AOL, Road Runner Do Broadband Cross-Promotion

Corporate family members America Online and high-speed ISP Road Runner announced a co-marketing deal this week promoting each other’s broadband offerings, as AOL struggles to attract and keep broadband customers.

AOL will offer free music videos and other samples of its broadband content to Road Runner subscribers in a bid to sign up new customers for its “bring your own access” plan. AOL will offer its members subscriptions to Road Runner high-speed Internet access service. Neither division will discount its services for customers of the other.

Still, it’s significant that the two Time Warner divisions have come together. Since the AOL-Time Warner merger first happened, the much-touted synergies between the two companies have largely failed to materialize. In light of this background, the partnership seems like a promising development.

“It’s about time,” said a former AOL consultant. “This is why the [AOL-Time Warner] merger happened in the first place. When you looked at the assets in the merger, AOL could get faster Internet service via Road Runner and Time Warner Cable. And AOL could become the showcase for cool Time Warner content like movies, music, games.”

This didn’t happen, the consultant said, because Time Warner was “upset” about the merger’s effect on the company’s value and did not want to cut deals with AOL, “despite how much sense it really made.”

The partnership is also significant, he said, because “it’s basically embracing the fact that AOL is doing everything it can to bolster its broadband positioning.”

The arrangement was trumpeted on the same day AOL Chief Executive Jonathan Miller appeared at a Time Warner board meeting to detail his strategy for keeping the company financially viable in the wake of increasing subscriber losses. AOL lost 399,000 subscribers in the fourth quarter of 2003, ending that year with 24.3 million members.

Many of those subscriber losses are thought to be due to an increasing migration to broadband ISPs. Fifty-five percent of all adult Internet users now have high-speed access either at home or at work, according to an April 2004 study by Pew Internet & American Life Project. Home broadband adoption has jumped 60 percent since March 2003, according to the study.

That’s why AOL has increasingly focused on creating affordable packages that put together its “bring your own access” plan and others’ broadband access. The deal with Road Runner follows an earlier agreement with Covad Communications, in which the DSL provider will offer bare-bones access to AOL subscribers at a discounted price. AOL currently has 3 million members using broadband.

AOL has actively marketed its broadband offerings for some time, focusing mostly on the content assets — music and video made available through the Time Warner family — that take advantage of broadband. In December of 2002, AOL executives touted AOL 9.0 to analysts as a unique, broadband-focused service filled with original content.

The company has also been aggressive in creating and offering exclusive broadband-oriented content, such as the Dave Matthews Band concert to launch AOL 9.0, special pre-Grammy award entertainment, and music videos from a number of artists.

The Road Runner partnership takes advantage of this content by employing a “sampling” strategy, which AOL seems to be emphasizing lately. Under the agreement, the company said, “a sampling of original and exclusive programming” previously only available on AOL for Broadband will be made available to Road Runner subscribers. An aggregated “AOL Channel” will also be available from the Road Runner homepage.

This jibes with comments made by Jim Bankoff, AOL’s executive VP for programming, earlier this month, discussing the movement of AOL content to HTML from its proprietary Rainman format. Bankoff said the ability to deliver content to AOL non-members would be deployed largely as a prospecting tool.

In the past, AOL has adhered to a “walled garden” approach, offering strictly members-only content.

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