Aereo’s court case chills startup cash

Written By Unknown on Minggu, 27 April 2014 | 18.38

Aereo's landmark Internet broadcast Supreme Court case is casting a pall over venture funding for the cloud computing industry, experts are warning.

"The mere existence of this will make it much harder to raise funding, because the risks have gone up," said Michael Davies, chairman and founder of Endeavor Partners, a Cambridge consulting firm for technology companies.

Last week, the Supreme Court heard the case in which Aereo defends its right to grab television broadcast signals and stream TV through the cloud to users for a small fee of about $8 a month — and without paying retransmission fees. Aereo, run by founder and CEO Chet Kanojia, contends its antennas are no different than old-fashioned rabbit ears and its service constitutes what is legally known as a "private performance." Broadcasters contend the business is offering a "public performance" and the company is violating copyright.

"If putting stuff in the cloud and playing it back is deemed to be a 'public performance,' that would have a horrible chilling effect on the ability of people to use the cloud to store content and media," said Davies.

The case is do-or-die for the industry, experts say, warning of a critical slow-down in investment and innovation in the cloud — a loose term for data storage and server space located off-site.

A study in 2011 found VC investment in cloud technologies "increased significantly" — as much as $1.3 billion — after the Second Circuit maintained the legality of Cablevision's cloud-based DVR, which stored copyrighted material off-site, said study author Josh Lerner, a Harvard Business School professor.

If the Supreme Court rules against Aereo, he said, the opposite could happen, and funding for start-ups could become harder to get.

"It would be the kind of situation where it would be likely that investors would cast a very hard look at cloud companies," Lerner said.

Headquartered in New York, Aereo's engineering and development staff — 80 of 115 total — works out of two floors in an office in Boston's Innovation District.

The company has raised $97 million in venture funding, much of which came after the company was sued by the networks, including a $34 million round of funding that closed in January, after a trip to the Supreme Court seemed likely.

Aereo itself is raising concerns about the effect of the court decision on the industry. The company and some of its legal backers, including a tech industry group representing Google, Facebook and others, claim that the cloud industry would be irreparably harmed if the court decides Aereo is infringing on copyright.

Not everyone agrees.

David Skok, a general partner at Matrix Partners, a Cambridge-based venture capital firm, said he believes the case will only affect a small part of the cloud industry.


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