It’s part of a bigger plan to figure out how to address consumers’ base needs first and foremost, before then adding the nice-to-have features for a price. Aereo sees the future of television content as being what Kanojia calls “skinny live, deep library,” so the live parts are only for the content people really need in real time — stuff like news and sports.

“(The consumer is) the one constituent in this industry that’s unserved,” Kanojia said. “Everyone’s businesses are stacked to take advantage of the consumer, not to serve the consumer.”

If on the other hand, the value-add of a movie channel (oh, Aereo’s probably going to add one of those, too) is to watch stuff on your own time, people will probably willing to pay 50 cents or a dollar a month, he said. The same thing goes for programming from, hypothetically, a content provider like Viacom has a broad range of shows that people don’t really need or want to see only while they’re airing.

The only way to do this correctly, though, is to avoid traditional licensing models that have jacked cable prices through the roof and have led to a lot bloat because consumers are getting way more channels than they ever would want to watch. Kanojia wants Aereo to provide 50 percent of the value for 10 percent of the cost of cable, and then let partners and services like Netflix or Amazon Prime fill in the rest.

“The last time I checked,” he joked, “there’s no need to have Desperate Housewives or the Real Housewives of Orange County running on four channels at the same time.”

As for those lawsuits that have plagued the company since its inception, Kanojia said he’s not surprised but he’s disappointed by threats from companies such as Fox and CBS to pull their stations off the public airwaves (the spectrum on which is provided for free because stations are supposed to operate in part in the public interest).

“I just don’t understand the logic behind that,” he said. “I think it’s disappointing to say the least.”

But with significant legal victories already behind it, the future looks a little clearer. He expects the company model could realistically net the company 20 percent of the American television market, and the company is expanding fast outside of New York. It’s supposed to be in 22 more cities by July.

“The one thing that would float by boat more than anything else,” Kanojia said, “is I get a chance to put my product in front of consumers and be judged by the consumers.”

Check out the rest of our paidContent Live 2013 coverage here, and a video embed of the session follows below:

A transcription of the video follows on the next page

Go to page 2 (of 2) on GigaOM .

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At paidContent Live on Wednesday in New York, we’re convening some of the people most responsible for that disruption as well as those tasked with turning big media companies on a dime. That schedule includes upstarts like Chet Kanojia, founder and CEO of Aereo, who has the old broadcasting powers scrambling to quash his innovative startup in the courtroom. It involves financiers like Lerer Ventures’ Kenneth Lerer, whose firm has backed buzzy media startups like Branch and Buzzfeed. And it features publishing veterans like Andrew Sullivan, who is attempting to remake the concept of paid content.

A live stream of the event can be found here, and all of our coverage from the event will be featured below. We hope you can join us.

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In a new court filing (embedded below), the broadcasters claim the decision “threatens to cause massive disruption to the television industry” and “will wreak commercial havoc,” and request a full panel of the US Second Circuit Court of Appeals to revisit the ruling.

The start-up Aereo has been at the center of a storm in recent months because its technology threatens to blow-up the existing model of pay TV, which is based on selling viewers a bundle of channels, that include over-the-air stations like NBC, ABC, CBS and Fox. Aereo is backed by a $58 million investment from media mogul Barry Diller and others, and lets customers watch and record TV without a subscription for $1 a day or $8 a month.

In the past, other companies have retransmitted TV signals over the internet but broadcasters quickly smashed them for copyright infringement. Aereo, however, has survived two major court challenges thanks to its technology which assigns a mini-antenna (see pic below ) to each subscriber; the service is now live in New York City and is slated to arrive imminently in 22 more markets.

In the new filing, broadcasters howl that Aereo’s individual antenna system is just a loophole to get around a copyright regimes that requires any company that plays over-the-air signals, including cable and satellite firms, to pay retransmission fees. The brief also cites a paidContent story to warn that Aereo wants to team up with distributors like Dish network and Time Warner Cable to expand its reach.

