AOL Time Warner and Sony Corp. are planning a sneak attack on the broadband arena.
Their secret weapon? An AOL/Sony universal home-networking platform that can link an array of broadband-enabled devices in the home, allowing multiple users on the same AOL account simultaneously. AOL will provide a branded broadband connection if one is not already provided by buying it from cable and DSL providers and bundling it with AOL services.
The AOL/Sony Family Account Modem, as it is being dubbed during testing, aims to upgrade and expand AOL’s 33 million subscriber base to broadband and extend the availability of AOL client- and server-based services to a wide array of Sony and other wireless and wired broadband-enabled devices.
The Family Plan
Customers paying for the AOL Family Account service will be supplied with a modem at no additional cost beginning later this year. Sources said the new Family Account Plan could be priced at about $30 a month, and AOL could extract another $10 or $15 per home for each new subscription service it offers. So AOL can take its basic subscriber fee and add to that any number of additional service charges in the hopes of bumping up a monthly household bill to more than $150.
“Instead of waiting for marketplace adoption of new broadband services, we can drive it,” AOL Chairman and CEO Barry Schuler told Electronic Media.
“The box is a router that enables a [local area network] in your home,” Mr. Schuler explained. “So off of one broadband connection, a house can have multiple users online simultaneously, all operating behind a firewall, with device-specific parental controls. If there is no existing broadband connection in the house, the box functions as an integrated router/modem combination. Where a home already has a broadband connection, we’re simply connecting a home networking device to that pipe,” Mr. Schuler said.
The home networking platform will run Sony games and music; AOL music, e-mail and instant messaging; and new offerings such as an AOL/Sony subscription game service over wireless telephones, stereos, handheld communications devices, “smart” digital TV sets and Sony’s PlayStation 2. But the proprietary system, developed under the auspices of a wide-ranging AOL-Sony partnership announced late last year, also will be open to other services and devices.
What AOL is after is the hundreds of dollars families spend monthly on music, entertainment, communications and other related services that AOL can provide and charge for separately in a broadband environment.
“If we can make AOL do more things, people are willing to spend more money,” Mr. Schuler said. “If you make things easier and more convenient for people, you can change their habits in a big way.”
Addressing the dilemma
AOL Time Warner believes it can grab about 20 percent of the estimated $200 spent monthly by the average household on music, cable, games, telephony and other related services.
Both AOL Time Warner and Sony conceded their new broadband Trojan horse of sorts provides a way around their frustrated dependence on distribution gatekeepers such as cable operators, DSL and satellite providers to expand their user bases.
AOL concedes it cannot convert or sign up new broadband users fast enough. It has been stymied by an inability to come to terms with multiple system operators other than its own Time Warner Cable to be offered as an Internet service provider to cable subscribers nationwide. The conversion of existing AOL narrowband subscribers and Time Warner Cable subscribers to the AOL broadband service has been gradual, though the company declines to provide statistics.
As one executive familiar with the evolving plan of attack said, “This isn’t a substitute for or supplement to AOL’s attempts at becoming an ISP on other major cable platforms. This is another way of addressing the ISP dilemma.”
For Sony, the plan is a way to heighten the distribution of its progressive line of broadband-enabled devices and software by fixing itself to AOL’s coattails.
“Broadband creates an experience that embraces not just technology but culture and lifestyle and gives people video, or data, or services when they want it,” said Sony Corp. of America chairman Howard Stringer.
Indeed, Sony has a new generation of nifty Internet-enabled gadgets-from the Playstation 2 and Vaio laptop to the Network Walkman, Clie handheld device and digital TV sets-for which it develops music, games and video software that will be supported by the new AOL broadband platform.
Among other things, it will bring AOL services to Playstation 2 users and Sony Games to the Internet through what eventually will be a new subscription-based multiple player game service.
However, critical questions still need to be settled with cable operators and DSL providers with which AOL must secure broadband connections into the home where necessary. There are nagging questions about the way fees will be shared by AOL and cable operators and who will control the customer and billing for its new services. Under the plan, competing ISPs still would be offered by cable operators.
Cable operators may benefit by making more incremental revenue from selling wholesale broadband connections to the home to AOL than it does offering their own high-speed modems, which they will continue to do.
AOL executives declined to say how revenue sharing could work with cable or DSL providers with which it is negotiating.
The box also represents a solution to another major problem for AOL: the slowing growth of its subscriber base and of the revenues spent by each subscriber, which threatens the overall future of AOL Time Warner.
“It’s another way for AOL to protect its turf,” said Sanford Bernstein analyst Tom Wolzien.