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AOL TV's Trump Card: Communications

Robert Friedman has enjoyed a storied career in the media business. He began at MTV: Music Television with Robert Pittman and Tom Freston, then moved to New Line Cinema. He teamed up with Pittman again last year, as president of AOL TV. And now Friedman has taken on a second assignment: the presidency of AOL Time Warner Inc.'s new Worldwide Interactive Marketing group. In this question-and-answer session with
Multichannel News contributing editor Matt Stump, Friedman discusses AOL TV's future direction, how it fits with other interactive AOL Time Warner initiatives and its link with interactive marketing. An edited transcript follows:

MCN: So what's up with AOL TV?

Robert Friedman:
If you've looked at interactive television over the last 10 years, it's meant the Full Service Network, Tele-TV, U S West trials, and WebTV in 1996. It's meant a lot of different things.

Why is the timing right for AOL TV today? Because research today is showing that consumers are beginning to multitask online while they're watching television. If you look to the selling point of AOL, people want the convenience of interactivity across multiple devices today and the big question is, 'Who can provide that?'

We're repositioning AOL TV. Today there are three feature sets in the current form of AOL TV that are important for customers.

One is to be able to access AOL while you're watching TV. The second area is navigation: How can you cut through the clutter and organize your entertainment TV viewing? And the third category is what I'm calling not interactive TV, but enhanced TV.

They are also in the order of priority, so it's counter to what the world has said over the last 10 years with interactive television, which is doing all these fancy-shmancy things that in reality the consumer wasn't ready to do — nor in some cases, perhaps, even wanted to do.

MCN: Can you delineate each area?

Friedman:
In the first area, it's taking advantage inside AOL TV of the AOL screen name. If you buy into the multitasking model, what they want to do is communicate, first and foremost. AOL TV is your screen name, your [electronic] mail, your buddy list, and that's communication.

Having said that, let me take you through one of the challenges. If you looked at the early versions of AOL TV, the problem was the user interface was not in line with the expectations established by AOL. These people are spending between 15 and 17 hours a month on average online. These people are used to AOL. When you say to them, 'I'm going to give you AOL on your television set,' the user interface — the first screen on AOL TV — was a screen that had a menu. It wasn't a welcome screen.

We're redesigning and recreating the user experience on that AOL TV box to be more in line with what they get with AOL.

MCN: When is that going to debut?

Friedman:
We're going to do that over the next three to four months. And to be perfectly frank with you, you're not going to be able to do exactly the same kind of stuff on that single unit as you do online because it's never going to be as seamless as surfing.

The whole purpose of AOL TV is that while you are watching television with one eye, you can be doing some stuff with the other eye. That's a challenge for us.

The second part about making it easier to navigate is organizing TV channels by category. That's kind of an added-value proposition. You want to know what's on in sports, or I'm in the mood for movies.

MCN: But some people are so used to scrolling through the guide, and with TiVo Inc.'s personal video-recording technology, one can record particular programs. There are established brand names out there. If people feel like movies, I'm not sure people won't just go to the premium-networks section, or USA Network or Turner Network Television, rather than to what you're trying to do there.

Friedman:
They're going to still migrate to the brands. The navigation is exploring new channels, reminders for your favorite shows, automatically setting your VCR to tape programs. It's about making the TV experience easier the same way AOL, the brand, says to consumers, 'We can make your online shopping experience easier.'

In the interactivity section, it's also a continuum from the simple to more complicated. While you're watching The Weather Channel, you can get your local forecast. That's a cool enhanced application the Web can do while you're watching TV.

When we launched AOL TV before I was here, the world said, 'AOL TV — finally, interactive television is here.' There's nothing wrong with interactive television bringing you the Web and enhancing what you watch on TV.

MCN: How many programming deals do you have?

Friedman:
We have hundreds of program agreements. Across the basic-cable networks, we're working with a large group of them. Most of the large broadcast networks will end up working with us. In some cases, we're creating the Web sites. In some cases they are doing it.

