UPDATE 2-Fox threatens to become cable channel amid Aereo dispute
* Court rejected petition to block service last week
* News Corp's Fox says committed to free broadcast signals
* Aereo backed by media mogul Barry Diller
* Aereo perceived as threat to traditional network model
LAS VEGAS, April 8 (Reuters) - News Corp's Fox TV network raised the stakes in its battle with Web startup Aereo Inc on Monday, threatening to remove itself from the free airwaves entirely and become a cable channel if courts do not shut down the online TV service.
The comments by News Corp's chief operating officer, Chase Carey, were the strongest sign yet of network industry opposition to Aereo, which offers a cut-rate TV subscription for consumers by capturing broadcast signals over thousands of antennas at one time.
Carey's comments at an industry trade show came a week after a U.S. appeals court rejected a petition by broadcasters to stop the service, at least for now.
"If we can't have our rights properly protected through those legal and political avenues, we will pursue business solutions. One such business solution would be to take the network and turn it into a subscription service," said Carey, speaking at the National Association of Broadcasters show in Las Vegas.
The television industry is closely watching the case to see whether it could disrupt the traditional TV model. The industry sees Aereo and other similar services as a threat to its ability to control subscription fees and generate advertising income, its two main sources of revenue.
Aereo could cut the numbers of people who need or want a more expensive cable video subscription, which would eat into an estimated $3 billion that broadcasters will reap this year from cable and satellite systems in so-called retransmission fees, according to a projection by research firm SNL Kagan.
"It is clear that the broadcast business needs a dual revenue stream from both ad and subscription to be viable," Carey said.
Aereo is backed by IAC, a company chaired by media heavyweight Barry Diller, who actually was behind the launch of the Fox Network in 1986.
"It's disappointing to hear that Fox believes that consumers should not be permitted to use an antenna to access free-to-air broadcast television," Aereo spokeswoman Virginia Lam said in a statement on Monday.
NOT A QUICK PROCESS
Carey added that if Fox became a subscription service, it would be in partnership with its content partners and affiliates. He emphasized in his remarks that pursuing legal avenues would be the priority, however, before making such a move.
BTIG analyst Rich Greenfield said that "switching to a cable network is not a simple, quick process," but the fact that broadcast executives are talking about that kind of move means Aereo is a real threat to their business.
Last June, News Corp announced a plan to split its publishing and entertainment assets into two publicly traded companies. The entertainment businesses, which include the 20th Century Fox film studio, Fox broadcasting network and Fox News channel, will be called the Fox Group.
News Corp shares closed 2.5 percent higher at $31.41 on Monday. Others participating in the Aereo lawsuit include Comcast's Corp's NBC and Walt Disney Co's ABC. CBS declined to comment, while representatives of NBC and ABC did not immediately respond.
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