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.