Even If The Supreme Court Ruled In Aereo’s Favor, It Still Had No Viable Business Model

Those who have read my blog before know that I have criticized Aereo’s business from day one. [See: Barry Diller’s OTT Service Aereo Is Dead On Arrival] Not from the standpoint of whether or not the service was operating legally, but rather with the perspective that when it comes right down to it, Aereo’s service simply isn’t compelling for the majority of consumers and never would be. Aereo offers very little in the way of content, with few choices, only average video quality, on only a few devices, with buggy DVR software. This is the exact opposite of what the vast majority of consumers are looking for in the market when it comes to how they want to consume premium content.

As a whole, the media’s coverage of Aereo has been poor in that it hasn’t fostered a conversation about what consumers want and whether or not Aereo was actually providing it. The story should not be about Aereo’s technology, or size of their antennas, but rather about the business models that their technology could or could not support. There is no value of any technology if it is packaged and brought to the market as a service that consumers are not willing to pay for in volume. Many in the media have been blinded by Aereo, thinking and predicting that their technology was going to replace or displace cable TV, that many simply can’t see the reality. Aereo failed not because it was found to infringe upon the rights of copyright holders, but because their offering wasn’t one that was compelling, reliable or in demand by consumers. Many want to talk about the technology, but few ever questioned Aereo’s business model. That has to change.

Netflix and other services have taught us that consumers want a lot of content choice, they want a deep catalog of content to pick from, they want it on all of their devices, they expect the quality of the video to be very good and the service to be easy to use. This isn’t what Aereo offered. For all the talk by Aereo and some members of the media on how Aereo allowed consumers “to pay only for the channels they want without being tied to cable companies”, the fact is that Aereo didn’t allow for that at all. A USA Today article writes that a “passionate base of a la carte TV fans is cringing”, because with Aereo “consumers can choose to pay only for the channels they want without being tied to cable companies. No, they can’t.

Aereo doesn’t have an a la carte offering of any kind. Aereo offers only one package, without the ability for users to only pick the channels they want. Of the 35 channels offered in the NYC area, Aereo doesn’t allow users to strip out the 10 channels that are broadcast in foreign languages and pay a lower price each month. No, like the cable TV market, Aereo forces users to pay for channels they may not have any ability to watch or have any interest in using. So for all the posturing by Aereo on how it was different from the cable TV industry, the fact is, their packaging was exactly the same. Aereo themselves used the term a la carte when they would talk about their service, when in reality, there is no a la carte at all.

The real discussion should be about what consumers are willing to pay for, what type of content they want to watch, how they want to consume it, what quality they want it in, and the business models that most resonate with them be it subscription, rental, PPV or download to own. Focusing on the size of Aereo’s antennas or how much consumers hate paying their cable bill isn’t the real story. Outside of the copyright issues, there is nothing to debate. The fact that Aereo’s service has been in the market for almost two and a half years, and they haven’t even penetrated 1% of the cable TV market, shows that it’s not the technology that was holding back their business, but rather consumer demand for such a service.

If Aereo came to the market and said it was a niche service and that a small percentage of consumers would want it that would have been accurate. But Aereo’s CEO and Barry Diller’s kept saying the opposite, stating that 25-30 million consumers in the U.S. would pay for such a service, with no data or previous use cases of any kind to back up such statements. Aereo set expectations they could not live up to and weren’t being realistic with themselves, or others in the industry. Just look at this video on Aereo’s website that gives an inside look at their technology where their Chief Commercial Officer says that consumers can access Aereo,”from any device that is Internet connected”. Any device? That’s simply not accurate.

Aereo didn’t understand what consumers are willing to pay for, how to package their service to truly stand apart from cable TV, or how important video quality really is. Aereo set themselves up for failure from day one. They have no one to blame but themselves. The Supreme Court ruling isn’t what stopped Aereo’s business from being successful, it was Aereo’s insistence that their technology would drive demand for their limited service that the majority of consumers never wanted to begin with.

  • Mike G

    Dan,
    Great analysis, right on. I would also add that Aereo had a severe technical problem since it relied on unicast. An event such as the Superbowl would swamp the Internet. I would love to see better TV services but Aereo did nothing to solve the real problems of tiering and bundling. One reason why I put up an antenna,my revolt. ;)
    Keep it up,
    Mike