Business Moment

Online Sellers Discover the Power of Video Clips

2007-02-05T13:02:00.000-08:00

IT was just a matter of time. Online retailers have begun capitalizing on the YouTube craze, offering a video platform for product demonstrations, rants and raves, sentimental messages and just plain bizarre behavior.
At this point there is little question that the videos, on sites like 1-800-Flowers.com, Buy.com, Blendtec.com and many others soon to come, have novelty value. Whether they will help build customer traffic and sales over the long term, though, remains an open question.
“The scary thing is that we don’t know the financial implications of this,” said Jim McCann, the chief executive of 1-800-Flowers, which recently began two initiatives to post user-generated videos on the site. “Does it have any benefit for sales? I can’t answer that. We’re just going on a leap here.”
Mr. McCann said the company would announce today its “Video Valentine” service (at 1-800-Flowers.com/videovalentine), where users go to the site and upload photos, write messages and choose musical themes and graphics. The site then meshes the various elements into a 60-second clip that, while not strictly video, includes enough motion and sound to approximate the experience.
The site allows users to send the valentines for free, and, after employees review them for inappropriate content, they may post the valentines on the site for others to view and rate.
Users will be able to integrate full video files in the coming months, said Mr. McCann, who caught the video bug after a conversation last year with Chad Hurley, one of YouTube’s founders. In the meantime, the site is relying on YouTube to broadcast other video clips from customers, through its Reconnections initiative.
With that, 1-800-Flowers asks users to film testimonials about instances when a gift from the site has caused or highlighted a reunion in the customer’s life. One video the site is considering posting in the future features a man who had lost touch with his high school sweetheart after the Korean War. Through the Web site, the man sent the woman a replica of the prom corsage he gave her 50 years before. The happy ending: 1-800-Flowers supplied the bouquets for their wedding. The Reconnections clips, which carry the company’s logo and links, are carried on YouTube, but links to the videos will also appear on the 1-800-Flowers site. Mr. McCann said he would feature the most popular videos in television ads, and has begun training employees in video production techniques to help customers refine some of the more promising testimonials.
The effort, he said, falls in line with the company’s increased focus on soliciting customer involvement on the site — whether through suggested gift card phrases, or less formal interactions with customer service representatives, where the site’s employees solicit feedback from consumers on product variations they might like to see.
“The irony is that we’re using technology to be much more personal with our customers, and recreate the relationship I had 30 years ago, where I knew all the customers that came into my shop on First Avenue,” Mr. McCann said.
The business itself is on the upswing. Late last month 1-800-Flowers announced record revenues of $330 million for the most recent quarter, an increase of nearly 19 percent from the same period in 2005. The company’s stock jumped by more than 10 percent last month to top $7, after dropping below $4.50 in August.
For at least one company, user-generated videos have led to a measurable boom in business. Blendtec, a manufacturer and seller of blenders based in Orem, Utah, started late last year posting videos of the company’s chief executive, Tom Dixon, blending random objects, including wood, marbles and Mr. Dixon’s iPod.
The company posted the videos on its own site, WillItBlend.com, as well as on YouTube, and promoted them on various message boards and blogs. The marble video, which can be seen at youtube.com/watch?v=3OmpnfL5PCw quickly rose to prominence on YouTube’s entertainment section, and since then, according to Blendtec’s marketing director, George Wright, the company’s 30 videos have been viewed more than 11 million times.
“We’ve seen wonderful improvements in sales,” Mr. Wright said. “Online, we’ve absolutely eclipsed our records, and it just continues to grow and grow.”
Still, the runaway success of the program has included some potentially troubling side effects. Users have taken to posting their own “extreme blending” videos, with about 600 such clips last week featured on YouTube.
Other sites, like the golf and tennis retailer Golfsmith.com, are employing user videos for reviews. According to Matthew Corey, the company’s vice president of marketing, Golfsmith.com will soon allow users to post clips talking about products for sale on the site.
Mr. Corey said this year’s new golf clubs include even bigger drivers than before, some with square heads. “It’s going to take people some time to understand the features of these,” he said. “What better way to do that than with videos?”
•
Sites may need to offer incentives to entice users to post videos, according to some executives, because users are less willing to do the extra work to post videos than photos or text reviews. Mr. Corey said Golfsmith is considering rewarding users who create popular videos.
Videos also help increase Internet traffic. The more Golfsmith offers videos and reviews of its products, Mr. Corey said, the better the chances Google and other search engines will point users to Golfsmith when they type a product name into a search box.
Mr. Corey will still have to brace himself for the possibility of users posting mock video reviews on YouTube showing, say, the destructive capabilities of a club. But on Golfsmith.com, all reviews will be screened by BazaarVoice, an Austin-based technology vendor that helps Web sites post user reviews and screen them for offensive or inappropriate content.
Brett Hurt, the chief executive of BazaarVoice, said his company would start helping three of its 60 clients solicit, review and post video reviews.
“I’d expect a majority of our customers to adopt this,” Mr. Hurt said. “It’s just a matter of time before it becomes the norm online.”

