By Patrick Fitzgerald
A bankruptcy judge said Aereo Inc. can auction its TV streaming
technology after the company struck a deal with broadcasters over
the sale process.
Judge Sean Lane of the U.S. Bankruptcy Court in Manhattan
Wednesday signed off on the rules governing Aereo's auction after
company and broadcasters agreed to how and when the company can
scrub its servers and how much time broadcasters will have to
oppose any sale that could infringe their copyrights. Under the
revamped auction rules, Aereo will also provide weekly updates on
the status of the sale process and will allow the broadcasters to
attend the auction.
Until June, Aereo provided customers with the ability to watch
and record broadcast TV through the Internet and on mobile devices.
That business model faltered after a U.S. Supreme Court ruling that
found Aereo violated copyright laws.
The litigation with broadcasters is now back in a lower court,
which will determine how much money Aereo owes in damages, a number
that could be in the tens of millions of dollars. The legal fight
was one of the sticking points to an auction of Aereo's assets. The
broadcasters--including CBS Corp., Walt Disney Co.'s ABC, Comcast
Corp.'s NBC and 21st Century Fox Inc.'s Fox--want to be allowed to
scrutinize Aereo's customers' activities before the company deletes
its servers.
Aereo, founded in 2010, raised $95.6 million in venture funding,
including from Barry Diller's IAC and funds managed by Highland
Capital. But much of that money has gone toward litigation
expenses.
Despite the cloud of litigation, there is interest in Aereo's
technology. The company's bankruptcy lawyer, William Baldiga, told
the court last week that the company is in talks with 17
prospective bidders. Bids will be due Feb. 20. If multiple bids are
received, an auction will be held Feb. 24 at the New York office of
Brown Rudnick, the law firm handling Aereo's Chapter 11 case. A
hearing to approve the sale will take place March 11.
Aereo, which filed for Chapter 11 protection in November, is
down to a dozen employees and $3.6 million in cash, court documents
show. The company isn't hoping to find a buyer for its broadcast
streaming business, but it does hope to find buyers interested in
its technology.
It believes the technology could be used in ways that don't
infringe broadcasters' copyrights, but the broadcasters have their
doubts. The two-week period between the auction and sale hearing is
longer than typical in big bankruptcy cases and will allow the
broadcasters additional time to object to any deal.
Aereo hasn't made money since a U.S. Supreme Court ruling in
June determined the company was unlawfully exploiting the
copyrighted works of major broadcasters without permission or
payment. Using individualized antennas, Aereo subscribers could
stream local TV stations' signals through the company's cloud-based
antenna and DVR services for as little as $8 a month.
In the wake of the Supreme Court's decision, which ruled that
Aereo was "substantially similar" to a cable system and therefore
needed broadcasters' permission to air their content, Aereo pushed
for regulatory change that would offer it the benefits of being
classified as a cable system. These included being able to qualify
for a compulsory copyright license that would allow it to pay
limited royalties for the rights to broadcast content.
The company had made some headway, though the timing of any
potential regulatory changes is unknown.
Sara Randazzo
contributed to this article.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com
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