February 18, 2003 11:09 AM PST

America Online confirms end of AOLTV

America Online on Tuesday confirmed that it has discontinued selling its AOLTV product, ending the Internet giant's attempt to push interactive TV services.

Originally launched with great fanfare in June 2000, AOLTV was expected to extend AOL's dominance from the PC to the TV set. AOL teamed up with consumer-electronics manufacturer Philips Electronics to create a set-top box that could be purchased at Circuit City stores or offered through DirecTV. However, AOL was unable to gain enough consumer interest in the product.

"The choice was based on not a lot of interest going forward in continuing to develop that particular platform," AOL spokeswoman Anne Bentley said about AOLTV.

Bentley added that AOLTV will still be available to existing subscribers. She said AOL stopped selling the product in November.

When it launched, AOLTV was considered an initial glimpse into the potential of the merger between AOL and Time Warner. AOLTV allowed people to use popular online features such as instant messaging and e-mail while watching television. AOL Time Warner executives promised that future versions would include interactive content, which could be accessed during programs and sporting events, and digital recording services powered by TiVo.

But signs of trouble began to appear last year. In May 2002, AOL and TiVo restructured their financial agreement and announced they would discontinue production plans for an interactive TV set-top box. TiVo said it would return $48 million of AOL's original $200 million investment that was agreed to in June 2000. AOL also returned 1.6 million TiVo shares back to the company.

The cutback comes as the AOL division attempts to turn around its fortunes in the face of staggering losses in online advertising revenue and investigations by the Security and Exchange Commission and the Department of Justice for alleged accounting violations. AOL is trying to realign its focus by cutting away money-losing ventures, reinvigorating its flagship service, and refining its broadband strategy.

A source close to AOL said the AOLTV team was hit particularly hard in recent rounds of layoffs.

AOL is not alone in stumbling with its interactive TV plans. Archrival Microsoft has also tried to tap into the convergence of the Internet and television but has scaled back on its MSN TV and Ultimate TV products because of waning consumer interest. The software giant has also reined in its efforts to sell advanced set-top capabilities to cable operators because of decreased interest.

 

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