Streams for Fee

With the arrival of Yahoo! Platinum service, the former directory-only Web site announced it was jumping into the pay-for-streaming arena. As of March 17, 2003 customers can subscribe for $9.95/month to see a variety of specialized online content like outtakes from American Idol and Survivor. Pump up the subscription to $16.95 for the SportsPak and you'll be able to watch all 56 games of the first two rounds of the NCAA Final Four Tournament. Sounds impressive, but in fact, this launch came a full two years after RealNetworks made a similar move. What took Yahoo! so long? They were watching Real.

In 2001, Major League Baseball made a bold move—stream audio broadcasts of every baseball game, but only to paid subscribers via RealONE. According to RealNetworks, the agreement with MLB was a turning point for pay-for-streaming. "[It] got a lot of people's attention about the viability of the subscription business," says Scott Ehrlich, Real's VP of media acquisition and distribution, "The rest of the industry kind of sped up."

Other content providers were motivated to participate. Soon CNN and ABC News began offering video for Real's GoldPass (now called SuperPass) subscription-based streaming service. As Real made content deals, it also amassed 900,000 subscribers. Although content players and subscribers have been jumping on board the pay-for-streaming bandwagon for the past two years, it took until March of this year for a major distribution competitor, Yahoo!, to emerge. It's a move Ehrlich gladly welcomes. He believes Yahoo!'s high profile entrance helps legitimize the pay-for-streaming market and David Mandelbrot, Yahoo!'s VP and general manager of media and entertainment, agrees. He likens the rivalry between Yahoo! and Real to that of Showtime versus HBO. Although competitors, Mandelbrot argues, "Both of those services encourage more people to get cable."

Broadband usage has hit critical mass—55 million according to eMarketer , an encouraging number for the viability of a pay-for-streaming market. The change is happening; free can't last forever. "In the early days of the Internet, there was a misguided notion that there was an endless supply of advertising dollars that would fund any business anybody could think of," notes Ehrlich, "Once the bubble burst, people began to look for more rational stable forms of revenue." The market needed a consumer license fee model. "Without it, we believed that you would hit a glass ceiling in terms of what content people would make available for delivery over the Internet because they couldn't see where the money was going to come back."

Real and Ehrlich believe that a pay-for-streaming market will result in a symbiotic relationship between users and content providers. "As consumers paid for quality content, and content providers began to see that revenue stream develop, content providers would then double down on the content that they're making available and that would move the whole ecosystem another notch. And that's in fact what we're seeing." MLB is stepping up on its audio broadcasts by offering live video. With that deal and Yahoo!'s deal with the NCAA, the two companies are making programming available that couldn't be made available through any other means. Cable simply doesn't have the capability or outlets to carry all this content.

Like the relationship cable affiliates have with cable networks, the aggregation strategy made possible by Real and Yahoo! makes sense to consumers looking for choice. CNN doesn't distribute its network itself; it uses cable affiliates. "Because the demand is so fragmented," said David Card, Jupiter's director of research, during a CNET Radio interview, "I think the near-term strategy, say for the next 12 to 24 months, would be to license your content much as ABC News has done to Real and Yahoo! To license your content to someone who's going to put a package together, that would give customers a variety of things rather than going it on your own."