Legal challenge could ensue in wake of Ivi.TV dispute

Barry Diller’s IAC is among the backers of a new venture that could face legal challenges regarding its delivery of live broadcast TV to digital platforms.

Aereo TV was introduced Tuesday at IAC’s Manhattan headquarters with a new round of funding totaling $20 million from investors including Diller, who will join the company’s board of directors.

The service charges subscribers $12 per month for access to HD broadcast TV networks both in live linear form as well as recorded programming stored on cloud-based DVRs without any set-top box or wires. Aereo TV, which has launched invitation-only ahead of a broader deployment next month, initially will be available with a 30-day free trial only in New York.

But Aereo TV has not paid retransmission consent fees to any broadcasters — a loophole the venture believes it can exploit by deploying a tiny antenna for each individual sub rather than the traditional one-to-many transmission. That said, it wouldn’t be the first service that thought it could sidestep the broadcast business, only to be halted in the courts.

Asked to assess the legality of Aereo TV, the National Assn. of Broadcasters declined comment.

Diller defended the venture, saying months of due diligence have convinced him Aereo can be a viable business.

“After lawyers, tech people and everything, I found nothing wrong with it,” he said. “But each barrier we went through, I got more excited.”

Last year, startup Ivi.TV tried to deliver broadcast channels to connected devices through a different loophole, only to get smacked down by a preliminary injunction that led to its demise. But Aereo may at least have partial justification for existence in a 2008 ruling that allowed Cablevision to go forward with a remote-storage DVR.

The legal challenge could end up targeting the real-time transcoding Aereo engages in to convert broadcast signals into an HTML5 environment. A similar argument is currently being made in a legal standoff between Time Warner Cable and Viacom, which sued the cable operator after it began transmitting linear channels to its subs via iPad without authorization. Compressing the feed for IP delivery, Viacom has argued, amounts to a degradation of the channel signals.

While Aereo is essentially repackaging broadcast content that is technically free and delivering it for a fee, the venture delivers value-adds on top of that core product in portability across popular devices like the iPad and a box-less DVR that can store 40 hours of programming.

At launch, Aereo will not carry any cable programming. However, the venture bears the prospect that there will be an audience sizable enough to be willing to subsist on broadcast TV and perhaps Netflix. If it can scale at a rate comparable to Netflix, cable programmers may have to give Aereo a hard look.

Aereo finds an unlikely champion in Diller, given that the mogul was the founding exec of Fox Broadcasting Co., which operates with the very business model his newest venture could undermine. Prior to launching Fox in 1984, he also worked in primetime programming at ABC.

Other investors joining IAC in financing Aereo include FirstMark Capital, First Round Capital, High Line Venture Partners and Highland Capital Partners.

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