With a programming blackout looming in the increasingly rancorous negotiation between CBS and Time Warner Cable, The New York Times reports that the startup Aereo service, which streams broadcast TV signals over the Internet, is surfacing as a possible bargaining chip.

"The contract dispute between CBS and Time Warner Cable is the first to unfold in the New York metropolitan area since Aereo came to market there last year. Last week, the companies warned that if the dispute was not resolved by Wednesday, CBS could be taken away from 3 million of Time Warner Cable’s 12 million subscribers," the story reports.

The piece adds: "Enter Aereo. The service, backed by Barry Diller and a number of other venture capitalists, uses giant arrays of antennas to pick up freely available television signals and stream them to the phones, computers and other screens of paying subscribers. By relying on the antennas, Aereo does not pay the kinds of retransmission fees that distributors like Time Warner Cable pay to broadcasters like CBS — an approach that Aereo says is legal, but that the broadcasters say is not."

Industry watchers have speculated that distributors could find a way to use Aereo or a similar service to get around paying increasing retransmission fees — the fees that are at the center of the CBS-TWC dispute, the piece notes.

"While Time Warner Cable does not seem ready or willing to deploy Aereo-like technology, a spokeswoman, Maureen Huff, said Sunday that it would recommend Aereo to its New York subscribers if CBS was blacked out," The Times reports. "The distributor may also underline the fact that Aereo, which normally costs $8 a month, offers a 30-day free trial. (Ms. Huff also pointed out that many CBS shows are available online on a delayed basis, and that ‘all of CBS’s broadcast TV programming is available free over-the-air,’ so subscribers can use antennas.)"

The report notes that Time Warner Cable is being careful about Aereo because it is at the center of litigation after a number of major media firms filed suit. "In this case, its invocation of Aereo might be particularly corrosive because CBS has helped lead the charge against Aereo in the courts," The Times notes.

Aereo has been racking up wins in court as the litigation has proceeded, including a win last week as an appeals court declined to hear an appeal by broadcasters, as previously reported.

"Emboldened by the rulings, Aereo, which is so small that it has not shared any New York subscriber data, recently expanded to Boston and Atlanta; its next market is Chicago, it says, with many more to come," The Times reports. "But it has not announced any plans in the West Coast markets covered by the Ninth Circuit Court, where a service similar to Aereo was rejected in December. Given the uncertain state of play, Aereo is of limited use to Time Warner Cable currently; along with New York, the fight with CBS affects subscribers in Los Angeles, Dallas and several smaller markets."

Media analyst David Bank of RBC Capital Markets is cited in the story saying he wouldn’t be surprised to see Time Warner Cable play the Aereo card in some way. "But he wrote in an e-mail message: ‘I think it would be more of "negotiating tactic" than a real business solution,’" The Times notes.