Paying for Free TV

Aereo takes broadcast TV signals and puts them on your computer, tablet, and smartphone—for a fee

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Steven Cherry: Hi, this is Steven Cherry for IEEE Spectrum’s “Techwise Conversations.”

There are any number of ways to get movies and television shows without your local cable company, and a lot of reasons to do so. The fact is, cable TV is sky-high expensive and still climbing.

According to The Wall Street Journal, the cost of cable tripled in the previous decade, and the analytical firm NPD reported last year that the average cable bill has been going up by at least 6 percent annually, with no end to that in sight. Average bills could rise to “US $123 by the year 2015 and $200 by 2020.”

And so more and more households—by one estimate, a million of us last year—have been going “over the top,” as the TV industry calls it: movies and past series from Netflix and Hulu and Google TV and Roku and Boxee, current movies from iTunes and Amazon, current TV shows from Hulu Plus and iTunes.

But what about broadcast television? Wait a minute, that’s crazy—it’s broadcast, so why not just pluck the shows out of the airwaves like our grandparents did?

As it turns out, there’s a company crazy enough to offer it, and people crazy enough to take them up on it—and pay good money in the bargain. The company is Aereo. My guest today is its CEO, Chet Kanojia [PDF]. He joins us by phone.

Chet, welcome to the podcast.

Chet Kanojia: Thank you for having me.

Steven Cherry: So, Chet, why not just pluck the TV shows out of the airwaves like our grandparents did?

Chet Kanojia: I think that people should. And I think it’s a great way to supplement, because, you know, broadcast is about 50 percent of the viewership, and I encourage people to do that. The challenge in that is that the signal isn’t necessarily clear all the time. You know, if you remember in the old days, you had to sort of orient your rabbit ears every now and then. People had tin foil on them and all kinds of different things. And modern conveniences that people are now used to, for example, a DVR, the ability to play shift your shows, and kind of watch them on your tablet or your computer in addition to a TV, all of those things require additional technology.

So what we have done at Aereo is sort of taken the old idea of antennas and combined it with all this great new technology and put it all in the cloud, and the net effect is essentially you’re using kind of the same technology your parents or your grandparents did with the antenna. You’re just doing it in a more modern way using cloud-based technologies and do it on any device.

Steven Cherry: So a user signs up for Aereo—what exactly do they do, and what do they get?

Chet Kanojia: So they sign up for Aereo just on the website, on Aereo.com, and they don’t have to purchase any specialty equipment or wires, cords, anything. Once you sign up, what happens is the Aereo system behind the scenes assigns you a remote antenna. It is actually an ATSC antenna, just it’s miniaturized so that we can pack millions of things into a small space. So they’re miniaturized, they’re remote, they’re built into a private cloud in your city, along with DVR capabilities.

So when you sign up, the Aereo system assigns you your personal unique antenna, and after that, any time you go in, all you need is a browser today—could be a phone, could be a tablet, could be a TV, could be through a Roku box, for example. All you do is you access Aereo.com, and there’s an electronic program guide, and you pick the shows you want. You can watch them live, you can record them, you can do all the things that you normally expect as a consumer to be able to do.

Steven Cherry: So for each customer, there’s an antenna. So if 1000 customers want to record the American Idol show on Thursday at 8:00 p.m., you make 1000 recordings of it?

Chet Kanojia: Yup, there’s 1000 recordings. There could be 10 000 or 100 000. They’re unique recordings.

Steven Cherry: And operators like Comcast and Dish and Verizon, they redistribute broadcast TV shows under a license. You have no particular license, and you’re actually being sued by the broadcasters. Now, your defense is that you’re using an antenna just the way a person in his home would, but your antennas are just centimeters long. Is that right?

Chet Kanojia: Correct. So we, as you correctly pointed out, cable companies and satellite companies retransmit broadcast signal under a license. Our argument—and I think that it’s a sound argument—is that a consumer doesn’t have a requirement to have a license. I mean, they already have a license since it’s being broadcast to them as part of the [1934] Communications Act. What Aereo is doing is acting much like Radio Shack or Sony by saying, “Oh, I can provide you some equipment. Now, it happens to be remotely located, but I can provide you some equipment that allows you to exercise that right.” So it’s a very distinct, a very different, approach toward serving that customer’s need that Aereo’s come up with.

Steven Cherry: So tell us a little bit about the antennas specifically. What was it like to design them, and do they have any other applications besides this?

