March 22, 2004 11:50 AM PST

MLB lands Microsoft, America Online deals

Microsoft is expected this week to pay as much as $40 million over two years to video stream live Major League Baseball games onto PCs, sources said on Monday, heightening competition with rival RealNetworks and signaling rising costs for online video programming.

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What's new:
Microsoft is expected to pay $40 million over two years to stream live video of Major League Baseball games onto PCs.

Bottom line:
The deal could heighten competition with rival RealNetworks and signal rising costs for online video programming.

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The deal is one of online sports programming's most expensive to date. Microsoft will receive exclusive rights to stream live video of most baseball games this season onto PCs, the sources said. MSN offers these streams as part of MSN Premium, a $9.95-a-month software package that offers Net services and content. One source said Microsoft may also sell subscriptions through its MSN.com Web portal. Users will also be able to listen to live games through the service.

One source said Microsoft may also sell baseball subscriptions through its MSN Web portal. Users will also be able to access games, using Microsoft's Window Media playback software.

Microsoft isn't the only company expected to soon strike a deal with the baseball league. America Online plans to announce a two-year, $9 million deal with MLB Advanced Media (MLBAM), the league's Web business, to offer live audio streams and 20-minute video clips for each game, the sources added. AOL will offer the games for free to its AOL for Broadband members, most of whom pay $14.95 a month on top of their broadband bills for the service.

Besides the MSN and AOL deals, the baseball league will sell video and audio subscriptions on its Web site, the sources added.

Representatives of MLBAM, Microsoft and AOL declined to comment.

The expected deals will come about two months after streaming-media company RealNetworks ended a three-year, $20 million agreement with MLB to sell subscriptions for live audio of MLB games. However, RealNetworks said the terms of that deal had made it difficult to achieve profits.

Earlier this month, RealNetworks filed a lawsuit against MLBAM, claiming that the league violated its contract in not offering RealNetworks' streaming-media player alongside other media players on MLB.com. The baseball league denied any violation of contract.

The renewal of MLB rights underscores a complicated balance of power between content providers and Web distributors. On the one hand, Web giants need content to attract users and to sell subscriptions and advertising. But leagues such as the MLB, which are accustomed to selling broadcast rights at hefty rates to television networks, are beginning to demand a higher price tag for their content.

Over the past few months, executives at MLBAM have shopped around its packages to many other potential partners, including Yahoo, SportsLine.com and RealNetworks. However, many involved in the negotiations fumed at MLBAM's price tag for entry, claiming that the league was overcharging for its content.

Microsoft and AOL may be in a different position to other Web sites. Both companies are losing their core dial-up subscribers at an alarming rate to faster broadband services and cheaper dial-up options. MSN and AOL have adopted a "bring your own access" strategy, through which they sell their online services without Internet access. The idea is to give people with other cable modem or digital subscriber line connections a way to continue using their MSN or AOL accounts for an additional monthly fee.

AOL, in particular, has staked its future on its AOL for Broadband service. The company has secured content from other divisions in its Time Warner corporate family, such as magazine articles from Time and film clips from Warner Bros.

Upping the ante
Microsoft in recent months has made streaming video a priority. The company in October unveiled a free, ad-supported streaming video initiative called MSN Video. The service launched with video clips from its MSNBC joint venture, as well as other programming from NBC's news and entertainment shows.

In contrast, RealNetworks has for years sold subscriptions to its streaming media service RealOne SuperPass, which had MLB as its marquee partner. During the past year, RealNetworks has shifted its focus to selling music subscriptions, as evidenced by its acquisition of Listen.com. It's unclear to what extend losing MLB will affect RealOne's subscription business.

Gaining MLB could offer a significant boost for Microsoft, which competes with RealNetworks over video streaming software. The hefty premium paid for an unproven video streaming model was not surprising to some analysts.

"I think to an extent it's Microsoft being Microsoft," said Michael Goodman, an analyst at The Yankee Group. "It's a cost center for them to acquire this content, and if it's a money loser, it's a money loser. What it gives them is an anchor program. It gives them a high-profile piece of programming to build around."

The deal also pushes the envelope on the price that online distributors must pay for popular programming. Just like television networks that pay billions of dollars for rights to the National Football League or the Olympics, the Internet is quickly such a valuable medium for sports fans that Web portals are more willing to open their wallets.

"Some of the new mediums, including consumer Internet and satellite radio, are looking to use the model that worked well for companies in TV," said Mark May, an equity analyst at Kaufman Bros. "It's yet to be seen if the strategy benefits new mediums like it did TV."

2 comments

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Boycott MLB-M$ Alliance
OK sports fans... be smart, bring a walkman and listen to your favorite team for free.

And... why would anybody pay MSN or AOL a fee for their "Internet for Dummies" systems, on top of their broadband access charges?
Posted by real_bgiel (46 comments )
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Is anyone really surprised?
Real said that $20 million wasn't even enough to turn a profit, while MS kicks $40 million into this deal. They aren't looking for profits, they are looking for ubiquity of players.

Same old, same old.
Posted by (4 comments )
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