# Aereo (2012 – 2014)

- URL: https://girisimcikafasi.com/en/startup-graveyard/aereo/
- Sector: Media and entertainment
- Country: United States
- Total funding: unknown
- Cause of closure: Regulation and legal issues

## What did it do?

Aereo rented each subscriber a small aerial of their own and a cloud recorder housed in a remote warehouse, letting them watch local television channels live or recorded on internet-connected devices. The service launched in New York in March 2012 and then spread to cities such as Boston and Atlanta. Monthly plans started at USD 8 for 20 hours of recording space.

## Why did it shut down?

The major broadcasters sued Aereo for distributing their content without paying the retransmission fees they collected from cable operators. The dispute went all the way to the US Supreme Court, which ruled 6–3 in June 2014 that Aereo was no different from a cable operator and was therefore infringing copyright. The company suspended its service three days later and refunded its subscribers. With no model left that could survive without paying licence fees, it filed for Chapter 11 bankruptcy in November 2014. Its assets were sold to TiVo for USD 1 million in March 2015.

## The story

On the last Saturday of June 2014, at 11.30 New York time, Aereo subscribers' screens went dark. The company had announced that it was pausing its service following the ruling handed down by the US Supreme Court three days earlier. The experiment, which had lasted a little over two years, showed how fragile a business built on the fine line between technology and law can be.

Founded by Chet Kanojia, Aereo opened to customers in New York in March 2012 and was backed by Barry Diller's IAC. The model worked like this: each subscriber rented a tiny aerial belonging to them alone, housed in a remote warehouse, along with a cloud-based recorder. Through that aerial users could watch local channels live on their computer, iPad or Roku device, or record them to watch later. Monthly plans started at USD 8. After New York the service spread to cities such as Boston and Atlanta; by the end of 2013 it had reached around 80,000 subscribers.

The broadcasters saw things very differently. Retransmission fees paid by cable operators could account for up to 10 per cent of a broadcaster's revenue, and Aereo was distributing that content without paying anything. The lawsuits made their way to the Supreme Court. At the heart of the dispute was whether what Aereo did counted as a public performance under copyright law. On 25 June 2014 the court ruled 6–3 that, despite the differences in technology, Aereo was no different from a cable operator and was infringing the rights holders' rights.

The ruling rendered the company's entire architecture pointless. The individual aerial idea had been designed to get around the law on a technicality; once the court said this detail did not change the essence of the service, what was left was a start-up obliged to pay licence fees but with no revenue to cover them. Kanojia contested the ruling in an open letter to customers, but Aereo filed for Chapter 11 bankruptcy in New York on 21 November 2014. In March 2015 the digital video recorder company TiVo bought Aereo's assets for USD 1 million.

Aereo's story is a reminder that a product users love is not enough on its own. If a product's value comes from distributing other people's content for free, the business model depends either on a deal with the rights holders or on a court ruling. Aereo bet on the second and lost.

## Lessons

- If your business model depends on a regulatory loophole, plan for the worst-case court ruling from the outset; in fields such as broadcasting, talk early to the regulator (in Turkey, RTÜK) and to rights holders.
- Rather than trying to get around a legal definition with a technical workaround, make revenue sharing with rights holders part of the product.
- If you directly threaten the revenue of big players, write into your financing plan that the risk of litigation will grow as you do.

## Sources

- [Aereo](https://en.wikipedia.org/wiki/Aereo)
- [Aereo loses to broadcasters in Supreme Court fight for its life](https://www.theverge.com/2014/6/25/5801052/aereo-supreme-court-ruling/in/2779059)
- [Aereo Files For Chapter 11 Bankruptcy](https://techcrunch.com/2014/11/21/aereo-files-for-chapter-11-bankruptcy/)