Time Warner Cable may sound like the old-media backwater of the newly combined AOL Time Warner, but with 13 million subscribers and the world’s most sophisticated communications network, it’s actually the launching pad for the company’s digital blitzkrieg on America’s living rooms. Such digital offerings range from interactive TV, high-speed Internet access and, coming soon, even Internet phone service, all delivered over the cable wires. The prized cable systems, perhaps even more than the magazines, movies and other content, were the driving force behind AOL’s pursuit of Time Warner. In the past five years Time Warner has spent an extraordinary $4 billion upgrading the system, tearing up streets around the country in order to install a hybrid network of copper and high-capacity fiber-optic cable able to instantly deliver vast streams of data. Now AOL Time Warner, which finally combined last month after a year of wrangling with regulators, is directing its considerable firepower to turning that heavy investment into profits. In markets like Tampa and Portland, Maine, an army of retrained “cable guys” is already selling and installing the new digital wares to customers like Ptak. So far, most of the new services are based on Time Warner cable technology, but soon AOL will be taking advantage of the lightning-fast network. With its size, financial clout and AOL’s online marketing reach, the company is at the forefront of the competing efforts to sell the emerging digital services. The company is convinced that its vision of convergence–the morphing of television, computers and communications–will succeed “because we own the cable platform,” says Bob Pittman, AOL’s co-chief operating officer.
But AOL Time Warner is ramping up its bid for digital domination at a dicey moment. For one thing, the company’s mammoth competitors are hardly ceding the field and several are backing rival technologies. Last week News Corp.’s Rupert Murdoch reportedly moved closer to adding Hughes Electronics and its DirecTV service to his global satellite-television operation–a development that, if successful, will represent a formidable challenge to AOL Time Warner. Also, as the economy weakens, consumers may be reluctant to take on a jumbo cable bill. And the demand for the sexy new entertainment offerings is uncertain. Chatting and e-mail–not watching film clips or online shopping–remain the killer app for most wired warriors. Finally, after countless false starts by the media industry, consumers are skeptical about yet one more promise of a seamless interactive service. In fact, Time Warner lost tens of millions in 1994 launching its much-hyped “full service network” in Orlando, Fla., an interactive cornucopia promising many of the same features that the company is promoting once again.
AOL Time Warner argues that the world is vastly different now. The technology is proven, with the rebuilt cable system able to easily handle rivers of data. Also, the price of the computer chips that power the set-top boxes has plunged. (In Orlando, Time Warner had to pay thousands of dollars for each set-top box; now the cost is $300.) The company’s early results are encouraging. Since spring 1999 it has signed up 1.7 million customers for its digital-cable box, without which Time Warner can’t market video on demand. Road Runner, meanwhile, has attracted about 1 million customers since 1996 and now signs up 20,000 more a week.
Tampa showcases the benefits to be reaped from plying longtime customers with seductive new services. Digital-cable service debuted there in 1999. Today 160,000 of its 900,000 cable customers have signed up, adding about $8 to their monthly cable bill. More than 100,000 have Road Runner. But the biggest early success has been the rollout of I Control, or video on demand. VOD serves up about 100 movies available at any time. The cost ranges from 95 cents for older movies to $3.95 for recent hits like “The Perfect Storm” (Time Warner is trying to cut deals with Hollywood studios to ensure a steady flow of popular films to expand VOD this year). Ptak orders as many as five a month, though she has spurned pay-per-view. “You have to watch those at a certain time,” she says. “On video on demand, you can start it whenever you want.” In nearby Pinellas Park, Nicole Mayes, 28, is hooked on VOD, which she signed up for six months ago. Since then her monthly cable bill has swelled to $130 from less than $40. “I rent a movie about every night,” she says.
Up north in Maine, Time Warner’s cable crew has become a formidable selling machine. That’s a remarkable transformation for the cable company’s work force, which was once largely confined to taking customer orders and installing plain-vanilla cable-TV service. To help get Road Runner off to a strong start in Portland, Time Warner retrained its installers, along with everyone from customer-service representatives to warehouse workers and receptionists. “If any of our employees were in the grocery store and overheard someone talking about the product, they could answer any questions on the spot,” says Tom Kenny, the Maine cable boss. The efforts continue to pay huge dividends for now, with demand continuing to soar. As in Tampa, customers are captivated by the new, enhanced TV offerings. Almost 4,500 households pay $99 a month for a package that includes not only the blizzard of channels, but also Road Runner, premium channels and an array of music channels. Time Warner has dubbed the package Your Digital Home.
Now the company is plotting to use the cable pipes to storm the multibillion-dollar phone business. Time Warner Cable has tapped the Portland operation for a test of its so-called Internet-telephone services. As a user surfs the Net over Road Runner and watches digital television, he may call a buddy across town, all over a single cable line. That’s not possible for the vast majority of people who connect to the Net over a traditional phone line. The cable-based phone service allows customers to avoid the hassle and expense of adding a second line.
After waiting a year for the megamerger to be approved, AOL Time Warner execs are exhilarated to finally be implementing their grand plans. “This is the fun part,” says Joe Collins, chief of Time Warner Cable, of the forthcoming blizzard of digital offerings. With a $116 billion merger on the line, this cable guy had better hope the fun lasts for customers like Anita Ptak.
