded throughout the New York metropolitan area and to Boston and Atlanta, with plans to enter the Chicago market in September. Aereo spokeswoman Virginia Lam said the company was pleased by Tuesday's court order, which was issued without explanation.
In his dissenting opinion, Chin said companies were already demonstrating that industry observers were correct when they predicted the April decision would encourage other companies that retransmit public television broadcast to seek elimination or a significant reduction in the retransmission fees they pay.
He noted that Time Warner Cable had already announced it would seek to develop an Aereo-like system to avoid the fees and Dish Network was in talks to acquire Aereo. He also cited reports that Fox, Univision and CBS had threatened to move their free public broadcasts to paid cable if the ruling stood.
Chin, joined by Circuit Judge Richard C. Wesley in his dissent, said the upheaval comes as television broadcasters have begun relying more heavily on retransmission fees rather than advertising revenue to turn a profit.
"In fact, as with newspaper companies, broadcasters are relying increasingly on subscriber fees to fund the creation of content," Chin wrote. "The majority's decision, which permits Aereo to retransmit television broadcasts without paying a fee, undermines this model."
Broadcasters including Fox, ABC, CBS, NBC and others had sued, saying Aereo copies and retransmits their programs as they are first aired without permission. They say the company could threaten their ability to produce marquee sports or awards show events, including the Academy Awards, the Grammys and the Super Bowl.
Chin noted that share prices for major media firms dropped after the April ruling "because of the threat it posed to a vital source of their revenue."
He called Aereo's system of thousands of dime-size antennas dedicated to individual customers "a sham" that "was designed solely to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law."
The loophole he referenced stemmed from a 2008 2nd Circuit decision establishing that Cablevision Systems Corp. could offer its remote DVR service without paying additional licensing fees to broadcasters because each playback transmission was made to a single subscriber using a single unique copy produced by that subscriber.
Broadcasters say they are considering further appeals.
Fox Networks spokesman Scott Grogin said it was not unexpected that the full 2nd Circuit would not hear the case, though it was disappointing. He said Fox Networks will review options and decide whether to appeal to the U.S. Supreme Court or to seek a full trial in the lower court on the case's merits.