IAC’s Aereo Beckons the Cord Cutters As Broadcasters Gird for Battle

Aereo’s tiny antennae bring broadcast signals to consumers online. IAC sees it as a cord-cutting breakthrough. The networks see an illegal threat to their business model

Despite major opposition from networks and cable companies, Aereo officially launched Wednesday throughout the five boroughs of New York.

Also read: Barry Diller on Aereo's Battle With Broadcasters: Let's Rumble

The latest web play from Barry Diller’s IAC Interactive, Aereo bypasses cable and satellite to deliver network broadcasts to viewers by way of a network of dime-sized antennae. Diller has said the company hopes to expand to as many as 100 cities by the end of the year.

Subscriptions cost $12 a month for what is basically a 21st-century version of rabbit ears. 

Numerous Beta users have been on it for some months for free, now along with early adopters who registered to join up for a 90-day free trial period.

The legal controversy over Aereo highlights the expanding battle between the traditional creators and distributors of broadcast and cable television and those who would move the business to the Internet.

When consumers forego broadcast and cable to get their entertainment online it's called “cord-cutting,” a phrase that chills the blood of broadcast and cable companies.

Some of the articles compiled on Aereo's web site have headlines like Business Insider’s “Barry Diller Backs Company With New Way To Crush Cable TV,” the Wall Street Journal’s “Over-the-Air TV Catches Second Wind, Aided by Web” and GigaOM’s “IAC-backed Aereo makes a big play for cord cutters”.

Chaitanya “Chet” Kanojia, Aereo’s founder and CEO (right), says his agenda is simpler.

“You have this extremely technological way of enabling this service for consumers. I honestly don’t do this as, `I want to make consumers cut the cord’" Kanojia said. "Consumers make their own choices. I think if you make it easy, put it in the right value proposition, both in terms off cost and access, change can start.”

Kanojia, a soft-spoken industry veteran who was educated through college in India and later earned an advanced degree at Northwestern, began his service last summer under the name Bamboom.  Diller’s IAC is the lead investor, to the tune of over $20 million, in the  $25-million start-up.

Also read: Facing Legal Challenges From Broadcasters, Aereo Launches in New York

Kanojia cites numbers that showed, at a crucial planning point for his company in the winter of 2010-2011, that the number of households nationally that had only broadband and basic cable rather than the costlier cable packages had increased six-fold in the quarter.

“I think there is a strong segment of the population that is up for trying something new that might get them out of the current system," Kanojia said. He added that his firm's philosophy was simple: “Let’s build it and see what happens.”

One thing that has happened, to the surprise of almost no one, has been a pair of lawsuits.

One comes from NBC, ABC, CBS and Telemundo and another is from Fox, PBS and Univision. The networks may eventually combine their suits, adding clout and not incidentally making them an effective proxy for the cable companies. For now, their strategy is to let the dispute play out in court.

"The service is based on he illegal use of our content," came the sole statement from the ABC group, "Beyond that, we believe the complaint speaks for itself."

Aereo was quick to file a counter suit Tuesday in Manhattan.

“The case involves nothing more than the application of settled law to updated technology,”  Aereo’s countersuit reads, “settled law that establishes conclusively that Aereo's business is entirely lawful."

It isn't just the lack of payment for entertainment content — for which the networks are compensated by the cable companies — that rankles the networks.

They see Aereo as enriching itself by undermining the production of local news, community information, and even emergency notifications, in their eyes the heart of the one-to-many, over-the-air distribution of broadcast signals.

Also read: Aereo Countersues Broadcasters in Copyright Dispute

As regards the multi-antenna arrays that Aereo believes exempt them from being cited for distributing public performances, one TV industry exec with a stake in the fight called that “a lawyerly fiction designed to get around the law.” 

The blogosphere, home to first adopters, disrupters and other sorts who tend to value change over tradition, seems to be lining up with Aereo.

Reports from influential financial analyst Richard Greenfield of BTIG seem to have a touch of fan-boy enthusiasm to them.

“This is disruption at its finest,” he wrote in a near-ecstatic review of the actual service’s smooth performance, welcoming interface, high resolution and convenience.

He cited case law going back decades that seems to bolster Aereo’s position.

“If Aereo is in fact legal, we find it hard to fathom that the traditional MVPD (multichannel video programming distributors, e.g., Comcast et al) bundle will survive and that retrans payments will continue to scale as broadcasters are expecting them to over the next several years.

“Those that rely on retransmission fees to support their business model,” concluded Greenfield, whose word is often acted upon by major investors, “should be concerned.”

While Diller’s comments at a SXSW panel — “It’s going to be a great fight” — might be seen as inflammatory, Kanojia has no problem with them.

“It really is a joy to be working with him,“ said the engineer-businessman. "I don’t think of it as he draws fire or is controversial — to me the man just sees technology as an opportunity to create interesting additional opportunities and more value.”

Tech expert Robert Tercek, a TV industry vet who ran digital operations at MTV, Sony and Oprah’s network, suggests it would be unwise to sell Diller short.

"IAC has had its share of ups and downs, but don't forget that Barry Diller is the programming genius at ABC who came up with the Movie of the Week, and then he launched the Fox Network. He then acquired the Home Shopping Network, and later managed to finesse the Universal acquisition by NBC. So this is a guy who understands the intricacies of deal-making in the TV business as well as anyone."

The broadcast and cable companies are wise be wary, adds Tercek.

“Aereo has the potential to be very disruptive, more than Netflix, Amazon and the other OTT [over the top] video services that mostly offer movies-on-demand or last year's season of a particular TV show," he said.

"Aereo is different.  It offers you the ability to access broadcast TV anytime, anyplace on the device of your choosing. …that will liberate TV from the current distribution pattern and it will enable consumers to enjoy their favorite shows whenever and wherever they wish.”

Kanojia seems content to let Aereo’s lawyers fight the courts battle. He says he’ll focus on customer care during the multicity rollout and let the legal chips fall where they may.

“We have a tremendous amount of confidence in in our technology, and more importantly, a tremendous amount of faith in the system and the process. And it will unfold as the court believes it should.”