IAC-backed Aereo makes a big play for cord cutters

The promise of cord-cutting may get a lot brighter with the introduction of Aereo, a new TV broadcast service that enables mobile devices, set-top boxes, TVs and PCs to receive local broadcast programming over the Internet. Aereo, which we first wrote about under the name Bamboom Labs, finally got its public unveiling today at a press event hosted by new investor IAC.

The system works by creating an array of hundreds of thousands of tiny TV antennas the size of a thumbnail and housing them in one data center in a market. When users hook up to Aereo, they take command of an antenna, renting it to get local broadcast channels such as ABC, (s DIS) CBS, (s CBS) Fox (s NWS) and others. They also have access to a cloud-based dual tuner DVR that allows them to initially record up to 40 hours of content. Aereo is launching as an invitation-only service in the New York market and will be publicly available starting March 14 for $12 a month with a 30-day free trial.

This is “the beginning of a trend where consumers want to head, they want to have choice,” CEO Chet Kanojia, who founded advertising company Navic, which was sold to Microsoft (s MSFT). “We think the market is now ready, given the level of broadband penetration that exists and the amount of time people spend on digital technology, to start moving people toward the idea that there is an alternative emerging.”

Aereo also announced $20.5 million in new funding led by IAC (s iaci), bringing its total to $25 million. Aereo’s system won’t provide cable content but should be able to give mobile users and cord-cutters easier access to TV, including live sports events. That is if it can survive legal challenges.

A similar streaming service called Ivi.tv was shut down by a judge a year ago after a challenge by 40 big broadcasters. Ivi.tv believed it could rebroadcast local TV feeds online as part of a loophole in the U.S. Copyright Act as long as it paid semi-annual fees to the U.S. Copyright Office. But a judge issued a preliminary injunction saying that Ivi was not a cable system as described in the Copyright Act and was therefore in violation of broadcasters’ copyrights.

The Aereo antenna

New York-based Aereo hopes to avoid that fate by leveraging copyright laws that allowed Cablevision (s cvc) to offer a network DVR service, which was controlled by one person. It also believes that by giving each user their own antenna and DVR to control, it can also bypass legal challenges. Essentially, it’s giving each user a private viewing session so there is no shared antenna or content at any given time.

That doesn’t mean that each user gets a dedicated antenna for the life of their account. Aereo can switch antennas between sessions to resolve radio frequency and other issues. It’s still very possible that broadcasters can oppose Aereo in court, but Kanojia said he believes it should withstand legal challenge.

“The key issue is the exhibition is private; media is never mingled, the DVR is never mingled, the antenna is never used by multiple people,” Kanojia said.

“You can think of each of those little antennas with a name on it,” IAC chairman Barry Diller said. “It’s entirely consistent with the basis of over the air broadcast. If you have an antenna, you can receive TV without an intermediary.”

Kanojia was cagey about how many antennas are actually in use in its Brooklyn center. But he said the antennas are organized into boxes the size of a dish washer, which can hold thousands of tiny antennas. A large market could take a hundred boxes to offer full service. Aereo users are not paying for content but are renting the antennas and paying for bandwidth, power and other costs. Aereo has leased its own fiber and created its own DVR product. Users will be able to access Aereo on iOS and Roku devices initially. The service will spread, starting March 14, to Android devices including the Kindle Fire through its HTML5-based app and will also be available on PC and Mac browsers. Aereo will use geo-locking to limit the signal to devices in the New York area.

Kanojia said Aereo will look at how the initial launch goes, but plans are in the works to scale up nationally if all goes well. The company has just about eight employees now, so it will take on a lot more workers to scale up, Kanojia said.

Ultimately, if live broadcast TV works for Aereo, it sounds like the company would be open to welcoming other content providers, even cable networks. Aereo would have to prove popular with consumers but as an open platform, it could accept content from all kinds of providers.

Aereo has a pretty cool take on bringing live TV to cord cutters and mobile users. It looks slick and the picture quality looks solid, ranging from SD to 720p, based on the network connection. I’m going to give it a try and see if it’s a compelling offering. It would be nice to get cable channels, and I’m not sure people will go for the idea of paying $12 a month for the ability to access live broadcast TV. But it will be an interesting test to see whether consumers and the courts will embrace this kind of cord-cutting offering.