Barry Diller’s OTT Service Aereo Is Dead On Arrival

Screen shot 2012-02-16 at 2.39.53 PMOn Tuesday, Barry Diller introduced a new company and service called Aereo that will offer consumers in the NYC area the ability to get live broadcast TV stations via the Internet, with DVR in the cloud, for a subscription fee of $12 a month. Unfortunately for Barry's IAC/InterActiveCorp, who invested $20.5M in the company, this is going to be another example of an executive bringing a product to the market, simply because of their ego. Aereo has no shot at succeeding let alone disrupting the current cable and satellite market like they imply.

Consumers are not asking for this service, aren't demanding it and certainly aren't willing to pay for it. Aside from the fact that the service gets no cable channels, will only be available in NYC to those who have a NYC based billing address and IP and might face legal issues, the biggest problem is that it won't work as well as Aereo implies. While the company lists the Roku as one of the devices it will support, when I inquired for more details, a representative said Aereo will work with a Roku provided you link it to a browser based iOS device such as an iPad and use it to control it. So now I need two devices to make it work on one?

Aereo will only work on devices that have a HTML5 compatible browser, not via apps, so getting this via an Xbox 360 or PS3 is out of the question. While the company has claimed it will offer "HD quality", so far, they have not defined what they classify as HD, what bitrate it will be encoded in, who is delivering the video or what kind of streaming technology, like adaptive bitrate, might be used. So while Aereo is trying to make the service sound really easy to use, they have yet to provide any real technical details which will determine how good the video really looks and how well it will be delivered.

Of course anyone can already get the channels that Aereo is offering by simply getting a TV antenna for over-the-air broadcasts, so they will have a hard time selling the same thing for $12 a month. Some might argue that the real value is that Aereo offers a DVR service in the cloud, but since all of the content being offered is from the major broadcast networks, it's not exactly hard to find their shows on the web after they air. Others might argue that the real value with Aereo is that you can watch live TV on mobile devices, but you'd blow through your wireless cap pretty fast if you watched enough TV via a 3G or 4G connection. And so far, consumers in the U.S. have not shown any real interest in wanting to watch live TV on mobile devices, outside of some very specific content.

Another big problem for Aereo that no one has mentioned is the amount of money they would need to spend to market and support their service. The cable and satellite companies have huge marketing budgets for TV, radio, print and web and Aereo won't be able to reach the same audience without raising a lot more money. New customer acquisition costs would be very high and support costs will also put a burden on the company. What happens when users call up complaining that they can't get the content due to them not realizing it's a problem with their device or their connection? Aereo is going to have to spend a lot of time helping customers with tech issues that the cable and satellite companies don't have. For the most part, cable TV always works and Internet based streaming services don't have the same level of reliability or simplicity that cable TV has and are more expensive to support.

There are more than 100M consumers in the U.S. that pay for TV via cable and satellite and Aereo has implied that a big market to them would be about 300,000 subscribers. That's not even one half of one percent of the total number of cable/satellite TV subscribers in America. Yet they think their service will somehow disrupt the cable TV market or make cable companies change their practices? They aren't being realistic.

Whether the technology works or not is irrelevant as this is not a service consumers want, are demanding or will be willing to pay for, in any real quantity. This thing is dead before it even gets off the ground.

  • Dave Burstein

    Dan
    Thanks for the details here; they really will be hurt by the device limits. But I’m not sure there isn’t a market for this, in a place like New York where antennas don’t always work.
    We’ve cut the cord and did watch the Grammies with our (amplified) antenna. Look superb except when it flickered when I walked across the room. But before we moved the TV and antenna close to the window, reception was tougher.
    I bet there are plenty of people in NYC who can’t work with an antenna and this might be a good deal. Gets you the occasional big live event and news and saves a lot of downloading of regular shows.
    As long as the DVR lets you skip the commercials.

  • http://disruptionmatters.com/ Txemi

    Aereo is an expensive proof-of-concept of live TV over the Internet. It shows the future of TV, technology wise. Business-wise, it is an expensive test. I doubt it will pay by itself. Few would subscribe for something it is free. But look, YouTube did not make “business-sense” when it started. A few years later maybe it does.

  • bob
  • TV Futurist

    “Consumers are not asking for this service, aren’t demanding it and certainly aren’t willing to pay for it.”
    You have absolutely zero evidence of this. Why not wait a few months and report on some real numbers? Claiming to be able to see the future about what people are and are not willing to pay for is foolish and just makes you look dumb.

