AD REVENUE AT TIME WARNER'S AOL increased by $548 million last year, marking a 41% surge from 2005, the company reported Wednesday.
"Advertising revenues reflected strong growth in display advertising, advertising run on third-party Web sites generated by Advertising.com and paid-search advertising," the company stated in its SEC filing.
Despite the ad surge, overall revenue at AOL fell to $7.9 billion last year--marking a 5% drop, which the company said was largely due to a $971 million loss of subscription revenue. AOL last August dropped subscriber fees for people connecting via broadband as part of a plan to increase ad dollars by drawing more visitors and keeping them on the site as long as possible, in order to serve more ad impressions.
At the time the company dropped its fees, 6.2 million U.S. subscribers with broadband connections paid $15 a month for their AOL e-mail addresses and other services. In the fourth quarter, the company lost 2 million subscribers, bringing the total number of AOL paid U.S. members to 13.2 million.
Fourth-quarter defections, however, came in lower than some estimates. Merrill Lynch had anticipated at least 2.25 million fourth-quarter subscriber departures, the brokerage house said in a report Wednesday.
MediaPost.com
Thursday, February 1, 2007
NBC: Viewers Catch Up Online
MOST WEB USERS WHO HAVE streamed prime-time shows on NBC.com did so after missing the episode on its original air date, but a large proportion also went online to watch a show a second time. Those are among the findings of a report issued Wednesday by NBC Universal.
Seventy-eight percent of the users of NBC Rewind--the network's full-length online video player--said they have streamed a program because they missed it when originally broadcast. But 26% said they have streamed an episode they already saw on the air, and 34% have watched a program they had never seen before.
Starting last October, NBC made full episodes of "Heroes," "30 Rock," "Friday Night Lights," "Las Vegas," "Studio 60" and "My Name Is Earl" available on NBC.com for streaming. Joining the roster this year are "Grease: You're The One That I Want" and "The Apprentice."
NBC also reported that more than 60% of users stream full episodes on the site. To date, 6.9 million users have streamed almost 42 million videos on the site, according to NBC.
For the report, research company Insight Express surveyed 1,520 visitors to the site between Nov. 14 and Dec. 18.
MediaPost.com
Seventy-eight percent of the users of NBC Rewind--the network's full-length online video player--said they have streamed a program because they missed it when originally broadcast. But 26% said they have streamed an episode they already saw on the air, and 34% have watched a program they had never seen before.
Starting last October, NBC made full episodes of "Heroes," "30 Rock," "Friday Night Lights," "Las Vegas," "Studio 60" and "My Name Is Earl" available on NBC.com for streaming. Joining the roster this year are "Grease: You're The One That I Want" and "The Apprentice."
NBC also reported that more than 60% of users stream full episodes on the site. To date, 6.9 million users have streamed almost 42 million videos on the site, according to NBC.
For the report, research company Insight Express surveyed 1,520 visitors to the site between Nov. 14 and Dec. 18.
MediaPost.com
Times Exec Questions Online Subscription Model
HIDING THE NEW YORK TIMES' premium content behind a paid wall could potentially scare off new generations of readers, Nicholas Ascheim, the company's director of entertainment, video and audio products, said Wednesday at the Software & Information Industry Association's Information Industry Summit in New York.
"New generations will never get exposed," Ascheim said during a panel discussion on Web monetization with moderator and MarketWatch columnist Jon Friedman. Although he said TimesSelect had been successful so far, he added that the company still needs "more time to experiment."
Randy Kilgore, fellow panelist and chief revenue officer at video ad network Tremor Media, added that many online publishers struggle to find the right revenue model.
"We see a lot of confusion in the marketplace," he remarked. "We're working with thousands of sites with tons of video, but without a clear strategy of how to monetize."
The afternoon panel--which took place the same day that the Times Co. released fourth-quarter earnings--was titled "Multimedia Monetization: Business Models in a Broadband World." Yet according to Ascheim, the Times' top priority at the moment is not money, but cultivating readers. "The strategy is to build an audience."
"I think we're only 5% down the road," said Ascheim, speaking generally about the growth potential of "content and the audience around it."
For the time being, at least, things seem to be moving in that direction. For the fourth quarter, the Times Co.'s online revenue grew 42% to $84.8 million from $59.7 million in the fourth quarter of 2005. For the full-year 2006, Internet revenues rose 41.2% to $273.9 million from $193.9 million in 2005. (Excluding an additional week in the quarter, Internet revenues grew 35.3% in the fourth quarter and 39.2% for the full year.)
In total, the Times Co.'s Internet businesses accounted for 9.1% of all revenues in the fourth quarter, versus 6.7% in the fourth quarter of 2005. For the year, Internet revenues accounted for 8.3% of total revenues compared with 6% in 2005.
The Times' Internet businesses include its digital archives, NYTimes.com, Boston.com, and About.com, along with Web sites of other newspaper properties.
Late last year, the Times reported that TimesSelect had brought in roughly $6 million in revenue since its launch in late 2005, and attracted 198,690 online subscribers. Those nearly 200,000 consumers represent 37% of the total TimesSelect audience--the majority made up of paying print subscribers.
As for this year, the Times said it expected revenues from Internet-related businesses to grow approximately 30%, or $350 million--mainly from organic growth.
In addition, Times readers will get the opportunity to contribute their own content to NYTimes.com in the very near future, said Ascheim, noting the benefit of user-generated media to the bottom line. "Using consumer content is interesting, because it allows you to increase content without cost," he said.
MediaPost.com
"New generations will never get exposed," Ascheim said during a panel discussion on Web monetization with moderator and MarketWatch columnist Jon Friedman. Although he said TimesSelect had been successful so far, he added that the company still needs "more time to experiment."
Randy Kilgore, fellow panelist and chief revenue officer at video ad network Tremor Media, added that many online publishers struggle to find the right revenue model.
"We see a lot of confusion in the marketplace," he remarked. "We're working with thousands of sites with tons of video, but without a clear strategy of how to monetize."
The afternoon panel--which took place the same day that the Times Co. released fourth-quarter earnings--was titled "Multimedia Monetization: Business Models in a Broadband World." Yet according to Ascheim, the Times' top priority at the moment is not money, but cultivating readers. "The strategy is to build an audience."
"I think we're only 5% down the road," said Ascheim, speaking generally about the growth potential of "content and the audience around it."
For the time being, at least, things seem to be moving in that direction. For the fourth quarter, the Times Co.'s online revenue grew 42% to $84.8 million from $59.7 million in the fourth quarter of 2005. For the full-year 2006, Internet revenues rose 41.2% to $273.9 million from $193.9 million in 2005. (Excluding an additional week in the quarter, Internet revenues grew 35.3% in the fourth quarter and 39.2% for the full year.)
In total, the Times Co.'s Internet businesses accounted for 9.1% of all revenues in the fourth quarter, versus 6.7% in the fourth quarter of 2005. For the year, Internet revenues accounted for 8.3% of total revenues compared with 6% in 2005.
The Times' Internet businesses include its digital archives, NYTimes.com, Boston.com, and About.com, along with Web sites of other newspaper properties.
Late last year, the Times reported that TimesSelect had brought in roughly $6 million in revenue since its launch in late 2005, and attracted 198,690 online subscribers. Those nearly 200,000 consumers represent 37% of the total TimesSelect audience--the majority made up of paying print subscribers.
As for this year, the Times said it expected revenues from Internet-related businesses to grow approximately 30%, or $350 million--mainly from organic growth.
In addition, Times readers will get the opportunity to contribute their own content to NYTimes.com in the very near future, said Ascheim, noting the benefit of user-generated media to the bottom line. "Using consumer content is interesting, because it allows you to increase content without cost," he said.
MediaPost.com
Michael Dell Heads Back To The CEO Chair
MICHAEL DELL HAS TAKEN BACK the day-to-day running of the company he founded, and is replacing Kevin Rollins as CEO, Dell Computer announced yesterday.
"The Board believes that Michael's vision and leadership are critical to building Dell's leadership in the technology industry for the long term," said Samuel A. Nunn, presiding director of Dell's Board. "There is no better person in the world to run Dell at this time than the man who created the Direct Model and who has built this company over the last 23 years."
Dell founded the company in 1984 with $1,000 and an unprecedented idea--to bypass the middleman and sell computer systems directly to the customer. He has served as the company's Chairman of the Board since its founding, and served as CEO until 2004.
"Dell has tremendous opportunities ahead of it," said Dell. "I am enthusiastic about Dell 2.0, which includes our plan to provide the best customer experience, build a strong global services business and ensure our products deliver the best long-term customer value."
The company also said that it expects its fourth-quarter Fiscal Year 2007 results to be below the average of First Call estimates for both revenue and earnings per share.
