Aereo wants a TV revolution, if the Supreme Court will let it
Can a daring entrepreneur from Newton and his team of technologists upend the way we watch TV? Only if the Supreme Court doesn’t quash their idea first.
DON’T CALL CHET KANOJIA A DISRUPTER. First, it’s hackneyed. “You go around in [Silicon] Valley, every punk is running around saying, you know, ‘Disrupt, disrupt, disrupt,’ ” he says. “It’s like, ‘Dude, you have no idea what you’re talking about.’ ”
Kanojia, a Newton entrepreneur who’s trying to lead a TV revolution, does know what he’s talking about. Which brings us to his second objection. Disruption, he says, is too often conflated with destruction, which is not his goal. He’s not out to destroy TV networks or the cable industry, he insists. Just to make things better for viewers. “Something’s gotta give,” he says, citing continued increases in cable rates. “Otherwise you end up in a system where it’s another mortgage payment.”
Indeed, doesn’t the cable bill loom large in those late-night, kids-in-bed budget discussions at the kitchen table? You shell out a bundle, and the bundle only grows — the average bill for a pay TV subscription alone is on track to reach $123 a month next year and $200 by 2020, according to a 2012 projection from market research firm NPD Group. And yet you ask yourself: What am I paying for? How many of those channels do I actually watch?
This frustration — and the desire to break free — is something Kanojia had known both as a consumer and as a technologist who had done work for the cable industry. So a little more than two years ago, Kanojia — who was born in India, earned a graduate degree from Northeastern University, and sold his last company for millions — publicly launched a brash startup he called Aereo. He wanted to upend the way people watched network TV, one that would bypass cable and satellite companies altogether.
The idea was at once visionary and a throwback. Kanojia and his team pioneered a method of collecting broadcast TV signals using dime-size antennas and then delivering those signals, for a modest monthly fee, as streaming media on smartphones, tablets, and computer screens. This wasn’t about cable channels; it was about network TV, which, under a long-ago deal among broadcasters and the government, had always come free with an antenna. That was true in the days of Walter Cronkite, and it remains so in the Modern Family era. Networks carry upward of 90 of the 100 most-watched shows on television, according to the National Association of Broadcasters.
Yes, Kanojia and his partners resented Big TV, and, yes, they felt certain streaming media was the future. But they were motivated, too, by the pure challenge of their endeavor. They knew that taking on the TV titans wouldn’t be easy. But it could be fun. “Man’s gotta make a living,” Kanojia said last year. “Might as well do it interestingly, right?”
Aereo has certainly made it interesting. Right off the bat, TV’s biggest players — including NBC, ABC, CBS, and Fox — went to court to shut the company down, saying Aereo was taking their material without paying for it. Two years later, the dispute has become one of this year’s most closely watched Supreme Court cases — one with the potential to shake up not just TV, but also the cloud, where we increasingly stash our digital stuff. Depending on the outcome, Aereo, which has its largest office in South Boston, could vanish. It could thrive. Or it could become a big player in the technology of tomorrow’s streaming media. A decision is expected by the end of June.
Regardless of what the court says, Aereo’s emergence represents an upheaval in the media landscape that’s only just begun, with TV viewers demanding to watch not only what they want, but also when and on the devices of their choosing. More and more, they’re watching online, whether on Netflix, YouTube, or one of the newer video providers that seem to crop up all the time. The true disruption, Kanojia says, isn’t him and it isn’t Aereo. It’s the Internet. As he told an interviewer recently, “The Internet is happening to everybody, whether you like it or not.”
AEREO’S TECHNOLOGY MAY BE COMPLEX, but the Supreme Court case is fairly simple. The question is whether Aereo is taking the broadcasters’ programming without paying for it, as the broadcasters contend, or merely providing consumers a modern antenna system to receive TV signals they’ve long been entitled to. In short: Is it theft or a contemporary version of the rabbit ears on your grandma’s console?
The dispute centers on the Copyright Act of 1976, which Congress passed in part to account for the exploding popularity of television and the advent of cable. The law gives copyright holders the exclusive right to perform their works in public — or license that right to others. For example, by retransmitting broadcast network programs — Jeopardy!, say, or the World Series — to subscribers, cable companies are engaging in a public performance. Thus cable companies today pay so-called retransmission fees to the likes of ABC and CBS for that right.
