Aereo’s planned expansion and more problems for TV

Nascent web company Aereo, which uses antennae to capture freely available television broadcast over the air and then delivers it to digital subscribers, plans to expand in Washington and elsewhere this summer. Broadcasters filed suit against Aereo last year, arguing the company is stealing their content.

Aereo’s approach allows it to offer local news and sports, meaning that just about anything on television will also be available online in cities where the company operates. Its more established competitors are worried:

The battle over Aereo, which was founded barely two years ago, underscores the television giants’ growing fears of the disruptive force of Internet video. With Web connections fast enough to deliver high-quality picture and sound, the cable and television industries’ long hold on the living room is loosening, with weighty implications for the way programming is created and distributed.

Viewership of free network television has steadily declined as online video has become more popular:

As fewer people rely only on broadcast television, stations around the nation are struggling to survive even as some rural residents, elderly and the poor continue to rely on free TV. . .

An antitrust lawsuit filed by Cablevision against media giant Viacom says it forces the cable company to buy its less popular channels which raises monthly bills for customers. Rebecca Jarvis reports.

That has made it harder for broadcasters to court advertisers as viewers shift to the Internet, analysts say. Viewership for local television news has steadily declined since 2007, Nielsen said. Six in 10 consumers, meanwhile, now get their news online.

The low cost and convenience of watching TV online pose a series of potentially disruptive problems for the cable industry, which offers large omnibus packages with hundreds of channels. Some companies are reconsidering their business model:

Verizon and Cablevision are publicly pressing media companies that own the programming to stop pushing them to distribute unwanted channels and instead offer cable bundles based on what viewers actually watch. . .

Such change has become necessary, Cablevision and other cable companies argue, as more Americans cut their cable cord in favor of cheaper Web-based video provided by Netflix, Apple and Amazon.com. Today, 5 million households get their television solely from the Internet, up from 2 million in 2007, according to Nielsen.

But Hollywood and media companies have said that breaking up the bundles would lead to the demise of smaller niche programming that does not have mass market appeal.

Meanwhile, Netflix and Google are competing with media companies directly by producing their own content. Dominic Basulto writes about Netflix’s original drama, “House of Cards”:

Netflix may have paid as much as $100 million to create “House of Cards,” hoping to recoup these costs primarily through the addition of new Netflix subscribers paying $7.99 per month. But how many more of these shows can Netflix continue to create on an ongoing basis at $100 million a pop, especially if there’s no guarantee the show will be a hit and, on top of that, lead to new subscribers?

Read an interview with Aereo’s chief executive officer, Chet Kanojia, here.

Max Ehrenfreund is a blogger on the Financial desk and writes for Know More and Wonkblog.
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