MarketingDaily.com
"The Board believes that Michael's vision and leadership are critical to building Dell's leadership in the technology industry for the long term," said Samuel A. Nunn, presiding director of Dell's Board. "There is no better person in the world to run Dell at this time than the man who created the Direct Model and who has built this company over the last 23 years."
Dell founded the company in 1984 with $1,000 and an unprecedented idea--to bypass the middleman and sell computer systems directly to the customer. He has served as the company's Chairman of the Board since its founding, and served as CEO until 2004.
"Dell has tremendous opportunities ahead of it," said Dell. "I am enthusiastic about Dell 2.0, which includes our plan to provide the best customer experience, build a strong global services business and ensure our products deliver the best long-term customer value."
The company also said that it expects its fourth-quarter Fiscal Year 2007 results to be below the average of First Call estimates for both revenue and earnings per share.
MarketingDaily.com
Are Google investors getting spoiled?
Even though Google (GOOG) managed to blow away fourth-quarter earnings on Jan. 31, its shares fell by about 1% in extended trading. The sellers may have missed the real import of the search giant's report: More than ever, it's got the entire advertising world in its sights. And this year, Google will come out with guns blazing.
Investors, who had boosted the stock 1.5% before the report, may have hoped for a little stronger revenue growth vs. the third quarter than the 20% Google reported. "Expectations got ahead of themselves," says Scott Devitt, an analyst with Stifel, Nicolaus. But mostly, some investors decided to pocket some profits following a 10% rise in the stock so far this year.
A New Light
And Google had profits to spare. It earned $1.03 billion, nearly triple a year ago, on a 67% jump in revenues, to $3.2 billion. This was the ninth of 10 quarters as a public company that Google, which now accounts for about a quarter of all online advertising, outperformed expectations.
The big drivers this quarter: strong growth in traffic thanks to holiday shopping and improvement in the effectiveness of ads placed alongside Google's search results. In fact, according to Chief Executive Eric Schmidt, Google is showing fewer ads per search on average but is making more money because it's more carefully targeting ads to the most commercial sites. "The targeting and the technical work that we are doing is producing better return for advertisers, better revenue for us, with even fewer advertisements," he told analysts during a conference call.
Perhaps most interesting for Google's future, it's now apparent that advertisers are viewing search—and Google—in a new light. Up to this point, search ads have been almost solely considered a direct-response medium, where advertisers can measure how many people they reached by tracking the number of clicks and subsequent purchases or other activity.
Aiming Big
Now, many advertisers are starting to use search ads for branding, like more traditional ads. That means companies will place ads through Google to send a message or promote a product generally, and not necessarily to get customers to take an immediate action, such as going to the Web site or purchasing an item online. "Our advertisers are now placing more brand advertising," Sergey Brin, Google co-founder and president of technology, said in the analyst call. And it appears to be working, says John Aiken, managing director at Majestic Research. "They're benefiting from people searching online and purchasing offline," he says.
The trend among brick-and-mortar retailers and even consumer-packaged-goods giants to use Google search ads for branding has made search ads more expensive for small advertisers (see BusinessWeek.com, 1/22/07, "The Small Fry Sour on Search Ads"). But it's a boon for Google. And ad agencies confirm that it's starting to take off. "Search can be a very good branding tool," says Jason Schulman, chief revenue officer for X+1, which helps companies refine their online marketing efforts.
Indeed, Google executives signaled in the clearest way yet their expansive intentions: The company aims to offer a "complete sales and marketing platform for all advertisers," Brin said. "We're talking to advertisers about using Google for all kinds of advertising," added Schmidt. For instance, Volvo, Procter & Gamble (PG), and OfficeMax (OMX) all placed image and video ads on Google's networks.
Ad Capture
Google is rapidly adding new places to advertise as well, with more to come this year. It bought the video phenom YouTube last October, and it has done deals with radio stations and newspaper groups to handle local ads. "Anything Google's selling, we're buying for clients," says Bill Wise, CEO of Did-It Search Marketing.
Schmidt even implied that television advertising was ripe for Google to handle. He said Google's targeting technology can "really apply well" to TV, and allow television stations to charge much higher rates for that targeting. He said there was an opportunity for Google to use data from TV set-top boxes, which have unique Internet addresses, to do that targeting.
Beyond its evident expansion into new territory, Google also simply continues to outmaneuver competitors such as Yahoo! (YHOO) and Microsoft (MSFT)—on both search and accompanying ads. Despite those two companies' efforts to catch up—Yahoo with Project Panama, a new search ad ranking system that starts rolling out in February—Google is expected to capture two-thirds of the search ad market this year, according to the e-business research firm eMarketer. "When a company starts advertising, it tends to go one place, and that's Google," says John Aiken, managing director at Majestic Research.
Spending Spree
Google's fourth-quarter results raised a couple of concerns, though none major. The company's so-called traffic acquisition costs, or TAC, which it pays to partners, looks to rise this year. That's because Google will have to pay more to recent partners such as eBay (EBAY) and News Corp.'s (NWS) MySpace, as well as new partners, as it moves further into radio and video advertising. "We may see additional pressure on TAC rates," said Chief Financial Officer George Reyes.
Google also spent heavily on some new initiatives. Google Checkout, its payment system, ran widespread promotions, offering consumers up to $20 off purchases to try it out and giving sites using it a price break on Google ads. The company said that this helped it get a quarter of the Web's top retailers to use it. Moreover, they found that Google Checkout logos prompted more people to click through on ads, benefiting those merchants. But Reyes said the promotions essentially cost the company 1 percentage point in revenue growth.
And Google's capital spending continued at a fast pace. It totaled $367 million in the quarter and $1.9 billion in 2006, mostly on data centers, servers, and networking gear. The company said it expects to continue making "significant" capital expenditures this year. Moreover, the company hired nearly 1,300 people in the fourth quarter alone, up 14%, and analysts expect that growth to continue.
Ultimately, analysts also want to see Google diversify its revenue stream, which remains 99% advertising. In coming weeks, for instance, Google is expected to introduce a paid version of its corporate office-productivity services, called Google Apps for Your Domain. But such initiatives will take a while to develop. For the time being, though, Google's opportunities appear to outweigh its challenges.
BusinessWeek.com
Investors, who had boosted the stock 1.5% before the report, may have hoped for a little stronger revenue growth vs. the third quarter than the 20% Google reported. "Expectations got ahead of themselves," says Scott Devitt, an analyst with Stifel, Nicolaus. But mostly, some investors decided to pocket some profits following a 10% rise in the stock so far this year.
A New Light
And Google had profits to spare. It earned $1.03 billion, nearly triple a year ago, on a 67% jump in revenues, to $3.2 billion. This was the ninth of 10 quarters as a public company that Google, which now accounts for about a quarter of all online advertising, outperformed expectations.
The big drivers this quarter: strong growth in traffic thanks to holiday shopping and improvement in the effectiveness of ads placed alongside Google's search results. In fact, according to Chief Executive Eric Schmidt, Google is showing fewer ads per search on average but is making more money because it's more carefully targeting ads to the most commercial sites. "The targeting and the technical work that we are doing is producing better return for advertisers, better revenue for us, with even fewer advertisements," he told analysts during a conference call.
Perhaps most interesting for Google's future, it's now apparent that advertisers are viewing search—and Google—in a new light. Up to this point, search ads have been almost solely considered a direct-response medium, where advertisers can measure how many people they reached by tracking the number of clicks and subsequent purchases or other activity.
Aiming Big
Now, many advertisers are starting to use search ads for branding, like more traditional ads. That means companies will place ads through Google to send a message or promote a product generally, and not necessarily to get customers to take an immediate action, such as going to the Web site or purchasing an item online. "Our advertisers are now placing more brand advertising," Sergey Brin, Google co-founder and president of technology, said in the analyst call. And it appears to be working, says John Aiken, managing director at Majestic Research. "They're benefiting from people searching online and purchasing offline," he says.
The trend among brick-and-mortar retailers and even consumer-packaged-goods giants to use Google search ads for branding has made search ads more expensive for small advertisers (see BusinessWeek.com, 1/22/07, "The Small Fry Sour on Search Ads"). But it's a boon for Google. And ad agencies confirm that it's starting to take off. "Search can be a very good branding tool," says Jason Schulman, chief revenue officer for X+1, which helps companies refine their online marketing efforts.
Indeed, Google executives signaled in the clearest way yet their expansive intentions: The company aims to offer a "complete sales and marketing platform for all advertisers," Brin said. "We're talking to advertisers about using Google for all kinds of advertising," added Schmidt. For instance, Volvo, Procter & Gamble (PG), and OfficeMax (OMX) all placed image and video ads on Google's networks.
Ad Capture
Google is rapidly adding new places to advertise as well, with more to come this year. It bought the video phenom YouTube last October, and it has done deals with radio stations and newspaper groups to handle local ads. "Anything Google's selling, we're buying for clients," says Bill Wise, CEO of Did-It Search Marketing.
