More Americans are watching TV shows minus the television set. Thanks to Hulu, Netflix, and other sites, there's plenty to watch online. But there's one thing missing, says Chet Kanojia: live television.
That's where his company, Aereo, comes in. Kanojia's Long Island City, New York-based start-up lets customers turn their iPhones, iPads, and computers into televisions and watch network broadcasts in real time. In February, after raising $20.5 million in a funding round led by Barry Diller's IAC/InterActiveCorp, Aereo launched its service in New York City.
The service starts at about $8 a month. Customers simply sign in to Aereo's website and choose the shows they want to watch from a guide of available channels. They can also record shows for later, as with a DVR.
The idea may seem simple, but Aereo's approach is rather complex. The company assigns each customer an antenna--similar to the kind a TV uses to pick up broadcast signals. Then, Aereo streams the signal from that antenna over the Internet to the user's device. Thousands of these small antennas, each about the size of a coin, are hooked up inside Aereo's warehouse in Brooklyn. "This is a big idea that takes big ambition," says Kanojia. "If we get 300,000 subscriptions in New York, that's excellent, but the market for the whole country is much bigger."
Kanojia came up with the idea for Aereo shortly after selling his previous start-up, Navic Systems, which collected detailed viewership data from cable boxes, to Microsoft for an estimated $200 million. At the time, a major court decision involving Cablevision and a coalition of television studios grabbed Kanojia's attention.
The lawsuit hinged on Cablevision's remote DVRs, which store recorded content on Cablevision's servers rather than on a customer's device. Several content providers, including 20th Century Fox and Universal Studios, sued Cablevision for copyright infringement. Ultimately, the court sided with Cablevision. Kanojia wondered, If remote DVRs are legal, what about remote antennas?
Once he had his business concept, Kanojia enlisted a network of advisers, including regulatory and copyright lawyers, to poke holes in his proposal. "They came back and said, 'People may not like you for this, but legally, you're on solid ground,'" Kanojia says.
That assessment was put to the test in March, when several networks, including ABC, CBS, and NBC, slapped Aereo with a copyright infringement suit. A federal judge denied the broadcasters' request for a preliminary injunction, which would have forced Aereo to halt operations. But the case is ongoing. A decision is expected by the end of 2013.
Similar start-ups, including Seattle-based ivi.tv, have been shut down by the courts, because they relied on a single master antenna to retransmit the television signals. By assigning a single antenna to each user, Aereo may avoid that fate. "It's called free-to-air for a reason," says Mike McGuire, a media analyst at the technology research firm Gartner. "If you went to RadioShack and bought an antenna for the roof, no one could stop you. Aereo's effectively taking that a step further."
But Aereo may have another challenge, says McGuire: content. In New York, the company's antennas pick up 29 broadcast channels, but Aereo may have to do better. "The big question is: Is it enough content to make it interesting to consumers?" says McGuire.
Kanojia says he's working on licensing deals with cable networks that would allow Aereo users to subscribe to individual cable channels for a low, additional fee. The company plans to expand to at least 10 cities in 2013 and hopes to come out of the lawsuit unscathed. And if it doesn't?
"As an entrepreneur, you can drive yourself crazy thinking of every possibility," Kanojia says, "but there's one way to stay sane, which is to focus on what you have in front of you and what you can control."
Ditching the TV
Number of Americans who watch online content every day: 105.1 million
Number of households that canceled cable in 2011: 1.5 million
Total funding Aereo has raised: $25 million
Number of channels Aereo offers: 29