Dogfight: How Apple and Google Went to War and Started a Revolution (29 page)

What Aereo is doing sounds as if it should be illegal. Cable companies pay broadcast networks hundreds of millions of dollars in fees every year to transmit their broadcast signals over their wires. Aereo is getting away with not paying a cent. But for the moment judges have ruled that because of a loophole in the copyright laws Aereo is completely legal. The cable and television industry sued Aereo as soon as it was launched in 2012, seeking an injunction to shut it down. But they lost. When you subscribe to Aereo, your house is assigned a specific antenna in Aereo’s server farm. As long as each house is receiving the broadcast signal on an individual antenna based in the local area, it’s legal reception. The law doesn’t require the antenna to be based in your house.

This is, of course, terrifying for cable and broadcast companies, and they plan to use every dollar at their disposal to continue their fight. Retransmission fees are a huge source of income for broadcast networks. Meanwhile, Aereo together with a Netflix and Hulu subscription at about $20 a month starts to become a compelling alternative to paying $100 for cable service. One of the things that has kept cable customers from cutting the cord has been the absence of live TV—local sports on local broadcast stations in particular.

It’s going to be an enormous battle, because Aereo isn’t a half-baked start-up with easy-to-scare venture capitalists. Barry Diller, who built his career in Hollywood at ABC, Paramount, and FOX television, is backing it. He knows and has worked with most of the executives running the networks. But from the early days of his career he has also always been much more interested in disrupting the status quo than in making sure people like him. “I knew there was going to be controversy, but I couldn’t find a flaw because I felt that the existing law was so much on the side of what Aereo was doing, and that’s what intrigued me,” Diller told David Carr at
The New York Times
in March 2013. Those remarks brought the following curt response from Les Moonves, the head of CBS: “It is clear that the whole premise of Aereo is to make money off the back of the hundreds of millions of dollars we invest in programming. We pay the NFL one billion dollars a year. Right now we have a lot of correspondents in Rome. We think it is patently illegal to take our signal and those of the other networks and resell it without paying for it. It is so wrong on so many different levels.”

The future of HBO will also be a good proxy for how the mobile revolution is going to evolve. For the last few years the company has successfully been embracing technological change with its hugely popular HBO GO app while professing its loyalty to the cable companies who continue to be the gateway to its high-end programming. That’s an understandable position, a kind of straddle. For all its growing popularity as a brand, HBO has never had to sell or manage relationships with its customers. It has had to manage its relationships with the cable companies, and they take care of everything else. This has provided HBO with all the money it needs to buy and produce the top-quality shows it is known for.

HBO’s problem is that it is increasingly unclear how long that straddle is going to work. Netflix, with the success of
House of Cards
and its other original programming, has now proven that you no longer need a cable network to offer consumers top-quality programming. HBO knows Netflix’s model well. It is similar to the one HBO used to become the dominant cable entertainment channel in the world: Use movies to build a subscriber base, then use the subscriber base to start making your own content. The difference is that you only need an Internet connection and $8 a month to get Netflix programming. You need a top-tier cable TV subscription at more than $100 a month to get HBO.

HBO is keenly aware of this, and in an interview in February 2013 its president, Eric Kessler, said that it had partnered with Tivili, a three-year-old start-up led by two Harvard students, to bring HBO GO to a handful of college campuses. Students won’t need their parents’ cable-subscription number to sign up. They’ll be able to do it for free with their Facebook log-in. Kessler said that HBO never wants to be associated with an audience of middle-aged adults only—as Oldsmobile became—and said he assumed that many college students today would get most of their HBO programming through HBO GO. But he also said he believed that they would be getting that programming via a cable TV subscription for a long time to come.

But this issue is clearly a moving target inside HBO. Just six weeks later—at the premiere of
Game of Thrones
in San Francisco—fifty miles from Netflix headquarters in Los Gatos—it seemed as if HBO had completely reversed course. Its CEO, Richard Plepler, said that HBO was thinking hard about allowing those without cable subscriptions to get HBO anyway. Customers could pay $50 a month for their broadband Internet and an extra $10 or $15 for HBO to be packaged in with that service, for a total of $60 or $65 per month, Plepler explained. “We would have to make the math work,” he added.

