[M4IF Discuss] News: Web Sites Face Dilemma After Terror

[Craig Birkmaier]

http://online.wsj.com/article/0,,SB1014732596730915280,00.html?mod=technology%5Ffeatured%5Fstories%5Fhs
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NEW MEDIA
Web Sites Face Dilemma After Terror, War Boosted Popularity of Video Clips
CNN, Other Sites Look to Subscription Plans As Way to Cut Usage, 
Better Recoup Costs
By STEPHANIE MILES
THE WALL STREET JOURNAL ONLINE
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 
rejigger 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 an 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."
-- Nick Wingfield contributed to this article.
Write to Stephanie Miles at stephanie.miles   wsj.com
Updated March 19, 2024 12:48 a.m. EST