Q&A WITH CHET KANOJIA

Aereo CEO On Future Of Company, Industry

With oral arguments in the copyright challenge case between Aereo and broadcasters scheduled to go before the Supreme Court on Tuesday, Aereo founder and CEO Chet Kanojia talksabout the his company, the case and the competition.

NEW YORK (AP) — The future of Aereo, an online service that provides over-the-air TV channels, hinges on a battle with broadcasters that goes before the U.S. Supreme Court next week.

For as little as $8 a month, Aereo subscribers in New York and 10 other markets can watch shows live or record them using Aereo’s online digital video recorder. Subscribers access programming with computers, smartphones and other devices, as well as with TVs with Roku or Apple TV streaming devices. Aereo resembles a cable or satellite TV service, except it costs less and is limited to over-the-air channels, plus Bloomberg TV.

Cable and satellite TV companies typically pay broadcasters to include TV stations on customers’ lineups. Aereo argues it’s exempt because it merely relays free signals. When recording or watching a show, subscribers are temporarily assigned one of thousands of small antennas at Aereo’s data centers. Aereo likens its antennas to the personal antennas in people’s homes that pick up free broadcasts.

Broadcasters argue that Aereo built the individual antennas specifically to skirt copyright law, as there’s no technical reason such a service would need them. Millions of dollars are at stake: If people ditch cable service for Aereo, broadcasters would be able to charge cable companies less.

Oral arguments in the copyright challenge are scheduled to go before the court on Tuesday, with a ruling expected by this summer.

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Aereo founder and CEO Chet Kanojia recently spoke to The Associated Press about his company and the industry. Questions and answers have been edited for length, and the order of some questions has been changed to improve flow.

Why shouldn’t broadcast and cable companies fear Aereo?

A: What they should be afraid of, and I’m sympathetic to this, is the Internet is happening to everybody, whether you like it or not. It happened to books, news people, it happened to music people, it happened to Blockbuster. There is nothing in our Constitution that says there is a sacred set of companies that will never be affected by new technology.

A lot of people who may think about cutting service and going with Aereo may be reluctant because of the one or two cable channels they watch regularly.

A: The market is going to evolve. If you think about what Netflix is doing (with original programming), it is going to force change in the paid TV business. Here’s a channel effectively operating as a paid channel. If Netflix can pay the bills, the next hit show is going to be on Netflix. It’s not going to be on HBO. That’s going to force the change.

How did you come up with this idea?

A: My last company, we pioneered how to measure viewership in cable systems. When you started looking at the data, it was obvious that nobody watches more than eight channels. Half of them happen to be major networks, which are free to air.

If you prevail, what do you think that will mean for the industry?

A: Change is a long process. I don’t think anything is going to change anywhere because of Aereo. What is happening is the entire market base is changing with access to alternatives, whether it’s Netflix or iTunes or things like that. Aereo is simply providing a piece of the puzzle. After we win, it’s not that a sea change is going to happen overnight. It is just going to be that we will be allowed to continue to fit that missing piece in a consumer’s life as they’re evolving. These things take decades to play out.

If Aereo wins, a couple of broadcasters have threatened to become cable-only channels so that they can’t be shown on Aereo.

They’re individual companies. They can do whatever they want. I think the question becomes on an overall reach basis you’re giving up 60 million eyeballs. That’s how many people use antenna in some way, shape or form, which kind of correlates to about 18 percent of the household basis.

Your Plan B should the Supreme Court decide against you?

A: We don’t have a Plan B.

For a $100 million investment, that seems to be a lot of faith.

A: We apply all of our energy in making sure we’re ready and continue to grow the business. To me, if we optimize for loss or a potential loss, we give up optimizing for a win. If you believe your position, the only thing you should do is play to win. We’ve never been dishonest with our investors. Everybody knows what the risks are.


Comments (8)

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Ellen Samrock says:

April 17, 2014 at 6:05 pm

Chet, don’t be a goofball. The plan B is to go to the networks, negotiate reasonable licensing fees and pass on the cost to your subscribers. It shouldn’t cost a great deal more. If I ran Aereo that is exactly what I would do. In fact, I’d probably start NOW.

    steve weiser says:

    April 18, 2014 at 4:25 pm

    With all due respect, that simply will not work. The broadcasters are angry enough and re-trenched enough to make sure that any retransmission consent fee negotiations would bankrupt Aereo. Further, negotiating an agreement with Aereo would undermine the contracts with the pay-TV companies. They would not like a competitor that could make it possible for additional losses in subscribers due to cord-cutting. The broadcasters, cable companies, and DTH satellite companies have a good thing going and they don’t want to let any new players in, despite the fact that one cable association filed a brief favoring Aereo. If Aereo wins, look for the pay-TV folks to develop or license Aereo’s technology to reduce their retrans costs. If Aereo loses, the pay-TV companies have the broadcasters all to themselves again. It’s really a win-win proposition for the pay-TV companies.

    Ellen Samrock says:

    April 18, 2014 at 7:16 pm

    From my 30 years in the business the one thing I’ve learned is that when it comes to money, anything can be negotiated–even among enemies. Networks are angry because Aereo tried to do an end run and cut them out of revenue they felt was rightfully theirs. But there’s no reason for the nets and broadcasters not to treat Aereo like any other MVPD, like Charter, Dish or U-verse. It’s just a question of how much. As for the threat of competition, what are the other MVPDs going to do? Kick the nets and broadcasters off their line-up? I don’t think so.

Joe Jaime says:

April 18, 2014 at 10:20 am

D BP The networks have an EXCLUSIVE agreement with their affiliated stations that do not allow programming to be carried by anyone in their markets.

    Ellen Samrock says:

    April 18, 2014 at 12:07 pm

    Actually, I was thinking of agreements between networks and their affiliates since Aereo would also be carrying any local programming from them. But since it is a network (ABC) that is suing Aereo and it’s the networks (notably Fox) that have been threatening to pull their programming off the air, Aereo will have to make peace with them through some kind of an agreement. Since one network (CBS) has threatened to create it’s own Aereo-like system, another alternative is to sell the Aereo technology to the networks directly or create a joint venture with them. In this case, everyone profits. At any rate, the networks cannot be ignored and whatever agreement Aereo were to make with them would benefit the affiliates as well. But this is how you save a company. Not folding your tent and walking away.

Gene Johnson says:

April 18, 2014 at 10:36 am

Most interesting comment: most people watch only eight channels, and half of them are are the major broadcast networks. Further proof (or evidence) of the value of the broadcast stations and why fair compensation for others (cable, satellite, and Aero) who want to use (carry/retransmit) their content as part of their money-making ventures should compensate the owners of such content.

Gregg Palermo says:

April 18, 2014 at 11:05 am

Broadcasters are fairly compensated through advertising. It’s the bed they made and now they must lie in it. In answer to the broadcast lawyers, yes, there is a reason to use tiny antennas, It’s to avoid being charged for a reuse. They can frame it as skirting, but earlier injunctions failed. Had cable thought of it, or had the wherewithal to make it work, they would have done it years ago (but digital signals paved the way).

Teri Green says:

April 18, 2014 at 11:35 am

I tried Aereo and while in theory it’s a good idea, you need a very quick Internet connection. 6.0 is the least amound of dl speed and even then it sort of chops. The problem is the USA has very bad DL speeds. Even if by some miracle Aereo won in court, the ISPs would simply lower caps and shape traffic, to make AEREO unusable.

TV via Internet is only viable long term with decent download speeds and NO CAPS. Won’t happen in my lifetime I guarantee it. If anything we’ll go back to the days of AOL pay per minute, ISPs


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