AOL, Britain’s NTL in Partnership Talks

NTL Inc., Britain’s biggest cable operator, said Monday that it was in early-stage talks with AOL Time Warner Inc., the world’s biggest media company, about a possible partnership in Europe.

NTL said a deal was not imminent, but industry sources said an alliance could see Britain-based NTL offer its European broadband network in return for prize content from AOL Time Warner’s interests, which span film, music and television.

“It is true that we are in the early stage of talks with AOL about some potential joint activity, [but] apart from an outline term sheet [agenda], nothing has been agreed at this stage and we have nothing to announce,” an NTL spokesman said.

NTL shares jumped $1.95, or 7%, to close at $29.09, and AOL shares rose 51 cents to close at $50.50, both on the New York Stock Exchange.

AOL Time Warner, created from the merger of America Online and Time Warner in the world’s second-biggest takeover, has been looking to spread its wings in Europe as part of efforts to raise its international revenue.

“We’re talking to everyone in the market on broadband, including NTL, but there are no announcements to make,” an AOL Europe spokesman said.

Analysts showed little surprise that AOL Time Warner was exploring possible links with NTL, having set itself a target of boosting its overseas revenue to 50% of total revenue over the next 10 years from a current 17%.

“It would make sense for AOL Time Warner to speak to all the cable operators,” said Paul Sullivan, analyst at Merrill Lynch. “It’s very difficult to say at this stage whether an alliance would be good for NTL as it depends on issues such as customer ownership, revenue share agreements and exclusivity.”

A “primary element of AOL Time Warner’s international strategy, which has worked well, is to partner with strong local players,” said Henry Blodget, Internet analyst at Merrill Lynch.

NTL has 8.5 million subscribers across Britain, Ireland, France, Switzerland and Germany, but the group has been plagued by concerns over recouping heavy infrastructure investment.

If a deal is done, analysts said AOL Time Warner might follow its tradition of taking a stake in its new partner. In the case of NTL, that would mean joining shareholders such as France Telecom and Microsoft Corp.