The New York Times The New York Times Technology October 28, 2002  

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  Welcome, malak

A TV House Divided

By DAVID D. KIRKPATRICK

The future of television has finally arrived — really. Now begins the haggling over who gets control, and negotiations with the highest stakes are taking place inside AOL Time Warner.

Under fierce competition from satellite services, the Time Warner cable division is racing to sell new features that give viewers more control over what and when they watch. Its new digital services can let subscribers order any of an array of films and network programs whenever they want and even turn set-top boxes into personal digital video recorders that make it easy for viewers to fast-forward through commercials.

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Time Warner had begun offering the services in a number of cities the last several months, and this fall it is making movies and some network programs available on demand in New York, its biggest market.

But as Time Warner Cable promotes the services — especially the one that can skip commercials — its plans are colliding with the interests of networks and studios, which own the rights to the most popular shows. Both live off programming schedules and advertising sales. At many, including AOL Time Warner's own Turner Broadcasting and Warner Brothers divisions, executives consider the idea of skipping the commercials to be a threat.

The negotiations among divisions of AOL Time Warner are part of the early rounds of a broader contest over television that is unfolding as satellite and cable companies haggle with networks and studios. The satellite and cable companies say they are giving viewers what they want, but networks and studios sometimes feel they are being robbed.

AOL Time Warner is moving faster than any other cable company. As one of the largest companies on all sides of the business — in cable systems, television production and operating networks — it is situated to reconcile the competing interests. How it fares at selling the digital services could influence the shape of the industry. The company has already shown it can use its power to change Hollywood, when Warner single-handedly brought down prices to jump start sales of DVD's.

But AOL Time Warner's efforts are also a test of the premise behind its conglomeration of many different businesses. In a recent speech defending the company's potential, the chairman, Stephen M. Case, called new "personal television" services a crucial example of "cross-divisional innovation" already under way. "No company is better positioned to drive, and benefit from, personal television," Mr. Case said. Making it work could demonstrate the company's ability to foster cooperation among its largely autonomous and sometimes antagonistic divisions.

The strong feelings at AOL Time Warner's networks and studios have already influenced the company's progress. Six months ago, company executives said Time Warner Cable's chief executive, Glenn A. Britt, discussed the feasibility of a 30-second fast-forward button as part of its video-recorder services. But executives from Warner television studios and Turner Broadcasting argued against it, some calling it "the 30-second ad-skip button." Mr. Britt decided to drop it, people in the meetings said.

"I was delighted," Jamie Kellner, chief executive of Turner Broadcasting, said. (A spokesman for Mr. Britt said he never seriously considered a specific button for skipping commercials, noting that Time Warner Cable also sells advertising.)

In an interview last week, Richard D. Parsons, AOL Time Warner's chief executive, said he was confident the company's divisions could come together.

"We should be able to steal the march on the rest of the industry because we have all the pieces inside," he said. "All of our guys know that where we are going to find growth in this business is by finding ways to deliver the stuff that we have created to an expanded audience."

Still, Mr. Parsons said, persuading the divisions to work together is only part of the challenge. "If this doesn't work, it will be because neither we nor anybody else has found the right business model that works for the consumer," he said.

A major uncertainty hanging over the debate is that no one knows exactly what people will want from their televisions and how much they will pay for it. Some broadcast executives argue that people watch to relax: many viewers prefer to sit passively in front of whatever happens to on — even the commercials — just as many people do not bother to hit the mute button or channel-surf through commercials.

Continued
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Market Place; AOL's chairman takes a few moments to define his role and to calm jittery investors.  (October 2, 2002)  $

THE MEDIA BUSINESS; 2 Key Figures Try to Ally in Tense New AOL Time Warner  (July 24, 2002)  $

SHAKE-UP AT AOL: THE OVERVIEW; Shift at AOL Puts Time Warner at Helm  (July 19, 2002)  $

CHANGING THE GUARD: THE OVERVIEW; AOL TIME WARNER GETS A NEW CHIEF AS LEVIN DEPARTS  (December 6, 2001)  $



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Michael Nagle for The New York Times
Betting on "personal television," AOL is offering movies and shows on demand. But that may endanger its networks' advertising revenues.










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