CompuServe/AOL deal could hike rates

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Last week's proposed deal that would leave America Online controlling CompuServe Online Services still faces approval from the Justice Department's antitrust department, European Commission and share-holders. But most analysts and Web media buyers are cautiously praising the news.

"I think it's a win-win situation for everyone involved," said Peter Krasilovsky, VP-analyst, Arlen Communications.


"It changes the landscape," said Ed Gorman, associate media director at DDB Needham Worldwide, New York. With nearly 11 million subscribers, AOL "will be one of the largest entities out there. They're not only going to deliver community, but they're going to deliver it in mass, which their competitors are lacking."

Mr. Gorman said he had a proposal for Digital Equipment Corp. into AOL before the deal was announced. "It'll be interesting to see if it changes because the service has increased in size," he added.

AOL acquired CompuServe with its 2.6 million subscribers from long distance company WorldCom, bringing AOL's total subscriber base to almost 11 million, almost four times as many subscribers as its closest competitor, the Microsoft Network.

In exchange for CompuServe, AOL is exiting the technology business by selling its Internet backbone subsidiary ANS Communications to WorldCom for $175 million.


"I think AOL should focus on content and not on connectivity," said Paul Ahern, general manager, Interactive Communications Group at DDB Needham, referring to AOL's network troubles over the last year. "The two cultures are as distant as AT&T developing cable programming."

However, the fear when any two competing networks merge, is that "competitive pricing goes out the door," said Craig Gugel, VP-chief research and media services officer at Organic Online.

"We hope AOL will show good faith and remain negotiable in selling the two networks," Mr. Gugel said.

A larger audience will give AOL more leveraging power for ad and commerce initiatives. In light of this, Mark Mooradian, group director of consumer content at Jupiter Communications, predicts that AOL will "absolutely" raise its ad rates. "You're reaching more people and pulling from a larger pool," he said, noting that over 50 percent of consumer users now access the Internet through AOL.

An AOL spokesperson replied: "it's premature to discuss raising ad rates" and that it had no plans to do so in the immediate future.

Exactly how AOL will position the two networks is unclear. So far it has said it will keep CompuServe and AOL separate, focusing CompuServe on business content, while AOL will remain a family and entertainment content provider. AOL's service is priced at $19.95 a month, while Compuserve is $24.95.


CompuServe also offers a more expensive premium service with its forums, and Mr. Krasilovsky, among others, speculates AOL might try to migrate its users to a premium business service on CompuServe as a way of differentiating the two networks.

"If [AOL] assured consumers better service, a higher percentage would probably make a switch," he said, adding the only caveat might be people who are reluctant to change their e-mail addresses.

If AOL positions itself as a premium service, Mr. Krasilovsky said he doubts anti-trust charges would hold sway. "I think they're trying to establish themselves as value-added providers instead of undercutting everyone else."

Copyright September 1997, Crain Communications Inc.

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