Aereo Has Less Than 2,000 Customers, No Shot At Surviving

Last month when a federal judge ruled in Aereo’s favor denying the major broadcast networks’ request for a preliminary injunction to block Aereo’s streaming service, many in the industry wrote that it was a “significant milestone” and “major legal victory” for the company.

In reality, that’s far from the truth as anyone who has covered these kinds of lawsuits knows that prelimanary injunctions rarely ever get granted. Those who think Aereo is in the clear really shouldn’t be writing about this space. All Aereo got was a stay of execution, but they haven’t been found not guilty yet. Aereo still has to face the broadcasters’ copyright-infringement lawsuit and Aereo is only in round one of what is going to be a long legal battle. In reality, even if Aereo can win in court, the company is already dead in the water for multiple reasons.

By Aereo’s own omission, the company can’t survive a drawn out legal battle as they simply don’t have the money to support it. To date Aereo has only raised $20.5M and they have already set aside $3M of that just for legal costs. And if they want to survive and fight the broadcasters who plan to keep them busy in court, Aereo is going to need a lot more money. The major broadcasters know what is at stake in this fight, the hundreds of millions of dollars they each make every year from retransmission fees. So they will have no problem spending money to drown Aereo in legal costs, something Aereo has already acknowledged. As one reporter put it who was covering what took place during the hearing, they described the broadcasters as having a mass of legal counsel, at least “three long lines” of lawyers in court.

In May, based on court testimony, we know Aereo had 3,500 people in NYC who had signed up for the service, but we’re still under the 90-day trial period. Someone at IAC that I spoke to, which is the company that invested in Aereo, who wanted to remain annoyomous, said that so far, Aereo had well less than 2,000 users paying for the service. Aereo didn’t return my emails when I inquired about the numbers, but if Aereo wants to stick around and try and grow their business, they are going to need a lot more money. Multiple sources tell me Aereo has already burned through half their cash. While many say how excited Barry Diller is in this offering, if he’s really that interested, he’s going to have to put $100M into this company just to give it a shot at fightning the broadcasters in court and trying to grow and expand the business. Even tens of thousands of paying customers isn’t going to get this company anywhere near break even.

It would take Aereo signing up 150,000 customers, each paying $12 a month for a year, just to make back their original investment of nearly $21M and of course, none of that would be profit. Streaming consumer business models like this do not scale cheaply and you have to pump a lot of money into the service before you can get it to a scale. Just look at all of the other companies in the market who have some kind of video streaming service and the amount of money they have spent just to get their platform to the point of where they can guarantee a QoS that consumers have come to expect. And I’m not talking about content licensing costs, but rather the technical infrastructure needed to support such a service, let alone market it to consumers. That’s not going to happen with $20.5M in funding. And what do you think Aereo’s customer acquisition costs will be? They won’t be cheap, espeically with a user only paying $144 a year for the service.

Aereo seems more focused on wanting to fight the broadcasters, without the cash needed, and talking about good their “groundbreaking technology” is, instead of having any insight into the demands of consumers. What Aereo is doing isn’t groundbreaking at all, since anyone can get an atenna and get channels over-the-air (OTA). You don’t need Aereo’s service to make that happen and besides the one-time cost of the antenna, it’s free. I get that Aereo is offering viewing support to more than just the TV and some DVR functionality, but those aren’t features enough consumers are willing to pay for. You don’t launch a service in the market just because the technology exists to allow you to do it, you launch a service because there is a real demand for it from consumers. In Aereo’s case, consumers aren’t demanding what they are offering.

Aereo is quick to say that there is a, “significant portion of the population that is not interested in continuing the closed ecosystem of cable bundles”, but of course, they haven’t said what those numbers are. And Aereo likes to say their solution provides an a la carte model to consumers, a phrase that people in the media go wild over, yet Aereo is only offering about 15 english speaking channels. So there is nothing a la carte about having such a limited choice of 15 channels.

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 and so aren’t many of the people who have written about Aereo’s service. I’ve seen reporters say that Aereo will “upend the TV industry” and even “dismantle” the television business. Really, the TV business is going to be “dismantled” by Aereo who by their own numbers says 300,000 would be a big market for them? Many people writing about companies in this industry need to stop as they are clueless as to what is really taking place. If they can’t include the numbers in their article to show the impact, it’s because they don’t know what the numbers actually are, which means they should not be in the business of saying one service will “dismantle” another. Find another industry to report on.

When I first wrote about Aereo’s service back in February and called it “dead on arrival”, naturally I got a lot of comments from people saying I was crazy and that it was a great idea and something people would want. Well, six months later, apparently less than 2,000 people in NYC are willing to pay fo it. Big surprise. It’s time a lot of people in this industry come down to reality and stop being out of touch with what is really taking place in the market, instead of always being so quick to think one service will displace another just because the technology exists. Far too many people and investors can’t remove their emotions from the picture when evaluating a service or technology like Aereo and don’t look at it clearly. In this case, it’s crystal clear, Aereo has no shot in the market and won’t survive. Even if Aereo wasn’t being sued, their entire business model would still be dead in the water.

