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Aereo is destined to fail, media analyst predicts

August 15, 2012|By Joe Flint
  • Barry Diller wants to create a new TV distribution system, but he has doubters.
Barry Diller wants to create a new TV distribution system, but he has doubters. (AFP / Getty Images )

Aereo Inc., the new distribution service that media mogul Barry Diller is backing, has little chance of survival, a media analyst said.

Besides the legal battles Aereo is facing with CBS, NBC, Fox, ABC and other broadcasters, there are also questions about whether there is demand for what Aereo is offering.

"Even if Aereo can win in court, the company is already dead in the water for multiple reasons," said Dan Rayburn, an analyst with Frost & Sullivan.

Aereo, which launched last spring in New York, basically transmits the signals of local broadcast stations via the Internet to smartphones, tablets and Internet-friendly TVs. Aereo charges subscribers $12 a month for a small antenna that receives broadcast signals and a remote digital video recorder that can hold up to 40 hours of shows.

A group of broadcasters filed a lawsuit to stop Aereo, claiming their copyrights were being violated. Although a federal judge in New York denied their request for a preliminary injunction against Aereo, the legal fight is only just beginning.

"All Aereo got was a stay of execution," Rayburn cracked in his report.

Aereo has raised $20.5 million. Diller, who is on its board and his company --IAC/InterActiveCorp-- led the financing.

Rayburn said that won't be enough to get Aereo off the ground and pay the legal bills. The broadcasters, Rayburn said, "will have no problem spending money to drown Aereo in legal costs."

Aereo has kept mum on the number of paying subscribers it has, but Rayburn says the figure is less than 2,000 and that the company would need to sign up 150,000 customers for a year "just to make back their original investment."

Many media pundits have tried to make the case that Aereo will dismantle the traditional television business, but Rayburn doesn't see it that way.

"What Aereo is doing isn't groundbreaking at all since anyone can get an antenna and get the channels over-the-air," he wrote.

Aereo, he added, has indicated that if it got 300,000 subscribers it would be successful. That represents less than 1% of all pay TV subscribers. "You don't launch a service in the market just because the technology exists to allow you to do it, you launch a service because there is real demand for it from consumers."

An Aereo spokesman declined to comment on the report except to challenge Rayburn's claim that it has fewer than 2,000 paying subscribers.

ALSO:

Barry Diller likes being the disruptor

Aereo wins first legal round of fight with broadcasters

Broadcasters sue to stop Aereo

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