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Meet the Start-Up That's Scaring the Network Giants

By Allison Kade

If you've heard the term "cord-cutting" pop up in the news as of late, you may have assumed that it had something to do with breaking free from Mom—but it's actually being used to refer to the growing ranks of people who are ditching their cable subscriptions.

According to a 2012 study conducted by the online company Tremor Video, some 31% of people were at least thinking about cord-cutting. Yet another study by Deloitte predicts that, in reality, fewer than 1% of Americans will actually cut those cable cords this year.

So what could possibly be standing in their way? Perhaps it's the inability to watch live TV on their computers or mobile devices.

But one brazen tech startup, Inc. magazine.

And despite legal challenges from broadcasters, the courts have repeatedly found the service to be legal ... for now. So is Aereo the future of TV or the next Napster?

The ABCs of Aereo

Unlike such service providers as Hulu or Netflix, Aereo allows you to stream TV live from free broadcast channels—ABC, CBS and PBS, to name a few—so you can watch sporting events, awards shows and your local news. And it lets you view from any device, including an iPad, a computer and even a television set, as long as it's connected to the internet through a service like Apple TV or Roku.

For now, Aereo is only available in New York and Boston, with plans to start service in Atlanta on June 17. Service costs $8 per month for live broadcast streaming, with a DVR maximum of 20 hours. Pay a $12 monthly fee and it ups your DVR capacity to 60 hours. There's no long-term commitment, contract, equipment or installation process—and the subscription comes with up to five connected devices, which you can change at will.

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How Real People Use It

Brian Nicoletti, a 30-year-old marketing manager, had wanted to cut his cable cord for several years, but he was worried about missing out on live sports. "Once I saw that I could get live programming with my current setup, I was in," says Nicoletti, who has subscribed to Aereo since March, and uses the service mostly on his living room TV through a Roku box. "Aereo was a one-click install to my existing setup."

Aereo doesn't disclose how many people subscribe to its service, but in the short time that Nicoletti has been a member, the service has certainly won him over. "Aereo is one of the most transparent, pro-consumer web services I've ever seen," he says. "Unlike cable, they don't sneak in fees, and they offer tons of options—multiple devices, platforms, mobile—to access your service."

His one complaint? "I can't stand that it doesn't allow for uninterrupted viewing," he says. "After a program is over, it goes to the main menu, and you have to select the next show on the same channel."

Aereo also helps consumers based in areas without good broadcast signals. "My parents live in the Bronx, and until a few years ago, they were given free cable because you simply couldn't pick up a signal in that neighborhood," says Chris McKay, Aereo's head of customer care. "Then about two years ago, everything went digital and cable fees were no longer subsidized. Their only option would've been to pay for a full cable package, which can easily cost $100 a month. Aereo fills that need for them."

In the end, McKay says, "Aereo is the same as having an HD antenna, TiVo and Slingbox all-in-one. But it's expensive to buy all of those, and you have to be tech-savvy to get them all to work. With Aereo, you just go to a website and start watching TV."

A Look at Aereo's Legal Battles

Last year, Aereo was sued by CBS, Fox, ABC and NBC, which argued that Aereo is violating copyrights by distributing their shows without paying for it. Aereo won the first lawsuit—a decision that was reaffirmed in a U.S. appeals court.

CBS has promised to sue again, so the startup has gone on the offensive by filing a complaint against CBS. "The fact that CBS did not prevail in their efforts to enjoin Aereo in their existing federal lawsuit does not entitle them to a do- over in another jurisdiction," said Aereo spokeswoman Virginia Lam.

 

The goal is to allow members to decide what they want to watch—we think making content à la carte is important.

 

Despite Aereo's legal wins, major networks could simply choose not to broadcast for free anymore. This may only be a threat, but News Corp.'s president and chief operating officer Chase Carey said in April that Fox could turn into a paid cable channel if the courts didn't rule his way.

The resistance from major networks may seem counterintuitive: They're already broadcasting for free, so who cares if a service lets users view that broadcast on their computers? The real issue is that Aereo is tempting for cord-cutters—and the networks can't afford for millions of Americans to drop cable subscriptions because the networks receive a lot of money from cable companies that pay for their content.

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For its part, Aereo wants to add paid channels—and give subscribers the option to only pay for what they actually view. "The goal is to allow our members to decide what they want to watch, and what they want to pay for," says McKay. "So if we end up offering additional channels in the future, those will be add-ons to the base, not a bundle deal. We think making content à la carte is very important, rather than forcing channels on people."

Is Aereo Right for You?

The service appeals to a certain type of TV watcher. "If you want HBO and ESPN, then Aereo will not provide that for you," McKay says. "But if you don't watch that much TV, and don't want to pay a huge bill for the amount that you do watch, this is something you might want to consider."

Aereo Might Be Good for You If ...

  • You love live broadcasts. Maybe you don't watch cable or don't mind waiting until after the air date to get your "Breaking Bad" fix from Netflix.
  • You want to watch on mobile. Aereo solves your problem ... as long as you're content with broadcast channels. If you want cable on your iPad, this isn't going to be sufficient.
  • You don't want to pay for multiple cable boxes or subscriptions. Maybe you don't want a whole new cable setup in yet another room.
  • Your neighborhood doesn't get a sufficient broadcast signal. If you have to choose between forgoing live TV or shelling out for a cable package when all you want are the network channels, Aereo can fill the gap.
  • You want cheaper DVR. Hulu is great for watching shows on demand, but some are only available for a limited time, and others require you to wait before they become available. Aereo is ideal if you want to be the keeper of your own episodes, and $8 a month is less than most major DVR services.

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Aereo Might Not Be a Good Fit If ...

  • You watch a ton of cable television. A cable subscription is probably still your best bet if you are die-hard about certain premium channels, especially if you want to watch shows when they first come out.
  • You don't care about live television. If you don't mind catching episodes after the fact, the internet is a goldmine.
  • You have an HD antenna, TiVo and Slingbox. If you've figured out how to stream live TV on your own, go for it. But if you don't have the time or know-how to set up such a complex system, Aereo could be an option.

In the end, McKay says, "Aereo isn't one-size-fits-all, but a lot of people don't watch that much TV, and yet pay a lot. They wish there were another way to bridge the gap between what they watch and what they pay."

Read More:   TV, cable
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