Deal will drive music, Internet to TV

Finally, a reason to use interactive TV. That's one of the pluses of the AOL/Time Warner merger

The marriage of Internet giant America Online and media corporation Time Warner will yield interesting progeny, driving traditional Net content -- such as interactive data and digital music -- to the tube, said analysts and industry insiders on Monday.

"This gives AOL an outlet for all their TV ambitions," said Cynthia Brumfield, industry analyst for video industry watcher Paul Kagan Associates. "It gives them an opportunity to take their mass market Internet service and bring it to TV." On Monday, AOL and Time Warner announced that the two companies would merge in a mammoth stock deal worth $166bn (£102.92bn). The merger combines AOL's 20-million-user online presence with Time Warner's extensive content and cable delivery infrastructure.

The deal comes just days after AOL unveiled its interactive TV effort, AOL TV. Last Thursday, AOL wowed audiences at the Consumer Electronics Show in Las Vegas with two products -- one for DirecTV and another for cable and broadcast customers -- blending email, chat, live information feeds and TV content.

Monday's deal should put more fuel on the fire for those who want such interactive services. The deal means that AOL TV will almost certainly get picked up on Time Warner's cable networks, which cover roughly 20 percent of the US cable audience. That can't help but spur the interactive TV industry, said Gary Arlen, president of television industry watcher Arlen Communications "Interactive TV is so lethargic," he said. "This has to speed it up."

Interactive data displayed on the TV is only one of many ways that Internet content and technology will make its way onto the tube.

Digital music -- already piped to two dozen or more channels on most cable and satellite boxes -- should also get a boost, said Steve Grady, vice president of marketing for online music portal EMusic.com. "In general, anything that moves the industry forward is a positive thing for us," he said. "If the tide rises for the entire industry, then the tide rises for us."

Emusic.com signs deals with what Grady calls the "farm league" of the music industry -- independent labels -- and promotes and sells the music on its site. The company has signed several deals with AOL to be the premier provider of music for several of its forums on the Internet. In addition to its partnership with EMusic, AOL now owns music hub Spinner.com and MP3 jukebox software maker WinAmp.

For AOL, however, several considerations could delay its own push to put its newly acquired music content on the Net. "They are still dealing with things like channel conflicts," said Grady. "99.9 percent of their revenue comes through retailers." And those retailers get angry when they are cut out of the loop.

The advantages of having a single massive library of music could be offset by the Internet's appeal as a place to find anything, no matter how eclectic, Grady added. "You open the door, and no matter what you are interested in, you can find it on the Internet," he said. "There will be some mainstream channels for the Celine Dions of the world, but it's not a market where one player can dominate."

Another major block towards instant interactivity on the TV is regulatory approval, said Paul Kagan's Brumfield. "They have so much of a lead and so much content that it would be hard to rival it," she said. "But on the other hand, they may spur a lot of competitive responses."

In particular, AOL may find itself challenged by WebTV Networks. Though the Microsoft subsidiary has needed three years to reach the 1 million subscriber mark, its service offers more features than the planned AOL TV service, which may make it harder for AOL TV to grab subscribers.

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