For many years local TV stations were solely dependent on advertisements as their source of revenue. Local stations were able to sustain this business model because there was one little competition and they enjoyed large audiences with equally large profit margins. Then as technology improved, there was the introduction of cable and satellite television, which brought about a second revenue source, retransmission fees. SNL Kagan estimated that the stations owners took in $2.36 billion in retransmission fees from subscribers last year. There is a upstart, named Aereo that wants in on the action.
Aereo intends to use the free signals of local tv stations and stream them to phones and computers of paying subcribers. Because Aereo is cutting into the retransmission fees of local tv stations, it appears they are hell bent on eliminating Aereo and any other company that plans to copy them. This is a great example of Porter's five forces, as the potential threat of entrants is high! If Aereo was to be successful and in their strategy, the opportunity for other companies to also enter it would be high. There is a real threat to the revenue source of local stations.
Thus, local stations are trying everything to crush this potential upstart or any that try to follow their same strategy. A few lawsuits have been filed already against Aereo but none of them have been successful.
They failed to win a preliminary injunction last summer, and their appeals were reject last week in a 2 to 1 decision in the Second Circuit Court of Appeals in New York.
It would appear that Aereo is on their way to winning the battle with the local broadcasters and would have a unique position, as they would be the first company to provide streaming access to local tv. However, they will also have to face competition down the road from copycat companies, which will cut into their own revenue and profits. How Aereo tackles both the current industry giants. and future challengers, will be an interesting development and will require a solid strategy. As a owner of a smart phone, I hope Aereo wins the battle and i'm sure cell phone providers may see a slight uptick in the sale of smart phones themselves.