The Fledgling Tech Biz That Has TV’s Titans Fighting Mad
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The Fiscal Times
April 9, 2013

What? You've never heard of Aereo, the year-old startup that could just become the Next New Thing in the media ecosystem? Media mogul Barry Diller wants to make sure that you will soon know about it, and the possibility that Aereo could start sweeping the United States has made the major American television companies very nervous.

Aereo’s emergence also sets up a classic David vs. Goliath battle for control of your eyeballs, pitting the television powerhouses against an upstart that hopes that it can convert you to its technology by offering a relatively inexpensive and appealing way to enjoy the content you love. Only in this case, David has a billionaire in his corner. Diller, the head of the IAC Corp. (NASDAQ: IACI), is the driving force behind the innovative tech business.

Aereo basically converts a user's phone, tablet or computer into a tiny TV set by using dime-sized antennas to pick up over-the-air signals and then send out personalized live video streams over the Internet. As the seductive language on Aereo's website explains: "We made the TV antenna unbelievably small. We connected these antennas to the Internet. We give you control – all without cords, cables or boxes." Subscribers pay approximately $8 per month, but Aereo doesn’t pay retransmission fees to the stations supplying the content. As The New York Times pointed out, "Those fees are an increasingly important revenue source for the stations, so it is not surprising their owners have sued to protect them."

The networks, including NBC parent Comcast (NYSE: CMCSA), ABC's Walt Disney (NYSE: DIS) and Fox's News Corp. (NYSE: NWS), were dealt a setback last week when a federal appeals court in New York rejected a request for an injunction to shut down Aereo based on copyright claims. The TV titans are anxious to halt Diller's progress, though, so a trial is still likely.

“Aereo is stealing our signal,” News Corp president and COO Chase Carey said Monday at the National Association of Broadcasters trade show in Las Vegas. “We believe in our legal rights, we’re going to pursue those legal rights fully and completely, and we believe we’ll prevail. But we want to be clear. If we can’t have our rights properly protected through legal and political avenues, we will pursue business solutions. One such business solution would be to take the network and turn it into a subscription service.”

Ultimately, the television establishment will have a tough fight on its hands, convincing Americans that their traditional way is still the best. They can huff and puff all they want in court and try to stifle ideas like Aereo, but they seem to forget that the public likes to have control of its ability to watch entertainment. People covet convenience and don't usually mind paying a few extra bucks to achieve it. This principle is the American way and it has been proven time and again, spanning innovators' progress from nascent cable television four decades ago through Netflix (NASDAQ: NFLX) and up to Roku today.

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The court ruling opens the door for Aereo, which is now available only in New York City, to expand to 22 cities this year. "We always thought our Aereo platform was permissible and I'm glad the court has denied the injunction,” Diller told the Times. “Now we'll build out the rest of the U.S."

What makes Aereo so potentially compelling is that it presents the television audience with a fresh (and, crucially, inexpensive) way to subscribe to a roster of television programs – while giving advertisers yet another method to woo the same viewers.

At the same time, Aereo has its work cut out for it if the company hopes to put the major TV networks back on their heels. Barclays noted in an investment report after the ruling was made public: "We believe the ruling is a small victory for Aereo as it gives the company more time to build out its service, but it could run into more legal battles with deep-pocketed media companies as it expands into new markets."

The challenge for Aereo now will be to make its service into the next Netflix. Diller has the task of generating momentum behind his curious new and largely unknown technological breakthrough. Consumers are creatures of habit, but they forever love to sniff out a bargain.

As far as those battles with the deep-pocketed media companies, which Barclays discussed, Diller's rallying cry might well be: Bring It On!