AOL surges ahead with marriage of TV and internet

The international media giant's chief executive, Jonathan Miller, says the company's latest products - including an online treasure hunt show - herald an 'explosion' in net-based viewing

The internet giant has faced problems during the past few years - moving uncomfortably from a dial-up economy to a broadband one -but Miller believes it is now sitting pretty.

After being shut out of the broadband market in the US it recently struck a deal with four major telecommunications companies to offer high-speed connectivity. This, it hopes, will stem the loss of subscribers from traditional AOL dial-up accounts to the broadband services offered by phone and cable companies that have been the main cause of a 6 million-subscriber drop during the past three years.

Despite the fall, AOL has around 20 million subscribers and advertising revenues predicted by Merrill Lynch of around $1.8bn (£10bn) in 2006. In "television" terms, that's an audience and inventory worth having.

In March AOL launched In2TV, a joint venture with its sister Time Warner company that Warner Bros designed to put its back catalogue online. AOL is also developing other on-demand services that feature video, and has commissioned content from Mark Burnett Productions (run by the British-born producer who made Survivor and the US version of The Apprentice) and Katalyst Films (creator of Punk'd and Beauty and the Geek), with an investment fund for "premium content" to launch in the UK this month.

Besides full episodes, it has created interactive content packages for In2TV that borrow from its shows' noteworthy episodes. A compilation entitled "Starplay" features clips of stars in episodes of In2TV's series before they were better known. AOL has included quizzes, puzzles and polls tied to each show. While In2TV advertisers are primarily running 15-and 30-second video ads during shows, they are also able to sponsor much of the complementary content.

Industry watchers have questioned launching In2TV with mainly older fare, but the company says the additional packaging each show gets should help In2TV appeal to a younger, web-savvy audience.

Underpinning these developments is Miller's (and Time Warner's) belief that the world is close, once again, to an internet-delivered media Nirvana.

Speaking in Cannes last week at MipTV, Miller warned Europe's media business that internet protocol television (IPTV), harnessing the power of video search, will displace prime-time TV within the next few years, heralding the end of television viewing as we know it.

"video consumption online is exploding," said Miller. "In the US, video streams were up more than 40 per cent last year, and in Europe, 61 per cent use their computers to watch videos. Until now, lack of broadband and poor search held back online video."

Miller cited the fact that in a recent survey nearly 60 per cent of those who watched online videos found them by accident, but that search engines are changing that. "We recently acquired Truveo, which with Singingfish, gives users access to nearly 4 million indexed videos - free," he said. "Video search will put increasing pressure on traditional networks."

Miller said internet video would deliver a devastating broadside to traditional television. "ITunes sold more than 12 million videos in less than four months," he said. "And we know from television that ad-supported is the fastest way to build a new medium. In-stream video advertising is poised for rapid growth. The TV ad business in the US is a $60bn industry, and those advertisers are increasingly looking to the internet. Streaming ads are projected to more than double between now and 2009, and in-stream ads are now getting television-like CPMs [cost per thousand viewers]."

Showcasing his own company's In2TV launch last month as an example of how the internet will create a new style of media, Miller said: "This isn't just about watching TV on your computer. We're creating interactive, engaging entertainment experiences. Instant messaging, e-mail, online chats. And we're going to build more social networking."

Looking forward to predict what the "television' business might look like 10 years from now, he suggested major changes would come into play. "The audience will be value creators, not only value exploiters," he said. "No one will wait for the watercooler any more."

Heralding the emergence of more "peer-to-peer" networks he added: "Your friends are the network. There will be more consumption in less time, and standard programme lengths have less meaning," he said. "In this environment prime-time is my-time and for advertisers prime-time is all the time."

He told The Independent prior to his speech: "So-called IP [internet protocol] distribution of media is coming of age. The fact it is happening now is a combination of people having bandwidth and devices to view through, and of the industry also understanding it is time."

The AOL CEO cited broad-based trends that anticipate the arrival of a new form of media and entertainment consumption. "We are at the starting point in what is an explosion," he said.

Many in television fear the implications of players such as AOL, Yahoo! or Microsoft becoming channels in their own right. And with good reason. In Cannes, AOL announced details of a new show created for the internet by Mark Burnett. Gold Rush!, a real-life treasure hunt show will air on AOL's website and issue clues throughout the AOL network, then track participants.

AOL is likely to trial many new types of content as it bids to create new media usage patterns. "Our focus is how do we marry what we think we do really well with what television people have shown they do great," said Miller.