Oh, Oh, Aereo…

Headlines in the media world have been full of analysis about Barry Diller’s eight-figure investment in Aereo. 

Aereo plans to offer MDU (multiple dwelling unit) residents in New York City the chance to view their local, over-the-air TV stations over the Internet and on their IP-connected TV sets, tablets and mobile devices.  Aereo follows along on the heels of other companies (e.g., ivi.tv) that have tried to do much the same with television signals but have been shut down by the courts acting on behalf of the owners of local television stations and networks. To take advantage of the down American economy and the perceived cord-cutting trend, Aereo plans to offer this service for a low, attractive monthly fee. Those economics make it a perfect complement to apartment dwellers in the city who already have or are considering subscriptions to OTT services like Netflix, Hulu, Amazon, etc., but like having their local news and broadcast network content, too. 

Aereo plans to work around the obvious legal issues involved with not paying local TV for content by placing small, thumbprint-sized antennas (one per subscriber) on a rooftop in Brooklyn and then using those to steer the OTA (over-the-air) content to the Internet where it’s delivered and consumed by the individual subscriber. Aereo wants the courts (and broadcasters) to believe that it’s really only complementing and adding OTA coverage and viewership in homes where over the air reception is a challenge for our current television standard (i.e., difficulty penetrating buildings).  

But broadcasters and those that provide content to them (a.k.a. The Networks) now have a vital financial stake in the preservation of the current economics of cable, satellite and telco video providers (like FiOS).  It has taken broadcasters nearly 20 years since the original Cable Act in 1992 and some hair raising standoffs with MVPDs to finally get access to some cash for content. Don’t expect them to roll over on this one or immediately buy into the notion that they stand to increase profits thanks to Aereo. 

Aereo is a bullet clearly aimed at killing that current coveted model. Expect the federal court docket to be adding several new cases soon.  

As an aside, the cable providers have not exactly sat quietly as the cord-cutting phenomenon has gathered momentum. Most have rolled out some sort of lower priced, smaller network bundles to try to mitigate those that are cutting service due to the economy. For the MVPDs, Aereo is just more of the same in the subscriber killing column. 

The big question with Aereo is does it possibly add to a station’s viewership with its limited over the air signals and possibly increase ratings for stations by narrowing choices in the former cable/satellite and telco homes it will most likely cover? That math is a little complicated, and it’s going to be a hard sell to television owners.

Just taking WNBC-TV as an example, based on revenue estimates for 2011 coming from BIA/Kelsey’s Media Access Pro, we estimate that it earns about $38.50 per year or $3.21 per month in ad revenues per TV household in the New York City DMA. Add in the current retransmission revenues that WNBC-TV receives, which we estimate between $6.00 and $12.00 per year per household, and the ad/retrans combination totals between $44.50 and almost $51 per TV household*. Should Aereo achieve 5 percent penetration of current MVPD households in New York, WNBC would stand to lose a few million dollars a year as would every other New York broadcaster getting retrans money. This immediate math problem probably guarantees that the broadcast community will see Aereo’s immediate impact as only cannibalizing this long sought source of station and network revenues.    

*Estimating $255,750,000 in 2011 ad revenues for WNBC-TV divided by 7,155,000 New York DMA TV households. Assumes WNBC receives retrans payments between $0.50 and $1.00 per sub per month from New York MVPDs.