Schmidt even implied that television advertising was ripe for Google to handle. He said Google's targeting technology can "really apply well" to TV, and allow television stations to charge much higher rates for that targeting. He said there was an opportunity for Google to use data from TV set-top boxes, which have unique Internet addresses, to do that targeting.
Beyond its evident expansion into new territory, Google also simply continues to outmaneuver competitors such as Yahoo! (YHOO) and Microsoft (MSFT)—on both search and accompanying ads. Despite those two companies' efforts to catch up—Yahoo with Project Panama, a new search ad ranking system that starts rolling out in February—Google is expected to capture two-thirds of the search ad market this year, according to the e-business research firm eMarketer. "When a company starts advertising, it tends to go one place, and that's Google," says John Aiken, managing director at Majestic Research.
Spending Spree
Google's fourth-quarter results raised a couple of concerns, though none major. The company's so-called traffic acquisition costs, or TAC, which it pays to partners, looks to rise this year. That's because Google will have to pay more to recent partners such as eBay (EBAY) and News Corp.'s (NWS) MySpace, as well as new partners, as it moves further into radio and video advertising. "We may see additional pressure on TAC rates," said Chief Financial Officer George Reyes.
Google also spent heavily on some new initiatives. Google Checkout, its payment system, ran widespread promotions, offering consumers up to $20 off purchases to try it out and giving sites using it a price break on Google ads. The company said that this helped it get a quarter of the Web's top retailers to use it. Moreover, they found that Google Checkout logos prompted more people to click through on ads, benefiting those merchants. But Reyes said the promotions essentially cost the company 1 percentage point in revenue growth.
And Google's capital spending continued at a fast pace. It totaled $367 million in the quarter and $1.9 billion in 2006, mostly on data centers, servers, and networking gear. The company said it expects to continue making "significant" capital expenditures this year. Moreover, the company hired nearly 1,300 people in the fourth quarter alone, up 14%, and analysts expect that growth to continue.
Ultimately, analysts also want to see Google diversify its revenue stream, which remains 99% advertising. In coming weeks, for instance, Google is expected to introduce a paid version of its corporate office-productivity services, called Google Apps for Your Domain. But such initiatives will take a while to develop. For the time being, though, Google's opportunities appear to outweigh its challenges.
BusinessWeek.com
Yahoo's Puzzling "Brand Universe"
Yahoo is cooking up new media model — one that involves creating little-to-no content. The company is harnessing its ability to build online audiences around brands, something it trumpeted at a media lunch held Tuesday at its Sunnyvale headquarters.
Throughout presentations from the Yahoo Media Group, a part of the new “Audience” division, the key word, uttered more times than we could count, was “promotions.” And so, in both overt and subtle fashion, Yahoo is a company transitioning itself into what’s essentially a marketing platform.
We’ve all wondered how Yahoo will emerge from the shadow of Google and its peanut butter demons1. Many have long said Yahoo should define itself as a media company and get out of this technology game. Perhaps a compromise is for Yahoo to put its long-nurtured skills at attracting internet traffic as well as its favored status among brand advertisers to good use.
The most obvious example of Yahoo’s increasing bent towards marketing is its new “Brand Universe” initiative, announced2 in November. The company will tie together its disjointed properties — such as search, groups, Flickr, Answers, avatars — to lead back to pages about a certain pop culture topic — for instance, Nintendo’s Wii3.
The discriminating factor here is popularity, not biz dev deal-making. Monetization is almost an afterthought; it will be varied on a case-by-case basis, and in some instances, the company that owns the brand will not even be involved, said Vince Broady, head of games and entertainment, over and over again to a bevy of incredulous reporters.
“Our whole purpose is to support their brand,” insisted Broady. “In some cases revenue sharing is not a huge priority.”
Yahoo says it will launch 100 such pages by year’s end; next up are the Sims, Halo, Lost, the Office, Transformers, and Harry Potter.
“Brand Universe” may be the most explicit projection of Yahoo’s increasing orientation towards marketing, but there are many others. A presentation about Yahoo TV and Yahoo Movies emphasized promoting pilot episodes and movie premieres4; an overview of Yahoo Music highlighted contests, online-only tracks, and the ability of the site to measure buzz about a new single.
Throughout the presentations, original content efforts were clearly deemphasized. Scott Moore, head of news and information, repeatedly labeled Kevin Sites’ war-zone reporting on Yahoo News5 “good PR.” C’mon now people, that’s what you tell analysts, not reporters!
The marketing business may not be Google-big, but it’s something Yahoo can do well. So far, however, the talk about monetization is lackadaisical. That’s most likely a result of the recent Yahoo reorg, which leaves the financial stuff to an entirely different division. Now that could be a bit of a problem.
Throughout presentations from the Yahoo Media Group, a part of the new “Audience” division, the key word, uttered more times than we could count, was “promotions.” And so, in both overt and subtle fashion, Yahoo is a company transitioning itself into what’s essentially a marketing platform.
We’ve all wondered how Yahoo will emerge from the shadow of Google and its peanut butter demons1. Many have long said Yahoo should define itself as a media company and get out of this technology game. Perhaps a compromise is for Yahoo to put its long-nurtured skills at attracting internet traffic as well as its favored status among brand advertisers to good use.
The most obvious example of Yahoo’s increasing bent towards marketing is its new “Brand Universe” initiative, announced2 in November. The company will tie together its disjointed properties — such as search, groups, Flickr, Answers, avatars — to lead back to pages about a certain pop culture topic — for instance, Nintendo’s Wii3.
The discriminating factor here is popularity, not biz dev deal-making. Monetization is almost an afterthought; it will be varied on a case-by-case basis, and in some instances, the company that owns the brand will not even be involved, said Vince Broady, head of games and entertainment, over and over again to a bevy of incredulous reporters.
“Our whole purpose is to support their brand,” insisted Broady. “In some cases revenue sharing is not a huge priority.”
Yahoo says it will launch 100 such pages by year’s end; next up are the Sims, Halo, Lost, the Office, Transformers, and Harry Potter.
“Brand Universe” may be the most explicit projection of Yahoo’s increasing orientation towards marketing, but there are many others. A presentation about Yahoo TV and Yahoo Movies emphasized promoting pilot episodes and movie premieres4; an overview of Yahoo Music highlighted contests, online-only tracks, and the ability of the site to measure buzz about a new single.
Throughout the presentations, original content efforts were clearly deemphasized. Scott Moore, head of news and information, repeatedly labeled Kevin Sites’ war-zone reporting on Yahoo News5 “good PR.” C’mon now people, that’s what you tell analysts, not reporters!
The marketing business may not be Google-big, but it’s something Yahoo can do well. So far, however, the talk about monetization is lackadaisical. That’s most likely a result of the recent Yahoo reorg, which leaves the financial stuff to an entirely different division. Now that could be a bit of a problem.
Good News Expected from Google's Earnings
Being a darling of investors isn't always easy.
In the wake of relatively strong showings by Internet giants eBay (EBAY) and Yahoo! (YHOO) , Wall Street is expecting another big quarter out of Google (GOOG) come Wednesday afternoon, when the company announces fourth-quarter results.
But unlike eBay and Yahoo!, Google enters the spotlight with already high expectations. The search giant, which tore apart earnings and revenue estimates for its third quarter, is judged by a different yardstick.
Along with strong revenue, the company likely will have to provide bullish commentary on its progress in some of its key business initiatives. Earnings, along with the expenses that may have eaten into them, also will be heavily scrutinized.
Analysts surveyed by Thomson First Call are forecasting earnings per share of $2.92 on revenue of $2.19 billion.
But since its last earnings blowout three months ago, shares of Google have performed relatively modestly, rising 7.5% to $494.32.
That's despite a three-month period in which the company not only steadily picked up search market share, but also sidestepped apocalyptic predictions that it had bought a hornet's nest of lawsuits when it acquired video-sharing site YouTube.
In addition, Google upped its ante in the burgeoning mobile market and put its muscle behind a well-received payment service that promises to drive more advertisers into its fold while vanquishing rivals.
Still, the stock heads into the fourth-quarter report trading at 35 times forward earnings, shy of fumbling Yahoo!'s 38. Moreover, the price-to-earnings-to-growth ratio -- which determines how expensive a stock is compared to expected growth -- shows Google at a mere 1.48 compared to Yahoo!'s 2.08.
But Google's almost sole reliance on one source of revenue, online advertising, continues to be a source of (relative) anxiety for investors. And while it's far too early to turn on the money spigot for the other lines of business the company is pursuing, Wall Street will be watching closely for signs of progress.
"Although revenues from new initiatives are most likely immaterial at this stage, we expect increased traction with video, radio, newspapers and software will drive incremental revenues over the next 3-5 years, which could be a stock catalyst," wrote Merrill Lynch analyst Justin Post in a note to clients on Tuesday.
