New Era?: UFC Debuts on Yahoo! Pay-per-view

UFC 82 may ultimately be remembered as a milestone in the MMA industry, the first pay-per-view event distributed online by Yahoo! Sports. As part of a clever promotional campaign, and convenient beta testing program, Yahoo! made the online feed available for free to members of the online media. The results, at least based on my personal experience, were sterling.

I consider myself somewhere in the middle of the great technology divide that separates the tech savvy from the technophobe. Two simple cable connections, one quick scan of a randomly Googled (my apologies to Yahoo!) how to guide, and ten minutes later my television was broadcasting the Yahoo! internet feed in picture perfect quality.

At the risk of sounding like a cheap shill whose opinion was bought and sold for $44.95, the quality of the feed was impeccable and the experience was surprisingly painless. Outside of the fact that I was unable to take advantage of my full television screen, which I presume was the result of own ineptitude and/or personal technological limitations, there was no discernible difference between the standard pay-per-view experience and the Yahoo! pay-per-view experience.

That said, there is also no discernible benefit to buying the online version, at least for now. Yahoo! touted that the replay is available for 24 hours following its conclusion and it can be viewed by fight/chapter, but noticeably missing is the greatest promise of internet pay-per-view, a lower price tag.

Assuming that the basic assumptions about internet pay-per-view are true, then theoretically Zuffa has every incentive to drive business online by offering a lower price point. In theory the move would be more than compensated by a more favorable revenue split (with Yahoo! as compared to cable distributors, although as Zuffa's stature has increased, so has its leverage with distributors) and increased buys as a result of a lower price point.

But that will not happen anytime soon because Zuffa (or WWE or HBO Boxing) simply cannot risk raising the ire of the traditional television pay-per-view industry by aggressively driving consumers online with more attractive price points and a value added product. While the balance of power is shifting, the online revolution is simply not mature enough to sustain the company.

The traditional pay-per-view industry would retaliate against any move that threatened to cannibalize it. The UFC product could be deemphasized by cable and satellite distributors with dire results for Zuffa's bottom line. Put simply, the current dominant pay-per-view distributors could literally run Zuffa out of business by cutting the marketing, specifically direct targeted marketing, and placement of UFC events before Zuffa could successfully convert its audience online.

As an example, assume that Zuffa began offering UFC events on Yahoo! for $23, roughly half the price of what traditional cable or satellite providers currently charge. It is likely that those providers have most favored nation status when it comes to UFC pay-per-view, meaning they have first right of refusal on price point. They would likely balk at a significantly lower exclusive online price point.

Zuffa has already experienced a mild rebuke from the traditional distributors after it experienced early success with online streaming, thanks at least in part to a heavy promotional push for UFC.com and UFC on Demand during its pay-per-view broadcasts. As a result of pressure from the distributors, Zuffa stopped marketing its online pay-per-view steam in 2006, but maintained the product on its own website.

So if prices cannot be reduced, at least in the near term, what can Yahoo! offer that traditional pay-per-view cannot or will not? That is the (multi) million dollar question and one that the online world is waiting for the answer to.

One likely value added feature is exclusive content in the form of extra fights that cannot be shown on cable/satellite because of maximum time commitments. Yahoo!’s greatest advantage as a distributor might be its unlimited platform, in terms of time, allowing it to provide virtually endless extra content. It remains to be seen what other tricks Yahoo! may have up its sleeve in the pending pay-per-view arms race.

A new era may be dawning in the MMA industry in the form of online pay-per-view streaming, but its zenith is years away. Until then Yahoo! will spend its time refining the logistics of the new platform and quietly exposing consumers to its possibilities. The future is coming, but its not here yet.