Supreme Court ruling that changed the future of TV, and maybe the internet

Chet Kanojia, CEO and Founder of Aeroo Inc.

Adam Jeffery | CNBC

In this weekly series, CNBC looks at companies that made it to the first 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 offering a web-based TV subscription service, was listed for the second time† It’s No. 7 on the newly ranked list, but it’s been struggling with an existential crisis, with the Supreme Court about to rule on copyright infringement brought against her by the major broadcasting networks.

Chet Kanojia, founder and CEO of Aeroo, appeared on CNBC’s “Squawk Box” and Julia Boorstin asked “what happens if (the case) doesn’t turn out in your favor?”

Kanojia replied, “I don’t know.”

A stunned Andrew Ross Sorkin jumped in. “Is that a bargaining stance?” he asked. “That means it’s one thing to tell the world we don’t have a plan B. … if you said it right, we could do it this way and if the judges say it’s not right, they can we do it this other way. Are you saying there’s no way to do it differently?”

“The whole point of Aereo was to create a free open platform,” Kanojia responded. “And if we can’t do that, we won’t succeed.”

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

Less than seven years later, however, Kanojia is about to bring his next act to the public markets. As it turned out, he had some sort of plan B for himself and his team in case Aeroo quit. He founded a new company called Starry, which provides a more affordable wireless Internet service to residential customers. Had Aereo been alive, Starry would have been a companion product to the Aereo platform.

“It’s basically the same group of people who are 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 is taking from the Aeroo experience.

We often hear from Silicon Valley celebrities that failure is an essential ingredient for innovation, but rarely do we see failure on such a public display as we do at Aeroo. 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. “For example, it’s a drug discovery company that says if I get FDA approval it will be very successful. And if not, don’t. And there’s a 50% chance it will get FDA approval. I had a tradition, we signed the documents, waited a day and called the investor again to say, ‘Are you okay? Are you sure you want to do this?’ before cashing the check. Because the binary risk was still there.”

There were a few things, Kanojia admits, that Aereo might have done differently to save himself.

“We didn’t anticipate how soon it would get to the Supreme Court. I wanted a short fuse, quick yes/no, go/no, but I still figured it would take three to four years, not a fucking 18 months.”

With more time, Kanojia thinks he would have had a chance to develop a greater number of loyal customers. And he says not starting in Washington, DC, before the case went to the Supreme Court, was “a big mistake.”

“If we had launched in DC and all these clerks and people who are part of the machine had access to the product, they would have built some affinity with it. Because [the Supreme Court decision] was completely baseless in any legal argument, it was basically ‘we don’t like Aeroo’. There was no factual basis for it.”

Kanojia says he looks back on Aereo’s victories even more than his missteps, and says the overall experience has allowed him to maintain a level of confidence with his investors and recover quickly.

“The fact that we had done Aereo and people had seen the performance of this team, 18 months to finish, we had 600,000 users, 120,000 customers, while we were in a legal battle. We had a wonderful product that worked, I think that all contributed to the stage that the team can perform.”

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

Unlike Aeroo, Starry’s future success is not based on a binary set of risks. Instead, it will depend on building a loyal customer base and surviving stiff 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 Aero 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 no later than Friday, February 4 at 3 p.m. Eastern Time.

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