Investors also may be comforted by more news about the olive branch Google recently extended to traditional media companies. Post writes that Google may be negotiating a deal with CBS (CBS) that, along with allowing the monetization of television content, could open up radio inventory for Google's radio advertising ambitions. Promising words about traditional media partnerships and airtime also could bode well for shares of Google, Post writes. Merrill Lynch makes a market in Google shares.
Among the most closely watched Google initiative will be its Checkout online-payment service. Citigroup analyst Mark Mahaney calls it "one of the most significant product launches for Google in 2006" and estimates that Google could have devoted up to $80 million promoting Checkout in the form of rebates to customers and free processing for merchants.
Although the service was launched in the summer of 2006, it got its most aggressive push from Google during the holiday season. Mahaney estimates that the service grew from being accepted at 135 online stores in July to 240 in December, and that the Checkout logo grew in December to 4% of commercial search queries, from 1.5% in July.
But Mahaney writes that questions remain, ranging from how confident Google is that it can handle the risks of fraud associated with payment services to how long it plans to push consumers to use it. Citigroup has an investment banking relationship with Google.
Like other published estimates, Mahaney's show that Checkout has been quite successful given its limited time frame, but still has a long way to go before it can compete with eBay's market-leading PayPal.
The success of Checkout -- along with the innovativeness of Google's future plans to promote it -- could provide insight about Google's ability to translate its dominance in the search market beyond its traditional playground and into the realm of more entrenched and experienced competitors. A better-than-expected showing coupled with a strong game plan would reflect well on Google's many other initiatives.
Similarly, the company's plans for YouTube warrant close attention, despite the paltry $10 million in revenue that Mahaney expects the deal has added to Google's coffers. Its YouTube strategy could provide a clue as to how -- among other avenues -- Google plans to muscle into the display-advertising market, where Yahoo! is the leader but could be vulnerable to pressure from Google's increasingly popular set of properties.
Along with new frontiers, Google's fourth-quarter results also revisit old worries. Chief among them is the company's mounting costs, with capital expenditures appearing to grow faster than revenue. Merrill Lynch expects $2.07 billion in capital spending for 2006, a growth of 147% year over year. Of that amount, $536 million comes in the fourth quarter, a growth of 118% year over year and 9% sequentially.
Basking in the glow of Google's stunningly profitable third quarter, CEO Eric Schmidt scoffed at Wall Street's perpetual hand-wringing about out-of-control capital costs, saying that the scrutiny helped the company boost performance instead.
This time around, with significant investments in new endeavors that have yet to pan out, that concern could take center stage.
TheStreet.com
In the wake of relatively strong showings by Internet giants eBay (EBAY) and Yahoo! (YHOO) , Wall Street is expecting another big quarter out of Google (GOOG) come Wednesday afternoon, when the company announces fourth-quarter results.
But unlike eBay and Yahoo!, Google enters the spotlight with already high expectations. The search giant, which tore apart earnings and revenue estimates for its third quarter, is judged by a different yardstick.
Along with strong revenue, the company likely will have to provide bullish commentary on its progress in some of its key business initiatives. Earnings, along with the expenses that may have eaten into them, also will be heavily scrutinized.
Analysts surveyed by Thomson First Call are forecasting earnings per share of $2.92 on revenue of $2.19 billion.
But since its last earnings blowout three months ago, shares of Google have performed relatively modestly, rising 7.5% to $494.32.
That's despite a three-month period in which the company not only steadily picked up search market share, but also sidestepped apocalyptic predictions that it had bought a hornet's nest of lawsuits when it acquired video-sharing site YouTube.
In addition, Google upped its ante in the burgeoning mobile market and put its muscle behind a well-received payment service that promises to drive more advertisers into its fold while vanquishing rivals.
Still, the stock heads into the fourth-quarter report trading at 35 times forward earnings, shy of fumbling Yahoo!'s 38. Moreover, the price-to-earnings-to-growth ratio -- which determines how expensive a stock is compared to expected growth -- shows Google at a mere 1.48 compared to Yahoo!'s 2.08.
But Google's almost sole reliance on one source of revenue, online advertising, continues to be a source of (relative) anxiety for investors. And while it's far too early to turn on the money spigot for the other lines of business the company is pursuing, Wall Street will be watching closely for signs of progress.
"Although revenues from new initiatives are most likely immaterial at this stage, we expect increased traction with video, radio, newspapers and software will drive incremental revenues over the next 3-5 years, which could be a stock catalyst," wrote Merrill Lynch analyst Justin Post in a note to clients on Tuesday.
Investors also may be comforted by more news about the olive branch Google recently extended to traditional media companies. Post writes that Google may be negotiating a deal with CBS (CBS) that, along with allowing the monetization of television content, could open up radio inventory for Google's radio advertising ambitions. Promising words about traditional media partnerships and airtime also could bode well for shares of Google, Post writes. Merrill Lynch makes a market in Google shares.
Among the most closely watched Google initiative will be its Checkout online-payment service. Citigroup analyst Mark Mahaney calls it "one of the most significant product launches for Google in 2006" and estimates that Google could have devoted up to $80 million promoting Checkout in the form of rebates to customers and free processing for merchants.
Although the service was launched in the summer of 2006, it got its most aggressive push from Google during the holiday season. Mahaney estimates that the service grew from being accepted at 135 online stores in July to 240 in December, and that the Checkout logo grew in December to 4% of commercial search queries, from 1.5% in July.
But Mahaney writes that questions remain, ranging from how confident Google is that it can handle the risks of fraud associated with payment services to how long it plans to push consumers to use it. Citigroup has an investment banking relationship with Google.
Like other published estimates, Mahaney's show that Checkout has been quite successful given its limited time frame, but still has a long way to go before it can compete with eBay's market-leading PayPal.
The success of Checkout -- along with the innovativeness of Google's future plans to promote it -- could provide insight about Google's ability to translate its dominance in the search market beyond its traditional playground and into the realm of more entrenched and experienced competitors. A better-than-expected showing coupled with a strong game plan would reflect well on Google's many other initiatives.
Similarly, the company's plans for YouTube warrant close attention, despite the paltry $10 million in revenue that Mahaney expects the deal has added to Google's coffers. Its YouTube strategy could provide a clue as to how -- among other avenues -- Google plans to muscle into the display-advertising market, where Yahoo! is the leader but could be vulnerable to pressure from Google's increasingly popular set of properties.
Along with new frontiers, Google's fourth-quarter results also revisit old worries. Chief among them is the company's mounting costs, with capital expenditures appearing to grow faster than revenue. Merrill Lynch expects $2.07 billion in capital spending for 2006, a growth of 147% year over year. Of that amount, $536 million comes in the fourth quarter, a growth of 118% year over year and 9% sequentially.
Basking in the glow of Google's stunningly profitable third quarter, CEO Eric Schmidt scoffed at Wall Street's perpetual hand-wringing about out-of-control capital costs, saying that the scrutiny helped the company boost performance instead.
This time around, with significant investments in new endeavors that have yet to pan out, that concern could take center stage.
TheStreet.com
Gates: Customized Web Key To Microsoft's Future
It's still a year before Bill Gates shifts from a full-time Microsoft worker to a part-timer. Which is good, because there's plenty he still wants to achieve.
In the second half of a two-part interview with CNET News.com, Microsoft's chairman talks about what's on his to-do list, including having a say in the next versions of Office and Windows and helping shape the company's strategy in search and online commerce.
"No shortage of important work," Gates said, speaking in Manhattan, where he took part in Monday's Vista launch festivities before heading back to Europe for more Vista events as well as a Government Leaders Forum in Scotland.
In part one of the interview, Gates gave his pitch for Windows Vista, the latest version of Microsoft's dominant operating system. In part two, Gates addresses some of the areas where Microsoft is trying to come from behind, including Xbox and Windows Live.
Q: One of the things Microsoft is introducing for the first time is if you want, you can go online and download either Office or Vista and buy it directly from Microsoft. Is that the future?
Gates: If you look at the beta period, where we had over 5 million users, those were online downloads, so obviously people are very willing to have that as a way to upgrade. It certainly beats standing in line. I don't know what the mix will look like over these next several years. We're going to give people the choice. Maybe next time it will be the main way they decide to upgrade.
Vista: Now or never
How soon do you plan to move to Microsoft's latest OS?
I'm standing in line right now to buy it. Whenever I buy my next PC. Windows XP is going to last me a good, long time. I'm sticking with the Mac--or moving there soon.
One of things Microsoft said on the earnings call last week is that you are not going to ship quite as many Xboxes, at least in the near term, as you had forecast. What's behind that?
Gates: The Xbox had a great Christmas, but we actually provided enough inventory to go even beyond that. People in the first half will be working off that somewhat. We're always quite conservative in terms of how we do forecasts. We feel our competitive position with Xbox 360 could not be better. We got out a year ahead of our competitor, got the volume up there so that software people see it as the platform they really want to build on. Even with the conservatism, I've never felt better about Xbox 360 and where it is.
