America Online Inc continued to build out its broadband internet strategy yesterday with the announcement that it has invested $1.5bn in Hughes Electronics to help it develop satellite-based television and internet services. Under the terms of the deal, AOL will receive a General Motors (which owns Hughes) equity stake, which will pay 6.25% annually and which will be convertible into GM Class H common stock in three years.
Specifically, the money will go some way towards helping Hughes Network Services (HNS), a division of Hughes Electronics, co- develop, with AOL, a set-top box to deliver the online service provider’s AOL TV offering. Under an announcement made last month, AOL said it would partner with HNS to deliver its AOL TV service. The offering, which is due for launch in mid-2000, will combine Hughes’ DirecTV satellite service with proprietary AOL web content. The aim is to enable viewers accessing one of the 200 channels available via Hughes’ satellite TV service, to gain access to web content on screen at the same time. As well as data about programs being displayed along the bottom of the screen, like a ticker tape, users will also be able to send instant messages to each other while watching the same program or click on certain icons to learn more about characters on screen or upcoming programs, or to purchase products and so on. As well as getting Hughes on board, Philips Electronics has also agreed to produce an AOL TV-enabled set-top, based on a reference design from Boca Research Inc.
The Philips boxes will use the MediaGX processors from National Semiconductor Corp’s Cyrix unit – one of the few parts of Cyrix that NatSemi has retained. Finally, Network Computer Inc (NCI) will provide AOL with the software for the Philips and Hughes set-tops and its Connect Server will manage the services on AOL TV.
Also under yesterday’s announcement, AOL said its high-speed internet service, called AOL Plus, will be available over Hughes’ DirecPC satellite network- by which Hughes delivers satellite web access to PCs – early next year. The new service, which will be launched by the end of 1999, will be branded AOL Plus via DirecPC. Yesterday’s investment is part of AOL’s overall push to build out its broadband digital TV and internet services in a bid to compete with new interactive services being offered by cable- based providers, headed by AT&T Corp.
Fritz Stolzenbach, a spokesperson for HNS, said some of AOL’s investment would be earmarked for equipment subsidies. Without that commitment, the price of the set-top box would probably be considerably higher, he said. But now we can take some of that money and use it to offset the cost of the box and pass the difference on to our customers in terms of reduced prices. He added that the rest of the money would go towards joint marketing initiatives, through Hughes’ retail partners and AOL’s online services, for the entire family of Hughes satellite products and services. That amounts to 16 million AOL subscribers in the US and more than seven million existing Hughes DirecTV customers, the companies said.
In a related announcement, HNS said yesterday it will use Intel Corp’s Pentium MMX chips inside the set-top box it’s developing for AOL and also in new products for the foreseeable future. But rather than just supply Hughes with chips, Marta Hasler, strategic marketing director for Intel’s home products group, said the two companies will also work together to develop and implement next-generation set-top box standards in future products. Chief among them is the ATVEF (Advanced Television Enhancement Forum) standard, which will enable service providers and broadcasters, among other things, to integrate TV and web content on the same screen, like AOL’s forthcoming service described above.
Hughes’ Stolzenbach said the two announcements, with AOL and Intel, mean that HNS has now established itself as a global leader in set-top box platform development and delivery. Intel, he said, is the biggest name and the mos
t prominent provider of processor chips today and AOL is the number one brand in online information delivery and entertainment.
