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It's Subscriptions, Stupid!

If you want to sum up the new AOL Time Warner media company in a single word, CEO Gerald Levin suggests that word is: SUBSCRIPTIONS.

"Essentially, the guts of the company evolves around 130 million subscriptions," said Levin. "They happen to be AOL subscriptions, cable subscriptions, magazine subscriptions. Merging the companies was essentially upgrading the subscription model."

Subscriptions are good media business, Levin contends, because if you deliver value to the customer, he or she will stay with you regardless of the economic climate. Unlike advertising, these regular paying customers make you less susceptible to the slings and arrows of the general economy. Subscriptions also offer pricing flexibility, because a media company can charge more as new premium services are added.

Subscriptions was the mantra at the recent Big Picture media conference in New York City sponsored by Salomon Smith Barney and Broadcasting & Cable magazine. The S-word had a nice ring to investors stung by the failure of too many advertising-dependent "dot-gones" (a phrase used by Viacom president Mel Karmazin).

Perhaps one of the reasons the media executives – including the heads of broadcast television networks – were so openly cool to over-the-air digital TV is they no longer believe the ad-only business model will work in a multichannel subscription video environment.


In fact, Steve Case, AOL Time Warner's chairman pretty much writes off the future of traditional commercial television. He challenges the conventional wisdom that it's the Internet that's giving television broadcasters a run for the money. The tube, the AOL founder says, sorely needs an upgrade for a new era.

"We see an opportunity to reinvent the way people get information, how they communicate, how they are entertained, how they buy products and services, how they are educated," says Case.

The goal at AOL Time Warner, he adds, is to "blur the lines between the television set, the PC, the stereo and the telephone. The Internet is the melting pot ... the underlying platform that's the driving force. The Internet is moving us toward more interactivity, more personalization across all these devices. The real opportunity is to reinvent television again ... to create a more engaging interactive television experience."

Not one among the media visionaries at the Big Picture conference suggested that television's future is connected to terrestrial DTV. Though the digital transition may still be on the front burner as far as the FCC and station owners are concerned, the conference panelists addressed the issue only when pressed. It's clear they consider it irrelevant to their business future.

On the other hand, there was significant interest in new business models for broadcast stations, especially when ownership rules are changed. If the FCC allows newspapers to own television stations (which most expect to happen very soon), the new broadcast/print hybrids have an opportunity to morph into a new kind of local information franchise – one that, ironically, could allow the newspaper subscription/ad model to migrate to new media.

The thinking goes that when the network/affiliate relationship eventually ends (perhaps sooner than many think), the networks will take their premium first-run programs directly to pay television. Local stations – left with second-tier national content and no future assurance of digital must-carry – will have to create distinctive local content in order to remain competitive in their home markets.


This is where newspapers come in. Combining print, television, radio and the Internet into a single local news/information operation would allow stations to become powerful local information "brands" that would be courted – not shunned – by pay television services.

There's an excellent chance the FCC will lift the 1975 regulation that now restricts a company from owning both a television station and a newspaper in the same market. At a recent soiree with reporters, FCC chairman Michael Powell called the print-broadcast ownership prohibition "a hard sell" that might no longer be justified. "I don't know why there's something inherent about a newspaper and something inherent about a broadcaster than means they can't be combined," Powell said.

The downside of this new media paradigm is a further reduction in the diversity of local news. In some areas, a single newsroom may eventually serve up the information for a town's newspaper, TV and radio stations and local Web pages.

"These rules have been vital," said Andrew Jay Schwartzman, president of the Media Access Project, a nonpartisan group dedicated to promoting diversity among news and information organizations.

"They assure that the American public has access to news, information and programming reflecting many different perspectives and many tastes," he said in an interview with the New York Times. "The erosion of these rules portends a troubling sameness and enables a cartelization in which a handful of owners with increasingly common interests have the ability to shape public tastes, and less likelihood that one will be off the reservation."

Frank Beacham is an independent writer based in New York.