How an India-born engineer's startup Aereo is taking on the mighty US TV broadcasting networks

Aereo, founded and led by Chaitanya ‘Chet’ Kanojia, is shaking up the US television Industry. In an era where the battle for control of television sets in US is heating up with NetFlix creating their own shows and releasing whole seasons together and technology giants Apple (AppleTV) and Google (ChromeTV) trying to provide a software approach to television viewing, Aereo created an elegantly simple alternative.

How it works

Aereo provides a tiny antenna that can fit at the tip of a finger, to each of its subscribers. This device then captures the broadcast signals from the airspace and records the content chosen by the user in remote Aereo servers, to be viewed any time on any device chosen by the user. It works on Windows and Mac for desktop / laptop and on iOS and Android for mobile devices. For $8 a month, users can record up to 20 hours and for $12 a month, users can record up to 60 hours of television programming and can record two shows simultaneously.

What is the problem?

Months before the product launch, Kanojia and his team met various leading broadcasting network to figure out how they could potentially work together. While nothing conclusive came from those meetings, two weeks before the beta launch of Aereo, a consortium of broadcasting corporations filed a lawsuit against Aereo. It is a complex case with no precedent and well matched arguments on both sides. The competing arguments are as follows:

• The broadcast networks claim that the transmission signals of TV shows are their property and that by capturing those signals, Aereo is creating a clear case of copyright violation
• Aereo claims that their service is nothing but a private antenna rental. The signals captured are being used only by that private individual and not for any public performance and hence it is well within the law. Further, if the problem is the fact that the signals are being stored in remote servers in Aereo’s data centers, then even other cloud data storage services such as iCloud and Dropbox provide for peer data sharing are illegal

The arguments on both sides seem well matched. The broadcast networks’ concerns are as much about lost revenues as they are about copyright. The local cable television networks pay the broadcast networks a re-transmission fee – which totals up to about $3-4 billion annually currently. An industry disruptor such as Aereo would kill this revenue stream as users would prefer to choose the channels and the content they want, rather than pay huge sums to cable companies to get access to channel packages that don’t make sense.

The gutsy Indian behind Aereo

Chaitanya grew up in Bhopal, where he did his schooling. His father’s heart attack when he was just 10 years old crippled the family’s finances. He says that his constant need to think of a Plan B or Plan C or Plan D for every initiative probably arose from this one incident that showed that life can change in an instant. He earned his undergraduate engineering degree in India and moved to the US in 1991 to earn his masters in computer systems engineering from Northeastern University. After working in the Middle East and sharing a tent with workers for about 10 months, he moved back to the US and took up various jobs. He later co-founded Navic Systems that created software that could sit on top of set top boxes and provide rich user data to the cable company. After two gruelling years of trying to sell the vision, Microsoft finally turned up as the suitor and purchased Navic for an estimated $200 to $250 million in 2008, vindicating Kanojia’s efforts.

Given his expertise in the area and his firm belief that the market was ripe for a change, he next chose to pursue the idea of making television watching more choice based. He followed up his vision with action – hiring a top notch engineering team and moving from idea to prototype in 18 months flat. He then managed to raise close to $100 million from various investors including the formidable Barry Diller who is the Chairman of Expedia and InterActiveCorp (IAC) and who headed Fox Broadcasting Company and USA Broadcasting earlier. Consumers seem to love Aereo – with over 100,000 subscribers who swear by it.

What is the status of the case?

Aereo had launched only in New York and the Boston area, with 26 more markets lined up for launch in 2014. However, everything hinged on the legal battle that has raged on for over two years. A lower court ruled in favour of Aereo a few months ago, but that was little solace because that simply meant that Aereo would have to continue to battle the opponent in every US State that they had to enter. The US Supreme Court agreed to hear the case, which was seen as the best option for the legal battle to be resolved with a single ruling. Unfortunately, on June 25, the Supreme Court overturned the lower court’s judgment and ruled against Aereo.

What next?

Aereo’s home page now has just a single page with a letter from Chet Kanojia to Aereo’s consumers. He mentions that Aereo has simply ‘paused’ operations as the legal team goes back to the lower court and consults with them. The letter also exhorts the American public to fight for their right to access their airwaves as “the spectrum that the broadcasters use to transmit over the air programming belongs to the American public” and that it should not matter whether the antenna used for that purpose sits on a roof or on a TV or in the cloud. The company has also started an initiative called ProtectMyAntenna.org where consumers who are believers in the idea can raise their voices and make themselves heard.

There is speculation about whether this judgment spells the end of Aereo. There is a school of thought that Aereo can simply start paying a negotiated retransmission fee to the broadcasters and pass on the burden to the consumers by increasing its subscription fees. Another set of industry watchers want to wait and see what Kanojia’s “Plan B or C” is, in terms of leveraging existing Aereo technology to come up with a different business model that falls within the law. Does he have another trick up his sleeve? The consumers of Aereo are hoping so.

What do you think of Chaitanya Kanojia’s innovation and the subsequent US Supreme Court judgment? Tell us in the comments below!