NYTimes.com

Consumer Mags Online: Real Strategy or Band-Aid?

2007-02-02T12:53:00.000-08:00

When Emap announced last December that it would shutter the U.S. version of FHM due to a perceived lack of future ad growth, it also said it would retain its Web presence, replacing companion Web site fhmus.com with fhmonline.com. “I think they’re seeing a lot of migration of ad revenue to online markets,” a source close to the company told Folio: at the time. “In this sector, those ad dollars are at a premium and they’re going elsewhere.”The source said the FHM Web site has nearly double the number of users as the magazine does subscribers (1.25 million print subscribers as of June 2006, according to the publisher’s statement with the Audit Bureau of Circulations).More consumer publishers are closing their magazines in favor of Web sites—from the teen category to men’s magazines and possibly newsweeklies next—but just how committed are they to an Internet strategy? According to a 2006 Folio: survey of consumer magazine CEOs, 77 percent of those with revenue under $10 million and 57 percent of those with revenue over $10 million expected new print advertisers to be their fastest growing revenue stream. “We folded a couple new magazines and we’re not embracing technology as fast as we could,” said one executive. While some b-to-b publishers are starting to see online revenue gains exceed print losses, consumer publishers may have a steeper hill to climb.Small Fish in a Big PondPart of the problem is that magazine publishers need to cope with the new experience of being a small fish in a big pond. Sites such as TeenPeople.com and ElleGirl.com post impressive traffic relative to print circulations but lag far behind other sites that cater to their audience, such as MySpace. Sports Illustrated is the dominant print sports brand and SI.com is an extremely successful Web entity, yet it is about the fifth largest sports Web site by traffic.A recent study from The Bivings Report, called “Analyzing the Presence of Magazines on the Internet” (www.bivingsreport.com/2006/the-presence-of-magazines-on-the-Internet/), finds that some of the most popular print magazines continue to lag behind the adoption of cutting-edge features (RSS feeds, RSS feeds that include ads, tags, mobile versions, video, podcasts, reporter blogs, reporter blog comments, blogrolls, comments on articles, registration required, book marking, message boards, and RSS feeds for different sections). Only three magazines—Newsweek, Popular Science and Time—used more than half of the features the study highlighted. The largest magazine according to the study’s definition—Reader’s Digest—possessed only podcasts, message boards and RSS feeds, while 10 of the magazine sites surveyed possessed none of the features. To be fair, the study assumes that all these features are a benefit to the magazines’ audiences—one of the challenges of Web 2.0 is not falling into the trap of doing something just because you can, rather than because it makes business sense.Taking the First StepLast April, Hachette Filipacchi shuttered ElleGirl in favor of ElleGirl.com. In December, the publisher folded French import Shock but plans to bolster the U.S. edition of the Web site. ElleGirl.com has enjoyed a 300 percent increase in traffic with very limited marketing and is setting the tone for the rest of the publisher’s online products. “What’s happened with ElleGirl.com has made us very confident about our brands having life beyond the magazine,” says vice president of digital media Marta Wohrle.The French version of Shock is undergoing its own repositioning by shifting to weekly and becoming more news-focused, and that could influence the U.S. Web site. “We’ll have to see whether that strategy will pan out,” says Wohrle. “In the next couple of months we’ll decide on what that strategy will be—do we do something like the French version or something more unique for American audiences?”As Hachette moves to a ratio where its Web sites feature 80 percent unique online content and 20 percent print content, ElleGirl.com is starting to influence some of the more mature brands as well. In the next few months, Hachette Filipacchi will redesign the Woman’s Day site (womansday.com) with blogs written by the magazine’s “name brand” writers as the centerpiece of the home page. “A year ago, if I had suggested that, the ad department would have walked out,” says Wohrle. “They would have said ‘we can’t sell this’—now they want to sell it.”But they’ll have to adjust their expectations. In 2005, ElleGirl generated $33 million in revenue, according to PIB. “ElleGirl.com will make money this year,” says Wohrle. “When you compare that to how long it takes a magazine to be profitable, especially in the teen market, we’re very happy. We’ve done five-year plans for every brand online and we think we can get 20 percent of our income from online/mobile company-wide. In terms of profitability, the proportions should be much higher, possibly 40 to 60 percent. Overall it’s going to be a smaller business but the margins overall may continue to be much, much higher.”

