There are several aspects of your question, so let me propose the
following break down:
- What is the status of the US consumer broadband market?
- How is AOL TW adapting to or pursing to the growth in broadband and
the threat to their core dialup business?
US Consumer Broadband Market
- There are 110 million households in the US
- 50 million subscribe to dialup ISP service
- 12.5 million subscribe to broadband service (cable or DSL)
- Broadband subscriber growth is slowing, from 40% in Q1 2000 to 13%
in Q3 2001
- Source ars.com
AOLTW Broadband Strategy
AOLTW’s broadband strategy consists of three main elements:
Cross-promotion: The most widely cited example of synergy to date is
in the form of cross promotion; selling AOLTW products and services
through the AOL service. Primary examples are magazine subscriptions,
although increasing the company is using AOL to promote movies and
other media properties through the service.
Distribution: AOLTW is aggressive seeking distribution for the
company’s cable-based broadband AOL offering via TW and non-TW cable
systems. According to ARS, 16% of the US dialup ISP households are
“passed” by a TW-system offering broadband access, meaning the TW
addressable market for broadband cable for current dialup users is
about 8 million households.
(http://www.ars1.com/SpotlightSingle.asp?SpotID=3) So in order to
increase the addressable market, TW is aggressively seeking
distribution on other cable systems, most recently with Comcast, as
part of a complicated deal for Comcast to buy AT&T’s cable assets, and
restructure AT&T’s relationship with TW Entertainment.
(http://www.cableworld.com/archive/cableworld/2002/09/16/cwd02091605.shtml).
Interestingly, however, TW Cable maintains it own brand of cable
modem service, marketed as “Road Runner”; with AOL offered typically
as an additionally “option” for $10/month. One would expect, or hope,
that these brands would be merged if basic synergy is to be achieved.
Proprietary Content: TW CEO Richard Parsons places particular
importance in AOL developing proprietary content for its broadband
service, and turning AOL into the “HBO of the Internet.”
(http://news.com.com/2100-1023-957972.html?tag=fd_lede). This would
presumably give AOL the differentiation necessary to compete with
other broadband offerings.
Editorial analysis: Despite their claims and hopes to the contrary,
AOL is a dial up ISP. With the emergence of broadband, the value of
that ISP business is minimized, requiring the company to completely
reinvent its value proposition to serve this new market where there
dial up network is of little to no value. Their primary claim is that
will be done via new forms of broadband content; however, this is a
strategy that has been attempted in countless times, in countless
forms (Pathfinder, Excite@Home, etc) without any success. Simply put,
as Google, Yahoo, NYTimes and other having conclusively proven, there
is little to no value in integrating content with access on the
Internet (the latter being examples of successful media companies that
are not in the access business.)
And even in the access market, AOLTW has not been able to consolidate
its products into a single offering, with the Road Runner service
comprising the lion’s share of broadband access revenue for the
company.
As AOL’s core dialup business continues to erode, look for AOLTW
management to renew calls for divestiture or other spin off
opportunities for this blemished asset.(
http://www.usatoday.com/tech/techinvestor/techcorporatenews/2002-10-30-aol-spinoff_x.htm) |
