Aereo filed for Chapter 11 bankruptcy protection on Thursday, in a move that was likely inevitable from the moment five months ago that the Supreme Court ruled the Internet television startup violated broadcasters’ copyrights with its plan to use miniature antennas to send their signals over the Internet. This could well spell the end of the company, and Chet Kanojia, Aereo’s chief executive and largest shareholder, is now talking about the company in the past tense. “We are incredibly grateful to have gone on this journey together,” he wrote on Aereo’s website. But Kanojia apparently is still holding out some hope of emerging from bankruptcy as a sustainable company.
In court filings, Aereo’s chief financial officer, Ramon Rivera, says the goal in filing for bankruptcy is “a sale of substantially all of its assets to the best and highest bidder, recapitalizing, or performing some other restructuring transaction for the benefit of its creditors and shareholders.”
To date, the company claims $20.5 million in assets and $4.2 million in liabilities. Its biggest debts are to the telecommunications firm Level 3 Communications (LVLT) ($606,000); the data center company Quality Technology Services ($521,000); and Google (GOOG) ($309,000). But the real problem for Aereo has been legal, not financial. More than half of the creditors listed are broadcasters that have sued the company, creditors whom Aereo doesn’t actually owe any money at the moment.
Broadcasters continue to seek a permanent injunction against the company, as well as damages and penalties for copyright violation, which could add as much as $30,000 per work. Aereo says it expects to win those lawsuits. If it loses, it estimates it will pay less than $5 million. Of course, even that would be more than the $3 million in gross revenue Aereo has made from its customers.
Aereo has always insisted it is playing the long game. Since losing at the Supreme Court and shutting its service, the company has split its time defending itself against lawsuits and lobbying for a more favorable regulatory environment. Rivera argues that the government is moving in the right direction. Last month the Federal Communications Commission said it would consider prohibiting broadcasters and cable companies from refusing to license their content to Internet television services. At the time, Aereo said such a move would be a “huge step forward.”
A big problem, says Rivera, is that the government can’t move fast enough. Aereo currently has no source of revenue and says it hasn’t been able to raise new capital or sell itself because no one is willing to take a flyer on a company with the kind of legal problems it has. Earlier this month it laid off 74 people. Aereo currently is run by just 14 employees, whose main job has been to prepare for bankruptcy.
A change in FCC policy was never guaranteed to save Aereo. For all its talk of technological innovation, Aereo was based largely on a legal innovation: the ability to use tiny antennas to avoid paying retransmission fees to broadcasters. The FCC could require broadcasters to license content to Aereo, but that doesn’t mean Aereo could make a profit after paying for those licenses. Still, Rivera offers one heavily qualified note of optimism in the company’s filing:
“If the FCC elects to permit internet transmission of local linear broadcast channels, then the Debtor, assuming its continued viability, expects to be able to operate profitably within that framework.”
(Bloomberg Businessweek)
