The two largest cable modem service providers--Time Warner's Road Runner and @Home--will unveil major product redesigns next week to include beefed-up content, communications, and multimedia features, signaling a strategic shift in the nascent industry.
Both announcements, slated for cable's Western Show in Anaheim, California, show the industry's realization that high-speed Internet services are not enough to make a splash in the mass market. Like America Online in the dial-up Net access market, or television for that matter, they must provide compelling content to lure "newbies." The "early adopters" who already have signed up for their services represent too small a market (only an estimated 110,000 by year's end) to generate sustained profitability.
"For these services to go mainstream, they really need more content," just as in the early days of cable TV, said Patrick Keane, analyst with Jupiter Communications. "You're now going to see a concerted effort to develop the content side."
In fact, the high speed provided by these offerings--up to 100 times faster than 28.8-kbps modem access--may be taken for granted by many newcomers to the Web, added Richard Gingras, vice president of programming for @Home. "They've come to expect this," he said. "If you had to wait 20 seconds to change your TV channel, you wouldn't 'surf' your channels."
The competition is intense, however. One envied target, at least for now, is AOL and its 10 million subscribers, which is 100 times the subscribership of all the cable modem providers combined. "They'll never compete with AOL in terms of subscribers," Keane noted.
No cable modem service is ruling out a content alliance with AOL down the road, and @Home already has a content partnership with MSN.
But for now, they'll have to find other partners and leverage the benefits of high-speed Net access over the comparatively laggard dial-up connections of online services.
Road Runner, @Home, and US West's MediaOne Express, among others, are doing just that. They are emphasizing those technologies and features that are best suited to high bandwidths, such as video and audio streaming, that can be painfully slow to dial-up customers. The goal: Provide a more TV-like experience.
At next week's cable show, Time Warner will demonstrate Road Runner 2.0. It will include upgraded email, message boards, chat listings, and personal home pages, as well as a new interface. In addition, the company has signed up a laundry list of content providers, not only from Time Warner's empire but also from outside the company. Examples include the Discovery Channel, ESPN, MTV, Nickelodeon, CNET (publisher of NEWS.COM), Barnes & Noble, CDnow, and Merriam-Webster, among others.
The content deals also will be announced next week. Road Runner 2.0 is expected to roll out in the first quarter of next year.
@Home also will demo its redesigned service, which includes a new interface, more functionality, additional email accounts, and what executives call an "out-of-browser" experience. That means an easier-to-use interface devoid of technical-looking menu bars. @Home's redesign also will feature video and audio streaming. For example, users can download CNN video clips or listen to music via "TuneIn." The redesign also frees up more Web real estate for advertising, but executives say it is not obtrusive. @Home's redesign will be available as of next week to its subscribers.
Despite the benefits of its connection speeds, the cable industry still faces hurdles in the Internet space. Its infrastructure is not yet built out, and the upgrades are costly. In addition, they must package the content to make it compelling for would-be customers who will typically pay $40 to $50 per month for the service, excluding installation.
"The big question is how are they going to develop and incubate content," Keane said.
MediaOne Express is following a strategy similar to AOL in trying to "hatch" its own content. It has invested in content providers such as TheTrip.com, a travel reservation service, and CBS SportsLine. US West also has launched its own city directory guide, dubbed DiveIn, and MediaOne Express will use its content.
"We're translating the speed advantage into an online experience unlike that of an AOL experience on the Web," said Karl Rogers, Road Runner's senior vice president of programming. "Our hope is that this has a strong appeal to the 'middle market.'"