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Summary:

Aereo CEO Chet Kanojia wants to disrupt TV pricing again, this time by rolling out movie and news packages at a fraction of the price of traditional ones. News, he said, might even be free.


Session Name: Aereo and the Disruption Of TV

Speakers: Announcer Janko Roettgers Chet Kanojia

Audience Member

Announcer 00:00

All right! Not that blogger or any of you bloggers, but a nondescript day-player blogger. And we’re conference all about media disruption and why not help cap off a day with the ultimate conversation about the ultimate media disruption going on. That’s right; I’m talking about Aereo and the Disruption of TV. That’s going to be a discussion moderated by Janko Roettgers, he’s a staff writer for GigaOM and paid content and he’s going to be speaking with Chet Kanojia, the founder and CEO of Aereo. Please welcome the Aereo to the stage.

[applause]

Janko Roettgers 00:36

Hey guys. All right.

Chet Kanojia 00:38

I like these polka dots.

Janko Roettgers 00:41

Yeah, it’s pretty nice right? It’s just like a living room here. We’re very happy to have you. Aereo definitely is one of the most talked-about start-up in the media space right now, probably also one of the most controversial ones. Some people think you’re destroying TV, some people hope you’re destroying TV; but we’re going to talk about all of that in a second. Let’s first of all back up one step and tell us a little a bit of what Aereo actually does and what the technology offers – just a brief overview.

Chet Kanojia 01:08

Sure. So, Aereo– I mean, I started it because man’s got to make a living might as well do it interestingly right? The point of Aereo is that we think that there is an opportunity now, given the time that we live in, to create a different experience – a different way of how people can watch television. So we really think of it as the simplest way you can get essential television that you want at a very rational price, on any device that you want without a cable subscription or any kind of commitment subscription, you know a very online sensibility tied to it. And that’s phase one, or starting point and spread it out, get it in people’s hands, and then let’s see what happens. I think there’s going to be a lot of interesting developments after that.

Janko Roettgers 01:59

And there was some legal controversy around what you offer, because you offer broadcast streams and so back – over a year ago – broadcasters sued you, tried to get an injunction, tried to shut you down. You won in court first round I think last summer, then they appealed and you won again in early April – beginning of the month and they just filed another appeal yesterday – sometime this week. So is this about where the legal fight is going on right now. But at the same there is also point the broadcasters brought this controversy to the fight of public opinion in a way, and they stepped up Chase Carey from News Corp stepped up and said, ” If Aereo wins in court, we’re going to have to shut down Fox on broadcast and we’re going to have to take it cable only, and we’re going to have to make it a subscription only service.” CBS executives have said the same thing. What’s your take on that?

Chet Kanojia 02:51

If you do that, or if you take that approach– so first, everybody’s moaned and groaned about how clever we are and how much we’ve done to comply with the law, so I had no idea that it was actually a crime to try to comply with the law and that you’d get accused of all kinds of stuff. So we did that and now it’s, well, “Sorry, we have to change the rules of the game,” but the reality is Aereo is a marginal point of discussion in this whole thing. I think NAB statistics are a little over 54 million people and growing using antennas. Digital antenna sales have picked up in this country over the last three or four years, so you can essentially go and disenfranchise people that don’t want to pay hundreds of dollars to watch seven or eight channels. That’s effectively what they’re saying. And I just think that that’s extremely disappointing. I think there’s going to be an alternative for those tens-of-millions of people, and more importantly, I don’t think as a general business matter that access that that spectrum provides which by the way was granted for free to broadcasters with the requirement that they program in public interest and convenience, and make that signal available to consumers for free using an antenna. And people say cable has to do this and cable has to do that, and I say, “We’re not a cable company; we’re an antenna technology company.” has just happens to have figured out, finally, a system that makes that promise come true. Whether you’re in-doors, whether you’re out-doors you don’t have to deal with all the complications of setting up. You don’t have to be a technological geek to go and do all this stuff. So the concern– I just don’t understand the logic behind that, I think it’s disappointing to say the least.

Janko Roettgers 04:43

A lot of the conflict comes down to is that – just to back up again because not everybody works in the video side of this industry – is that cable companies and satellite companies have to pay re-transmission fees for broadcast fees; so they pay money for subscribers for their right to carry NBC, CBS, ABC. You don’t pay that because you’re differently structured. They want you to pay that, but at the same time they also have other conflicts going on, they fight with Dish, they fight with the cable companies who want to pay less, or maybe not as much as broadcasters would like to pay them in the future. Do you think Aereo is in a way in this bigger conflict just kind of a bargaining chip?

