In a move to offer a new avenue of high-speed access to its members and increase the presence of its interactive television unit, America Online Inc. Monday invested $1.5 billion in Hughes Electronics Corp.
The companies said the alliance will accelerate subscriber growth for Hughes’ DIRECTV satellite television unit and its DirectPC satellite-based broadband Internet service. AOL and Hughes will also jointly develop new content and interactive services that will be offered to customers in the United States and abroad.
Hughes is the space and telecommunications subsidiary of automaker General Motors Corp.
AOL will invest $1.5 billion in a class of General Motors stock and GM will invest the money into Hughes’ equity to implement the strategic alliance. AOL said the investment will not have a negative impact on its earnings.
The alliance builds on an earlier agreement between the companies to develop a combination set-top box that will make DIRECTV and AOLTV available to consumers next year.
Hughes and AOL will market DIRECTV/AOL TV to the more than 16 million AOL and CompuServe subscribers in the United States. Hughes will also market AOL TV to its DIRECTV subscribers.
The AOL-Plus satellite service will launch by early 2000. It’s the latest effort for AOL to offer high-speed services to members. The company has already reached Digital Subscriber Line deals with Bell Atlantic and SBC Communications.
The companies said the alliance will enhance the development of Spaceway, Hughes’ two-way satellite system now in development. Spaceway offers a key advantage over Hughes’ current offerings since no telephone line is required to send data upstream.
Hughes and AOL have also agreed to consider expanding the broadband initiative to AOL’s Latin American markets in the future.
AOL Chairman and Chief Executive Officer Steve Case said the alliance with Hughes is a major step forward for its ‘AOL Anywhere’ strategy.
“It benefits America Online across all fronts and puts more pieces in place for the next wave of interactive services. AOL TV and DIRECTV are a winning combination and we believe that AOL members and DIRECTV subscribers, as well as other television viewers, will see it the same way.
“We are committed to providing our AOL-Plus high-speed service over all broadband technologies,” he said.
Hughes Chairman and Chief Executive Officer Mike Smith, said the alliance will allow it to accelerate DIRECTV subscriber growth as well as obtain new revenues from Internet growth.
“We created the high-power digital satellite television industry five years ago and set a new standard for multi-channel television entertainment. By joining with America Online in this long-term, strategic relationship, we’re making it clear that DIRECTV will remain the market leader,” he said.
