Sports programming is among the top five most sought-after types of video online, along with adult entertainment, news, short films and movies, and music videos, which rank No. 1.
RealNetworks' partnership with MLB is up for renewal shortly, and the company is facing heated competition for the contract. Real chief executive Rob Glaser cautioned investors earlier this week that it could lose MLB if offers from other bidders such as Yahoo and ESPN push Real toward "irrational" financial promises.
The company paid $21m for a three-year exclusive contract in 2001.
Analysts said that in comparison, Yahoo's subscription video service has so far failed to offer compelling content. When the service began, it had a contract to broadcast National Collegiate Athletic Association basketball games, but that only lasted a month. Its behind-the-scenes videos of "Survivor" and Fox's "American Idol" were offered in the summer, when the shows weren't being aired -- a recipe for subscriber indifference, analysts said.
Advertising moves to the front row
The shift to free video marks an about-face among Web portals, which were hit hard by a drop in Web advertising two years ago, a trend that put subscription services on the front burner as a hedge against fickle marketing dollars.
Now, analysts said, Web advertising is showing signs of renewed strength, making it an attractive gamble once again. As a result, Web video viewers can expect to see more advertising clips -- which sell at a premium compared with traditional Web marketing such as banner ads -- attached to free programming in the future.
One early entry in this market is ESPN, which this year introduced ESPN Motion, an advertising-supported desktop application that pushes sports highlights and commentary to users' desktops. Although downloads of the application soared, the advertising side had some hiccups, initially. ESPN expected more demand from advertisers, and the company originally placed the video ads at the end of highlights, giving viewers a chance to avoid commercials. ESPN has since embedded ads within the sports highlights and has had success with the model, according to analysts.
Microsoft's MSN Video service will be supported by 15-second video spots and a broad range of programming.
"It begs the question, 'is this partially in response to MSN?,' because it's taking what Real and Yahoo do and offering it for free," said Goodman. "Talk about a way to undercut a market."
Goodman cautioned that services such as MSN and Yahoo don't have the highly valued audience that ESPN has and can't necessarily demand the same fees from advertisers. He compared MSN and Yahoo to broad TV networks such as NBC that have mass or muddled appeal, which may not seem like a sure thing for advertisers in a new environment. He also said the market is still fragmented in such a way that it can be intimidating to advertisers.
Internet ad executives say video will hit prime time with advertisers next year, thanks to greater stability in the medium and to the number of broadband-wired households. Jeff Lanctot, vice president of media for Avenue A, said advertisers take notice when a market has an audience of more than 20 million. And because of moves by AOL, MSN, RealNetworks and Yahoo, advertisers in the entertainment, audio and apparel industries will warm up to video content. He said that so far, MSN Video has tested spots with the entertainment and apparel industry, focusing on movie trailers.
"The table has been set for advertisers in 2004," Lanctot said.