Chet Kanojia 05:25

Not for me it’s not.

Janko Roettgers 05:25

[chuckles] Okay, fair enough! But for somebody like Dish – there were some reports that you guys were talking to Dish, or Dish was talking with you. I don’t know how much you can share of what you guys talked about.

Chet Kanojia 05:35

I think it was all– everybody talks to everybody in this industry. It is what it is. I think of the consumer first, and I really– and it’s a self-serving argument by the way; I don’t want you to think that I’m communist or socialist or whatever. I do have liberal leanings, but the point of a consumer first is that’s the one constituent in this industry that is un-served. Everybody’s businesses are stacked to take advantage of the consumer and not serve the consumer, so I figure if I focus exclusively on serving the consumer, I’m going to have a very unique shtick – hence the approach. It happens to be, as [Berry?] called it, on the side of the angels. But I think it’s a sound business strategy: serve the customer and the rest will take care of itself. So having said that, we’ve had a very consistent theme, which is we will partner with companies that allow the Aereo experience, and overall a better consumer proposition. So we’re not interested in partnering with people because it may help them and [retrains?] or not, or whatever, that’s not the point of interest to us. But if we can create an experience that is better for the consumer, with an interesting type of new content which does not fall into this 500 channel world, but which is à la carte – or there’s choice involved or things like broadband that you can package them up and then create a video plus broadband experience that is modern, as opposed to saying, “You take broadband, but by the way, pay $150 more for video where you watch six or seven channels. To break that logic is the ambition here and there are few companies, meaningful companies that sort of share that perspective.

Janko Roettgers 07:27

Who would you like to partner with? If you had to pick and choose.

Chet Kanojia 07:29

I think everybody. I think my approach is broadcast is what 50% of the value proposition, 50% – 55% of the value proposition. If I can make the case in front of the consumer for 1/10th the price or less I can give you 50, I can enable access to 50% of the value proposition and now let’s figure out how these consumers can get the remaining 30-40 and let’s keep in mind that we’re all fighting for attention and share, at this point you got social media, you have got all these things eking into a consumer’s day, right? People used to have watch– I don’t know who watch seven hours a TV a day I don’t know Nielsen keep saying that but you haven’t met my daughter [chuckle]. No I’m just kidding. Assuming it’s a two, three, four hour proposition I think it’s I would love to partner with a lot of these people and some of them probably don’t even exist today that are crating interesting new content that are serving the consumer in different ways, people that provide broadband packaging with them.

Janko Roettgers 08:31

But is this hard for companies to partner up with you who already have an existing video business because they already have obligations and they already want to serve the customers with let’s say ESPN and then if you say we give you Disney and there is new and different way and you don’t have obligations for [retranfuse?] anymore, it’s part of the deal then they might lose ESPN. So does that make that harder? Do you actually need companies that don’t exist yet to partner-up?

Chet Kanojia 08:59

Look the 50% value proposition at 1/10th of the price combined with in just like take a content only view, you have got Netflix, you’ve got Hulu, you’ve got perhaps not Hulu I don’t know what happens there. You surely have Netflix in particular where there is no programming. You have got Amazon Prime, great product plus additional programming coming in. You’ve got iTunes for transactional. I think that’s a very compelling – a consumer wants this alternatives start beginning available in the mainstream and simple. That’s for a good, half or greater of the country, it’s a good product.

Janko Roettgers 09:33

So what I’m hearing is you would love to partner but do you think you can also pull it up on your own? Is it– I mean you have to build a lot of infrastructure; you have one warehouse up and running in New York right now. You want to be in 22 markets by the end of the year. So you’ve to be in all those markets, you have your warehouses–

Chet Kanojia 09:48

By July.

Janko Roettgers 09:49

By July? Well that’s pretty soon actually. So and I know there the antennas are only the size of a quarter but are those quarters add up to something right?

Chet Kanojia 09:59

Dime.

Janko Roettgers 10:00

Dime? Even a dime there you go. But it needs some capital build of that infrastructure.

