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If Aereo Loses In The Supreme Court, Can It Rise Again?

This article is more than 9 years old.

This story appears in the May 25, 2014 issue of Forbes. Subscribe

Once voluble and full of irreverent talk, Chet Kanojia barely picks at his plate of cheese during lunch overlooking Dupont Circle in Washington, D.C. It's the day before his company Aereo faces a Supreme Court hearing--the last chance it has to win a life-or-death legal struggle that has raged for more than two years. You might expect the gloom of a condemned man eating his last meal. But Kanojia, 44, is qualifiedly upbeat. "I'm obviously anxious," he laughs, shuffling in a brown swivel chair. He doesn't sleep much these days, sometimes as little as two hours a night before nerves jolt him awake for a predawn run. "I've worked very hard in my life," he says, suddenly serious. "But this is the hardest I've ever worked."

Since he first started renting those tiny TV antennas that capture local broadcast channels and beam them to customers' computers, tablets and phones, Kanojia has been called a hero--and a thief. Rebel entrepreneur that he is, he has disrupted the TV business to the delight of an estimated 350,000 subscribers in 11 U.S. markets, people who are sick of ever-rising cable bills. But he has also enraged the big four (ABC, CBS , NBC and Fox ) for threatening their livelihood: the billions of dollars cable operators pay the networks in carriage fees. They have pursued him with the fury of gods taking after Prometheus but have lost case after case.

A win in the highest court would vindicate Aereo, whose business has been called little more than a "Rube Goldberg-like contrivance," and set it on a course of rapid expansion. And if it loses, as pundits and bookies believe it will?"As an ongoing business I think it would cease to exist," saysBarry Diller, whose IAC has contributed to the $97 million Aereo has raised, giving the company a putative valuation of $800 million or so (that could vault up if Aereo wins). It's a tidy business, too, bringing in an estimated $40 million while reaping 77% gross margins (each subscriber, paying $8 to $12 a month, depending on DVR time, costs $2.30 to serve).

Does he have a plan B? Yes. A defeated Aereo can rise again on the strength of its technology. While Kanojia is shy on details, it's clear he isn't giving up. "It's like you're on the 18th hole and it's a 180-yard carry up to the green with a false front," he says back in New York City the day after the hearing. "You're 250 yards out and the question is, 'Are you going to lay up--or are you going to go for it?' We didn't come to here to lay up."

In case you missed the memo on the guy, Chaitanya Kanojia grew up in Bhopal, India--site of the horrendous Union Carbide pesticide accident--and was a bright but lazy (his word) student in mechanical engineering. He found new life in Boston, where he got an M.A. in computer-systems engineering and met his wife. After school he went to work for a cement company in Saudi Arabia, but after ten months of living with 5,000 workers in a trailer park, he headed back to the U.S. "I like freedom and all that stuff," he deadpans.

Back in the States he helped build equipment to test Nike Air Jordans and ice cream makers for General Mills . "I gained 30 pounds on that damn yogurt machine," he laughs. What he wanted was to launch something of his own. That turned out to be Navic Systems, in 1999, which gathered subscriber data from set-top boxes for cable operators like Comcast. Advertisers loved it, and so did Microsoft, which acquired the company in 2008 for more than $200 million. Kanojia pocketed undisclosed millions.

Aereo got into trouble before it was born. In spring 2011, with the technology nearly perfected, Kanojia lined up meetings with all the broadcast networks to tell them about Aereo. "A lot of it was, 'We heard you,' " Kanojia recalls, " 'and we'll see you in court.' "

Two weeks before the beta launch of Aereo in March 2012, the networks filed a preliminary injunction in New York's Southern District. When that failed the broadcasters appealed, then sued the company in Boston and Utah. CBS Chief Les Moonves has vowed to pursue Kanojia to the last hijacked signal.

But even if the Supremes shut him down, Kanojia may still prove to be the mole who can't be whacked by Moonves or anyone. Especially if the Court preserves the rights of cloud-based DVRs. Here's how Aereo might rise again:

-- It could regroup by selling its own cloud service to small cable operators that represent 7.5 million subscribers and can't afford to develop their own technology. Comcast has already rolled out a similar service via its XI operating system, letting customers schedule recording from their phones and computers.

-- It might exploit its transcoding technology, say company insiders. This converts thousands of broadcast video streams into digital formats for a fraction of the cost of rival methods. As folks spend more time watching video online, Aereo could help provide more content options.

-- "It could shift ownership of its over-the-air antenna to users, then charge maintenance and upkeep to sustain recurring revenue," says Jim Boyle, managing director of Sqad, a media forecaster. Even Diller has entertained the notion that Aereo could become a cable provider, striking licensing deals with content providers.

In all, the company has 18 pending patents. "We have a lot of interesting stuff that's valuable," says Kanojia--enough intellectual property to make one or more viable businesses, even if not the transformative monster he envisioned.

He certainly has built a fan base. After lunch in D.C., a young family with two boys walks by the Supreme Court and stops to say hello to Kanojia. "We support what you're doing," says the father and shakes his hand. As they walk away Kanojia, embarrassed, wipes away a tear.

Who knows? He might even win. If he does, he plans to raise at least another $200 million for a breakneck national expansion and marketing campaign...that won't include ads on network TV. He smiles: "That's when the fight really begins."

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