Shapiro Recalls Betamax in Defending Aereo Service for Personal Use

The CE industry is “always doing something different” and by definition that “affects someone else’s status quo,” Shapiro said. He cited the motion picture industry that “freaked out” when the VCR came out and could record TV shows and control viewing times according to the viewer’s schedule. He also cited the MP3 music file’s disruption of the record business and the threats cable and satellite TV brought to the then-three major TV networks. Following those were prerecorded video and the Internet, adding to the list of disrupters that took market share away “from someone with an old business model,” he said.

Kanojia said he founded Aereo to address the “gross imbalance because of the monopolistic structure” of the broadcast TV industry. “People watch seven or eight channels, they pay for 500,” he said, adding that consumers don’t have a choice over what they pay for via cable and satellite packages. Those packages, born out of the pipelines cable and satellite companies have into the home, are no longer necessary, he argued, because “IP basically dismantles artificial bundles.” Aereo’s mission is to provide an alternative to how people watch TV, delivering the free over-the-air channels consumers are entitled to through “choice, flexibility, [and] rational pricing” which doesn’t exist in the market that’s burdened with “three layers of middlemen,” he said.

In his previous company that measured TV viewership data, Kanojia learned “how difficult it is to innovate on the television.” People wanting to introduce user interfaces or content were thwarted because of the vertical integration of the industry, he said. He saw an opportunity to deliver a new model of TV service through the Internet where bandwidth was growing, and in a climate where no one liked their “incumbent cable provider,” he said.

Kanojia’s vision of future TV is a destination where people go to buy content instead of an “artificial system” of packages. The website handles the technological aspects of the infrastructure including bandwidth, power, user interfaces, consumer care and billing, “so that creators could come in and sell content directly to consumers.” Kanojia maintained that the current TV delivery industry is focused on profit, not the consumer experience, which he believes will lead people to “leave the ecosystem."

Aereo does not offer pay-TV programming through its $8 monthly service that includes a DVR. Kanojia wants to provide an affordable alternative for recording over-the-air signals, which consumers can’t do now for less than $80-100 per month. He cited the Television Consumer Freedom Act, recently introduced by Sen. John McCain, R-Ariz., that aims to encourage unbundling of channels by distributors and programmers, put in place consequences for broadcasters that downgrade over-the-air service and eliminate the sports blackout rule for events held in publicly financed stadiums.

Shapiro countered that cable companies would argue that packages help finance royalty payments to copyright holders, and that without bundling, much of the minority and sports programming couldn’t be sustained. Kanojia acknowledged that Black Entertainment Television might not have gotten in front of consumers without cable. But media consolidation today, he said, makes it impossible for new entrants wanting to launch a channel “to get on the dial.” He called it “a closed system.” Proof of that is that “every new content developer is on YouTube,” he said. “It’s free distribution that’s in front of the masses,” he said.

Aereo uses many miniature antennas, which it stores together in a facility in Brooklyn for its New York subscribers. It then leases those antennas to subscribers, offering 50 percent of the value proposition that’s part of a cable bundle (assuming viewership of 50 percent from broadcast TV at any given time) for 10 percent or less of a cable bill. Consumers can add streaming services such as Hulu, Netflix or Amazon for another $8 or so and “for $15-16 a month, unless you're a diehard ESPN customer, your answer is there,” said Kanojia. Aereo positions itself as “the simplest way to get live TV on any device at a very rational price,” he said.

In addition to New York, where it has more than 10,000 subscribers, Aereo launched service in Atlanta last week and has announced upcoming service for Boston. It has committed to build out 22 cities this year and is on track to cover 18-19 markets by August, Kanojia said.

Aereo prevailed in lawsuits brought by broadcasters to get an injunction in lower court and again in the preliminary stages of a case at the 2nd U.S. Circuit Court of Appeals (CD May 16 p4). Kanojia said Aereo believes it is entitled to summary judgment as a result of those rulings. Regardless of that outcome, Aereo’s court struggles are likely to go on based on comments by CBS, for one. CBS has said it will take Aereo to court in every jurisdiction where Aereo rebroadcasts the network’s content. Fox said it would consider a pay-TV model should Aereo prevail (CD April 9 p13).

The “only thing Aereo has ‘won’ is a split 2-1 decision” in the 2nd Circuit denying a preliminary injunction request from broadcasters to block the service, an NAB spokesman said in responding to the Shapiro and Kanojia remarks. “The merits of the case have not gone to trial.” The 9th U.S. Circuit Court of Appeals blocked the Aereokiller service “that is similar if not identical to the Aereo business model” on “copyright infringement grounds,” the spokesman said.

Aereo has been sued by “17 or 18 broadcasters" for copyright infringement, Kanojia said. The appeals court affirmed that Aereo’s technology is “well within precedent” and consumers have a right to have an antenna and make a recording, going back to the Betamax case, he said. Where the antenna or DVR is located “is immaterial,” he said. “What’s material is, does an individual have his own recording or antenna. If it’s a one-to-one relationship, it is a private performance,” he said, where consumers are controlling their own media. There is an appeal for an en banc review to have all appeals court judges of the 2nd Circuit hear the case, Kanojia said.

On how it felt to be a David taking on the Goliaths of the broadcast world, which have tremendous lobbying power, Kanojia returned to the “basic logic” by which the broadcast spectrum was granted and maintained that Congress should want to preserve free, over-the-air content. Entire businesses were “built on back of this free spectrum grant,” he said.

Shapiro noted how much the government has already spent to ensure free access to over-the-air TV. President Barack Obama hadn’t taken office yet when he pushed through legislation to ensure that consumers would have access to free TV during the transition to DTV, he said. “Two billion dollars were wasted to ensure that a few Americans might not lose TV service for 10 minutes,” he said. “And here major broadcasters are saying free over-the-air broadcast really isn’t that important.” Kanojia cited NAB figures claiming that 54 million Americans use an antenna in some way, which could include second or third sets. Shapiro said CEA figures show that well under 10 percent of Americans rely on antennas exclusively for the TV programming.