An appeals court denied broadcasters' request for a preliminary injunction of Aereo Inc., the Web TV startup backed by media mogul Barry Diller, dealing a major setback to their efforts to shut down the service.

Aereo streams local broadcast signals over the Internet to subscribers for a fee by renting out individual antennas to users and storing content on remote servers. It is currently available in the New York City area and is expanding to 22 other cities this year, including Atlanta, Philadelphia and Chicago. The startup...