Aereo's Rollout Will Put Pay-TV's Value Proposition in the Cross HairsWednesday, January 9, 2013, 11:10 AM ET|Posted by Will Richmond
Yesterday, Aereo announced a new $38 million financing (bringing its total to $63 million to date) and its intention to roll out to 22 additional U.S. cities in 2013 (full list here). Listening to a replay of CEO and founder Chet Kanojia's interview yesterday at the Citi Media Conference in Las Vegas, I'm further convinced that one of the byproducts of Aereo's expansion - if it gains market acceptance - will be to put pay-TV's value proposition in the cross hairs.
For many consumers, Aereo's core offering of inexpensive, high-quality access to broadcast TV networks via IP devices will directly crystallize the question "how much is a monthly pay-TV subscription really worth to me?" That's because, for many pay-TV subscribers, one of the key benefits of their subscription (which they may not even fully realize) is the inclusion of a de facto broadcast antenna.
In reality, it wasn't that long ago when people were still putting antennas on their roofs to pull down broadcast signals (I still remember my father doing this when I was a kid). But since that's an inconvenient, not to mention often dangerous undertaking, which yields sketchy results anyway, pay-TV over the years has become a widely accepted antenna alternative. Pay-TV operators have accelerated the transition by tying in local broadcast feeds with direct fiber links and by emphasizing highly-reliable, HD delivery.
Now, however, Aereo is poised to challenge this convention. For the first time since the advent of pay-TV itself, Aereo offers the proposition of receiving pristine broadcast signals, and with the added benefits of DVR and flexible device access, all wrapped in a great, easy-in, easy-out customer experience.
With the Aereo choice, viewers will begin to ask themselves questions about which networks/programs they really watch, value and are willing to pay for. Since broadcast TV still accounts for more than half of overall TV viewership, for pay-TV operators and cable networks, the answer could be unsettling. Further complicating things, given the proliferation of Netflix, Hulu and other video sources, there is no shortage of additional low-cost services to augment consumers' viewing.
Yesterday Chet estimated that when the 22 city rollout is done, 97 million people will have access to Aereo. Put simply, as Aereo's awareness increases, a growing portion of those people are going to ask if paying $80-$100/mo is worth it just to be able to access only live, current programming on cable TV networks that they cannot get through Aereo and other sources.
For its part, Aereo is going to fan the flames further by integrating with numerous devices, particularly those that connect to TVs and seamlessly bring its service into the living room. Chet alluded to one deal with a device manufacturer that's coming in the next week or so. But imagine when Aereo is available - as it inevitably will be - as an app on Xbox, Roku, Apple TV, Smart TVs, etc? And when Aereo has promotional deals with Netflix, Amazon, Apple, Best Buy or others? And when awareness of all of this is amplified through social media channels?
The result will be that viewers will be practically hammered over the head to confront the question of pay-TV's worth to them. As I've so often said in the past, for sports fans who cannot live without ESPN and their regional sports networks (RSNs), they will pay any price to stay with pay-TV, despite its escalating cost. But for millions of "entertainment-only" or economically-challenged consumers, and even light sports fans, satisfied with what they can get on broadcast, Aereo is going to very compelling.
I predict Aereo's marketing (of which it has done none to date) is going to focus on these consumer segments, with tech-forward, value-oriented messaging, in particular highlighting the wastefulness of pay-TV subscribers currently paying for a lot of channels they don't actually watch.
One other Aereo marketing message to expect will be around customer experience, and specifically Aereo's superiority. Having interviewed Chet over the summer (videos here and here), and reviewing his interviews at last month's VideoSchmooze and yesterday, he repeatedly criticizes pay-TV's customer service and emphasizes that Aereo's guiding principle is "What makes a better consumer experience?" Net, net, expect Aereo's marketing to also pick at the scab of pay-TV's legacy customer service issues.
No question, it is still very early days for Aereo and lots of challenges remain. But listening closely to Chet, thinking about how Aereo's value proposition fits into the video ecosystem, and considering the shifts in consumer expectations, I think pay-TV is clearly going to be in the cross hairs. Does this mean rampant cord-cutting is just around the corner? That's probably unlikely. But will Aereo present bona fide new choices to millions of consumers while the pay-TV ecosystem fiddles with TV Everywhere? Absolutely.
Categories: Cable Networks, Cable TV Operators, Startups