Chet Kanojia 10:05

Sure, yeah. It’s not a website– we think of it as a cellular like infrastructure where we don’t have to go and do a city and build out 50 or 100 sale sites we have to build out one. And it’s a really interesting business in the sense that unlike traditional overbuild approaches that have come into the market, this is a capacity driven system. It’s the equivalent of saying, “You know I’ve figured out how to build a hotel fast. Now I have got the foundation in place, I’m on a road and I got 20 guys coming in all right, I have got 30, next week I had 10 more rooms, right?” And I can keep doing that based on demand; generate a bunch of cash as part of it. We have reduced the capital expense down to a point where it’s not a concerning number in anyway should perform. Tremendous amount of set of supply chains and all this stuff. So, and I want to say this people think about companies that are website, Instagram apps, they start whatever. People forget that to create consistent value you have to do the hard work, there is no easy shortcuts out there. These industries were built over decades with I think cables investment in the plant itself about a $100 billion. So if you’re really trying to build a meaningful company you’re going to spend 100s and 100s of millions of dollars and that’s not the concerning part, not the concerning part but number one we got to get to the hurdles make our case which I think we have done a remarkable job thus far of getting the technology out there, proving it can work. I think great reviews on that. The courts have consistently apart deep analysis found were on all fours. Consumer reaction thus far has been incredibly positive, utilization is very high.

Janko Roettgers 11:57

How many customers do you have?

Chet Kanojia 11:59

We haven’t disclosed to private company, don’t have to.

Janko Roettgers 12:03

[chuckle] This is a private discussion that we’re having here. But it’s fair enough, I guess what I’m leading to with that question is, what do you think is the addressable market for something like this and–

Chet Kanojia 12:13

I think today 20% of the market.

Janko Roettgers 12:17

20%? But that means that 20% of the customers wouldn’t want any of their cable channels anymore?

Chet Kanojia 12:24

Well you have to realize that, a majority of the product ends up on libraries and it’s available and last time I checked there is absolutely no need to have Desperate Housewives, Orange County on four different channels running at the same time. There is for a rational consumer that adds no value.

Janko Roettgers 12:45

And I totally buy that and I myself like cut the cord like four years ago and I haven’t stopped talking about it since but I still have to admit as well that is a small segment of the consumer of the audience and that there are also even within a small segment for many people who might just like to put an antenna in there and it works just fine. So how many people can you really sell the service to this antenna?

Chet Kanojia 13:08

I think 20% is a good market for us.

Janko Roettgers 13:12

20% is definitely ambitious.

Chet Kanojia 13:14

And look at this way right, so assume I’m off by a factor of five, millions of people.

Janko Roettgers 13:22

Do you think you need to offer those people something extra and we talked about secondly in the green room that right now you have Bloomberg as one channel that has offered on top of the broadcast package basically and you have an agreement with Bloomberg to carry them – who else would you like to have and what kind of agreements do you think we have to be in place for?

Chet Kanojia 13:41

So you know if you start thinking about of you make a bet right? TV, how is it going to evolve? And our thinking is it’s a skinny live deep library those combinations work. You don’t have to have 500 channels live, there is just– and take a look at your cable programming we let it at any given time, right? It’s a two, three hour block that is on the [bracket?] side of it essentially for 24 hours. See you take that approach and you say okay, so what’s really necessary temporal stuff right? It’s sports news, movies; it’s kind of really what it comes down to. HBO, fantastic product but I think of that as serialized movies from the level of investment, marketing, it’s essentially a studio. So you take the approach and say what else would you like? So which is why we said Bloomberg makes a lot of sense, business news, quality news product so you will see us as next step and quality news products. The counter program, uncovered segments serving different aspects and by the way if anybody gets a chance you start comparing different kinds of news outlets in the world and you start realizing that a lot of times cable news, financial news is great, highly relevant, very, very timely but otherwise it’s unwatchable. You’ve got like 500 commercials every two minutes. I mean I as a consumer don’t like that experience. So I think there are new products to be brought in, so you focus and you say you got a ton of broadcast that has sports, big dramas, all that stuff. You start bringing in news, serves an interesting segment. I like movies I think that’s a good category and how you do it right is important, not on demand infinite library but just you know stuff that I know I like I want to kill half hour, I don’t want to be bothered by commercials. I’m willing to pay a buck or two a month.

Janko Roettgers 15:30

So if somebody came who has a cable business with other broadcast business and they maybe not less hesitant to talk to you if Viacom came and said let’s partner up, we’re going to sell you our bundle. Would you do it?

