Aereo's founder has broadcast TV in a headlock--now what? (Q&A)

NEW YORK--Broadcast TV is the last frontier for Web video, and Aereo founder Chet Kanojia has just stuck a tiny antenna into the virgin turf to claim it for himself.

Last week, a federal district court denied a request for a preliminary injunction against Aereo that was sought by two groups of TV broadcasters. The injunction would have required Aereo, a Web TV service, to halt operations. In their lawsuits, broadcasters such as NBC, Fox, ABC and CBS (parent company of CNET) accuse Aereo of ripping off their programming without compensating them.

Aereo says consumers are the ones accessing this content and they have every right to. Using dime-sized antennas, Aereo captures freely available over-the-air broadcast signals and then sends the programming over the Internet to Web-connected devices. The $12-per-month subscription service is only available in New York, but the company plans to expand soon.

Why would consumers pay for something that they can access free of charge? Well, when was the last time you clambered up to the roof to install a TV antenna? If you get the networks programming via a cable company, you end up paying for those channels and perhaps hundreds more you don't care about for ten times what Kanojia is asking. Either way, you still can't access much of the networks' content via the Web -- not without Aereo. Did I mention that Aereo, backed by media mogul Barry Diller, offers a DVR system?

The networks plan to appeal, so Kanojia's victory could eventually get overturned. But if the decision stands, it will mean one more reason to cut the cord. You can get movies and TV shows online from Netflix, Hulu, and Amazon and round out your news, weather and sports from Aereo. On Wednesday, Kanojia met with CNET to discuss his next moves.

Question: Aereo could kill the broadcast TV business, or at least that's what the broadcasters said in court. Nonetheless, many of my readers still don't know who you are. Tell them why they should care about you and Aereo.
Kanojia: With one step, we changed the entire TV industry. The television industry and its evolution are now starting towards the Internet and that was stopped until Aereo came along. With that one little antenna, we changed the entire access mechanism. And I think as consumers start migrating to the Internet, new programming and new content are going to come in. Maybe even some of the older guys are going to come in and say: "Hey, that's 20 percent of the population there or 15 or whatever the number happens to be, that's collecting on the Aereo platform. I need to go sell them more content."

That's going to happen. I don't know if that happens in year 2, 5 or 7. I don't know what the timeline is but the change has started. It's inevitable now. And it's going to happen in a finite time frame.

Here's one of the big questions that everybody in broadcast television wants to know about you and Aereo (pronounced air-rio): Do you come in peace?
Kanojia: As a person and company, we do come in peace. This is just the next step in the evolution of TV. Look, we told all these guys (broadcasters), we met with them and told them what we were doing. It was the most peaceful thing we could have done. It was complete transparency. We told them here's our technology, this is how it works, this is what we're thinking of doing. What do you think? I feel like we've been that way and we will continue being that way. We have zero desire to create change just for the sake of it.

I know my own habits. I think Charlie Ergen (chairman and co-founder of Dish Network), said that he's doing this stuff (with ad-skipping service Auto Hopper), because if you look at people under 30 they're not behaving like people think they behave. They're behaving very differently so I think it's a natural progression and an opportunity.

Are you guys in settlement talks with the broadcasters?
Kanojia: No. We have never had a conversation about settling.

What happens now? Walk us through the legal process.
Kanojia: We don't know what happens to the case at the moment. It is still ongoing litigation. The plaintiffs have filed a notice of intent to appeal the decision. Depending on what the nature of the appeal is, we don't know what's going to happen. The litigation may proceed or the judge could say let the 2nd Circuit Court of Appeals speak. We're obviously prepared, committed and the team's ready.

Would you welcome settlement talks?
Kanojia: You know we had said from the beginning this is what we're doing and tell us, what you think. You never get a reaction from some of these people and when you do, you get [he crosses his arms and scowls and says], "Yeah? We'll see." That's just foolish. The thing that I want to reinforce is we're not about to recreate an artificial system.

These are the technologies that you can innovate on. They're outside the cable boundary. This is the broadcasters' opportunity to innovate on advertising, for example, without dealing with the cable companies. The cable companies are the biggest roadblock because they want to control all the ad dollars too at the end of the day. This is why Canoe (Ventures, an effort by the cable industry to create unified standards for interactive TV broadcasting but closed down in February) was built and all this other stuff. This is an opportunity for the broadcasters to say 'Look, we can figure out what the next ad model looks like and work with somebody like Aereo to enable that technology.' Aereo is not an ad company. I don't have any desire to go out and sell advertising. I'm happy to build tech for these guys, whatever they think will work right. But you got GPS, you got iPads. You got PCs, laptops, Rokus, I mean the combination of this information, right? Targeted, singlecast, all of these things are going to be so powerful from an advertising perspective. They just got to sit down and talk to guys like us.

Compared to what's coming, you guys are way more friendly?
Kanojia: Way more friendly!

