Thursday, January 17, 2013

Aereo Sees Content Key To Subscriber Growth

Aereo is a great example of disruptive innovation, as it challenges the current market structure with a new kind of mousetrap, one that could ultimately change the nature of the core business.  Key to what they do is take over the air broadcast signals and repackages them to stream as a subscription service to the consumer.  And because those signals are picked up without paying the broadcaster a "retransmission fee", thus keeping their content costs at zero.  Great for Aereo, but bad for broadcasters who have been getting payments from cable operators.  Obviously networks have sued because it turns upside down the current economic model, one that has been the "fastest growing sources of revenues for station owners including ABC, CBS, Fox, and NBC."

But broadcast programming is not enough as Aereo expands beyond the New York City DMA.  "I think of what’s attractive on the Internet: news and certain categories. There’s interesting international programming that’s going to come in."  But as Aereo expands, it must also consider the costs that it spends to add content to the  mix.  The appeal for Aereo for those not happy with the high costs of cable is that it provides streaming access to network programming at a much low cost, only about $8/month, to the consumer.  For households on a budget, Aereo brings a competitive low cost alternative.

Will the FCC kill the Aereo model or will they approve their business?  As Aereo has found a "loophole" that works, this disruptive approach may have a great financial impact on the network business.

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