IAC/InterActiveCorp (IACI), Netflix, Inc. (NFLX), The Walt Disney Company (DIS): Aereo Wins Court Battle, Continues Disrupting TV Industry

Page 1 of 2

The Aereo video service, partially backed by IAC/InterActiveCorp (NASDAQ:IACI), is surrounded by lawsuits. So far, it’s winning. That could materially alter the landscape of broadcast television. IAC/InterActiveCorp (NASDAQ:IACI) is the best way to participate in this potentially disruptive technology.

What is this Aereo of which You Speak?

Aereo is an online video service. It allows customers to receive and record broadcast stations in their home market over the Internet. It is different from Hulu in that it literally streams live television over the Internet, not a delayed or curated version of what appeared yesterday.

Netflix, Inc. (NASDAQ:NFLX)That’s a big leg up on Hulu and Netflix, Inc. (NASDAQ:NFLX), which don’t provide access to live television, particularly sports and news shows. In fact, this failing is one of the main reasons why customers keep paying for cable. However, with a cost of only around $12 a month, Aereo could cause content distributors real problems.


Aereo rents a little antenna to each customer, which only sends information to one customer at a time. The company argues that this is no different than a person sitting in front of a television set with its own antenna. Thus, Aereo doesn’t pay for any of the content its customers are watching, believing this set-up complies with all applicable laws.

Not surprisingly, content owners and distributors are taking the issue to court. IAC/InterActiveCorp (NASDAQ:IACI), seeing an opportunity to get in on the ground floor of a disruptive technology, made an investment in Aereo. Barry Diller, the company’s Chairman, openly backed the company, too. Investors can tag along with an investment in IAC.

IAC/InterActiveCorp (NASDAQ:IACI) is an Internet holding company that owns dating sites, search engines, comedy sites, and video sharing sites, among others. Well-known brands include Match.com, About.com, Ask.com, College Humor, and Vimeo. It earns money through advertising and subscriptions.

After spinning off its travel sites and Ticketmaster, IAC/InterActiveCorp (NASDAQ:IACI) has grown its top-line in each of the last three years. And it started to pay a dividend in 2011. The dividend has already been increased. IAC/InterActiveCorp (NASDAQ:IACI) is well off its all time highs, but with a price to earnings ratio of about 23 is hardly a cheap investment. That said, for growth and income investors, it’s a nice way to get Internet exposure and access to Aereo. It yields around 1.8%.

Who Gets Hurt

The list of companies that could get hurt by Aereo is long. Some, however, have more skin in the game than others. For example, The Walt Disney Company (NYSE:DIS), which owns ABC and cable channels, is backing the lawsuits. The Walt Disney Company (NYSE:DIS) clearly wants to protect its ABC content from being redistributed without payment, but sports giant ESPN could see demand fall, too, if customers can get local sports and news.

The Walt Disney Company (NYSE:DIS) earns nearly 14% of its top-line from ABC, so Aereo isn’t an immaterial threat to its business. And, Disney owns a portion of Hulu, which becomes a less interesting service if Aereo takes off. That said, The Walt Disney Company (NYSE:DIS) is one of the giants in the content space. As the industry comes to terms with Aereo, so, too, will Disney. Only that won’t happen until after the lawsuits are done.

Page 1 of 2