Jeff Kagan: Will Aereo Win at Supreme Court?

Jeff Kagan |

Aereo is a startup bringing television to customers for a very low monthly rate of $8 - $12 per month. However not everyone is cheering them on. Networks like ABC, CBS, NBC and FOX are suing Aereo for simply taking their programming. There have been lower courts, which have given Aereo the green light. Now the Supreme Court will weigh in with this interesting case. So what happens next?

First of all let’s set the record straight. Aereo would not be here if the traditional television industry was not broken. Networks charge cable networks like Comcast (CMCSA) , Time Warner Cable (TWC) and Cox more every year. Then the cable TV companies pass this increase along year after year to the customer.

So after ten years the customer pays roughly double. Things have gone so far out of control and costs are going so high that new competitors and new technology have a fertile growing field. Fertile because the traditional networks and cable television industry didn’t know how to control themselves and kept charging more and more, year after year.

The funny thing is the average user still watches their same favorite five, ten or fifteen channels. They are just paying more each year.

In fact the cable television marketplace has more competition now then ever. Just look at the phone companies with their Internet based IPTV offerings. AT&T Uverse (T) , Verizon FiOS (VZ) and CenturyLink Prism (CTL) are doing strong business. In fact AT&T says they have roughly 50 percent market share in Dallas, as an example. That shows customers are looking for an alternative.

Now we hear that if the networks lose to Aereo with the Supreme Court, they will pull their signal off the air and only run it over cable TV lines. Does this sound rational? Or does this sound like a child on a playground grabbing his ball and going home when he doesn’t get his way?

Is this what the horse and buggy industry said last century when the automobiles were invented? Or the railroad when the airline industry was created? Or what Borders or Barnes & Noble (BKS) said when Amazon.com keeps taking their business year after year?

Things change. Industry after industry is regularly upset and reinvented and things change. The marketplace thinks this is a good thing. Otherwise there would still be saddle stores, horseshoe repair and spittoons lining the streets instead of parking lots, tire stores and fast food restaurants.

So TV networks and traditional cable television companies look like they are in the same place as the horse and buggy makers from a century ago, or Barnes & Noble today.

They have a choice. They can either go to court to try and keep innovation from happening, or they can change and innovate and fight to hang on to their position in the market.

One way looks ridiculous while the other way looks like a strong and intelligent business facing challenges of a changing industry and meeting it with creative ideas that customers love.

Sure it’s a pain in the neck to have to first buy records, then big tapes, then small cassette tapes, all the way to today with music files that can be stored on our smartphones and played in a variety of devices. Sure that put many previous companies out of business, but it also created many new companies, which are even bigger today.

That’s the way America works. So what should the cable television industry do in order to survive and thrive?

The first solution would be to stop raising prices to customers. That means the networks should stop raising prices to the cable television industry, and let them stop raising prices to customers. Even offer less expensive options like a la carte makes perfect sense. That way they can offer a high priced and low priced offering to the market. That would make customers happy and help secure their position.

The second solution is what Comcast is doing right now. All the cable television companies have been losing customers for years. Comcast just reported their numbers and for the first time they show a gain of customers. The first gain in years.

They see the challenge and are trying to make themselves more attractive to the customers. More competitive. That’s good. That’s the benefit of a competitive market. Now you can watch Comcast Xfinity on your television, laptop, tablet and cellphone. And you can watch either in your home or actually anywhere else you travel to.

We’ll have to keep our eyes on Comcast, and Time Warner Cable, Cox and the rest to see if this continues and spreads. But any way you look at it, this is the way to compete. Not having the court block innovation. Innovation which threatens your business and forces you to turn the heat up on your own innovation.

If networks and the cable television industry would straighten up their act they might start to innovate again, they will start to grow again. If they don’t, well they’ll go the way of the bookstore industry.

If they would realize competition will always come from innovative ideas, companies and technologies. If they fight it out in the marketplace with ideas to win customers, rather than in court to kill competition and innovation.

Doing business the right way would create a much healthier growing climate for them. That would let them start to grow once again. That alone would take the much of the air out of the sails of many of these new and innovative technologies and companies who find a very fertile growing season and are creating both the threat and the promise.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
BKS Barnes & Noble Inc. 12.85 0.20 1.58 129,047
VZ Verizon Communications Inc. 51.01 0.65 1.29 6,277,209
CTL CenturyLink Inc. 24.35 0.34 1.40 2,313,718
T AT&T Inc. 40.06 0.71 1.81 12,952,016
CMCSA Comcast Corporation Class A Common Stock 68.93 0.23 0.33 3,233,090
GULDE GULDE n/a n/a n/a 0

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