In The Weather Channel example, we're tying in with many of their Web sites. The value here is that we can enhance their programming. If there is an incremental revenue opportunity, we come up with revenue splits with them as well.

If we're sitting there with ESPN, we can say: 'Isn't that really cool? Let's bring up local stats or let's do this thing together because an advertiser loves this.' If you're [The] Coca-Cola [Co.], and someone who is sitting there wants local stats, and it's brought to you by Coke, it has real value. Now when does it have the most value, to be honest? It has the most value when we are in front of 20 million homes.

MCN: Joe Collins's new group is going to handle video-on-demand. Is Joe going to play around with ITV or a walled garden? How do your efforts work together?

Friedman:
At the end of the day, what we call AOL TV, or what we call interactive VOD or [subscription] SVOD, is part of it going to be available on AOL TV? Is part of it going to be coming through the cable service?

AOL TV, in pieces, will be available on the cable service. It will be available on DirecTV [Inc.] one day. It will be available next year on this TiVo AOL TV box that we announced a few weeks ago.

At the end of the day, Joe is going to be a resource to us to say: 'Hey Joe, how does Comcast think about this? They love the idea of AOL migrating to other MSOs. How do we package this? How do we price this?' He's really got great insight into a lot of different things to be a stand-alone thinker, if you will.

How is VOD going to play into AOL TV, versus into a cable box, versus into a home network five years from now? These are all things that are continually evolving.

MCN: But AOL TV is not Digeo. If you look at any other thought processes of any other MSO with respect to ITV, whether it's walled garden or television commerce, AOL TV is more PC-centric than what everyone else is doing. And Time Warner Cable has always laid low on ITV, even before the merger.

Friedman:
Think about the things over the next five years. DVR [digital video recording] applications — are they integrated into the cable boxes or not? There are so many things going on. What I can tell you is that the differentiating advantage in the marketplace is that there is one big community out there. When it comes to online communication and developing a community, AOL will be a part of all of these initiatives.

What does an AOL TV setup on your digital box in six years have on it? Is AOL TV the chat and the navigation, but not the SVOD? Does the SVOD come through in a different package? I bet when you and I are talking five years from now, at Cablevision Systems [Corp.] it will be one thing. Some MSOs will create a digital-basic package [in which] you get chat, but you don't get this or that. It's going to be all over the place.

MCN: But there is the [Time Warner] MSO mentality that they have 12 million subscribers, that they approach their market a certain way and you have 30 million subscribers and approach your market in a different way — even though there are 4 million or so cross-subscribers. An AOL TV screen looks nothing like anyone else's ITV screen or approach.

Friedman:
Here's where you're wrong. You're Cox Cable, let's just make this up. And you're sitting there and you have to make the decision. Fifty percent of my community subscribes to AOL. For X dollars a month, you can give them access to AOL while they are watching TV, assuming that they buy into the value proposition.

Let's assume 20 percent of the AOL customers want to be able to access their AOL on TV. They are willing to pay X dollars or not. If I'm an MSO, I want them on board, because you know why? Because I'll charge them for a tier. So I'm going to deliver revenue opportunities for these guys.

MCN: Do you even have 100,000 AOL TV subscribers?

Friedman:

We don't talk about the numbers. I can't. Let's put it this way, it's not at the critical mass we need yet, but that's why were doing the two-screen initiative.

MCN: You seem to be going maybe 20 to 30 miles per hour on this, and it may be that way for a year or two. When do you put your foot on the accelerator?

Friedman:
I think it's going to be 10 years because there are going to be new pieces. None of us would have thought about a business that was announced a few months ago called HBO [Home Box Office] SVOD. No one would have thought that would have been something the consumer wanted. It will never, ever stop.

I can tell you over the next year, the communication or chat function of AOL TV is not only a major priority, but I believe it will have a major adoption rate.