The Supreme Court ruling that changed the future of television, and possibly the internet

Chet Kanujia, CEO and founder of Aereo Inc.

Adam Jeffrey | CNBC

In this weekly series, CNBC takes a look at the 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 17 June 2014.

Aereo, a startup that offers a web-based subscription TV service, was named to the list for the second time. It’s No. 7 on the newly ranked list, but it has faced an existential crisis, as the Supreme Court has come close to ruling in the copyright infringement case brought against it by major broadcast networks.

Chet Canugia, founder and CEO of Aereo, appeared on CNBC’s Squawk Box and asked Julia Borstein, “What happens if (the case) isn’t in your favour?”

“I don’t know,” Kanujia replied.

A stunned Andrew Ross Sorkin jumped to the scene. “Is this a negotiating position?” Asked. “In a sense, you tell the world that we have no plan B…if you say well in fact we can do it that way and if the stewards say there is nothing good then we can do it another way. Are you saying there is no way of doing it that other way. ?”

“Aereo’s primary goal was to create a free open platform,” Canugia replied. “And if we don’t succeed in doing that, we won’t succeed in doing that.”

Less than two weeks later, we learned that Kanojia was 100% honest. The Supreme Court ruled against Aereo, and by October 2014, the startup that had raised $97 million from investors including, in particular, IAC President Barry Diller, had filed for bankruptcy and had sold scrap for less than $2 million.

Less than seven years later, Kanujia was on the verge of taking his next work to the public markets. It turns out he had a plan B of sorts for himself and his team should Aereo shut down. He founded a new company, called Starry, which offers affordable wireless internet to resident customers. Had Aereo lived, Starry would have been a companion product to the Aereo platform.

“It’s basically the same group of people who keep on going,” Canugia told me in an interview this week. He seemed comfortable and confident in the new project and very thoughtful about the lessons he brings with him from the Aereo experience.

We often hear from prominent figures in Silicon Valley that failure is a critical component of innovation, but rarely do we see failure in public view 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 entered [to Aereo investor meetings] Canugia says it was a binary risk. “It’s like a drug discovery company, for example, saying if you get FDA approval it will be very successful. And if not, no. And there’s a 50 percent chance that it will get FDA approval. I had a tradition, we were We sign the documents, wait one day and call the investor again to say “Are you okay? Are you sure you want to do this? before cashing the check. Because the bilateral danger was still there.”

Kanugia admits, there were two things Aereo might have done differently to be able to save herself.

“We didn’t anticipate how fast it would 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 18 bloody months.”

With more time, Kanogia believes he would have had the opportunity to develop a larger base of loyal customers. He says that not starting work in Washington, D.C., before referring the case to the Supreme Court was a “big mistake.”

“If we launched in the capital and all the judges’ clerks and the people who are part of the machine had access to the product, they would have built some affinity towards it. Because [the Supreme Court decision] It was completely unfounded in any legal argument, it was basically “we don’t like Aereo”. There was no factual basis for that.”

Canugia says he views Aereo’s wins more than mistakes, and says the overall experience has allowed him to maintain a level of trust with his investors and recover quickly.

“The fact that we did Aereo and people saw the implementation of this team, 18 months started to finish, we had 600,000 users, 120,000 customers, while fighting the legal battles. We had a great product that worked, and I think it all helped in the phase the team could implement” .

In October, Starry announced its plans to go public through a reverse merger with Firstmark Horizon Acquisition Corp. , a SPAC firm backed by Firstmark Capital, which was the lead investor in the initial Aereo round and which met with Kanojia in 2016 to lead Starry’s Series B round of financing. The deal, which is said to be valued at $1.6 billion by Starry, is expected to close at the end of this quarter.

Unlike Aereo, Starry’s future success is not dependent on a binary set of stakes. Instead, it will depend on growing a loyal customer base while surviving some intense competition, not just for customers but for wireless spectrum, against competitors who have much deeper pockets.

Kanujia didn’t seem to mind. “They weren’t rivals back in the days of Aereo,” he smiles. “They were just the enemy.”

CNBC is now accepting nominations for its 2022 Disruptor 50 list, our annual look at private innovators using cutting-edge technology to transform industries to become the next generation of great public companies. Submit your nomination before Friday, February 4 at 3 p.m. ET.


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