AOL seeks UK cable alliance

NTL has the network, AOL Time Warner promises the content

The recently formed US media giant AOL Time Warner is in talks with UK cable firm NTL about a distribution alliance for content over high-speed broadband networks.

Prompted by press reports, the UK cable operator confirmed that it was talking to AOL, but warned that "while it is true that we are in the early stages of talks with AOL about some potential joint activity, apart from an outline term sheet nothing else has been agreed at this stage".

Spokespeople at both AOL and NTL insisted that the talks did "not imply that any particular agreement is imminent".

The New York Times newspaper had quoted people "close to the companies" as saying that AOL hoped to break into the European market by distributing its content across NTL's pan-European network. In exchange, the two firms would share revenue from broadband customers.

Linking up with AOL could put NTL in prime position to compete with rivals like BSkyB television.

NTL is the UK's largest cable television provider, with 8.5m customers. Across Europe, the firm reaches a total 20m households, with additional networks in Germany, France, Switzerland and Sweden.

Industry analysts say that AOL Time Warner is keen to expand its international operations, especially as the firm is threatened with a drop in advertising revenue because of the slowdown of the US economy.

Hope for international revenue

AOL Time Warner chairman Steve Case and chief executive Gerald Levin have said that they expected to make strategic investments in Europe this year.

This deal will not see AOL take a stake in the cable network operator. But it should boost international revenues. Currently they make up about 17% of AOL Time Warner's sales, but within 10 years Mssrs Case and Levin hope to raise this to 50%.

NTL, in turn, is eager to find fresh revenue streams itself. The company reached its current size only after going on an expensive buying spree. But buying up its competitors has burdened NTL with debt.

According to the New York Times, AOL Time Warner first hoped to strike a deal with the UK's former telecoms monopolist BT, but failed to get anywhere. BT has repeatedly been criticised for being slow with the roll-out of its broadband services.