The antagonistic standoffs between the entertainment industry and the Silicon Valley of the Napster days back in 2000 are not completely gone either. In early 2012 the entertainment industry thought it could use its lobbying clout in Washington to quietly push two bills through Congress that would have given it new powers to control the content of websites violating their copyrights. But the bills read as if they were as much motivated by a nefarious Hollywood power play as by a desire to stop illegal activity. Big tech companies such as Google blacked out their website names in protest of the SOPA/PIPA bills. Some, such as Wikipedia and Reddit, went dark. And the bills were quickly defeated.

But what happened after the SOPA/PIPA fiasco was as interesting as the event itself. Instead of hardening their positions as they had in the past, executives from Hollywood and Silicon Valley figured out a way to make headway. Hollywood executives, such as Chase Carey, the COO of News Corp., were contrite, acknowledging openly that the industry had been heavy-handed. Meanwhile, companies such as Google agreed to figure out new ways to flag pirated content. Ari Emanuel, who had been publicly critical of the high-tech industry—particularly Google—on this issue in mid-2012, was by the end of the year talking about all the progress that had been made. He said Google had demonstrated to him that it was now moving sites it suspected of piracy down in search results—which, if it takes a site out of the top ten, can be akin to making it disappear. “So Silicon Valley and Hollywood
are
working pretty well on aspects of content and distribution in new media,” he said.

“It’s still not easy,” Michael Yanover said. “But the gap has been bridged much more than it ever was. I think that we’ve made tremendous progress since I started in this world. There’s a mutual respect. Hollywood people have had to embrace the technology because it’s either embrace it or get killed. And I think the Silicon Valley people have finally come to respect and understand Hollywood a little bit more. Thanks to Netflix, Hulu, YouTube, and others, they respect content and [do] not treat it quite as fungibly as they have previously. So I think there is much more than ever this coming together that’s occurring finally.”

Andreessen concurs with this: “Every year for the past twenty years media-company CEOs have told me, ‘Someday you guys in Silicon Valley will discover you really need us, and someday you’ll start paying us.’ And it wasn’t true for years numbered one through nineteen. And it literally just became true. And so I think that is a very big change. I think these industries are going to intersect much more in the years ahead than they have so far.”

Everyone agrees that the biggest issue in the transition remains finding a way to continue paying top dollar for content. This still makes everyone in Hollywood exceedingly nervous. Hollywood exists not just because it makes movies and television shows people want to watch, but also because executives there have shrewdly figured out how to divide the world into submarkets, allowing them to control the supply of content and sell it again and again for high prices. Without these windows everyone is worried that revenues from content won’t be large enough to support the cost of making it. What’s different now, however, is that companies in Silicon Valley are also footing the bills—and proving that thanks to their inventions there are indeed new ways of financing, producing, and distributing content. That isn’t the sort of challenge Hollywood can ignore or make go away with lawsuits as it has done before.

*   *   *

In mid-May 2013, at the end of a marathon keynote presentation to open its conference for software developers, Google served up a surprise to its exhausted listeners. At the three-hour mark, Larry Page, the company’s publicity-shy CEO, came out to deliver remarks and take questions from the audience.

Page isn’t a rock star CEO as Steve Jobs and Bill Gates once were, or as Mark Zuckerberg at Facebook and Larry Ellison at Oracle continue to be. In fact, Page’s appearance was notable for the exact opposite reason: few could remember the last time they had seen him center stage. He has been Google’s CEO for two years and is one of its cofounders. But during that entire fifteen-year period—Google was founded in 1998—he has taken pains to avoid the limelight. He rarely grants interviews, or makes speeches the way Google’s former CEO, Eric Schmidt, does. There are many who believe that Schmidt is
still
Google’s CEO because of that. Page had been particularly out of the public eye during the previous year because, as he revealed the day before, he’d been suffering from a condition that has left both his vocal chords partially paralyzed.

