Aereo, a startup founded by CEO Chet Kanojia and backed by Barry Diller, has a unique and innovative business model: capturing local, over-the-air broadcast TV and sending it over the top (without an ISP intermediary) to computers or mobile devices for a monthly fee.
To me, the idea is a sound one, and I can see it fitting into the market in a few different ways. People who have cut the cord might be interested in this service to supplement the national content they can get from places like Hulu, Netflix, and Amazon Prime with more local, live content. People who have moved to a new city or state might still want to catch a show they miss from back home.
The major fault with the Aereo model, as the broadcasters see it, is that the startup wants to do all this without a retransmission agreement.
Private citizens have the right to capture over-the-air broadcast signals for personal use. Basically, if a TV signal is sent over the airwaves, you can use an antenna to view it for free. But if a service provider is taking that same signal and sending it out to its subscribers, the provider must pay a retransmission fee to the broadcaster.
Since TV broadcasters have been relying heavily on retransmission fees from cable and satellite providers in recent years, it is easy to see why they take offense to Aereo’s effort. Fox, Univision, and PBS have hired Steven Fabrizio, a partner at Jenner & Block, to file a copyright infringement suit and try to shut Aereo down.
The broadcast industry has a long track record of taking legal action to stop companies that might be disruptive to their business model. For the most part, broadcasters have been willing to dump enough money into their efforts to stomp out all startups with similar models.
Aereo is claiming that the broadcasters have no case. The startup is making the basic argument that the laws need to catch up to technology.
In addition to stating that it is legal for individuals to view over-the-air transmissions and record them for their personal use, Aereo’s company blog argues that the vendor’s technology -- consisting of small antenna arrays and virtual digital video recorders (DVRs) -- is an extension of that individual right and should be viewed as if customers set up the antennae themselves. In other words, Aereo customers are essentially using individual antennae and virtual DVRs. The startup is only serving as a middleman renting out hardware to its subscribers, not selling a video service.
Aereo is backing this claim with its one-to-one antenna-to-customer ratio, and it says each customer is getting a broadcast signal from an individual “dime sized” antenna and can record and view content on an invididual virtual DVR.
It is very clear that Aereo faces a long, uphill legal battle on multiple fronts against adversaries with very deep pockets and much more experience. For now, its management says that it has a solid legal argument, and that its technology platform will be the edge it needs to win in court. However, the far more likely scenario is that Aereo does not win in court and is bankrupted by the attempt.
All that being said, if Aereo could somehow overcome the many legal challenges it will face, that would very likely open the floodgates for other such services to pop up and offer live streaming and remote storage of broadcaster content -- without having to pay retransmission fees.
Ah! Certainly, that makes sense, Dana. Diller surely understands broadcasting and entertainment content thoroughly, which makes Aereo's activities even more of a bellwether. Thanks for the reminder! This is a startup to watch for sure.
Mary, I would assume that funding had to take this kind of litgation into account. Barry Diller is the founder of Aereo, and since he came from a broadcasting background I think he had to know what kind of action the broadcasters were going to take and and figured this into this business plan when he was out trying to raise funding for start-up.
I think that the progress Aereo has had thus far will lead them to rush to expand into more markets in the short term.
I think we will also see more streaming start ups pop up to take advantage of the progress Aereo has made.
There are still ongoing legal battles between Aereo and broadcasters, the outcome of those will be the next chapter for Aereo and streaming of live TV .
Just thought I would post a few links to update everyone on this Blog. In the months since this was writen Aereo had a small victory in court and are now have put together a full list of pricing options, many of them seemed targeted at drawing in new customers.
slfisher, That is a great point, and I think the only way to really reach the happy medium where both things happen is through more robust video platforms that merge traditonal content with content from the web.Once providers like cable and telco companies have moved all their content to IP video merging these two mediums into a single platform will be much easier.
There are other issues that have to be resolved between broadcasters and service providers as well. Things that could open the door to a la carte pricing, but the way things are going I do not see that as being very close
Very interesting blog, Dana, but I tend to come down on the pessimistic side too. Even if this weren't against the letter of the law, I think it's certainly against the spirit - and it's just asking for the law to catch up with it.
Finding a neat runaround for copyright infringement doesn't seem to me to offer a long-term business model.
I have worked for a few startups that might have worked on that very theory.
And I have to agree that Aereo will more than likely not come out on top legaly, but I still think their platform gives them a shot. It is splitting hairs, so its a long shot, at best. but given the Cable Vision case outcome I still think they might be able to make a run at it.
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