The Future Is Now

Who needs AOL? Time Warner is already the media company of tomorrow.

AOL Time Warner’s board will meet tomorrow morning to vote AOL off the island: The company plans to return to its original pre-merger name, Time Warner. Many will gloat over this turn of events. Long accused of being a fuddy-duddy media company that just doesn’t get “it” (“it” being the whole media convergence thing), Time Warner will be pilloried in some quarters for its failure to manage its merger with AOL. But while the merger has been less than a glittering success, the name change isn’t a sign that Time Warner has failed in its promise to become the media company of tomorrow.

Far from it. Unlike any of its big media rivals, such as ABC/Disney, News Corp, NBC/GE, and CBS/Viacom, Time Warner already resembles what the (successful) media future will look like. AOL’s impending demise—that doomed division, clinging to an aging network of dial-up modems, is about to become yet another case study on how technology leaders of one era rarely become leaders of the next—frees Time Warner’s other divisions, most notably Time Warner Cable, to keep pioneering the future of media and the Internet.

The latest example of how the company has hurtled ahead of its competitors is its deployment of DVRs, digital video recorders like TiVo. On Sept. 1, with little fanfare or publicity, Time Warner Cable started delivering a new kind of cable box to Manhattan residents. Known as the Explorer 8000, the box gives Time Warner customers the ability to skip commercials, pause live television, and seamlessly record hours of TV. For less than $10 a month, Manhattanites can now have their own DVR, without the need to buy an expensive TiVo or ReplayTV box.

The Manhattan rollout is the most recent move in 14 months of stealth distribution of the Explorer 8000. The first cable market to be offered these new DVRs was in Rochester, N.Y., in July 2002. Since then, Time Warner Cable has quietly made the service available to 9.3 million households—about 9 percent of the homes in America—and 150,000 of them have signed up. This mirrors the process Time Warner used to deploy its Road Runner broadband Internet service: Start out discreetly, with no visible promotion, build by word of mouth, and then launch a nearly ubiquitous nationwide campaign. Along the way, Road Runner became one of the largest providers of Internet broadband in the country at 2.9 million households. Time Warner admits to using its Road Runner strategy as its road map to promote its DVRs, with one additional wrinkle: The company is considering making the Explorer 8000’s technology a standard feature embedded in every cable box, so that customers could turn it on and pay for it without ordering a new box.

It’s fitting that Time Warner is leading the charge in the ubiquitous deployment of DVRs, as it, of all large media companies, has the most to gain, and the least to lose, from the technology. Time Warner’s major competitors—companies like ABC/Disney, News Corp, NBC/GE, and CBS/ Viacom—derive far more revenue from traditional broadcast television (and therefore from advertising) than Time Warner does. (The majority of TiVo users—the control group for how DVRs will change TV viewing habits—don’t watch the commercials in the shows they’ve recorded.)

Time Warner doesn’t own a broadcast network, unless you count the WB. The conglomerate’s leading ad-supported TV franchise is CNN, which, as a news network, is fairly immune to the record-and-watch-later phenomenon. Meanwhile, Time Warner owns a series of very successful premium cable TV franchises, most notably HBO and Cinemax. Being able to record The Sopranos and watch it later means that more HBO subscribers will be watching the channel they pay money for, which makes it more likely that they’ll renew their subscription. Time Warner is increasingly a company built on the economics of selling access to digital media: Whether it’s cable television, high-speed Internet, or premium television, the company’s most lucrative businesses involve selling subscriptions, not commercials.

It’s been argued that Time Warner, rife with internal rivalries, stymied AOL by discouraging it from innovating. But AOL’s internal competitors at Time Warner Cable kept innovating at a rapid clip, as the success of Road Runner (which has also launched a broadband wireless service, embedded within cable boxes for less than $50 a month) demonstrates. If that side could do it, why couldn’t AOL? Fortunately for Time Warner, the question is largely academic. Convergence has happened. The future is here. And increasingly it looks like Time Warner.