February 10, 2004 4:00 AM PST
MLB throws high heat at Web portals
With opening day still weeks away, anything could still happen. But sky-high terms and inconsistent offers are pushing the league's negotiations into extra innings, sources familiar with some of MLB's offers said.
"Everyone was balking at the numbers because the numbers were outrageous," said one executive from a major media company familiar with MLB.com's terms.
An MLB representative declined to comment.
The negotiations highlight the ongoing tug-of-war between content and distribution on the Web. Sports leagues in the offline world have been able to extract billions of dollars from television networks in exchange for exclusive broadcast rights. But that model may not be working on the Web, as evidenced by the hesitation among many sites to fork over hefty payments for the right to offer Web subscriptions for baseball fans.
Signs of trouble erupted last week, when RealNetworks ended talks to continue acting as baseball's exclusive technology partner and online distributor. RealNetworks paid MLB $20 million over three years for this right and sold subscriptions to MLB's live audio Webcasts for its games. The company said it won't miss the deal, which accounted for only about 2 percent of its revenue last year. RealNetworks said it's still in talks to distribute MLB's games, but it won't strike any deals that require up-front payments.
RealNetworks isn't alone. MLB Advanced Media, which runs the league's online operations and its MLB.com Web site, is pitching deals well outside the strike zone, people close to the discussions said, demanding hefty up-front payments in return for access to live and archived baseball games. Several Web companies that have been approached have recoiled at the league's terms, claiming the price is unreasonable.
At least three other companies approached by MLB have expressed surprise over the league's demands, according to sources familiar with MLB's terms. The sources said MLB has sought substantially more than the $6.3 million a year it was getting from RealNetworks for exclusive access to its live audio and video feeds. Some other companies were not offered any live content, but instead given the option to sell downloads of "classic" games and to feature highlights on their sites.
The frustrations among Web sites may mean little to MLB. The league holds all audio and video Webcasting rights for regular season and playoff games, and it can funnel fans to its home page with or without an online partner. Besides selling subscriptions to its audio and video subscription packages, MLB.com also offers statistics, breaking news and links to official team sites.
Since MLB holds the keys, some analysts said MLB has the luxury of waiting for the right deal on its own terms.
"They are in a position where they have created scarcity for their product," said Michael Goodman, an analyst at the Yankee Group. "The question is can they extract some exorbitant terms for content? If I'm any company, I'd be hesitant to sign a deal with an exorbitant deal structure because it's harder to make money."
People familiar with MLB's deal terms have been put back by the league's demands for costly up-front payments and control over how their content is used. While three different sources who requested anonymity described different deals being offered to them, they all said MLB demanded up-front cash payments as part of any agreement.
"They've been completely unreasonable," said another source familiar with MLB's demands. "I don't know anyone who is in serious conversations with them."
No home runs in this game
While MLB's demands have not been outright rejected by many parties, the terms have put online distributors in a quandary. On one hand, streaming video and audio continues to gain popularity as more households upgrade to broadband. Live sports broadcasts are also still popular on the Internet, especially baseball, which taps fans who live outside their favorite team's local television market.
The big question is whether Web companies are ready to do what television networks and radio stations do all the time--fork over hefty licensing fees and make up the difference through advertising. In an ideal world, Internet companies would like to do the same, but there are tenuous signs that advertisers are ready to open their checkbooks again.
Since the advertising bubble burst in 2001, Internet companies such as RealNetworks, Yahoo, America Online and MSN have turned to subscriptions as a source of revenue to offset losses in advertising. But these businesses, especially those dealing with multimedia content, have begun to question whether the subscription model is the right direction to take.
"After a couple of years of experimenting, everyone is realizing that subscription models are tough," one of the sources said. "People aren't paying for this (expletive)."
Some companies have tried selling video and audio programming as a subscription service with mixed results. RealNetworks' RealOne SuperPass--MLB's former distribution partner that also offers video programming--has reported more than 1 million subscribers. But the company has not offered any guidance about the effects on RealOne should it lose MLB as a content partner. Instead, the company has said its MLB relationship accounts for 2 percent of its revenue and has tried diverting attention instead to its Rhapsody subscription music service.
Yahoo has also tried selling a television-like package called Yahoo Platinum in hopes of competing against RealOne. But just a few months after launching it last year, the company is planning to dismantle Platinum as a standalone product. Instead, Yahoo plans to fold the video streams throughout different areas on its site, or incorporate them into its premium services package called Yahoo Plus.
Microsoft is also taking a stab at streaming video, but in different terms. The software giant recently launched MSN Video, which lets users watch video streamed onto their PCs for free. Like broadcast television, Microsoft hopes it can attract advertisers to buy spots within the programs. Other companies, such as CBS News and Fox News, have also taken the free route.
While television networks are trying to apply their advertising model to the Web, MLB has made a compelling case that ardent baseball fans will open their wallets to their own programming. Yankee Group's Goodman estimated the number could be as high as 200,000.
If MLB decides to go it alone, the 2004 season will become a litmus test on how well content owners can also double as distributors.
"For high-profile content like Major League Baseball or the National Football League, they certainly hold their destiny in their own hands," Goodman said. "They don't really need a front-end."