First it was movies streaming through Netflix (NASDAQ:NFLX). Then it was weekly sitcoms through Hulu. Now here comes local news, streaming through your Smart TV.
Streaming television, as a business concern, has largely been a national and international proposition. Comcast (NASDAQ:CMCSA), News Corp. (NYSE:NWS), CBS (NYSE:CBS), Viacom (NYSE:VIA)—these network owners have been trying to figure out how to best deliver their property to as many people on Web-connected devices as possible through services like Hulu and Amazon (NASDAQ:AMZN).
While television programming providers have started experimenting with content—like sporting events—that’s more difficult to distribute on a larger scale, they’ve barely started to approach how to stream local television content. If it’s on the Internet, people will access it from anywhere. Regular pro sports matches will be available outside their market! Local-affiliate syndication schedules will conflict with others in other markets! Chaos!
A New York City debut
Enter Barry Diller, founder of the Fox network, and Aereo. Diller’s company, IAC/InterActive (NASDAQ:IACI), describes Aereo as a streaming solution for breaking out of the “closed cable-broadcast-satellite circle.” The service, which is scheduled to be available in New York City beginning in March, will stream a selection of cable channels and programming from all the major networks, including Fox, CBS, ABC, and NBC to phones, tablets, and connected televisions.
The difference between Aereo and, for example, Hulu is that Aereo is streaming these channels as they’re broadcast, making the timing of its programming delivery effectively identical that of cable or satellite. Not everyone is on board. Disney‘s (NYSE:DIS) ESPN and Time Warner‘s (NYSE:TWX) HBO won’t be available through Aereo. For people looking to cut cable/satellite costs and still be able to watch NFL, NBA, and MLB games that aren’t nationally broadcast though, IAC’s service has appeal.
It will also be affordable—at $12 a month, slightly more expensive than a monthly Netflix streaming subscription. That subscription also comes with a digital video recorder set-top box that can be hooked up to a television, providing the same recording service as a cable or satellite subscription.
Will the networks cooperate?
Even though it’s launching in just one city, New York represents a huge market for Aereo. Time Warner Cable (NYSE:TWC) alone has 1.7 million subscribers in the New York region. If every one of those subscribers dropped the cable service and subscribed to Aereo, the company could pull in $20.4 million, which would recoup the $20.5 million round of funding IAC just completed for Aereo.
The sustainability of Aereo is questionable, though. Networks and their owners have been very skittish about committing to streaming platforms. Disney and News Corp. were so concerned about damage done to traditional distribution like broadcast that they started delaying new content from appearing on Hulu and their websites last August. Aereo would still be airing those companies’ broadcasts, mollifying advertising partners worried about lost viewership, but then how do the networks keep cable and satellite providers like DirecTV (NASDAQ:DTV) satisfied?
A plan to avoid litigation
Legal disputes have laid low past attempts at similar services. Ivi TV, a service almost identical to Aereo, was shut down by a federal judge in New York after content providers sued on the grounds that their services, rebroadcast online, were stolen. Aereo plans to work around this sort of entanglement through its network of tiny antennas, thousands of which are arrayed around the borough of Brooklyn. It’s a license to use those antennas, which are receiving broadcast signals, that Aereo customers are actually paying for. Still, Aereo and IAC are bracing for legal disputes.
Aereo’s business model is compelling, but there are many hurdles to its potential success, both logistical and political, to clear before it expands beyond New York. For those following the steady evolution of the streaming market, though, keep a close eye on Aereo over the next 12 months. If it’s successful, IAC could be a bargain before long.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.
