MSN, AOL Trade Shots in Interactive TV War

Taking the battle for dominance in the slow-growing interactive television market to the next level, the Microsoft Network (MSN) announced that it is offering free WebTV to subscribers just as America Online (AOL) is rolling out its own service in several more test markets.

Microsoft said that for the remainder of the month, all new subscribers to MSN will receive the $199 (US$) set-top box and $49 keyboard. The MSN service then serves as the Internet connection for the interactive TV service.

Meanwhile, AOL is using a television advertising blitz to pave the way for the debut of AOLTV in a second round of test markets. AOLTV was initially rolled out earlier this year in Baltimore, Maryland; Phoenix, Arizona; and Sacramento, California.

AOL is aiming at eight medium-sized U.S. cities, including Hampton, Virginia. The service is slated for a nationwide launch later this fall.

Long-Term Impact

Both companies are pushing for short-term gains in subscriber rolls that will pay long-term benefits as the Internet and television converge. AOL is still awaiting regulatory approval of its takeover of entertainment giant Time Warner, a move that would free up first-run movies, television shows and news networks such as CNN for use across the AOL network.

Microsoft, meanwhile, inked a deal just last week to begin offering prime-time CBS programming to its WebTV service. Microsoft already has a news and information deal with NBC, and the two combined for the MSNBC network.

Slow To Grow

Despite the presence of the online giants, interactive TV has experienced slow growth. While some analysts doubt that consumers want to combine television-viewing with Web surfing, others say the price barriers are preventing the services from taking off.

WebTV has been unable to break through the one-million subscriber level for some time.

Meanwhile, as it inches toward a nationwide launch, AOLTV has been the focus of several U.S. Congressional hearings, with some lawmakers expressing concern that the pending combination of the number one online service provider and one of the largest entertainment networks will stifle competition in the space.

Interactive TV combines television viewing with Web surfing, allowing viewers to interact by providing additional information about a show, e-mailing or chatting while watching TV and even buying products directly through their TV sets.

Tech Growth Ahead

Josh Bernoff, an analyst at Forrester Research, told the E-Commerce Times that forthcoming technological advances rather than low costs are what will advance interactive TV.

“Television will get a whole lot smarter,” said Bernoff. He added that the advent of digital recording services like TiVo, in which AOL has invested, and the widespread adoption of digital TV will pave the way for more interaction.

While Bernoff said that subscriptions to both AOLTV and WebTV are unlikely to skyrocket any time soon, Forrester estimates that the subscription market alone will be worth $7 billion annually by 2005.