Chet Kanojia 15:42

I think it would have to depend on what that really means right? So I think mistake on our part would be to recreate the cable bundle, because what did we really accomplish at the end of the day? Prices are back up to where they were, on top of that its not– we work on an unprotected network so we have vulnerabilities on what does that mean from a bandwidth and caps and all those bigger roadblocks coming at the end of the day. So you’re recreating that package, I’m not sure it makes a lot of sense but they are a fantastic company. They have a tremendous amount of content. Is there an opportunity to think about what is the product that applies to this marketplace given the assets they have, I think that would be a really interesting conversation.

Janko Roettgers 16:23

If you had a couple of those conversations, a couple of people were– possibly would license you some of their stuff. Some individual channels, how would you offer to consumers? Would you make smaller bundles or would you say you get broadcast and then you can really pick and choose?

Chet Kanojia 16:38

I think we would probably experiment a little bit and run a couple of test and see. I do think in news we’re probably going to do a low price no price news package so that you’ve access to a lot of those. I mean at the end of the day when you’ve 500 channels and you got to go through and pick one, I think it’s a little cumbersome for a consumer but if you can intelligently organize that based on content, genre, affinities and I think the key point is you know somebody used to say to me, the cable guys used to say, “We’ve all the stuff that Netflix has, you know they just have a better interface.” And I kept saying, “No, no, that’s not the point. The point is that’s $8.” That’s really what the consumer responds to. You charge them 500 and then there is an infinite veracity that you throw them in it’s just unusable.

Janko Roettgers 17:26

So what I’m hearing is that in the future you might have to call Aereo offering that you might have some thematic bundles like news maybe and little sports bundle or something like that?

Chet Kanojia 17:34

I think news for sure. I think beyond that I think movies is probably more interesting because you look at movie channel ratings they do good but people hate commercials. So if you can solve that problem, make it a clean simple experience that you could watch Top Gun whenever you want, you know whenever it was on or you recorded it or whatever and you can kill half hour. Would somebody pay 50 bucks for that? Hell no, right? Would somebody $0. 50 or a $1? Sure.

Janko Roettgers 18:01

So let’s say you succeed and you have your downsize sometimes I will say everywhere, you actually capture 15%, 10%, 20% of the market, how do you think that’s going to change television? Where is television going to be in five years and which role does Aereo want to play on that?

Chet Kanojia 18:16

So I think the current model is buy wholesale, sell retail, right? And that doesn’t go anywhere. I think that only goes somewhere if you got a lot of proprietary content which is not Aereo. So, the inverse model of that is a platform in which there is a fix margin which is a technology margin, power, bandwidth, resources and then after that there is the ability to price and package by content owners who want to position it and sell directly to the consumers. Not directly but through obviously a distributor or an intermediary but that I think is more likely you know classic internet in the sense that it’s not a prescriptive push model. It’s going to be a much more large store front, combine and pull.

Janko Roettgers 19:05

All right I think we’re going into overtime here. I don’t know if we can have one question, maybe just a one question. Let’s pick one question here I see one hand going up, lucky us to move over there.

Audience Member 19:19

The one thing I’m curious about, I saw you speak at New York Tech Meetup either just before you launched or just after you launched and it was pretty clear whether it was before or just after that the minute you guys were on the air you were going to get slapped by law suits by everybody had an interest in what was going on and so I’m not saying by saying this mean imply that but I really I’m not saying you’re being disingenuous but I’m a little curious in your choice of saying that you are disappointed in the way people reacted. I mean the last thing I would think that this is like unexpected. You’re thoroughly disrupting a major industry. I’m just curious why you choose that word?

Chet Kanojia 20:01

My comment on disappointment was on the recent announcement that they would take the channel away, not the law suits, two separate topics.

Janko Roettgers 20:09

So you’re happy about the law suits [chuckle]. I’m putting words in your mouth.

Chet Kanojia 20:12

Look we’re business people, engineers, whatever right? I mean our ambition is– the one thing that would float my boat more than anything else is I get an opportunity to put my product in front of consumers and be judged by the consumer’s right? So anybody trying to stop that is disappointing. Fully aware that we expected controversy but I think you also have to understand that the company was very public about what we were doing. We disclosed everything, we didn’t have to but we disclosed everything and told people about antennas and lots and lots of different conversation. So that was probably more disappointment comment part of it.

