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AOLTV could jump-start ITV

The interactive-television market has been heavy on technology and light on content, and America Online's entry into the business, AOLTV, might jump-start creation of much-needed content. Skeptics, however, are not convinced of consumer interest in narrowband Web surfing on the TV.

"The combination of Microsoft and AOL moving the business forward is an incredible overall market push," says Jack Myers, chief economist and CEO of Meyers Reports, an economics research firm specializing in media. "There are two consumer benefits that will drive this technology. One is personal video recording, like UltimateTV from Microsoft. The second one is the making the experience compatible with the online community that AOL brings."

The product introduced last week offers only narrowband capability and will look to compete with Microsoft's WebTV, which has found only 1 million subscribers since its introduction three years ago.

"What value does narrowband surfing on the television offer vs. narrowband surfing on the PC?" asks Kent Libbey, Excite@Home senior director of advanced television products. "If anything, it's pretty clear that PCs are much more compelling to surf via narrowband, and the market reaction to WebTV in the past three years has been pretty clear.

"There may be some PR value or other indirect value to a narrowband TV experience for AOL, but that's it."

And WebTV's Rob Schoeben, senior director of marketing, wonders whether AOL's decision to target the product toward current AOL customers is a smart move. "Those customers already have access to the Internet. They have access to all the features on AOL, so why pay $250 for the unit and then $15 a month for basically the same service on their television?" he asks. "The incremental value there is thin."

Meyers, however, disagrees. "I think it's extremely strategic to market it to their 23 million subscribers. I think they're saying to their customers that this experience is what you come to AOL for and now you can get it on your TV. It prevents a competitor from coming in and saying here's a better place than AOL."

According to Schoeben, Microsoft considers the potential market of narrowband surfing through the TV to be limited (with WebTV apparently stalled at about 1 million customers), and the focus at Microsoft and WebTV is on broadband. The recent announcement of Microsoft's UltimateTV, he says, is an example of this initiative.

The goal of UltimateTV is to allow subscribers to create their own television viewing schedule. Users will be able to record more than 30 hours of digital video and also be able to record two shows simultaneously. UltimateTV will also offer interactive capabilities based on the Microsoft TV platform. The service will be available first through DirecTV via the RCA DS4290RE DirecTV system.

"For Ultimate TV, whether [consumers] have Internet access or not isn't relevant," says Schoeben. "The question is, do they want to have more control over the entertainment experience? The answer is usually yes."

Ultimate TV will eventually be offered by cable MSOs as well, according to Schoeben. "You can dream up some pretty interesting applications with a hard drive and a broadband connection," he adds.

One of the problems facing the product category is that Web pages displayed on the TV are often fuzzy because the television's interlaced scanning renders text unreadable. In addition, Web pages are often heavily reliant on the use of a mouse, something WebTV and AOLTV don't offer. "Web pages designed for a PC and navigated with a mouse are incongruous with the TV viewing experience," says Libbey, who argues that the experience will need more than just the speed of broadband. "When people sit down in front of a TV, they expect to use a remote, and they expect to be entertained."

Libbey isn't surprised that AOL is moving into the business. "I look at the TV as the next frontier for information service providers, especially portals. The TV is certainly the most important medium in the daily lives of consumers worldwide. Here at Excite," he adds, "we've taken a different tack, looking to leverage our strength in broadband and the relationships we have in place with cable operators."

Whether the current AOLTV offering is a hit is secondary: The entry is an important first step for America Online, and the current low-tech product will soon be complemented with higher-tech versions. Meyer points out that the market needs just such low-tech interactive products and applications today.

"Whether you're AOL or Microsoft, you've got to put the product into the marketplace, define your customer benefit and protect yourself," he notes, "especially if you're an AOL. They've been very smart to take their primary consumer benefit and bring that to ITV."