Light Reading

Aereo CEO Trashes Pay-TV Model

Alan Breznick
1/14/2014
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Despite what the major broadcasters have to say, Aereo CEO Chet Kanojia doesn't believe that the legal fight over his company's online streaming of local TV signals has anything to do with retransmission consent or copyright laws. Rather, he thinks the battle is really over control of TV signal distribution and the future of the bloated cable bundle.

With the courtroom showdown over the business model of Aereo Inc. now headed for US Supreme Court arguments sometime this spring, Kanojia argues that the case has absolutely "no implications for retransmission-consent." Even if the high court rules decisively in Aereo's favor, he sees little chance that the broadcast industry's growing stream of retransmission-consent revenue from cable operators and other pay TV providers will come to a screeching halt. Nor does he see much chance that cable companies will start installing similar dime-sized antennas on millions of subscriber rooftops to do a massive end-run around the nation's copyright protection laws and retransmission-consent rules. (See Aereo Headed for Supreme Court? and Aereo Fight Heats Up in DC.)

"This argument is not about retransmission consent," he insisted, speaking at the Citi Global investment, Media & Telecommunications conference in Las Vegas last week. "What is being questioned is: Can I have an antenna as a consumer…? There's no prohibition against third parties making money on TVs and antennas."

Kanojia contends that broadcasters really want to shut down his company's premium service, which charges subscribers $8 to $12 a month for a mix of local stations and cloud-based DVR service, because they don't want to loosen their still-tight control over program distribution. Recalling that broadcasters once fought the same kinds of legal and regulatory battles against cable operators, VCR makers, DVR suppliers, and other proponents of what were then considered new distribution technologies, he noted that they lost in just about each case, but then ended up making out like bandits in the marketplace.

"The history of this industry is that they're driven by control," he said. "The reality is that they have prospered under every one of these circumstances."

If anything, Kanojia believes that Aereo could prove to be "a net benefit for broadcasters" by bringing their programming to more homes and opening up possibilities for specially targeted advertising. Rather than pay unnecessary retransmission-consent fees, he said, these are the ways that Aereo can truly help broadcasters reap more revenue.

"Of course, they should be compensated" for their signals, he said in response to questioning from financial analysts. "We'd be happy to create more technologies to help broadcasters do targeted advertising."

In addition, Kanojia argues that broadcasters, programmers, and other content providers want to shut down Aereo because they view it as some kind of threat to the traditional pay TV bundling model. Under that tried-and-true model, cable operators and other video service providers package dozens and even hundreds of channels for subscribers for one monthly price, rather than let customers choose and pay for just the handful of channels that they actually watch. This model, which has thrived for decades, has spurred the development and deployment of scores of niche channels that generate lucrative carriage fees and advertising revenues even though they're lightly viewed.

But, with the rise of online streaming services like Netflix Inc. (Nasdaq: NFLX), YouTube Inc. , Hulu LLC , Amazon.com Inc. (Nasdaq: AMZN), and even Aereo, and the emergence of media streaming boxes and bundles from such other new players as Apple Inc. (Nasdaq: AAPL) and Roku Inc. , increasingly tech-savvy consumers no longer have to buy the big, bloated programming bundles to get the content they desire. So the future of many of the less popular channels suddenly looks much cloudier than it did before.

"I don't think there's a whole lot of business in selling 500-channel packages of video services to people who don't want them," Kanojia said. "I don't think the future is selling 50 Viacom channels to people."

With cable broadband subscriber totals now rapidly catching up to cable video customer totals for the first time ever, Kanojia may well be right -- and maybe that's not such a bad thing.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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mendyk
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mendyk,
User Rank: Light Sabre
1/17/2014 | 6:56:53 PM
Re: Let's twist
If NBC decides to run infomercials over the air while reserving The Big Game for delivery over paid video services only, I don't think political powers could do anything about that.
albreznick
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albreznick,
User Rank: Blogger
1/17/2014 | 6:12:58 PM
Re: Let's twist
Yep, I can definitely see that happening. Would just hate to see it. Will be interesting to see if the political powers would allow that. Right now I think they still wouldn't. But that could change.   
mendyk
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mendyk,
User Rank: Light Sabre
1/16/2014 | 5:51:59 PM
Re: Let's twist
"Going premium" in this context would mean having the most valuable content offered only through video service providers, which is how the vast majority of viewers get their network programming now. OTA service could well be relegated to low-end content, which of course there is plenty of.
albreznick
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albreznick,
User Rank: Blogger
1/16/2014 | 5:47:06 PM
Re: Let's twist
Definitely could hapopen. Do you think even the Super Bowl and World Series will end upgoing premium at some point? Those would be sad days for America, at least the sports-loving partof it.   
mendyk
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mendyk,
User Rank: Light Sabre
1/15/2014 | 3:05:43 PM
Re: Let's twist
Programming networks (both over-the-air and cable) will do whatever they have to to minimize any damage to their revenue bases and to make sure that they get the biggest cut of revenue possible. The idea of sending premium content over the air so that a third party can capture and resell it will not fly. I will not be surprised if the networks (who don't own all that many OTA stations outright anymore) start offering premium content through fee-paying video networks only, leaving second-tier content for OTA delivery.
albreznick
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albreznick,
User Rank: Blogger
1/15/2014 | 11:50:20 AM
Re: Let's twist
Not right away, anyway. But I do think the traditional pay TV bundle is headed for a fall in the not-too-distant future. More and more folks will seek to opt out of these bloated bundles to get just the channels they want, and they will increasingly be able to do so. What's your vision?    
mendyk
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mendyk,
User Rank: Light Sabre
1/14/2014 | 4:28:02 PM
Re: Let's twist
Do you think anything will change?
albreznick
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albreznick,
User Rank: Blogger
1/14/2014 | 4:13:07 PM
Re: Let's twist
Of course, it's always abouty the money. But I do think Kanojia has a point that it's also about control. And I agree with him that the wehole retransmission-consent regime with pay TV providers won't collapse if Aereo wins its case.    
mendyk
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mendyk,
User Rank: Light Sabre
1/14/2014 | 3:41:16 PM
Let's twist
I thought A-Rod's lawyers had set a new standard for bendable logic. "It's not about the money" almost always means only one thing.
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