Video Gaming Industry Adapting to Internet Age

2007-02-02T12:51:00.000-08:00

In the future, video games will be shorter in length. They will be easier to comprehend, and they will appeal to a wider audience. They will lack hefty instruction manuals and lengthy tutorials. Many will be downloadable. Some will contain advertisements.
These were some of the ideas tossed around Tuesday evening at a panel discussion on the booming video game business at New York University's Stern School.
With broadband Internet becoming more accessible, everyone wanted to talk about the future of digital distribution of video games. Online gaming sites are popular as ever, and all of the new consoles — Microsoft's XBox 360, Sony 's Playstation 3, and the Nintendo Wii — offer their own online marketplaces for downloading smaller games. The panelists, who included the Vice President of Business Development for Atari, Robert Stevenson, and an interactive entertainment analyst for Bear Stearns, Edward Urban, each had their own strategies and reasons for tapping in to the online market.
"It's kind of a tricky thing for publishers, because your bread and butter is the retail business," Mr. Stevenson said. "So you want to do the digital distribution, but you don't want to bypass or avoid Wal-Mart and Best Buy because it's still a valid business." Mr. Stevenson pointed out that online sales of the game Neverwinter Nights made up 5% of total sales. Although Atari was pleased with that figure, it obviously didn't compare to sales in stores. Still, Mr. Stevenson suggested that the online would strengthen over time.
The chief executive officer of the online game company Kuma Reality Games, Keith Halper, said digital distribution is more analogous to television than to Wal-Mart. His company offers free games over the Internet, distributed in small bursts, or "episodes," and forces players to watch advertisements. "As a startup, you don't want to find yourself competing against the likes of Atari or Vivendi," he said, adding that smaller companies need to find less traditional business models.

The vice president of Sierra Online Latin America, Esteban Sosnik, said there would be a change in the way video games are made as the Internet's role increases. He said that his company's awardwinning game, Assault Heroes, wouldn't have been possible without Live Arcade, Xbox 360's downloadable game service. He also implied that micro-transactions — the purchase of add-ons or upgrades through the Internet — would become more prominent.
Panelists agreed that shorterlength video games would be popular with consumers.
"I think it's happening because of a change in demographics," the coordinator of the New York City chapter of the International Game Developers Association, which helped organize the panel, Wade Tinney, said after the discussion. There are still kids who can play for hours on end, he said, but there are also older people, like himself, who grew up on games and don't have that kind of time anymore. "And I'm the one with the credit card and the income," he said.

"I personally don't think our players have any interest in the 40-hour experience," he said.
Mr. Halper found that his customers, many of whom are new to gaming, were unsatisfied with the company's longer offerings and preferred games to last an hour or less. "There's something about the mass market coming in that makes a difference in the kind of games you create," he said.
After the panel, Mr. Stevenson said that his business model isn't going to change much, but that the games Atari distributes probably will. In his words, video games in the future will simply be more "digestible."

The New York Sun

Disney sells 1.3m films on iTunes

2007-02-02T12:31:00.000-08:00

Downloads of Walt Disney films on the iTunes platform have risen sharply to more than 1.3m after only three months on sale, putting pressure on other Hollywood studios to join Apple’s digital service.
Disney began selling its new movies on iTunes in October. But other studios have resisted its lead, partly because of fears that they will upset retailers such as Wal-Mart and Target, which are responsible for most DVD sales in the US.

