How the Supreme Court’s ruling on Aereo could change how we watch football

http://www.washingtonpost.com/business/technology/how-the-supreme-courts-ruling-on-aereo-could-change-how-we-watch-football/2014/06/17/b314ca20-ea91-11e3-93d2-edd4be1f5d9e_story.html?wprss=rss_homepage

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With the Supreme Court poised to rule on a case that could shape the future of television, the justices are navigating everything from copyright law to cloud computing. And then there’s football.

National Football League games have become some of the most popular programming on television; last fall, 34 of the 35 most-watched TV shows were NFL games. But the league tightly controls its games, collecting hefty fees from broadcasters, cable and satellite companies. If you’re a football fan who wants to watch games live-streamed to your device, good luck finding a way without paying for cable or satellite.

Now, the court is reviewing a challenge by broadcasters who say an upstart tech firm, Aereo, is getting their content without paying when it uses tiny antennas to lift live television broadcasts from the airwaves of local stations. Aereo then streams these broadcasts to its subscribers, charging much less than cable companies.

If Aereo prevails in the ruling, which could come as soon as Thursday, the foundation of the NFL’s television business could crumble. The league has already signed billions of dollars worth of contracts with broadcasters and cable companies for the rights to air its games for the next seven years. But a thriving Aereo could help fans bypass the broadcasters, devaluing their expensive contracts with the NFL.

If Aereo loses, the NFL will be able to continue charging cable and broadcast companies billions of dollars for exclusive rights, and the options for consumers who love watching football will remain largely the same.

Regardless of how the court rules, there are other risks to the NFL’s strategy of holding firm to traditional television models.

A recent survey of cable subscribers found that more than half of Americans would abandon their cable provider if they could. Other major sports leagues, such as Major League Baseball, have already found profitable ways to stream online live games directly to consumers, even those without cable. And fans are increasingly looking for ways — not always legal — to watch games online, sometimes through virtual private networks. Federal agents have shut down a number of Web sites that illegally stream sporting events live.

The history of media is littered with examples of industries and companies that kept milking profitable business models in the face of vast technological change, only to wait too long to adjust. The music industry, for instance, resisted embracing digital files for years, and it almost went under as a result.

Aware of these lessons, the league meets each summer with the country’s biggest tech firms, including Google, to discuss ways of expanding how it spreads its content. The NFL has also tried to loosen the spigot by offering games on tablets and other mobile devices via offerings like Verizon’s RedZone, but consumers must still be cable subscribers and pay extra money for the access.

Brian Rolapp, the NFL’s executive vice president of media, acknowledged that the NFL is reluctant to undo the television relationships that have richly rewarded the league with licensing and advertising fortunes.

“We’re watching to see where the puck is going,” he said.

About a dozen years ago, the league formed a digital media committee as a way to carefully watch the development of Internet technology and what it could mean for its business.

New England Patriots executive Jonathan Kraft now spearheads the group, and along with league commissioner Roger Goodell, Rolapp and other executives, has visited Silicon Valley every year to learn about new technologies.

They’ve heard from Microsoft, Amazon, Google and Apple, and venture investors such as Jim Breyer, one of the largest shareholders of Facebook.

Google and other Web companies have tried to broker deals to distribute games online.

But the NFL has been careful in its approach to digital media. Executives are afraid of moving too quickly from a profitable business model to the world of online streaming, where advertisers spend much less money. And they insist there are technical limitations; NFL executives say it would be difficult for networks and Web companies’ servers to accommodate at one time the millions of viewers that a single game can attract.

Executives also note that traditional television continues to have the broadest reach. In the United States, 97 percent of all homes have a TV, and only 70 percent have high-speed Internet connections.

“We are lucky. We don’t have to be revolutionary in what we are doing. We can be evolutionary and watch as the market evolves,” said Kraft, whose family owns the New England Patriots.

There are already signs, though, that some football fans are growing impatient with the current model.

“For many consumers, the decision whether to become or remain a pay-TV subscriber indeed may largely turn on high-value sports programming,” said Jeff Silva, a media and telecommunication analyst.

