IPTV vs. Cable

IPTV vs. Cable: AOL's Making a Comeback
A Special Report for Dynamic Market Alert
August 7 , 2006
by Andrew Snyder
Executive Editor, BreakAway Investor and Fear and Greed

I love an underdog. Ever since it merged with Time Warner (TWX:NYSE) in 2001, America Online (AOL) has been ripe with criticism. Critics despised the merger.  AOL's business model was outdated and subscribers were moving away from dial-up to the high-speed world of broadband.

The merger helped Time Warner's share price drop from more than $50 to less than $17. But finally, AOL has found a niche and will once again become an invaluable asset. Just yesterday, AOL announced it would introduce a new Internet video service. It is the catalyst that will get the division moving in the right direction.   

I have been talking and writing about it for months - Internet TV. It unleashes an endless supply of programming choices to viewers throughout the world. What the Internet did for data sharing, it will do for entertainment. The technology is, without a doubt, the best thing to happen to television since the introduction of color.

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With the advent of digital and Internet-ready television sets (compared to the "old days" of cable TV), accessing Web-based video will be as easy as turning on the TV in your living room. Before you know it, Internet TV will be everywhere.

IPTV in America: The Next Big Thing

Web sites like YouTube and iTunes have gained incredible popularity in recent months. They are profit machines. AOL plans to mint its own money by combining a wide range of media services and blow its competition out of the water. 

Once the test site is up and running later this week, AOL Video will offer users 45 video-on-demand channels, plus the ability to search for video anywhere on the Web or upload their own video. It is a true Web portal, designed to entice all Internet users.

Because it is designed to be an all-encompassing Web portal, it will allow AOL to quickly steal market share from its competitors. Sites like YouTube, MySpace, iTunes, and even Google offer limited ability to search other Web sites.  Users want more.  By offering a "total" Web search, AOL will be the go-to Web site for video surfers.

AOL Video will offer plenty of programs for free, but the majority of them will be sold for $1.99, at least to start. In the future, ad-supported video is almost inevitable. It is what currently propels traditional television. It will propel Internet TV well into the future. 

Cornering the Market with IPTV

Another unique aspect of AOL's video search portal is its plan to include an Open Application Program Interface (API). It sounds like a bunch of big, fancy words, but it simply means third-party Web sites will be able to use AOL Video's search results. 

An Open API will allow AOL to cast a huge, market share-stealing blanket over the entire Web. By co-branding its services, AOL will be able to team up with computer manufacturers and broadband service providers and corner the video market. 

For a company losing millions of dollars on providing dial-up Internet service, a strategic switch to video is going to make its shareholders quite happy.  It won't stop all the bleeding, but it will certainly slow it. 

There is no doubt we are seeing the rebirth of a media giant. AOL did it once.  It can do it again.

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Copyright 2006, The Taipan Group, LLC and Dynamic Market Alert, 808 St. Paul St., Baltimore, MD 21201
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