AOL set to start Net-TV service

Move will challenge Microsoft

analysts expect slow growth

June 20, 2000|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Coming soon to Baltimore and seven other cities: interactive television from America Online that lets TV viewers chat, shop, send e-mail, browse the Web or even play along with a favorite game show.

AOL will launch its long-awaited interactive television service, AOLTV, in Circuit City stores next month in Baltimore, Phoenix, Sacramento, Calif., and five other unnamed markets, the Dulles, Va.,-based company said yesterday.

Consumers will probably use AOLTV to access features of AOL Internet service that can mesh with TV viewing. They'll be able to communicate by e-mail or in chat rooms devoted to television programs, view family photos or pull up their buddy list to see which friends are logged on for a chat, AOL officials said.

They'll also be able to surf the Internet or join in activities such as polls during the Academy Awards or shopping for TV-related merchandise.

To get AOLTV, consumers will have to purchase a $250 set-top box manufactured by Philips Electronics that plugs into a TV and is controlled with a wireless keyboard and universal remote control. This year, AOL will start offering a box that will combine AOLTV with digital television programming.

AOL is working with television programmers such as E! Entertainment Television, Starz Encore Group, QVC and the Weather Channel to design interactive content to go with their shows, such as online links.

AOLTV will compete with Microsoft's WebTV, which analysts said has proved disappointing, signing up less than 1 million subscribers since 1996. WebTV had been viewed as an alternative to high-priced computers, but PC prices have since tumbled.

AOL acknowledged that interactive TV would probably catch on slowly, selling no more than a few hundred thousand units in the first year.

Josh Bernoff, an analyst with Forrester Research Inc., said that AOL's set-top box, as it stands, does little to enhance the TV experience.

"AOLTV won't fly. It's too much cost for too little value," he wrote in a report released yesterday.

But AOL has a big advantage over Microsoft - namely 23 million Internet subscribers, on which AOL will initially focus its marketing efforts.

"Having established a wide audience already on PCs, they'd like to deepen their penetration into households by adding more devices per home and adding more users per home," said Jim Penhune, an analyst with Yankee Group. "Having more people doing more stuff over more devices creates more revenue.

"This is really sort of one small step in a longer, incremental process toward rolling out interactive service over the TV, and AOL certainly won't be the only player," he said. "This is a place holder for more interesting stuff they want to do down the line."

Those possibilities would expand assuming AOL's pending $125 billion merger with Time Warner wins federal approval, analysts said.

"It will enhance the product at the start," said Andrea Williams Rice, managing director/Internet for Deutsche Banc Alex. Brown in San Francisco. "It's likely they'll be able to get the Time Warner network properties on board, CNN, for example. If the AOLTV product is incorporated successfully at CNN and consumers like it, it will accelerate the adoption of AOLTV. The networks benefit: They gain access to a virtual channel and can use that virtual space to generate incremental revenue."

For AOL, the debut represents the centerpiece of the company's "AOL Anywhere" strategy of making its brands and features available to consumers online through a range of devices and appliances.

"This is not meant to replace the PC experience," said Marta Grutka, an AOL spokeswoman. "Its primary focus is to look at the television viewing experience and see what interactive elements make most sense to enhance the viewing experience. Already on AOL, we see spikes in chats during favorite television shows."

Users will not be able to download files from their PCs, she said.

AOL will start selling the service online and at selected Circuit City stores next month, charging $14.95 a month for AOL members - on top of the monthly AOL rate - and $24.95 a month for nonmembers. Plans call for rolling out AOLTV nationwide by the end of the summer.

"We think this is going to be a hot product," said Bill Cimino, a Circuit City Stores spokesman, who said the consumer electronics chain is in the process of setting up display areas for AOLTV and other products. AOLTV will be sold at six Baltimore area stores in Towson, Glen Burnie, Catonsville, Rosedale, Annapolis and Bel Air by later this summer.

"All of the cities they have chosen are very good markets for us, and we have a strong store base in those markets," Cimino said.

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