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AOL tightens grip on content

America Online boots content providers that don't agree to sign exclusive deals with the online giant.

America Online (AOL) may give the boot to any of its content providers who don't agree to sign exclusive deals with the online giant.

Now that all Internet service providers--including the proprietary services such as AOL and Microsoft Network--all charge about the same for access, they're desperately trying to differentiate themselves by providing unique and presumably valuable content. If their content providers do deals with several online services or post to the Web for all to see, then, AOL argues, the content's value diminishes.

AOL wants to provide its 7 million members with something they can't find anywhere else, according to company spokesman Steve Sigmund. If that means bumping some existing content providers, so be it. "We're not inclined to pay providers that are free on the Internet and not providing a distinguishing feature on AOL," Sigmund said.

For instance, Wired magazine, which had provided its content on AOL, recently left by "mutual agreement." Wired, it seems, is a lot more committed to its Web site than to its AOL area, Sigmund suggested.

AOL has 1,600 content providers, 500 of which are paid. The company is trying to change the relationships it has with all of its partners, Sigmund said, to maintain unique content. In the past, signing up as an AOL partner had no bearing on what that partner could to do on the Web. But now AOL is using its clout as the world's largest online service to pressure its partners to make AOL their top priority.

AOL feels cornered by MSN, its chief competitor, which just this week completed its Web-only relaunch. As part of that transition from the older, proprietary network, MSN has a chance to write exclusive deals with new content providers. MSN is now using its unique content to draw users into the subscription-based areas of its Web site.

AOL too recently launched a new area--AOL Studios--to develop exclusive content, but in the meantime, the company wants to weed out any providers who are also strutting their stuff on the Web.

Some observers say the strategy could backfire. The Internet is just too powerful a draw for companies that want to reach a mass audience, they say. For instance, Scholastic, a site that provides educational content, left AOL in September when it launched a new, comprehensive Web site. Why? Schools were logging onto the Internet--not AOL.

That is the problem that all online proprietary services are facing, said David Simons, managing director of Digital Video Investments, a money management research firm. "The premise of what AOL and MSN are doing is that they can come up with enough compelling content that's exclusive to cause people to use their services," Simons said. "It's almost like saying that they can do considerably better in cyberspace than Ted Turner could do in cable."

He points out that anyone can jump online and create content to compete with online services. Plus, content providers know very well that AOL has a very high churn rate among its members, meaning it can't guarantee that it has 7 million members at any given time.

One major AOL content provider who asked not to be named told CNET that if he had to choose between the Web and AOL today, the choice would have to be the Web.

But Sigmund stressed that it's not preventing its partners from having a presence on the Web; they just have to give AOL members something more in the form of additional content or better packaging.

"We try to stress to our partners the tremendous benefits with being associated with AOL," Sigmund said.