Zattoo’s channels at home in Zurich and elsewhere are mostly legit, but: “The role we play in the UK is a very minor one compared to Switzerland and Germany; we’re more a continental play right now. Because we resorted to a section of the law that allowed us to transmit the so-called ‘qualifying services’, we don’t have the same squeaky clean standing we do on the continent. In the UK, we’re still getting the hang of viewing habits and the overall landscape - for a small company, it’s very difficult to approach all markets at the same time - it takes work, especially the advertising piece.”

—Ads interrupting channels streams?: If some channels are reluctant, Knecht admits it may be due to scepticism about its advertising model, which inserts animated ads in to the app’s blank video window while it waits for a channel to buffer: “There’s a perception that we interrupt them; people are uneducated about us, but there’s nothing to hide - we’ve left descriptions of our service with the British channels during two-year-long negotiations. We do not interrupt their channel - if the user interrupts their channel because he’s had enough, then we show a click ad.

“It just happens to be a moment of great attention from the user - it’s in no-man’s land, the old channel is gone, the new one is still being buffered. We’ve pioneered the format - the startup ad.” Right now, Zattoo is showing low-value ad network spots, but Knecht says demographic targeting - he’s already delivered Jamie Oliver ads next to scheduled cooking shows and police force ads against crime shows - can lead to higher CPMs: “The revenues are already close to high enough.”

—German legal problem: But Zattoo has since January been under court order to black-out five Universal and Warner Bros. movies aired on German TV channels it carries, the studios having complained it doesn’t own “retransmission” rights. Knecht says that’s “totally fine” but the court should consider the definition of “retransmission” is being constantly revised online nowadays: “Usually, new paths of distribution have brought Hollywood and rights owners more money. We already pay owners huge sums through collecting societies, under the same regimen cable or satellite companies pay.” Nevertheless, the studios’ court victory prompted Zattoo to drop several German MTV channels, fearing a follow-up suit from litigious parent Viacom (NYSE: VIA), as well as what Knecht says were already high carriage costs: “We hope to start retransmitting MTV, we just want to wrap up this (studios) case.”

—In profit by next year: Through the rights issues, Zattoo is “holding up pretty well compared to the rest of the industry”. It’s reached 250,000 registered UK users out of a total 4.5 million in its six European countries, between a quarter and a third of whom actually user the service regularly each month. Three-quarters of revenue comes from ads but a premium offering run together with Swisscom - which sees about 100,000 subscribers pay an average €2.50 a month - makes up the remaining quarter… “that is a relatively healthy mix, I think”: “By and large, the picture is promising - we still burn cash, but much less than we used to - in 2010, we’ll be profitable.”

—The future: Knecht revealed Zattoo will do a premium movie subscription offering together with Germany’s Kinowelt channel. Despite focusing so far on live TV, it may even go down the VOD route: “Those partnerships with broadcasters are blossoming and we’ll see them come to life this and next year; we will simply act as a gateway to their libraries.”