Aereo Founder: If We Lose, 'We Have No Plan B'
Chet Kanojia, network TV's Enemy No. 1, is looking to expand his controversial business even as he heads to the Supreme Court to defend it.
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Chaitanya "Chet" Kanojia is defiant. Losing isn't even on his radar. He has no Plan B.
Maybe he's in denial, or maybe he's just that unflinchingly confident. Either way, the serial entrepreneur is dead-set on expanding his controversial Aereo streaming TV service into 50 new coverage areas, even as he braces for a Supreme Court showdown later this month against the major broadcasters who claim the disruptive startup is illegally ripping off their copyrighted content.
It's almost as if he's acting like it's not happening, even announcing yesterday that Aereo subscribers, who can already watch and record live broadcast television on their smartphones, tablets, computers, and smart TVs thanks to him, will also be able to do so via Google Chromecast starting on May 29.
Related: Aereo CEO: 'We're on the Side of the Angels'
Kanojia's already battled the old guard network TV Big Four (ABC, CBS, NBC and Fox) hell-bent to shut down his company -- once in federal district court and twice in the Second Circuit Court of Appeals -- and he won both times.
Perhaps that's why he thinks he stands a chance against them again in our country's highest court, even despite the U.S. Department of Justice's recent backing of the network and cable giants struggling to stay relevant. The feds also say Aereo is "clearly infringing" on the U.S Copyright Act by allowing its cord-cutting subscribers to snatch broadcast TV signals from the air and watch them online (for $8 to $12 per month) with its innovative micro antenna and DVR technology.
Meanwhile, several major players in the tech industry have filed Supreme Court briefs defending Aereo, including Google, Facebook, Microsoft, Mozilla, Yahoo and the Electronic Frontier Foundation. They'll all no doubt be watching, along with the rest of the media world, when the court delivers its final judgment in the watershed case, likely before the close of June.
With so many, including Aereo investor Barry Diller, the media mogul who founded Fox with Rupert Murdoch, saying that the fight ahead is a win-or-die, the pressure is on.
But Kanojia's not sweating it. At least he's not showing it if he is.
Related: Aereo to Supreme Court: Our Service 'Falls Squarely Within the Law'
We spoke with Kanojia this week about the future of Aereo, and how he's holding up as he counts down the days to the April 22 opening arguments in what promises to be a landmark Supreme Court case.
Entrepreneur: Why do you contend that the big broadcasters are wrong, that what you're doing is perfectly legal?
Kanojia: For a very simple set of reasons. First, every consumer has the right to an antenna. Nobody disputes that. Every consumer has the right to make a recording for themselves of free to air television. Nobody disputes that either. And nobody disputes whether the antenna and DVR can be connected.
So the dispute is how long can that wire be that connects the consumer to that equipment and there is nothing in the law that prohibits this idea that you can have remote equipment. In fact, there was an important Cablevision court case in 2008 in the second circuit in New York which concluded that the consumer had the right to have remote equipment and that was a case involving remote storage DVR technology as opposed to a set-top box home-based solution. So, you combine all of those reasons, and based on that precedent, we feel that what we are offering is an absolutely legal proposition.
This case, as much as it's being sold as a copyright case, it's not. It's a case about trying to protect this idea of an integrated bundle that the media companies sell.
Entrepreneur: Before you officially launched Aereo, did you consult with legal counsel to determine if what you were about to do would "fall squarely within the law"?
Kanojia: Yes. I put a small team together, both from a legal and regulatory perspective, and also from an engineering perspective, to flesh out the idea for Aereo. We looked at whether A) Could we do this technically and at the right cost points? and B) Would it be legal? The answer was, yes, we can do it, and we will have challenges, but the law is on our side.
Entrepreneur: Just two weeks before your company launched in beta mode (on March 1, 2012), broadcasters banded together and sued you for copyright infringement. Did you expect to go head-to-head with the broadcast TV titans -- and to completely shake up "the entire TV industry" so incredibly quickly, though -- even before Aereo's launch?
Kanojia: No, we didn't. We went around and educated them first. Our hope was that they would see the light of the day and and realize that these are credible people that have built businesses before who are behind Aereo, that we had credible money and the concept behind it is based in real thinking and law. So they refused to work with us, as opposed to litigate, but unfortunately they chose the standard litigate-only path, of course.
Entrepreneur: So far you've prevailed in the battle against the broadcast heavy hitters. Why and why do you think you stand a chance of beating the odds again?
Kanojia: Because the law is on our side.
