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For people looking for a cheaper alternative to cable, startup company Aereo plans to offer live streamed programming and 40 hours of DVR storage for $12 per month.

Subscribers will be able to start programs on their Internet-connected television and then continue watching the broadcast on a smartphone or tablet. Viewers will even be able to pause and rewind programming.

For those looking for a cheaper alternative to a basic cable package and for those who can’t receive regular broadcast television over their antenna, Aereo’s package sounds like a channel surfer’s dream come true. The company has started offering its services in New York City with the hope of expanding to other areas later.

Aereo is preparing itself for legal backlash from cable companies. To skirt copyright issues, the company plans to provide every subscriber with his or her own tiny antenna. The antenna tunes into live television provided by the cloud, which is then transferred to a computer, mobile device or Internet-equipped television set. The venture is backed by Barry Diller, a longtime media executive who is best known for inventing the concept of the made-for-television movie during his years at ABC.

Diller, at a press conference, described $20.5 million Aereo as a force “to transform television and how you receive it.” According to Diller, the current problem with Internet television is that there isn’t much to watch except for “cats swinging from chandeliers.” According to insiders, the iPad app looks like a program guide with DVR functionality. However, only major broadcast channels are available with the system. Cable channel shows are currently not available through Aereo.

Aereo is opening for business at a time when the cable television business model is facing many challenges. People are watching television shows on free websites like Hulu (News - Alert) or live streaming programming from companies like Netflix. Others are using mobile devices like the iPod or iPad to download programming from iTunes store instead of paying over $100 per month for endless rosters of unwatched channels. However, Comcast recently reported that they saw their smallest number of cable cord cutters in five years during the fourth quarter of 2011. While the model may be challenged, cable is far from dead.