Aereo, a startup whose backers include media mogul Barry Diller, is launching a subscription service in New York City that provides live broadcast TV channels and network-based DVR over the Internet for $12 per month, pitched as an alternative to cable TV -- a proposition that may earn a legal fight from the broadcast industry.
Aereo's service is based on dime-size antennas. In New York, these are housed in giant arrays somewhere in Brooklyn, which receive over-the-air TV signals and transcode them in real time for delivery to Apple iPhones and iPads and other devices, without the need for a set-top box.
The company's legal justification: Each antenna is dedicated to an individual Aereo subscriber, so the service isn't subject to the same retransmission laws that pay-TV operators are. Similarly, the DVR service -- which provides up to 40 hours of storage per account -- allocates dedicated storage to each user so as not run afoul of copyright laws.
As Diller, chairman of Internet company IAC, put it: "Every little antenna essentially has a consumer's name on it." He spoke at Aereo's launch press conference Tuesday at IAC's Manhattan headquarters.
Aereo founder and CEO Chet Kanojia, asked whether the company expects to be on the receiving end of litigation, responded, "We understand that there will be challenges... We are building a transformative business and there will be challenges."
Broadcasters have challenged TV-over-the-Internet streaming services before -- and won. Last year, a U.S. District court blocked startup Ivi TV from streaming TV station signals online without retrans payments to broadcasters; Ivi TV's appeal in the case is pending.
The National Association of Broadcasters declined to comment on Aereo.
Aereo's New York City members will have access to all of the major networks including CBS, NBC, Fox, ABC, CW and PBS, as well as other local channels. The $12 monthly charge provides a dual-tuner DVR service, to allow recording of two shows at once. Customers must prove they live in the New York area by providing a credit card with a billing address in the region, and the service is not accessible outside the boundaries of the broadcast designated market area.
Diller maintained that broadcasters have received government-granted licenses to the airwaves for free, so the public is entitled to "receive it for free."
The Aereo service is restricted to five devices per account. Kanojia noted that the $12 fee is not a content fee, but a "technological services" fee.
The company, formerly called Bamboom Labs, has raised $25 million in funding, including a $20.5 million Series A round led by IAC. Previous investors include Gary Lauder, FirstMark Capital, First Round Capital, High Line Venture Partners and Highland Capital Partners.
Diller, who has joined Aereo's board, said that after months of vetting Aereo with "lawyers and tech people" he was satisfied the solution was not only viable but had the potential to "radically transform that centricity of how you receive television."
The service is currently in an invitation-only test. Aereo plans to launch the service publicly March 14, with a 30-day free trial.
Currently, Aereo's service is limited to broadcast TV content. But company executives said it could encompass Web-delivered services such as Hulu or Netflix at some point. "We're starting with live broadcast for the Internet," Kanojia said. "This is about the generation growing up -- they expect things on their terms."
Aereo advertises the service with the tagline, "Live TV. No cable required." The beta version of the service went live on Feb. 9; the company declined to say how many micro-antennas it has deployed but put the number in the "thousands."
The service's user interface written in HTML5, so it can be easily ported to other devices, Kanojia said. The guide uses listings data licensed from Tribune Media Services. Aereo also integrates with social networks, to let users share and chat about shows in real-time with other subscribers via Facebook and Twitter.
Aereo has already tested the service with Roku set-tops and can deliver live TV to an Apple TV box from an iPad via the AirPlay feature.
"The computing power we can put in the cloud is so much more than you can put into a 'toaster,' a conventional DVR," Kanojia said. Unlike pay-TV providers, "We have no invested interest in a box in a consumer's home." Added Diller, "Any television sold today is essentially Internet ready."
To be eligible for the service, customers must prove New York residency by proxy with a credit card. "That says, ‘I live here, I could have put up an antenna and received these signals,'" Kanojia said.
Aereo provides some geo-blocking features that restrict the signals to Internet connections in the New York area. However, Kanojia said this can be user-overridden. For example, subscribers on a corporate Wi-Fi network that terminates in California can tell the service they're actually sitting in New York to receive the service. "We expect the consumer to honor the idea it's a home-market product," he said.
Kanojia previously was founder and CEO of interactive TV and advertising vendor Navic Networks, which Microsoft acquired in 2008.
Boston-based Aereo has about 65 employees, with six located in Long Island City, N.Y. Kanojia said the startup would evaluate additional launches on a market-by-market basis.