Wednesday, June 15, 2005

Free Music, Video to Become AOL's Focus

NEW YORK - Free music and video will be the centerpiece of America Online Inc.'s new strategy to boost advertising revenues by moving most of its content outside its well-manicured walled gardens.

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jim bankoff

Features that will remain available exclusively to AOL's diminishing base of subscribers, who pay up to $23.90 a month for an all-you-can-eat package, mostly involve software and support: parental controls, special sections for kids and teens, antivirus and other security programs and customer support hotlines operating 24 hours a day.
Internal studies have shown that subscribers weren't staying on AOL simply for its content, so the company decided to make that available to a wider audience for free in hopes of gaining more online real estate to sell to advertisers, said James Bankoff, AOL's executive vice president for programming and products.

A test version of the new portal, which Bankoff demonstrated Monday for The Associated Press, was expected to be available on June 21. AOL plans a formal launch next month, coupled with advertising campaigns online, on radio and in print.

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As it designed the portal, AOL kept in mind the growing number of broadband households, many of which have been dropping AOL accounts when they moved from dial-up to dedicated high-speed access.

Visitors will be able to set the portal's home page to a "Video Hub" mode featuring video links — whether from AOL, Time Warner Inc. sister companies or elsewhere on the Web. Bankoff likens the page to a television guide for the Web.

AOL also is pushing an "AOL Music On Demand" video channel and is developing an "American Idol"-like Web contest carrying as its prize a recording contract. On-demand channels featuring comedy, celebrity news and self-help are also in the works.

To make video easier to find, AOL will incorporate results from its Singingfish multimedia search engine.

Users will be able to create a personalized "My AOL" home page with news headlines, Web journal summaries and other automated feeds from AOL and elsewhere using a technology called Really Simple Syndication, or RSS. Such features mimic those pioneered by such competitors as Yahoo Inc. (Nasdaq:YHOO - news)

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Beyond programming geared to kids and teens, however, Bankoff was hard-pressed to come up with examples of content that will remain available only to subscribers.

The biggest example is perhaps the feeds under AOL's partnership with XM Satellite Radio Holdings Inc. Though 20 FM-quality channels will be available for free at, subscribers will get 80 feeds and at CD quality, Bankoff said.

And what content is restricted to subscribers might ultimately be sold on an a la carte basis, so people won't have to buy the entire package, Bankoff said.

AOL officials believe they have lost potential audience under their old strategy.

Subscriber-only materials don't show up in search results, and the authentication scheme built into the special AOL software meant AOL couldn't easily direct subscribers from, say, its Moviefone or Mapquest Web sites to its music or sports offerings.

By making content available for free, AOL can simply make it reachable using any Web browser.

But AOL also risks speeding up the erosion of subscribers. Already, U.S. subscription has decreased by about 5 million since its peak of 26.7 million in September 2002.

In the first quarter, AOL posted a 3 percent decline in revenues as it continued to lose subscribers, more than offsetting a 45 percent gain in advertising revenues. Profits rose 10 percent despite the revenue loss because of a decline in telecommunications costs.

AOL last week formally launched free Web-based e-mail, offering its instant-messaging users accounts with "" address. Now, AOL is offering to forward e-mail from abandoned accounts to AIM.

There is no time limit, and savvy users can still set their e-mail programs with the old addresses without paying for them.

Although analysts say many subscribers have been keeping AOL accounts simply for the e-mail, Bankoff said the company's research does not support that.

AOL figures that if people are going to leave AOL anyway, it might as well have them use AIM — and watch ads displayed there — rather than a competitor's service, he said.

"We at least keep them in the family," he said.

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