Aereo Is Shaking TV Networks--All the Way to the Supreme Court
Aereo CEO Chet Kanojia peels the wrapper from a piece of nicotine gum and stares calmly into the middle distance. He seems unfazed by the DJ beats or the commotion. Or the fact that he's just been interviewed about his company in front of a couple hundred tech enthusiasts in an Austin bar at the South by Southwest Interactive festival, where half the audience was concerning itself with throwing back tequila, searching for the free T-shirts, or exchanging business cards. His is the still gaze of a man who has achieved much and yet has enough on the line for it to matter. Just 45 days after this event, Kanojia will have to defend Aereo, his ambitious tech startup, in front of the U.S. Supreme Court.
From Day One, Kanojia anticipated that the fundamental idea behind his company--which streams TV-network programming to customers' computers--could rattle the establishment. He built the company anyway. As CEO, he has propelled Aereo's rapid expansion into 11 cities, attracting nearly $100 million in funding in the process. For most of Aereo's three-year lifespan, the little, 115-person company has been under legal assault by the same media titans that urged the Supreme Court to take up the case: Disney/ABC, CBS, NBC, and Fox, among others. The case is expected to yield a landmark decision not just for Aereo but also for the future of American television as we know it.
Since it first launched in New York City in 2012, Aereo has changed the way people watch TV. Its customers can watch about 30 channels of network programming on a computer or mobile device. It's a dream for cord cutters who miss sports games or the occasional morning show, and it isn't just for real-time viewing: Aereo uses the cloud for DVR-like storage. At about $10 a month, subscribing to Aereo is a fraction of the cost of a cable package from a major provider.
The establishment is fuming--and crying copyright foul--because Aereo doesn't pay a penny for the content it streams to customers. The crux of Aereo's legal arguments is: Why should we?
"We're perfectly within the law," Kanojia says. "We have been accused of overengineering our system purposefully to comply with the law. What's wrong with that?"
Aereo's innovative (or exploitative, depending on which side you're on) solution to bringing broadcast programming to the smaller screen involves taking the antenna out of the home. The company provides a tiny, half-inch antenna for each subscriber. Broadcasters call the fact that these mini antennas are located on rooftops rented by Aereo, rather than in American homes, a "loophole" in the law that Aereo is exploiting. The broadcasters claim the startup's method of streaming content amounts to an illegal "public performance" of the material.
Kanojia sees it differently. He and his investors--including Barry Diller, the mogul responsible for creating Fox Broadcasting--argue that simply because the ways television networks make their money have changed over the past few decades, it doesn't mean they get a "do-over" when someone builds a more efficient system. (The major networks have become increasingly dependent on fees paid by cable and satellite companies to carry their programming.)
The first lawsuit came four weeks after Aereo launched its service. More suits followed in other states. Most judges have sided with Aereo so far, but most recently, bad news came from Utah, where a federal appeals court upheld a U.S. District Court injunction against Aereo. The service went dark in its affected markets, Denver and Salt Lake City. When the networks petitioned the Supreme Court, Aereo's reaction was: Bring it on.
If it sounds a bit unhinged to risk the fate of the company on a single day in court, consider the alternative: litigating lawsuit after lawsuit in every new place Aereo launches. "We can't do death by a thousand cuts," says Kanojia. Now, he's in the unenviable position of pursuing the very decision that could instantly bring down his company. Remarkably, he's not outwardly rattled. "He's a steady hand on the tiller," says Aereo investor Dan Nova of Highland Capital Partners. "Very calm under pressure."
Kanojia, who grew up in Bhopal, India, learned early that life can change in an instant. When Kanojia was 10, his father suffered a heart attack that left him unable to work for years, crippling the family's finances. Kanojia says this informed his thinking, to always have a "Plan B and Plan C. And D."
Kanojia moved to the United States to study engineering in 1991. In 1995, around the time Netscape went public, he struck out on his own. "I had that star in my eye," says Kanojia, now a U.S. citizen. "Every punk who could write two lines of code was going to be the next Marc Andreessen or Bill Gates." His first company, Navic Networks, which developed technology that allowed cable companies to collect data on subscribers, sold to Microsoft in 2008 for a reported $250 million.
Venture capitalist Amish Jani made one of his first investments in Navic. Now managing director at FirstMark Capital, Jani says funding Aereo was a no-brainer. "He's incredibly motivated," Jani says. "Maybe it's the immigrant effect, but there's not a lazy bone in his body."
Kanojia and his team designed the antennas and engineered the hardware and software that make Aereo's service work. For most of Aereo's short life, it has had all the growth challenges of a typical startup: the iterating, the rapid hiring, the pressure of product launch after launch. And, well, that little litigation problem.
Legal experts have speculated that by taking up the case, the Supreme Court is raising an eyebrow at Aereo--and might be concerned that the broadcast networks are in danger. And the networks have a powerful slate of friends: Filing supporting briefs to the court are the National Football League, Major League Baseball, the Screen Actors Guild, and even the U.S. government.
It's natural to think that Aereo's Plan B might be an acquisition by a major cable company--or even one of the networks trying to shut it down. Sitting in a tiny conference room in Aereo's New York City office, Kanojia scoffs at the idea of accepting an acquisition offer at this point in the company's life: "I look at where we are now, and it's probably the first half of the first inning."
He'll soon know whether there are more innings in this particular game. I mention this, but Kanojia refuses to get riled up, or to acknowledge whether he does have another plan--a Plan C or Plan D--tucked away. Instead, he cracks a smile and leans back.
"To go from doodling on the back of a napkin three years ago to center stage in national policy and this level of consumer passion?" he says. "You couldn't write the script any better."
CHRISTINE LAGORIO-CHAFKIN | Staff Writer | Senior Writer
Christine Lagorio-Chafkin is a writer, editor, and reporter whose work has appeared in The New York Times, The Washington Post, The San Francisco Chronicle, The Village Voice, and The Believer, among other publications. She is a senior writer at Inc.