http://www.businessweek.com/articles/2013-04-03/aereo-won-in-court-dot-can-it-win-over-consumers

Mobile & Telecom

Aereo Won in Court; Can It Win Over Consumers?


The Aereo CTO with small antennas that will pick up and stream local broadcast channels.

Photograph by Kirsten Luce/The New York Times via Redux

The Aereo CTO with small antennas that will pick up and stream local broadcast channels.

Aereo, a fledgling tech company that allows subscribers to watch broadcast TV on Internet-connected devices (such as smartphones, tablets, and Roku), won another round of legal wrangling this week in its ongoing battle with angry broadcasters. On Monday, a federal appeals court in New York upheld a lower court’s ruling, rejecting a request for an injunction to shut down Aereo. The plaintiffs, a collection of more than a dozen media companies, are accusing Aereo of copyright infringement that involves the reselling of their programming without consent or payment.

The fight is now likely headed for trial. In the meantime, the ruling will allow Aereo, which is currently available only to subscribers in New York, to move forward with its plans to expand into another 22 U.S. cities. “We always thought our Aereo platform was permissible, and I’m glad the court has denied the injunction,” Aereo backer Barry Diller told the New York Times. “Now we’ll build out the rest of the U.S.”

(Bloomberg LP, which owns Bloomberg Businessweek, is an Aereo partner and offers its cable channel on the service.)

While Aereo has proven itself capable of winning in court, it now faces an even steeper challenge: winning in the living room. Given how much Americans love sitting on their couches and watching traditional TV, it’s not an easy habit to disrupt.

Aereo, which has a range of pricing options (an annual subscription costs $80), won’t disclose how many customers it has. But it’s probably a modest number. In 2012, the New York market, the largest in the country, consisted of 7,387,810 TV homes, according to Nielsen. And more than 95 percent of Americans currently watch TV using a traditional cable or satellite option. Within the small subset of Americans who live in so-called “zero-TV households,” only 48 percent watch streaming TV content via a pay subscription. So it’s reasonable to assume that the entire market for Aereo’s services at the moment probably hovers at less than 200,000 households.

In spite of Monday’s victory, in other words, Aereo still has a long, long way to go before it hammers “A Nail in the Coffin of the Cable Television” business. Legal victories likely won’t be enough for Aereo to reshape the industry. At some point, the company has to win with consumers, too.

“The biggest obstacle limiting scaled deployments of something new relates to consumer behavior,” Brian Wieser of the Pivotal Research Group wrote last year. ”Cheaper video services are conceptually preferable to more expensive ones, but the service that consumers actually seek includes much more than the underlying content. First and foremost, the vast majority of consumers don’t want to think about how they access video: They just want it to work. Traditional video services require consumers to do little more than turn their TV set on and select a channel via a program guide, and for anything to supplant incumbent offerings for the majority of the population, it will be necessary to offer up a service involving as little change as possible from the existing model.”

For anyone hoping to replicate their current entertainment options without paying for a cable or satellite subscription, Aereo offers one piece of the overall puzzle (in particular, it gives cord cutters a cheap, reliable way to watch the range of sports games that are broadcast live on ABC, FOX, NBC, and CBS). Most customers still need to pay for broadband access and will want another subscription service, such as Netflix or Amazon, to get movies and TV series. The content from some networks, such as HBO, will remain largely out of reach without resorting to illegal pirating.

In the wake of Monday’s ruling in Aereo’s favor, the existing TV model still rules. The “bottom line,” Wieser wrote on Tuesday morning, is that “the Appeals Court ruling in favor of Aereo has no meaningful short-term impact.”

Gillette_190
Gillette is a staff writer for Bloomberg Businessweek in New York.

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