Chet Kanojia: So they are very unique in the sense that they are designed specifically for the television application. They are also what you would normally call “tunable,” or you can instruct the antenna. So essentially what happens is, a traditional antenna is capable of looking at the entire broadcast spectrum, and in particular there’s a UHF segment, a lower UHF segment, a low VHF [[Ed.: Not sure about VHF]] segment to the antenna.

What Aereo did was design an antenna that can look at any portion of that spectrum just 6 megahertz at a time. So instead of looking at the entire spectrum, it tunes to the particular 6 MHz that you’re interested in, and as you know, broadcasting happens in 6-MHz blocks. So essentially you say, “Ah, I’m interested in watching ABC.” The Aereo system figures out ABC in your city resolves to a certain frequency, RF channel, and it tunes it to that particular 6-MHz block.

So as a result, we can do this in a much smaller size. The technology like this has other applications as well, obviously, but we haven’t chosen to apply them to other applications. We’ve focused very specifically on the video application, broadcast-TV application.

Steven Cherry: So all of this gets Downton Abbey and American Idol onto my computer screen or my tablet or my phone in real time, or recorded and played back whenever I want. What about getting them back on the television screen where they really belong?

Chet Kanojia: Yeah, so you can use legacy televisions—and, obviously, as most modern televisions are what are called “smart TVs,” so essentially have the Internet connectivity built in. So if you have a smart TV, soon there will be an Aereo application for those smart TVs. But for legacy televisions, which are high definition, but they don’t have an Internet connection, you can use what is called a “buddy box.” For example, a Google TV box or a Roku box, and Aereo makes applications that go on these devices, so you can watch Aereo on a big-screen TV. In fact about 80 percent of Aereo users watch indoors, 75–80 percent watch indoors, and a good portion of those happen to be on big-screen TVs.

Steven Cherry: So I have a Roku box, and I have Apple TV as well, and at the beginning of this year, I turned in my cable box, and I’m just using this over-the-top stuff. I subscribe to Netflix and Hulu Plus and now Aereo, and I’m constantly switching back and forth to get from a video podcast about craft beer via my Apple iTunes share, for example, all the way to Jon Stewart on Hulu Plus, is at least 15 clicks. To teach my mother how to do this, I think I would need a spreadsheet and a PowerPoint presentation. You argue that cable boxes are too complicated and confusing. I have to say my experience is just the reverse.

Chet Kanojia: I think you are absolutely right in the sense that the cable box had done all the integrations for all the channels effectively, right? But the challenge is that it is a highly restrictive environment. So for a consumer to have anything else additional, like better experience, better interface, it’s a locked system, if you will. I think that you’re absolutely right that for a certain generation of people, we have to do more simplification of these technologies, and I’m confident that that will happen and is imminent.

You know, I don’t know who solves the problem, whether it’s Apple or—one consolidator has to emerge—but the benefits today are so dramatic, as you point out. I mean, today, if you wanted, as a consumer, high-definition plus DVR broadcast, some of these shows that these channels that you talk about, you’re looking at, on average, $100 a month to get into the game. Whereas if you make a little bit of an effort, and I think the technology companies are going to continue to simplify to provide a consolidated interface, you can solve that problem for less than $20 a month, right?

So I think the price savings are so significant that the younger population that’s emerging and entering into the marketplace is the target, I think, for a lot of us, as opposed to somebody who’s not adept at using the technology. I jokingly, but only half jokingly, say to people today, “The best set-top box on the market today is an Apple iTouch [iPod touch],” because it’s got all the computational capabilities, power, retail marketing, the ability to browse the Internet, display things like Aereo and Netflix, all in a very small device that is AirPlay capable. And it’s just a spectacular experience.

Steven Cherry: Yeah, at the Consumer Electronics Show in January, there were quite a few vendors showing products that really did simplify a lot of this. Some of them are coming out this year. Sony, for example, showed a really nice 46-inch TV that had Google TV built into it, and Panasonic and LG and Samsung all had some really great stuff coming out.

Speaking of the Consumer Electronics Show, you announced there that you’re going to be expanding quickly. You’re only in New York now, but how is it going?

Chet Kanojia: Good, we’re very busy. It’s a difficult task because we are still a very relatively small company but with a very large, ambitious plan to roll out about 20, 22 cities by late summer time frame. And, you know, we’re stretched to the limit, but it’s a lot of fun. It’s really an incredible experience to be able to be part of something this interesting, because it’s got fascinating technology that spans from RF to compression technologies to hardware systems that we build ourselves to massive storage systems, playback equipment, consumer experiences, not to mention legal and policy stuff that goes around our business. It’s just a happy—I say to people, “This is the most fun I’ve ever had professionally, and the happiest I’ve ever been professionally.” It’s just an incredibly rewarding experience.

