This Heroic Startup (And Barry Diller) Is Standing Up To Your Goliath Cable Company

"HOW many people here love their cable company?" Chet Kanojia, the boss of Aereo, an internet TV start-up, posed that question to an audience recently. Only one man raised his hand--and he worked for one. Mr Kanojia started Aereo in 2012 to capitalise on people's hatred of high cable bills. For as little as $80 a year, his firm allows subscribers in New York city to record programmes and watch live broadcasts over the internet. Aereo rents each subscriber a fingernail-sized antenna, which it houses in a warehouse in Brooklyn.

Television companies loathe Aereo. It does not pay networks for the free-to-air channels it streams. It allows people to receive content without paying for the bundles of channels from which cable firms derive their profits. Broadcasters have sued Aereo for copyright infringement and filed a request to shut down the service (this was denied on appeal on April 1st).

"Aereo is stealing our signal," grumbled Chase Carey, the president of News Corporation, which owns Fox, a broadcast network, on April 8th. Mr Carey has threatened that if Aereo continues, Fox could turn itself into a cable channel and charge viewers for carriage. Haim Saban, the chairman of Univision, a Spanish-language broadcaster, has said the same.

Why does a one-year-old firm with an undisclosed number of subscribers make media moguls so agitated? Aereophobes see Mr Kanojia's firm as a pesky parasite that flouts copyright law and profits from distributing content that it does not pay for. Supporters point out these are free-to-air networks, and say Aereo has designed a clever and legal technology to give customers what they want: the ability to watch live programmes and recordings cheaply, and on devices other than a TV set.

Aereo has started to hurt big media firms' share prices. On April 1st, after the networks' request for an injunction was denied, the share prices of some big media firms, such as CBS, dipped (although they later recovered a bit). The concern is that Aereo threatens a valuable source of income. "Retransmission" fees, which cable operators pay broadcast networks to carry their channels, will earn the big four broadcast networks (ABC, NBC, Fox and CBS) $1.3 billion in 2013 and as much as $3.5 billion in 2016, predicts Benjamin Swinburne of Morgan Stanley, a bank.

Aereo could spoil the party. When broadcast networks have tried to negotiate hikes to their fees in the past, they have threatened cable operators, such as Time Warner Cable or Comcast, with blackouts. Operators have caved in. But if customers have Aereo, the threat of a blackout is less grave, says Rich Greenfield, an analyst at BTIG Research, since people can watch network programmes online.

Mr Kanojia, an Indian entrepreneur, sold his previous company, which helped target advertisements to TV viewers, to Microsoft in 2008 for a reported $250m. He knew before he launched Aereo that he faced a fight. His firm has $64m in venture-capital funding, including some from Barry Diller, the feisty boss of IAC who once helped launch Fox alongside Rupert Murdoch. Now it only operates in New York city, but it plans to reach another 22 cities this year. The networks could sue in those places, but may prefer to wait for their New York case to be heard, perhaps early next year. With luck, by then the judge will "see us as pro-social", says Mr Diller.

No one knows how many people would subscribe to Aereo if given the chance. Currently it offers only broadcast channels and one cable channel (Bloomberg television). However, in the next year it could start paying to carry other cable channels and add more content. Mr Kanojia anticipates strong demand for live shows. Plenty of services, such as Netflix and Hulu, offer previously-aired content online but few offer live news and sports.

Aereo is not the only disruptive force attracting lawsuits. New technologies allow firms to do things that lawmakers never imagined. Aereo's fate will mostly depend on whether the courts deem its transmissions to constitute "private" or "public" viewing (the latter is barred by copyright law). Like "Law and Order", this courtroom drama could run and run.

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