  • http://www.StreamingMediaBlog.com Dan Rayburn

    @TV Futurist: Zero evidence? We have a lot of evidence. FLO TV, that didn’t work out. MobiTV in the U.S., that didn’t work out either. Then you have Sprint and Verizon Wireless who have such low adoption for live TV services on mobile, even for things like the NFL, that they won’t give out any numbers on the usage.
    Consumers in the U.S. do not want to watch live TV on mobile devices and that’s one of Aereo’s main selling points. We have all the evidence we need.

  • http://revision3.com jim louderback

    I dunno Dan, I see it differently. The device support, yeah, I get. But imagine if you could pop a Roku in (let’s assume HTML5 support), and had access to basically 7 great channels in HD for $12 a month. You’ve got local sports (football, some baseball, etc), Olympics, World Series, news, Modern Family, Gossip Girl, etc, live and on demand.
    Then you add in Netflix or Amazon Prime, and now we’re up to $20 a month. Add another $10-$15 for ala carte purchases and you’re spending half of the regular cable bill for most of what many busy NY households are really looking for.
    Of course it has to be seamless to operate, look great in HD on that flat screen in the home, and have 99.7% uptime.
    That’s a lot of “of course”.
    But I think there’s a “there there”
    jim

  • bob

    In Germany I pay €39 a month just for an Internet and telephone connection.You can get Telekoms Entertain for €40 which includes 70 stations and 15 movies.So there is a big market for streaming.
    http://www.telekom.de/is-bin/INTERSHOP.enfinity/WFS/EKI-PK-Site/de_DE/-/EUR/ViewProductDetails-Start;sid=CJDZtH06Wr7dtDIFWsfXAHY_RQfq5fEj5AF7g1GT1amIth6D-_mUI05rRQfq5Q==?ProductRefID=0310231000010%40EKI-PK&StageProductRefID=1501101000042_0009%40EKI-PK&CatalogCategoryID=uaUFC7ISvLMAAAEptvBIigI7

  • http://feldmanfile.blogspot.com Len Feldman

    Dan, I think that Aereo has a decent chance of success, if (and it’s a big if) the company survives the legal challenges that will almost certainly come. Aereo’s service is based on a workaround of existing regulations in order to avoid getting permission from broadcasters to retransmit their signals and pay them for the right to do so. That’s why it’s limited to broadcast stations, limited to New York City residents, and every user gets their own little antenna while they’re using the service.
    The lack of apps and clients can be fixed over time, and if Aereo is smart, it can build and maintain its mini headends in each new market on the cheap. As other commenters have noted, there really are problems with over-the-air reception in a lot of markets. (However, given that subscribers need some sort of high-speed Internet service in order to use Aereo, and basic cable usually doesn’t cost much more than Aereo’s service, bundling by cable operators is going to limit Aereo’s appeal.)
    I think that the current Aereo service is more of a placeholder, in the hope that future regulations will make a broader Internet-based service including both broadcast and cable networks feasible.

  • Bob Zeryunkel

    Dan, I think many of your comments are off the mark. There is a big difference between those services (sprint, flo, mobi) and Aereo. None of them offered full access to highly viewed content and they weren’t available consistently across the carriers, only select handsets which means very limited distribution. AFAIK, none of them worked on a device with an HDMI out, so no big screen experience. None of them were available to the high content consuming iOS crowd, which means that mobi et al were not really a focus for the consumer, just a value add. Most importantly, none of them worked on an iPad. The iPad user is different than a smart phone user. They are looking at that device as a content gateway. Games, music, books, video and now live streaming TV. I think this one, if it can get past the legal hurdles, has a real shot. Also, I’m sure that the initial launch is not a static product. It’s all software so it’s easy, and quick, for Aereo to grow and evolve.

  • http://www.StreamingMediaBlog.com Dan Rayburn

    @Bob – The services were similar enough to show that consumers don’t care about live TV on their phones.
    Also, lots of people are commenting about this service as if it works on devices connected to the TV, but it doesn’t. It ONLY works via an HTML5 compatibale browser. That means it won’t work on the Apple TV, Roku, Xbox, PS3, WD TV Live etc…. how many devices have a HTML5 broswer built in? Almost none, unless you go to mobile devices in which case, this is primarily a mobile service.
    This is a money-losing business from the start and they would need $100M+ in funding to scale even to a few million subscribers, develop apps for devices, market the service, do proper customer service etc.

