With Aereo, Chet Kanojia is changing the way people watch TV, sparking lawsuits, and building a legion of believers.
You think your startup is innovative and disruptive? Meet Chaitanya "Chet" Kanojia, founder of Aereo. His product is so innovative that it promises to transform the way we watch television. And it's so disruptive that he's been sued four times by the broadcasting industry and may be forced to defend his business in front of the U.S. Supreme Court.
Startups seldom get more controversial than this--which is one of the reasons Inc. has recognized Kanojia as one of 2013's entrepreneurs of the year.
Kanojia, in fact, is a serial entrepreneur whose first business, Navic Networks, was acquired by Microsoft in 2008, reportedly for more than $200 million. The idea for his current company, Aereo, is fairly simple: Why not stream network TV straight to viewers, online? The problem: The broadcasting industry is convinced that this is illegal. Right now, households can view network TV for free if it is picked up by an antenna or digital box. Aereo maintains warehouses full of powerful micro-antennas that receive network broadcasts and then streams programming to viewers' online devices for a price of $8 a month.
The broadcast industry sees this as a clear example of copyright infringement. But Kanojia claims that Aereo is perfectly legal according to the Communications Act of 1934, in which Congress created the FCC and granted the nascent television industry access to the airwaves in exchange for providing the nation with public services, such as offering news and information free of charge. Kanojia says that Aereo is simply offering consumers access to material broadcast over publicly owned airwaves. The only difference is that Aereo is delivering that material via 21st Century devices.
It's easy to see why the major networks and affiliates are not amused. They stand to lose as much as $3 billion in rebroadcasting fees. Major League Baseball and the National Football League, which make loads of money via deals with television networks, also object. Aereo has been sued four times in three states. And a coalition of major networks is petitioning the Supreme Court to take up the case. "We are optimistic that ultimately Aereo will be declared a copyright infringer," says Dennis Wharton, executive vice president of the National Association of Broadcasters. "It's illegal to take someone else's content and re-sell it."
So far, the courts have been on Aereo's side. The company, which is based in New York and Boston and has about 100 employees, has yet to lose a legal challenge. "The law is on our side, and so are the facts," Kanojia says.
This is Chaitanya's second company. His first, the advertising-and-metrics company Navic Networks, was acquired by Microsoft in 2008 for a sum reportedly greater than $200 million. Considering Aereo's legal challenges, each of which requires a team of about a dozen lawyers, Aereo's growth is impressive. One key reason: Kanojia will go to extreme lengths to make his customers happy. He makes certain tricky customer-service calls himself, and favors transparency in letting them know about service snags. Customers who feel cared for and openly communicated with become vocal about their love for a service or company, he says. They also are happy to provide suggestions for improvement. "When you create a connection between people, between employees and customers, a kind of feedback loop gets created. People go above and beyond to do their best," Kanojia says. "That makes my job incredibly easy."
The timing could be on Aereo's side. A decade into the "cord-cutting" debate over Americans cutting off cable subscriptions in favor of streaming online content, the time finally seems ripe for TV 2.0. Consider: While Netflix is exhibiting huge growth in online streaming, network television just had its worst 12-month stretch ever.
And Aereo's battle with the networks certainly hasn't frightened off investors. A number of high-profile firms--including FirstMark, First Round, High Line, and Highland--have poured $63 million into the company. Another major backer is IAC's Barry Diller, who founded Fox along with Rupert Murdoch three decades ago. (This year Fox has threatened to consider moving to cable to avoid Aereo "stealing our signal.")
Kanojia says he has the greatest amount of respect for the legal process. Still, he gets a glimmer in his eye when he talks about taking on big, entrenched interests. That's because when he looks to the future, he sees a massive global opportunity. "How consumers are going to access television in its next iteration is totally up for grabs," Kanojia says. "We think that is the opportunity; that we can be the destination where people come to access all television on a global scale. Where we are at right now? It's just the first half of the first inning."