I'm sure you guys assumed the Windows Live effort would be a challenge. It seems to have been a bigger challenge than you expected. Is it time to rethink the strategy there? Is it just a matter of time?
Gates: Windows Live is fairly new for us. Ray Ozzie came and took charge of that. With Vista shipping now, we'll get a higher percentage of R&D on that Live-type capability. Over the next year you're going to see some neat things coming out. No one has done the platform on the Internet the way we think it needs to be done. We've got a lot of breakthroughs that we're going to be rolling out.
You just got back from Davos, the big conference of business executives and political types. Were there some things you came away with?
Gates: That's a conference that hits on every topic imaginable, from global health to global warming to various political things. The biggest change agent in the world has been the Internet. Now it's a question of getting that out, not just in the rich countries, but for all of the different countries. How can we make that happen?
People want to know "Are they missing something? What should their country do?" It's a great chance for me to have dozens of side meetings about where technology is going and what people might do with it.
One of the things you talked about there is Internet television and the way it's changing things. Is the television of today really on the verge of being outmoded?
Gates: You won't have to give up what you have today. But when you watch the news you can avoid the things you don't care about and see more of the things you do care about. The ads can be very targeted to you, so they won't be as bothersome. The content that is not very popular, like your kids' sports game or some lecture, will just be right there in your guide. The use of the Internet means it doesn't matter how many people are watching it. We can bring it down to you. We get rid of these limitations, the time limitations and the number of channel limitations that the old broadcast approach forced us all into.
Video: Gates talks up Vista
Microsoft's chairman discusses the long-awaited launch of the new OS.
It strikes me that, in your foundation hat, that might be a challenge, since a lot of what you try and do is bring attention to things that people aren't thinking about. This world of customization and personalization...is there a societal challenge? Who tells us what we need to know that we don't necessarily want to know?
Gates: Part of the beauty of the online world is it will let us find people we trust who want to recommend things. Certainly if people want to know what I think is interesting, they'll see what they might read about global health. I do think there has been more attention paid to global health in the last five years than ever before.
People would like it if it could be put into terms where they can get involved. Where can their money have an impact? How can they see that it gets an impact? Online lets us do that. Just (reading) a newspaper or watching a TV show didn't draw the person in.
Is the line between professionally produced content and user-generated content shifting? Will there still be a mix of those two things?
Gates: Once upon a time a typeset document was a clear sign that a big company was behind it and had put some real money into it. Today, anyone with a copy of Office and a laser printer is making documents that look as good as a big company.
There is still a gap there in terms of movie editing. But now with this high-definition movie editor that's in Windows Vista, that barrier has really been changed.
In photography, we have this stitching capability and rich software algorithms to improve photo quality. The things that are out of reach of just a person with a PC are getting smaller and smaller. Eventually, we want them to be able to do anything, all of their creativity fully unleashed.
It's still a year before you are stepping away from full-time work at Microsoft and moving to part time. What's on your to-do list?
Gates: Certainly, the big decisions about the next round of Windows and Office. A lot of things about Live, including what we do in commerce and search. Steve (Ballmer) expects me to share a lot of ideas and make sure those things get going on the right track.
No shortage of important work. I'm thrilled to see Ray Ozzie and Craig Mundie stepping up to their pieces.
Have you picked a couple things yet that you plan on working on when you do step away from full-time work?
Gates: It's too soon to really decide what those things will be. I'd be surprised if some things related to search or tablet PCs aren't in there. It's up to Steve to think, in that new role, how can I be most effective.
In the second half of a two-part interview with CNET News.com, Microsoft's chairman talks about what's on his to-do list, including having a say in the next versions of Office and Windows and helping shape the company's strategy in search and online commerce.
"No shortage of important work," Gates said, speaking in Manhattan, where he took part in Monday's Vista launch festivities before heading back to Europe for more Vista events as well as a Government Leaders Forum in Scotland.
In part one of the interview, Gates gave his pitch for Windows Vista, the latest version of Microsoft's dominant operating system. In part two, Gates addresses some of the areas where Microsoft is trying to come from behind, including Xbox and Windows Live.
Q: One of the things Microsoft is introducing for the first time is if you want, you can go online and download either Office or Vista and buy it directly from Microsoft. Is that the future?
Gates: If you look at the beta period, where we had over 5 million users, those were online downloads, so obviously people are very willing to have that as a way to upgrade. It certainly beats standing in line. I don't know what the mix will look like over these next several years. We're going to give people the choice. Maybe next time it will be the main way they decide to upgrade.
Vista: Now or never
How soon do you plan to move to Microsoft's latest OS?
I'm standing in line right now to buy it. Whenever I buy my next PC. Windows XP is going to last me a good, long time. I'm sticking with the Mac--or moving there soon.
One of things Microsoft said on the earnings call last week is that you are not going to ship quite as many Xboxes, at least in the near term, as you had forecast. What's behind that?
Gates: The Xbox had a great Christmas, but we actually provided enough inventory to go even beyond that. People in the first half will be working off that somewhat. We're always quite conservative in terms of how we do forecasts. We feel our competitive position with Xbox 360 could not be better. We got out a year ahead of our competitor, got the volume up there so that software people see it as the platform they really want to build on. Even with the conservatism, I've never felt better about Xbox 360 and where it is.
I'm sure you guys assumed the Windows Live effort would be a challenge. It seems to have been a bigger challenge than you expected. Is it time to rethink the strategy there? Is it just a matter of time?
Gates: Windows Live is fairly new for us. Ray Ozzie came and took charge of that. With Vista shipping now, we'll get a higher percentage of R&D on that Live-type capability. Over the next year you're going to see some neat things coming out. No one has done the platform on the Internet the way we think it needs to be done. We've got a lot of breakthroughs that we're going to be rolling out.
You just got back from Davos, the big conference of business executives and political types. Were there some things you came away with?
Gates: That's a conference that hits on every topic imaginable, from global health to global warming to various political things. The biggest change agent in the world has been the Internet. Now it's a question of getting that out, not just in the rich countries, but for all of the different countries. How can we make that happen?
People want to know "Are they missing something? What should their country do?" It's a great chance for me to have dozens of side meetings about where technology is going and what people might do with it.
One of the things you talked about there is Internet television and the way it's changing things. Is the television of today really on the verge of being outmoded?
Gates: You won't have to give up what you have today. But when you watch the news you can avoid the things you don't care about and see more of the things you do care about. The ads can be very targeted to you, so they won't be as bothersome. The content that is not very popular, like your kids' sports game or some lecture, will just be right there in your guide. The use of the Internet means it doesn't matter how many people are watching it. We can bring it down to you. We get rid of these limitations, the time limitations and the number of channel limitations that the old broadcast approach forced us all into.
Video: Gates talks up Vista
Microsoft's chairman discusses the long-awaited launch of the new OS.
It strikes me that, in your foundation hat, that might be a challenge, since a lot of what you try and do is bring attention to things that people aren't thinking about. This world of customization and personalization...is there a societal challenge? Who tells us what we need to know that we don't necessarily want to know?
Gates: Part of the beauty of the online world is it will let us find people we trust who want to recommend things. Certainly if people want to know what I think is interesting, they'll see what they might read about global health. I do think there has been more attention paid to global health in the last five years than ever before.
People would like it if it could be put into terms where they can get involved. Where can their money have an impact? How can they see that it gets an impact? Online lets us do that. Just (reading) a newspaper or watching a TV show didn't draw the person in.
Is the line between professionally produced content and user-generated content shifting? Will there still be a mix of those two things?
Gates: Once upon a time a typeset document was a clear sign that a big company was behind it and had put some real money into it. Today, anyone with a copy of Office and a laser printer is making documents that look as good as a big company.
There is still a gap there in terms of movie editing. But now with this high-definition movie editor that's in Windows Vista, that barrier has really been changed.
In photography, we have this stitching capability and rich software algorithms to improve photo quality. The things that are out of reach of just a person with a PC are getting smaller and smaller. Eventually, we want them to be able to do anything, all of their creativity fully unleashed.
It's still a year before you are stepping away from full-time work at Microsoft and moving to part time. What's on your to-do list?
Gates: Certainly, the big decisions about the next round of Windows and Office. A lot of things about Live, including what we do in commerce and search. Steve (Ballmer) expects me to share a lot of ideas and make sure those things get going on the right track.
No shortage of important work. I'm thrilled to see Ray Ozzie and Craig Mundie stepping up to their pieces.
Have you picked a couple things yet that you plan on working on when you do step away from full-time work?
Gates: It's too soon to really decide what those things will be. I'd be surprised if some things related to search or tablet PCs aren't in there. It's up to Steve to think, in that new role, how can I be most effective.
