January 12, 2000 One Week View Beep! Beep!
By Charles Dubow of Fortune.com
NEW YORK. 4:05 PM EST-Like a Mack truck that appears small on the horizon but becomes bigger the nearer it gets, broadband cable provider Road Runner suddenly looks like it could run down its nearest competitor, Excite@Home (nasdaq: ATHM).
Privately held Road Runner is partly owned by a number of companies, including Microsoft (nasdaq: MSFT), MediaOne (nyse: UMG) and Advance Publishing, but right now its most important shareholder is Time Warner (nyse: TWX). When Time Warner agreed on Jan. 10 to be acquired by America Online (nyse: AOL), Road Runner found itself becoming the de facto cable provider not only for all of Time Warner?s Internet content but also for AOL?s basic broadband services and for new services like AOL TV.
With more than 20 million subscribers worldwide, AOL is the world?s biggest ISP (Internet service provider), and it has been aggressively trying to find a broadband cable company to carry its advanced interactive content. (It already has deals with DSL [digital subscriber line] and satellite TV providers.) Road Runner has been looking for a partner that would help accelerate the take-up rate of its services. With a brand like AOL, not to mention AOL?s high-powered marketing machine, Road Runner can now expect to see its subscriber numbers dramatically increase.
"Despite all of its media assets, Time Warner?s new media moves--The Time Warner Full Service Network and Pathfinder, for example--have failed miserably," said Charlene Li in a report from Forrester Research. "AOL will provide the new media jump-start the company needs, leveraging movie and recording studio assets in a variety of online venues."
Li went on to point out that Excite@Home has squandered its lead. "Road Runner?s access combined with AOL?s ease-of-use and marketing will reveal Excite@Home?s fundamental weakness in interface and content," she said.
The problem for Excite@Home is that it isn?t AOL. The company has been diligently trying to build up its content as well as to push the deployment of broadband. It is far and away the leading cable broadband provider in the world: Its more than 2 million subscribers are almost four times that of Road Runner?s 550,000.
But it is unclear how consistently it will be able to grow its numbers, particularly now that AOL and Time Warner have agreed to merge. Forrester posits that the situation may be so dire that the company may have to agree to a "fire sale to CBS Viacom or Fox to create a second-tier competitor to AOL/Road Runner."
That scenario may be a little extreme, but it now seems imperative that Excite@Home link itself with a major broadcast network as soon as possible if it hopes to survive. If it does that, the company?s fundamental broadband service would remain intact and its content could be spun off or cannibalized to suit the needs of its new partner.
However, critics of the AOL-Time Warner merger might argue that people may rebel against the idea of paying the approximately $20 monthly fee for an AOL subscription as well as the roughly $40 a month for a Road Runner connection. That comes to $60 per month. How many of AOL?s 20 million subscribers will be willing to pay for Road Runner, especially when the majority of the content won?t be proprietary?
"AOL customers have already shown that they are willing to pay," said Dan O?Brien, also at Forrester Research. "Increasingly, there are more and more ISPs offering free dial-up connection, but AOL?s numbers continue to grow. These are people who want the convenience, who want to have AOL filter out the vast amount of information on the Internet and serve it to them specially. This deal will accelerate the rise of broadband. People are crazy about it."
O?Brien also emphasized that, like cable television, AOL can expect to move to a pricing model similar to cable TV where there is a multi-tiered system of free, premium and Pay-TV options. "If you can get special features or programming by being a member of AOL, then it?ll be worth it to you," he said.
Still, over the past few years, AOL has successfully begun to diversify from its former dependence on its subscriber rates to a broader revenue stream, including advertising and e-commerce. That suggests that the cost for a monthly broadband AOL membership won?t be as onerous.
Without doubt, though, the creation of a multimedia behemoth like AOL-Time Warner could soon have its erstwhile competitors such as Excite@Home, portal sites like Yahoo! (nasdaq: YHOO) or even the broadcast television networks accuse it of being a Microsoft-like monopoly, one that artificially raises or lowers prices and squeezes out smaller, less powerful players. By the time that happens, though, Road Runner and AOL-Time Warner could have left a lot of other companies in the dust
This Li must be having flashback. What lead did ATHM squander? Truly a lopsided collections of thoughts by an AOL PR type. Just more sand kicked into ATHM face. Some day the dog will bite back. Earnings date would be fine by me.
Jack |
