Perhaps they have the chutzpah after all?
aol.thestreet.com
The Inside Track: AOL
AOL's genius has been in simplifying complex technologies, and getting people to shell out more than $20 a month for the privilege.
With its merger with Time Warner completed, the combined firm owns the four things needed for a successful subscription content business: a base of more than 30 million paying subscribers, a wealth of content, a fat client to play the content and the pipes to move the bits through.
It's not too hard to imagine how AOL could further "monetize" its members: Charge an additional $9.95 a month for total access to the Warner Music Group's content. WMG is an array of labels, which includes Atlantic, Elektra, London-Sire, Rhino and Warner Bros. Records; WMG also owns half of music club Columbia House. Sony (SNE:NYSE) owns the other half.
That's a fairly extensive content collection. If some sizable percentage of AOL's customers kick in 10 clams a month, how long would it be before the other labels felt compelled to join AOL's party?
How difficult would it be for AOL to persuade Sony, its joint venture partner in Columbia House, to participate?
Assume AOL convinces just 10% of its user base to try "AOL Tunes." That's nearly $400 million dollars in additional annual revenues (3.3 million X $10 X 12 months).
AOL already has the catalog -- servers aren't all that expensive -- so we can expect some very significant margins. I figure roughly half goes directly to the bottom line in terms of earnings. An additional nickel per share in profits would go a long way towards justifying AOL's rich multiple.
As other labels come aboard, the gross margins slide somewhat as the revenues increase.
Suddenly, Napster's five-year, $1 billion offer doesn't look like all that much money. After all, the $150 million a year Napster would pay all the major labels under a new, fee-based system, would yield AOL a measly $30 million a year, give or take.
AOL has shown no shyness about getting in its subscribers' faces when it has something to sell. This one would be a no-brainer. The only question is whether the remaining Time Warner executives have the chutzpah to see this through.
A hint of their resolve might be found in the statement Dick Parson, AOL's COO, made to the Los Angeles Times Wednesday: "We would not support a proposal that allows Napster to continue to operate in the current unlawful form while developing a business model," said Parson. "They need to shut down. Then we can talk."
Perhaps they have the chutzpah after all. |