Newspapers A "Challenged Platform"
Consensus was voiced last week by leading executives from companies on the media spectrum as far flung as Google and Tribune Co. that the survival of newspapers depends on their ability to reinvent themselves online with new business models, the creation and execution of which continue to be lacking.
Behind last week's heady public remarks about the fate of what is perhaps the media world's most underestimated and challenged platform -- delivered at the World Economic Forum in Davos, Switzerland, as well as the Los Angeles Times newsroom -- is the brutal reality that these traditional companies must undergo the costly process of dismantling and replacing legacy operations and business models with those completely new and untried. They face greater, fatal risks if they do not.
Unfortunately, none of the media players sounding the charge for this immediate change quantified what's at stake, such as investment, revenue, profits and losses -- which are no small matters to publishing companies scrambling to bolster their shifting ledgers, even though words, the most simple and universal of all media content, is their primary currency.It is one thing to publicly concede that the Internet, in all of its awesome iterations, is the new industry standard that will come to be supported by all other forms of more traditional media, including newspapers' newsgathering and writing core. It is quite another thing to act on that new reality in ways that radically alter company business models, operations, mind-set, revenue and profits. The real story is how these new metrics and models are devised and play out.
A case in point: Tribune Co.'s James O'Shea, the new editor of its Los Angeles Times, has boldly offered an antidote for ailing newspapers everywhere: purge and merge print with Web operations, personnel and other overhead costs while it is still profitable (the L.A. Times made an estimated $240 million in pre-tax profits last year and is still recouping half of every $2 in revenue that print loses to its heavily trafficked Web site). O'Shea promises that the all-important financial and logistical details will follow.That task is more formidable than it appears if you accept that print content of all origins will be viewed on a number of screens (computer, TV, cell phone, etc.) where they will fight with digital video for attention and support.
To that point, Google founders Sergey Brin and Larry Page, who would like to manage the pricing and sales of advertising on all media including newspapers and television, observed at Davos that newspapers' short-term competitive edge is one of style rather than substance: The printed word generally reads better on paper than on a computer screen.
On the other hand, it's not as if the Los Angeles Times, New York Times, Wall Street Journal or any traditional publisher can simply trash their inner workings to adopt the leaner and faster operating and financial structures of more nimble online competitors like Google and Craigslist, though some of it is occurring as a gradual migration to the Web. O'Shea characterized plans to fully integrate print and online as prioritizing "new standards for what we publish online that preserves our greatest asset -- the integrity of our newspaper," which will be "an effective backbone for Latimes.com." It sounds like every traditional publisher's call to arms.
The wild card is the economics and logistics of eliminating legacy costs and operations by making print a support for a core online businesses. The movement is being driven by the shared notion that having the most enlightened, enterprising print content doesn't matter if newspapers continue to be "Web stupid," as O'Shea calls it, or thinking they can simply transfer their increasingly challenged but still valuable content, advertising and marketing business models as is to the Web to accomplish even more in an interactive marketplace where different rules prevail.
Wall Street Journal managing editor Paul Steiger recently alluded to this transitional dilemma in Harvard University's Nieman Foundation Reports. "It is a blessing and a curse that because of the difference in advertising rates, a print reader is worth three times as much to a news organization as an online user," Steiger wrote. Dow Jones, the corporate parent of the Journal, has been fairly successful so far in its early effort to monetize readers in print and online and revamp its inner workings while gradually reducing its overall reliance on print by increasing its experimentation and mastery of the Web.
At its best, this is a learning process that goes beyond massive newspaper and other traditional media head count reductions and other cost cuts, which more than doubled last year from 2005 levels and are expected to continue climbing in 2007, according to job outplacement tracking firm Challenger, Gray & Christmas. It requires a complete makeover from the inside out, and from the bottom up. It requires a reinvention of the business, from the economics of content production and the creating and pricing of interactive advertising, to the exchange and application of video and data across all platforms and devices.
This is especially true of the newspaper business, which will top out at $72.5 billion spending by 2010, barely growing an average 1% annually, but still outsizing $50 billion Internet and mobile market spending by decade's end growing at 13% annually (half of it fueled by traditional media brand spending), according to Veronis Suhler Stevenson.However, the interactive market remains so nascent and fractionalized that new business models can fizzle or diffuse before they generate distinctive new wealth. The Walt Disney Co.'s download arrangement with iTunes is worth less than $100 million of Disney's anticipated $700 million in interactive-related revenues in fiscal 2007, analysts say.
Newspaper companies still are in the earliest stages of contemplating public, private, local and even nonprofit ownership structures equally rooted in the unique characteristics of each: On one hand is the Web's speed, efficiency in providing virtually cost-free on-demand breaking news, transactional advertising, search and personalization, content storage and transfer; on the other is print's portability, support for contextual analysis, and serendipity, or the ability to scan and unexpectedly discover content users would not otherwise see.
Creating competitive interactive content, products and services requires not just a comprehensive understanding but an acceptance of and quick response to digital consumers' sophisticated curiosity, use of and interest in devices, platforms, content and transaction options. That alone will provide the foundation for constructing new, productive business models online. Despite last week's heightened public attention to the cause, there is not enough solid evidence of that occurring to support the promises and objectives of some of the world's most powerful newspaper empires.
The Hollywood Reporter
Behind last week's heady public remarks about the fate of what is perhaps the media world's most underestimated and challenged platform -- delivered at the World Economic Forum in Davos, Switzerland, as well as the Los Angeles Times newsroom -- is the brutal reality that these traditional companies must undergo the costly process of dismantling and replacing legacy operations and business models with those completely new and untried. They face greater, fatal risks if they do not.
Unfortunately, none of the media players sounding the charge for this immediate change quantified what's at stake, such as investment, revenue, profits and losses -- which are no small matters to publishing companies scrambling to bolster their shifting ledgers, even though words, the most simple and universal of all media content, is their primary currency.It is one thing to publicly concede that the Internet, in all of its awesome iterations, is the new industry standard that will come to be supported by all other forms of more traditional media, including newspapers' newsgathering and writing core. It is quite another thing to act on that new reality in ways that radically alter company business models, operations, mind-set, revenue and profits. The real story is how these new metrics and models are devised and play out.
A case in point: Tribune Co.'s James O'Shea, the new editor of its Los Angeles Times, has boldly offered an antidote for ailing newspapers everywhere: purge and merge print with Web operations, personnel and other overhead costs while it is still profitable (the L.A. Times made an estimated $240 million in pre-tax profits last year and is still recouping half of every $2 in revenue that print loses to its heavily trafficked Web site). O'Shea promises that the all-important financial and logistical details will follow.That task is more formidable than it appears if you accept that print content of all origins will be viewed on a number of screens (computer, TV, cell phone, etc.) where they will fight with digital video for attention and support.
To that point, Google founders Sergey Brin and Larry Page, who would like to manage the pricing and sales of advertising on all media including newspapers and television, observed at Davos that newspapers' short-term competitive edge is one of style rather than substance: The printed word generally reads better on paper than on a computer screen.
On the other hand, it's not as if the Los Angeles Times, New York Times, Wall Street Journal or any traditional publisher can simply trash their inner workings to adopt the leaner and faster operating and financial structures of more nimble online competitors like Google and Craigslist, though some of it is occurring as a gradual migration to the Web. O'Shea characterized plans to fully integrate print and online as prioritizing "new standards for what we publish online that preserves our greatest asset -- the integrity of our newspaper," which will be "an effective backbone for Latimes.com." It sounds like every traditional publisher's call to arms.
The wild card is the economics and logistics of eliminating legacy costs and operations by making print a support for a core online businesses. The movement is being driven by the shared notion that having the most enlightened, enterprising print content doesn't matter if newspapers continue to be "Web stupid," as O'Shea calls it, or thinking they can simply transfer their increasingly challenged but still valuable content, advertising and marketing business models as is to the Web to accomplish even more in an interactive marketplace where different rules prevail.
Wall Street Journal managing editor Paul Steiger recently alluded to this transitional dilemma in Harvard University's Nieman Foundation Reports. "It is a blessing and a curse that because of the difference in advertising rates, a print reader is worth three times as much to a news organization as an online user," Steiger wrote. Dow Jones, the corporate parent of the Journal, has been fairly successful so far in its early effort to monetize readers in print and online and revamp its inner workings while gradually reducing its overall reliance on print by increasing its experimentation and mastery of the Web.
At its best, this is a learning process that goes beyond massive newspaper and other traditional media head count reductions and other cost cuts, which more than doubled last year from 2005 levels and are expected to continue climbing in 2007, according to job outplacement tracking firm Challenger, Gray & Christmas. It requires a complete makeover from the inside out, and from the bottom up. It requires a reinvention of the business, from the economics of content production and the creating and pricing of interactive advertising, to the exchange and application of video and data across all platforms and devices.
