Will Yahoo Platinum Be a (Real) Nightmare?

When Yahoo co-founder Jerry Yang briefed analysts recently on the company’s
plans for a fee-based video-subscription service — a demonstration that
included outtakes from the American Idol reality show
— the competitive threat resounded loudly at RealNetworks headquarters in Seattle.

Yahoo Platinum, which sources say will debut in the first week of April,
is targeted
a market dominated by RealNetworks’ SuperPass fee-based
video-subscription. Yet, despite the emergence of a legitimate rival with
access to millions of potential subscribers, Real’s executives are putting
on a brave face, insisting Yahoo’s entry is a mere validation of the market
for premium streaming content.

“I’m only surprised that it took them this long. We built a great
business that a lot of people have
been enjoying and I believe there will be other competitors as well. We
always expected to have competitors,” Real’s VP of media acquisition and
distribution Scott Ehrlich said.

“Imitation is the sincerest form of flattery. When we built the
SuperPass service, we expected to have
competition. We anticipate multiple competitors. This is good for our
industry. It validates the business,” Ehrlich told internetnews.com.

Even as Real continues to put up a brave face, some analysts believe the
company should be nervous about
Yahoo’s entry, especially since the door is wide open for Yahoo to score
deals with many of Real’s most
valuable content, but non-exclusive content providers.

Real has developed a niche in the sports market, winning over the crucial
male 18-34 market with its
pro sports programming and there have been whispers the company would dabble
in some adult programming.
In contrast, Yahoo will ride the reality TV bandwagon and will shuttle
excerpts and outtakes from popular
shows like “Survivor” and “American Idol,” special events and
behind-the-scenes of movie premieres.

Yahoo declined comment on specifics of the plans but sources say the
company has finalized a deal with CBS and is in “advanced stages” of
discussions with Fox to pick up exclusive content from the reality

Because Real does not enjoy exclusivity with many of its 13 content
partners (baseball broadcasts and
pro golf content are exclusive but deals with the NBA and CNN are
non-exclusive), there is a sense Yahoo can use its marketing might and
traffic numbers to undercut Real’s $9.95 per month service.

Steve Vonder Haar, an analyst with Digital Media Strategies
believes the vast reach of the Yahoo network will generate significant
exposure for its service. “Yahoo is aggressive in forming partnerships with
broadband carriers like SBC and you could see a
scenario where a subscription-based entertainment service could be
incorporated into a bundle or sold as
a premium feature on top of a broadband access bundle,” Vonder Haar said in
an interview.

Then, there is the Microsoft factor. Not much has
been heard from the Redmond,
Wash.-based software giant but Vonder Haar said he won’t be surprised if
Microsoft rolls out a competing
service of its own very soon.

“We’ve always seen Microsoft be very aggressive in its competition with
RealNetworks. Back
in the days when money was flowing free, Microsoft would help fund the
development of online multimedia
content for Windows Media. A video service would be a logical step,” he

RealNetworks’ Ehrlich agreed. “They (Microsoft) will come sooner rather
than later. We’ve not seen any
signs from Microsoft yet but that won’t surprise me.”

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The latest version of Microsoft’s Windows Media Player has added a
“Premium Services” tab that now provides links to third-party music
subscription services Pressplay and FullAudio. Lately, a new “Coming Soon”
notice about premium movies, music, news, sports and entertainment provided
strong hints that Microsoft’ own pay-per-view video subscription service
isn’t far away.

Paid Content‘s Rafat Ali, who
tracks the market for premium services, believes Real’s head start in the
space put it in good position to stave off Yahoo’s challenge. “I have my
doubts about Yahoo’s subscription service — as opposed to say RealNetworks, which
is arguably a neutral distribution company. Yahoo has other media interests. I
think Yahoo is in the competitor category with players such as AOL and
Microsoft, much more so than Real,” Ali said.

“Real has a head start but, for Yahoo, the upside is the huge traffic it
can direct to its subscription
service. And then, it has the advantage of bundling various premium services
together, and not just entertainment services like Real’s. So it can perhaps
sell a customizable bundle of content and services,
Which would presumably help in getting subscription revenues,” he added.

Ehrlich, who has led Real’s efforts at acquiring content partners, said
the issue of non-exclusive deals was not a huge concern. “We protected
exclusivities where we believed it was meaningful and where exclusivity made
economic sense,” he said. He pointed to the DirecTV model where a “great
business was built” offering non-exclusive television programming.

“The only difference (with DirecTV) is that they have the NFL package
and, yet, they’ve built a billion
dollar business,” Erlich declared, nothing that RealNetworks’ partnerships
included technology integration that provided certain strategic

For instance, Real’s deal with MLB.com
to sell play-by-play baseball broadcasts on SuperPass is an exclusive
content partnership (the deal expires after this season and Yahoo could be a
rival bidder) but Ehrlich explained that Real’s technology was tightly
integrated with the baseball portal, which makes it tough for a competitor
to sneak in the door.

“Because we’re the provider and we run their standalone offerings, these
non-exclusive deals include switching costs. “We’ve protected ourselves
very well here. At the end of the day, Yahoo will provide good competition
and they will get subscribers but we are happy with how we’re positioned,”
Ehrlich added.

Still, with Yahoo’s deep pockets, Real will have to overspend if it wants
to retain its core market and
the renegotiation of the MLB.com deal could provide the first signs of an
all-out war between Yahoo and Real. (In March 2001, Real paid $20
for exclusive rights to MLB multimedia content for three

Of its content providers, Real’s Ehrlich said the MLB.com deal was the
“most crucial” along with the PGA
Tour and even the non-exclusive NBA.com.

Can fans expect a price war between the two to eventually bring down the
average $10/month pricing?

“Don’t bet on it, says Vonder Haar. “These are different times. No one will
be in a position to take losses to build market share. The game now is to
try to build an audience of paying subscribers so I don’t
expect a huge price war,” he said.

Ehrlich sidestepped queries on whether Real would tinker with its
subscription plans in the face of
Yahoo’s competition. “That’s all speculation. We’ve done price testing and
value testing and we’re comfortable with the plans we offer.”

The RealOne SuperPass service has snagged just under one million paying
subscribers, a number Ehrlich said would put it on par with being among the
top-ten top ten cable TV operator in the U.S.

“While they are getting out of the starting gate, we’re on the third
generation of our services. You cannot underrate three years of doing this
business. Yes, they have a high-traffic portal but we have 300 million
registered users of our RealPlayer software,” Ehrlich said.

Vonder Haar thinks the market is still very nascent, despite Real’s clear
early-entry advantage. “It’s not late in the game at all. We’re still in the
first inning. You could argue that Yahoo was incredibly early in this
effort with their Broadcast.com acquisition several years ago,” he

“There’s a big world of content that’s available for Yahoo to go after.
Both companies are only now scratching the surface. Yahoo’s entry is a
clear validation of the market and I expect Microsoft to make a move too,”
Vonder Haar said, noting that activity in the space helps Real’s business in
the long run.

“It’s always good for RealNetworks when more and more consumers and
businesses are hooked on Webcasting. When this becomes a viable business
platform, then Real benefits by potentially selling some of the software
that makes those services possible. At the end of the day, Real would like
nothing better than to see everyone shuttling audio and video bits around
the web. That makes their business more attractive,” he added.

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