To the broadcasters, Aereo is no different. But Aereo’s founding team closely read a key court case from a few years back. In March 2006, the cable company Cablevision announced that it would start letting New York-area customers remotely record television shows. Instead of having to buy digital video recorders for their TVs, this meant Cablevision subscribers could copy their favorite programs using a cable box. A group of TV networks and film studios sued, contending that the cable company was using copyrighted material without permission. A federal judge in New York ruled against Cablevision in March 2007, but a US appeals court reversed that decision the following year. The appeals court found that Cablevision, because its technology simply allowed consumers to make single copies for private viewing, was not violating anyone’s copyright. (The decision built on a separate case from 1984, in which the US Supreme Court concluded that consumers had the right to record programming for their own use.)
With the Cablevision ruling in mind, Kanojia hatched Aereo (then called Bamboom Labs) in 2010. The company’s top engineers designed tiny antennas that they could group by the thousands at so-called antenna farms, nearly all on leased space on rooftops. (The Boston farm sits atop an industrial building in Somerville.) This meant that each Aereo user, when tuning in, could get an antenna to him- or herself, before the signal becomes an online stream. To Aereo, that 1-to-1 ratio — one distinct copy of a program, initiated by a viewer for private use — would put the company squarely on the right side of the law.
Kanojia and his team sensed an opening in the rapidly evolving media marketplace. Internet service providers were widening bandwidth, allowing for more high-definition video. Apple, Amazon, and Netflix were drawing viewers to their movie-downloading and streaming services. Apple unveiled its revolutionary iPad in 2010.
Aereo launched to customers in New York in 2012, later expanding to Boston and 11 other cities. Users pay $8 a month to get the basic service, which includes a menu of TV channels and a cloud-based DVR function. (An additional $4 a month gets you more DVR storage and a second antenna, providing the ability to record two shows at once.) Aereo doesn’t divulge subscriber figures but says many of its users are young families. Kanojia says Aereo is a good option for someone who wants access to network TV, doesn’t need ESPN, and relies on Netflix and iTunes for movies and TV series.
Aereo’s headquarters are in New York, where Kanojia spends three or four days a week. But Boston has about 80 of its 115 employees — hardware and software engineers, the user-experience team, and others — packed into a couple floors of a building in Fort Point. The office has a startup chic: exposed brick, lines of blue cables snaking along the ceiling, blue and red yoga balls available as desk-chair alternatives. The company has raised nearly $100 million, attracting big-time media investors such as Barry Diller and Gordon Crawford. Aereo won’t say whether it’s turning a profit. Kanojia is the CEO and controlling shareholder.
There have been hurdles, too. The company is still well short of a plan, announced early last year, to expand into 22 cities. Dan Rayburn, a principal analyst at the global consultancy Frost & Sullivan, says that while Aereo works fine for some TV programs, he’s found the picture quality wanting for hockey and other fast-moving sports, as well as on large screens. Aereo was also forced to halt service in Colorado and Utah after losing a US District Court decision in Salt Lake City earlier this year.
The legal threats were clear from the start, giving Kanojia a unique challenge in attracting talent. Most startups have risk, but most don’t face such an obvious prospect of being sued out of existence. Kanojia, who lives by a kind of innovator’s creed, pitched job candidates on being part of something cutting-edge and David-like. “People like us only survive if we innovate. Because we have nothing else,” he says. “It’s not like some grandfathered moat that we inherited from our forefathers that says, you know, ‘You’re the protected class now.’ ” This is as it should be, he says. “You want consumers to benefit from a bunch of hard-working people creating new and exciting things.”
And the market, Aereo believes, is ripe for new and exciting things. Pay TV services such as Comcast and DirecTV still have tens of millions of subscribers, drawn to cable offerings like Mad Men and Duck Dynasty. But last year those services shed more than a quarter-million customers, the first such year-to-year slide, the research firm SNL Kagan reported. These are the “cord-cutters.” Then there are the “cord-nevers” — consumers who have grown up watching online video and may never warm to cable. It’s an emerging phenomenon Nielsen Co. calls “Zero TV.”
Antennas, meanwhile, have seen a renaissance. More than 19 percent of American TV viewers grab network programming directly from the airwaves instead of through a pay TV service, according to one recent survey. That’s up from 14 percent two years ago. Now the Supreme Court must decide where Aereo fits in.
TORNADOES IN ARKANSAS. Hurricanes across the South. The Boston Marathon bombing of 2013. Every year, the country’s local TV stations prove their value to the community, says Dennis Wharton, the executive vice president of communications for the broadcasters association. Allowing Aereo to continue operating, he says, threatens their viability. “That’s what’s at stake here,” he says. If the court lets Aereo stand, this argument goes, pay TV companies may seek to stop shelling out retransmission fees, a key source of station revenue.
