A 2014 Supreme Court Decision That Changed the Future of Television, and Maybe the Internet

George Kavallines
  • Web-based TV subscription service Aereo faced an existential crisis in July 2014 as the Supreme Court ruled against it in a copyright infringement case brought by several major broadcast networks.
  • By October 2014, the start-up that had raised $97 million from investors including, most notably, IAC chairman Barry Diller, had filed for bankruptcy and sold off the scraps for less than $2 million.
  • Aereo founder Chet Kanojia carried many lessons from the experience into his next start-up, Starry, which is set to enter the public markets soon.
Chet Kanojia, chief executive officer and founder of Aereo Inc.
Adam Jeffery | CNBC
Chet Kanojia, chief executive officer and founder of Aereo Inc.

In this weekly series, CNBC takes a look at companies that made the inaugural Disruptor 50 list, 10 years later.

It's one of my favorite moments in the history of the Disruptor 50 list.

Tuesday, June 17, 2014.

Aereo, a start-up that offered a web-based TV subscription service, was named to the list for the second time. It's No. 7 on the newly-ranked list, but it faced an existential crisis, with the Supreme Court about to rule on a copyright infringement case brought against it by the major broadcast networks.  

Chet Kanojia, founder and CEO of Aereo, appeared on CNBC's "Squawk Box" and Julia Boorstin asked "what happens if (the case) doesn't come down in your favor?"

Kanojia answered, "I don't know."

A stunned Andrew Ross Sorkin jumped in. "Is that a negotiating posture?" he asked. "Meaning, it's one thing to tell the world we have no plan B. … if you said well actually we could do it this way and if the judges say no good, we could do it this other way. Are you saying there's no way to do it this other way?"

"The whole point of Aereo was to create a free open platform," Kanojia responded. "And if we don't succeed in doing that, we don't succeed in doing that."

Less than two weeks later, we learn Kanojia was being 100% honest. The Supreme Court rules against Aereo, and by October 2014, the start-up that had raised $97 million from investors including, most notably, IAC chairman Barry Diller, had filed for bankruptcy and sold off the scraps for less than $2 million.

Less than seven years later, though, Kanojia is on the verge of taking his next act to the public markets. It turns out, he did have a plan B of sorts for himself and his team in the event Aereo shut down. He founded a new company, called Starry, which offers a more affordable wireless internet service to residential customers. Had Aereo lived, Starry would have been a companion product for the Aereo platform.

"It's basically the same group of people continuing the journey," Kanojia told me in an interview this week. He seemed relaxed, confident in the new venture, and extremely thoughtful about the lessons he carries with him from the Aereo experience.

We often hear from Silicon Valley luminaries that failure is a critical ingredient for innovation, but rarely do we see failure on such public display as we saw with Aereo. But this was a different kind of failure, one that wasn't the fault of a rogue founder, or a product that didn't work as promised, or runaway spending, or a lack of customer demand.

"We went in [to Aereo investor meetings] saying it was a binary risk," Kanojia says. "It's like a drug discovery company, for example, that says if I get FDA approval it's going to be very successful. And if not, not. And there's like a 50% chance that it gets FDA approval. I had a tradition, we would sign the documents, wait a day and call the investor one more time to say 'You good? You sure you want to do this?' before we cashed the check. Because the binary risk was still there."

There were a couple of things, Kanojia admits, that Aereo might have done differently to be able to save itself.

"We didn't anticipate how fast it was going to get to the Supreme Court. I wanted a short fuse, quick yes/no, go/no, but I still thought it would be three to four years, not bloody 18 months."

With more time, Kanojia thinks he would have had the chance to develop a bigger base of loyal customers. And he says not launching in Washington, D.C., before the case made it to the Supreme Court was "a big mistake."

"If we had launched in D.C. and all of these justices' clerks and people that are part of the machine had access to the product they would've built some affinity towards it. Because [the Supreme Court decision] was completely unfounded in any legal argument, it was basically 'we don't like Aereo.' There was no factual basis for it."

Kanojia says he looks back on Aereo's wins even more than the missteps, and says the overall experience allowed him to maintain a level of trust with his investors and rebound quickly.

"The fact that we had done Aereo and people had seen the execution of this team, 18 months start to finish we had 600,000 users, 120,000 customers, while fighting legal battles. We had a beautiful product that worked, I think all that helped set the stage that the team can execute."

In October, Starry announced plans to go public via a reverse merger with Firstmark Horizon Acquisition Corp., a SPAC backed by Firstmark Capital, which was the lead investor in Aereo's seed round and which reunited with Kanojia in 2016 to lead Starry's Series B round of funding. The deal, which reportedly values Starry at $1.6 billion, is expected to close by the end of this quarter.

Unlike Aereo, Starry's future success is not based on a binary set of risks. Instead, it will depend on growing a loyal customer base while surviving some heavy competition, not just for customers but for wireless spectrum, against competitors with much deeper pockets.

Kanojia doesn't seem to mind. "They weren't competitors in the Aereo days," he smiles. "They were just the enemy."

CNBC is now accepting nominations for the 2022 Disruptor 50 list, our annual look at private innovators using breakthrough technology to transform industries and become the next generation of great public companies. Submit your nomination by Friday, Feb. 4, at 3 pm Eastern time.

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