Aereo Files For Chapter 11 Bankruptcy

Aereo, the streaming TV service that let users watch near-live TV on any internet-connected device, has today announced that the company is filing for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York. The company has appointed Lawton Bloom, from Argus, to serve as Chief Restructuring Officer during the gradual shut down process.

This comes on the heels of a big round of layoffs a couple of weeks ago, which hinted that the end of the road for Aereo may be near.

In a company blog post, CEO and founder Chet Kanojia said:

While we had significant victories in the federal district courts in New York and Boston and the Second Circuit Court of Appeals, the reversal of the Second Circuit decision in June by the U.S. Supreme Court has proven difficult to overcome. The U.S. Supreme Court decision effectively changed the laws that had governed Aereo’s technology, creating regulatory and legal uncertainty. And while our team has focused its energies on exploring every path forward available to us, without that clarity, the challenges have proven too difficult to overcome.

In The Beginning

Aereo launched back in 2012 with a plan to change the way we watch television. The New York City-based company offered technology that lets users rent, on a subscription basis, access to a micro antenna small enough to fit on the tip of your finger. The antennas were stored remotely in one of Aereo’s antenna farms, placed close enough to various broadcast towers to pull in those signals.

Aereo users could then choose between any of those publicly available, free OTA signals to choose a channel. The Aereo technology lets the user immediately start recording as soon as they tuned to a channel, which allowed for a similar experience to watching live TV, as recordings could be played back as soon as they began.

Because of this, Aereo was able to offer access to 30 different television channels, including the big broadcast networks like Fox, ABC, NBC, and CBS, for as low as $8/month. In fact, an Aereo user with a borrowed HBO Go subscription, a Hulu Plus Account, or Netflix, really has no need for cable television. So not surprisingly, these broadcast networks took Aereo to the mat, in various markets, in an attempt to plug the leak.

Lawsuit All The Things!

It didn’t take too long after Aereo’s launch for the broadcast networks to band together and file a lawsuit in New York City, Aereo’s home market. But this was expected. In fact, the company was prepared with around $25 million in funding from Barry Diller and others. Aereo’s operational costs, even with scalability and marketing costs, don’t require that much capital. That was war money.

The broadcasters argued that Aereo was illegally retransmitting their copyrighted work, alleging violation of the Copyright Act. Aereo, on the other hand, argued that Cloud DVR storage and using an antenna to pull free OTA signals down to your device are both legal activities. Combining them, according to Aereo, holds up under an earlier precedent set by Cablevision.

See, Cablevision came under fire a few years ago for transforming their DVR service to a cloud-based storage system as opposed to on-deck storage. The company came out victorious, arguing that the individual copies of content being viewed by DVR users were still individual, unique, and private copies that were owned by the user, and that they do not constitute public performances.

Aereo’s technology was actually built with the express intent to fall within this precedent. Like a Cablevision cloud DVR system, Aereo users are the ones who choose to tune to a channel, record, and watch. This is an integral piece of information when it comes to proving a private performance vs. a public performance, which was a main issue in the case.

Luckily for Aereo, the company came out successful in that first case in New York City, with the broadcasters failing to get a preliminary injunction, and Aereo ultimately winning after failed appeals from the opposition.

But that was far from the end. Aereo raised more money, and defended itself against more fire.

Similar lawsuits were filed in Boston and Utah against Aereo, slowly but surely draining the startup of resources as it fought multiple battles in different regions. In Boston, Aereo held up in court yet again, but Salt Lake City proved difficult, with a federal judge shutting down the service in that market.

Once And For All

And so, in December of 2013, both parties decided that the never-ending lawsuit was a waste of time, petitioning to put the case before the Supreme Court. At the time, Aereo had more wins under its belt than losses, and a win in the Supreme Court would solve the biggest and most financially draining problems plaguing the startup since inception.

But alas, in a thoroughly discouraging decision made by the highest court in the land, Aereo was deemed illegal.

It was a bit of a ridiculous ruling, admitting that Aereo falls within all parameters of the Copyright Act and the law in general, but citing its appearance as a cable company as the main reason for its illegality.

What Now?

Ever since, Aereo has been looking for ways to keep the dream alive. The company even tried to petition to be classified as a cable company, given that its perception as one was the reason for its shuttering. But the Copyright Office denied the request.

And so, almost three years later, we’ve reached the end of the road. And it should light a fire under the ass of the tech industry, especially for those interested in disrupting the current cable television model.

The system has been corrupted. Companies like NBC, Fox, ABC and CBS get the spectrum they use to broadcast to us for a ridiculously low price from the government, with the express promise to offer a public information service to Americans for free, in return. But since the cable companies and media companies have consolidated powers, transforming into a powerful oligopoly, free broadcast television is bundled for a price into your cable package.

Of course, you could go buy a pair of rabbit ears, cut the cord, and call it a day. But it’s 2014, and for all intents and purposes, Aereo is the modern-day set of rabbit ears. Personally, I find it a shame that the Supreme Court couldn’t see that.

But given the rising price of cable bills, I expect we won’t have to wait too long before another player steps into the David position and tries to take down TV’s Goliaths.