Over the Aereo: Killer Diller Just Might Help Viewers Cut the Cord At Last

Barry Diller used to run a broadcast network. Now, his former colleagues say, he’s about to run them into the ground.

screen shot 2012 05 23 at 9 28 47 am Over the Aereo: Killer Diller Just Might Help Viewers Cut the Cord At Last

Mr. Kanojia at the Internet Week party (via Wire Image)

For a product that’s attracted so much legal heat, it’s perhaps fitting that Mr. Kanojia’s inspiration started with a lawsuit, he told The Observer early this month in the Park Avenue outpost of his PR company (Aereo’s Long Island City office is under construction).

Mr. Kanojia, who speaks with a polyglot post-colonial accent shared by many an Indian expat, sat cross-legged in an armchair. His Gérald Genta watch was a jump-hour, a wonkish call-back to his training as an engineer. But like his benefactor, Mr. Kanojia also has ties to the television world he is upending. His former company Navic Networks, which was purchased by Microsoft in 2008, produced a piece of software embedded in cable boxes.

“We would monitor viewers across millions and millions of homes,” he recalled. “What I really saw was a third of the households, give or take, watched broadcast only,” he said. Despite access to 500 channels and DVRs, “80 percent of the households only watched seven or eight channels.”

Then, Mr. Kanojia saw a way to provide those “pulse-of-life” broadcast channels from the cloud in a manner that followed the letter of the law. In 2009, the Supreme Court ruled that Cablevision was within its rights to move its DVR systems to remote servers, rather than have consumers store the programs they chose to record in their individual boxes. “A simple logical extension to me was: this content is broadcast for the consumer, ends up in the public airwaves, is part of the broadcast legacy. So if network DVR is legal why can’t we build a remote network antenna?”

When Aereo launched publicly in March in the New York market, the service billed itself as merely an upgrade on rabbit ears for the Internet era. Because users only access one antenna per viewing session, the company argues it’s a “private performance,” allotted to every citizen in exchange for the broadcaster’s access to the public airwaves.

Network sources view it differently. “They’re stealing the content!” one executive told The Observer. “It’s baloney, it’s a rationalization of pure theft.”

The plaintiffs argue that Aereo is more of a cynical legal ploy than a technological innovation—and that Aereo puts the networks’ very existence in jeopardy by cutting into advertising dollars, retransmission fees and their own ability to monetize the Internet. The case has echoes of a similar argument Jack Valenti, former head of the Motion Picture Association, leveled against the VCR, comparing it to the Boston Strangler. In that landmark Supreme Court trial, referred to as “the Betamax case,” Fred Rogers, he of the cabled cardigans and neighborly wisdom, testified in favor of innovation. “Very frankly, I am opposed to people being programmed by others,” he said. “I just feel that anything that allows a person to be more active in the control of his or her life, in a healthy way, is important.”

But in Aereo’s case, even Mr. Rogers’s own network is siding with the plaintiffs. In filings for the lawsuit, declaration after declaration from studio execs insinuates that Aereo could mean the end of beloved content and the networks’ ability to offer it for free over the airwaves. NBC’s declaration made threatening remarks about Sunday Night Football; PBS, a nonprofit, bemoaned the future of Great Performances.

“I don’t believe that for a second. I’ve heard that literally going back 40 years,” Mr. Diller said. “It used to be argued, by networks—I was at one when I started in the ’70s—that cable was the biggest threat to networks survival. So I don’t think the argument is valid.”

Not that it surprised him. “Any incumbent in any area,” he added, will wield “pitchforks to protect their incumbency.” Asked how he would have responded, were he still head of a network, he said, “Exactly as they are. I understand why they would make arguments about diminished programming, because it’s such a populist concept. I just don’t think it’s got any basis in reality.”

Network sources intimate that Mr. Diller, who made his name in programming, should know better. But it’s a sensitive topic. Asked about Aereo at a recent executive breakfast at the Pierre Hotel hosted by The Wall Street Journal, Disney/ABC Television Group president Anne Sweeney curtly declined to comment.

But Mr. Greenfield, the BTIG analyst, sides with Mr. Diller. “This should lead to people watching more television, not less. Advertising should benefit. It does attack retrans, but retrans didn’t even exist in terms of dollars until a few years ago, so I find it hard to believe it would destroy them,” he said. The reason networks cling so desperately to retrans fees is because they represent a growing source of revenue with “no cost attached to it,” Mr. Greenfield added.

Mr. Diller also downplays the effect to networks’ bottom line. “Well, first of all, I don’t think Aereo presages the end of retransmission fees,” he said. “It may affect the absolute amount, but the amount is going to be large regardless of Aereo.”

The real impact, he noted, will be in increased video consumption online. “It will lead to more à la carte viewing, not packaged viewing. And I think that is an alternative many people would like.”

Still, it’s not as though Mr. Diller is entirely devoid of concern for his former colleagues in the broadcast world. “If I felt that they would lose revenue, in a material way, of course I would be sympathetic,” he said, surprising us with a benevolent tone. “I want them to get as much revenue as possible.” After all, he pointed out, IAC is also in the business of content creation. “We make programs we want them to pay for.”


A version of this story appeared in the May 23, 2012 issue of The New York Observer