It’s not so much Aereo itself that has spooked the broadcasters. It’s what Aereo represents, Wharton says — the idea that you could “build a business on the taking of someone else’s product without permission.” Indeed, what if bigger players were to follow Aereo’s path — Amazon, say, with its broad reach, or Microsoft, with its existing network of Xbox users? The TV networks have explored their own innovations in modern antennas and streaming. “It’s not like we’re trying to ignore technology,” Wharton says. “But there has to be a recognition that high-quality content has to be paid for legally.”
Aereo won two federal rulings — at the district and appeals court levels — before the Supreme Court agreed to hear the case. At the oral arguments on April 22, justices appeared skeptical of Aereo’s position but concerned about the wider ramifications of a ruling against the company. “It looks as if somehow you are escaping a constraint that’s imposed upon [pay TV companies]. That’s what disturbs everyone,” Justice Stephen Breyer said. “And then what disturbs me on the other side is, I don’t understand what the decision for you or against you, when I write it, is going to do to all kinds of other technologies.”
Google, Facebook, and other tech giants argue that a ruling against Aereo could imperil the cloud-based technology that many businesses and consumers rely on. They fear a broadly written decision might render illegal — or at least legally fuzzy — some of the ways in which we store and privately use copyrighted content. Major League Baseball and the National Football League, meanwhile, have lined up behind the broadcasters, asserting that Aereo erodes the value of their licensing deals. The US government backs the broadcasters as well, saying Aereo’s service constitutes copyright infringement.
An Aereo victory could shake the foundations of the American TV industry. But a victory for the broadcasters might stifle innovation at a time when the country craves home-grown entrepreneurship. Orly Lobel, a professor of law and innovation policy specialist at the University of San Diego School of Law, says Aereo should be applauded for designing its technology to fit within the Cablevision precedent, not criticized for exploiting some kind of loophole. “That’s the whole idea of drawing lines in technology,” she says. “We want to incentivize the original production, which is why we grant creators of content copyright. But we also want to encourage the next innovation.”
It was an honor to see their case argued before the Supreme Court, Aereo executives say, but frustrating to witness the lengths to which the TV industry has gone to fight them — such as when former US solicitor general Paul Clement, the broadcasters’ lawyer, belittled Aereo’s technology as a “gimmick.” “That actually drives me crazy,” says Brenda Cotter, Aereo’s general counsel. “Individual antennas is how people have been accessing television since television began.”
TO KANOJIA, WHO TURNS 45 THIS MONTH, Aereo is more than a company. It’s a cause. For all of his reluctance to identify as a disrupter, his animus toward TV’s established order — his desire to cause some discomfort — is plain. “We have a system that is rife with monopolies and abuse,” he says. Most people, he says with striking self-assurance, gravitate toward easier projects. Not him. “Somebody who doesn’t have that level of discipline or focus or ambition isn’t going to take that on,” he says. “They’re going to always make the little app, right?”
When he built his previous company, Navic Networks of Waltham, Kanojia promised big things to early employees. Underneath the soft-spoken demeanor, his abundant confidence was evident, his intelligence apparent. “I could see what you’re seeing now — that he’s a dynamic person that gets things done,” says Lee Kamentsky, a software engineer who once worked at Navic. “He said, ‘I’m going to have a successful company.’ ” Keith Williams, another former Navic employee, remembers a similar conversation. “He said, ‘Hey, this is something that’s going to go — come on board with us and I will make you money,’ ”
Williams says. Kanojia wasn’t kidding. Microsoft bought Navic in 2008 for a reported $250 million.
The venture capital firm Highland Capital Partners made money on that deal, so it was an easy decision to invest in Aereo, says Dan Nova, a Highland general partner. The most critical ingredient, he says, was Kanojia, a unique CEO who combines engineering smarts with a keen understanding of the market — what Nova calls “left-brain, right-brain thinking.”
Kanojia grew up in Bhopal, India. As a teenager in 1984, he survived the city’s notorious toxic gas leak from a Union Carbide pesticide plant, which killed thousands. Kanojia’s family was fortunate to live upwind. The devastation was inescapable, though. “We all worked for months as volunteers,” he says. Kanojia was otherwise a slacker as a youth, he says, drawn more to smoking and drinking than to studying. But he had always been a tinkerer, a young practitioner of what Indians call jugaad, a kind of improvised genius in problem-solving. (Real-life MacGyverisms, you might say.) Kanojia and his friends toyed with radios and amplifiers, sneaking transistors into school to follow cricket matches live. He even had his own speaker business.