Target has expressed concerns about the effect of downloading on DVD sales and pricing. But in an exclusive video interview on FT.com, Bob Iger, Disney’s chief executive, said digital distribution was “creating more consumption of media”. He added: “The message that we deliver to our traditional [retail] partners is that the pie is getting bigger.”
Video
Bob Iger talks to US Managing Editor Chrystia Freeland in an exclusive video interview
He dismissed fears that digital downloads would cannibalise DVD sales, pointing to record sales of Cars, a Disney animated movie, and of Pirates of the Caribbean: Dead Man’s Chest, which is on course to be the biggest selling DVD ever.
Mr Iger said retailers’ concerns were to be expected but Disney had to sell content on digital channels. “If we don’t put our content on these platforms, which the consumer has obviously embraced, other entities will create content and fill that void.”
The launch of Pirates of the Caribbean and Cars on iTunes helped push Disney download sales through the 1m barrier, with the total number of Disney downloads sold on iTunes doubling over the Christmas period.
Disney also put its TV programming on iTunes a year ago and has sold more than 20m downloads.
The company’s buoyant DVD sales come as the media industry braces itself for a DVD slowdown. After several years of growth, the market is maturing.
Pali Capital, a research firm, expects 2007 to be the first year that spending on DVDs in the US declines.

ft.com

AOL Grows Annual Ad Revenue 41%

2007-02-01T13:08:00.000-08:00

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

NBC: Viewers Catch Up Online

2007-02-01T13:07:00.000-08:00

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

Times Exec Questions Online Subscription Model

2007-02-01T13:05:00.000-08:00

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

Michael Dell Heads Back To The CEO Chair

2007-02-01T13:03:00.000-08:00

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

Are Google investors getting spoiled?

2007-02-01T12:59:00.000-08:00

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

Yahoo's Puzzling "Brand Universe"

2007-02-01T12:57:00.000-08:00

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.

Good News Expected from Google's Earnings

2007-02-01T12:53:00.000-08:00

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

Gates: Customized Web Key To Microsoft's Future

2007-02-01T12:47:00.000-08:00

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.

Newspapers A "Challenged Platform"

2007-02-01T12:42:00.000-08:00

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

AOL Transformation Is Working

2007-02-01T12:38:00.000-08:00

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

Pharmaceutical Company Won't Mention Its Products in Super Bowl Ad

2007-02-01T12:36:00.000-08:00

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?"

Vista: Most Aggressive Launch Ever For Microsoft

2007-01-30T11:54:00.000-08:00

Seeks Global 'Wow' Reaction to New OS Features

"There won't be a PC sold anywhere in the world that doesn't have Vista within six months," said Endpoint Technology Associates analyst Roger Kay, a fact that might leave ad watchers wondering why Microsoft is about to launch the product with one of the biggest marketing blitzes of all time. 'Most aggressive'This will be the company's "most aggressive launch ever," resulting in an injection, across 20 countries, of an estimated $500 million into agency and media-owner coffers -- which seems excessive for a product that will walk out of the stores on more or less every PC sold from here on in. But that's not the point, according to Microsoft -- which goes so far as to borrow from images such as a child discovering a snowfall, the fall of the Berlin Wall and Woodstock to persuade consumers that Vista is not just an operating system, but a potentially life-changing event. "Awareness is not enough," said John B. Williams, general manager-Windows global communications. "The goal for this campaign [is to] get at the heart of excitement." Several strikes against itGenerating that, and maybe getting at the heart of the mammoth marketing push, may be difficult, because although the product may become ubiquitous, it starts out with several strikes against it. First, it's from Microsoft, which detractors often paint as the monopolistic "evil empire." Then there's the fact that the product has been delayed several times and received only lukewarm reviews from analysts and beta testers. And, of course, there's Apple, which has the only other operating system. While still a small player in the computer industry, Apple has seen its market share rise from 3% to more than 5% in the past two years, thanks in part to its iPod halo effect. "They can't take any chances or leave the field pen to Apple," Mr. Kay said. "And [Microsoft] needs to spend a fair amount of effort convincing corporate clients to buy Vista." Difficult to explainLast, Vista is a difficult product to explain. It's the platform on which PCs run, but the user doesn't really see it. Marketing will help explain what Vista is and does. Some TV ads, for instance, feature 3-D flip screens with the Windows Vista border around the edge of the screen for the duration, showcasing the new Vista look. "The last time people made a decision on an operating system was five years ago -- and the world has changed dramatically since then," Mr. Williams said. "We have to show the product because when they see Windows Vista, they'll get it ... and have this kind of reaction we're looking for." And the reaction it's aiming for: "Wow." "This one word kept coming out as people sat down and played with the product," said Mike Sievert, corporate VP-Windows client marketing. "The campaign concept works very well across cultures and geographies." (Vista will have a "big advertising presence" in 20 of its 50 markets.) 6.6 billion impressionsIndeed, the planned scope of the campaign -- 6.6 billion impressions in its first few months -- is wondrous by today's narrowly targeted, niche-media standards. "The Wow starts now," two years in the making with McCann Worldgroup, encompasses an online consumer-participation promotion themed "Show us your wow" (the winner gets a trip around the world), sponsored webisodes at Clearification.com featuring "Daily Show" comedian Demitri Martin and an alternate-reality game called "Vanishing Point" that moves between online and offline. A human billboard will feature 16 dancers forming the Vista and Microsoft Office icons, and Microsoft Chairman Bill Gates himself will host an invitation-only party in Times Square. A slew of retail promotions are set for Jan. 30 in more than 30 markets around the country and will include Xbox giveaways and school PC-lab makeover sweepstakes, as well as rebates and special deals. Microsoft experts will be on-site to answer questions. Microsoft CEO Steve Ballmer will greet customers at Best Buy in New York. But it's the TV ads that will garner much of the attention-and inevitably it won't be all good. The spots picture "Wow"-murmuring moments such as a '60s-looking family staring at a black-and-white TV as a rocket blasts into space, a hippie climbing up on scaffolding to look out over the Woodstock crowd, a young boy staring out his window at a early-morning snow-blanketed street, and a man putting down a chunk of rock on the table as those gathered watch the Berlin Wall being torn down on TV. The juxtaposition will provide surefire fodder for the blogosphere. LeBron JamesBasketball superstar LeBron James also lends his celebrity to the ads. In a vignette, he is playing with a group of kids when one breaks in front of him, zipping off and doing fancy dribbles down the court. Mr. James stares after him and says "Wow." At the end of every spot, a man opens his laptop in a darkened office while the voice-over intones, "Every so often you experience something so new, so delightfully unexpected, there's only one word for it."

