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    Innovation Economy

    Aereo’s $97m question for the Supreme Court

    Streaming TV service hinges on court’s decision

    Chet Kanojia, founder and CEO of Aereo, Inc.
    Bebeto Matthews/Associate Press/File 2013
    Chet Kanojia, founder and CEO of Aereo.

    If you’re old enough to remember the days when VCRs and Betamax video recorders represented cutting-edge technology, you probably remember the controversy that accompanied them. You could record movies and TV shows off the air, and lend the tapes to your friends. You could fast-forward through commercials. It was a terrible crime, according to the biggest media companies. The head of the Motion Picture Association of America, Jack Valenti, testified to Congress that “the VCR is to the American film producer . . . as the Boston Strangler is to the woman home alone.”

    The controversy made it all the way to the Supreme Court, which decided in 1984 that taping “M*A*S*H” for your own personal viewing was not a violation of copyright law.

    In 2014, there’s a new technology that will have its day before the nation’s highest court on April 22. And this one, a streaming video service called Aereo, was built in Boston, and backed in part by a Cambridge venture capital firm, Highland Capital Partners. The company has raised $97 million from investors so far, and if the Supreme Court decides that its business violates copyright law, Aereo will likely have to turn out the lights.


    The media companies suing Aereo haven’t yet compared the startup to the Boston Strangler, but there has been name-calling: Aereo, in a legal brief filed by Time Warner, “is simply a blatant free rider trying to make a quick buck without paying anything towards the true costs of what it misappropriates.”

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    Here’s how Aereo works. In 13 cities around the United States, including Boston, you can sign up online and enter your credit card number. For a fee of $8 a month, Aereo will let you watch live television on an Internet-connected laptop, tablet, or mobile phone. You can also choose to have Aereo record your favorite shows for later viewing, but instead of doing it on old-school videotapes, your shows are stored and played back from computer servers at one of the company’s data centers. Aereo offers an array of broadcast channels like PBS, NBC, Fox, and Channel 38, but not cable networks like ESPN or HBO.

    The typical Aereo customer, says CEO Chet Kanojia, “is between 25 and 40. They tend to be couples or young families that are not hard-core ESPN consumers, but they watch five or ten shows a week. They also consume content from places like Netflix and iTunes.” Some subscribers may have a cable or satellite subscription, but they pay for Aereo so they can watch local channels on an iPad when they travel around the region, Kanojia adds.

    In 2008, Kanojia sold a previous company, Navic Networks, to Microsoft. In the fall of 2010, after leaving Microsoft, Kanojia began laying the groundwork for Aereo and meeting with investors. Highland Capital Partners had put money into Navic, and Dan Nova, a partner there, remembers Kanojia’s pitch. “He talked about how dissatisfied consumers are with the cable model, and how he wanted to put the consumer first,” Nova says. As for the possibility of lawsuits, Nova says, “We went in with our eyes wide open. We always felt we were on the right side of the law, but we knew that the opportunity for it to be contested was certainly there.”

    Aereo launched a pilot test in New York in the spring of 2012, and started rolling out the service to other big cities in early 2013. But court judgments have deemed what Aereo does illegal in most of the western states, including California. Last month, Aereo had to shut down its service in two cities where it had launched, Denver and Salt Lake City. Kanojia says the legal wrangling hasn’t surprised him: “Disappointed is a better word.” His vision is to deliver not just broadcast television channels, but content from “new creators and independents,” much the same way Netflix has helped cultivate and deliver a wider range of choices than the neighborhood video store used to. Today, the company has 80 employees in Boston, and 35 in New York.


    Aereo’s system is designed to work much the same way the antenna on your roof and your old VCR used to — except Aereo owns the antenna and the recording equipment, and you pay a monthly fee to access it over the Internet. “You control the antenna, and if a copy of a show is made, you are the one directing that,” says David Kluft of the Boston law firm Foley Hoag. “Aereo says that’s what makes this a private performance.” Just like recording “M*A*S*H” back in the 1980s — not a violation of copyright law.

    But some judges at the circuit court level, Kluft continues, “have said, ‘Wait, this is a company doing it. Aereo is not transmitting these signals to its family members, it is doing it to public customers. They are competing with satellite and cable, but not paying the fees to broadcasters that those companies do.’ ” TV stations raked in about $3.3 billion in 2013 from those so-called retransmission fees, according to the research firm SNL Kagan.

    Aereo was happy to have the case heard by the Supreme Court, so that it didn’t have to continue fighting in lower courts. But it’s a high-stakes gambit, says T. Barton Carter, a professor of communications law at Boston University. The laws governing copyright and telecommunications were written in 1976 and 1996 — well before TV on your iPad. “When it’s a mix of technology and law, you wonder how well the court will understand it, and what they will focus on,” Carter says.

    I’m hoping Aereo prevails, because it offers an appealing service to consumers — and because I have a hunch that the media industry will adapt. In the words of Orly Lobel, a University of San Diego law professor, “Every time there’s a new technology, the big content producers and distributors rush to the courts and say, ‘The sky will fall.’ But every time, it proves to be false.”

    Within a decade of Valenti’s “Boston Strangler” comment, for instance, Hollywood’s studios were earning more money from videotape sales than ticket sales at the box office.

    Scott Kirsner can be reached at Follow him on Twitter @ScottKirsner.