March 22, 2004 4:30 PM PST

Microsoft, America Online to play MLB games

update Microsoft confirmed on Monday that it will offer live audio and video of Major League Baseball games onto PCs, heightening competition with rival RealNetworks and signaling rising costs for online video programming.

News.context

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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As CNET News.com first reported, the deal, worth as much as $40 million over two years, according to sources, is one of online sports programming's most expensive to date. MSN will offer these streams as part of MSN Premium, a $9.95-a-month software package that offers Net services and content. MSN's dial-up customers will only have access to MLB's live audio streams.

In addition, the software giant will sell MLB subscription packages through its MSN Web portal. MSN visitors can subscribe to MLB.com All Access, which includes live video and audio, for $19.95 a month or $99.95 a season; MLB.TV, a video-only subscription, for $14.95 a month or $79.95 a season; or MLB.com Gameday Audio, for the live radio broadcasts only, for $14.95 a season.

"We can now drive our subscriptions business in a way we were unable to drive it before," Yusuf Mehdi, MSN's corporate vice president, said in a telephone interview. Mehdi declined to comment on the terms of the deal but expressed confidence that it will be profitable.

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 free of charge to its AOL for Broadband members, most of whom pay $14.95 a month on top of their broadband bills for the service.

An AOL spokesman declined to comment on the deal.

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

"MSN's global reach, significant subscriber base and software innovation enable us to bring Major League Baseball to the most far-reaching audience in the most exciting way possible," Allan H. "Bud" Selig, commissioner of baseball, said in a statement.

A change in guard
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 (DSL) 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 the 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. As with MSN Video, Microsoft will sell advertising on top of all live video feeds. Microsoft's Mehdi, however, was unsure if ad spots will appear on MLB's March 28 opening day, when the New York Yankees face the Tampa Bay Devil Rays in Tokyo.

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 played out in its acquisition of Listen.com. It's unclear how ending the MLB contract 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 online distributors must pay for popular programming. Just like television networks that pay billions of dollars for rights to National Football League or the Olympics games, the Internet is quickly becoming 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."

 

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