This is especially true of the newspaper business, which will top out at $72.5 billion spending by 2010, barely growing an average 1% annually, but still outsizing $50 billion Internet and mobile market spending by decade's end growing at 13% annually (half of it fueled by traditional media brand spending), according to Veronis Suhler Stevenson.However, the interactive market remains so nascent and fractionalized that new business models can fizzle or diffuse before they generate distinctive new wealth. The Walt Disney Co.'s download arrangement with iTunes is worth less than $100 million of Disney's anticipated $700 million in interactive-related revenues in fiscal 2007, analysts say.
Newspaper companies still are in the earliest stages of contemplating public, private, local and even nonprofit ownership structures equally rooted in the unique characteristics of each: On one hand is the Web's speed, efficiency in providing virtually cost-free on-demand breaking news, transactional advertising, search and personalization, content storage and transfer; on the other is print's portability, support for contextual analysis, and serendipity, or the ability to scan and unexpectedly discover content users would not otherwise see.
Creating competitive interactive content, products and services requires not just a comprehensive understanding but an acceptance of and quick response to digital consumers' sophisticated curiosity, use of and interest in devices, platforms, content and transaction options. That alone will provide the foundation for constructing new, productive business models online. Despite last week's heightened public attention to the cause, there is not enough solid evidence of that occurring to support the promises and objectives of some of the world's most powerful newspaper empires.
The Hollywood Reporter
AOL Transformation Is Working
Time Warner Inc., the world's largest media company, said fourth-quarter profit rose 34 percent, helped by the purchase of Adelphia Communications Corp.'s cable-television unit.
Net income advanced to $1.75 billion, or 44 cents a share, from $1.3 billion, or 28 cents, a year earlier, the New York- based company said today in a statement. Sales gained 8.2 percent to $12.5 billion.
Time Warner Cable earnings rose 46 percent, helping validate Chief Executive Officer Richard Parsons' $16.7 billion purchase of Adelphia. Parsons is now focused on reviving AOL, offering free broadband service to attract users and advertisers. The stock has risen 33 percent in six months on optimism he will succeed.
``Cable continues to deliver the bulk of the free cash flow,'' said Tuna Amobi, an equity analyst at Standard & Poor's in New York. ``There are still some challenges with AOL ahead. It's going to be testing year for AOL.''
S&P's credit analysts have a BBB+ rating on Time Warner's debt, which jumped to $33.4 billion from $17.3 billion a year earlier because of the Adelphia acquisition, which also included swapping cable-systems with Comcast Corp., and the company's share repurchases.
Profit before one-time items was 22 cents a share, matching the average estimate of 17 analysts polled by Bloomberg. Net income was buoyed by a pretax gain of $769 million on the sale of AOL Web access units in France and the U.K., as well as $900 million in tax benefits.
Forecast
Shares of Time Warner, also owner of CNN and People magazine, fell 17 cents to $21.87 at 4 p.m. in New York Stock Exchange composite trading. Time Warner's six-month gain outpaced a 21 percent gain at News Corp. and an 18 percent rise at Walt Disney Corp.
A year after fending off a campaign from billionaire Carl Icahn to break up the company, Parsons, 58, is starting to reap the benefits of keeping the assets together. He implemented a $20 billion share buyback at Icahn's urging, helping boost per- share earnings. Revenue in 2006 rose 4 percent to $44.2 billion, while net income more than doubled to $6.6 billion.
Profit in 2007 will be about $1 a share, including 10 cents for a gain in the sale of an AOL unit in Germany, Time Warner said today. Adjusted operating income before depreciation and amortization will rise in the ``mid-to-high teens'' from $11.1 billion last year, the company said.
Earnings will rise at each unit in 2007, Parsons said on a conference call. In 2006, operating profit fell at three of Time Warner's five businesses: AOL, the film unit and the magazine publishing unit.
Cable Customers
Stamford, Connecticut-based Time Warner Cable lured customers with packages of cable, high-speed Internet access and broadband services. About 1.5 million subscribers, or 10 percent of the total, subscribe to the so-called triple-play package.
Time Warner Cable added 211,000 digital phone subscribers, lower than the 220,000 estimated by Sanford Bernstein analyst Michael Nathanson. The unit also added 246,000 high-speed Internet access subscribers.
``We are focused on digesting the rather substantial mouthful,'' of Adelphia, Parsons said in an interview.
Sales at the unit rose 58 percent to $3.65 billion. Adjusted operating income before depreciation and amortization jumped to $1.31 billion from $899 million.
``The Adelphia deal looks like a multibillion dollar bet that was well timed,'' said Larry Haverty, an associate portfolio manager at Gamco Investors Inc. in Rye, New York.
Court Decision
Time Warner owns 84 percent of the business and is awaiting a court decision on Adelphia that would pave the way for trading in Time Warner Cable shares owned by former Adelphia bondholders. Time Warner also filed for an initial public offering of the division last year as a backup plan in case the creditors don't come to an agreement.
``It's in the hands of the court right now,'' Parsons said. He declined to say whether Time Warner may sell some of its own stake to the public. ``In fullness of time, we'll look at what's the right structure,'' he said.
AOL reported its first quarter under new leadership. Parsons then hired NBC veteran Randy Falco to replace Jonathan Miller at the helm of AOL in Dulles, Virginia, to help accelerate growth in online ad sales.
Sales fell 7.8 percent to $1.86 billion, exceeding analysts' estimates of $1.8 billion. Profit dropped 10 percent to $302 million.
Free E-mail
AOL, struggling to compete for visitors with Google Inc. and Yahoo! Inc., in September offered its e-mail and software for free to U.S. broadband users. The decision prompted an exodus of U.S. subscribers from the Internet access service.
The unit's Web access service lost 2 million U.S. subscribers in the quarter, fewer than the 2.6 million analysts had predicted, for a total of 13.2 million. Advertising sales gained 49 percent.
AOL this month offered to buy TradeDoubler AB, a Swedish Internet ad company, for about $900 million. The offer is ``entirely full and fair,'' Parsons said.
At the film division, sales slumped 15 percent to $3.09 billion, missing the $3.5 billion average estimate of five analysts. Profit dropped 39 percent to $240 million.
The tepid performance of Time Warner movies at the box office in the summer led to lower home video sales in the fourth quarter. DVD releases including ``Superman Returns'' weren't enough to match DVD sales of ``Harry Potter'' a year earlier.
Publishing
Time Inc., Time Warner's magazine publishing unit, struggled to fuel circulation and advertising sales growth. The division cut almost 300 jobs and last week agreed to sell 18 titles to Bonnier Magazine Group to focus on boosting sales at Time, People and Sports Illustrated.
Revenue at the publishing unit was little changed at $1.54 billion. Profit rose 3 percent to $427 million.
Time Warner's 6.875 percent bonds maturing in 2012 fell 0.02 cent to 105.52 cents on the dollar, according to Trace, the bond-price reporting system. The yield was 5.64 percent. The price is down from a year high of 107.8 cents on Dec. 11.
The perceived risk of owning Time Warner's bonds rose. Credit-default swaps based on $10 million of the company's bonds gained to $30,665 from $29,815 yesterday, according to data compiled by CMA Datavision in London.
The five-year contracts, which investors use to speculate on a company's ability to repay debt, have fallen from a year-high of $72.5 in January 2006.
Bloomberg.com
Net income advanced to $1.75 billion, or 44 cents a share, from $1.3 billion, or 28 cents, a year earlier, the New York- based company said today in a statement. Sales gained 8.2 percent to $12.5 billion.
Time Warner Cable earnings rose 46 percent, helping validate Chief Executive Officer Richard Parsons' $16.7 billion purchase of Adelphia. Parsons is now focused on reviving AOL, offering free broadband service to attract users and advertisers. The stock has risen 33 percent in six months on optimism he will succeed.
``Cable continues to deliver the bulk of the free cash flow,'' said Tuna Amobi, an equity analyst at Standard & Poor's in New York. ``There are still some challenges with AOL ahead. It's going to be testing year for AOL.''
S&P's credit analysts have a BBB+ rating on Time Warner's debt, which jumped to $33.4 billion from $17.3 billion a year earlier because of the Adelphia acquisition, which also included swapping cable-systems with Comcast Corp., and the company's share repurchases.
Profit before one-time items was 22 cents a share, matching the average estimate of 17 analysts polled by Bloomberg. Net income was buoyed by a pretax gain of $769 million on the sale of AOL Web access units in France and the U.K., as well as $900 million in tax benefits.
Forecast
Shares of Time Warner, also owner of CNN and People magazine, fell 17 cents to $21.87 at 4 p.m. in New York Stock Exchange composite trading. Time Warner's six-month gain outpaced a 21 percent gain at News Corp. and an 18 percent rise at Walt Disney Corp.
A year after fending off a campaign from billionaire Carl Icahn to break up the company, Parsons, 58, is starting to reap the benefits of keeping the assets together. He implemented a $20 billion share buyback at Icahn's urging, helping boost per- share earnings. Revenue in 2006 rose 4 percent to $44.2 billion, while net income more than doubled to $6.6 billion.
