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Internet reality check

When the Internet economy was at its height, traditional-media companies felt threatened enough to pour billions into new media initiatives only to have them fall apart when the NASDAQ returned to earth.

That's not the way it will always be, though. There is a place on the Internet for broadcasters, cable operators and other media companies, say RealNetworks founder and CEO Rob Glaser and President and COO Larry Jacobson.

"It's certainly tricky if you're fundamentally a distribution-based business," says Glaser. "Previously, you were the only way to get a local audience. Now, there are other ways to get a local audience, and there are also other audiences that are interested in local programming."

RealNetworks' recent deals with Major League Baseball and the NBA underscore the opportunity and threat posed to local broadcasters. Under the MLB deal, the league exerted its right to reclaim streaming rights to baseball games from individual radio stations. And the NBA recently Webcast a basketball game that had viewers from 87 countries clicking in for the action.

"The essence of our Major League Baseball deal is that we give people access to their local programming wherever they are," says Glaser. "Additionally, we have also come up with new product offerings that are interactive in nature and aren't simply about taking advantage of holes in the ozone layer. There is no medium in the world other than the Internet that can let you pick the players on your fantasy team and watch their highlights."

Glaser enumerates the multitude of new issues that advances in streaming will create. As such technologies allow for a more compelling viewer or listener experience, the result is, potentially, a more compelling reason to turn away from traditional media for entertainment, news or other programming.

Jacobson notes, "The networks will continue to be important in creating a national experience and putting the whole marketing machinery behind it. But think about it like a book store: How many shelves in a bookstore are the new-release shelf versus the whole library aspect of it?"

And Glaser says RealNetworks' experience with the Gold Pass subscription service, which has 200,000 subscribers paying $10 a month for a variety of online entertainment services, is an example of how content owners and distributors may create viable business models.

"The success we're having with the Gold Pass tells us that some of the assumptions that were made, like that the Internet business model would have to be advertising-supported, were wrong." In fact, Glaser says, discussions with members of the film and television community suggest that those industries are looking to beat Napster-like services to the punch by offering subscription models. Because broadcasters and movie studios understand how windowing works, he points out, it may be easier for them to feel comfortable offering products via the Internet during a PPV or syndication window.

Jacobson adds that content providers and networks have always wanted to find new windows for shows. "We're just getting to the point where digital-rights-management security and bandwidth costs are starting to meet."

Once it's possible to offer the services easily, the issue will become one of pricing. Jacobson says, "We haven't commented publicly on the economics, but we wouldn't stand up and put our company's name on the line if we thought the products would be priced in a ridiculous way. And I would say that the $3 consumer downloads didn't have very much appeal."

For broadcasters hoping to cash in on the Internet with the help of online advertising, Glaser believes that will have a place. RealNetworks, he says, has a new advertising application that allows advertisements to be substituted, creating more-localized advertising opportunities. "It allows stations, starting with radio and eventually supporting TV, to do live substitution of advertising targeted for the Internet audience," he explains. "Once you know the ZIP code of who is getting it, you may want to deliver it based on the geography of the listener."

He also says it's important for current distributors of television content—whether via cable, satellite or broadcast signals—to realize that the Internet will have a ubiquitous presence in a household. "Whether it's the next-generation cable modems that flow Internet protocol to the PC and also flow it back to the set-top box remains to be seen, but we start with the PC because people have access to it."