Streaming Video, News Sites Face Dilemma After Terror, War Boost Its Popularity

Online news clips are going pay-per-view. Earlier this month, AOL Time Warner Inc.’s CNN Interactive unit said it plans to begin charging for access to its streaming video, making it the most high-profile site yet to make such a move. Already, ABCNews.com and FoxSports.com are charging subscription fees for much of their video, and other big sites may soon follow suit.

WHILE WEB sites have been reluctant to charge for news articles, many now see charging for video as a no-brainer. “Streaming video that is not subscription-based is a stupid idea,” says Bernard Gershon, senior vice president and general manager of ABCNews.com, a unit of Walt Disney Co.’s Disney Internet Group.

This shift comes in the face of unprecedented interest in online video, due largely to the Sept. 11 terror attacks and fighting overseas. This success, while proving online video’s value as a news source, has also laid bare the troubling economics of piping video over the Internet. Put simply, sites generally lose money on every piece of free video served to users, meaning the more popular a video clip is, the more money they lose. And vice versa.

“I think what’s driving this is not some survey somebody found that said people are willing to pay for this,” says Paul Grabowicz, coordinator of the New Media Program at the University of California at Berkeley’s Graduate School of Journalism. “What I think is driving it, is that [video] is incredibly costly to do,” he says.

None of the sites contacted for this article would discuss specific costs of streaming media. But industry watchers say that offering audio and video clips on a large site can easily run between $1 million and $2 million a year. Introduce a major news event, and costs can skyrocket: The recent boom has been a bust in disguise, forcing sites to cut further costs, seek partners or otherwise refigure their strategies.

MSNBC.com’s experience is typical. The site, a joint venture of General Electric Co.’s NBC division and Microsoft Corp., served 73 million video streams in September alone, exceeding previous months “by a factor of ten,” according to editor-in-chief Merrill Brown.

Since September, the site has shouldered $1 million in additional expenses associated with hosting high-bandwidth videos, according to Mr. Brown. MSNBC.com laid off 9% of its 200 person staff in December, although Mr. Brown blames the layoffs on the lingering advertising recession rather than rising costs.

This shift comes a Web users are increasingly using the Net to get video — both at work, when they don’t have easy access to a television, and as a way to replay clips they’ve seen elsewhere. (CNN’s most-watched clips: footage of the second plane hitting the south World Trade Center tower, footage of the first plane hitting the north tower, and another angle of the second plane hitting the south tower.) Many sites now have prominent links to video on their front pages, and treat video as a more integral part of the site — rather than a flashy extra.

‘MILESTONE EVENT’

September 11 was a “milestone event for online video news,” says Mark Stencel, vice president for multimedia at Washington Post/Newsweek Interactive, a unit of Washington Post Co. The site served more than 12,000 hours of video that day, even though most of the clips available were only a few minutes long. “A globally significant story was breaking in the middle of a work day when people didn’t have access to a television,” Mr. Stencel says. “People wanted to see what was happening, not just read about it.”

On Sept. 11, Washingtonpost.com dispatched staffers to the Pentagon — which is visible from the company’s Arlington, Va., offices — to get live footage of the wreckage. While news producers shuttled footage of the disaster back from the Pentagon on bicycle, the site swung its roof-top Webcam — usually used for July 4 fireworks on the Mall — ninety degrees to the south to broadcast live reports.

Mr. Stencel says the live footage drew viewers to the video clips on the newspaper’s site. “It was that moment,” when users began to turn to the Web for video as well as text reports, he says.

Record audiences didn’t translate into more revenue, however. Many sites don’t run advertisements in their video clips, though they often run traditional Web ads on pages accompanying them. Sites that do run ads in video clips have had limited success.

For instance, spots similar to interactive television commercials appear on MSNBC.com’s video clips, and the site can charge more for these ads then typical banner ads, according to Mr. Brown. (He doesn’t disclose how much the site receives for these ads.)

But even with the ads, fancy multimedia features like streaming video and audio don’t yet pay for themselves, he concedes. MSNBC is exploring the possibility of charging for access to its video library. “We are, in concert with the people at [Microsoft unit] MSN, moving aggressively to come up with a subscription video strategy, which we think is definitely important.”

