Breakingviews-Digital TV revolution gets a fresh spark

Wed Jan 16, 2013 2:15am IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Robert Cyran

NEW YORK, Jan 15 (Reuters Breakingviews) - The digital TV revolution just got a kick in the rear. U.S. cord-cutting has been a slow migration not a stampede. However, a launch into 22 big cities for Aereo, which bypasses cable operators with broadcast channels, could nudge the herd. When mixed with the likes of Netflix (NFLX.O), it renders traditional pay TV less compelling.

Aereo isn't yet out of the legal woods. Installing a huge number of dime-sized antennas to capture local programming and then streaming each signal separately to individual users may be an elegant way to avoid paying retransmission fees, but major broadcasters will fight the innovation to the bitter end. The disruptive upstart has its own deep-pocketed backers, though, including entertainment mogul Barry Diller. Aereo just raised another $38 million.

The company’s real significance, however the litigation proceeds, may be in further damaging the perception that consumers need to pay full whack for TV. It’s easy enough to watch movies and sitcoms on Hulu, Netflix, Amazon (AMZN.O) and beyond. And for a small fee per show, users can supplement those services with newer hit programs from the likes of Apple's (AAPL.O) iTunes. But so-called cord-cutters are stuck using a traditional antenna to watch local programming. Aereo offers a relatively cheap workaround.

Expanding from New York to across the country offers more Americans the opportunity to dispense with cable or satellite TV, which charges considerably more in exchange for purchasing a full suite of channels. Subscriber growth has slowed to less than 1 percent annually, according to Sanford Bernstein research, lower than the growth rate of housing formation.

More changes are inevitable. Aereo now offers a single cable network, albeit the soporific Bloomberg TV, and aims to add more. Other à la carte options can't be far off either. While HBO is only available to pay TV subscribers in the United States, its HBO Go streaming option is untethered in Scandinavia. And Time Warner (TWX.N) boss Jeff Bewkes has acknowledged that in the long run, the same may come to pass at home.

For now, the moat around U.S. cable and satellite and its 100 million or so TV customers still looks intimidating. Aereo, however, is helping lead a fresh charge across.

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CONTEXT NEWS

- Aereo, which streams local television programming, said on Jan. 8 it planned to expand beyond New York into 22 cities in 2013. The company, whose business model of using small individual antenna is being challenged legally, also said it raised $38 million in funding, led by Barry Diller's IAC (IACI.O) and Highland Capital. Aereo's service costs $1 a day, $8 a month or $80 a year.

- Major U.S. networks have sued Aereo, accusing it of copyright violation. A U.S. district court rejected their request for an injunction. The broadcasters are challenging that decision.

- Company statement: link.reuters.com/qyt25t

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(Editing by Jeffrey Goldfarb and Martin Langfield)

((robert.cyran@thomsonreuters.com)(Reuters messaging robert.cyran.thomsonreuters.com@reuters.net)) Keywords: BREAKINGVIEWS USA/TV

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