His effect was magical. Page is often guarded and stiff in public. But the lack of power in his voice made him seem more human and his remarks more intimate. The six thousand people in the audience and the roughly 1 million watching the live stream worldwide were rapt as Page spun up a vision of the world where technology solved many of its biggest problems—from commuting to education to world hunger. He also did something he rarely does: he talked about himself. He told his listeners how lucky he was to have had a father who was a geek like him. “He actually drove me and my family all the way across the country to go to a robotics conference,” Page said. But Larry had been younger than the cutoff age for the conference and was going to be turned away. The elder Page was adamant. “He thought it was so important that his young son go to the conference, it was one of the few times I’ve seen him really argue with someone.” His dad, who died a decade ago, convinced the conference organizers to make an exception.

You take out your phone, and you hold it out, it’s almost as big as the TV or a screen you’re looking at. It has the same resolution as well. And so if you’re nearsighted, a smartphone and a big display are kind of the same thing now. Which is amazing. Absolutely amazing … We haven’t seen this rate of change in computing for a long time—probably not since the birth of the personal computer. But when I think about it, I think we’re all here because we share a deep sense of optimism about the potential of technology to improve people’s lives, and the world, as part of that.

He went on like this for ten minutes, taking audience questions for another ten. In that short span he was alternately optimistic and visionary, and arrogant and sanctimonious. About Google’s fights with Apple and other competitors, he said,

You know, every story I read about Google, it’s kind of us versus some other company, or some stupid thing. And I just don’t find that very interesting. We should be building great things that don’t exist. Right? Being negative is not how we make progress. And most important things are not zero sum. There’s a lot of opportunity out there. And we can use technology to make really new and really important things to make people’s lives better.

This was more than a coming-out party for Page. Only executives atop companies that are winning in the marketplace make speeches like this. And Page, it appeared, wanted the world to know that this was indeed how he felt. The cynical might have called it Page’s “What’s good for the world is good for Google” speech—a reference to GM president Charles Wilson’s remark in the 1950s about the automaker. After all, it’s hard to imagine Page, or anyone at Google, calling its fight with Apple uninteresting in 2011, when the iPad controlled the entire tablet market, or in 2007, when Google was scrambling to get Android off the ground—or when Apple and Jobs began accusing Google and its Android manufacturers of wrongly copying their work. Page knows that Google’s five-year fight with Apple hasn’t been a distraction for either company. It’s made both companies better. Apple might not have had an app store if Google hadn’t planned one first. Android phones and software might still look as if they were designed for engineers, not consumers, if Google hadn’t been forced to compete with Apple. The list is enormous.

But the momentum in Google’s mobile-platform war with Apple was definitely in Google’s favor by the middle of 2013. Google seemed as dominant in that fight as Apple had seemed in 2011 and in the three years after it unveiled the iPhone. Android’s share of the mobile phone and tablet markets was continuing to rise, clearing 75 percent in smartphones and 50 percent in tablets. Moreover, the competition had pushed down the prices Apple could charge for some devices and that was eating into Apple’s once unassailable profit margins. Apple’s stock price, which had doubled to more than $700 a share in the year after Jobs’s death in 2011, had deflated almost as fast during the following year. By 2013 Apple was no longer the most valuable company in the stock market. And Google’s stock price was at an all-time high.

Apple’s losing its ranking as the most valuable company was, of course, just a symbolic change. What wasn’t symbolic were the scores of angry investors left in the wake of Apple’s plunging stock price. For four years Apple shares had been some of the best-performing of all time, rising nearly tenfold from about $80 in 2008. But investors who bought Apple shares in the fall of 2012—believing, as many did, that its stock was headed to $1,000 a share—watched their investment lose 40 percent of its value while the rest of the stock market was up around 15 percent. Jobs never discussed Apple’s stock price with investors. He rarely even met with them. But by early 2013 the shareholders refused to be ignored, forcing CEO Tim Cook to pledge more than $100 billion in dividends and stock buybacks.