  • http://blog.fourelementsmedia.com Jennifer Valenti

    As usual, you’re right on point. I went into this heavily last week in my blog. Aside from the tiny market, potential legal issues and service fee for free OTA TV (and no cable), there is also the issue of final distributor credit, which would be affected since it’s not being measured at the head end the way an Xbox, roku or sling box are, and therefore ratings could be affected. FilmOn is doing the same thing, but the only thing that differentiates them is that they already offer more channels in addition to the OTA programming that their new dongle (FilmOn Air, which debuts later this month) will provide. But, again.. same issue with FDC. I would recommend reading this two part blog (it’s long, but worth the education), in how deeply connected to the business rules of Nielsen the Networks are in determining their ratings, and how this kind of business and other businesses trying to piggy back off the same idea are in fact, DOA. blog.fourelementsmedia.com

  • Bob Zeryunkel

    @Dan – http://www.youtube.com/watch?v=225QRlI5CQE will show a demo of Aereo on an AppleTV and Roku. You seem to think that there never will be HTML 5 compatible browsers on devices but both Safari and Chrome are which means apple and android devices…and I would bet it’s only a atter of time until PS3 and Xbox are updated. The rest of the devices don’t add up to much.
    The other services were nothing simlar. None fthem featured all the broadcast networks streaming in real time and included dvr functionality. The others were piecemeal and didn’t work very well.
    The real threat is ISP throttling, not consumer adoption.
    @Jennifer – FilmOn requires a hardware purchase. Not the same. The attribution issue is irrelevant to the model. Advertising is not part of the equation so ratings don’t matter. Regardless, it’s a walled garden so every impression is accounted for.

  • http://blog.fourelementsmedia.com Jennifer Valenti

    Bob, you have no idea what you’re talking about. Ratings are absolutely affected, and more than just that, content licensing for syndication will be affected. Just because each impression is accounted for doesn’t mean it’s part of the currency. Unless you’re a network client, an advertiser or you ran the Online and Television Ratings portfolio for Nielsen (Like I did, Bob), then leave the ratings to people who know what they’re talking about.
    As for FilmON, I know it’s a hardware play, that’s why I mentioned the dongle in my post. They are still pulling OTA via the hardware, which is putting them in the same service bracket as Aereo, just with a different technology method.

  • http://www.StreamingMediaBlog.com Dan Rayburn

    @Bob – that demo shows it working on an Apple TV and Roku via a iPad. So it does not directly play on either device since neither of them have a browser. So any consumer who has an Apple TV or a Roku, but not an iPad, can’t use the service.
    The service has to be judged on what it can do today, not what it MIGHT be able to do down the road IF device companies add browser functionality to their devices.
    “I would bet it’s only a atter of time until PS3 and Xbox are updated”. That may or may not be the case. But until it actually happens, the fact remains it does not work today.

  • Luke McDonough

    I don’t share your pessimism in this case. Early adopters have shown a willingness to dump cable for netflix/hulu/apple TV/roku/xbox, etc… But all of those services lack access to major sports, news, and other live events. If Aero delivers all major broadcast nets, with DVR capability, then that solves quite a lot of that problem….super bowl, world series, NBA championships, the oscars, the golden globes, broadcast news, local news, etc, etc…
    More importantly, they did not write a huge check to get those channels, and so they do not carry that cost around while they build up their subscriber base.
    I have no idea if it actually works, but that is not something that any of us can fairly judge at this point. But as a concept, not DOA in my mind…I think this is at least worthy of “wait and see.”

  • Bob Zeryunkel

    @Jennifer – Do you undersand that Aereo as ZERO concern over whatever currency the 4As are pushing this quarter. Their model is not dependant on HUTs, PUTs, or CPP. They could give a fig about wide orbit vs. view32. It’s not about upfronts, makegoods or providing swag for the 23 year old buyers that don’t know jack without a planner. The only UE that interests them are the number of Aereo subscribers. You see Jennifer, you’re not the only one around here that knows something about this business we call show.
    And the dongle is precisely what makes it different. I can try Aereo completely free of charge. I could do that with FilmOn but the clerk at Best Buy would look at me like I was a schmuck for returning some piece of crap that I just bought.
    @Dan – You can’t possibly believe that someone, anyone, out there owns an AppleTV that doesn’t also own an iPad?!? To discount Airplay is a serious mistake. Apple is making it integral to their burgeoning home entertainment system architecture. Further, Apple sells more iPads in a month than Roku does in a year. I would be more concerned if Aereo based their entire model on some lower tier CE company over the Apple juggernaut.
    Additionally, HTML5 is not some weird format like On2, DIVX or HuffyUv. HTML5 will be the standard once ratifed. It’s an absolute certainty that any browser that wants to remain relevant will be compatible, inluding xBox and PS3. If you think an app is so important, I don’t think it would be hard for Aereo to craft one. Pretty sure that if they figured out the precise loopholes to extricate video distribution from out of Les Moonves’ steely grip they can figure out a simple wrapper app.
    Most importantly, You are hanging your entire hypothesis on the idea that people won’t watch live television on a mobile device BUT you are avoiding stating they won’t watch on demand offerings. That’s because you know that people do in fact watch tons of video on iPads. It isn’t a stretch to think that they would also enjoy live video, like sports, news or even American Idol. Throw in some social tv and you have a winner…assuming they can get past the legal hurdles.

