Aereo CEO plans pricing changes, expansion

0

AereoAereo is shaking up the broadcast TV industry with a service that streams live television through the Internet to smartphones, tablets and other devices for consumers.


Broadcasters were so upset that the four largest networks sued Aereo for copyright infringement weeks before its service even launched. But on Aereo’s side are some big guns as well, notably Barry Diller, chairman of IAC/InterActiveCorp.

Aereo is a disruptor on several fronts. Since it does not pay fees to broadcasters to reroute over-the-air TV signals to consumers, networks are concerned that it could interrupt the retransmission fee system. Aereo also appeals to cord-cutters by giving consumers one more tool to assemble their own customized à la carte offerings.

In the midst of this maelstrom is Aereo CEO Chet Kanojia, a soft-spoken entrepreneur with a vision that goes beyond running Aereo. He sees himself on the side of consumers by shaking up the complex financial relationship of Hollywood and pay TV operators, which results in viewers paying for more channels than they actually watch.

Aereo just won an important legal victory when a federal court judge denied a preliminary injunction requested by broadcasters. SNL Kagan caught up with Kanojia to ask about Aereo’s next steps. What follows is an edited version of that conversation.

SNL Kagan: How did you get the idea for Aereo?

Chet Kanojia: I started a company prior to this, and in 2008 I sold it to Microsoft Corp. That company had pioneered viewership measurement on cable TV. All the major cable companies were our clients. We pioneered how to collect viewership data second by second in real time from millions of homes. As we looked at the data, it was sort of obvious that 80% of the people only watched seven or eight channels, and 27% of multichannel homes only watched broadcast. The lightbulb sort of went on: “Look, there’s a population of people out there that is using Netflix [Inc.] and Google [Inc.] and [Apple Inc.’s] iTunes, etc., for parts of different things. The only thing missing in the online experience is this element of live broadcast.”

You do not call yourself a pay TV distributor and you are not a content provider. So how should I classify your company?

We really think of ourselves as a technology platform in the cloud for television. We’re basically enabling consumers to [individually access TV signals and] we charge the consumer a rational price for the technology. We don’t resell the content.

Our hope is that you end up in this à la carte world where you have technology that enables access to broadcast. Then you have other channels that come on and say, “For $1 I want to market to 1 million people” or 2 million people or whatever that happens to be. They’re happy providing that directly to consumers.

Can you take us behind the rationale for charging $12 a month, which is more than what Netflix or Hulu LLC’s premium service, Hulu Plus, charges?

If you call the cable company today and say, “I just want the basic [digital package], I want high-definition and I want a DVR,” you cannot touch that for less than $80 in any market, on average.

We did the math, and you can have a pretty reasonable business at $12. Whereas the current incumbents are at $80-plus for that. For that segment of the population of consumers, it’s an absolutely fantastic value. From a comparison perspective, Netflix I personally love but it’s a library [of content]. There’s no live TV, unlike a technology like Aereo. You can’t watch NFL games on Sunday.

[Aereo offers] a very attractive price point. But as I said, that’s not final and you’ll hear some announcements from us soon.

What are you doing to get around the broadband cap on mobile video?

Today, we try to educate the consumers around how much they’re consuming. There will be more features to educate consumers around those lines. But as a rational business person, I’m not averse to usage-based pricing. … What I’m more concerned about is neutrality, degradation of service, penalizing people that are competitive to you. Those kinds of things are a little bit more top-of-mind.

Any feedback from cable, satellite and telcos on your service?

They all love the experience we’ve created. Beyond that, there are a lot of conversations.

You did talk to broadcasters before and explained your technology to them. They sued you. What happened?

We told everybody what we were doing and what our plans were. We expected them to give us their reactions, which they didn’t. Then came the lawsuits.

There are no settlement talks going on?

No.

The main thing is broadcasters are afraid of a disruption in the retransmission fee system or worse.

We’re not an MVPD, we’re not subject to retrans and also we don’t have the benefits of program access. … For them to sit there and say Aereo can cause mass cord-cutting when Aereo cannot get programming like HBO, like ESPN, like Turner [Broadcasting System Inc.] … where are the antennas for that segment of population that has already concluded they don’t want the cable for it or they never took it?

This is the same argument they used for VCRs, [that it will cause] the death of the industry, etc., and of course they make billions of dollars on home video. So to sit there presumptively and say that a technology that is intended for a niche is going to somehow destroy this whole industry is absolute ludicrousness.

On the contrary, what Aereo is doing is giving new users access to live [TV, and] that’s just more eyeballs. … There’s more opportunity for everyone.

Do you think you will prevail all the way based on Cablevision’s legal victory in the network DVR case?

It’s not just Aereo that is [banking] on the strength of Cablevision [Systems Corp.] Pretty much every cloud technology that’s coming out in the content realm is taking advantage of that precedent. Companies like ours, innovative new companies that come in, rely on those various strong precedents to say, “OK, courts said X, so now we can invest.” We didn’t go around and create something foolish. … We studied it carefully and created something that is highly compliant.

Can you say a DVR cannot play back a live program? That’s really what they’re asking [the court] to do. What’s the logic in that?

–Deborah Yao, SNL Kagan