What is Aereo and Why are Network Execs Up in Arms About It?

Let’s start with the “what.” Aereo is a technology startup, backed by IAC/Interactive IACI that streams over-the-air broadcast television signals to iOS devices, as well as browsers on Macs and PCs. It also works on the Apple, Inc. AAPL Apple TV device designed to bring Internet content to regular televisions.

Since Aereo is only available in New York City and Boston (the service will launch in Atlanta in June) and streams only local channels – hardly competitive with the hundreds of channels available on satellite and cable – the furor and controversy it has caused is a bit of a mystery.

A mystery that is, until one realizes that Aereo doesn’t pay broadcasters for their signals. Not a dime. There’s your “Why.”

From the perspective of networks, it’s a matter of lost profit. From the perspective of cable and satellite providers, it’s a matter of fairness. Cable and satellite providers pay networks a retransmission fee to carry their content. Aereo doesn’t.

From a pure content and entertainment perspective, Aereo isn’t a strong competitor against other streaming services like Netflix NFLX and Hulu Plus, jointly owned by Comcast CMCSA, News Corp NWSA, and Disney DIS. Moreover, it is certainly not a strong competitor against either cable or satellite.

Network executives are concerned about the future. “It’s Aereo today, but it could be something else tomorrow,” Robin Flynn, a senior analyst at SNL Kagan told The New York Times.

Aereo was sued by a whole host of local TV stations and networks including Fox, Univision, PBS, Disney, and CBS CBS. Aereo, in turn, has sued CBS, according to The Wall Street Journal, asking the courts to settle the matter once and for all.

Networks, including Fox, have threatened to stop broadcasting over-the-air and become fully subscription-based via cable and satellite television providers as a way to prevent Aereo from grabbing their signals.

Mashable reported that Senator McCain’s Television Consumer Freedom Act, introduced last week, has what it says might be called an "Aereo provision."

See: Is A La Carte Cable Coming Soon?

The provision works like this: Broadcast networks, like Fox, operate under a license granted by the government that requires them to provide local news, weather, emergency alerts, and other forms of public service. McCain's bill mandates that networks that stop providing public service (by, for example, ceasing over-the-air local broadcasting) will lose their license.

Disney-owned ABC, meanwhile, has decided to fight fire with fire. USAToday reported this week, that the network will start streaming its entire programming schedule in real-time to viewers in New York and Philadelphia. This 24-hour live online feed marks a first for a major broadcaster.

Ken Brueck, co-founder and CMO of upLynk, the company that powers the live streaming for ABC, thinks it's only a matter of time before affiliates join in, primarily because the technology required, a $1000 Linux box, is dirt-cheap, and is almost entirely self-sustaining.

As of this writing, Jim Probasco had no position in any mentioned securities.