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Business Impact

Watch Out for the Startup Using Tiny Antennas to Show the Oscars on an iPhone

It might not survive legal challenges, but Aereo could force broadcasters into moving quicker to offer their shows online.

New ways of delivering programming online are challenging the lucrative business model of TV.

Over the last few years, big broadcast networks like ABC, NBC, and CBS have only slowly started to air their regular shows and big events online. A startup called Aereo has a brash plan to profit from that by making it possible for its customers to watch live broadcast programming on their computers, phones, and tablets. If it survives legal challenges, it could encourage more people to cancel their cable or satellite TV subscriptions.

Broadcast news: Aereo sends broadcast television shows to its customers by assigning each user one of the tiny antennas (seen here) it has deployed in a data center.

Aereo has cleverly designed its technology to exploit the fact that anyone is allowed to put up an antenna to get free, over-the-air broadcast signals. In the U.S., an estimated 20 million homes still get programming this way, through antennas on the roof or rabbit-ear-style ones on their TV sets. Aereo essentially does this on behalf of its customers. The company makes quarter-sized antennas and packs them into a data center. Each antenna picks up on a broadcast signal and relays it, one viewer at a time, to an Internet-connected device.

Because the antennas can grab only local broadcast signals, Aereo’s customers can use the service to watch shows broadcast over the air on their local stations. But even that makes a lot of programming available that would otherwise be hard to see live, if at all, on the Internet: sports, news, and big events like the Academy Awards. Aereo’s customers can also record shows and watch them later.

Aereo began a year ago in New York City and is now expanding into 22 markets. It is going after the growing contingent of TV “cord-cutters” who would rather watch on-demand content online than pay for cable or satellite packages. Aereo charges a minimum of $8 a month for a subscription.

Chet Kanojia, Aereo’s CEO and founder, won’t say how many New York City residents have used the service since the company launched (and prompted immediate lawsuits from the broadcast networks). Whatever progress Kanojia and his investors have seen, however, has been enough to encourage the company’s announcement earlier this month of an aggressive 22-city expansion. “We have ambitions to be a global company at some point, and you’ve got to start somewhere,” says Kanojia. “There’s much more of a market opportunity if you don’t just sit on your hands.”

The next year could determine Aereo’s fate. Last July, a federal judge ruled against shutting down Aereo, but that decision is now in appeal. TV networks argue that, like cable and satellite providers, Aereo should pay “retransmission” fees in order to carry their broadcasts.

Aereo, backed by media company IAC and its chairman, Barry Diller—a former TV and movie executive—has gotten generally positive reviews (see “Aereo Has Landed in New York (First Impressions).” But there will be technological challenges ahead, says Ramesh Sitaraman, a University of Massachusetts computer engineering professor who focuses on the design of large-scale Internet systems. His research shows that audiences are sensitive to the quality of a video streaming service. Delivering that for large TV audiences, fitting the stream to many devices, and creating a reliable recording service would be big challenges for any startup, he says. For now, Aereo works only in laptop and desktop computer browsers and on devices made by Apple and Roku.

Kanojia says it takes Aereo no more than 60 days to expand into a new city. In that time, the company can find roof space for the antennas on top of an existing data center, where it rents space for servers. Delivering the streaming content, he says, is faster and far cheaper than it is for, say, Amazon, because Aereo only provides service in that city. He acknowledges, however, that it has been a challenge for Aereo to deliver content to every possible mobile device (it has no Android app yet), which is one reason the company is hiring more engineers with part of its recent $38 million fundraising round. It has raised more than $60 million overall.

Dan Rayburn, an analyst with the firm Frost & Sullivan, questions how many people will pay for a service that is essentially limited to broadcast television. Aereo has so far struck one deal to pay for a cable channel, Bloomberg TV.

Kanojia points out that there are more than 100 million cable and satellite subscribers in the U.S., and that Aereo doesn’t need to disrupt the entire industry to succeed. Getting five million subscribers—or 2 to 3 percent of the population in each market—would be a “home run” for the company, he says.

Aereo’s larger impact could come from prodding traditional programmers and cable providers to provide more online options, on more devices, and with a greater variety of pricing structures. Last year, for example, NBC broadcast the Super Bowl online for free for the first time. But ABC has not yet made the Oscars, for instance, available live on its own sites. Now Aereo gives people a way to see the awards show on a computer even without ABC’s involvement.

This story was updated on January 18 to clarify that Aereo’s service works on PC browsers and not only with Apple and Roku devices.

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