  • Jennifer Valenti

    Bob, I understand that Aereo has no concern. I’m talking about the NETWORKS having a concern over HUT being affected. I couldn’t care less about what Aereo is concerned about. Aereo retransmitting the Networks signal will absolutely affect THE NETWORKS final distributor credit. If you’re going to debate something I say, please make sure you understand the context first.

  • http://www.StreamingMediaBlog.com Dan Rayburn

    Bob, to date, Apple has sold about 4M Apple TV’s. How many of those are local to NYC we don’t know, but even if it’s 25%, we’re talking 1M boxes. That’s not a market. That’s not even 1% of cable TV subscribers. And by Aereo’s own statement, they see a big market as being 300,000 subscribers.
    Most people watch short on-demand clips on the iPad over WiFi. Wathcing long-form live content over 3G will eat through any users cap so fast, it will cost them a lot in overages. So it’s just not practical with today’s wireless caps.

  • Bob Zeryunkel

    @Jennifer – I’m staying on point and in context. You and Dan claim that Aereo is DOA. Dan says it’s because it’s only a play for mobile due to lack of device support and people don’t want to watch live tv on their mobile devices. You say that FDC is a big deal so the networks will be angry and kill Aereo.
    I’m saying that the only devices that really matter are iPads/appleTV/connectedTV and that Aereo is well aware that the nets will be pissed and that FDC is the least of their worries. They came into this armed for bear and with deep pockets. I’m pretty sure that Diller, and his good friend Julius Genachowski, know what’s what.
    As an audience measurement wonk you should appreciate that Aereo will bring true second by second analysis of viewing patterns that has only been availble thru smaller operators like Tivo, Charter, Buckeye and Oceanic. You know the value because your beloved Nielsen has been licensing the Charter data out of LA for several years. Canoe et al have been chasing their tails for far too long. Someone has to start making the promise of stb data a reality.
    @Bob – There are about 50MM Cable subs in the US. Comcast has about 24, TWC has 14 and the rest have about 10 combined. Also, 300k subs equates to $43MM, not bad for the first 12mos. 25 markets and it’s a billion dollar company.
    @both of you – To claim something is DOA before it even launches is somewhat silly. More importantly, both of you should be ecstatic that Aereo will finally put a wedge in the ecosystem to pop it open. It has the potential to bring true competition to the marketplace. We all win in that scenario, not just the usual players. There is nothing unethical about Aereo, it’s devious, but nothing worse than the non-sense the broadcasters have been crowing about re-trans. The general public makes it possible for the broadcasters to keep their tight grip on the world of content. For them to turn around and then extort payment out of the cable cos is the unethical play in this scenario. Aereo will ultimately go the way of the dodo, but not before it opens up an entirely new world of possibility.
    P.S. Change is always painful and dramatic. IMHO, maintaining the status quo is a far worse fate for consumers, advertisers and creatives. The broadcast middle men have been collecting their vigg for far too long. Time for some fresh blood and ideas.

  • Jennifer Valenti

    Bob, while I appreciate your gusto behind Aereo, what you don’t understand about STB data is that some boxes never stop transmitting program data even when they are turned off depending on the type of box they are, especially in the case of a DVR. Consumer Electronics Companies make STBs, not the cable companies. And the cable companies have actually fought against (or more politely, dragged their feet) on Open Technical Specifications on STBs, which would at least be able to integrate specific requirements to shut off and stop transmitting data even when the TV is shut off.
    BUT the STB doesn’t have a People Meter on it, so even just saying what was watched, doesn’t help with who watched it. That’s why the Paper Diary (regardless of how awful that is) and more importantly, the Local People Meter is so important to the way that metering is collected. STB’s are already measured by Nielsen and especially by Rentrak, but since there is very little people meter data behind a STB to give a census reading, it is ignored by 80% of the Networks and Cable Nets. It’s not enough to know what people are watching. But WHO watched is more important. They can get second-by-second data all they want, but until they can say, M 34 with a HH income of $55K watched that show, it is completely useless. They collect this information to sell advertising, and advertisers need specific demographic information to target their ad buys.
    In regards to Canoe, Bob, they had so many problems right from the start, I don’t even know where to begin. When the major MSOs announced their new venture under David Verklin, we thought.. oh wow, this could be a game changer. Until, we sat in a room with them and none of them could agree on anything.. even where to order lunch.
    Aereo is not innovation, it’s stealing. Whether it comes from a piece of hardware, a cloud or Jupiter.. it’s still stealing. And if you think it’s just the Networks that will take issue with it, wait until they rebroadcast sports. The Networks only pay a license to broadcast sports, they don’t own the programming. Live webcasts of sports already happen via their network partners and other licensing partners for free (depending on the sports affiliation, and their agreement with them). But broadcast tv shows are a completely different entity.
    While I appreciate your enthusiasm for Aereo, it’s just not going to happen. People who actually are deeply connected to how things work in the tv industry understand why, even if it was legal. And there is no competition being busted open when you’re innovating off of someone else’s investment and hardwork and the right to own a product they created. This has antitrust violation written all over it. If you really want to know more about how the Networks feel, I would suggest calling the NAB. As for me, this conversation has wasted more time than I have to give.

