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To: H James Morris who wrote (46882)	3/23/1999 2:49:00 PM
From: Glenn D. Rudolph	Respond to of 164684

15 service. The brand, service, and user interface all transfer nicely from the narrowband to the broadband world, giving incumbents (like AOL) a massive advantage. Lastly a vendor needs to have access to or ownership of broadband communications infrastructure (either coax cable or copper). This, of course, is @Home's largest advantage; exclusive access to cable two-way broadband pipes. AOL, however, need not worry (yet) about having access to cable plant (though they certainly are lobbying the FCC to allow all vendors access to this infrastructure) since they have plenty of DSL access (through three different RBOCs covering 2/3rds of AOL households). And based on our conversations with AOL management, a deal on the cable side is not as imperative as one would tend to believe. Time Warner notwithstanding, we think AOL has plenty of options on the DSL broadband side to offer a compelling alternative to cable broadband once it becomes available. No doubt there are other factors that will be important to making broadband a mass market reality and a market capitalization opportunity. For its part, @Home's recent upgrade of their client software (release 1.6) now supports USB (Universal Serial Bus), which means that @Home subscribers can be brought up on the service without having to open the innards of their PCs to install an Ethernet card. This is step one in the long (and perhaps arduous) process of making broadband a retail-based self-installation process. Which is fancy wording for “just like AOL”, since almost the entirety of the PC installed base and almost any consumer can install the AOL service today, compared to the vastly more difficult and complex task of getting broadband service in the home today. We encourage investors to think broadly about the implications (and necessary steps) in making broadband a consumer mass market phenomenon. They are many and varied, and shouldn't be underestimated. Turning Viewers Into Shoppers - Is Old Media Really Catching On? As we have talked about in previous editions of The Internet Capitalist (see 1/8/99), the tremendous shareholder value created by Internet companies has not happened in a vacuum, and thus on some levels, the Internet's growth represents a shift away from shareholder value in traditional media companies. Now extend that paradigm, but replace shareholder value with advertising dollars. The advertising dollars flowing into the Internet increasingly are coming from traditional media budgets (in the early days, many big advertisers used their R&D budgets for the Web). While the advertising shifts we're talking about are not extreme (jumping from 1% of total media budgets to 3-4%), the shift definitely puts the onus on traditional media companies to develop new revenue streams. One of great promises of the much hyped interactive television trials was the ability of the programmer to sell items directly to the consumer. One overused example: While someone is watching “Top Gun” on their video-on-demand system -they can click on Tom Cruise's bomber jacket - pause the movie - see the information on the jacket - order the jacket - resume watching the movie. This combined shopping/viewing opportunities simply becomes part of the overall entertainment experience. Given the rise of the Internet and the explosion of e-commerce over Christmas 98, the networks are no longer waiting around for true video-on-demand to reach consumers, instead they are aggressively experimenting with various selling opportunities.