The service is the online giant's effort to extend its interactive offerings, such as Internet access, email and instant messaging, to the TV screen. It will come in the form of a set-top box manufactured by Philips Electronics and as a product shipped with Hughes Electronics' DirecTV.
AOLTV will first be offered in selected markets including Phoenix; Sacramento, Calif.; and Baltimore, AOL said. It initially will be sold exclusively at Circuit City stores beginning this summer, as well as online at AOL's Web site.
The service will be offered to AOL members for $14.95 per month and will be added to their existing AOL bills, the company said. AOL said nonmembers can subscribe to the service for $24.95 per month.
Subscribers using only AOLTV will not get all the perks of AOL's online service. AOLTV includes email, Web browsing and instant messaging, but it does not allow people to download files.
With AOLTV, the online giant hopes to grab a piece of the $9 billion in e-commerce and subscription revenues that the interactive TV market is expected to generate by 2004, according to Forrester Research. And that doesn't count the $3.2 billion in advertising that TV-based online ads are expected to raise.
Still, the advent of interactive television has been hyped for years, with only a handful of players distributing two-way, digital set-top boxes.
Shares of AOL closed slightly down today despite the AOLTV announcement and an upturn in the markets across-the-board. Its shares fell 50 cents, or nearly 1 percent, to $54.
But AOLTV partners Liberate Technologies and TiVo experienced gains as high as 15 percent and 13 percent, respectively.
Shares of Liberate, which provides the software platform for AOLTV, rose as high as $26.75 in early trading before edging back to close up 66 cents, or 3 percent, at $23.91.
TiVo, which offers set-top boxes that allows viewers to record their favorite shows to hard disks so they can skip commercials, shuffle programming lineups, and repeat missed parts of shows, rose as high as $36.44. Its shares closed up $3.94, or 12 percent, at $36.19.
News.com's Dawn Kawamoto contributed to this report.