On a broader level, the legal manœuvreing is part of a great game between Aereo and the broadcasters over the future of TV that could end up at the Supreme Court. In the coming battle, the broadcasters are pinning their hopes on a recent California court case, which shut down an Aereo clone and rejected the theory that a private antenna means a transmission is not “public” under copyright law – a theory accepted by two out three judges on the Second Circuit court.

In the new filing, the broadcasters rely heavily on the opinion of dissenting judge Denny Chin, who described Aereo’s technology as a “sham” and a “Rube Goldberg” device that “over-engineered” to dodge copyright.

While the dissent and the California case provide the broadcasters with ammunition, the request for a review by all of the judges on the New York court is a long shot. This is because, unlike other appeals courts, the Second Circuit almost never agrees to hear so-called “en banc” appeals; in the event it did rehear the case, the judges would be reluctant to accept the broadcasters’ invitation to declare that they were wrong on an earlier case that formed the basis of their opinion for Aereo.

This means the Supreme Court — or Congress — is the broadcasters’ best hope. Time is not on their side, however, because it would take years for the legal case to be heard and decided. By that time, technology and consumer habits for TV may have changed dramatically.

The CEO of Aereo will offer his two cents on the bigger picture of TV at paidContent Live which is taking place on Wednesday in New York City.

Legal types — here’s a marked up version of the broadcasters’ very well drafted legal brief:

Aereo en Banc Petition

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The motion seeks to uncover “any ‘actual, contemplated, considered, or proposed’ business arrangements” between Aereo and Dish as well as “offers or expressions of interest by Dish in acquiring Aereo’s assets,” according to passages quoted by the Reporter. Of course, Dish doesn’t want any of those discussions to be public, which is why the company is now trying to quash the subpoena.

Dish’s Charlie Ergen has been very vocal in his support for new TV business and distribution models, going as far as saying that “a lot of customers can live with Netflix and an… antenna, and YouTube.” Dish could possibly use Aereo to build a cheaper TV bundle by bypassing retransmission payments to local broadcasters — or maybe just lower these payments by threatening such a course.

Make sure to check out our paidContent Live conference in New York this month if you want to learn more about Aereo’s potential to shake up the TV industry – I’ll be interviewing Aereo CEO Chet Kanojia on stage, and will make sure to quizz him about Dish as well.

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For anyone unfamiliar with Aereo, the Barry Diller-backed company lets subscribers rent mini personal antennas that can beam and record over-the-air TV to mobile devices and laptops under two plans. One costs $1 a day, or there’s a monthly subscription for $8. For those eager to hear more, Aereo CEO Chet Kanojia will be speaking at paidContent Live on April 17 about his plan to disrupt the TV industry.

News of Aereo’s discussions with Dish, AT&T and others comes by way of a Wall Street Journal report that says such a partnership could let Aereo quickly expand its footprint. Aereo has already announced plans to expand soon to 22 new markets beyond New York City where it is already available.

Aereo’s desire for a partnership with a major ISP or TV provider is probably not related to money or infrastructure; the company has told me in the past that rolling out a new antenna farm is quick and easy. Instead,  any partnership is likely tied to deeper strategic goals. From the Wall Street Journal story:

In one scenario that was discussed, AT&T would sell broadband or wireless data subscriptions paired with Aereo’s video service, people familiar with the matter said.

In other words, such an arrangement with AT&T would let Aereo subscribers use the service heavily without fear of exorbitant data bills.

Meanwhile, the talks with satellite TV-provider Dish Networks may have centered on an acquisition. Although Dish CEO Charlie Ergen said on a February investor call that Dish had no plans to buy Aereo, he added “we never say never.” Ergen has also repeatedly expressed admiration for Aereo and, unlike other incumbents in the TV industry, acknowledged the reality of consumers quitting established TV models in favor of “cord-cutting.”

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The TV business is still based on an archaic business model that forces customers to buy arbitrary bundles of channels. Fans of arts programming, for instance, often have to shell out $5 a month for football shows — even if they hate football.

