Why Aereo Is/Isn’t a Big Deal

Mari Silbey —  April 16, 2013

Aereo logo and antenna array

Aereo has been super savvy in grabbing headlines of late. If you’re not caught up on the story so far, the start-up TV company has expanded to a few new markets, won another round in court against broadcasters, and left Fox, CBS and others frothing at the mouth and threatening to move free programming over to a paid service model.

The thing about Aereo is, while the conceptual disruption is huge, the impact of the actual service is still vanishingly small.

I will admit that Aereo has gotten farther in court than I expected, but it’s still early days yet. And while Aereo has relied on the Cablevision network DVR precedent so far in its legal battles, it’s important to remember that Cablevision pays licensing fees before storing programmers’ content in the cloud and distributing it to viewers. I’d be shocked if the courts ultimately allow for a wholesale termination of the retransmission model for broadcasters as it stands today. More likely, there will be a slow transition as content owners negotiate new distribution deals for streaming content, some of which will include free viewing, and some of which will require a subscription.

Aereo has started a very interesting discussion about where TV is headed. In that regard at least, Aereo has made itself a very big deal – whether the company itself survives the fallout or not.

19 responses to Why Aereo Is/Isn’t a Big Deal

  1. I think the broadcasters are making a lot more out of Aereo then what it truely is. In fact I think they are doing a better job of promoting Aereo then the company could have done on it’s own.

  2. “Aereo is a Big Deal because broadcasters make bundles of cash from retransmission agreements, and the Aereo model creates a workaround for any service provider that wants to distribute free broadcast channels without paying a licensing fee.”

    IMHO, negative, because the broadcasters also control non-broadcasted content than can be withheld from an MSO if an MSO tries to “go Aerero”.

    —–

    Aereo is not a Big Deal because it’s a niche market.

    Aereo is a Big Deal because, (as I long suspected), it’s legal. That’s a big deal. And it separates it from being just another “one of several disruptors on the television scene”.

    (The two threats to go “off broadcast” were unexpected to me. I don’t expect those threats to be anything but bluster unless there is some means to keep the broadcasters from punishing an MSO that tries to “go Aereo” by withholding non-broadcast content.)

  3. Well, I read Dan Rayburn’s piece on Aereo that you linked above, and while I think he has a point, the part where he complains about all the people talking up Aereo without any data, then doesn’t offer any data of his own (other than the suggestion that the fact that Aereo doesn’t release numbers means they must be bad). Yes it sounds like they only have a few thousand subscribers at this point, at least according to the Hollywood Reporter (not an unbiased source I guess). And yes that’s a problem.

    And of course he says lots of other things that he can’t substantiate–people can just watch TV for free so why buy Aereo (some people can’t get any/all the channels they want because they live IN A CITY with BUILDINGS that block things like TV transmissions). What percentage? I have no idea. Suspect Aereo has some ideas and maybe did some research on the issue before launching so maybe its a significant number. I don’t think Barry Diller is an idiot. But I guess we’ll see over time.

    As for Aereo’s picture quality (why did you use that as you link title anyway?), Dan doesn’t really talk about it, but I have seen others who have actually USED the service and say its fine, say Andy Ihnatko’s piece here:

    http://www.suntimes.com/technology/ihnatko/17736009-452/aereo-a-new-simpler-more-complete-source-of-streaming-tv.html

    For me I think Aereo is interesting from a LEGAL point of view. I think the Cablevision decision IS relevant here, and so far the trial judges, ruling only on the injunction request mind you, seem to agree. The most recent ruling actually cited the Cablevision decision by name. The idea parrot’s Aereo’s founding thoughts–that if an antenna is legal, then an antenna you rent from somebody else and hook up with some wires but that is logically identical to you having your own antenna, is legal. I think you’re wrong here, and Aereo will win this one in the courts in a few years.

    But hey, this is a complex area and the whole Aereo Killer thing (by that FilmOn guy) is out there too, with an opposing ruling in the 9th circuit on the west coast. Is it relevant? Is Alki David just not very good at this stuff or did he actually take money from the media companies to lose the case and set this precedent? Wish Nilay Patel would weigh in on that one myself.

    As for what the broadcaster’s are risking, the best numbers I’ve seen are here:

    http://stateofthemedia.org/2013/local-tv-audience-declines-as-revenue-bounces-back/#retransmission-fees

    It looks like right now about 15% of the audience (country-wide) gets their TV over the air. And right now about 10% of the local station revenue is from retransmission fees. The article says CBS is now charging about $1.22 for their retransmission on average. Presumably the remaining 90% comes from advertising.

    Now they would make a LITTLE more I assume if they didn’t let the cable companies have some ad minutes to splice into each hour as part of the deal, but lets take that as a good number. This is what is at stake, and apparently its a growing percentage of their revenue. Not sure why other than stations are leveraging their bundling power to demand more from cable companies et al.

