After that, Aereo plans to add more cities a few times each year.
Aereo announced the expansion on Tuesday in Las Vegas, as the annual International CES gadget show formally opened.
One factor for the initial round was a market's proximity to Aereo's headquarters in New York, in case engineers need to board a train or a plane to resolve problems. Weather also was a factor, as much of the construction is taking place during winter months.
Another consideration was demographics. One key target will be people in their 20s who have never subscribed to cable or satellite TV, a group Aereo terms the “cord nevers.” Research from Nielsen shows that younger Americans tend to watch more video over the Internet and less on traditional TV than older audiences.
Kanojia said Aereo is offering broadcasters a way to reach younger audiences where they spend their time.
The National Association of Broadcasters disagrees. NAB spokesman Dennis Wharton likened Aereo to someone who steals a six-pack of Coke, shares cans with friends and then claims to be helping the soda company promote its product.
“If you're selling the program for a fee and not compensating the rights holder for that product, that's fundamentally unfair and violates the copyright law,” Wharton said.
Aereo, which wouldn't reveal how many subscribers it has, said it will keep prices the same in the new markets, though the available channels will vary.
Not all channels will be offered to everyone in a given market. For example, a Virginia subscriber might be blocked from a Maryland station even though both are in the Washington market. Aereo said it will use data from the Federal Communications Commission to calculate whether that subscriber would normally be able to pick up that station using a regular antenna.
Out-of-market stations won't be available, even if both markets are served by Aereo after the expansion. A New York subscriber who takes a trip to Chicago, for instance, would be able to watch only Chicago stations — and not New York channels — while in the Windy City.
In doing so, Aereo continues to tread the boundaries of copyright law.
A 1992 federal cable law allows broadcasters to demand licensing fees from services that retransmit their signals, even if a station offers its signal over the air for free. Cable and satellite companies spend millions of dollars for those rights and often blame price hikes on the fees. High-profile disputes over such fees have led to blackouts of stations on some TV lineups, as broadcasters aren't required to offer their signals to any of these services.
Aereo argues that it isn't subject to those fees because it uses thousands of dime-size antennas to pick up signals and assigns them to subscribers one at a time. The company insists it is merely renting an antenna to the customer, and it's the customer who enables the transmission, the way one would with a home antenna. If two subscribers record the same show, two antennas would be assigned and two copies would be stored on the virtual DVR. The setup is inefficient; Aereo admits it's done solely because of copyright law.
Judge Alison Nathan sided with Aereo last summer, denying broadcasters a request to shut down the service pending resolution of the lawsuits filed in March by major networks and local stations, as well as producers of some of their shows. Nathan ruled that while the service might hurt broadcasters' ability to make money, the law left her no other choice.
Nathan had relied on a 2008 court decision involving a remote DVR service offered by Cablevision Systems Corp. In their appeal, broadcasters pointed out that Cablevision was already paying licensing fees for TV signals, so the court was deciding whether the company had to pay extra for the new service. Cable and satellite TV operators are not plaintiffs in the lawsuits against Aereo, but Cablevision filed a brief saying that Aereo should be subject to the same fees that cable companies have to pay.
Aereo's early investors include Diller's IAC/InterActiveCorp, which owns Match.com, Ask.com and other websites. On Tuesday, Aereo said it has closed on a second round of financing, worth $38 million and led by IAC and Highland Capital Partners.