April 22, 2004 9:14 AM PDT

AOL, Road Runner team up for broadband

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Corporate cousins America Online and Road Runner on Thursday announced a co-marketing deal in an effort to broaden their reach to potential broadband Internet customers.

AOL will offer its members subscriptions to Time Warner Cable's Road Runner cable Internet service in a bid to sign up new broadband users. Meanwhile, Road Runner will promote an "AOL Channel" on its home page that will feature exclusive multimedia programming produced by the online giant and a sampling of AOL content. Road Runner subscribers will be able to buy AOL for Broadband in addition to their connection for $14.95 or $24.95 a month.

AOL will receive a payment for every new Road Runner subscriber it signs up, and it will pay Road Runner for every AOL for Broadband customer it gains through the deal. The companies did not disclose the amount of the payments.

The deal also spans outside the Internet. Time Warner Cable will begin offering its TV customers a video-on-demand channel called "My MC" that features programs such as in-studio artist performances on Sessions@AOL, music videos and footage from AOL's weekly Broadband Rocks concert series.

"We think this approach is the right one, because the best way to entice people to purchase the (AOL) service is for them to sample it, first," Kevin Conroy, chief operating officer for AOL's broadband division, said in an interview.

The agreement marks a shift in the relationship between these two Time Warner divisions. Since the ill-fated merger between America Online and Time Warner closed in 2001, AOL has leased broadband Internet lines from Time Warner Cable and then resold a packaged offering for about $55 a month. AOL also had similar lease deals with DSL (digital subscriber line) service providers such as the Baby Bell phone companies.

AOL soon realized that the business of leasing and then reselling broadband access meant thinner profit margins than its core dial-up business. As more dial-up subscribers began migrating to faster broadband services, pushing these customers toward its $55 bundled product began to have financial consequences.

In December 2002, AOL began to unravel these deals in hopes of pursuing a "bring your own access" (BYOA) strategy. The idea behind that plan was to sell a version of its proprietary service without Internet connectivity for $14.95 a month to people who already subscribe to broadband from their cable or DSL provider.

In February of this year, AOL confirmed that it would no longer offer its $55 broadband product, opting instead to focus on BYOA and promote other companies' broadband connection services.

In a move similar to Thursday's agreement with Road Runner, AOL last month struck a deal to market Covad Communications DSL to its customers. However, AOL will not offer Covad customers the same level of exclusive content as it does with Road Runner and Time Warner Cable.

Conroy said AOL continues to have discussions with other cable companies but declined to comment on when he expects a new deal to happen. However, the company is running out of options; most of the Bells have deals with Yahoo or Microsoft's MSN to power their home pages and market their DSL services, and cable companies have remained hesitant to do deals with other Web portals.

Still, Conroy said the co-marketing arrangement was the right model for dealing with broadband access providers.

"This is the right way to go, because it aligns the interests of our businesses better than the previous bundling strategies," he said.

 

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