  • http://twitter.com/FTAList Michael Kilgore

    In 1998, Diamond Multimedia introduced the Rio MP3 player. It was just as DOA. It held about an hour’s worth of tightly compressed music and retailed for about $200. Not only did DM target an odd niche of people who wanted to listen to a little music for a lot of money, it had to throw heaps of cash to its lawyers to fend off a lawsuit by the RIAA. In the end, the Rio sold just 200k units, barely a blip in the history of technology.

    Aereo today looks a lot like the Rio in 1998. You’re right in saying it won’t survive the way it is now. But it could open the door for copycats (see BarryDriller.com) and licensees to take the same technology to advance the same idea: Viewers should be able to watch the shows sent to them for free via public OTA any way they want.

    Cable companies could use Aereo tech to avoid retransmission fees. Other deep-pocketed mavericks (cough Charlie Ergen cough) could make the leap to provide more choices to subscribers and coincidentally save tons of money. The question of who owns the airwaves could go viral and hit a Stop SOPA peak. It could happen.

    Or you may be right in saying that we live in a corporate oligarchy, and whoever has the best funding to throw at courts and legislatures will get whatever he wants. I prefer to believe otherwise. At some point, what’s best for everybody, including the viewers, is what matters.

  • Paul Sweeting

    More subscribers is probably the last thing Diller really wants at this point (although he has to make a show of it) because I don’t think he has any intention of operating Aereo long term. More subscribers would just add cost. Aereo is a legal strategy, not a business plan. It’s about gaining leverage with the broadcasters for the inevitable acquisition of Aereo’s IP, either by the broadcasters themselves, to keep Aereo out of unfriendly hands, or by someone with the resources and self interest to fight the broadcasters and willing to pay for leverage.

    I think you’re underestimating how dangerous the preliminary injunction ruling was to the broadcasters. Remember, this case is playing out in the Second Circuit, where the Cablevision case rules. And the judge in this case crafted her opinion very specifically around the holding in Cablevision. The broadcasters are appealing the preliminary injunction ruling but that appeal will be heard by the Second Circuit, where they have virtually no chance of prevailing because of Cablevision. Yes, they can throw a lot of lawyers at Aereo, but right now they’re playing a very weak legal hand. The last thing the broadcasters need is another appellate decision affirming Cablevision.

  • http://twitter.com/idkidd Luke H

    This is a very interesting article; though certainly not as “fun” as what the majority of others are writing on the topic. The hard numbers are discouraging to say the least but I also view the potential of the Aereo technology and approach more closely to Michael Kilgore’s view in the talkback: it may not be Aereo that reaps the true benefits of this but SOMEONE likely will down the road. Look at the door that Aereo has opened with relatively little money — at least compared to the vast sums that it could jeopardize/shift. Then you have the Barrydriller copycat launch quickly for even less money. It’s only going to get cheaper and, especially if Aereo or another company wins a legal decision that allows them to definitively do what they are planning. I agree that it is a giant uphill battle for Aereo to survive on it’s own but it excites me that one more door has the potential of being opened that has the potential to add to the transformation of how we receive our entertainment.

  • Jay

    Dan, how about other companies which are trying to ‘disrupt’ the traditional media industry, like NimbleTv. From what I understand, they’re more a ‘sling box+dvr’ that essentially mirrors a persons current cable/sat package online and via mobile devices. The MSOs and content producers are still getting paid (via consumer subscription) but the consumers have the flexibility to watch when they want, where they want.

  • https://me.yahoo.com/a/Yl8n8twCsZE60o_XYiq_ZAFNr2lDib0rg5IFFsc-#d29e0 moremikel

    But the pockets with the cash are behind it if they want to fight.
    And honestly I think they have quite a decent legal case.
    And if they win – then they stand to make large amounts of money.
    I think they would have people lining up to pay just $10 or $15/month for watch anywhere DVR service.
    I know personally I would be more than happy with just pbs and the networks.
    And the DVR cannot possibly function worse than the box I currently pay my cable col for.

  • CB

    I usually help around 300 people each month with buying the right brand of antenna so they can get rid of cable. No one wants to spend all that money with a lot of channels they don’t even watch.

  • Squid

    OK. So, as I write this, it’s now October 5. Aereo is THRIVING and expanding exponentially. I use Aereo and absolutely love it. So do many, many other paying subscribers. Clearly, this author has no credibility.

    • danrayburn

      Do you have any subscriber numbers to back up your claim that Aereo is “thriving”? Nope. You say “many other paying subscribers” use Aereo’s service. Define “many others”. Define “thriving”.

      You have no data of any kind to show that Aereo has signed up a large number of subscribers. Aereo would need to sign up roughly 1.5M paying subscribers to be at 1% of the cable TV market.

      Aereo’s subscriber numbers are still so small, the company won’t even release them.

  • Squid

    October 5, 2013, that is. Aereo kicks this author’s butt.