IAC/InterActiveCorp (NASDAQ:IACI) is backing the Aereo video service and the lawsuits are flying. This could present a buying opportunity for those interested in owning an Internet specialist that pays a dividend.
Who is IAC?
IAC is a holding company that owns and operates various Internet properties. Its portfolio is varied and broad, including dating sites, search engines, comedy sites, video sharing sites, and many others. Well known brands include Match.com, About.com, Ask.com, College Humor, and Vimeo.
The company basically owns web sites that either require subscriptions or over which IAC/InterActiveCorp (NASDAQ:IACI) can sell advertising. It tends to buy concepts that it believes it can expand and unloved concepts that it believes it can turn around.
After spinning off its travel sites and Ticketmaster, the company has seen revenues grow fairly steadily over the last couple of years. Moreover, it initiated a dividend with the vocal backing of Chairman Barry Diller. This makes the company an interesting option for income focused investors seeking direct Internet exposure.
What is Aereo?
Aereo is an online video service that lets customers get broadcast stations in their market over the Internet. It also comes with a recording system, so customers can save shows for future consumption. At present, Aereo is only available in select markets and costs around $12 a month.
It is very different from Hulu, in that it literally streams live television over the Internet. A notably lacking feature for Hulu and Netflix, Inc. (NASDAQ:NFLX). The ability to watch live television, particularly sports and news shows, is one of the key reasons to keep paying for cable.
Recently, IAC/InterActiveCorp (NASDAQ:IACI) made an investment in Aereo. Diller openly backed the company, too. This puts IAC squarely behind this disruptive company’s prospects.
The problem
Aereo doesn’t pay for the content it is charging customers to watch. This has, clearly, created some concerns among the cable operators and television stations in the regions in which Aereo plans to operate. Lawsuits have already begun.
The company is getting around paying for the content it streams by giving each customer an antenna. Since each antenna is only sending content to one person, Aereo believes that it isn’t running afoul of any laws. In effect, it is no different than an individual sitting in front of a television set. What customers are paying for is the rental of the Antenna. That’s a tricky issue, at best.
The haters
The Walt Disney Company (NYSE:DIS), which owns ABC, is one company that is backing the lawsuits. Not only does Disney want to protect its ABC content from being redistributed without payment, but it also wants to ensure that people have a reason to keep paying for its sports powerhouse ESPN, another prized property. Aereo is a serious threat to The Walt Disney Company (NYSE:DIS)’s massive broadcast business. Comcast Corporation (NASDAQ:CMCSA) which is both a cable company and the owner of NBC is another company facing a double whammy from Aereo if customers cut the cord.
The live TV angle has been the knock against Netflix, Inc. (NASDAQ:NFLX) from day one. It is the most likely reason why subscribers to cable haven’t defected to the much cheaper alternative. They have, instead, paid for both. However, the prospect of pairing Netflix with a viable cable alternative to save money is very enticing.
Interestingly, pairing the privately held Hulu and Netflix services resolved some of the “live” issue, but not all of it. Hulu is owned by the networks and is run in a way that compliments their businesses. The combination, however, still lacks live sports and news.
Aereo goes that extra mile, giving customers access to live news, live television shows, and any sports available over broadcast TV. That is a very compelling combination that could entice cable customers to defect if paired with Netflix.
Disruptive
Since IAC/InterActiveCorp (NASDAQ:IACI) is publicly and financially backing Aereo, it could see its share price move sharply on the legal issues surrounding Aereo. IAC, however, is a much larger company with fairly bright prospects. Investors should monitor the Aereo connection for a potential sell off that could lead to a buying opportunity.
In addition, it is worth keeping an eye on Netflix, too, since it could see even more subscribers if Aereo gets the legal green light.
The article A Disruptive Technology Buying Opportunity originally appeared on Fool.com and is written by Reuben Gregg Brewer.
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