Speeding toward another revolution
Only a few years ago, Excite@Home seemed to have all the makings of a New Economy powerhouse: cutting-edge technology, high-profile financial backers, and relatively little competition in the high-speed Internet market.
There was only one problem: The broadband technology at the core of its business remained years away from replacing the standard phone modems typically used for Internet access. More recently, the struggling company has seen its stock price plummet and announced layoffs twice since January.
Yet the strategy behind the creation of the company is strikingly similar to what industry visionaries are saying may represent the future of the Internet. As more companies charge for online content, a service like Excite@Home--a Web portal that provides high-speed cable connections for a monthly fee--seems a natural fit.
"The way the Web started, there was so much easy money available that it blurred the necessity of content being truly compelling. In an interactive medium, that's a dubious game," said Strauss Zelnick, former chief executive of Bertelsmann record label BMG Entertainment. "The world is coming back to normal."
Regardless of which companies succeed in creating this content, few disagree that the need for high-speed services will only rise as people seek more multimedia entertainment and other features on the Web that require broadband connections. That could give rise to a whole new industry of middleman companies needed to license, collate and feed material that requires large pipelines to deliver online.
Because the major broadband providers probably will be unwilling to strike alliances with hundreds of smaller content companies, some suggest the industry will begin to see new clearinghouses of multimedia content.
"Whoever could aggregate the content but also deal with all the rights issues could take that market by storm," said Steve Jones, professor of communications for the University of Illinois at Chicago and founder of the Association of Internet Researchers, an online academic group. "I don't see anyone positioned right now to do that. It's getting far more confusing every week."
Yet there's no reason for all this business to go to any one player. It could be divided among many of today's portals and other companies that need to adopt new business strategies to survive.
For example, a company such as RealNetworks, which has struck licensing deals for professional sports Webcasts--or even Yahoo, through technologies acquired from its merger with Broadcast.com--might do more hosting and aggregation of multimedia content behind the scenes for AOL Time Warner and other portals with paying customers.
"The average consumer doesn't know who TCI and Liberty Media are but does know who HBO and MTV are," said Curt Marvis, chief executive at CinemaNow, an Internet video-on-demand service. "But HBO couldn't exist if it didn't have the ability to get its signal to consumers. HBO also couldn't exist if it didn't have the content producers. I see it following the same path with broadband Internet."
If that's true, some tectonic changes may be ahead for the Internet industry and its leading players. As seen in cable television, the balance of power can shift easily depending on which entity has the most sought-after services at any given time: the distribution vehicle (cable services), the delivery pipes (networking companies), or the content creators (Hollywood studios).
Already, AOL Time Warner is preparing a high-speed Internet service and will combine it with the company's treasure trove of movie, music, television and magazine content, all for a flat cable TV-like monthly fee. Others certainly will follow, but AOL's unrivaled access to content gives it an important advantage from the outset.
Some industry analysts believe the only true challenge will be the creation of another powerhouse that bridges old and new media--such as a combination of Excite@Home, which is controlled by AT&T, with the software and services of Microsoft and the content of Disney.
Within a few years, consumers tired of being charged for what once was free on the Web may turn to their high-speed Internet provider for a $75-per-month package of music, movies and online content--potentially changing the balance of power in the media business. Excite@Home already charges a flat fee of about $40 to $45 a month.
"As content becomes more costly to produce, you'll be paying for it, but just up front. You're already seeing it with DSL and cable rates going up," said Emily Meehan, program manager for market research firm The Yankee Group. "It's like with TV, you get three stations if you don't pay anything. But if you pay for a package of cable, you get all sorts of channels. That tips the scales in favor of the cable or DSL providers because they own the billing relationship."
For clues to how the broadband Internet will evolve, industry veterans say one needs look no further than the history of earlier media. Today's mass media is the product of complex but symbiotic relationships between content producers, licensees, distribution companies, and the carriers that directly reach and bill consumers.
Not surprisingly, those who come from the distribution side of the business believe that broadband service providers will become a dominant force--at least in the near term--because they control what is carried over the pipes.
"Historically what's happened is the pipe has been commoditized very rapidly by vertical, well-programmed content. So the balance of power has been with the content programmers because the actual delivery mechanism was not very differentiated," said George Bell, former chief executive of Excite@Home. "Now along comes broadband, and I believe that for the next five years, at least, that's going to change. Now the pipe is going to have a lot more say about differentiating the content."
That would mean broadband companies such as AOL Time Warner, Verizon Communications, SBC Communications, AT&T and Excite@Home would hold more influence over Internet content than the broadcast networks and cable TV operators have had over video and film.
Even if that is true, however, a consensus must be reached on many digital rights issues and payment models before the broadband Internet and entertainment industries can operate efficiently. "You're going to need to see some meeting of the minds between the pipe guys and the content guys and the middlemen," Meehan said.
That is easier said than done, given the enormous stakes involved--not to mention the monumental egos.
"On one hand, we hear about convergence between mediums. On the other hand, we see divergence of interests among the media," Jones said. "It's a huge mess, and there will be millions more spent on attorneys."