  4. “IMHO, negative, because the broadcasters also control non-broadcasted content than can be withheld from an MSO if an MSO tries to “go Aerero”.”

    @Chucky, this is certainly the party line. But is it true?

    Okay, so Walt Disney owns ABC and also ESPN and Disney. So anybody who tried to put ABC on the air without paying them would be in serious trouble.

    And Comcast owns NBC as well as Telemundo, USA, SyFy, CNBC, MSNBC, Bravo, E!, etc. I bet Telemundo is actually the biggest problem here, but the list is significant. Still, not sure anything here has the draw of ESPN OR Disney if, god forbid, all of them went off the air. Still, a hard choice.

    But what about say CBS? They could withhold what, the CW? They can’t withhold Showtime.

    Or Fox? They could withhold Fox News, which would be a big problem for some people. And FX, though I’m not sure there’d be a riot if FX went off the air honestly. Could Comcast or Dish survive if they dropped all the properties except the Fox network itself? And ran ads explaining why on the vacant channels?

    I must be missing something though since that State of the Media article I highlighted above says that CBS, which I think is in the weakest position here, managed to triple their retransmission payments in just the last couple of years. How can that be? Are the cable/satellite companies so weak? Or is their something here I just don’t understand like say “CBS Sports” channel is really really important in some fashion I don’t understand.

  5. I can speak to the Aereo user experience – not to plug my own work, but there’s this review for VideoNuze – http://goo.gl/TN6p7

    The UX is not very good – changing the channel is a 5 step process and while the picture quality is actually excellent at home on a very good FIOS connection (50 down) it’s not that good when you’re using 4G or 3G and on the move..

    But more than that, we’re spoiled: the broadcast channels alone are not going to cut it, especially out of prime time – there’s just not that much on. And so my conclusion is that it’s a great deal for 2 limited markets:

    People who have a full-on cable subscription, but just want something for the TV in the spare room or kids room. For $8/month (provided you’ve also got Netflix, Hulu and Amazon) it’s a great way to round out what’s on in that setting. Especially if you have fairly frequent guests. But it’s not that big a market.

    Nor is the other likely demo: 20somethings who just aren’t home that much – if you’re single, just out of college, and of a certain extroverted personality type, chances are you’re out every night – either socializing or working or at the gym- but you’re barely ever home to watch TV, so Aereo makes sense for you.

    Neither are huge demographics, which is why I’m in the “not a big deal” camp.

    Plus what’s to stop any of the MVPDs from putting a package together that looks a lot like Aereo and costs a little less. With similar portability. Given the small size of the market, it would seem pretty easy for them to match Aereo on quality and price.

  6. “@Chucky, this is certainly the party line. But is it true?”

    Dunno. Seems the most likely outcome to me, but if MSO’s were indeed able to “go Aereo” without repercussions, that would be a Big Deal.

    I’m just not sure how it’d work.

    So, let’s say an MSO tries to drop CBS alone and replace it with Aereo. (We are in complete agreement that CBS is most vulnerable. I never understood what they were thinking with the Viacom spin-off.) How would that work? Wouldn’t just paying CBS retrans be cheaper than paying Aereo?

    The whole MSO “go Aereo” scenario seems to be most viable if an MSO could get away without paying retrans for broadcast channels across the board. And the ‘party line’ of that not really working seems most likely to me. Plus, even if some MSO was able to find some way to make it work, then I think the bluster of moving channels “off-broadcast” would cease to be bluster…

    I’m not saying I’m sure I’m correct. I just don’t see the mechanics yet of how I’m not correct.

  7. Also, for Dave, is there an RSS comments feed address existing in the Brave New WordPress theme?

  8. Aereo is a big deal because we’re talking about it but…

    MSOs are not going to put up Aereo-clones because retrans fees are (now) less than cost per user to put up an Aereo-like service. At least that’s what we find in IT where we’ve been doing it for two years.

    Aereo’s impact will depend of the general trends in unbundling and cord-cutting. If consumers rebel against the ESPN/DIS’s and Cablevision’s then Aereo will pick up some audience. If consumers really want Syfy and Mariners’ baseball then Aereo won’t make much headway

    Everyone who signs up for Aereo is going to cut off their cable subscription and watch more local TV — certainly when news like Boston hits. Local stations really stand to gain share if Aereo et al (eg us) make it. For cable channels and MSOs this could be the big deal. The local station groups should be doing what they can to help Aereo ( but without ticking off their network partners who could care less about them anyway.)

  9. up at our mountain cabin $30/month buys 20 channels of analog-only cable (looks like a bad vhs copy)

    would love aereo up there – ideal if i could add it as a roku channel

  10. Chucky, I’ll research it and get back to you. In addition to the new theme, we’re also migrating servers this week… and the situation will be different, hopefully better, once we stabilize on the other side. This may impact RSS – for the last 5 years or so, we’ve let Feedburner (now Google) take on that server burden, but may reclaim it if the infrastructure is better and assuming Feedburner will be part of Google’s next spring cleaning.

