Was It Good for You Too?

So here we are in 2000, and Beth Kennedy, returning to her argument of six years ago, says, ”In order for AOL to continue to get subscriber revenue, when free access to the Internet is ubiquitous through companies like NetZero, AOL must have content. People are used to paying subscriptions for basic cable, premium channels, tickets to movies and plays, new-technology versions of their favorite music. Broadband makes engaging, visual content an imperative to stay in the game.“

AOL‘s original service, for the Commodore 64, featured tiered access. And though naysayers will point to the fact that AOL gave up on that model, that’s just the point: AOL, over the years, has shown a willingness to dump or pick up on any new trend in order to remain in the mix.

Something else to consider: After AOL switched to flat-rate pricing, too many subscribers hung around for too long and AOL‘s servers became overloaded. Something similar is predicted when broadband becomes the dominant Internet hookup model -- cable modem users must split the available space on the broadband. You put 20 million people onto the existing system, and you may as well have a 14.4 modem. So how do you cut the overload? How about tiered pricing?

So here’s the nightmare scenario, if you happen to own another ISP, or have grown to like free Internet content: Time Warner‘s online offerings are split into ”lite“ and premium versions. The lite stuff, say headline news from Time and CNN, continues to be offered over the Web for free. AOL sells additional programming on a pay-per-view basis over the Web. A premium AOL subscription package is also offered with ”exclusive“ downloads and special sneak peeks at Warner movies and music before a they are released offline. You may argue that AOL’s tried that before and failed, as have many other content providers. The difference now is not how many Internet subscribers but how much content will be owned by AOL? Can you say, ”My ball, my rules!“ boys and girls?

So ”open access“ sounds good in theory, but if you follow the cable-centric model, in practice it becomes a joke -- if, for the same price as any other ISP, you can get the exact same broadband access, and everything in Time, Sports Illustrated (streaming video of swimsuit models!!), Fortune, Entertainment Weekly and, for a few dollars more, exclusive windows on Warner movies, first chance at Warner music, etc., etc. Well, hell, would you go with some Internet-only ISP? But wait, there‘s more! Why would any advertiser want to support NetZero freeloaders if the most desirable demographic were already shelling out money for content-rich AOLTime Warner?

It gets better (but only if you’re Steve Case). If the only way you can get broadband Time Warner content is through AOL, and your local cable operator won‘t open up its lines, we all may find ourselves pounding the podium at our local city councils, screaming, ”I want my interactive HBO!“

But wouldn’t an AOLTime Warner Internet monolith eventually run up against regulatory objections? Kramer suggests that Steve Case could keep the daisy chain going by introducing CompuServe, the older online service provider that AOL bought and maintained as an arms-length company with its own brand identity. ”The FCC, through its concentration of ownership rules, limits the number of subscribers -- that‘s individuals, not households -- any one cable operator can own,“ Kramer says. ”Fine. So Steve Case is nearly up to his limit on this one deal. However, [he] could still cut [another] deal using CompuServe as the root: He can say all this exclusive Time Warner content, now available only through AOLRoadrunner, can also be available through CompuServe -- through its affiliation with a different cable operator. Leaving all the remaining cable companies to say, ’Pick me! I want to live!‘ Federal law prohibits the consolidation of more than 30 percent of the cable industry into the hands of one cable operator, so if you’re a Steve Case -- you‘ve got 25 percent on Time Warner, and then you do a deal with AT&T -- and it’s not an ownership deal, you‘ve now got more than 50 percent of the market looking at your content without violating the consolidation rules.“

Don’t look to the FCC or the FTC to save us from the octopus. Over the last 30 years, antitrust thinking has swung from the ‘50s notion that the big film studios should be prevented from owning theaters (separation of content and distribution) to the belief that vertical integration is good for consumers, explains William Baer, former FTC official and lawyer with Arnold & Porter in Washington, D.C. (Vertical integration means owning a lemon grove, a sugar company and a paper-cup factory as opposed to a monopoly: making and selling all the damn lemonade.)

Antitrust ideology would have to make a 90-degree swing to bring AOLTime Warner under attack, although stranger things have happened. (Microsoft thought it was bullet-proof until the Justice Department launched its current offensive.) But if you’re worried, it might not be a complete waste to contact members of the Senate Judiciary Committee, many of whom have already gone on record with concerns about the AOLTime Warner deal.