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Internet

AOL sees its future offline

Rumors that America Online is moving to acquire a traditional broadcaster have been swirling for months, and analysts say such a move becomes more inevitable with each passing day.

    Rumors that America Online is moving to acquire a traditional broadcaster have been swirling for months, and analysts agree that such a move becomes more inevitable with each passing day.

    Speculation has resurfaced today that AOL may invest $250 million in radio broadcaster Chancellor Media. Over the past week, there has been talk of AOL joining forces with cable operator Comcast to try to outdo AT&T's bid for MediaOne.

    The speculation comes See special report: 
When worlds collide at a time when most analysts say they believe the Net will become the dominant form of electronic media and that forming a strong bond between online and traditional media firms will be one of the only ways to survive in a broadband world.

    "The Internet today is merely a prototype of what it will become," said Phil Leigh, an analyst at investment banking firm Raymond James. "[The Net] will become the dominant force in electronic media, in which case it must have full-motion video and sound."

    While AOL is currently the undisputed leader in providing access, with more than 17 million subscribers, Yahoo has upped the ante on the broadband content front with its proposed acquisition of Broadcast.com, which streams sound and video content online.

    "Yahoo's [bid for Broadcast.com] really lays it on the table for AOL and other prominent new media companies," said Leigh. "There is no other choice but to offer [sound and video content], and they must get started now."

    Daniel King, an analyst at LaSalle Street Securities, added, "All the major portals to some degree have to imitate each other."

    Lycos, which is in the process of being acquired by cable television giant USA Networks, just this week launched a new service called Lycos Radio Network. The company plans to stream advertisements and music videos to users.

    And the proposed acquisition of Excite by high-speed access provider @Home is likely to result in a broadband services powerhouse, analysts have noted.

    Still, King noted that AOL's focus recently has been on access strategies, including the DSL deals with regional phone companies Bell Atlantic and SBC Communications, and that the online giant eventually will have to try to build up its broadband content.

    Surprisingly, since AOL took the first steps last spring by buying NetChannel to boost its development of a television-based service, the company has not announced any major advances on its TV front.

    The online giant also is working on a set-top box-based service tentatively called "AOL TV" as part of its larger "AOL Anywhere" initiative.

    "We have hardly announced anything about AOL TV," said company spokeswoman Kim McCreery today. "They haven't announced any timetable at all."

    The offline incentive
    Speaking with analysts Tuesday about AOL's third-quarter financial results, AOL chief executive Steve Case noted that the company wants to be readily available to as many people as possible, whether they access services by computers or other devices.

    "We want to support all major devices that might find their way into the homes of people and make AOL ubiquitous," Case said in a conference call following Tuesday's earnings report.

    Most analysts and industry experts expect the devices to allow users to connect to AOL and the Internet without the need for a personal computer--most likely through screen phones, televisions, and personal digital assistants.

    While the size of the audience getting online through broadband access is unlikely to grow exponentially over the next few years, according to Jupiter Communications analyst Patrick Keane, AOL realizes there will be a number of people accessing the Net over high-speed connections. Moreover, analysts have said there is great potential for broadband in the long term.

    "When you look at online players investing in offline players, they are in fact acquiring customers," said Keane. "The best place to find customers is offline, and a big majority of those people" have yet to get on the Net, he added.

    Radio and television are "potentially a way to have a branding message that is going to get in front of those users" and transition them into AOL subscribers, Keane said.

    With a greater number of subscribers to AOL's access services and visitors coming to the company's Web site, the company can generate revenue from other categories such as advertising and e-commerce, which is considered vital for moving forward, analysts noted.

    Networks commit to the Internet
    Nowhere is the importance of migrating users between offline properties and online sites more apparent than in the speed with which the major television networks, including ABC, NBC, and CBS have tried to jump on the Net.

    As reported by Bloomberg in March, CBS's chief executive, Mel Karmazin, said the company is "totally committed to becoming one of the largest players in the Internet business." Earlier in the year, Karmazin went as far as telling investors and analysts that he was considering a spinoff of CBS's online assets into a new company, CBS.com.

    CBS is the exclusive provider of broadcast news on both AOL's proprietary online service and CompuServe. CBS's Internet properties include stakes in financial news site CBS MarketWatch.com and CBS SportsLine.

    ABC also is trying to build a strong Web presence under Disney's Go Network umbrella. Just this week, ABC announced it will not renew its contract to provide online sports and entertainment news to AOL's Web site.

    NBC already has made strong moves to get on the Net and provides news from its MSNBC and CNBC cable television to its Net properties, including Internet directory Snap. Snap is a joint venture between NBC and CNET: The Computer Network, publisher of News.com.

    For those companies that have not already forged a Net presence, they will have to rely on new media firms for their Net distribution reach.

    "Major media companies have billions in assets but still don't have the online distribution needed to be successful online," said Keane. "That is one of the primary reasons for the high valuation of the [Web portals]."

    Bloomberg contributed to this report.