Companies & Industries

Aereo (2011–2014) built its house on shifting legal sands

The would-be-disruptive broadcaster fought the law, and you know the rest

Aereo CEO Chet Kanojia holds one of the company's small antennas.

Aereo CEO Chet Kanojia holds one of the company’s small antennas. (Lane Turner/Boston Globe/Getty)

Aereo started life as Bamboom Labs. It was the second child of Chaitanya (Chet) Kanojia, who sold an earlier venture, which measured television audience demographics, to Microsoft. He took away one major insight from that project: At any given time, about 50% of pay-TV viewers are watching over-the-air channels that are easily acquired using rabbit ears.

Founded in 2011, Bamboom offered a way to transmit these broadcast television signals to any Internet-connected device, including smartphones and tablets. To do so, the New York–based company developed and rented out tiny antennas to customers. The flat four-pronged device, about the size of a dime, captured nearby broadcast signals and beamed them to Aereo’s cloud servers, allowing subscribers to stream content. Viewers could record programs and watch later, or pause and rewind in real time. The cost was less than that of a cable subscription.

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Barry Diller, the media mogul behind IAC/InterActiveCorp, joined the Bamboom board in 2012; his firm led a US$20.5 million financing round. The company changed its name to Aereo around that time.

Beneath the triumphant proclamations of disruption were more practical matters, such as whether Aereo’s business model was even legal. Television networks demand fees to retransmit their broadcast signals, reaping $3.3 billion in the process last year. Kanojia told Forbes magazine he had consulted with major broadcasters in the U.S. when he started the company. “The reaction was, ‘We’ll see you in court.’”

Sure enough, CBS and other networks sued Aereo shortly after Diller came aboard, accusing the company of violating copyright law. Aereo’s uncertain legality likely hampered its expansion efforts. It’s estimated the business had recruited fewer than 500,000 customers in the U.S. as of a few months ago. The case, meanwhile, made it all the way to the Supreme Court.

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On June 25, the court ruled in favour of the networks and concluded Aereo would have to pay broadcasters to keep operating. The company suspended its services, and the decision appears to have killed Aereo’s business model. Diller said as much, telling CNBC, “We did try, but it’s over now.”

The short, stunted life of Aereo illustrates the consequences of basing a business on shaky legal ground. Other so-called disrupters, such as Uber and Airbnb, worked within legal frameworks to challenge entrenched industries. Aereo attempted to smash its way through under the mistaken belief that because it was making the consumer’s life easier, it would prevail.

On CNBC, Diller made it clear Aereo should not be forgotten: “I only salute Chet Kanojia and his band of Aereo’lers for fighting the good fight.”