Profit in 2007 will be about $1 a share, including 10 cents for a gain in the sale of an AOL unit in Germany, Time Warner said today. Adjusted operating income before depreciation and amortization will rise in the ``mid-to-high teens'' from $11.1 billion last year, the company said.
Earnings will rise at each unit in 2007, Parsons said on a conference call. In 2006, operating profit fell at three of Time Warner's five businesses: AOL, the film unit and the magazine publishing unit.
Cable Customers
Stamford, Connecticut-based Time Warner Cable lured customers with packages of cable, high-speed Internet access and broadband services. About 1.5 million subscribers, or 10 percent of the total, subscribe to the so-called triple-play package.
Time Warner Cable added 211,000 digital phone subscribers, lower than the 220,000 estimated by Sanford Bernstein analyst Michael Nathanson. The unit also added 246,000 high-speed Internet access subscribers.
``We are focused on digesting the rather substantial mouthful,'' of Adelphia, Parsons said in an interview.
Sales at the unit rose 58 percent to $3.65 billion. Adjusted operating income before depreciation and amortization jumped to $1.31 billion from $899 million.
``The Adelphia deal looks like a multibillion dollar bet that was well timed,'' said Larry Haverty, an associate portfolio manager at Gamco Investors Inc. in Rye, New York.
Court Decision
Time Warner owns 84 percent of the business and is awaiting a court decision on Adelphia that would pave the way for trading in Time Warner Cable shares owned by former Adelphia bondholders. Time Warner also filed for an initial public offering of the division last year as a backup plan in case the creditors don't come to an agreement.
``It's in the hands of the court right now,'' Parsons said. He declined to say whether Time Warner may sell some of its own stake to the public. ``In fullness of time, we'll look at what's the right structure,'' he said.
AOL reported its first quarter under new leadership. Parsons then hired NBC veteran Randy Falco to replace Jonathan Miller at the helm of AOL in Dulles, Virginia, to help accelerate growth in online ad sales.
Sales fell 7.8 percent to $1.86 billion, exceeding analysts' estimates of $1.8 billion. Profit dropped 10 percent to $302 million.
Free E-mail
AOL, struggling to compete for visitors with Google Inc. and Yahoo! Inc., in September offered its e-mail and software for free to U.S. broadband users. The decision prompted an exodus of U.S. subscribers from the Internet access service.
The unit's Web access service lost 2 million U.S. subscribers in the quarter, fewer than the 2.6 million analysts had predicted, for a total of 13.2 million. Advertising sales gained 49 percent.
AOL this month offered to buy TradeDoubler AB, a Swedish Internet ad company, for about $900 million. The offer is ``entirely full and fair,'' Parsons said.
At the film division, sales slumped 15 percent to $3.09 billion, missing the $3.5 billion average estimate of five analysts. Profit dropped 39 percent to $240 million.
The tepid performance of Time Warner movies at the box office in the summer led to lower home video sales in the fourth quarter. DVD releases including ``Superman Returns'' weren't enough to match DVD sales of ``Harry Potter'' a year earlier.
Publishing
Time Inc., Time Warner's magazine publishing unit, struggled to fuel circulation and advertising sales growth. The division cut almost 300 jobs and last week agreed to sell 18 titles to Bonnier Magazine Group to focus on boosting sales at Time, People and Sports Illustrated.
Revenue at the publishing unit was little changed at $1.54 billion. Profit rose 3 percent to $427 million.
Time Warner's 6.875 percent bonds maturing in 2012 fell 0.02 cent to 105.52 cents on the dollar, according to Trace, the bond-price reporting system. The yield was 5.64 percent. The price is down from a year high of 107.8 cents on Dec. 11.
The perceived risk of owning Time Warner's bonds rose. Credit-default swaps based on $10 million of the company's bonds gained to $30,665 from $29,815 yesterday, according to data compiled by CMA Datavision in London.
The five-year contracts, which investors use to speculate on a company's ability to repay debt, have fallen from a year-high of $72.5 in January 2006.
Bloomberg.com
Pharmaceutical Company Won't Mention Its Products in Super Bowl Ad
King Pharmaceuticals Inc. (KG) is as serious as a heart attack about its first Super Bowl commercial — a lighthearted pitch about prevention that touts an American Heart Association Web site without mentioning its own top heart drug, Altace.
"This is a reminder and a wake-up call," said Steve Andrzejewski, King's chief commercial officer. "We are not talking about something like toe nail fungus. People could die."
But the ad, titled "Heart Attack," carries its cautionary message lightly.
A man dressed like a big, red, briefcase-toting "heart" is walking down the street when he's kidnapped by such villainous black-leathered risk factors as high blood pressure, diabetes, weight problems and high cholesterol. They beat him up in an alley.
"Is your heart at risk of an attack?" the narrator says in directing viewers to the Web site http://www.beatyourrisk.com for a six-question quiz on the chances of a heart attack or stroke.
King is sponsoring the site under a three-year deal with the heart association.
"How does it tie back to Altace?" Andrzejewski said. "Well, after people take the quiz, they are asked to take it to their doctor and have a conversation with them."
And that, King hopes, will lead to new prescriptions for the drug. One of the top-selling ACE inhibitors for controlling high blood pressure, Altace sales accounted for $554 million of King's $1.8 billion in revenue in 2005.
King, a midsize drug company based in Bristol, Tenn., is banking heavily on this ad concept — its first major campaign for Altace since a co-promotion deal with Wyeth Pharmaceuticals ended last year.
King plans to spend about $4.2 million for a 60-second commercial late in the first half, a 30-second spot in the post-game show and a five-second banner ad sometime during the Super Bowl on Sunday. By comparison, King spent around $5.1 million on consumer advertising for Altace in all of 2005.
But with 90 million people watching — and presumably many of them among the estimated 70 million people in the United States with high blood pressure — the company and its consultants believe it's worth it.
"Look, this is one of the few ways you can get many, many people at one time," said Rebecca Sroge, executive vice president and managing director of Glow Worm, a New York agency that created the "Heart Attack" ad.
Moreover, she said, "This is one place where people actually watch for the commercials."
Conventional wisdom would say the Super Bowl is a venue for beer ads, not better health.
Sroge disagrees, so long as the ads are entertaining.
"I don't think it is appropriate to have some guy in a white lab coat staring into the audience saying, 'You are going to die if you eat another chicken wing,'" she said.
"But I think that saying to people, 'Hey, listen. Hypertension is a risk and you should go find out how much of a risk it is to you.'" Of that approach, she said, "Why not?"
"This is a reminder and a wake-up call," said Steve Andrzejewski, King's chief commercial officer. "We are not talking about something like toe nail fungus. People could die."
But the ad, titled "Heart Attack," carries its cautionary message lightly.
A man dressed like a big, red, briefcase-toting "heart" is walking down the street when he's kidnapped by such villainous black-leathered risk factors as high blood pressure, diabetes, weight problems and high cholesterol. They beat him up in an alley.
"Is your heart at risk of an attack?" the narrator says in directing viewers to the Web site http://www.beatyourrisk.com for a six-question quiz on the chances of a heart attack or stroke.
King is sponsoring the site under a three-year deal with the heart association.
"How does it tie back to Altace?" Andrzejewski said. "Well, after people take the quiz, they are asked to take it to their doctor and have a conversation with them."
And that, King hopes, will lead to new prescriptions for the drug. One of the top-selling ACE inhibitors for controlling high blood pressure, Altace sales accounted for $554 million of King's $1.8 billion in revenue in 2005.
King, a midsize drug company based in Bristol, Tenn., is banking heavily on this ad concept — its first major campaign for Altace since a co-promotion deal with Wyeth Pharmaceuticals ended last year.
King plans to spend about $4.2 million for a 60-second commercial late in the first half, a 30-second spot in the post-game show and a five-second banner ad sometime during the Super Bowl on Sunday. By comparison, King spent around $5.1 million on consumer advertising for Altace in all of 2005.
But with 90 million people watching — and presumably many of them among the estimated 70 million people in the United States with high blood pressure — the company and its consultants believe it's worth it.
"Look, this is one of the few ways you can get many, many people at one time," said Rebecca Sroge, executive vice president and managing director of Glow Worm, a New York agency that created the "Heart Attack" ad.
Moreover, she said, "This is one place where people actually watch for the commercials."
Conventional wisdom would say the Super Bowl is a venue for beer ads, not better health.
Sroge disagrees, so long as the ads are entertaining.
"I don't think it is appropriate to have some guy in a white lab coat staring into the audience saying, 'You are going to die if you eat another chicken wing,'" she said.
"But I think that saying to people, 'Hey, listen. Hypertension is a risk and you should go find out how much of a risk it is to you.'" Of that approach, she said, "Why not?"
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