Aereo CEO predicts 30 million to 50 million viewers could use his service

Jan 11, 2013 (The Philadelphia Inquirer - McClatchy-Tribune Information Services via COMTEX) -- Chet Kanojia, founder and CEO of Aereo Inc., the new Internet-based TV service, says the potential market for the company could be 30 million to 50 million people who watch ABC, CBS, NBC, and Fox who don't want to pay for cable- or satellite-TV packages with hundreds of channels and ESPN.

Aereo, now available in New York and launching in 22 markets this year, including Philadelphia, faces a big legal hurdle over whether its service violates federal copyright law by retransmitting network TV signals without paying a fee.

But the company so far has persevered in the early goings of a lawsuit brought against it by Comcast Corp.'s NBC and other TV networks in federal court in New York.

"Let's not sit around and wait to be told what to do. Let's build a business," Kanojia said in a phone interview after Aereo announced plans this week to expand despite the unresolved court case.

He called Aereo, at $8 a month, a "great consumer proposition." Aereo assigns a tiny TV antenna to each subscriber in a centralized location to catch over-the-air TV signals. It makes digital copies of TV shows and then streams the TV content over the Internet to subscribers' computers, tablets and smartphones.

The company says it is not retransmitting TV signals directly to consumers but operating an antenna and cloud-based DVR -- or digital-video recorder -- service controlled by the consumer, which the courts have found legal.

Aereo, industry experts agree, could be disruptive to the $150 billion pay-TV industry by peeling away millions of subscribers and to the broadcast TV networks, which could lose billions of dollars in fees if Aereo's technology is ultimately deemed legal and copied.

TV networks are paid per-subscriber fees by cable TV companies that retransmit TV signals to users. Those fees are considered an important source of new TV revenue for local news and entertainment. The fees will grow from almost nothing in 2005 to several billion dollars by 2015, according to research firm SNL Kagan.

But if Aereo's technology is found to be legal, many believe, cable TV companies could replicate it and avoid paying the TV networks the fees.

TV sources acknowledge the threat and some have described Aereo as a business model drawn up by lawyers. Dennis Wharton of the National Association of Broadcasters said, "We are optimistic that in the final analysis, this will be viewed as a violation of copyright by the courts." Comcast, the nation's largest cable-TV company, had no comment Thursday.

Aereo's customers "tend to be all young, 35 and younger," Kanojia said. He divided them into two groups: those who don't like the cost of cable packages and aren't "hardcore ESPN fans," and those who like the functionality of Aereo's service. "It's pretty cool to them," he said.

Kanojia, 43, did not provide subscriber numbers in New York, where his company has been test-marketed since March 2012. Aereo subscribers can access 29 over-the-air TV channels in New York and the cable channel Bloomberg TV.

Aereo charges $8 a month for its base plan, which includes 20 hours of DVR storage. Subscribers can opt for a $12 monthly plan with 40 hours of DVR storage, or an $80 yearly plan, also with 40 hours of storage. Aereo's antenna farm and infrastructure are in a former tire factory in Brooklyn and its headquarters are in Queens. The company will put antenna farms in new markets.

Craig Moffett, a leading telecommunications analyst, said: "As it stands today, it's probably not going to attract many cord-cutters. You can already get the broadcast stations free over the air if that's all you want. Granted, Aereo adds some interesting DVR capabilities. But it will get interesting if it can round out its offering with even a smattering of cable programming." Aereo has raised $63.5 million in venture funding. The company says it has money for the national expansion -- new West Coast markets are expected to be announced in the fall -- and to advertise.

This is Kanojia's second technology company. He sold his first, Navic Networks, to Microsoft in 2008. Navic mined consumer data from cable set-top boxes, and through that information, Kanojia said, he learned that 80 percent of pay TV households watch only seven or eight channels. One-half of the aggregate viewing on cable TV services was of broadcast TV channels, Kanojia said.

A 2004 report from the Federal Communications Commission that looked at the feasibility of selling TV channels "a la carte" noted that the typical cable TV household watched 17 channels, including the broadcast networks.

"Clearly, there is a price imbalance," Kanojia said of pay TV bills when compared with viewing patterns.

The idea with Aereo, he said, was to find a way to separately package the broadcast channels.

Aereo's strategy appears to be to quickly expand to more subscribers so shutting it down would be politically difficult.

"Lawmakers," Kanojia said, "will find it difficult to say this is a bad thing." -- Contact Bob Fernandez at 215-854-5897 or bob.fernandez@phillynews.com.

___ (c)2013 The Philadelphia Inquirer Visit The Philadelphia Inquirer at www.philly.com Distributed by MCT Information Services

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