I'm pleased to be joined once again by Colin Dixon, senior partner at The Diffusion Group, for the 121st edition of the VideoNuze Report podcast, for Feb. 17, 2012. In this week's podcast we puzzle through Aereo - a new broadcast TV over IP / DVR-in-the-cloud provider, which this week announced a $20.5 million financing led by IAC's Barry Diller, plus a March 14th launch date in New York City.

I happened to be in NYC this week, and aside from "Linsanity," Aereo seemed to be the hottest topic around. But talk about a lack of consensus on its prospects! Some believe Aereo is going to be a major disruptor to the existing broadcast and pay-TV ecosystem, while others see it as a total non-starter, whether because broadcasters will succeed in shutting it down or because consumers won't be compelled by its proposition.

Colin and I are both modestly bullish on Aereo. While neither of us are a lawyer, Colin makes a strong case that Aereo can distinguish itself from both Zediva and Ivi, which have recently tried similar - though not identical - models as Aereo, only to be quickly sued into oblivion. Colin sees Aereo more in the lineage of TiVo and Sling, both of which raised eyebrows as well. At a minimum, Diller's involvement suggests that in the due diligence process, some very high-priced lawyers vetted Aereo and feel reasonably confident about its viability.

No question though, Aereo is going to confront its share of legal challenges. It threatens disruption both to broadcasters' highly prized retransmission consent fees and to pay-TV operators' underlying subscription model. I think there's clearly a demand for a service like Aereo, primarily among younger, entertainment-oriented and economically challenged audiences.

As I explain, Aereo's model is actually akin to those of early cable operators - selling a low-cost subscription to free over-the-air channels promising better reception. That model worked for broadcasters until they eventually got wise and demanded retrans payments. It feels like a stretch that Aero can revert to this early model, but who knows?

Aereo also puts cable TV networks' value propositions up for scrutiny. If you can subscribe to Aereo's broadcast/DVR service for $12 per month, but a digital pay-TV service runs $60 or more per month, then the cable networks have to justify the differential. For some subscribers they will, while for others - particularly non-sports fans - Aereo alone, or with a Netflix/Hulu/Amazon Prime augment, could be plenty. (Yes of course you have to factor in paying more for broadband service, possibly breaking the "bundle," etc.).

It's way too early to know what success Aereo will have, but one thing that's for certain: Aereo is a textbook example of how technology's relentless progress continues to challenge business-as-usual practices.

Listen in to learn more!



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