To Keep Pace, Microsoft Will Need New Content Partners, Experts Say
The proposed merger between America Online and Time Warner will force software giant Microsoft Corp. to search for bigger content partners in order to keep pace with the soon-to-be world’s largest media and online services conglomerate, industry experts said Monday.
But that effort is likely to continue to take the form of joint ventures, investments and partnerships, rather than acquisitions.
‘It appears they do need to develop relationships with highly visible entertainment content providers,’ said Frederic Dickson, a financial analyst for Branch, Cabell. ‘The Internet service providers are looking at a reordered universe and will need to strengthen their entertainment content to compete.’
A senior Microsoft executive on Monday downplayed the chances of a buying binge, or a spinoff of Web portal MSN.com, saying the company’s strategy is different that of AOL and Time Warner.
‘AOL is really out to promote its own content,’ said Yusuf Mehdi, MSN’s marketing director. ‘We want to help consumers do something with the content, such as paying bills more efficiently or shopping more effectively around the Web.’
Some potential content partners would include entertainment and electronics giant Sony Corp. and Excite@Home.com, which provides Internet access through cable modems.
In the past, content companies have been leery of partnering with Microsoft because they have been uncertain about the company’s ultimate agenda.
The software giant has made several attempts to create content, with mixed results. It started the online magazine Slate; it formed a joint venture with NBC to create the online MSNBC news site; it created Expedia.com, a travel site it recently spun off; and it created Sidewalk.com, a local community listings service it sold to Ticketmaster.
‘Companies have been uncertain whether Microsoft was planning to make a big move into the content business,’ said Dwight Davis, an industry analyst for Summit Strategies. ‘Now, it may make Microsoft a more attractive partner in the aftermath of the Time Warner-AOL deal. I would guess there would be more content providers knocking on Microsoft’s door.’
Mehdi said that two of Microsoft’s biggest partnerships, with phone giant AT&T; and cable heavyweight Comcast, as well as other broadband-access companies, will keep it competitive with AOL.
Microsoft in May invested $5 billion in AT&T; to launch with the Windows CE operating system as many as 120 million cable set-top boxes that the phone giant plans to install in its cable network. Two years ago, Microsoft sank $1 billion into cable operator Comcast.
‘We’ve been on a path to provide broadband access to subscribers for some time,’ Mehdi said. ‘We’ve been after it in a big way and that’s not going to change. What becomes interesting is not the connection, but what can you do once you are connected. That’s how we’ll differentiate from AOL.’
While industry experts generally agree with that assessment, they note that the AOL-Time Warner deal will redefine the Internet landscape.
And Microsoft is going to need to find a big partner to keep pace. AOL currently has 20 million subscribers, compared with 2.5 million for MSN.
Meanwhile, Microsoft will focus on selling software and services rather than owning content, Mehdi said.
The company is providing software to such partners as Ford Motor Co. to sell autos online through CarPoint, MSN’s car-buying service. Microsoft has built a stronger Internet search engine and it has made electronic shopping easier with better transaction software.
What the AOL-Time Warner combination does give Microsoft is legal ammunition in its antitrust case.
After a lengthy trial, U.S. District Judge Thomas Penfield Jackson ruled Nov. 5 that Microsoft had used a monopoly in Windows software to harm consumers, competitors and stifle innovation. Since the ruling, both sides have been exploring possible settlements.
Microsoft officials say the deal announced Monday illustrates the point they’ve been making all along: that the computer and Internet industries are dynamic and fiercely competitive.
‘It would be hard for the judge to ignore something of this magnitude when considering remedies to impose on Microsoft,’ Davis said. ‘I’m sure Microsoft has factored that into its negotiations as another overwhelming example of competition that it faces in the online portion of its business.’