Where did you get the idea for Aereo?
Kanojia: So, I've been in the industry for a while. I would look at the viewership data and it was pretty obvious that 25, 27, 30 percent of the people only watched broadcast and seven, eight channels was all that people really cared about -- not a bajillion channels. So, I looked at the equation and I looked at the immense power these cable guys had in front of a consumer. They controlled the entire table. So I said I want to create the next consumer relationship. So whoever creates the next consumer relationship obviously has to be on the Internet because that's the only real platform now for distribution. Second, whoever wants to do that has to enable broadcast. Otherwise, you're just Web video and there are plenty of guys doing Web video. I didn't want to be plenty of guys. I wanted to have an exclusive, a very unique place in the world.

I've been involved with network DVR development, supplying technology in that area. So I was following the Cablevision case very closely. And when the appellate court ruled that the network DVR was legal I said I just found my answer because if network DVR is legal and if I can provide network DVR with an antenna I solved my broadcast access problem. So the day that happened, I called Microsoft (which bought Navic Networks, the Web-advertising company Kanojia's founded) and said I'm done here. At that point, there were no designs, there was nothing but the concept forming in my head.

You didn't have a little antenna in your head?
Kanojia: I did. I had a little antenna in my head. But it didn't exist. I didn't know if the physics could be done. I'm not a (radio frequency) guy but I knew the rest I could do.

Let's talk about the court case. What do you think won it for you? What was it about your argument that swayed U.S. District Judge Alison Nathan?
Kanojia: Technology, straight forward. The judge said it. Companies like us depend on precedent. So we read what the precedent was. We built the technology that complied with that precedent. That's really what won it. I'm so glad that the judge saw that the technology worked. Despite all the characteristics they talked about [and the claims by the networks that the antennas really weren't functional] and everything else, she found that the technology worked as we described it.

What was the first thing you said to Barry Diller when you learned of the decision?
Kanojia: My general counsel called and she usually never calls me. It's usually a text or e-mail. But I was on the train back to Boston and it was funny because I was on the train back to Boston when we got sued...my phone rang and it was Brenda [Cotter] and I said to myself 'Oh, we got a decision.' So, I answered and she said only two words: "We won."

So I sent a quick note to Barry [Diller]. He was at the (Allen & Co. conference) in Sun Valley and I sent him literally the same two words: "We won." When we talked he said "Congratulations. Okay, now let's go do it."

So you guys had your battle plan already figured out?
Kanojia: I think the battle plan is pretty straightforward: market the product. We haven't yet marketed anything in New York. We will build a plan for scaling the company. We think every major metro represents a good population base that we can go after. There's a lot of interest in the company from a lot of other partners that want to do something with us, whether it's on the content side, whether it's on the distribution side whether it's on the packaging side. We will sort through what the right mix of those partners happens to be and within nine months be in 15 to 20 markets.

Your legal battle plan is also set?
Kanojia: We committed to see this through one way or the other -- all the way. My confidence in where we're at legally is no less or no more than the day we started.

Well you got to be a little more confident, right? You just won this ruling.
Kanojia: But maybe I got lucky or maybe I'm stupid but I thought "Look, this is what the law says you can do, so if B complies with the law how can B be wrong? So, I'm still at the same place. People said "You were too clever," and I said "Hey, the law says you can read a speed sign and don't exceed the speed limit." I read what people said you can do legally and that's what I did, so stop complaining.

How important is Barry Diller to your company?
Kanojia: He certainly fits the profile, unquestionably. You know, it's interesting when you're doing something like this. I did not just want anybody as an investor. The goal was to get seasoned investors who understand the market, because it's not an obvious market. The inner workings aren't obvious to everybody. When I met Barry, I thought this makes sense at some level, although there's the fact that he's a mogul and you're a little start-up so you don't know how this thing will work out. I only wanted to work with him and not just IAC in general. I wanted to make sure that he was the person I was getting involved with.

Boy, am I glad that I did.

He's a very sophisticated thinker. He understands and helps me on marketing, which is very important. When we were doing the investment deal, he said "Look, tech stuff you got. I can help with you with marketing. I can help you with where the landscape is evolving. I can help you with the relationships." And he's sort of done that. He was really critical in moving the company's pace a lot faster. We would have been a lot slower paced development approach, just because it would have been more conservative.

Are you worried that some other player is going to come in now that you've set this court precedent and snatch the market away from you? Some cable company may be in a better position to take advantage of this decision than Aereo.
Kanojia: Look, I'm all for competition. I think that validates markets. The more competition comes in the more money is spent on marketing and educating consumers. Those are good things. We're pretty confident that the intellectual property we've built is pretty robust and obviously we'll protect it. But I think competition in general and bringing it to the market is a good thing. It's a huge market, right? There's plenty of room.

Not only is there plenty of room but it assists all of us. It's all about educating the consumer.

You're saying "Look, you're old way of thinking...there's a different world now Bob. There are different options. You can make some choices." I think that the more companies are out there educating people, the more that's going to happen.