U.S. Markets open in 8 hrs 48 mins

Content Wars: Netflix to raise fees as Aereo fights for its life in Washington

Kevin Chupka
Executive Producer/Writer

It’s a big week for the future of “television.” Popular TV streaming company, Aereo, is arguing for its life in front of the Supreme Court today and yesterday Netflix (NFLX) announced it would increase its subscription price by one or two dollars for new subscribers to help cover the fees they are paying Comcast (CMCSA) for the right to higher streaming speeds.

In short the war over how you receive and consume content is heating up. Technology that didn’t exist ten or even two years ago is now center stage and “old media” giants don’t like them playing on their turf.

What’s at stake?

What many forget is that the broadcast networks (like NBC, the one Comcast owns, for example) were essentially given life by the U.S. government in exchange for programming that benefited the public. As the medium evolved networks figured out how to make massive sums of money from the gift given to them. Powerful lobbyists were able to get laws tweaked to give the networks latitude to make even more cash.

Related: Aereo Expansion Could Signal Major Shift in Television

One of the ways they brought in money was through retransmission fees. Cable companies who were not given government airwaves wanted to be able to provide local programming to customers and so they paid the broadcasters for the right to transmit their content. The consumer shoulders the burden of those fees in their monthly cable or satellite bill. Those who don’t want to pay such companies still have the right to buy an antenna and get those free government airwaves beamed to their televisions directly.

Then came Aereo. They decided to take the thousands of antennae and connect them to the internet. Consumers are able to tap into an antenna and get that free signal on their computer or mobile device and Aereo gets paid by consumers for the right to do it.

Aereo charges $8 a month for their cheapest option. That’s less than half the price of the average low end pay-tv package ($20.55) and far below the average bill that runs consumers $61.63 a month.

Still, $8 a month is money the broadcast companies aren’t getting and they don’t like someone profiting off their content without paying those retransmission fees. Beyond that, as Yahoo Finance's Lauren Lyster points out, "this does actually pose an issue with regard to copyright law. It gets into the issue of what's a public performance versus a private performance." That is how this all landed in the hands of the Supreme Court.

Meanwhile, major cable companies who were paying networks massive sums of money to transmit their content got into the business of high speed data. While the government and networks had control of the air, companies like Comcast, Time Warner (TWC) and Cablevision (CVC) controlled the wires that brought internet into millions of homes.

As streaming services like Netflix (and Aereo) started eating up more of the data stream those cable companies saw a new way to make money. Charge more to prioritize the biggest consumers of data, in this case Netflix.

Related: Cord Cutting Company Aereo Continues to Win Legal Battles, Supreme Court Could Be Next

Rather than degrade the customer experience with slower streaming speeds Netflix decided to pay those aforementioned fees to Comcast and now seem to be passing that cost (with good reason) to its customers.

What doe sit mean for consumers?

Lauren Lyster says all this fighting across the industry will ultimately be good for consumers. “I think consumers are always gonna want more competition, more disruption, more options,” she says, “and I think it would be a shame if it doesn’t continue in that direction...This is a battle in a bigger war and I think consumers will ultimately win that war because we’re already moving in that direction...the question is how long does it take and how many roadblocks are in the way.”

How we get there is still a mystery. Even if Aereo wins at the Supreme Court, Congress could conceivably tweak the laws again in favor of powerful broadcasters. According to opensecrets.org Aereo spent $440,000 on lobbying in 2013. Netflix spent $1.2 million and Comcast spent $18.8 million for the 2014 cycle. The odds are stacked against the little guys.

Related: Aereo CEO Chet Kanojia on the future of TV

Further complicating matters is the potential merger of Comcast and Time Warner Cable. If the government approves it 60% of Americans would get their cable and broadband internet connection from one company. Could they force the Netflix’s of the world (and maybe one day the Aereo’s as well) to pay even higher fees? Netflix CEO Reed Hastings certainly seems to think so according to the earnings letter he sent yesterday:

Comcast is already dominant enough to be able to capture unprecedented fees from transit providers and services such as Netflix. The combined company would possess even more anti- competitive leverage to charge arbitrary interconnection tolls for access to their customers. For this reason, Netflix opposes this merger.

Comcast responded to Netflix with the following:

There is nothing unprecedented about our agreement with Netflix.  It’s very similar to agreements that companies like Akamai, Yahoo, Limelight, and Google have with companies like Verizon, AT&T, Level 3, Sprint, and Comcast. Comcast alone has thousands of these transit relationships Netflix [wants] to unfairly shift its costs from its customers to all Internet customers, regardless of whether they subscribe to Netflix or not.

Regardless of the war of words, right now these new high-tech products prove to be much cheaper than the average cable bill, but will that be the case in ten years? Even five years?

“Even if Netflix have to raise its prices, even if Aereo...needs to start paying the broadcasters and raise its prices...there's so far for them to go before it becomes not optimal for the consumer,” Lyster notes.

More from Breakout:
Nevermind the burgers! McDonald's financial engineering the real story
Shrinking earnings could weigh on tape: Johnson
Chart Watch: Netflix after the bell, Biotech ETF at inflection point