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Yahoo tests paid-programming waters

Borrowing a page from RealNetworks' book, the Web portal tries to get a read on how willing visitors are to support a subscription-based streaming-media service.

Borrowing a page from RealNetworks' book, Web portal Yahoo is trying to get a read on how willing the market is to support a subscription-based streaming-media service.

The company this weekend began surveying its visitors to gauge whether people would pay for select audio and video programming through the site. Programs under consideration include movies on demand, soap-opera news, sporting events, professional wrestling and a reality show about single women called "Real Girls," according to the survey.

The survey also suggested that most programs on the service, dubbed "Platinum Entertainment from Yahoo," would run between $1 and $4.95 per month, while sports packages would cost $6.95 a month and movies on demand $2.95 per movie.

"The research team is always looking at premium services opportunities, and this is part of that research," said a Yahoo representative who did not want to be identified.

Over the past year, Yahoo has been experimenting with ways to implement fees for certain areas on its site. Executives have publicly stated their intention to expand their pool of "premium" services to decrease the company's reliance on the anemic advertising economy. In the last fiscal quarter, Yahoo reported that 28 percent of its sales were from e-commerce and premium services.

The company has tried to offer a number of premium services, including more storage in its popular free e-mail and photos sites, and began charging for once-free areas provided through its home-page publisher, GeoCities.

Executives also have said publicly that Yahoo will package its premium services into an upcoming broadband partnership with SBC Communications. SBC and Yahoo will co-market DSL (digital subscriber line) service to consumers, with SBC providing the access and Yahoo providing content.

"Once you have the pipe, you need to sell as many products and services down that pipe as possible," said John Corcoran, an analyst at CIBC World Markets. "Half (of Yahoo's) usage is from people with broadband connections at work."

The survey not only signals a possible departure from Yahoo's longtime adherence to offering multimedia content for free. In suggesting the possibility of a launch, it also underscores the decreasing willingness of content providers to give away their programming in exchange for traffic, asking instead for a cut of direct subscription revenue.

Indeed, in its latest annual report, the company details the potential issues in its relationship with content providers. Since the content Yahoo licenses on its site is closely tied to how well it can generate advertising dollars, changes in its agreements should content providers up the stake could have an adverse financial effect.

"We may be unable to enter into or preserve relationships with the third parties whose content we seek to obtain," read Yahoo's annual report filing to the Securities and Exchange Commission. "An increase in the prices charged to us by third-party content providers could have a material adverse effect on our business, operating results and financial condition."

Yahoo further disclosed that its marketing services revenue, which largely consists of advertising revenue, declined 44 percent in 2001 from the height of the dot-com boom in 2000. Although that was expected, Yahoo also disclosed that the cost of revenues, which includes paying third parties for content throughout its properties, increased by 5 percent in 2001 from the previous year.

"We currently anticipate that the cost of revenues will continue to increase modestly in absolute dollars in 2002, as network usage increases and additional content is introduced for new and enhanced services," according to the filing.

That means Yahoo is still figuring out how to grow revenue as the cost of content increases.

This shift among content providers was most evident in February when ABCNews.com decided to end its agreement with Yahoo. ABCNews.com wanted more up-front cash payments in exchange for its content, similar to what it was getting from RealNetworks' RealOne subscription service.

Platinum Entertainment from Yahoo would also represent a shot fired over RealNetworks' bow. RealNetworks launched its RealOne subscription service as a way to lure high-profile content providers such as Major League Baseball, ABCNews and E Entertainment by giving them a cut of subscription revenue. Yahoo may have to do the same to retain or attract content providers that will become crucial for its expansion into an entertainment destination. (CNET Networks, the publisher of News.com, is a RealOne content partner).

"Over time, I think content providers will want to get paid," said CIBC's Corcoran. "The question is, how much more do they want?"

News.com's Stephen Shankland contributed to this report