This isn’t a technology issue. It’s instead the problem of what media doyen Peter Kafka calls the “TV industrial complex” — a cabal of broadcasters and cable distributors that refuse to surrender their bundled TV business model.

That’s why upstart Aereo, which uses tiny antennas to stream TV signals to mobile devices, is so intriguing to watch. The company is offering a way for people to watch shows where and when they want — and has so far withstood the TV industry’s lawsuits. Yesterday, we showed off photos of Aereo’s tech. Today, we’re exploring the vision and strategy of the man who wants to kick in the door of the TV industrial complex once and for all.

The quest to end an “abusive” system

Chet Kanojia, who is speaking at paidContent Live in April, is a soft-spoken engineer who likes stylish shoes. At 43, he’s already built an advertising company, Navic Networks, and sold it to Microsoft — and presumably made himself a fortune. When we chatted at Aereo’s site in Brooklyn this week, the first thing I wanted to know is why he picked this fight. Why, that is, did he decide put so much energy into Aereo when the TV industry might crush the company in a second like it has done to others before?

“I had the option to be a VC, to do nothing or to do something really really meaningful,” said Kanojia. “In my heart of hearts, I belive that when businesses are created or preserved with analogue mentalities, they’re artificially constrained and ripe to to be recast in a different way.”

He adds that he loves TV content like 60 Minutes, Parenthood and Downton Abbey. But he is exasperated by the TV industry’s ossified pricing model.

“Why can’t there be a simple way to pay for this? It’s just irrational that it should cost hundreds of dollars a month. It’s an abusive system set up in an artificial way.”

Broadcasters like NBC and Fox, of course, would argue that we need a system that provides revenue to produce the content that people like so much. In recent years, these networks have been leaning on distributors to pay them for carrying over-the-air channels — and presumably think Aereo should too.

Kanojia is having none of it, saying the broadcasters are already making money from public spectrum through advertising and that it’s unreasonable for them to ask for more. Also, Aereo is not part of the regulatory regime that requires big TV companies to offer their channels for sale to cable and satellite distributors; this means that, for now, Aereo is unable to sell channels like ESPN (owned by ABC) to its customers.

Kanojia adds that pure “a la carte” TV is not the only solution to the TV muddle. He would also settle for “rational bundles.”

A high stakes bet

Aereo’s disruptive potential lies in the fact that, unlike other forms of pay TV, subscribers can add or drop it without the hassle of set-top boxes or contracts. For now, Aereo is available only in New York City but is about to roll out to 22 new markets across the country for the same price of $1 a day or $8 a month to watch and record shows. Kanojia believes this will change people’s conception of how we get access to television.

“You can come in five or ten times a year and a pay a dollar. We have lots of habitual one dollar buyers. It’s a massive dent in the psyche.”

For Aereo to have a long-term impact, though, it will still have to survive an ongoing legal gauntlet. On this front, it has a decent chance because investors and lawyers designed the company as a high-stakes bet, counting on a 2008 appeals court ruling that said private remote DVRs don’t violate copyright (you can read the legal details here). After broadcasters sued it last year, Aereo won the first round and the case is now on appeal.

The price tag for the loser will be high. On one hand, media mogul Barry Diller and others have put at least $58 million into Aereo, money that could evaporate if Aereo is shut down. On the other hand, GigaOM Pro analyst Paul Sweeting (who has written about Aereo) said the initial court decision was a “disaster” for the networks and that a loss at the appeal level will open the floodgates.

“If the networks don’t win, what it means is that all you have to do is bounce a signal off a cloud-based DVR and you can do what you want,” said Sweeting by phone.

Whatever the outcome of the court case (which could go to the Supreme Court if courts in New York and California continue to disagree), Kanojia thinks he will have made an inexorable dent in the current tv structure. He also thinks the litigation will help other pioneering TV companies.

“The legal situation is unfortunate, but it forces clarity and that’s a good thing.”

