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Yahoo launches pay-for-play gaming

update The company will sell a premium service for online game players, another step in the Web giant's quest to squeeze out profits during an industrywide advertising slump.

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Special report: Analysts skeptical of online console gaming
Melissa Francis, correspondent
update Yahoo announced Thursday that it will sell a premium service for online game players, another step in the Web giant's quest to squeeze out profits during an industrywide advertising slump.

As previously reported, Yahoo Games All-Star won't offer any new games from Yahoo's current lineup of card, board and word games on its free Yahoo Games site, although Yahoo executives said exclusive content may be offered to subscribers in the future.

For now, the service will offer extra services for players, including the ability to set up private game rooms, where players won't have to deal with "the riffraff in the public rooms," according to a Yahoo promotion.

Other premium services will include tools for running tournaments and leagues and voice chat capability. Subscription prices are $7.95 a month, $19.95 for three months, or $59.95 for a full year.

Dan Hart, senior director of games and entertainment for Yahoo, said the selection of new features was based to a large degree on user feedback.

"What we heard is that users want to take more control over their experience in the games, both in the community aspect and the game play," he said. "The ability to be the leader of your own league and set the rules in that environment was an idea people really liked. We think this will make it easier for people to focus on having fun."

Yahoo Games is the second most popular games site, after Electronic Arts' Pogo.com service, according to recent Nielsen/NetRatings rankings. Yahoo reports it hosts more than 3.5 billion minutes of online game play per month.

But online games have been a tough business proposition. While fantasy role-playing games such as "EverQuest" have attracted substantial subscription-paying audiences, the vast majority of online play centers on free, advertising-supported games such as checkers or cribbage.

While most paid gaming services have focused on offering exclusive content, Yahoo's premium-blend approach could pay off, said IDC gaming analyst Schelley Olhava.

"I think there's going to be a lot of experimentation about how to get money from online gaming," she said. "The bottom line is that if you're going to start charging people, you have to offer some significant improvement of the game experience."

While declining to give specific numbers, Hart said games have become one of the more profitable parts of the Yahoo empire.

"This is an enhancement to the ad revenue we're seeing from games; it's not at all a reaction to the business model not working on that side," he said. "We've done well on the advertising side, but to really scale the business and keep our strategy moving forward, it's important to us to start putting out services that are worth paying for."

Yahoo has instituted a flurry of user changes in the past few weeks, canceling its popular online invitation service and charging fees for previously free services such as e-mail forwarding and online data storage.

Now that Yahoo has established itself as a primary gateway to Internet content and services, it makes sense to start squeezing extra revenue from popular services, said Jeetil Patel, an analyst at Deutsche Banc Alex Brown.

"This is the time to start positioning yourself as more of a premium company," he said, adding that Yahoo Games, with a large and loyal customer base, is a natural early target.

"You're playing a percentage game," Patel said. "If you even get 10 percent of that game audience to go for the premium service, that's going to have positive impact on top-line revenue."

John Corcoran, an analyst at CIBC World Markets, said Yahoo needs to be selective in its free-to-fee migration.

"The company is really going service by service, offering by offering, and saying, 'How can we make money off this?'" Corcoran said. "To me, that makes eminent sense...If you start going item for item and charging for things that were free, you're going to drive away a lot of traffic. What you want is a smooth transition to get people used to paying for some premium services."