March 21, 2013 by newsgetting
The table in the conference room on the sixth floor of the IAC headquarters in Manhattan was a portrait of organization. In front of each of the 10 chairs was a leather case holding a fresh tablet of paper, with a sharpened pencil placed above it, just so. Everything in “the Helm,” as they call the room, was precise, orderly, logical. Just the way Barry Diller likes it. Ten days ago Mr. Diller, the chairman of IAC/InterActiveCorp, was sitting at the head of that table talking about Aereo, a start-up in New York that he is backing. Aereo uses antenna farms to capture broadcast signals that can then be streamed on the Internet and viewed on a device of the customer’s choosing. Given that the service cuts out the cable television middleman and pays no retransmission fees to the programming producers, it’s a business idea that will sow chaos, disruption and turmoil. Just the way Mr. Diller likes it. Mr. Diller has lived through various paradigm shifts in the television business. Indeed, he has helped create some of them. He worked as a young man at ABC, rose to head Paramount Pictures while inventing the made-for-television movie, helped make shopping a televised activity, and, most famously, created a fourth network at Fox. A chronic deal maker and financial engineer who has aggregated a number of Web-oriented businesses at IAC, including Match.com, CollegeHumor, The Daily Beast and Vimeo, he has made many friends and enemies along the way — and in Mr. Diller’s world, it’s often difficult to tell them apart. Aereo gained a big legal victory last summer when a judge declined to issue an injunction against it. The plaintiffs have appealed to the United States Court of Appeals for the Second Circuit. Oral arguments were given in November and a decision is expected in the coming months, but Aereo and its backers are not content to wait. The company is about to roll out its service in 22 American cities, aiming a missile at the heart of the television business. Aereo is what has been called a loophole start-up because it is structured to comply with regulations even as it disrupts the current model. The company was started by Chet Kanojia, a Boston technologist and entrepreneur, and became operational in New York last year. It is built on a relatively ancient technology, with coin-size antennas assigned to each person in the coverage area who signs up for the service. Customers can then use an Internet connection to stream any program from broadcast stations, or have them stored by Aereo for later streaming. “I met with Chet Kanojia and spent an hour challenging him and understanding the technology, and I couldn’t find a flaw,” Mr. Diller said. “I knew there was going to be controversy, but I couldn’t find a flaw because I felt that the existing law was so much on the side of what Aereo was doing, and that’s what intrigued me.” Having watched Mr. Diller on and off for over a decade, I suggested he was enjoying the opportunity to roll a grenade into businesses run by people whom he might otherwise invite to his home for cocktails — people like Leslie Moonves of CBS and Rupert Murdoch, for whom he built out Fox Broadcasting. “That’s not right,” he said. “In this environment, your friends really are your enemies. Anything you’re going to do more than likely disrupts somebody’s business. There’s no grenade thrill in it.” He added: “I am very fond of Les Moonves, and he is a terrific executive. Les said to me: ‘Look, I have no objection to what you’re doing. Just pay me retransmission fees and you can go in good health.’ I said, ‘When you can get Radio Shack’ ” — which sells antennas — “ ‘to pay you retransmission fees, I’ll be right behind them.’ ” In a phone call, Mr. Moonves reciprocated Mr. Diller’s nice words but maintained resolutely that Aereo was a lawless technology. “It is clear that the whole premise of Aereo is to make money off the back of the hundreds of millions of dollars we invest in programming,” he said. “We pay the N.F.L. $1 billion a year. Right now we have a lot of correspondents in Rome. We think it is patently illegal to take our signal and those of the other networks and resell it without paying for it. It is so wrong on so many different levels.” In our conversation, Mr. Diller anticipated Mr. Moonves’s response. “I don’t think that broadcast networks are in particular danger of not being able to be profitable enterprises, whichever way the technology goes,” he said. “The idea that they need retransmission consent fees, which have just come along in the last several years, to survive seems not right to me.” Then again, Mr. Diller acknowledged, he made a speech to the National Association of Broadcasters in the early 1990s in which he said that a second stream of income beyond advertising — retransmission fees — was critical to the survival of free broadcasting. “I was on the other side of it back then,” he said. Some see his pivot from incumbent to insurgent as opportunism. He says it’s just good business. Mr. Diller suggested that broadcasters and cable providers created a competitive runway by not responding to consumers and gouging them at every turn. “People pay $130 for cable with a lot of channels they never watch,” he said. Speaking at the South by Southwest conference in Austin, Tex., last week, Mr. Kanojia echoed the sentiment. “How many people here love their cable company?” he asked his audience. When one answered affirmatively, he asked, “Do you work at Comcast or Time Warner?” “Comcast,” came the answer. “Told you,” he said, turning back toward the audience. Talking later on a bench outside the convention center, Mr. Kanojia insisted that he was not stealing from the people who create content. “We are talking about the profits of the middleman,” he said. “The consumer has decided that they want to be able to buy what meets their needs, and once consumers decide, change comes very rapidly.” Given Netflix’s and Amazon’s big original programming initiatives, the growth of Web-enabled television sets and the tendency of consumers to view shows on devices of their choosing, the ecosystem of broadcasting and paid television seems to be unlocking. Aereo is not so much cutting the cable cord as replacing it with a cheaper cord, albeit one that doesn’t pipe in HBO or ESPN. “It’s as if the mirror cracked and you can see these changes are starting to happen all over the place,” Mr. Diller said. “Programming over the Internet is going to happen, and cable is only now waking up to the fact that everybody hates them. I think we’re on the side of the angels.” He added: “I understand that any existing business tries to protect its borders from any and all incursions. I’ve done it and probably will again.” A phone rang, out of sight, under the immaculate conference table. Time to go.