Last week, streaming TV provider Aereo was banned in six states after a federal court ruled that the service violated broadcasters' copyrights. The Web start-up has spent two years fending off lawsuits from television broadcasters in a legal feud that looks to have wide implications
. The Supreme Court is scheduled to hear the case in April, and numerous third parties have thrown their hats into the ring. The National Football League, Time Warner
(NASDAQ:TWX), and the AFL-CIO have all filed amicus briefs on behalf of the broadcasters, while Internet advocacy groups like the Electronic Frontier Foundation have filled out the other side of the courtroom.
Despite this legal drama, however, Aereo isn't holding up its expansion plans. News broke this morning
that it would launch services in an additional market in Texas next week: Aereo hits Austin on March 3. It's already operating in San Antonio and Dallas/ Fort Worth.
Call it coincidence but Aereo isn't the only so-called "sharing economy"
darling now under siege. Car-on-demand service Uber came under fire last month after one of its drivers hit and killed a child on New Year's Eve; a week later, the company was in the spotlight again when it was discovered that a convicted felon had passed its background check
Both Aereo and Uber take advantage of a kind of regulatory arbitrage. Aereo records and retransmits
over-the-air TV channels, which would normally require that retransmission fees be paid to the networks. Enter a technicality: By renting every subscriber his or her own antenna, Aereo can claim that its service is for "personal use," and protected by law. The cable companies are watching closely
. They, too, would like to avoid retransmission fees and the bitter negotiations they create. (Remember last year's spat between CBS
(NYSE:CBS) and Time Warner Cable
By taking shelter under the aegis of "ride-sharing," Uber escapes many of the regulations placed on cab companies. However, beyond the fact that drivers own their own vehicles, you'd be hard-pressed to distinguish Uber from any other taxi service. The cars are uniform in appearance, Uber handles the money, and many of the drivers are professionals; in fact, the San Francisco Cab Drivers Association claims that, in the last 12 months, a third of its members
have left for private transportation start-ups.
This sort of business model is as popular as it is clever. Financial pundit and Bloomberg alum Nick Dunbar points out
that the "latest flurry of innovation" has taken place in traditionally regulated markets like transportation, where entrepreneurs can make an end run around regulation. But while start-ups may be winning their battles with incumbents, they're losing the war with regulators. Uber, Lyft, and Sidecar have come under pressure in cities around the country, and home-sharing service Airbnb is the target of an investigation
by New York's attorney general.
These start-ups are the victims of their own success. Small firms may be able to bend the rules and get away with it, but larger ones can't. In its younger days, Airbnb was the company that made travel affordable. Now, it's the one that gets blamed for rising rents
and shortfalls in municipal tax revenue. Size has turned Uber into a target; every mistake is front-page news, and every misstep fodder for the editorials. These companies that got their start by avoiding red tape now find themselves entangled in it -- proof positive that there are no economic solutions to political problems.
Aereo, meanwhile, has touched off a legal dispute that is likely to kill it, regardless of the outcome. The television networks will not give up retransmission fees
. CBS and Twenty-First Century Fox
(NASDAQ:FOX) have threatened to abandon broadcast altogether, should the Supreme Court decide in Aereo's favor. Whatever they do, the safe bet is that broadcasters will find a way to extract their pound of flesh, and that Aereo's loophole will close as loopholes generally do: around someone's neck.
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