NTL and AOL Time Warner are reportedly considering a content alliance.
AOL Time Warner and European cable operator NTL have confirmed they are in talks about an alliance. AOL would provide content for NTL to distribute to its 8.5 million subscribers in the UK, Germany, France, Ireland, Switzerland and Sweden.
So far, NTL has concentrated on traditional TV services, using programming licensed from other operators. But as the focus switches to interactive TV and broadband Internet, more innovative content will be required to attract and retain subscribers. AOL would be a good choice of partner. As well as having a huge array of multimedia content and the world’s largest ISP, AOL is also one of the US’ largest and most advanced cable companies, with 13 million subscribers including two million digital customers.
It also looks like a sensible move for AOL. Just 17% of revenues are currently sourced from outside the US; moving abroad is essential to maintain growth. A deal with NTL would substantially increase AOL’s European presence – the ISP currently has just six million subscribers in the continent.
NTL shareholders are likely to be disappointed that the rumored deal does not involve AOL taking an equity stake, which would ease the European firm’s finances. Even though GE Capital last week agreed to invest an extra $288 million in NTL, HSBC has just rated it as ‘not viable’ due to its huge debts.
But although NTL owes $15 billion, HSBC’s pessimism may be misplaced. The debt paid for infrastructure and acquisitions; most telecoms companies are also hugely in debt. The question is whether the investments will pay off. They may well. Cable is the best platform for interactive TV because of its high bandwidth return path, and NTL can also benefit from bundling telephone, TV and Internet services together.
AOL, meanwhile, is likely to negotiate similar deals with other cable and DSL operators across Europe – although the limited bandwidth of current ADSL offerings will make multimedia delivery a problem.
