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Hard on the heels of Oracle's new subscription model for enterprise applications (Soft*letter, 9/30/98), a small venture-funded startup is about to test a similar concept for mass-market consumer titles.

"Our model is something like HBO," says Arepa founder Ric Fulop.

"For a flat monthly fee--possibly around six dollars--subscribers will get unlimited access to a huge, huge library of content."

Specifically, what Arepa subscribers will get is high-bandwidth streaming media, not an actual download of the software itself.

Fulop's company has figured out how to push rich multimedia over a cable connection fast enough so that performance is "equal or better" to execution from the user's own CD-ROM drive. "The network becomes the storage device," he says. And cable network connections are growing at an explosive rate, he notes. "At the beginning of this year, the cable industry had 40,000 Internet subscribers. Now the number is up to 500,000 and growing."

But plumbing isn't the interesting part of Arepa's business. In fact, Arepa is essentially a syndication company, which will buy content from software publishers and deliver it to local and regional cable companies as a premium subscription service. Fulop already has relationships in place with the three biggest cable companies--@Home, MediaOne, and PathFinder--and he's now working out content deals with most of the largest consumer software publishers.

So far, the service is on track for a public launch in February or March, he says.

By that time, Fulop expects to have a library of about a hundred consumer titles, "mostly older products that aren't available in stores." Initially, Arepa plans a simple three-way split of subscription revenues--a third to the cable company, a third to Arepa as the syndicator, and a third to participating publishers based on the number of titles they contribute. Out of a hypothetical

$6 monthly subscription payment, says Fulop, a publisher will earn 2 per subscriber for each title--or $24,000 a year for every 100,000 subscribers that Arepa's cable partners manage to sign up.

But it's likely that Arepa will quickly fine tune its revenue-sharing model to match the ratings system that television syndicators use. Since Arepa can track the actual number of minutes that subscribers spend with each title, Fulop says it will probably make sense to pro-rate each publisher's revenue share according to actual usage. And in turn, competition for higher usage ratings should encourage publishers to supply higher-quality titles, and to swap out titles that consumers don't want.

Arepa is also struggling with a classic branding question: Should the company build a single branded "channel" like HBO or Fox, or else fade into the background and help publishers create many different branded channels--a Learning Company educational channel, for instance, or an Electronic Arts sports game channel. "Right now, our technology gives us a monopoly," Fulop says. "Next, we have to figure out what to do with that position."

Ric Fulop, president, Arepa, One Memorial Dr., Cambridge, Mass.

02142; 617/621-1212. E-mail:

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Date:Oct 31, 1998

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