Janko Roettgers 20:52

All right I think we’re out of time here. Thank you very much for joining us. [applause]

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  1. Anyone who claims they’ll use technological advancements to charge less may do that for awhile – especially when they offer so much less content. But at some point they’ll want to maximize profits the same as their predecessors did, and they will because they can. People who believe that technology is going to revolutionize TV so that the public will pay a lot less for it, forget that the public wants their shows and is willing to pay for them.

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    1. Really? Apple has 63% of the music market. Via technological advancements.
      Netflix charges less than cable TV – a lot less. Via technological advancements.

      83% of “the public” that started a new household in 2012 opted to not get a pay TV subscription.

      MVPD’s net gains for subscribers – across ALL of them – in 2012 was under 200,000 – at the same time sVOD services, VOD and EST numbers were up (Per DEG). Internet-only customers are the sole source of subscriber growth for wireline MSO’s.

      Based on Neilsen’s definition of a “TV” household penetration of televisions has been declining for the first time ever, while technological advancements in content delivery increase the audience for lower-cost (and lower margin) content.

      The public is ready, willing and able to pay for shows – that’s what they want.

      What they don’t seem to want anymore is “packages” of content they don’t watch. The vast majority of consumers watch about 16 channels of their 800 channel lineups. Assuming half of those 800 channels are “junk” channels that are redundant or not really programming, that means they are only accessing 4% of the content they are paying for. For cord cutters, technological advances make a lean-back experience for content discovery and consumption much nicer than other options. For those who buy access to content via Apple or Amazon or Vudu, the reality is that they pay only a little less than a full TV package, but it’s their lineup, no commercials and no surreal device/geography restrictions. That’s a behavioral and expectational change brought about by innovation. There’s a whole lot of change coming in the next 36 months, and it’s going to make the music industry transformation look like a mild shift in strategy by comparison.

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      1. Netflix piggybacks on the top of the DVD sales market. The only reason they were able to get their content for less than cable was because the studios were also selling DVDs. But as the DVD market crashes and studios are forced to boost prices, Netflix is buying fewer DVDs and the wait times have gone through the roof.

        Someone has to pay for the production costs. You can’t cut out the rebroadcast fees without the production quality suffering. Perhaps that’s okay and we can make do with fewer CGI effects or actors with less fame, but we’ll pay one way or another.

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  2. I’d love to see Fox and CBS (or any other network) follow through and pull their programming from “over the air”. That would free up a bunch of spectrum for other uses. But in reality, it’s all bluff. The NFL would jerk their broadcast contract if they try to move off of broadcasting. And let’s be honest…the NFL is some of the most-viewed programming their have. They can’t afford to walk away from it.

    Any industry that comes under fire from digital disruption (books, music, newspapers, etc.) talks about how the digital disruptor will drive everyone into ruin. Only companies that cannot adjust to new technologies and disintermediation will be ruined. Those willing to take the plunge and adapt to the times will be successful.

    This is ALL about the carriage fees that broadcasters have become addicted to.

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    1. WhatYouPayForSports Thursday, April 18, 2013

      Rusty: The NFL has already said it stands by its “partnership” with Fox, so I don’t think they’d be so quick to move to another broadcast network. There are only so many companies that could pay $1 billion a year or more to show NFL games, and sports fans by and large already have cable. Maybe that will change by the time the next set of TV contracts expires in 2022, but we’ll see.

      Also, don’t count on spectrum being freed up as a result of Fox and CBS vacating the broadcast space. Nature isn’t the only thing that abhors a vacuum. It’s far more likely that other media companies will step in to create new broadcast networks for local TV stations in search of affiliations.

      On the other hand, perhaps the best way to keep Fox from dismantling its broadcast operations would be to tell Rupert Murdoch that Al Jazeera is launching a new network and looking to take over all of Fox’s affiliates. Wouldn’t THAT raise some eyebrows?

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  3. Free a bunch of spectum? A lot of companies are already sitting on a bunch of spectrum that they don’t even use. So why should we have to give up anything? A lot of us enjoy watching OTA broadcasts and the savings it brings. And not everyone can afford cable you know.

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  4. If you want to have live sreaming content be prepared for a lot of buffering. Someone ask Aero about this.

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  5. The future is almost here…

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