EXcite Rising - Company Business and Marketing - Interview

Under attack from open access advocates and working through business shifts of its cable MSO masters has left Excite@Home reeling over the past year. But new president/CEO George Bell's got a clear vision that includes worldwide expansion, retooling Excite content for broadband and preparing for a post-cable exclusively world, as evidenced in this interview with Cable World's editorial director Matt Stump.

CW: You're in the middle of a cable vs. DSL modem horse race. How does this handicap Excite@Home's future?

Although we came to life as a stepchild of the cable industry there no limitations on how we take our network architecture and content across other platforms, like DSL, as long as we respect the boundaries of our cable partner footprints. We're actually platform agnostic, although the vast majority of our growth to date has been cable platform related.

Which horse wins is of less concern to us than the supremacy of our network architecture and the value of our broadband content over multiple high-speed platforms.

CW: What are your immediate priorities?

The company will attempt to extend its broadband leadership position and that has implications for both the content side and the network side.

On the network side, we finished the year with 72 million homes worldwide under contract. Now 24 million of the 72 million are marketable, upgraded for two-way.

Recognize that 59 million of those 72 million homes are in North America. So we're not going to get a lot bigger in North America.

Time Warner's gone with AOL. We have AT&T. We're about to have MediaOne. We have Cox, Comcast, Cablevision, Rogers, Shaw and 19 other MSOs plus our @Solutions company that we have which allows for the very small cable systems to get deployed on high-speed.

What's left is Charter and Adelphia, and we already serve 3 million homes of Charter's through acquisitions.

So most of our growth in terms of footprint will occur outside the U.S. One of the things about 2000 is it's a year of international focus.

So far, our international partnerships have been with cable companies. We expect most of them would be that way in 2000. We have five joint ventures overseas right now.

The second thing is we will work with our cable partners to shift the installation model to a retail model where you have DOCSIS imbedded modems in the PC. This past Christmas we were in 2,000 retail outlets. We've got agreements with H-P, Compaq, Dell and others to optimize their modem production for our service.

CW: How many retail modems did you ship last year?

We probably had 8,000 or 9,000 retail subscribers this Christmas. We expect 30% of our December 2000 subscribers to come from retail. And we expect the total number of subscribers worldwide to rise somewhere between 2.5 million and 2.75 million at year's-end.

On the content side in 2000, we believe we are required to do two things. One is to fundamentally rethink Excite narrowband, the Excite portal -- so lots of good, different functionality is there -- search, chat, instant messaging, personalization.

How does that get into the world of broadband in a way that preserves the speed that people enjoy broadband for, preserves the brand identity of Excite, to which we have 51 million registered users, and leverage our ability to cross-promote people from narrowband to broadband?

For instance, as AT&T Cable turns you on and you're an Excite user, you have a single click to port over all of your personalization choices. That's a potent thing. That content becomes a form of marketing.

That's a very dramatic move for a leading narrowband portal to commit to because you are essentially making a new version of yourself and you're doing it for a dramatically smaller audience. The company's principal form of revenue and virtually all of its profits at this point come from media, come from Excite. We do 125 million to 145 million page views a day.

Broadband is still tiny. The dominant form of how people get to the Web for the next three or four years will be narrowband. So the drama of this risk is we're going to deliberately reorient our priorities to walk away from some traditional aspects of narrowband programming and cross a line into broadband programming.

Now no portal competitor today has either the urgency or the opportunity that we have in doing so. Yahoo! or Lycos or Disney doesn't have these cable relationships. AOL might if the government gives them a thumbs up in a year.

CW: Are we going to see more content purchases?

Purely speaking, we will not buy content companies. We're not going to get into the business of owning content. We don't see any reason to own the kind of content that AOL purchased. Like owning CNN.

The goal of content is to reach the largest possible audience to maximize its business model. On the day that AOL-Time Warner announced the merger, we had calls from two different content divisions of Time Warner saying: `Hey, we still have our distribution deals with you guys, right? Your platform is twice the size of Road Runner's. Let's not quibble with what our corporate parents did today, right? We're still on, right?'

CW: Are there genres you need?

Yes. Photos, music and all forms of audio. Those are very attractive things in broadband. There are a bunch of things that when you move from narrowband to broadband don't change that much, like chat, search.

CW: At what point do your rolling exclusivity deals expire in 2002?

The first ones begin to roll out in June 2002. It's on a system-by-system basis. It's three years from the date the first subscriber is lit up.

So there are systems all over AT&T right now like in the Bay area that we haven't even launched.

Approximately 50% of our U.S. domestic footprint goes out of exclusivity by the end of 2002. And more in 2003 and more in 2004. That's very important. People casually say: `Your exclusivity is up in 2002.' Look, every six months at that point is going to be several more million subscribers. We grew last quarter at 300,000 subscribers.

In 2000, to make our goals for Wall Street, well have to grow 750,000 every six months. So in 2002 people casually through around a six-month differential, we're going to be doing two to three million subs just in that six-month period.

CW: Will Cox and Comcast follow AT&T on opening up their networks?

None of us believe we'll renew exclusively because we do think there is probably going to be other revenue streams to be dealt with post 2002. I believe we will renew our agreements with the core cable partners. And we're hopeful we'll be able to announce what those terms are in 2000. But it won't be exclusive and we will have a different set of economics in which we offer a wholesale price for our backbone, our RDC's, our caching technologies, our server infrastructure which gets bundled with the cable operator.

So if you're Mindspring you say: `I want to offer broadband service in AT&T territory.' AT&T puts together a pricing scheme based on the services we bring and charge for and the services they bring and charge for and that's a bundled set of services given to Mindspring.

Currently we split 65%-35% on sulbscriber revenue. The question you have to ask yourself in a post exclusive world, is, does our current 35% look like it has a chance at being more than 35% even though it might be fractured across multiple revenue streams.

In other words, we're doing some work for the cable partner but then we're also bundling those services for a wholesale price to third parties.

It also means, I believe, we're going to be in a world where you've got downward pressure on pricing just like you've seen in the narrowband world with ISPs. And it's going to be moving more towards a media services orientation where loyalty is going to be to: `Well, it's always on, it's high-speed, I pay X number of dollars per month for the service.' It's not going to be $40 a month anymore, it's going to be less. But there's a lot more people using it so there is critical mass so it makes sense for a media model, a lot more eyeballs, and you can sell services.

Like bill presentment and bill payment services. I can help you to dispense with your use of the Yellow Pages and personalize all that in an always on environment. So all of a sudden it's more than media. It's more than portal, there is going to be other revenue streams related to membership, software tuneups, going into your hard drive and doing virus protection, credit card fraud protection, a whole host of things a consumer may want to buy in addition to your current @Home subscription.

CW: When you get those MediaOne subs, how are some of the bigger AT&T-Time Warner issues going to work out?

The big pinch is with Road Runner. They do have to get that worked out. We believe the Road Runner MediaOne homes would remain with Time Warner. We couldn't come in and disrupt that. We would get all the new homes.

CW: On the TV portal issue. Do you worry that AT&T will give AOL TV a shot in exchange for a more favorable telephony deal from Time Warner, which would hurt your Excite TV efforts?

If you try and puzzle out the various conflicting incentives that will occur you can make an argument that says: There is every reason in the world for AT&T to do lots of things with us. There is every reason in the world for AT&T to go the other way.

For instance, do you know that if AOL-Time Warner closes and if AT&T MediaOne closes, AT&T becomes the largest shareholder of AOL-Time Warner? The conflicts, given the size of the companies, are unavoidable, and it's too early to say whether those conflicts accrue to our benefit or not.

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