Kumo Is Raising $50 Million To Break The TV Bundle

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Despite Aereo’s trouble in the Supreme Court, the hope of disrupting the TV industry is still alive in the tech world.

A new startup led by Aol and Dish veteran Neil Davis is in the process of raising $50 million to fill that void. The startup is called Kumo, and it’s still in stealth, so details are limited.

However, a source very close to the matter told TechCrunch that Kumo hopes to provide a la carte television content to users. That would give viewers the opportunity to purchase access to specific channels as opposed to buying them bundled from cable companies, or getting access to an incomplete library of content long after it’s released through Netflix or Hulu.

Of course, this is a notable task considering that the oligopoly of content creators and owners profit wildly from the bundling of their channels, as opposed to asking people to pay for just what they watch.

But founder Neil Davis has the experience to navigate these turbulent waters.

Davis was an early Aoler, spending time there as a Senior Vice President of Strategic Development during the course of the Aol/Time Warner merger. After that, he spent five years as the head of corporate and digital development at Dish Digital.

Historically, the smaller Dish empire has attempted to differentiate from its cable competitors by offering streaming options. This makes sense considering that Dish doesn’t have the same leverage as a player like Comcast, which owns the pipes. Davis was part of that at Dish, as he was there during the Dish/Blockbuster acquisition, the launch of Movie Pass (which put Dish even further into the digital streaming world), as well as the launch of Dish World, which provides complementary streaming of international programming to users.

Unlike Aereo, which paired a remote antenna service with a cloud storage service, offering nearly live television access and DVR for 30 different broadcast channels, Kumo is taking a different approach. Sources claim that Kumo is working to license content, which would mean that at least one media company will be agreeing to break the bundle, though it’s unclear who that seller will be.

The golden goose would be Time Warner’s HBO, widely considered to be one of the most valuable products in television with the most leverage to go over the top.

Time Warner/HBO is currently being circled by a vulture known as 21st Century Fox, which is reportedly considering a buyout of Time Warner. However, Time Warner rejected the initial bid, and CEO Jeffrey L. Bewkes said in a video to employees (which leaked publicly) that Time Warner’s “business plans will create significantly more value for the company and our shareholders, and that’s superior to any proposal that Fox is in a position to offer.”

Many have predicted (or maybe wished, depending on your perspective) that HBO will eventually go over the top, as its consumers are the hungriest for its product. After all, hardcore law-abiding HBO fans are essentially forced to pay for as many as 500 channels (around $100) before they even have an opportunity to pay the extra $15 for HBO access.

Putting aside bundle wholesaling for properties like ESPN and big broadcast networks, HBO alone likely keeps a good chunk of smaller television channels alive and on the air, all based on the fact that they’re subsidized by hungry HBO fans.

For all intents and purposes, if the bundle is going to break, HBO currently has the most leverage to do it.

Of course, that doesn’t mean there are no obstacles there. Infrastructure, support, and most importantly marketing channels through cable providers would be lost as soon as HBO goes over the top. But that hasn’t stopped HBO from musing about the idea.

Historically, big players who have approached the idea of breaking the bundle haven’t succeeded, based mostly on the fact that the cost of an individual channel vs. the bundled option media companies provide is so high that the margin disappears. Kumo is obviously venturing into dangerous territory with fewer resources than those who have tried before them, but perhaps time will be on the startups’ side.

We have also heard from another source that Epix was shopping around an a la carte deal for its original content (movies and TV shows) for around $35 million earlier this summer, though a deal with a smaller player like that wouldn’t likely have the same domino effect as a player with the stature of Time Warner/HBO.

Still, we can’t know for sure which media player(s) are open to a deal with Kumo until the service launches. We do, however, know that $50 million in financing will pay for a lot more than UX, engineering, and other technical costs.

In terms of the funding itself, it’s unclear who’s in on the round. One source close to the deal says that it’s mostly private investors, and confirmed that Mark Cuban is involved in the round, but also said that the deal hasn’t closed yet, which could leave that $50 million figure open to some change.

Cuban, longtime serial entrepreneur, investor, and owner of the Dallas Mavericks, has been publicly interested in a project like this ever since he built Broadcast.com, and even recently published a doc showing how he had tried something similar in 2000.

It’s possible that Revolution, Aol co-founder Steve Case’s investment firm, could be involved in the deal, given previous ties that Davis has to Aol and the fact that Revolution is prepared to lead a round so large. Still, Revolution’s involvement is just speculation and not confirmed. Other potential institutional investors include Providence Equity Partners, the Chernin Group, and Guggenheim Partners, all of whom are capable of writing these type of checks and all of whom have had an eye on media-focused companies.

We’ve reached out to Neil Davis (and, just in case, Revolution Ventures), but did not receive a response with comment.

(Update: Revolution responded and said that they are not involved in any financing with Kumo.)