Steven Cherry: Aereo has $38 million in venture funding from InterActive Corporation (IAC), which is the Barry Diller conglomerate that’s behind Expedia, Vimeo, Match.com, and the Daily Beast. Here’s a guy who started out in traditional television and film—he built QVC, Fox, Paramount Studios. With Aereo, he’s rather directly attacking Hollywood. Is he biting the hand that made him a very rich man in the first place?

Chet Kanojia: So, we actually have a total of about $65 million, and IAC is one of the investors, because we did $65 million in two rounds. You know, my experience with Barry has been that he is a very forward-looking man, and he is motivated by technology and the opportunities that it represents, as opposed to being stuck in what it was. It’s much more—at least my observation has been—what it can be and what it should be, and I think there’s a very strong sense of what the consumer really expects and wants.

I mean, let’s not forget the reason—I’ll give you some very interesting examples—the reason the cable bundle exists today is because the cable billing systems were not capable of selling individual channels. Further, cable guys were capable technologically of partitioning channels based on access, meaning they couldn’t determine physically who was supposed to get what channel because this was essentially a broadcast technology, the way they had implemented co-ax.

So somebody clever came along and said, “Let’s just sell them all and charge one price for it.” That started an industry that initially was great, and I think it served a great purpose, but technologically it’s gotten to the point where you have hundreds of channels of which you watch seven or eight. So I think Barry is somebody who understands where the consumer appetite is headed toward, and in particular the younger consumers.

The Internet mind-set is, “Look, I need choice. I’m going to pay for what I consume, or you can try and convince me to pay for what I consume” in some cases, and you have to serve me. I’m not here to serve you. And I think that none of the incumbents have really tapped into that idea of how to serve these consumers. So I think that I look at him and his interactions with Aereo, and my experiences with him are very much centered around he’s a forward-looking guy who thinks technology can create a tremendous amount of value for all forms of people. That includes content creators.

Steven Cherry: NBC, without NFL football and the one hit show it had, The Voice, would have had ratings that look a lot like a cable channel, and meanwhile, some great programming is starting to flourish even beyond cable, with House of Cards on Netflix. Is broadcast television even worth worrying about?

Chet Kanojia: Very much so, because it’s still, my philosophy is in life—not philosophy but thesis—is that broadcast is only going to get bigger and bigger, because it is the only mass medium that allows marketers and advertisers to deploy that kind of capital.

You know, in advertising they have an old saying: “Ten ones don’t make a 10,” meaning 10 “one” ratings don’t make a 10 rating. A 10 rating behaves very differently, has a very different impact on the consumer, than a bunch of one-rated channels that you can accumulate. So I think broadcast gets bigger and bigger.

You used an NBC example, which is an interesting one, but on the other hand, you look at CBS and ABC, and you look at the Oscars every year are bigger, the Super Bowls every year are bigger, or some of the bigger shows just get bigger and bigger. I think the bigger question is, What happens to the middle, right? What happens to the 14th rerun of “Desperate Housewives of Orange County,” right? Those old products, to me, and I think to this generation, belong in a library.

If I’m interested and if I want to kill a little bit of time, I may look at it, I may sample it, but what I’m driven by is something that’s going to entertain me for a very short duration of time, and that’s broadcast—that is, TV is sports, news, movies. What HBO does, and I think even what Netflix is doing, is movies. You know, they’re big events. They spend hundreds of millions of dollars. They entertain people. It’s the middle that’s going to be the question mark in the future.

Steven Cherry: Well, Chet, I think it’s still a complicated and cumbersome business to go over the top, but it’s getting much easier, as we’ve said, and it’s saving hundreds of dollars a year, as we’ve said, so thanks for coming up with the broadcast piece of the puzzle, and thanks for joining us today.

Chet Kanojia: My pleasure. Thank you for having me.

Steven Cherry: We’ve been speaking with Chet Kanojia, CEO of the startup Aereo, a key component in the interlocking puzzle of using the Internet to replace your expensive cable subscription.

For IEEE Spectrum’s “Techwise Conversations,” I’m Steven Cherry.

This interview was recorded 5 March 2013.
Segment producer: Barbara Finkelstein; audio engineer: Francesco Ferorelli

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NOTE: Transcripts are created for the convenience of our readers and listeners and may not perfectly match their associated interviews and narratives. The authoritative record of IEEE Spectrum’s audio programming is the audio version.

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