Aereo CEO: The Days of the $200 Cable Bundle Are Numbered

At CES, Web TV Service Announces $38M Infusion, Multicity Expansion

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The most disruptive technology at CES wasn't launched here at all. But Aereo, the web TV service backed by Barry Diller, did announce some news: expansion from New York City to 22 other cities, as well as a $38 million investment round.

Aereo uses technology that includes tiny antennae to whisk broadcast TV signals into the cloud and allow subscribers, at $8 a month (or $1 a day) to access live TV on phones, tablets, computers or TV sets via a set-top box. Aereo also signed a deal with Bloomberg TV, and has plans to offer low-cost packages of cable channels in addition to the core set of broadcast feeds.

Watching the NFL online using Aereo's service
Watching the NFL online using Aereo's service Credit: Aereo

The play here is that consumers who don't want a $200 package of 500 channels can opt for a something much cheaper, plus the cost of broadband. Aereo has been sued by a consortium of broadcasters for this, but it won an initial ruling that will allow it to proceed, for now. Ad Age sat down with Aereo CEO Chet Kanojia, an engineer and former exec at TV ad technology firm Navic, who said broadcasters should embrace tech, not fight it.

Ad Age: I know you love TV. So why do you want to kill it?

Chet Kanojia: We don't want to kill TV, we want to expand its access to people. If you look at people who are 25 or 30, they are not signing up for cable subscriptions. Very few of them are. And they are getting their content online. TV needs to come online in a rational way. If you come to market and say, "You have to pay $200 a month to get the four, six or eight channels that you watch," that's just irrational. It's going to die on its own.

Ad Age: But the $200 isn't just video, right, that includes broadband and maybe phone?

Mr. Kanojia: $140 is just video. Broadband is typically a $40 product. Time Warner offers 50 megabits that gives unlimited Hulu and Netflix. The way the economics are going they are basically leaving a ton of people behind.

Ad Age: Would you consider paying retransmission fees to broadcasters in exchange for dropping their opposition?

Mr. Kanojia: Are they going to charge Sony retransmission fees because they have a tuner in the TV? Where does this end?

Ad Age: So broadcasters shouldn't have dual revenue streams, like cable channels?

Mr. Kanojia: I don't know their business at all. All I know is the current paradigm is this: They have [broadcast] spectrum. They are required to program in the public interest and to offer it widely for free. You are allowed to have an antenna. There is no prohibition on where you have it; it can be on your roof, your window or 50 feet away; in my computer or in the cloud. Tell me what the dispute is? Because you didn't see it coming? That is really what it is.

Ad Age: But since fees are so important to broadcast now, why shouldn't they fight it?

Mr. Kanojia: Technology catches up. When the VCR came out there was the same hyperbole: It's going to kill television. They made billions. It spawned a whole industry of home video. These technologies [Aereo] are single-cast, they know where you are. I think they are just ignoring that technologies like these are immensely helpful in attracting younger audiences and are helpful in creating new ad models.

Ad Age: So you're saying there's an ad model here that could be new revenue for broadcasters?

Mr. Kanojia: In the ad market itself there has been no innovation. Why can't what you see be personalized? There has been no innovation because there is no competition. I think ad-supported content is critical -- not everyone is going to pay for HBO -- but it needs to be better than it is.

Ad Age: Don't you think media bundles, like packages of TV channels or your newspaper, provide value to consumers?

Mr. Kanojia: If the argument says thats the best option for the consumer, let the consumer pick that option. if you go to a cable company and say I just want broadcast channels and a DVR, you can't touch that for less than $80. There is a level of apathy about the consumer's experience here.

Ad Age: Intel, Sony and others are all planning their own internet TV services. What does TV look like in five years?

Mr. Kanojia: I don't know. What I do know is I think it is this package of 500 channels isnt viable. WHat is viable is a skinny lean package. I think pay channels go over the top, like HBO and SHowtime. They won't beause of their ownership. they could go direct to consumers and charge a solid $15 a month and I bet they will win. Suddenly the buy isn't $150 to get an HBO multiplex, its $15 bucks.

Ad Age: You have Bloomberg TV; what other cable channels do you think you can add?

Mr. Kanojia: We think news is a good category, so we will focus on that. There are good, credible, nascent attempts going on in the market with Huffington Post and Vice. What separates College Humor from being the next Comedy Central? A lot of those will grow into full-fledged news channels.

Ad Age: Do you need to add more channels to grow or are you finding users happy with broadcast?

Mr. Kanojia: The goal from our side is get this broadcast piece out, get to a few million subscribers, which we will because just by showing up you get so much traction in the marketplace. Then, a new ecosystem will form.

Ad Age: You've now raised $68 million. How will you spend it, other than hiring lawyers?

Mr. Kanojia: It's an infrastructure build-out. We are building 22 cities so there is expense there. It's not just the antennas -- it's the the signal processing, transcoding, storage. Remember, we are a single-cast system, so every consumer's stream is unique to them and uninterrupted. So it is a pretty heavy-duty infrastructure.

The company's goal has been to become a national company and ultimately a global company. With this expansion, we will bring the company to 97 million homes. We will also start marketing in the first quarter.

Ad Age: Should the broadcasters be scared?

Mr. Kanojia: No -- I think we help. We are bringing so many new people, so many new form factors. We haven't spent billions of dollars in spectrum to make mobility happen. We have done so many cool things in such a short time. We are helping them, and they should be helping us.

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