AOL, Blockbuster Say: You've Got Video
by John W. Schoen
Senior Producer
MSNBC
When it comes time to rent a video, would you rather spend 20 minutes making a trip to the video store or the same 20 minutes downloading it via the Internet?
America Online {AOL} is betting you?d prefer the latter. That?s one reason it?s investing $30 million in Blockbuster Video's {BBI} Web venture to develop new ways of distributing thousands of movie titles.
The deal caps a busy week of announcements by the online leader, which is laying the groundwork for the day when consumers have enough bandwidth to make video downloading a reality.
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BBI post-IPO performance
Like many Web sites, AOL is already offering up short video clips using so-called "streaming" over standard phone lines. But with the steady roll-out of broadband Internet access - and latest generation of video recorders using computer hard drives to store video - AOL is putting the pieces in place for distribution of full-length videos on the Internet.
The announcement of the Blockbuster deal Wednesday stopped short of promising feature film downloads any time soon. And analysts say it will be a while before you're able to click and watch the latest Hollywood release on your PC.
"The ability to go onto a Web site -- whether AOL or another portal -- and download a video is still a long way off," said Keith Mullins at Salomon Smith Barney.
For one thing, the bandwidth needed to transport that video just isn't available yet. But there are financial obstacles as well: Hollywood currently generates some 40 percent of revenues from video, some of it from tapes that are rented but never watched. Mullins estimates the cost of downloading a video would have to be twice as much as a rental to recoup that revenue stream.
Then there are copyright issues: once digitally downloaded to your set-top box, a film could be viewed or copied repeatedly. Without a system of "returning" a downloaded video, revenues from repeat downloads would be lost.
But AOL is clearly has its sights set on offering up films on the Web. The company says that by year-end its new 5.0 generation software will include broadband services and features -- including enhanced video, audio and games. AOL is also readying a version of 5.0 tailored for customers of digital subscriber line, or DSL, a broadband technology that uses standard copper phone lines. Last week, AOL said some 4 million copies of 5.0 were downloaded in the first three weeks of its release -- making it the fastest adoption of any new version of its software so far.
Until video downloads become commonplace, AOL plans to further expand distribution of its nearly ubiquitous software through a presence in Blockbusters 4,000 retail outlets.
Blockbuster, with nearly a third of the video rental market, hopes to expand its tiny share of the videos sales market with an expanded online, including a presence on AOL?s entertainment section. The two companies will also team up on a jointly branded Web site to be launched later this month.
AOL is also hoping that expanded traffic from movie fans will help it grab a bigger piece of the $2 billion Hollywood spends every year to advertise its latest releases through traditional outlets like radio, TV and newspapers.
Last week, AOL executives made the rounds of major Hollywood studios to make their pitch: in addition to fan traffic, AOL says it can offer something traditional media can not ? the ability to sell tickets directly online.
Beyond its video strategy, AOL is busy expanding partnerships in other areas, announcing 160 new deals with retail Web sites Wednesday to extend its reach in a variety of e-commerce categories.
For those retailers, AOL?s 19 million members represent a broadly-based outlet to reach consumers n the Internet. For AOL, the deals represent the company?s future business model.
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In its latest quarter, AOL's revenues from advertising, E-commerce and other non-subscription revenues doubled to $350 million. That?s about a third of the revenue generated by subscription fees.
But non-subscription fees are growing much more rapidly ? and throwing off higher profits ? than revenues generated by signing up new customers.
"The gross margins associated with e-commerce are two to three times what they would ever be on the subscriber (fees)," Prudential Securities analyst Paul Merenbloom told CNBC. "As they?re adding one dollar of e-commerce revenue, they?re adding more power to the bottom line."
MY (Craig) Comment:AOL's bottom line is my bottom line. We are doing better here. Good luck to us. Ciggie butts, underwear, internet? |
