Will AOL Conquer Cable?

(Cable World) With its acquisition of Time Warner approved after a year-long review, America Online faces the tough task of finding effective ways to use Time Warner Cable’s wires to bring its products and services to 13 million subscribers.

It won’t be easy. To be sure, not all of Time Warner’s services were quickly adopted by Time Warner Cable. Look at Turner Classic Movies and CNNfn. What was good financially for the MSO sometimes clashed with broader corporate goals, and cable executives got their way.

AT&T, which had bold plans for synergies when it acquired TCI and MediaOne, found them difficult to realize. AT&T Broadband is now set to be spun off to independence again.

The huge merger, creating an entertainment giant with revenues of $40 billion from businesses, including television networks, magazine publishing and a movie studio, will also have a sharp effect on other MSOs.

"Its going to dramatically change how our business operates, and I believe will accelerate new services and great opportunities," says Stuart Lipson, a former Century Communications executive, now a Connecticut-based media strategist.

"Because you have the pieces of the puzzle, you have a true multiple-media platform, and you’ve got a lot of different ways to connect with consumers," he says. "There is tremendous synergy and brand strength AOL and Time Warner bring in so many environments."

NCTA president Robert Sachs welcomed AOL to the cable industry.

However, he didn’t want AOL bringing the industry a new regime of regulation. AOL had to agree to rules regarding open access for Internet service providers and instant messaging. The FCC also said it would look at interactive television.

Sachs reiterated the cable industry’s view that those conditions don’t apply to other MSOs.

"The ruling did not establish principles that can or should apply to all cable operators," he says.

"We strongly disagree with the FCC’s announcement of a rulemaking on interactive television," he adds.

Interactive television has yet to take form as a business. It’s regrettable that, in order to break an apparent deadlock over merger conditions, the Commission decided to take this action, Sachs says.

"As the Commission gains more information about interactive TV, we are confident it will find there is no basis for regulation in this area."

Commissioner Michael Powell, the FCC’s likely next chairman, says he was "persuaded, with some reservations, that the commission should begin to look more closely at interactive TV to see whether regulatory intervention is necessary and appropriate."

He added that the merger highlighted growing developments in ITV and identified potential obstacles in its deployment.

According to Rudy Baca, ad analyst for the Precursor Group, the hard part for AOL Time Warner — getting regulatory approval — is already complete. The two companies now must find creative and profitable ways to place Time Warner’s vast media library onto its system.

Baca also notes that the commission’s Instant Messaging provisions could be troublesome for the two companies, if not handled lightly.

"There was a big fight over the IM provisions, and the difficulty there is that service tends to look a lot like a telephone service," Baca says. "And the more it looks like a telephone service, the more the FCC says it knows how to regulate it."

However, he adds that the company can be hopeful because Republican Commissioners Harold Furchtgott-Roth and Michael Powell fought the measures.

"You have a likely Chairman in Commissioner Powell that objected to these provisions and a Republican Administration coming in that will hopefully work with his agenda," Baca says. "These were really the efforts of Democrats as they were going out the door."

He also noted that the IM provisions were mostly "monitoring provisions." AOL Time Warner can also ask for them to be repealed in the future.