Other sites are already making that leap. ABCNews.com, for instance, in February canceled its agreement to provide streaming video and news reports to Yahoo Inc., explaining that the terms of the agreement were no longer “satisfactory.” The companies declined to comment on the specifics of the partnership. Instead, ABCNews.com has pursued partnerships with traditional phone and high-speed Internet provider BellSouth Corp. and software maker RealNetworks Inc., more attractive arrangements which provide streaming audio and video content on a subscription basis.

Although ABCNews.com does include free repackaged video clips from its nightly news with Peter Jennings, and other news programs, the site’s Mr. Gershon says that hooking up with partners like RealNetworks — which handles the payment and streaming from its end — is the only smart way to make money showing video.

ESTABLISHED USER BASE

Scott Ehrlich, RealNetworks’ vice president of programming, says that the subscription model lets content providers “increase revenue and decrease costs at the same time.”

CNN viewers will be able to pay $4.95 a month or $39.95 a year to access video directly through CNN’s Web site. Or they can see the clips through RealNetworks’ RealOne SuperPass, a $9.95 a month service, which also includes video from ABCNews.com, FoxSports.com and others, as well as audio from The Wall Street Journal Online and other providers.

RealNetworks says that RealOne is a “turnkey solution” for content providers, meaning that the company takes care of e-commerce infrastructure, including authentication and security, customer service, a delivery platform in its RealPlayer, and an established base of 500,000 paying subscribers across various services.

Other sites are exploring subscription options as well. Terra Lycos SA, which already charges for some areas of its portal Web site, is planning to introduce premium video and multimedia offerings for its broadband users, according to Mark Stoeber, vice president of media for Terra Lycos.

Washingtonpost.com, which shows video clips of daily news as well as more in-depth packages devoted to specific events like Sept. 11 or regional political conventions, says it is mulling over making some of its video content pay-per-view.

The Post’s Mr. Stencel says the site is exploring the idea of charging for access, but no subscription plan is imminent. The site is also looking at opportunities for advertising in video streams as well. “You don’t want to be in a position where success kills you,” he says.

CHALLENGES FOR NEWS SITES

But sites face an uphill battle getting Internet users to pay for access to anything. Only a handful of large publications — including The Wall Street Journal Online, Consumer Reports and the Financial Times — currently charge or plan to charge for their text content. So far, there’s been little evidence that the situation will be any different when it comes to paying for streaming media.

More people are watching video online than ever before: In January, 54.7% of the overall Internet audience were accessing streaming video and audio at work, according to research firm Nielsen/NetRatings, up from 50.9% the year before. But a separate survey released Monday by Jupiter Media Metrix found that only 42% of online adults expect people over time to pay for content on the Internet — down from 45% when the question was asked in August 2000.

One major test for video came last year, when 115,000 baseball fans paid $9.95 at MLB.com (www.mlb.com) to listen to a season’s worth of games.

Patrick Keane, an analyst at research firm Jupiter, calls the numbers unimpressive, but blames slow rollouts of high-speed connections, which make multimedia streaming more practical and boost quality. Until at least 20% of Internet users have high-speed connections, video use online won’t reach “a critical mass,” he says. Last year, 9% of U.S. households with Internet access had high-speed connections, according to Jupiter, which projects that broadband connections will make up 40% of online access by 2006.

In the meantime, he says, if MLB failed to find a critical mass — with loyal fans and exclusive content — it’s unlikely that news sites will do much better charging for content that is widely available elsewhere.

A spokesman for MLB.com counters that because the subscription service was introduced midway into last year’s season, the numbers don’t accurately reflect total demand for the product. In fact, the operation is rolling out a variety of new subscription offerings this season in anticipation of increased interest in premium products.

Mitch Gelman, senior vice president and executive producer at CNN.com, acknowledges that people accustomed to free video will have to make adjustments. “It will at first be a transition [users] will have to make,” he says, but necessary to keep up the level of service. He said it reflects a shift toward a cable-television model, where users are shown advertising but also pay a fee.

Moreover, the phenomenon of Sept. 11 may not translate into increased long-term demand for streaming video of daily news. People who watched video of terrorist attacks and overseas bombings aren’t necessarily going to watch more-mundane events — much less pay for it.

In the absence of any real numbers or track record, “All the major news organizations are experimenting and exploring,” says the Post’s Mr. Stencel. “Anybody who pretends to know what they’re doing — well, it’s very early radio.”

Copyright © Stephanie Miles (Nick Wingfield contributed to this article).