AOL Sings New Tune: Web Store for Videos

Jul 31, 2006  •  Post A Comment

AOL is jumping into the video-download business pioneered last year by Apple Computer’s iTunes service.

With an initial menu of 3,000 television episodes from contributors, including MTV Networks and A&E Television Networks, AOL’s new service is tilting at a titan that controls 80 percent of the market for songs and videos downloaded to portable gadgets.

The emergence of a new challenger portends a possible flood of competition for iTunes, which has tapped consumers’ willingness to pay for commercial-free shows they can watch where and when they want. The upstarts are emerging as traditional broadcast and cable networks struggle to preserve their audiences and advertisers.

“Anybody with serious distribution is going to try to play in this market,” said Kaan Yigit, analyst with Solutions Research Group.

AOL will release a test version of the service Aug. 4 and market it to consumers beginning Aug. 22, said Fred McIntyre, VP of AOL Video. The new service matches iTunes’ price of $1.99 per download.

AOL’s decision to build up its video site, which currently includes free clips of some shows, commercial-supported episodes of old programs and user-generated viral video, is part of Time Warner’s attempt to revive a unit whose Web access business is drying up.

“We need to give them the pay-to-download in addition to the free ad-supported stuff already,” Mr. McIntyre said.

The newcomers to the download business are betting they can lure customers away from Apple’s chic and expensive iPods. The new arrivals mark the latest shift in digital distribution of TV shows, which has exploded since Apple lit the fuse with its October deal to sell ABC shows such as “Lost” on iTunes.

Microsoft is among companies planning to challenge Apple with a portable media player and online service that will probably include video downloads. Internet retailer Amazon.com is also readying an iTunes rival, Advertising Age reported last week. CinemaNow, an online movie-watching service, earlier this month began letting users copy and burn copyrighted films onto DVDs.

“Until we see the execution of these competing video platforms, Apple should not be worried,” said Laura Martin, senior media analyst with Soleil Securities in Los Angeles. “Apple’s iTunes is an amazingly easy user interface. … Whoever makes it easy and most intuitive for consumers [is best positioned].”

For TV networks, the profusion of new pay-to-download services brings challenges to their existing distribution channels and opportunities to exploit new ones.

Most networks, not yet knowing which distribution channel will end up as the industry standard, are spreading their content across multiple media, subscribing to the theory that more exposure will result in more sales. The threat of cannibalizing potential sales from their own sites isn’t restraining some.

MTV Networks, for example, will use AOL’s service to distribute Comedy Central’s “Chappelle’s Show,” “South Park” and “Reno 911!” MTV’s “Laguna Beach,” “Punk’d” and “The Real World” will appear on AOL’s site, as will MTV2’s “The Andy Milonakis Show” and Nickolodeon’s “SpongeBob SquarePants,” “Zoey 101” and “The Fairly OddParents.”

MTV already sells programs on iTunes and plans to add download-to-own capabilities to its Urge digital music service.

“It’s a big space and a big opportunity,” said Nicholas Lehman, executive VP of digital music and media and chief digital officer for MTV Networks. “There is definitely room for a number of players to exist.”

Aside from the AOL deal, A&E is in talks with iTunes and Amazon to distribute shows, said Steve Ronson, a senior VP of enterprises at A&E TV Networks who oversees digital ventures. A&E is also considering starting a download-to-own service on its own site, he said.

“You have four or five ways to consume video you didn’t have a few years ago,” Mr. Ronson said.

Amazon spokesman Sean Sundwall declined to comment for this story.

A&E Television Networks will provide the AOL service with recent episodes of “Dog The Bounty Hunter” and “Criss Angel Mindfreak” from A&E, and “Modern Marvels” and “Digging for the Truth” from the History Channel, among others.

The AOLs and Amazons of the expanding pay-to-download universe face a formidable competitor in Apple Computer founder and CEO Steve Jobs, whose iPod generated cachet and customer loyalty to a media gadget not seen since the debut of the Sony Walkman in the early 1980s.

Apple currently offers episodes from more than 150 TV shows for $1.99 per download and has sold more than 35 million videos since it introduced its video offering last fall.

The new rivals will live or die by how fast the pay-to-download market expands and how well their products work. They’ll probably stick to the 70-30 revenue split that rules iTunes, with the content providers getting the bigger cut, Ms. Martin said. The entrance of new download-to-own services is unlikely to impact that split. If anything, the weakest platforms over time will compete on price and take less from their cut to do so, she said.

In a brief demonstration for TelevisionWeek last week, the new AOL service displayed the TV offerings in a layout that looks similar to a page of search results, with thumbnail pictures for the videos and buttons to click on to buy the shows.

The videos are available via the AOL Video Web site, and there is no need for a separate software download.

“We are building a video experience that is more complete, because they don’t have ad-supported content,” Mr. McIntyre said, comparing AOL’s service with iTunes. “They have a store.”

Apple did not respond to requests for comment on that issue.

As more and more competitors prepare to enter the pay-to-download market, Apple is feverishly striking deals with networks to maintain its lead.

Last week alone, the company linked up with Warner Bros. Entertainment and E! for distribution of TV shows on iTunes.