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How a Tiny Streaming-TV Startup Ended Up Before the Supreme Court

Image: Chet Kanojia, chief executive of Aereo, holds a tiny antenna designed to grab over-the-air television signals, at the company’s office in New York.

Chet Kanojia's startup, Aereo, is a streaming-TV service at the heart of a high-stakes Supreme Court case that could upend the TV industry. JAMES ESTRIN / The New York Times via Redux Pictures file

The outcome of a Supreme Court case regarding a small startup that has infuriated major television broadcasters could ripple to consumers' TV sets and beyond.

At the heart of the case is Aereo, a service that lets customers stream and record broadcast TV for a mere $8 per month. The startup, which launched on Feb. 14, 2012, and its current 11-city service is miniscule compared to the major networks. But the fact that the highest court in America will rule on Aereo's legality -- in a sitting that includes cases about the Obamacare contraceptive mandate, child pornography and gun laws -- underscores how high-stakes the clash has become.

Oral arguments in the Aereo case will begin April 22, the Supreme Court announced last week.

“The [Supreme Court hearing the case] shows that it's not just about Aereo; it’s about the idea," said Jeff Kagan, an independent telecommunications analyst. "It’s about the potential for a massive TV industry shakeup that could affect millions of Americans.”

The parent companies of the four major broadcasters say Aereo can’t continue because cable and satellite companies will create copycat services, running them out of business. Along with other litigants, those parent companies -- the parents of ABC, CBS, Fox, and NBC -- have filed lawsuits against Aereo in several states as the startup has expanded its service. The lower courts have largely ruled in favor of Aereo.

NBCUniversal, which is the parent company of NBC, also owns NBC News.

If Aereo loses, the startup and its supporters warn the ripple effect could quash innovation and competition in the TV world -- and even affect other services, like Google Drive and Dropbox, that also depend on remote storage.

"The [Supreme Court hearing the case] shows that it's not just about Aereo; it’s about the idea."

But if Aereo wins: “All hell breaks loose in the TV industry,” said Jim Nail, a TV and online video analyst at tech-focused research firm Forrester.

Aereo users can play or record broadcast TV -- but not cable channels -- on any Internet-connected device. In short, the broadcasters say Aereo is infringing on their copyrighted content, therefore illegally undermining their business. Aereo insists it’s simply giving customers the equipment and the opportunity to make a copy of programming for their own viewing, which in itself is perfectly legal.

Aereo’s defense is its carefully crafted setup: The company houses thousands of tiny antennas in its data centers, and each customer is assigned a specific antenna to make a “copy” of the broadcast. In Aereo’s view, the company’s method works just like any old antenna and DVR. The broadcasters accuse Aereo of infringing on their copyright in a way that could “potentially endanger over-the-air-broadcast television,” according to their Supreme Court filing.

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The broadcasters say Aereo’s antenna system is simply a scheme based on a legal technicality, and that Aereo should have to pay them to retransmit their programming, just like cable and satellite providers do. But Aereo's future isn't the only concern at stake.

Experts say the high court’s ruling -- either in favor of or against Aereo -- could have drastic effects on both the TV industry and tech companies that let customers store items remotely in the cloud.

The TV ecosystem is a complex patchwork of national broadcasters, local affiliates, content studios and cable and satellite providers. If the high court deems Aereo legal, the decision could alter the nature of those relationships.

Among the chief concerns if Aereo wins: Cable and satellite providers might set up their own Aereo copycats -- why should they pay broadcasters a hefty sum for programming if Aereo doesn’t have to? Broadcasters say that loss of revenue would put them out of business.

"In any field, the advance in technology often creates a big shakeup .... That would have happened in TV with or without Aereo eventually. But Aereo is forcing that conversation a lot sooner."

Separately the National Football League, Major League Baseball, CBS and Fox have all warned that Aereo cuts them out of licensing fees, too -- and if the startup isn’t shut down, they will be forced to switch to cable networks instead of broadcast channels, they say.

Kagan, the telecom analyst, calls those “empty threats.” But whether or not those threats come true, the warnings highlight what’s at stake.

ABC owner Disney and Twenty-First Century Fox declined to comment for this story. NBC and CBS did not comment beyond statements they each issued previously, in which each network said they were pleased the Supreme Court will hear the case.

If the court rules against Aereo, the startup and its supporters warn the ramifications could put other services that use remote, or cloud-based, storage -- Google Drive, Dropbox, remote DVRs and many more -- at risk. Any of those outcomes depend on the scope of the Supreme Court’s decision.

But then there’s Aereo itself; the future of the startup may hang on the Supreme Court’s ruling.

Founder and CEO Chet Kanojia told NBC News that he is trying to keep any uncertainty-fueled “psychosis” on his part away from Aereo’s approximately 105 employees in New York, Boston and Ohio.

“You have to just focus on your mission,” Kanojia said. “Otherwise I wouldn’t even get out of bed, it’s so overwhelming.” The uncertainty “is so great on some levels,” he said, but he stressed that Aereo focused on “design and technology to make sure we stayed within the law.”

That shift in technology is what Aereo has come to represent, said Nail, the Forrester TV analyst.

“In any field, the advance in technology often creates a big shakeup,” Nail said. “That would have happened in TV with or without Aereo eventually. But Aereo is forcing that conversation a lot sooner.”