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Posted at 01:51 PM ET, 07/18/2012

Aereo CEO on dismantling television as we know it


Chet Kanojia, chief executive of Aereo Inc., talks about the New York City launch of the company's service that allows consumers to access broadcast television through the Internet. (Bloomberg)
Aereo’s court victory last week is just the beginning of what the streaming video provider and investors Barry Diller and Ron Conway see as the dismantling of the television industry as we know it.

In a wide-ranging interview Tuesday, Aereo CEO Chet Kanoja talked about the importance of the U.S. District court of Manhattan’s decision, which he said validates the company’s controversial technology and has emboldened the firm to move into more metropolitan markets. A federal judge denied demands by Fox, CBS, PBS and NBC to stop the company from capturing their broadcast signals through antennas and then converting those programs into live streaming videos for their subscribers.

The company, only in New York so far, plans to expand to all major U.S. markets within a year, Kanoja said. And it’s got about $25 million to make that happen, thanks to funding by IAC/InterActive’s Diller, angel investor Conway and a slew of Silicon Valley venture capital firms.

That’s bold talk for a company with just 3,500 customers in New York City willing to pay the $12 monthly subscription fee. And the company will continue to fight legal battles over its technology, which broadcasters and critics say violates copyright laws.

Critics say that Aereo exists because of loopholes in the copyright laws and is questionably able to lift broadcast stations’ signals with scores of small antennas that pick up those over-the-air programs and then convert them into streaming videos. Broadcasters say they will appeal the district court decision and warn that Aereo could destroy their business, which increasingly depends on program-access fees.

Here’s an edited version of our Q&A:

What is the significance of the U.S. District decision?

Really significant, because it was a real validation of the technology and that it falls squarely within precedent and within established boundaries. That is now a significant hurdle behind us and lets us focus on building the business.

And what is that plan?

Our sense is that there is a significant portion of the population that is not interested in continuing the closed ecosystem of cable bundles. We view Aereo as a starting point that starts opening that closed, proprietary ecosystem.

An a la carte platform is the vision. A consumer can say there are 10 channels that I really care about, and does it make sense for me to pay hundreds of dollars for those 10 channels? The marketplace will determine a more reasonable rate where, say, someone says $1 or $2 a month makes more sense for each channel.

You’ll have to change a lot of minds here. First broadcasters, cable networks, ISPs and Hollywood.

This is a long quest which is why I got into it. I’m at a point in my career where I’m looking for a long-term impact and building a business that will be sustained. I selected investors and advisers who shared a similar belief, who were not in it for a quick buck. The goal is to reinvent the system.

When will that be? People have been saying that for decades.

The genie is out of the bottle. Audio transformation happened in a five-year period. And I don’t know if video will take five years, ten years or just two years. But consumer adoption curves will be very, very sharp if we are good about marketing and pricing.

How do you respond to broadcast firms who say your tech steals their content and that you aren’t paying them a dime?

Broadcasters take spectrum worth billions of dollars that belongs to the public with the obligation to program to the public. All Aereo says to consumers is that we have an antenna and so you can now have remote access to those programs.

But how can broadcasters support their businesses?

They have advertising, which we show. No one is stopping them from trying lots of different things. We heard the same debate with the VCR, people said the VCR was going to kill the broadcast industry. But now they make billions off of home videos.

Every new tech comes with a “sky is falling” warning. We don’t touch content. Even Nielsen said they measure mobile usage and Internet usage. So the whole debate that I need to get paid something for free doesn’t make sense. What do we want? A tax on broadcast?

How do cable companies view Aereo?

(laughter)

We didn’t start this to recreate the cable system and end up back to where things are at. I firmly believe if you take VEVO, HuffPo and MTV and offer them in a special package for, say, $5, you would make more money than otherwise. There is great experimentation taking place. A lot of programmers are in the same mindset and want optionality beyond the old model. HBO is a great part of that old model. At the end of the day, they create great content and it’s behind a pay wall. HBO is being held back because it is owned by Time Warner.

But you can’t constrict consumers too much. “Games of Thrones” is the most pirated material on the Internet right now.

Speaking of pricing, your $12 a month subscription price seems too high. I can’t see myself or friends adding another $12 subscription for video given the current economy.

I can’t agree with you more. That will change but I can’t tell you today what it will be.

And your expansion plans beyond New York?

The major metropolitan areas is where we are focused in the short term. We will be in all major markets in the next 8, 10, or 12 months.

Can you break up ecosystem on your own? Who’s with you?

There are many like-minded people. Think Google and Amazon in the video business. Skype in video calling, Spotify in music, Netflix in deep library video. These are just examples of companies that solve different slices of the consumer experience. The question is how to make them all come together.

We narrowly put Aereo in that slice of live television, which was a piece that was missing for consumers.

So will we see mergers? Stronger partnerships?

Across-the-board consolidation will happen and price points will happen. I’m not suggesting mergers and acquisitions, but technology integration makes a ton of sense.

Is there a role for lawmakers and regulators to create competition in Internet video?  

There are a lot of smart people in Washington, and it’s not lost on them the importance of competitiveness in this market. And demand for this product will only help the adoption and spread of broadband.

Consumer interests are at heart here. We are a competitive force that enables consumers to have more choice, so how could that not weigh on people’s minds in Washington?

 Are you being interviewed by the Justice Department in its investigation of the cable industry?

Whenever I see a 202 area code, I just don’t answer. Just kidding. No.

By  |  01:51 PM ET, 07/18/2012

 
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