Yahoo! kills off paid-for video

Launched in February, Yahoo! Platinum charges web surfers $9.95 a month for access to streamed video clips of content such as ABC News or CBS' Survivor.

The service will eventually find a home in Yahoo! Plus, a premium services bundle that's been in the works for the past year and is expected to launch as soon as next month, sources said. Yahoo! is also expected to expand free video programming throughout its site and offer it as a perk for its broadband access partnerships with SBC Communications and British Telecom.

A Yahoo! spokeswoman declined to comment specifically on future changes for Platinum. However, she pointed out that the company's broadband offerings will continue to change.

"Yahoo! is committed to being a leader in providing broadband content," the spokeswoman said, "how it's packaged, priced and presented will evolve over time."

The possibility of offering free video streams comes amid signs of a broader attitude shift among content companies, web networks and advertisers alike. Some content companies once militant about charging people for their video are becoming more open-minded.

"It's not that [consumers] won't ever pay for it," said one source from a content company, "but the jury is still out. Other companies will try a method of giving [video] away for free to see if they can offset costs through advertising."

The launch of Yahoo! Plus comes as the company's main rivals, America Online and MSN, are positioning their services in a similar fashion. In response to a decline in the number of dial-up subscribers, AOL and MSN are trying to sell their online software to existing broadband users in hopes of retaining customers who have defected to cable and DSL providers.

Microsoft recently announced plans to launch a free service next year called MSN Video, which will offer advertising-supported news and entertainment clips.

AOL, meanwhile, has made video a key part of its turnaround strategy. The company has been offering its customers a "bring your own access" plan for $14.95 a month that includes email and other software, as well as exclusive broadband content such as news clips and music video broadcasts.

RealNetworks, however, which operates RealOne, the largest paid video and audio subscription service on the internet, has seen overall membership stall this year, despite rapid growth in music service Rhapsody and in premium radio.

RealOne charges $9.95 a month for access to a bundle of programming it calls SuperPass, which includes access to movies, news and live audio of Major League Baseball games. RealNetworks announced 1 million paid subscribers in March, sparking a surge of interest in paid video offerings. Since then, however, sign-ups have shown signs of flagging, with total paid subscribers for the company climbing to just 1.15 million in the third quarter, including the addition of 165,000 music subscribers.

Portals are paying attention to online video, because the number of households that have high-speed connections has matured. About 21 million households will have broadband access by the end of this quarter, analysts estimated. Although the major portals know consumers want video content more than ever, the business model for delivering such content is still up in the air.

But much of that content, such as music videos on Yahoo!'s Launch service, is free. Industry analysts said most consumers are not interested in paying for streaming video services and that video is not a significant driver for broadband growth.

"When we ask consumers, we never see more than 10 percent saying they'd be willing to pay for video content," said Jed Kolko, an analyst at Forrester Research.

Analysts cite one notable exception: pornography. Gerry Kaufhold, an analyst at In-Stat/MDR, estimated that the adult entertainment industry generated about $600 million in video-streaming revenues last year.

But pornography is not on the menu of mainstream Web portals such as AOL, Yahoo! and MSN. Analysts said that 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 shows like Survivor and American Idol were offered in the summer, when the shows weren't being aired - a recipe for subscriber indifference, analysts said.

The shift to free video marks an about-face among web portals, which were hit hard by a drop in 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. Goodman cautioned that services such as MSN and Yahoo! don't have the highly valued audience 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.

Jim Hu and Stefanie Olsen write for CNET News.com