Not Playing By The Rules As A Way Of Life

Michael Hedges June 30, 2014 Follow on Twitter

A little disruption in life is a good thing. That unexpected rain shower might cancel the picnic but the unpredictable has benefits. Being quick afoot helps, except in a flood. Then pure terror seizes the mind. What shall we do?

The controversial streaming television service Aereo has taken a “pause” after the US Supreme Court decided last week it is the same as a cable TV provider and, as such, owes broadcasters a fee under US copyright law. Big US broadcasters came unglued when Aereo started offering quite inexpensive access to broadcast signals by housing tiny individual antennas and receivers – one per customer – and delivering the goodies by internet without paying retransmission fees. An appeals court had ruled it legal but broadcasters took the case to the Supreme Court, which ruled Aereo violated copyrights of broadcasters and returned the lawsuit to the appeals court.

“We have decided to pause our operations temporarily as we consult with the court and map out our next steps,” wrote Aereo CEO Chet Kanojia on the company’s website (June 28). The company first appeared in February 2012 and expanded into a dozen major US cities. Tech watchers called it brilliant. Broadcasters called it theft. Customers will get their money back.

Aereo is one of three quite disruptive start-ups to attract considerable attention in recent weeks. Ride sharing network smartphone app-enabled Uber, which connects folks via the internet in need of a ride with folks going the same direction, attracted several cease-and-desist orders in the US and the anger of licensed taxi drivers in several cities, including London and Madrid, disrupted city traffic one day in mid June. The Uber service has been banned in Brussels and Berlin.

Holiday room listing service Airbnb, which pairs up folks having a spare room and folks looking for a place to stay, had been largely ignored by hotel operators until this year when volumes soared. The hotel industry has successfully lobbied local governments to impose room taxes on Airbnb customers. The Swiss capital Berne has imposed a tax on those renting “unregistered” accommodations and has hired a detective to look for any funny business.

The decision to impose a €10,000 fine on Uber drivers in Brussels “is not about protecting or helping passengers,” wrote a quite distressed European Commission vice president for the digital agenda Neelie Kroes in a blog post (April 15). “It’s about protecting a taxi cartel. It isn’t protecting jobs… it is just annoying people.”

And this is the thread running through the rise of Aereo, Uber and Airbnb. CBS Corporation CEO Les Moonves and 21st Century Fox President Chase Carey threatened to boot free-to-air TV for cable distribution if Aereo had prevailed in the courts. Disruptive innovation – the ‘it’ term for consultants and convention speakers – has been unpopular with legacy industries since the beginning of time, at least since Rupert Murdoch said Google was killing newspapers.

When the New York Times Company’s Innovation Report was leaked recently, media people got a good look at the work of Harvard Business School professor Clayton Christianson, who, in 1997, wrote Silicon Valley’s tome on digital investment, The Innovator’s Dilemma, which the NYT report quotes liberally. Businesses fail in the digital age, he explained, when they concentrate on propping-up premium old-school products as “nimble alternatives” eat their lunch. Christianson has been patiently waiting for Apple to fall.

Another Harvard professor, Jill Lepore, poured scorn on the whole disruptive innovation idea in a recent 6,000-word New Yorker piece. “The rhetoric of disruption—a language of panic, fear, asymmetry, and disorder—calls on the rhetoric of another kind of conflict, in which an upstart refuses to play by the established rules of engagement, and blows things up,” she offered. “Startups are ruthless and leaderless and unrestrained, and they seem so tiny and powerless, until you realize, but only after it’s too late, that they’re devastatingly dangerous: Bang! Ka-boom! Think of it this way: the Times is a nation-state; BuzzFeed is stateless. Disruptive innovation is competitive strategy for an age seized by terror.”

Consumers certainly respond positively to each and every disruptive innovation, though consequences tend to reveal themselves over time. Technology allows new and simple access points but remains rather neutral – or ambivalent – toward what exactly is being accessed. Smartphone apps are attractive; developers understand that and not much else.

Investors are, as usual, excited about being excited until they’re no longer excited. Airbnb counts Warren Buffet as an investor. Uber attracted US$1.2 billion in funding this month from Silicon Valley money houses Fidelity, Wellington, BlackRock and Google Ventures. 

Aereo’s primary investor is TV and film industry legend Barry Diller. He invented the made-for-TV movie, put the Fox network on the air for Rupert Murdoch and once railed against media concentration as a “killer of new ideas.” But after the US Supreme Court decision and about US$90 million in angel investment Mr. Diller seems ready to move on.

“It's not a big loss for us,” he told CNBC (June 25),  “but I do believe blocking this technology is a big loss for consumers. We did try, but it's over now.”

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