Seeing a documentary on John F. Kennedy sparked a desire to come to the United States. So after graduating from Bhopal’s National Institute of Technology, Kanojia enrolled in graduate school at Northeastern, earning a master’s in computer systems engineering in 1993. After a few years in a PhD program and working for others, he founded Navic with Cindy Guttman in 1999. The company developed software that made cable boxes interactive, allowing advertisers to target audiences more effectively. (This is where Kanojia learned how much time cable subscribers, despite having all the channels, spent watching the traditional broadcast networks.) Kanojia stayed on with Microsoft after the sale, leaving in 2010.
When he’s not in New York, Kanojia, who is fit, dresses sharply, and keeps his graying hair cropped, lives with his wife and two children in Newton. He plays golf, runs, and rides his bike, counts Fleetwood Mac and the Cure among his favorite bands, and has a weakness for cars. He gets by on four hours of sleep, he says. In a given week, he might record CBS Sunday Morning or Saturday Night Live using his Aereo DVR.
He’s also a major funder of Parivaar, a residential program for vulnerable children in West Bengal, India, with more than 900 boys and girls in its care. Close to home, he’s an active supporter of Northeastern and joined its board of trustees in May. University president Joseph Aoun says he can’t wait for Kanojia to apply his innovative thinking to the school’s long-term planning. “We are looking at new ways of understanding the world, and he clearly has it,” says Aoun, who believes Kanojia can be a leading voice in the state’s business community. “He pushes the boundaries.”
AEREO HAS NO DESIRE TO BE A CONTENT PROVIDER. Kanojia is clear about that. It’s a technology company. Right now, that means providing micro-antennas and cloud know-how for its own streaming TV service. In the future, assuming the Supreme Court ruling doesn’t somehow invalidate their whole approach, Kanojia believes Aereo’s technology can power the media platforms of tomorrow. It’s hard to know exactly what those will be, he says, but with media consumption moving online, Aereo is positioned to help make the viewing experience work, and work well.
In the meantime, Kanojia believes Aereo’s potential market is 30 million to 50 million users. The company’s focus in recent months has been on preparing for a massive expansion should the court return a favorable ruling. Analyst Dan Rayburn, for one, is skeptical Aereo could attract nearly that many customers. “It’s a very, very limited service that’s targeting a small segment of the market,” he says.
What’s indisputable is that Aereo represents yet another inflection point in the history of media. Over the past century, established players in radio, TV, cable, music, film, print, and even the Internet have been forced to adapt and respond to challenges from scrappy newcomers. “They always fight the next wave of technology, and this is the next wave of technology,” Aereo investor Gordon Crawford says. Then the newcomers become the Old Guard and the whole cycle begins anew. Change is constant. Just in recent months, Comcast moved to acquire Time Warner Cable, and AT&T announced a bid for DirecTV. Many questions remain about what will and won’t be good for consumers, including whether a la carte viewing would ultimately cost people more or less and whether corporate consolidation will bring fresh benefits or simply less competition.
Just as the Supreme Court is doing today, American judges, lawmakers, and presidents have wrestled for decades with striking the appropriate balance between protecting yesterday’s creators and encouraging the innovators of tomorrow. One of Congress’s major contributions, of course, was the 1976 Copyright Act, whose language is now so central to the Aereo debate.
Two lawyers involved in drafting that law, Ralph Oman and Jon Baumgarten, believe Congress intended it to be very broad — which is to say, they think the language ought to protect broadcasters from Aereo. It’s “impossible to fairly rationalize what Aereo is doing,” says Baumgarten, a former general counsel of the US Copyright Office. But there’s no one alive who was more involved in drafting the 1976 law than Thomas C. Brennan, who was chief counsel to the Judiciary Committee’s Patents, Trademarks, and Copyrights Subcommittee under the late Senator John McClellan of Arkansas. Brennan has watched the Aereo debate unfold, too. Does he think Congress would have intended for Aereo’s service to be illegal? It would be presumptuous to assume, he says. “I don’t think the Congress could be said to have taken a position on those issues.”
In November 1976, Brennan delivered a speech in New York on how the Copyright Act came together. Toward the end, he referenced Teddy Roosevelt’s 1905 State of the Union address, in which the president called for modernizing US copyright law, which Congress did with the Copyright Act of 1909. Brennan knew, even as the ink was drying on his 1976 law, that it, too, would be outdated before long. “Despite the expansive language of the new bill, there is little reason to believe that it will be any more immune to the impact of technological change than the Act of 1909,” Brennan said. Soon enough, he predicted, it will be clear, as Roosevelt said, that “our copyright laws urgently need revision.”