Five ways the big networks are monetizing online video

Application Up-sells (MLB)

    Major League Baseball's approach to online content is a lot like the Oakland Athletics' "Moneyball" approaach -- both innovative and tightfisted. At $119, MLB.TV's season-long pass is no great bargain, but it's right in line with television-bundled options from cable and satellite providers. Yet as if the price of admission wasn't high enough, the service's best parts -- the At Bat mobile apps which provide on-the-go access -- cost even more. Last year the app cost $9.99 on Apple's App store, and this year (similar to how stadium ticket prices keep climbing), the iPhone, Android and Blackberry apps cost $14.99. In addition, Apple customers with iPads and iPhones have to pay for each device's application individually, and the applications expire at the end of the season. As can be imagined, fans have been outspoken on the price gouging, but baseball's brass are enjoying the financial spoils of playing hardball: MLB At Bat 2010 is one of the year's top grossing apps in iTunes, and its back-end technology has been licensed to run ESPN3.

Affiliate Model (ESPN3)

    ESPN's new online video site, ESPN3, takes a page from cable television's playbook by generating revenue from affiliate fees charged to Internet Service Providers. In exchange for the fees, ISP subscribers can access content on ESPN3's web site -- programming that includes more than 3,500 live events from across the globe. "It's sort of like the new Wide World of Sports in a certain way," says John Kosner, ESPN's senior vice president of digital media. As a result of these affiliate agreements, the service is already available in more than 50 million broadband homes and is available for free to 21 million college users and U.S. military servicemembers around the globe.

    The revenue model is unique to ESPN in the online space, and is remarkable in its scope. Sports content is some of the most expensive programming to produce, and as such, ESPN is one of the most expensive networks for cable companies to maintain. "It's among the most valuable channels that they have, the most valuable by fans and advertisers," says Kosner. "It's a high quality product and there's an expense to acquire, produce and distribute that."

    In fact, says Kosner, the cost is so high that ESPN couldn't shoulder it alone. A major difference between television and Internet distribution is that the more people who watch online, the higher the distribution (or bandwidth) costs. "There's a lot of demand for the inventory on ESPN3," he says. "We don't think it would be successful as a strictly ad-supported project."

    Though programmers are making money, it remains to be seen which model will emerge as the standard for online television revenue. "To say that one model fits everybody, is not accurate," says Hulu's Wei. "We'll continue to have multiple models, and over time, content providers will continue to learn which model generates the most revenue for them." And for consumers, the upside is that they'll be less likely to be blacked out in the future. The downside, however, is at what cost? For now, there's still nothing simpler than flipping on the cable box, sitting back, and watching grown men play a child's game.