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Media attention to the service has focused primarily on the legal dispute between Aereo and TV broadcasters who have tried, and so far failed, to shut it down. The legal controversy is real but also overshadows the implications of the service for TV viewing and the technological wizardry that makes Aereo work. (Aereo founder and CEO Chet Kanojia will be speaking at our paidContent Live event in April.)

To get a better idea of just how Aereo is serving up TV, we went to the company’s plant in Brooklyn to get some up-close photos. Here’s our tour:

From the Empire State Building to your iPhone

Aereo transmits from the top floor of a nondescript government building on Vanderbilt Avenue on the edge of downtown Brooklyn. You can see it on the right: 

Aereo chose this location for a reason. The floor on which it operates has a direct line of sight to the city’s biggest transmission tower. Here’s a picture of the tower and the view from Aereo’s window:

These direct sight lines make it easy for Aereo to pick up the powerful signals emitted from over-the-air broadcast services like ABC, NBC, CBS, Fox and local community stations. Aereo’s technology then transcodes and relays those signals to its customers who can watch TV, change channels and record shows with their phones or iPads:

Tiny antennas for everyone in the city

Aereo works by letting every subscriber rent a pair of tiny antennas. Customers get two antennas so that they can watch live TV while also recording a show or, alternately, to watch live TV on two different devices at the same time. While Aereo created the personal antenna system as a way to comply with copyright rules (you can read about the legal issues here), the antennas themselves are remarkable in that they give Aereo the capacity to serve 1 million New York City customers from the single floor in Brooklyn and an adjoining rooftop.

Here’s a close up look of the dime-sized antennas in action:

Aereo CEO Chet Kanojia explained that the device is a simple copper antenna but that, rather than picking up the entire TV spectrum like a typical cable antenna, it picks up only the 6 megahertz block of spectrum that a viewer wants to see at a given time. He describes it as a “switched antenna” that’s beautiful in its simplicity. The ingenuity, Kanojia said, is that Aereo’s 1.5 inch antenna changes its electrical and magnetic characteristics in order to replicate the tasks of a standard 35 inch UFH or three foot VHF antenna.

The size of the antenna allows Aereo to cram many of them into a small space which is one reason Aereo is able to relay TV to so many people at the same time. Another reason is that the antennas are “multitenant” which means that, when one Aereo subscriber is not using an antenna at a given time, it is available to all other subscribers.

Cheap storage and high-performance fiber

Aereo relies on the antenna system to offer a cheap TV services that subscribers can easily add or drop at any time. But the antenna is only part of the equation. To make the service economically viable, Aereo is also capitalizing on major advances in transcoding technology and cloud storage. It is these advances that now make it affordable for Aereo to translate the over-the-air TV signals into iPhone video streams and to let people store hours of television on remote servers.

According to Kanojia, commercial transcoding costs per stream would have been $8,000 per customer two years ago but now the company can do it for under $20 (these figures relate to capital expenditures, not monthly costs). He also notes that a terabyte of storage, which once cost over $1 million, can now be had for under $100. The new efficiency, he said, is not just in raw storage capacity but better spindle speeds on hard drives that improve transmission times.

Here is a look at Kanojia standing in front of Aereo’s proprietary transcoding devices and a close-up of the servers which act as a private cloud service and on which Aereo customers store thousands of hours of TV to watch later:

To connect the antenna system with the transcoding and recording devices, Aereo relies on multiple 10 gigabit fiber links that look like this:

Aereo also relies on leased fiber networks in different spots around New York City to deliver TV content to its subscribers. This system means it doesn’t have to rely on content delivery networks or other middlemen.

“What’s the point of long-hauling something when you’re already 80 percent there?. There’s no CDN’s. It’s a local to local product,” said Kanojia.

Next: the man who would break the cable industry

Aereo wants to overturn the current TV business model in which viewers shell a hundred dollars for a bundle of channels, many of which they don’t want to watch. Aereo’s challenge comes by way of its technology but also in the form of Kanojia himself, who is picking a fight that many have lost before (iCravetv, ivi, etc) — and is so far holding his own. You can now read our follow-up account of Kanojia’s vision for the future of television.