  11. “Plus what’s to stop any of the MVPDs from putting a package together that looks a lot like Aereo and costs a little less.”

    Nothing. Though they’ve generally not been willing to do that, and getting them to do that would be a good thing. In my area if you dig hard enough Comcast offers “Limited Basic” (sic) for $24.14 a month for broadcast channels only. SD only of course, so actually worse than Aereo.

    Even at that, if you look here:

    http://www.mercurynews.com/entertainment/ci_21467549/comcast-customers-may-need-new-box-company-goes

    Comcast says that about 10% of their customers in California anyway subscribe to the Limited Basic tier. So those are definitely potential Aereo customers. 10% penetration of cable nationwide (58M in 2011 according to SNL Kagan) would be 5-6M customers. Course they probably won’t get all those, I’d guess they’ll be lucky to hit a million personally. But its possible over time, say if they started to get built into TVs like Netflix, and had advertising. And lots of markets. And…

    Why are they charging so much more than Aereo? Well, they have to pay those retrans fees, which at $1 or more per channel adds up to more than Aereo’s monthly charge. And of course they want to make the next tier up look better. And discourage you from buying this package. And make a profit. And … I assume they only offer it because they’re required to by local franchise agreements or something.

    Honestly, I assume if Aereo starts getting serious penetration into Comcast customer base in a certain area they WILL lower their prices. But that’s the whole point. I don’t care about Aereo the company at all. I want to see prices come down, tiers and bundles broken up, more flexibility, etc. Aereo has the potential to help shift that forward.

  12. “I’m just not sure how it’d work.”

    If I were Comcast, I’d find a small cable provider someplace in the country with limited geographic scope and good cable penetration due to maybe mountains or buildings or just TV towers far away. Fund them to license an Aereo antenna farm. Fund them for the coming legal challenge. Get them to kick CBS off. Not all the channels. Just CBS. Then wait a few years and see what happens.

    If you win the legal case, try a variation that would be more amenable to mass deployment. Either let people not in the local area use the service or do a technical variant like maybe a virtual antenna per person somehow. See what happens with that.

  13. Aereo could easily be squashed by the networks and cable companies coming together and offering a better product. Offer a broadcast-only cable package for as cheaply as possible, undercutting Aereo. Use the same network solution that CableVision uses to provide DVR service.

    If this cannot be accomplished better by an established company with existing infrastructure at a lower cost, the government really needs to look into retransmission rates.

    Let’s not drop the entire point that retransmission fees are possible due to the buy-through tier of cable; and as a reward for putting out an inadequate signal to the population that is claimed to be served.

  14. @FrankM,

    If the numbers I quoted above are correct, then CBS alone gets $1.22 per month in retransmission fees (from Cable and Satellite and Telco’s) for that channel alone on average. Aereo has CBS, NBC, Fox, ABC and PBS. Lets guess and say they all get similar amounts (I’m guessing CBS is in the worst position here except for say PBS so I doubt its that bad an assumption). 5x$1.22=$6.10. Now Aereo has 30 total channels but of course some of them (government, home shopping) are probably free to air, while others (The CW say) are probably covered by the main channel’s retransmission fees. But I’d bet some of the channels are not free. Lets guess and say there’s probably another couple of bucks in here.

    I’d guess Comcast would have to pay AT LEAST $8/month in retransmission rates for this bundle which Aereo sells for $12? Do you think Comcast is going to come in and compete with Aereo at that price if they don’t have to?

    BTW Dave, looks like the broadcasters have asked for an En Banc review of the appeal by the entire 2nd circuit. We’ll see if they re-affirm the previous 2-1 decision or not. Sounds like they have more freedom to ignore the Cablevision precedent if they want than the 3-judge panel that ruled so far.

  15. Oops. Aereo is actually $8/month not $12. The $12/month plan is to get more DVR space. So Comcast would basically have to offer service at a loss (maybe they could charge a hidden STB rental fee?) to compete with Aereo.

  16. “If I were Comcast…”

    Of course, if you were Comcast, you’d not only own an MSO, but also own a broadcast network. So, you’d have zero desire to get involved in disruption here…

  17. Okay, Dish. Well, they may have all their money tied up. Ummm… Cablevision?

  18. Chucky, I figured it out and the Comments RSS feed should be back in business at:

    https://zatznotfunny.com/comments/feed

  19. “Chucky, I figured it out and the Comments RSS feed should be back in business at…”

    Woo-hoo!

    (Missed this note for a few days cuz there was no comments RSS feed, of course, but that was to be expected. And since my browser can auto-discover RSS feeds, I’d have found it eventually after you’d marked it even if I’d never seen this note.)