That’s what drove Bryan O’Malley to DirecTV three years ago. As a resident of Saratoga Springs, N.Y., the 46-year-old father rarely saw the games of his favorite team, the Dallas Cowboys, on local broadcast or cable. He was willing to pay extra to watch his team, but he was frustrated at the high price for NFL Sunday Ticket, a package that lets subscribers view every Sunday afternoon game. And he wonders why he can’t just pay a set amount per game or for a package of just Dallas Cowboys games online.

“I understand the NFL’s hesitation to abandon the lucrative deals they have with the broadcast networks, but I don’t think they need to make an all-or-nothing decision,” he said. “It’s not hard to imagine a business model where Apple, Google, Amazon, Microsoft or some combination of the four bring the NFL more revenue than a single deal with DirecTV.”

The importance of keeping games behind subscription television deals is a key to AT&T’s deal to buy DirecTV. The chief executives of the firms agreed to walk away from their merger if the NFL doesn’t renew its NFL Sunday Ticket deal with the satellite television provider. Indeed, the NFL contract is so valuable that DirecTV will have to pay AT&T more than $1 billion as a penalty if the deal falls apart.

Outside of football, several sports have already moved aggressively online.

For $100 a year, Major League Baseball offers live-streaming of many games on MLB.TV, including the World Series. Fans can watch games on mobile devices and through game consoles and Internet TV devices such as Roku.

Recently, the Tennis Channel began streaming all French Open games through a $59.99 Internet subscription service that will include 300 live matches of 40 tournaments.

The NFL is trying to adjust to changing consumer tastes. This summer, the NFL will launch NFL Now, its biggest mobile Internet effort yet. Through a personalized app, consumers will get scores, player interviews, game replays and other content of their favorite teams pushed to them along with targeted ads.

Kraft says the NFL enjoys a protected position that no other entity enjoys in television.

“NFL games are different than other content. People schedule their lives around it,” Kraft said. “So being in front of a large flat-screen TV in a traditional TV setting may be trending down a little, but the vast majority of people who watch live games do it that way, and that is powerful.”

The league’s approach — and its sheer power in American culture — has turned it into one of the most powerful forces in media today, almost single-handedly determining the fates of major telecom and media companies. The model for cable television — selling packages of hundreds of channels, many of which consumers never lay eyes on — largely rests on people’s willingness to pay for ESPN and the NFL’s own network.

“Without question, the most valuable content on TV is the NFL, and so everyone — telecom, Internet and cable companies — wants to get a piece of their audience,” said Matt Balvanc, vice president of analytics for Navigate Research in Chicago.

About $5 billion, or half of the NFL’s annual revenue, comes from television deals, a figure that is expected to double in a decade.

There is so much at stake for the NFL in the outcome of the Aereo case before the Supreme Court that it filed a friend-of-the-court brief last year together with Major League Baseball.

A lower court’s decision in favor of the tech start-up “empowers Aereo and similar services to destroy marketplace-negotiated exclusivity,” wrote the NFL and MLB in their brief.

The two leagues argued that cable companies could copy Aereo and stop paying licensing fees to broadcast networks such as CBS and Fox, who have the rights to NFL’s live games.

“Furthermore, the objective of Aereo and similar services is to take subscribers away from cable systems and satellite carriers and to attract the so-called ‘cord cutters,’ ” they wrote, referring to customers who have canceled their cable subscriptions.

The repercussions for the entire broadcast model could be massive if Aereo wins in court. It could mean the NFL’s Thursday night games on CBS could get streamed to the subscribers of Aereo, for example. That could force CBS to take its live shows off the broadcast airwaves and charge only for Internet streaming.

The broadcast network would still be obligated to comply with its contract with the NFL, but the broadcast television model would be dramatically altered.

“An Aereo win could be a big deal for a brand like the NFL simply because Aereo subscribers effectively don’t pay to watch football,” said Paul Gallant, an analyst at Guggenheim Partners. “Money into Aereo’s pocket is money out of the NFL’s pocket.”