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Aereo Wants TV to be Free-ish, but New Ruling Sets up Supreme Court Battle

'Exhibit A of a Case That Might Wind its Way to the Supreme Court'

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Aereo has been blessed by the publicity gods ever since it was greeted by lawsuits upon its 2012 launch. The company has been building its brand with the help of nonstop controversy stemming from its use of technology that threatens to upend broadcast TV: streaming its channels without paying for them.

Aereo can stream live TV to Apple's iPhone and other devices
Aereo can stream live TV to Apple's iPhone and other devices Credit: Aereo

In August, Time Warner Cable, in its fight over carriage fees with CBS, trumpeted Aereo as a way for New Yorkers to watch the network while it was blacked out on the cable system. The hullabaloo was at least as helpful at spreading word about the startup, which is based in the Queens neighborhood of Long Island City, as the legal fights broadcasters have waged in hopes of suing it out of existence.

Last week, Fox, CBS and other broadcasters scored a court victory over a similar service, FilmOn X -- only their first win in the long-running battle against streaming TV services. The U.S. District Court for the District of Columbia granted a preliminary injunction against the company, giving hope to broadcasters that they will succeed in shutting down Aereo.

Rather than fixate on lawsuits and contract disputes, Aereo founder and CEO Chet Kanojia said the two-year-old company is focused on innovation.

"As the tech-story novelty dies down, as it will, and the legal novelty dies down, as it inevitably should, the next phase will be the interesting new things happening on our platform," Mr. Kanojia said. "We use technology to create an entry point." That technology can then become "a distribution platform for others to use," he added.

Aereo streams broadcast signals with the help of dime-size antennas housed -- for New York viewers-- in a Brooklyn warehouse, with each subscriber assigned his own antenna. The technology is at the heart of the company's legal defense that its "private transmissions" do not run afoul of copyright law protecting the broadcasters' public performance rights.

The local TV channels are fed to desktop browsers, smartphones and tablets, and to TVs through Roku or Apple TV boxes, for as little as $8 a month. While Mr. Kanojia does not release subscriber numbers, he characterized Aereo as on a roll -- rapidly expanding its geographic footprint, moving onto new devices and looking to extend its content beyond just broadcast channels.

In the near term, the company, backed by IAC Chairman Barry Diller, looks forward to its long-awaited launch on Android devices, which, Mr. Kanojia says, will take place in October. The service will soon expand to Chicago, Dallas and Houston, and be in 22 markets by the end of the year.

His aim is to build a "significant" business, and he has a record of thinking big. Trained as an engineer in Bhopal, India, and at Northeastern University, the 43-year-old entrepreneur sold his last business -- cable set-top-box analytics company Navic Networks -- to Microsoft for a reported $250 million.

Longer term, he talks of a move into new kinds of content, starting with "individualized" news programming that could make use of Aereo's "one-to-one" technology to discover what's of interest to users.

The news programs would be produced through partnerships, which Mr. Kanojia declined to describe further other than to hint they could employ a subscription model.

A marginal audience?
"There is room for innovation because the [news] product that is currently out there [on television] is not compelling," he said. "There is an opportunity for Aereo to bring its expertise in technology to help solve that problem."

Some quarters of the media world believe Aereo's talk of new uses for its technology is premature. It still has legal hurdles to clear, and has yet to prove itself as a business.

Many analysts don't believe its package of broadcast programming and little-watched digital side channels like Ion Life and Bounce TV will ever draw more than a marginal audience. They also argue that the startup remains little known to the general public despite the news stories.

"It's gotten publicity with people who cover the industry; it hasn't gotten publicity with customers," said Dan Rayburn, principal analyst at research firm Frost & Sullivan, who is particularly suspicious of Aereo's refusal to divulge any subscriber numbers.

Though the Second Circuit Court of Appeals in New York has sided with Aereo, federal courts in Los Angeles and Washington, D.C., have both come down against FilmOn X, with the latest decision applying to the rest of the country outside the Second Circuit. FilmOn X is appealing both decisions.

"This is sort of Exhibit A of a case that might wind its way to the Supreme Court," said a spokesman for the National Association of Broadcasters. "It might take a few years, but ultimately broadcasters will prevail."

Aereo defenders argue that FilmOn X's legal defeats don't automatically apply because its technology has not been proved to be identical to Aereo's. "I have a very deep-founded belief that the idea of an individual antenna for the individual consumer will be legal nationwide," Mr. Kanojia said.

As for the company's business prospects, he insisted Aereo is so efficiently structured that it could have been profitable "six months ago" if it weren't intent on expanding. He said ongoing litigation justifies keeping subscriber numbers private.

Two types of users gravitate to the service around the country, Mr. Kanojia said: Younger viewers who have cut the cable-TV cord use it along with other streaming services like Netflix, Hulu or Amazon, and "news junkies" who might have a full cable television package but still want to stream programs on mobile devices for convenience.

Whether or not Aereo prevails, it has struck a chord with people unhappy about paying for cable channels they never watch. It just may take a while for the service, or one like it, to catch on.

"Getting your TV connected to the Internet is a fairly big stumbling block for people age 35 and above," said Jim Nail, principal analyst at Forrester Research. "Not so big for those below."

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Matthew Flamm is a reporter for Crain's New York Business.

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