Aereo Lost. What Now?

By Jeff Bercovici

The trouble with trusting in the Supreme Court to bless the legality of your novel business model is, if you’re wrong, suddenly you’re left sitting on an illegal business.

Aereo founder Chet Kanojia and his chief backer, billionaire Barry Diller, have known that was a risk ever since they introduced their service, which lets (or let) subscribers stream broadcast TV channels to their devices or record programming for later viewing. Now it’s a reality, with the Supreme Court ruling by a margin of 6-to-3 that what Aereo does (or did) violates broadcasters’ copyrights .

Can Aereo now reformulate itself in some way that would allow it to stay in operation? When my former colleague J.J. Colao profiled Kanojia in May, the CEO was reluctant to talk about what would happen in the event of a loss, saying he preferred not even to think about taking the safe way out. “It’s like you’re on the 18th hole and it’s a 180-yard carry up to the green with a false front,” he told J.J. “You’re 250 yards out and the question is, ‘Are you going to lay up — or are you going to go for it?’ We didn’t come to here to lay up.”

But J.J. nevertheless identified several potential ways forward for Aereo in the event of a Supreme setback:

– It could regroup by selling its own cloud service to small cable operators that represent 7.5 million subscribers and can’t afford to develop their own technology. Comcast has already rolled out a similar service via its XI operating system, letting customers schedule recording from their phones and computers.

– It might exploit its transcoding technology, say company insiders. This converts thousands of broadcast video streams into digital formats for a fraction of the cost of rival methods. As folks spend more time watching video online, Aereo could help provide more content options.

– “It could shift ownership of its over-the-air antenna to users, then charge maintenance and upkeep to sustain recurring revenue,” says Jim Boyle, managing director of Sqad, a media forecaster. Even Diller has entertained the notion that Aereo could become a cable provider, striking licensing deals with content providers.

In all, the company has 18 pending patents. “We have a lot of interesting stuff that’s valuable,” says Kanojia–enough intellectual property to make one or more viable businesses, even if not the transformative monster he envisioned.

More recently, Kanojia told Bloomberg TV there was “no plan B” if the legal strategy didn’t pan out.

In a statement released after the ruling, Kanojia called the outcome “chilling” and “troubling” and promised to keep trying, though he stopped short of saying Aereo would remain a going concern. “We are disappointed in the outcome, but our work is not done,” he said. “We will continue to fight for our consumers and fight to create innovative technologies that have a meaningful and positive impact on our world.”

BTIG analyst Rich Greenfield, who’s probably written and thought more than anyone about the implications of Aereo for the TV ecosystem, recently detailed the scenarios that would unfold in the event of either outcome.  He didn’t see much of a future for the company in the wake of a defeat:

If Aereo loses we doubt they will continue to exist. The whole purpose of Aereo is to leverage what consumers can legally do by themselves through equipment purchase and shift that upfront investment to a leasing model. If Aereo has to license local broadcast television content within each DMA, the unique consumer value proposition afforded by free-over-the-air television evaporates.

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