Entrepreneur: What happens if you lose? To your company? To the streaming TV and cloud computing industries? To your current subscribers? Do you have a plan in place for the worst-case scenario?
Kanojia: No, not really. Not really, we don't have a plan for that.
Entrepreneur: If you prevail in the Supreme Court, some of the broadcasters, like Fox, along with the NFL and the MLB, have threatened to move their programming to cable to skirt Aereo. Some of have said that they'll reconsider what they offer for free over the air, effectively choking the supply of content to you. Do you think they're bluffing? If they do choke their content off from you, what's next for Aereo then?
Kanojia: Consumers can expect an alternative to bundles from the cable system that's their only option today. They can expect the company, as it always has, even in its short life, to continue to care about them more than just about making money, to care about creating and innovating and bringing new technologies to the forefront.
Related: In Aereo's Battle With Broadcasters, Justice Department Picks a Side
Regarding the broadcasters choking off their content, that's the rhetoric that gets used every time. And here's the reality: 60 million people still use an antenna in some way, shape or form to watch TV, which is about 15 to 18 percent of households, and to say that what those 60 million people do is somehow bad for them, which is exercising their right to use an antenna, something they can do because it's required to be a broadcaster... to offer the spectrum to them for free, it just doesn't make any sense.
The impact of this case goes beyond just Aereo. It's going to directly affect how cloud-based companies are allowed to operate in the future. Some of our friends of the court on our side, have very articulately expressed their concerns regarding this issue in front of the court because these statutes apply to everybody. This is not a case in front of the Supreme Court where people are debating if an antenna works or doesn't work, or this or that. No facts are being appealed, right? It's purely how does the statute work. It's got some big, wide-ranging implications.
Entrepreneur: A lot of consumers want your product, but most providers don't want to work with you. You would think that in order to be successful, all stakeholders have to see value in every link of the chain. Given that, where do you see your position in the value chain?
Kanojia: Listen, you can't take a monolithic view of this whole thing. Clearly consumers like this idea. They like what we're doing. We have lots and lots of consumers signing up. (Note: We asked for the total number of current paying Aereo subscribers, but the company doesn't publicly share the figure.)
There's also clearly an appetite for this model from new and emergent content creators who are looking for different ways to share their content and for eyeballs [viewers]. And, you know, not all broadcasters are against us. We have lots of people who have vast reach and are supportive of what we're doing. We think that, ultimately, we will end up successful in creating a platform that will be useful to all types of constituents.
Related: Aereo to Broadcasters: Bring It On
Not every broadcaster hates us. A lot of independent, smaller broadcasters and media companies -- anybody who's not part of the cartel -- likes us.
Entrepreneur: Aereo is a "new economy" business, but it's constrained by the limitations of hardware: physical antenna, real-time encoders and limited bandwidth. Investing in physical infrastructure is expensive and risky. How do you plan to keep up with growth?
Kanojia: Despite all of those clouds, we've put in $100 million into the company and I can assure you... [chuckles softly] there's tons of capital sitting and waiting. All of these businesses, as you well point out, are easy to start, but difficult to scale because the capital requirements to scale are insane, right?
Whether you look at a Pinterest or a Google or an Airbnb or at us, the amount of infrastructure we have to deploy in order to serve consumers in an effective way is pretty meaningful. I mean, you have companies that are spending several hundred million dollars, or billions of dollars, to build infrastructure up.
For sure there's money out there if you've got a business and I think that we're demonstrating that the consumer appetite is there and our business dynamics are exceptionally good. As a technology company with very high margins made very, very quickly, and as a company that makes money, those barriers you listed are the least of my worries.
Entrepreneur: Are you still moving forward with your plan to majorly expand your service throughout the U.S., and to rollout Aereo 2.0, even in the face of this uphill battle?
Kanojia: At this point, obviously we're awaiting a favorable outcome at the U.S. Supreme Court in June. Still, Aereo 2.0 is the next phase for us, which includes the next generation of the product. We're working pretty hard on it now, and it has some real advancements in terms of social features and better quality.
The big business focus for us now is really the expansion into as many cities as we possibly can so we can start getting some scale.
Entrepreneur: What's the end game here? To sign up subscribers and quickly flip this? To redefine the law for a bigger play in the future? A patent play? Going up against the big broadcasters seems like a lot of work for such a huge business risk.
Kanojia: The end game is this: We think that the ultimate model of content consumption includes choice, alternatives, and an open platform, and we hope to be the one to get that for people.
Related: NFL, MLB to Supreme Court: If Aereo Wins, You'll Have to Watch Sports on Cable