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Speaking at CES in Las Vegas on Tuesday, Aereo CEO Chet Kanojia says the expansion amounts to phase 1 of a rollout and that it will build on lessons it learned from its New York City customers. The expansion will be fueled by a new $38 million round of funding from media mogul Barry Diller’s IAC.

The move is another step in the growth of Aereo, which allows people to watch TV shows on their mobile devices and even to store shows on a remote DVR device. People can choose to sign up for $1 a day, meaning they can come and go from the service as they wish.

Kanojia said the site has proved very popular with consumers even without marketing, relying for now on word of mouth. He suggested the marketing will ramp up as the service is rolled out to the new markets in the coming months; Aereo’s website shows that the cities will include Boston, Chicago, Cleveland and Denver.

The service has upset traditional broadcasters like ABC and Fox who are suing Aereo, claiming that its retransmission of over-the-air TV signals amounts to copyright infringement. Aereo has countered by saying that the service is legal because each subscriber has their own individual dime-size antenna — which gets around the rule that forbids retransmitting to many people at once.

A court in New York, which is for now the only place Aereo is available, has so far refused broadcasters’ demands to shut down the service though a California court has recently ruled that a similar, competing service was illegal.

Overall, the fate of Aereo is significant because it could provide widespread access to mobile TV and eventually help to unbundle the sale of TV channels in the same way Apple’s iTunes helped unbundle the sale of songs. At the CES event, Kanojia said Aereo’s customers are about split between younger people who expect TV to be available everywhere and people who have cable subscriptions.

The service recently added Bloomberg TV to its list of channels. As we reported recently, Aereo has been able to offer its service thanks to new technologies and economies of scale that have come about with the advent of cloud computing.

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Aereo is a service that lets people watch live TV anywhere they go by renting them a personal antenna that beams shows to their phones, laptops or tablets. The service, which can be bought for $1 a day, is getting lots of attention because big broadcasters are suing try to sue it out of it existence.

Speaking in New York on Wednesday, Aereo CEO Chet Kanojia explained that the service is only possible because of a “perfect storm” of technology advances that have dramatically lowered the costs of broadcasting and subscriber acquisition.

For example, Kanojia pointed to Aereo’s “antenna farm” in Brooklyn. The site hosts thousands of mini-antennas, each about the size of a dime, that subscribers in New York can rent on a daily or monthly basis. The technology, which offers a combined TV/DVR service, is so compact that Aereo can fit 50,000 pairs of antennas in just 200 vertical square feet.

This is remarkable but perhaps more remarkable are the plunging data and transcoding costs that meant Aereo could build the site in the first place. Kanojia says the company is buying “tens of petabytes of storage” for as low as $95 a terabyte, and that the price is dropping all the time. What this means is that when (and if) Aereo clears the legal hurdles, it can scale nearly instantly in cities and towns outside New York.

“The cost structure based on the cloud is a fraction of what it was,” he said, adding that companies like Aereo can plan businesses “on the anticipation of these cost curves being driven down.”

Kanojia credits massive R&D by the giants of the tech industry with not only lowering the costs of cloud computing but also changing consumer expectations about media and TV subscriptions. He says these changes have made it possible to offer $1/day subscriptions where consumers can come and go as they wish.

“There’s no installers, no boxes, no lost equipment … they can come in and give it a try for $1.”

While Kanojia is a Steve Jobs fan, he doesn’t think the late Apple founder’s “give them one price” philosophy works for subscription services which, he says, work better with a blitz of options.

In the bigger picture, the Aereo founder says that “TV should be like Twitter” — available everywhere and backed in every application.

None of this will please the big broadcast networks whose content Aereo is rebroadcasting without permission. But Aereo-style technology now seems to be an inevitable part of the future — going back makes about as much sense as going from lightbulbs to candles.

Kanojia spoke at VideoSchmooze, an annual gathering of video insiders hosted by Will Richmond of VideoNuze.

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