PPV Events Via Internet Still a Ways Off

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Pay-per-view event providers are looking to the Internet as
a viable outlet for distributing their live shows through online video steaming.

But these same distributors -- which already use the
Internet as a marketing and promotional vehicle -- also pointed to reasons why it's too
early to view the World Wide Web as a significant revenue outlet for PPV events: There are
still too few homes connected to the Web, and the technological standards for video
streaming are still on the primitive side.

With the PPV-addressable universe at only 31 million
households and growing slowly, event distributors are actively searching for other ways to
supplement the costs of producing and distributing their events. A number of providers
have already experimented with offering Web users a chance to view PPV events side-by-side
with cable as a way of expanding their base.

The fast-increasing percentage of homes with personal
computer modems has helped to fuel the move. Nearly 30 million U.S. households had PCs
with modems in 1997, up 11 percent over 1996 figures, according to Veronis, Suhler and
Associates' Communications Industry Forecast.

Thus far, event providers have used the Internet mostly as
a tool to help promote their PPV shows. Showtime Event Television and TVKO, for example,
offer online scoring of major fights through their Web sites, as well as fighter profiles
and other event-related information.

The World Wrestling Federation and World Championship
Wrestling feature sites that preview upcoming events and that host very active chat areas,
where fans chew the fat about the wrestlers and story lines.

But over the past 18 months, some distributors have
actually made their events available for downloading through their Web sites. Much like
PPV, users pay fees to watch the events, and they are drawing viewers.

The WWF is testing the format with its In Your House
events. While the company is only generating buys "in the low thousands" per
event, most of those sales are coming from non-addressable-cable homes, said Jim Byrne,
senior vice president of marketing for TitanSports Inc.

Semaphore Entertainment Group has been offering its Ultimate
Fighting Championship
events via the Internet since several major cable operators
boycotted the sport last year. The company has had moderate success: The UFC
averages about 1,000 buys per show, generating about $20,000.

With fewer than 8 million addressable cable households
offering the event -- most operators have refused to carry the mixed-martial-arts
franchise, due to its perceived violent nature -- the UFC already counts the
Internet as a major revenue stream.

"At this point, it is a very important part of our
business," said Robert Meyrowitz, president of SEG. "It's important for us in
terms of dollars and in terms of keeping the franchise available for our fans."

Playboy TV is also considering distributing video
programming via its popular Web site, according to sources close to the situation. The
company could be in a good position: The adult business is one of the few
subscription/PPV-related genres that has been successful on the Internet, and Playboy is
about to complete its purchase of Spice Entertainment Cos.

Representatives from Playboy Entertainment Group Inc. would
not return numerous phone calls.

POOR QUALITY

But many PPV distributors are not ready to put their events
on computer screens, mainly because they are difficult to watch on those screens. While
video-streaming technology has come a long way since the early 1990s, when viewers could
only receive a few frames per second, industry executives said picture quality is still
very poor.

And while several software companies are offering
video-streaming technology, industry observers said the current speed for most household
modems -- no greater than 56 kilobits per second, and usually less -- is too slow to
produce an image of the quality that television viewers are used to. The video is often
jumpy, and it lags behind the audio sound.

"We've tested some video streaming and it has not
lived up to what we've expected it to be," said Jay Hassman, director of PPV for WCW.

Said Patrick Keane, senior analyst for Jupiter
Communications, an Internet-analyst company, "If people are going to pay money to see
an event, the process better be seamless, and it has to be a good experience for the
consumer."

Even Byrne admitted that the WWF is a long way from
declaring video streaming as a major outlet for its product, since the technology still
suffers from a lot of hardware and software problems.

"We're looking for different ways to reach our fans,
and that's one way that we're exploring," Byrne said. "But it's purely a
learning experience for us, and it's something that's not imminent."

CABLE MODEMS

But industry observers said the advent of cable modems will
provide near-TV-quality pictures and sounds. With the ability to transmit data at speeds
10 times faster than current dial-up modems, the potential for distributing PPV events via
the Internet becomes more real.

"There have been major, major advances in streaming
technology in recent years, and some of it is very good," said Gregg Graff, senior
vice president and general manager of Insight Communications of Columbus, Ohio. "I'm
convinced that once cable modems are rolled out, it's a real business, particularly if
[events] are not offered on the cable side [via PPV]."

But significant penetration of cable modems is at least a
couple of years away. About 2.5 million cable homes currently have cable-modem capability,
and that number is only expected to increase to 15 million households by 2002, according
to Veronis, Suhler. With so few households receiving quality video-streamed signals, some
distributors feel that Internet PPV revenue is still some time away.

"It's a story that's not really ready to be told, yet
the sentence doesn't even begin with 'Once upon a time,'" Byrne said. "Its
future will depend on the convergence strategies of the cable companies."

Once modems are in the home, there's still some concern as
to whether people will buy video off the Internet. While online spending on information or
entertainment purchases nearly doubled in 1997, to $230 million, it averaged out to $10
per household, up only $2 over 1996, according to Veronis, Suhler.

And with the enormous amount of free content already
available on the Web, it will be difficult for companies to get a significant number of
people to buy events, Keane said.

"People are unwilling to pull out the credit card to
buy product over the Internet," Keane added. "It really isn't there yet, but
that's not to say that it won't happen over time."

"The challenge for all Internet services outside of
the adult business is: How are you going to make money?" said Bruce Leitchman,
director of media strategies for The Yankee Group.

Recognizing the inferior picture quality and the low
propensity for online sales, distributors are asking for less money for their Internet
broadcasts. SEG, for example is only charging $19.95 for its telecasts, $10 less than its
PPV suggested retail price. Nevertheless, Meyrowitz is still bullish on the future of
Internet PPV, especially if the so-called convergence of the PC and the TV set takes hold
with the advent of OpenCable within a few years.

"The technology is there, and it's getting better, so
why wouldn't people want to watch it that way?" he asked.

OPS UNFAZED

But for cable operators, Internet PPV events are barely
blips on the radar screen, and they don't constitute any threat to their traditional
business.

"Right now, we look at the Internet as a friend,"
said Robyn Remick, director of partnership marketing and PPV for Tele-Communications Inc.
"There may be a time when things are different, but as far as video quality right
now, compared with our digital product, we don't see a lot of competition."

Even with increased speed, executives said it still would
be difficult for a computer screen to emulate the viewing experience of watching a live
event on a television.

"I haven't seen a 56-inch computer screen yet,"
said Ted Hodgins, manager of PPV for Media General Cable of Fairfax County, Va. "I
just don't think anything replaces the experience of watching a live event on a TV."

In the interim, event providers are finding other ways of
using the Internet to supplement PPV revenues. WCW, for example, is offering audio feeds
of its shows through its Web site for $5.95.

Michael Weber, director of marketing for WCW, declined to
reveal buy figures for the audio feeds, but he said a free airing of last month's Halloween
Havoc
event generated 130,000 listeners.

As for the future, Weber feels that PPV distribution via
the Internet and cable will complement each other and give event providers another form of
revenue.

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