AOL to Market Urban Online Access

Feb 14 2000

In a move to bridge the digital divide, America Online announced this morning it has struck a partnership unit with Digital Mafia Entertainment to create a co-branded Internet service targeting the urban market - primarily African Americans and Hispanic Americans.

AOL has received an undisclosed stake in the company and warrants to purchase more DME stock, sources close to the deal say. Financial terms of the deal were not disclosed.

"Our goal is to connect the disconnected," says DME CEO Darien Dash. "We want to give people the access and infrastructure that is so needed in this community."

Englewood, N.J.-based DME is a 6-year-old interactive agency that has worked with companies including HBO, hip-hop music label Def Jam and MSBET, a former joint venture between Microsoft and Black Entertainment Television.

DME tanked nearly 20 percent in intraday trading on news of the deal, down $1.91 to $8.44 a share. AOL shares also slid $1.56 in midday trading to $55.44.

The new service, to be called Places of Color, will be co-developed with AOL's CompuServe unit, and will include a customized version of CompuServe 2000 software, 30 channels of content and more offerings from about 150 affiliate relationships.

"Minority communities make up a growing and important market that will respond to the convenience and community this new service will offer," says CompuServe general manager Audrey Weil. "The Places of Color online service is an important part of our overall strategy to reach new and growing audiences, particularly those that have been underserved."

While Dash declined to name partners who had signed up to offer content, he said companies like NetNoir - one of the first African American portals also financed by AOL - may make a good fit on the new service.

NetNoir CE. David Ellington says the two companies have been discussing potential affiliate deals and deeper relationships over the past couple of months, but says no deals are ready to be announced.

Since Black Entertainment Television's Internet unit BET.com landed $35 million from Microsoft, News Corp., and other firms last August, investors have been clamoring to get a piece of the online urban demographic, loosely defined as the 18-to-35 set interested in inner-city music, lifestyles and culture.

The investments follow a recent study conducted by the National Telecommunications and Information Administration found that only 12 percent of people earning $10,000 or less use the Internet, compared to over 59 percent who earn $75,000 or more.

Earlier this month, President Clinton proposed to spend $50 million to link up low-income families to the Internet. The plan would start by hooking up the 9 million or so families currently on the food stamps program, through a program called ClickStart. Another incentive, involving $2 billion in tax credit to private institutions, was also suggested to encourage corporations to donate computers to schools.

Oddly enough, however, for a service that hopes to bring more low-income groups online, the new venture's pricing policies provide no such discounts to users. Places of Color will charge $19.95 a month to subscribe, the exact same price it charges regular CompuServe members. By contrast, AOL charges $21.95 a month, but offers a lower rate of $19.95 a month for subscribers who pay a year in advance.

AOL says the company signed the deal through the CompuServe unit as part of its custom solutions business, the division that has developed Gateway and Wal-Mart's ISP services. CompuServe will be providing the infrastructure and customer support for the new venture.

The move also comes amid AOL's ambitious plans to deliver its offerings across multiple distribution platforms, including wireless access and interactive television. The company plans to launch its AOL TV service by summer, according to Wall Street analysts.