Aereo Announces More Funding, For A Service No One Really Wants

On a conference call this morning, Aereo announced they have raised another $38M in funding and plan to expand to nearly two dozen cities in the U.S. this year. The Barry Diller/IAC backed company takes live over-the-air broadcast TV signals via their antenna farm and streams them to subscribers PC/Mac, iPad or iPhone with subscription plans that range from $8 a month to $80 a year.

Anyone who has seen me write about Aereo in the past knows that I think Aereo is one of the most over-hyped companies in this space in a long time.  [See: “Barry Diller’s OTT Service Aereo Is Dead On Arrival“] Their CEO keeps talking about how Aereo is disrupting the traditional broadcast TV market even though as of May of last year, the company announced they had only 3,500 subscribers, many of which were still under the 90-day trial period. And in August of last year, someone inside IAC told me Aereo had less than 2,000 paying subscribers, a number I still have yet to see Aereo dispute.

Aereo calls what they are doing an “innovative new business model” even though they have no traction and as of today and only offer twenty English based content channels, of which I’ve only heard of eight of them. The service does not work on many devices, the quality of the video they deliver is not what most would classify as HD and the company still hasn’t disclosed any details on how the videos are encoded or delivered.

Once of the biggest arguments of why Aereo can’t disrupt the traditional broadcast TV model is that they simply don’t have deep enough pockets and they can’t do much with the nearly $21M their raised in their first round, something that was proven today with the fact they have already announced a B round of financing. Even with today’s announcement, the company has only raised just over $60M. Part of that money will go towards their legal bills as broadcasters have taken them to court over their business model since Aereo doesn’t currently pay any re-transmission fees and trying to expand into nearly two dozen cities will burn through a lot of capital.

It would take Aereo signing up 262,500 customers, each paying $80 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. That’s not going to happen even with $60M in funding.

Aereo has said 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 even if the percentage is high, Aereo’s current offering is not what consumers are looking for to replace the current cable model. 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 eight channels anyone would actually watch. So there is nothing a la carte about having such a limited choice of content.

As I wrote in my last Aereo post, 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? It’s not going to happen. It’s the whole reason why Aereo’s CEO “declined to disclose how many people had signed up for Aereo so far” when asked by the NYT. The number is so small because whether the technology works or not, in its current form, this is not a service consumers are willing to pay for.

You can see a list of the 22 cities that Aereo plans to expand to by visiting this page on their website.

  • I’m just little old me

    Well, if Aereo isn’t “disruptive,” why are the networks and cable companies so scared that they’re suing Aereo right and left?

    I think you’re underestimating the number of people who want to get away from paying high monthly cable bills. If all the TV shows and movies you want to watch are available online, and you just want to tune into a few channels occasionally for “real-time” content (news or live sports), then why should you pay ridiculous prices for cable? Aereo is the perfect solution. As more and more content becomes available online, people will become less and less interested in getting that content through an expensive cable subscription.

    • http://twitter.com/DanRayburn Dan Rayburn

      What if someone came along who really had deep pockets and the ability to actually make a service people would pay for? There are billions at stake and the broadcasters have to make an example out of Aereo. They are protecting their business, but that does not mean that a company can and will disrupt them. That company still has to be able to offer good content, lots of choice, good quality, device support etc…. which Aereo does not offer.

      I’m not underestimating the number of people who would like to not pay their cable company and instead get video online for free or for a cheaper amount. Nearly everyone wants to save money. But Aereo does not offer what consumers are looking for. Aereo has very little in the way of content, choice, quality, device support, etc..

      Aereo is not the “perfect solution” if you live in NYC want to watch Mets games on SNY, Knicks on MSG, football on ESPN, 24 hours news on CNN, etc…. there is a ton of content Aereo does not have, not to mention movies etc… even paired with Netflix and Hulu, you’d still be missing out on a lot of content, let alone getting it at very high quality.

  • Alex Chapin

    I agree with the first comment. $8 per month for viewing basic cable channels on mobile devices and hopefully in the future streaming TV devices (Apple TV, Roku, and Google TV) for some live content (news, sports, TV shows) is not a bad deal if you combine that with Netflix or some other streaming option. Although, depending on your personal preferences Hulu Plus might be a better deal because it has more TV show content but Hulu Plus doesn’t have sports and local news as far as I know.

  • Ilya Goberman

    I would have to strongly disagree with author’s assessment. I live in suburb of Chicago and currently pay $38 month for the AT&T Basic cable that offer the same channels as Aereo. The reason I pay is because I cannot get these channels via antenna.

    I would be happy to cancel my cable service and switch to Aereo. I only have 2 concerns:

    1) It is not available on XBox

    2) Quality of service may be poor.

    But if these are addressed, I would switch.

  • Mike In Utah

    Aereo is live in Utah and I love Aereo!!! It gives us more choice! People who would use this are not the “main stream” cable/satalite customers. We simply want to have the ability to record the shows we watch OTA in an easy way. I have had cable/satalite in the past and found that 80% of the shows I watch are OTA so I was really only needing the recording piece that they provide me. This does exactly what I want for far less per month. Everything about it is easy! Link it with Roku and it is so easy to use that my “non tech savy” mother can use it with ease!

  • murphythadog

    I’m not 100% on board with this article. I think Aereo is awesome. I can’t get local DVR’d OTA television much cheaper than what I can build it for. It would take a ton of technology savvy to accomplish what Aereo is doing. For instance, my elderly mother would be able to use her DSL line and dvr all her shows and watch them at her leisure using a simple Roku box. It would save her about $60 per month and on her income that goes a long way. If she were to set this up herself, she’d need to get an OTA antenna, some type of DVR like Tivo or setup a HTPC which complicates things way too much. The OTA antenna may not work for all stations all the time and sometimes need adjustment. With Aereo you get all the stations in your area all the time with a small fee DVR included. It’s a win win in my book. She can supplement her entertainment with a cheap netflix streaming. She’d miss out on some Nascar as I can’t seem to find a way to stream that other than using FOX, which some races aren’t on FOX. She’d probably forgo that knowing she’s saving so much money. Once Aereo is available in her area, I’ll be buying and isntalling everything for her because I’m an awesome son and help her stretch her dollars.

    I actually use Aereo via my Time Warner/Roadrunner internet connection and my family couldn’t be happier. It’s so easy my non technical wife and my 4 year old have no problem with my setup. I’ve tried OTA antennas with no luck and can’t use an outdoor antenna based on HOA so Aereo is my only route.