AOLTV Faces a Long Road to Anywhere - TheStreet

America Online (AOL) is fighting hard to bring the Internet to television. But judging from the earliest adopters of AOL's new TV-based service, the battle won't be quickly won.

AOLTV is a centerpiece of the online service's "AOL Anywhere" strategy -- the attempt to expand the AOL experience beyond the desktop computer to telephones, palmtop computers and other devices. It's a point of contention in the regulatory approval of AOL's planned acquisition of media giant

Time Warner

(TWX)

, prompting fellow media giant

Disney

(DIS) - Get Report

to complain that the merger will unfairly freeze it out of the nascent interactive television market.

But if you ask the everyday users who have actually gone and bought a

Philips

brand AOLTV box -- the first piece of hardware out on the market for bringing the AOL experience to TV -- you don't get a sense that interactive TV will storm the world. Instead, you get the idea that it's like any other new product on the market: It's an uphill climb.

Modesty

Interactive television, despite its checkered history and minimal revenues, will be a major commercial opportunity in the future, say AOL and others. Eventually, the AOLTV interactive TV service could reap $650 million in annual revenue and contribute 11 cents per share to AOL's pretax earnings, according to

Merrill Lynch

Internet analyst Henry Blodget.

Sliding
AOL shares are sharply lower.

That said, AOL isn't claiming the AOLTV service will be a PC-killer. Rather than moving all their Internet usage to the living room TV, says AOL, people will use AOLTV as a souped-up television programming guide, as a vehicle for chatting, instant messaging and email, and a way to quickly check news, weather or sports results. A set-top box, which connects to AOL via a conventional telephone modem, costs about $250; the service is $14.95 a month for people already subscribing to the conventional AOL service, or $24.95 a month to nonsubscribers. Blodget forecasts slow initial acceptance of AOLTV, estimating 100,000 to 200,000 unit sales in the service's first year.

But even given its limited mission, AOLTV appears to be having mixed results in its appeal to consumers.

The Setup

One dissatisfied customer is Roger Trevino, a shipping/receiving manager living in central Florida. A former subscriber to WebTV,

Microsoft's

(MSFT) - Get Report

Internet-over-the-TV service, Trevino has been an AOL subscriber since 1998, when he and his wife, Brandi, bought a computer for their home. Trevino, who bought his AOLTV unit only in early October, is already returning it.

Trevino has a variety of complaints about AOLTV, starting with installation. In one of the several ways he says it compares badly to his two-year-old memory of WebTV, he says it took a couple of hours to set up the electronic television program guide integrated into AOLTV.

Another problematic area was email. Though the AOLTV box -- sold with a wireless, remote-control laptop keyboard -- makes it easy to check mail and send it, Trevino said it bothered him that AOLTV doesn't have an email address book. (AOL says the address book is one of the highest-priority features it's adding to the service.) Deleting multiple emails on WebTV is easy, Trevino says; when his wife had to get rid of hundreds of emails from her AOLTV mailbox, however, she had to delete each message individually, then confirm each deletion. "You do that 250 times, you're punching 500 entries," Trevino says. "That's pretty irritating."

Chatting

John Cincy Lostetter, a carpenter in Downey, Calif., is generally happy with his AOLTV unit, though he has his own set of difficulties with the service.

Lostetter says the TV program guide is "great," but what he mostly uses AOLTV for is chat and email. Chat is fine in AOL chat rooms, he says; email is OK, too, though it's difficult to visit Web addresses that friends send him in emails -- something that's easy to do with his AOL email. It's also extremely awkward, he says, to participate in a communal chat while he exchanges one-on-one instant messages with a friend.

As for surfing the Web -- something that conventional AOL users, according to company stats, do relatively infrequently -- Lostetter says he frequently has problems with pages that don't load, especially ones with a lot of pictures on them.

Possession

Todd Wright, a makeup artist in Richmond, Va., says he doesn't have problems visiting picture-intensive Web pages using AOLTV, but he is disappointed he can't send or receive photos in email, as he could on AOL. But the strangest problem he's had with his AOLTV box is that it will sometimes dial into the service by itself, even if he's nowhere near the remote control -- or even in the house at the time. "It's like it's possessed," he says.

Wright says he hasn't called AOLTV customer service about this problem, but when he has in the past, AOL has been "extremely helpful and very courteous." But, he says, "I think they put out a product before it had been tested and before all the bugs had been worked out."

Tottering Tivo
Tracking an interactive TV play

David Kane, a college freshman living in Foster City, Calif., is generally positive about his AOLTV service, which he got earlier this month. He says he finds his connection to be reasonably fast for a dial-up telephone connection, and he finds the instant messaging feature and the companion buddy list of online friends to be "pretty cool." He likes the program guide, too, though after several attempts he hasn't been able to get the unit to control his VCR for one-touch recording -- something that will probably be easier to do when, as scheduled, a box combining AOLTV with a digital video recorder from

TiVo

(TIVO) - Get Report

goes on sale in early 2001.

Another cool feature, says Kane, allows people, while they're watching TV, to jump to special AOLTV-based chat rooms affiliated with a particular show. So if he's watching the sitcom

Friends

, he can simultaneously type away in a chat room with other people watching the soap. "That's pretty neat," Kane says. But problem is, he says, each time he jumps to one of those rooms, he's the only one there. "I don't think there are many people signed up," he says.

Staking a Claim

AOL launched AOLTV in eight test markets in August, and went national in late September. AOL didn't respond to questions about unit sales. A spokesman for

Circuit City

(CC) - Get Report

, which carries AOLTV at its superstores nationwide, wouldn't disclose sales figures.

Catherine Skelly, an analyst at

Gruntal

who follows interactive TV (but not AOL), says she thinks AOL's service is currently priced too high for wide acceptance. But, she says, she believes that AOL has to launch AOLTV to claim its territory in interactive TV. "I think interactive television will be a huge platform," she says.

Carlos Silva, the AOL executive in charge of the design and day-to-day production of the AOLTV service, says users don't appear to have had remarkable problems getting the service up and running. "The amount of calls for installations have been lower than we've expected," he says.

The greatest number of customer service problems, Silva says, relate to "unplugging everything and plugging it back in" -- not a big surprise, he says, given the difficulties people already have with connecting cable boxes and VCRs to their television sets. "If I ask my mom to do that, that's a little scary," he says.

Over time, these problems will likely diminish, as the AOLTV service migrates from its home in a stand-alone set-top box to coming preinstalled on other devices, such as a

DirecTV

satellite receiver due out around the end of the year, the TiVo recorder due in 2001, and advanced cable boxes expected in 2001 and 2002. But, Silva acknowledges, the stand-alone box isn't going away soon.

As for AOLTV getting past early difficulties -- that's an open question.