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MSN Premium Aims To Squeeze Fees Atop Access

Microsoft's MSN brand is going in a new direction, moving away from the slumping dial-up access market, towards providing broadband customers a variety of services for a monthly fee. Microsoft's MSN Premium will begin beta testing starting next week.

Both America Online and Microsoft Corp. have been hit hard by the rapid departure of dial-up subscribers to faster broadband Internet services.

Since rolling out its MSN 8.0 last fall, the company has spent close to $300 million on marketing the online software, while seeing its subscriber count slide 400,000.

In Microsoft's quarterly financial report for the period ending March 31, MSN accounted for just under 8 percent of Microsoft's total sales and the unit posted a $92 million loss for the quarter. Microsoft has forecasted there will be a sales decline of 4 to 7 percent for its MSN division in the latest fiscal year, which started on July 1.

In light of the slumping performance of dial-up Internet services, Microsoft is shifting its focus to more lucrative subscribers, which are signing up with high-speed Internet Service Providers, including cable and telephone companies.

MSN Premium will begin being previewed by thousands of beta testers beginning next week, and comes at a time when both AOL and MSN have been blindsided by the rapid migration of online subscribers from the dial-up to broadband networks.

Microsoft has chosen to co-market MSN Premium with several telephone and cable companies that have existing broadband services, including Verizon , Qwest and Charter Communications , owned by Microsoft co-founder Paul Allen.

In addition to striking co-marketing partnership deals with broadband network providers, Microsoft will market its new MSN Premium software through other online services, charging those customers $9.95 for access to some services and added-value content. But it is not clear, if subscribers will want to pay an $80 annual fee to pay for MSN web browsing software and its hooks into other multimedia, security and other e-mail communications software. There is expected to be a less fully-featured version of MSN Premium, which will cost somewhat less.

MSN has always been fighting uphill battle against AOL, which has more than 25 million customers. But AOL is not immune to the same phenomena hammering MSN's dial-up subscriber base. AOL lost 846,000 subscribers just in the last quarter.

The next version of MSN isn't expected before released and marketed before the end of the year, and will contain a variety of software features, and tools for manipulating digital photos, music, video and harmonizing e-mail and calendar appointment functions.

Microsoft clearly has made the decision that it is not getting deeper in the access business. The company's focus is on software both online and off-the-shelf, and has no intention of building massively costly networks.

MSN will continue to operate its dial-up Internet service for $22 month, but it will be difficult to maintain that price with the rising competition both at the high-end for broadband access, and at the low-end for inexpensive monthly dial-up access. The company did say it will be adding some of MSN Premium features into the dial-up service starting next year.

"MSN Premium, which is targeted at broadband- connected households, includes advanced communication options allowing customers to access their e-mail, calendar and contact information when, where and how they want it. Rich digital information-sharing features allow customers to get the most out of their digital photo collections; and extensive safety and security features, such as the Pop-Up Guard, help customers have a safe and more enjoyable experience while online," the company said.

Microsoft is trying to leverage the traffic to its MSN.com web site to what it sees as the market for add-on broadband services.

Microsoft said MSN Premium will "enable consumers to have universally available access to e-mail, calendar and contacts from any Internet-connected location, using their choice of software -- from a basic Internet browser to advanced clients such as Microsoft Outlook -- to access their complete information." MSN Premium subscribers will receive 25 MB of e-mail storage for the primary account, and then there can be as many as 10 additional e-mail accounts, each with 10 MB of storage and to send attachments up to 3 MB in size.

Microsoft is trying to tie software applications and broadband connections together. MSN Premium will include "a dramatically advanced My MSN custom home page, an improved dashboard, and productivity applications such as MSN Photo Plus, Money Plus and Encarta Plus."

Microsoft said it will be offering what it is calling "Photo Sharing via MSN Messenger," a means for sharing digital photos through MSN Messenger 6 service from MSN.

In addition to pushing an array of new software features that will tie into the MSN Premium service, the company is also trying to leverage its content like MSN Sports and its relationship with ESPN. Microsoft said that MSN Entertainment is the second entertainment site on the Web, while MSNBC is the number one news site on the Web.

Microsoft is repositioning the MSN brand when its says "MSN attracts more than 350 million unique users worldwide per month. With localized versions available globally in 34 markets and 18 languages, MSN is a world leader in delivering Web services to consumers and ad sales solutions to businesses worldwide."