Bloomberg News

Aereo Raises $34 Million in Funding to Expand Online-TV Service

January 08, 2014

Aereo Inc., the controversial streaming-television service, has raised $34 million in funding as it looks to expand into additional cities.

Investors in the round include Himalaya Capital Management and Gordon Crawford, the former Capital Group Cos. fund manager, New York-based Aereo said yesterday in a statement. IAC/InteractiveCorp (IACI:US), Highland Capital Partners and FirstMark Capital added to their investments in the company.

Aereo began expanding outside of New York last year and is pushing into new markets even as it faces a legal challenge from broadcasters. The company uses thousands of small antennas to capture free over-the-air TV signals and transmit them to subscribers on the Internet for $8 a month. Unlike traditional pay-TV providers, it doesn’t pay any fees to the broadcasters.

“The subscriber base has been growing rapidly. It’s a steady march forward and we need a lot of resources,” Chief Executive Officer Chet Kanojia said in an interview. “A lot of the capital will go toward additional applications, putting some money into marketing and additional expansion.”

Aereo is now in 10 cities, having fallen short of the goal it set last year to expand to 22 markets due to unforeseen challenges in building its infrastructure. In addition to New York, it offers service in Boston, Atlanta, Salt Lake City, Miami, Houston, Dallas, Detroit, Denver and Baltimore.

The company plans to add five more markets by the end of March and has increased its staff to about 105 people from 40 employees last year, Kanojia said.

Supreme Court

Media companies including CBS Corp. (CBS:US) and 21st Century Fox Inc., owner of Fox, have sued the startup, saying it’s reselling their content without permission. Aereo argues that it doesn’t need to compensate the networks because it receives television signals fairly with its antennas.

The U.S. Supreme Court will say as soon as Jan. 10 whether it will consider the broadcasters’ bid to shut Aereo down. Both sides in the dispute are seeking a high-court hearing, increasing the chance that the justices will step in.

At stake are retransmission fees paid by TV distributors such as DirecTV (DTV:US) and Comcast Corp., since a court victory by Aereo would call into question whether pay-TV operators need to compensate over-the-air broadcasters for rights to air their programming. Those retransmission fees are expected to top $4.29 billion this year, according to estimates from research firm SNL Kagan.

“We are very optimistic since we have won four in a row,” Kanojia said, referring to legal decisions in the case. “Consumers need another option.”

IAC Chairman Barry Diller said in November that Aereo may eventually get as much as 35 percent of U.S. households to subscribe -- if it overcomes its legal hurdles -- because people in their mid- to late 20s aren’t willing to pay $100 a month for cable-TV packages.

To contact the reporter on this story: Alex Barinka in New York at abarinka2@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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