  • @worldofcontent

    Bob’s right in stating that Aereo doesn’t have to give a crap about broadcasters’ advertising models. Bob’s even more right to mention Julius Genachowski. His activist FCC is sure to wade into this fight and you can bet that fiat will will rule the day more than a thousand lawsuits. Don’t believe me? Just ask GM’s senior shareholders who were hosed out of their place in line with the President’s backing. :)

  • Jennifer Valenti
  • Bob Miller

    Stealing! Stealing! Who is stealing what from whom? Broadcasters choose, voted for, 8-VSB modulation. The worst, by far, in the world. Most New Yorkers cannot receive OTA. Why? 8-VSB. Now some might say that in choosing 8-VSB broadcasters did themselves a favor in that they could charge cable companies for their content that was supposed to be received for FREE OTA. Now someone wants to allow those New Yorkers to receive OTA by renting them an antenna that actually receives OTA I guess by putting all those antennas where there is good signal.
    Who is stealing? The broadcasters and the cable companies are the crooks. Here we have someone who is just trying to help New Yorkers receive the OTA signals they have a right to.
    Any questions? We could go back and see how the broadcasters in cahoots with the cable companies, the Consumer Electronic Association and LG pulled it off with outright fraud ten years ago. I hope we do. Oh the FCC was deep in this too. Not the workers over their but the political types, Kennard and Powell.
    Genachowski may be a breath of fresh air if he does what the last poster suggest.

  • Bob Miller

    As to Jennifer’s post,”I rest my cas” what case? If Barry Diller has done his homework your case is just the broadcasters whining in the wind.
    Why can’ I as a New Yorker, I’m not anymore, choose to rent an antenna from someone who has a good reception location so that I can receive free OTA signals? And if I have received such signals on my rented antenna why can I not transport them to myself over the Internet?
    Be an interesting case and I would like to be a witness.

  • Bob Zeryunkel

    Dan and Jennifer…The judge ruled “faithful application of Cablevision requires the conclusion that Plaintiffs are unlikely to succeed on the merits of their public performance claim.”

    Clearly, the judge has determined there is no copyright infringement. Unless the combined broadcasters have some other leg to stand on this case won’t get very far. I suspect there will be a request for summary judgement and this matter will be put to rest. I also suspect that Aereo will release their real product in a short while and that most of the points you were both arguing will also be laid to rest.

    Your premature proclamation was DOA, not Aereo.

    • danrayburn

      The ruling does not matter. My argument in the post is that this service is not something that consumers want, are willing to pay for or can be a profitable business. The ruling does not impact that in any way, there is no business model here, whether the courts find this legal or not.

    • Jennifer Valenti

      One judge’s opinion does not a ruling make. I not only believe they will still lose, but as Dan has pointed out, even if they win and are able to somehow come out with some operating capital left after this case, they will see no more investment on a low to no demand product. B2C principles involve having a lot of “C” to justify the cost benefit. They won’t get cable channels. They will be stuck with OTA. Cable companies would take the ruling as an opportunity to do the same thing. Who do you think will do it better? Verizon, Brighthouse, Time Warner or Aereo? My money would be on the companies with decades of experience, billions of dollars and all the cable channels too.

  • StaticTheMagic

    So hey, when should we expect that retraction. Seems all the free press and good publicity around them, and the stupidity of the situation with providers like CBS and Time Warner are proving EXACTLY why customers want this.

    • danrayburn

      “free press” does not guarantee sign ups. Aereo won’t say how many subscribers they have becasue the numbers are so low. It takes more than “free press” to get people to use a service. Numbers, sign ups, that’s all that matters.