Aereo’s Plan B?

I’m a very happy Aereo subscriber.

So, I’m incredibly bummed that Aereo lost its Supreme Court case and has now stopped its service. I’ve interacted with CEO Chet Kanojia a few times and have always found him to be incredibly thoughtful and driven. When you read about his life story, you cannot help but feel inspired.

Some have wondered why Aereo has not announced a clear “next step.” As I was thinking about it this morning, I wonder if it is because their next step really depends on what the broadcasters (NBC, ABC, Disney, etc.), who won the case, first do. So, there’s no Plan B until the broadcasters show their cards.

This is complete and total speculation, but I’m wondering if these are some potential outcomes:

The broadcasters kill Aereo. They could sue Aereo for damages. Kyle Alspach has written about it here. But, this would effectively force Aereo into bankruptcy and kill the company. It’s the nuclear option.

The broadcasters let Aereo survive as an independent company. IMO, this is unlikely. The broadcasters collect $4 billion a year from cable operators, who retransmit the broadcasters’ content. These cable companies greatly fear Aereo, since the service encourages people to drop their expensive cable TV plans.

Personally, I don’t see the broadcasters willing to tick off some big customers and thereby jeopardize $4 billion of fees, which are nearly pure profit for them. After all, this is why they sued in the first place.

The broadcasters make Aereo “captive” to control its intellectual property. Aereo has built some great technology that allows users to pick, store and view TV shows on multiple devices, whether it be laptop, phone or tablet. That is valuable.

In this TV Everywhere era, the broadcasters one day may want the optionality to transmit directly to the consumer.  Think Hulu v.2. So, they could craft a settlement agreement with Aereo that keeps it going but on the broadcasters’ terms.

But, as with the above point, will broadcasters be willing to compete directly with the cable companies and thereby jeopardize their $4 billion of fees?  I don’t think so in the near-term.

So, this will cap the value that Aereo can garner in this option. And, if there isn’t a lot of value on the table, key management will leave. The technology won’t be worth much going forward much if its key developers walk, and it will become stale over time.

The broadcasters sit on the intellectual property. This is a hybrid strategy, involving a few elements written above. The broadcasters can sue Aereo for damages, force it into Chapter 7, and then buy out of bankruptcy the code base as an asset. They let all employees walk. The broadcasters then can try to resurrect the code in the future, if and when they decide to transmit directly to the consumer. Again, option value.

This also will keep the code base out of someone else’s hands. There’s value to that, but that also is capped. The Supreme Court ruling should clearly deter other U.S.-based potential entrants. That is much more valuable IMO than a static code base. (I write “U.S.-based” because there are plenty of pirate sites abroad that retransmit content; example here).

I’m a huge fan of the Aereo service and of Chet. I hope they can work something out that works out well for the consumer and them.

6/29 Addendum:

I’ve been thinking more about this. Something Aereo can do to increase its negotiating leverage is this: threaten to open source its code. There are many, many non-U.S. companies that retransmit content. They’re known as pirate sites.

Well, what if Aereo open-sourced its code and essentially gave it away? I think the broadcasters would fear this, and so, they may be more willing to strike a more fair deal with Aereo. Just a thought.

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