Wall Street gets glimpse of AOL TV

In a report issued this morning, Merrill Lynch analyst Henry Blodget said the Internet giant previewed AOL TV, as well as Netscape 6.0, last night in New York.

"AOL TV should be rolled out this summer," Blodget wrote, adding that set-top boxes--the first ones made by Philips Electronics--will begin shipping "early this summer," slightly later than some analysts expected. AOL will have retail partners to sell the boxes in stores, but the main channel of distribution will be through promotions on the AOL service, a low-cost strategy, he said.

AOL has previewed AOL TV before, including a demonstration at the Consumer Electronics Show last month in Las Vegas.

But Blodget's report offered details and insight to AOL's plans, including speculation about pricing. It also indicates Wall Street's first reaction to the product. Blodget is one of the most bullish Internet analysts--but he also is among the most influential. He is betting that the AOL brand will prevail across multiple platforms.

AOL spokeswoman Anne Bentley confirmed the details in Blodget's report but would not comment specifically on the price of the set-top boxes or the subscription service.

"There will be an incremental cost as an AOL subscriber if you get AOL TV," she said. Another representative declined to discuss Netscape 6.0.

Blodget called AOL TV "a profoundly important next step in the development of the medium and AOL." He added: If AOL TV were to become the dominant consumer interface to interactivity, "we would regard it as analogous to Microsoft's control of the PC operating system."

Competition will be intense, however. Microsoft already is a major player in the small but fast-growing market with its WebTV product. Unlike AOL, Microsoft bought WebTV; it didn't build the product in-house. As a result of the dueling services, the launch of AOL TV will heighten the competition between the two high-technology giants.

According to Blodget:

• Pricing for AOL TV has not been established. But he speculated: "The user will likely be able to buy the box for $199-$399 and then pay a $5-$10 monthly fee in addition to the regular AOL subscription fee, or just pay a higher monthly subscription fee and get the box for free."

• Features include an electronic program guide, similar to the one on DirecTV, that lets users change channels by clicking on words and graphics, rather than scrolling through channels. Blodget said the beta demonstrated last night was "significantly slicker and easier to use" than other electronic programming guides. The guide re-numbers channels in similar groups, such as news and sports, which "makes navigation easier," the report said. It also interacts with VCRs.

• Other features include letting users watch television while using interactive elements such as buddy lists, chat, email and a calendar. "The buddy lists, for example, are translucent, and fade or disappear when the user is inactive," Blodget wrote, so it doesn't interfere with watching television. When writing email, the TV is reduced to a smaller one-quarter screen size--unlike some versions of WebTV, for example.

• Programming features also combine data and video feeds to let users interact with certain shows. "On Larry King, for example, users might be asked to vote on a particular political issue while the guest is being interviewed," Blodget wrote.

The AOL box seems similar to the WebTV box. It feeds into a service that plugs into a television set through the cable port. The user interacts with the service using a remote control and wireless keyboard. As DSL and cable-modem services expand, the box will accept "these instead of the telephone line" as the data feeds, the report said.

While users watch television, the AOL logo will appear in the upper left-hand corner of the screen--similar to the way network logos appear.

Blodget estimated that as many as 30 percent to 50 percent of AOL households will sign up for AOL TV. He remained bullish on the stock, with a "buy" rating.

News.com's Jim Davis contributed to this report.