Aereo Needs More than Court Approval to Keep the Lights On

Aereo antenna array

The courts have kept the lights on at Aereo so far, but it’s not clear that Aereo itself can afford the power bill. According to The Wall Street Journal (subscription required), the online start-up company is facing massive electricity costs thanks to the tiny antennas it has to keep running for every subscriber on its video streaming roster. In the Journal’s analysis, Aereo could end up paying $2 million a year in New York alone if it scales up to the 350,000 subscribers CEO Chet Kanojia says he can support.

Meanwhile, Aereo also announced today that it will launch in the Denver metro area on November 4th. That makes nine markets for the video company, which also debuted in Detroit yesterday, that has said it intends to cover 22 markets by year end.

Kanojia indicates he has some ideas for dealing with the power dilemma. One is to use fuel cells for power generation. Another, and seemingly more likely option, is to combine Aereo’s antennas with its transcoding equipment. Like the cable operators, Aereo is discovering that relying on denser, multi-purpose equipment can (eventually) reduce both cap ex and operating costs.

As for Aereo’s broader business model, the Journal reports that the company is in talks with wireless and wireline broadband providers about bundling Aereo with Internet service. I might have scoffed at that idea a year ago, but with even Comcast and Cox contemplating new broadband and IP video streaming bundles, I can certainly see other ISPs looking favorably on an Aereo partnership.

AND beyond direct partnerships, cable companies have now made it clear that they’re interested in Aereo’s approach to retransmitting broadcast TV signals. The cablecos could avoid spending billions of dollars in content licensing fees if it turns out that Aereo’s technology is ruled legal by the Supreme Court. (Still a big if) According to Bloomberg, Time Warner Cable, Charter Communications, and DirecTV have all said they would like to follow Aereo’s lead if the courts allow it.

Saw that one coming.

7 thoughts on “Aereo Needs More than Court Approval to Keep the Lights On”

  1. Great reporting, Mari.

    I am very, very curious to see what their actual subscriber numbers are and how many people stick with the service after a month or two.

    Uncle Barry has some deep pockets, so sub numbs and electricity bills are less of an issue than they would be at a traditional start-up, but he won’t subsidize them forever.

  2. Thanks, Alan. Yes, this does strike me as a major money sink, but Diller had to know he was playing a long shot and facing a long haul. What Aereo needs is some way to bring in money in the short term. Kind of like Netflix had its DVDs while the streaming business was still getting off the ground.

  3. I use Aereo in Atlanta and it works well enough.

    Here’s what kills me: it’s a stupid solution to a problem that legislatures and the businesses themselves have created.

    From what I understand, the local stations’ business model is: bring eyeballs to advertisers.

    Based on that it seems like if I owned a local TV station that I’d be happy to have the cable company or a separate IP based company (like Aereo but without the 1:1 antenna deal to skirt around the law) to deliver the content. I’d be thankful for them doing it.

    Instead we have must-carry rules and local networks wanting fees from the cable operators which just annoy the cable customers more and have them cut the cord which is counter to delivering eyeballs to advertisers.

    I’d think that it’d be in both the cable (and IP) operator’s interest to just carry the locals and for locals to say, “Thanks for that,” and it just be done.

  4. That’s how it used to be… the retransmission kerfuffles are relatively new. And probably related to the fact that there are no more independent entities. The other thing that gets me is that until the digital transition, I had no problem with reception. But it’s been a challenge since. (And I was tuning HD ATSC before the started moving frequencies and such…)

  5. The relationship between local tv stations and cable companies changed when (Ted Turner?) cable networks began making ad space available for the cable cos to sell. That turned them from mere distributors into competitors for local and region ad sales. Money that used to flow directly into local tv (and radio’s) pockets. Suddenly, the fairness of a business that could take your signal, make a profit from not just offering clear reception, but also selling advertising, came to the forefront. So broadcasts fought for the option-cable carriage for free but with permission, or request the cable/sat company to pay a monthly fee as they do for basic cable channels…It gets even stickier when you factor in that, at the time that retrans fees were being proposed, many of the biggest cable cos were also owners (or had ownership stakes in/owned by media conglomerates) many of the cable channels on their systems.

    Imagine if I passed by your house, and decided to rent out rooms in your house. All without asking your consent, or paying you anything. And by the way, you get to continue paying for the house, paying all the bills, taxes, insurance-oh, and make sure you water the plants and mow the lawn. I wouldn’t want my renters to be dissatisfied, they might move out and cost me money!!

    :) Changes things doesn’t it.

  6. @Alan,

    You might want to read the WSJ:

    But the numbers from there are:
    5-6W per antenna (seems unlikely, a Mohu Leaf only uses 0.75W)
    90,000-135,000 antennas in NY
    *could* scale to 350,000 easily
    Between 1.75 and 2.1 megawatts, or about $2M a year

    Now, first of all I don’t buy the 5-6W number. And even if true it would only be when the antenna was powered on. Which I suppose it might be all the time, but obviously it could be set up so it only consumed power when a user was watching. It is IP after all.

    Second, the 1.75-2.1megawatt number is based on the 350,000 number (e.g. 350,000 x 5 = 1.75megawatts). And they don’t have 350,000. They have between 90,000 and 135,000 if we take their numbers at face value.

    Lets run the numbers for 90,000. For 90,000 at 5W (again, unlikely) the number is 0.45 megawatts. Which apparently (maybe) would cost about half a million a year rather than 2 million.

    Now assume those 90,000 people are paying $8 per month (not free, not $12 for DVR). Then Aereo would be bringing in $720,000, meaning hey, they’re actually making money…

    Which isn’t the story the WSJ is selling of course.

    Is the power cost number actually right for a large company? Or did they just take the 20 cents per kWh rate that NYC residents pay? Etc etc.

    The whole thing looks fishy to me.

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