Q&A on Aereo: The End of TV As We Know it?

Aereo, a little-known upstart funded by media titan Barry Diller, wants to dismantle the television as we know it. And a court victory this month helped it take a giant leap toward that goal.

The New York-based online video streaming company only has 3,500 customers. And it’s made enemies out of the broadcasters behind Big Bird, “30 Rock” and “American Idol.”

PBS, NBC, CBS, ABC and Fox are among a slew of firms that have sued Aereo, saying the company swipes its broadcast signals from its many tiny antennae in New York City that pick up shows broadcast by local networks and converts those signals into streaming videos to iPads and other gadgets.

Aereo chief executive Chet Kanojia talked about the importance of the decision by the U.S. District Court in Manhattan. He said the decision validates his company’s controversial technology. Broadcasters balk, saying Aereo is using a loophole in copyright law to edge into their hard-to-break market.

Aereo is funded by Silicon Valley bigwigs such as Angel investor Ron Conway and IAC/InterActive chief Diller. With $25 million, it’s ready to dig its heels into a long-range battle over the future of how people get live television. Here’s an edited version of a conversation with Kanojia:

Q: What is the significance of the U.S. District Court decision?

A: Really significant because it was a real validation of the technology and that it falls squarely within precedent and within established boundaries. That is a now a significant hurdle behind us and lets us focus on building the business.

Q: And what is that plan?

A: Our sense is that there is a significant portion of the population that is not interested in continuing the closed ecosystem of cable bundles. We view Aereo as a starting point that opens that closed, proprietary ecosystem.

An a la carte platform is the vision. A consumer can say there are 10 channels that I really care about and does it make sense for me to pay hundreds of dollars for those 10 channels? The marketplace will determine a more reasonable rate where say someone says $1 or $2 a month makes more sense for each channel.

Q: You’ll have to change a lot of minds here. First broadcasters, cable networks, ISPs and Hollywood.

A: This is a long quest, which is why I got into it. I’m at a point in my career where I’m looking to make a long-term impact and build a sustainable business. I selected investors and advisers who shared a similar belief, who were not in it for a quick buck. Our goal is to reinvent the system.

Q: When will that be? People have been saying that for decades.

A: The genie is out of the bottle. Audio transformation happened in a five-year period. And I don’t know if video will take five years, 10 years or just two years, but consumer adoption curves will be very very sharp if we are good about marketing and pricing.

Q: How do you respond to broadcast firms who say your tech steals their content and that you aren’t paying them a dime?

A: Broadcasters take spectrum worth billions of dollars that belongs to the public with the obligation to program to the public. All Aereo says to consumers is that we have an antenna and so you can now have remote access to those programs.

Q: But how can broadcasters support their businesses?

A: They have advertising, which we show. No one is stopping them from trying lots of different things. We heard the same debate with the VCR; people said the VCR was going to kill the broadcast industry. But now they make billions off of home videos.

Every new tech comes with a “sky is falling” warning. We don’t touch content. Even Nielsen said they measure mobile usage and Internet usage. So the whole debate that I need to get paid something for free doesn’t make sense. What do we want? A tax on broadcast?

Q: How do cable companies view Aereo?

A: (Laughter) We didn’t start this to recreate the cable system and end up back to where things are at. I firmly believe if you take VEVO, HuffPo and MTV and offer them in a special package for say $5, you would make more money than otherwise. There is great experimentation taking place. A lot of programmers are in the same mindset and want optionality beyond the old model. HBO is a great part of that old model. At the end of the day, they create great content and it’s behind a pay wall. HBO is being held back because it is owned by Time Warner.

But you can’t constrict consumers too much. “Games of Thrones” is the most pirated material on the Internet right now.

Q: Speaking of pricing, your $12 a month subscription price seems too high. I can’t see myself or friends adding another $12 subscription for video given the current economy.

A: I can’t agree with you more. That will change, but I can’t tell you today what it will be.

Q: And your expansion plans beyond New York?

A: The major metropolitan areas is where we are focused in the short term. We will be in all major markets in the next eight, 10 or 12 months.

Q: Can you break up the ecosystem on your own? Who’s with you?

A: There are many like-minded people. Think Google and Amazon in the video business. Skype in video calling, Spotify in music, Netflix in deep library video. These are just examples of companies that solve different slices of the consumer experience. The question is how to make them all come together.

We narrowly put Aereo in that slice of live television, which was a piece that was missing for consumers.

Q: So will we see mergers? Stronger partnerships?

A: Across-the-board consolidation will happen and price points will happen. I’m not suggesting mergers and acquisitions, but technology integration makes a ton of sense.

Q: Is there a role for lawmakers and regulators to create new competition in Internet video?

A: There are a lot of smart people in Washington and it’s not lost on them the importance of competitiveness in this market. And demand for this product will only help the adoption and spread of broadband.

Consumer interests are at heart here. We are a competitive force that enables consumers to have more choice, so how could that not weigh on people’s minds in Washington?

Q: Are you being interviewed by the Justice Department in its investigation of the cable industry?

A: Whenever I see a 202 (Washington) area code, I just don’t answer. Just kidding. No.

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