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AOL to start interactive TV
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June 19, 2000: 4:48 p.m. ET
AOLTV to benefit from huge AOL subscriber role, but slow adoption seen
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NEW YORK (CNNfn) - America Online Inc. announced Monday that its interactive television service, AOLTV, will launch in July; a move that will bring life to the Internet service provider's strategy of capturing more subscribers.
The long-awaited service, which will compete with Microsoft's WebTV, will allow users to chat with others, send e-mails, buy products and visit Web sites on their TV screens, even as they watch regularly broadcast programs.
 Over the next year, other companion boxes will be available, the company said, including a satellite set-top box and a box that weaves in TiVo Inc.'s personalized TV functions that lets users form their own TV schedule and customize live TV shows.
To this point, the market for the Internet-via-TV service remained relatively small, populated primarily by users who want to enjoy community-based Internet features, such as e-mail, without the headaches of assembling and maintaining a desktop computer.
With that in mind, industry experts said that customers will not likely rush to sign up for AOLTV at first. But with some 23 million subscribers, AOL has a giant head start in reaching consumers as they look for access to the Web in their living rooms or on personal computing devices.
Through a deal with retailer Circuit City, AOL -- which is merging with Time Warner, the parent of CNNfn.com -- will sell the necessary set-top boxes for $250. Monthly fees for the service will be $14.95 for AOL members and $24.95 for nonmembers, although members will still have to pay as much as $21.95 a month for Internet service on their home computers.
The service will debut in Phoenix, Sacramento, Baltimore and five other yet-to-be-determined cities the second week of July. Dulles, Va.-based AOL will roll out AOLTV across the country through the fall, with a big push planned near the Christmas holiday season.
Interactive TV yet to prove it can work
The company is playing down expectations for AOLTV, and analysts say growth could be slow as consumers are introduced to the product. Interactive television services, most notably WebTV, have thus far failed to take off in the marketplace.
"Every flavor of interactive TV that has come down the pike has failed," said Stewart Wolpin, the editor-at-large of etown.com, a Web site that critiques consumer electronics. He notes that WebTV, unveiled in 1996, has sold only about one million units.
In the mid-1990s Time Warner (TWX: Research, Estimates) experimented with a system called the Full Service Network in Orlando, Fla., that provided services such as video-on-demand, online shopping and video games via a television and cable TV converter box. The technology used then was primitive by current standards and costs were high, so the company eventually pulled the plug on the trial.
Still, Wolpin says, if anyone can make the Internet-on-my-TV idea work it's AOL, if only because of its dominant status as the world's leading online service. An interested user, shopping for an interactive TV box might feel more comfortable with an AOL box, rather than one from an unfamiliar name, he said.
"This is a WebTV-killer primarily because of the brand name of AOL," he said. "I think the consumer is going to say 'what is [Microsoft's] UltimateTV?' I don't know what that is, but I know what AOL is."
 Announced last week, Microsoft's UltimateTV hopes to draw users with personalized TV features, such as the ability to record two programs at once or to pause live TV. It plans to have the service available to DirecTV subscribers and viewers using Thomson Multimedia's RCA set-top boxes in time for this year's holiday season.
After a brief AOLTV demonstration in New York, Wolpin said he found AOLTV interesting, but still not as easy to use as the WebTV Classic service.
He was impressed with AOLTV's "Picture-in-Picture" feature, which shrinks the television broadcast to a corner of the screen, as it fills the monitor with everything from sports scores to Instant Messenger chat.
However, he was particularly shocked that AOLTV does not have an e-mail option on its home screen, although an e-mail button is prominently placed on the wireless keyboard.
Like WebTV, AOLTV will likely be popular with Internet novices, consumers who want to surf and mingle online without having to know how much space is left on their hard drive.
But industry watchers suggested that AOL may have a hard time convincing current subscribers, and those already comfortable surfing the Web, to pony up hundred of dollars to do things on the Web - such as e-mail -- they already have access to on their PCs.
 The AOLTV launch comes as AOL awaits federal approval of its merger with Time Warner, in a deal that would unify the world's largest Internet and media companies.
Analysts said AOLTV is the perfect convergence of AOL and Time Warner, and in future years will offer a plethora of opportunities for programmers to write interactive content. For instance, viewers of Time Warner's CNN could click for more news behind the headlines.
The summertime launch also gives AOL time to work out kinks before the holiday shopping season, analysts said.
Interactive TV could generate $9 billion in revenues
Despite projections of initial slow growth, industry officials say interactive television will be a gold mine in years to come. Interactive television could generate $9 billion in e-commerce and subscription revenues by 2004, according to Forrester Research. Advertising is expected to raise billions more.
AOLTV is a key step in the company's "AOL Anywhere" plan to make its brands and features available to online consumers "anywhere, anytime" through a range of devices, including hand-held computers and wireless phones, the company said.
SG Cowen Analyst Scott Reamer said the company would take its time to build a critical mass of AOLTV subscribers, which is the best strategy for building sizable advertising and commerce revenue.
 "AOL now controls the PC screen, monetizing consumers who access the Net via the PC screen with an almost monopolistic hand," said Reamer. "AOL's strategy is to extend their existing dominance of the PC screen to those other screens, in a smart attempt to monetize those consumers as well."
AOL added that AOLTV may appeal initially to teens, who watch the most television and already are racing between their PCs to their TVs to zap messages to one another about the score of a ball game or the latest video on MTV.
Rob Schoeben, senior director of marketing for WebTV, said AOL has its work cut out for it in trying to persuade consumers to spend more money on set-top boxes.
Even so, WebTV is undergoing a major shift in focus, providing enhanced television viewing rather than transforming TVs into PCs. 
--from staff and wire reports
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