Broadcasters feel Aereo has the potential to be a “Diller Killer.” For now, though, the potential threat doesn’t have a single paying customer.
In court testimony Wednesday, CEO Chet Kanojia said the company has between 3,300 and 3,500 subscribers. Yet, all of them are within a 90-day trial period before the $12 monthly charges kick in. (Their credit cards are on file and there is still an invitation-only element).
Aereo, which allows customers to receive local broadcast stations on iPads and other devices in the New York market, is backed by Barry Diller’s IAC. IAC led a $20.5 million fundraising round for Aereo last year, but its involvement only became public in February.
Diller may not be doing the company many favors. His name brings plenty of attention and media coverage, but his involvement may also have spurred broadcasters – including divisions of the major networks – to file for a preliminary injunction against Aereo charging it with copyright infringement.
A hearing Wednesday before a federal judge on whether to issue the injunction had Kanojia on the stand for lengthy testimony. And, he left little doubt as to what would happen to his business should the injunction come down.
“It would be the end of the company,” he said.
Kanojia, who founded Navic, said there is enough money to keep the company operating for a few months after a negative ruling, but that would be it. Much of that cash might go to legal bills. Kanojia testified that Aereo had earmarked $3 million for legal services, including the potential for a challenge it is now facing from CBS, NBCUniversal, Fox, ABC and more.
A sign how eager the networks are to shutter Aereo before it gets off the ground and how much Aereo’s survival depends on the outcome of the judge’s decision came in the mass of lawyers – at least three long rows – that occupied the Manhattan court room on Wednesday.
What stands out about the case is how important a dual revenue stream is now to local stations. Over the last few years, broadcasters have begun collecting fees from cable companies in order to offer their stations, which adds to their decades-long advertising trough.
Their fear is Aereo might grow as a business and deprive them of those so-called retransmission consent payments. But maybe more so, a successful Aereo that survives court challenges could set a precedent where cable, satellite and telco TV operators might be able to skirt the payments.
Kanojia is clear Aereo does not believe the company is tampering with the retransmission process since it is allowing consumers to use over-the-air antennas to get the programming.
Aereo, however, has plans beyond just making broadcast signals available, Kanojia testified. He said the company has looked into adding movies via video on demand and perhaps even live sports.
“We’ve thought about a variety of things, including sports,” Kanojia said.
The likes of Intel have made noise about establishing a sort of cable service online and Aereo could one day resemble one. It already offers DVR functionality and an electronic program guide, so the infrastructure may be in place.
Kanojia's testimony also revealed that Comcast, the parent of NBCUniversal, which ia a party seeking the injunction, had considered investing in the company that became Aereo last year.
Kanojia challenged the suggestion that Aereo could usher in cord cutting, saying it is too early to know how Aereo may work in the market.
“We would like Aereo to be considered by people not interested in cable – absolutely,” he said.
CBS executive Martin Franks testified on behalf of the networks fighting Aereo, saying it could certainly hurt both the retrans fees and ad dollars, especially if Aereo makes good on indications it will go nationwide.
How much? “I don’t know enough about Aereo how to calculate that harm,” he said.
For now, Aereo hasn’t taken any money away from stations -- except via legal fees they are running up.