AOL Time Warner Inc's America Online, the world's largest Internet service provider, started its own service to sell videos and compact discs online to boost revenue, ending part of its relationship with Amazon.com Inc.
America Online is selling movies and music directly on its AOL Entertainment and Moviefone Web sites and is removing some links to Seattle-based Amazon.com's online store, Bill Wilson, senior vice president of AOL Entertainment, said in an interview.
America Online also expects to offer music downloads on its entertainment Web site by year-end, he said.
The Internet access service, with 26 million customers, is trying to develop new sources of revenue as subscriber growth slows and sales of advertising on the America Online Web sites, declines. Amazon may lose some shoppers, though established customers are likely to remain loyal, investors and analysts said.
"To the extent that AOL was feeding traffic to Amazon, it could have a little bit of an impact" on Amazon.com, said George Gilbert, who helps manage about US$375 million in technology stocks for Northern Trust Bank in Chicago. He holds AOL Time Warner and Amazon.com shares. "For people who use Amazon, who like Amazon, I don't think it's going to influence them at all."
Amazon.com was the second most-viewed Internet shopping site in the US in May with 35.9 million visitors, according to research firm ComScore Networks Inc. Only auction Web site EBay Inc had more visitors.
America Online isn't ending other parts of its relationship with Amazon.com, both companies said.
"These links represent a very minor part of our overall business,'' said Bill Curry, a spokesman for Amazon. "The overall strategic relationship with AOL is longstanding, multifaceted and ongoing."
America Online and Amazon have worked together on marketing since 1997. Two years ago, AOL Time Warner bought 8.24 million shares of Amazon for US$100 million as part of an expanded relationship with the online retailer.
At the time, America Online agreed to use some of Amazon's search and personalization software for its Shop@AOL pages and to use some of the retailer's ratings and review services.
America Online's shopping Web site still has a link to Amazon.com to sell items including books and consumer electronics.
Under their agreement Amazon agreed to promote AOL Time Warner's Internet service exclusively and established an online boutique offering AOL Time Warner products. Its Web site today had advertisements for AOL Time Warner magazines, including Time and People.
Amazon.com had taken over music and video sales on America Online from Bertelsmann AG's CDNow service. Amazon.com agreed last year to handle shipping and customer service for CDNow.
New York-based AOL Time Warner is the world's largest media company. Along with its magazines and Internet service, it owns the Warner Bros movies studio, the Warner Music Group and cable-television networks, including CNN.
Amazon shares fell US$0.60 to US$37.65 at 4:00pm New York time in NASDAQ Stock Market trading. AOL Time Warner rose US$0.20 to US$16.44 in New York Stock Exchange composite trading.
America Online will offer CDs and videos from competing music companies and film studios as well as its own, Wilson said.
They are offered on the AOL Entertainment Web site, which features information about music and samples of songs, and Moviefone, which lists movie-theater schedules and sells tickets and can be accessed by Web-users who aren't members of America Online.
The two sites receive 33 million visitors a month, Wilson said. Jonathan Miller, chief executive of America Online, has been trying to build audience by offering exclusive acoustic recordings, interviews with popular acts and other unique content.
"We really focused on building audience before we started focusing on commerce," Wilson said.
America Online subscribers will be able to order CDs and videos with a single mouse-click, he said, because America Online has its customers' credit card and billing information.
That will prompt America Online subscribers to buy CDs and videos "on impulse," Wilson said. A subscriber, for example, can sample a new Carlos Santana song on AOL Entertainment and buy the album with a single click.
"Presumably, instead of getting just a cut of the revenue, they'll get more and have flexibility on how they continue the conversation with the consumer," said Robert Leathern, an analyst with research firm Nielsen/NetRatings.
Miller said last year that he wants to boost America Online's revenue from electronic-commerce and by charging for access to America Online's content for consumers who receive Internet-access from other providers.
America Online's revenue declined 4.1 percent to US$2.2 billion in the first quarter, as the service lost subscribers in the US and advertising sales declined by 42 percent.
America Online's past accounting practices, related to ad sales, are the focus of an investigation by US Justice Department ant the US Securities and Exchange Commission, the company has said.
America Online has contracted with Alliance Entertainment Corp to manage stock and deliver orders from its online music and video store, said Ann Burkart, a spokeswoman for the Internet service.
America Online's plan to sell videos and records directly was reported earlier today on the Web site of Variety magazine.
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