AOL TV playing hardball

Feb 19, 2001  •  Post A Comment

Barely a month after America Online merged with Time Warner, some companies are already complaining that the new media behemoth is burning bridges in Hollywood over issues of exclusivity.
The controversy surrounds exclusive contracts the company’s interactive television unit, AOL TV, is trying to force upon third parties in an attempt to prohibit them from dealing with both AOL TV and Microsoft TV.
Nickelodeon, a unit of AOL Time Warner rival Viacom, is but one company that has been told by AOL TV that it must choose between an agreement with AOL TV and one with rival Microsoft TV, according to an executive at SpinTV.
SpinTV is providing digital enhancements for a new interactive program that Nickelodeon is preparing to launch. The Dallas-based SpinTV (not to be confused with a Florida-based traditional TV production house that bears the same name) was one of a handful of companies that Microsoft TV chose last month to participate in a special pilot program.
As part of the project, called the Content Builder’s Initiative, Microsoft TV is furnishing participating interactive content developers with Motorola DCT5000 digital set-top boxes to ensure that
producers’ content is compatible with the devices.
AOL TV has stipulated that although Nickelodeon can partner with AOL TV while also working with competitors Liberate Technologies and OpenTV, the cable network would be prohibited from dealing with Microsoft, under the terms of the proposed deal with with AOLTV, the SpinTV executive said.
AOL Time Warner has recently taken significant equity stakes in both Liberate and OpenTV in what appears to be an effort to coalesce partners in the interactive platform market against its well-heeled software rival in Redmond, Wash.
Aside from SpinTV, another participant in Microsoft TV’s Content Builder’s Initiative was so miffed during verbal discussions with AOL TV by the exclusivity strings attached to AOL TV’s proposed agreement with the company that it cut off discussions with AOL TV before the service provider was able to draft a written proposal.
Steeplechase Media, another one of the companies on Microsoft TV’s short list of content partners, just received a written proposal from AOL TV and is in negotiations with the service provider. However, Steeplechase wouldn’t comment on whether AOL TV was asking for an exclusive arrangement.
One of the few content development companies in the space that has managed to seal pacts with both AOL TV and Microsoft TV is Screamingly Different Entertainment. Screamingly Different, along with Pushybroad, Mixed Signals and Steeplechase, is widely regarded as one of the top interactive content development companies in the United States.
Most market participants agree that companies with rare expertise in developing interactive enhancements to television programs, unlike old media stalwart Nickelodeon,will hold a relatively strong bargaining position when negotiating interactive content distribution deals.
Despite some industry insiders’ difficulties in coming to terms with AOL TV, Screamingly Different Chairman and CEO Marlon Davis has noticed a softening in AOL TV’s negotiating stance in recent months-a sign that the service provider realizes its tactics may not be effective.

“A year ago, AOL TV was not very focused in its strategy of how to deal with content people,” Mr. Davis recalled.
Pushybroad co-founder Nancy Saslow, who is preparing to negotiate with AOL TV, said she doesn’t believe interactive content developers will agree to exclusive deals.
“I think that was an online strategy [at ISP America Online] and I think that worked for a time,” Ms. Saslow said. “But I’m not sure that will work in this space. I have not heard of anyone in our space committing to anyone exclusively.”
Microsoft TV spokesman Ed Graczyk emphasized that his company has shied away from exclusive content deals. “We’ve got a fundamentally different approach,” he said. “Our agreements aren’t exclusive. I would argue it’s a stupid practice. No content developer would want to go through the time and effort [to produce interactive programming] and limit yourself to just one marketplace.”
Regardless of content developers’ experiences in dealing with interactive service providers such as AOL TV and Microsoft TV, they will soon need to adapt to an entirely new set of rules.
Although AOL TV and many of Microsoft’s Web TV interactive television products are little more than the Internet for personal computers transplanted onto a television set, the companies are planning to launch more sophisticated platforms. Those services will bear a greater resemblance to traditional TV broadcasts but will be enhanced by digitally produced interactive overlays.
To have their content distributed on those richer platforms, content developers will have to negotiate directly with multiple system operators to secure a slot on cable companies’ walled-garden Internet portals. To that end, interactive content producers are watching closely the actions of MSOs such as AT&T Broadband, which has yet to deploy interactive services.