Why AOL Matters

When it comes to online video delivery, the venerable Web portal holds a couple of trump cards.

Last October, Apple released the video iPod, and has since sold 8 million video clips and television shows through its iTunes music store. In December, Intel announced a new PC design called Viiv, which the company hopes will coordinate digital media in the living room and be a first step toward the digital home. U.S. cellular carriers are rolling out broadcast TV content and customized shows on the small screen. Meanwhile, Yahoo is showing a heightened interest in delivering digital video to PCs and televisions, and last week Google announced it would open an online video store.

Amidst all this hullabaloo over Internet video, it would be easy to lose track of AOL, the former dial-up giant that's struggled to find an identity and a mission in the new world of broadband Internet access. But longstanding facts and recent events suggest that the company cannot be discounted yet.

For one thing, it has access to an immense trove of video and film through its parent company, Time Warner. For another, AOL has brought in some of the Internet's most advanced video search technology by buying startups like Singingfish and, most recently, Truveo. Moreover, since 2000 -- an eon in Web time -- the company has been exploring how people want to use Internet video.

Handicapping the competitors in Internet video isn't an idle exercise either: the company that takes the lead will have access to a huge audience and, potentially, huge advertising or pay-per-view profits. In the United States some 30 million homes now have broadband Internet service; and as prices for broadband access go down and the connections get even speedier, analysts expect that figure to double by 2009. Worldwide, some 250 million households are expected to have broadband by then -- in fact, the Chinese government would like to blanket much of the country with broadband in time for the 2008 Olympics in Beijing.

By comparison, the largest American cable TV provider, Comcast, has 20 million subscribers. "An Internet portal is potentially bigger than any one cable service or satellite provider," says Gerry Kaufhold, principal analyst at research firm In-Stat.

While video is a new feature at Google and Yahoo, AOL has been offering original video, movies, music, news, sports, and live concerts for years. "We were the first online Internet service to push the envelope, featuring shows before they aired [on the networks] -- the kind of stuff Yahoo does now," says Fred McIntyre, AOL's vice president for video-over-Internet protocol.

There was one problem, according to McIntyre: AOL wasn't making money on video delivery, in part because the material was available only to AOL subscribers. "We had all this video and it was living inside the four walls of the AOL service," he says. In a radical shift, the company recently decided to provide this material free to anyone, and support the service by selling advertisements.

In2TV, a broadband television network on AOL.com announced by AOL and Warner Bros. in November, is the company's biggest step in that direction. Thousands of episodes of "Welcome Back Kotter," "Growing Pains," and "Lois and Clark," among others, will soon be available at no cost in a new DVD-quality video format that the company calls AOL Hi-Q. All viewers will have to do is tolerate a few paid advertisements at the beginning of the videos.