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Yahoo! Takes Chance on Pay-to-Play

Yahoo! is taking another step in augmenting shrinking ad-based revenue with the launch of a new premium gaming service Monday.

The company's gaming division is hoping to spur some new heat with the release of its broadband-based gaming platform, Games-on-Demand, which delivers on-demand access to an array of titles for a fee.

The games area of the massive portal site has historically been a collection of free Java-based games, which profited from advertisements. Upon falling ad rates, the company last year added a premium services package, known as Games All-Star, which offered accelerated services for games for $7.95 per month.

The company is hoping to expand the number of paying customers out of its base of more than 8 million monthly users who spent approximately 66.6 million hours online playing games in August.

Some question, however, if Games-on-Demand will be able to convince either those who are used to gaming for free on the Web or die-hard gamers craving high-performance to pay-for-play over the Internet.

"Gamers who have been playing for free online are perfectly content and aren't willing to pay for that experience," Ryan Jones, an analyst at the Yankee Group, told internetnews.com. "On the other side, those hard core gamers that were on the PC or the game console are only willing to pay for a rich enough experience similar to that which they have been getting through their packaged software, which is really not the focus of Yahoo!'s initiative."

Yahoo's senior director of games and entertainment Daniel Hart, however, believes the service has a lot to offer for both groups.

"We think the value proposition of being able to rent multiple titles in a cost effective way will appeal to the gamer and the fact that they're playing the same exact software that they would buy off the store shelf," Hart told internetnews.com.

Hart says the key to getting those Web gamers used to playing for free to pay up is providing worthwhile value for broadband users.

"As soon as users have greater bandwidth they look for things to do with that bandwidth, and look for ways to multiply the value that they receive by spending those incremental dollars on access," said Hart. "We feel like for the cost of renting the games, those users will find this valuable."

Games-on-Demand relies on Extent technologies' Game Launcher, a product requiring users have a broadband connection. The technology works much like any streaming media, where the files necessary to begin are downloaded first, with the rest of the stream continuing to download as the game advances.

The service offers users the opportunity to play a wide selection of popular PC games from a variety of publishers. While many of the initial forty titles are not exactly hot off the shelves, for gaming companies that may actually be a good thing.

"This is essentially another channel for game developers," said Jones. "They want to find new channels and new ways to use the effort and investment in that older title, and there's an opportunity to do that online."

Games available at launch include Civilization III, Deus Ex, 4X4 EVO, Star Trek Armada II and Serious Sam. Yahoo! is making available some brand new titles, giving new users first access to Zapper from Infogrames.

Yahoo! is not the first to make a move on this distribution model. Several sites, including Real Networks and Electronic Art have premium gaming sites up and running. Lycos launched a site much like Yahoo's last spring, but had to close it after its technology partner, Into Networks, suspended normal operations.

"The competition between Real and Yahoo! is where it gets interesting," said Jones. "The first stage depends on the installed base of subscribers and in the second stage it really becomes word of mouth and the tide could turn completely differently in favor of one or the other."

Hart isn't too concerned about the competition just yet.

"We think that the market is growing fast enough and the market is big enough that there is room for a number of sites to be successful, and we certainly plan to be one of them," said Hart.

Pricing for the new service is based on a choice of multi-game, monthly subscriptions or single, three-day rentals, costing between $5 and $15.