AdAge

YouTube Fans Reject Pre-Roll

2007-01-30T03:47:00.000-08:00

AS YOUTUBE PREPARES TO SHARE ad revenues with contributors, it may want to think twice about slapping pre-roll ads on videos. Nearly three-quarters of frequent YouTube users said they would visit the site less if it started including short video ads before every clip, according to the results of a recent Harris Poll released Monday. Of those, 42% said they would visit a little less often, and 31%, a lot less often.
YouTube has not publicly stated that it plans to add pre-roll ads to videos. But in a BBC interview after announcing YouTube's plan to start paying video contributors, YouTube co-founder Chad Hurley said the site may begin running three-second spots before videos.
That's far shorter than the standard 15- or 30-second pre-roll, but the addition of video ads would still mark a major shift for the company and its millions of fans. YouTube has built a huge following by making it easy to view and share videos. Hurley told the BBC that its new system for sharing ad-revenue was still being readied, and that it will roll out over the next couple of months. In a statement issued Monday, a YouTube spokesman said that the company is "actively exploring a variety of ways to help the community monetize content," and that it would announce something in the coming months.
Aongus Burke, senior research manager of Harris Interactive's media and entertainment practice, said in a statement that previous data shows consumers will watch commercials online to catch a TV episode they would otherwise miss. "Yet those who are accustomed to finding and watching everything for free at YouTube may have developed a different set of expectations for the site," he said.
In more encouraging findings for YouTube, almost one in three frequent visitors to the site said they watch less TV because of the time they spend on YouTube, according to the Harris Poll. And 42% of U.S. adults online say they have watched a video on YouTube, while 14% say they go to the site frequently.
Not surprisingly, YouTube has even higher reach among males 18 to 24 years old, with 76% saying they've watched a YouTube clip, and 41% visiting frequently. The Harris Poll was conducted online in the U.S. between December 12 and 18 among 2,309 adults, of whom 363 are frequent YouTube viewers.
In a separate analysis released Monday, Hitwise found that YouTube's market share among U.S. Web sites had increased 18.5% during the week ending January 27, when Google Video added YouTube videos to its index. On Wednesday, Jan. 24, the day before the expanded index went live, Google Video accounted for just .73% of all of YouTube's traffic. By the following Saturday, however, it was generating 8.7% of all of YouTube's upstream traffic, according to Hitwise.

MediaPost

Apple TV debate won't wait on product

2007-01-30T03:43:00.000-08:00

Like the iPod, Apple TV could be a phenomenon. A disrupter of lesser technology. A product that finally converges the computer with the TV set.Or not.Apple Inc. executives, including CEO Steve Jobs, have been calling Apple TV a DVD player for the 21st century. They are aiming for mainstream adoption, not just the niche inhabited by technology geeks or lovers of all things Apple.Apple TV, due next month, basically is a set-top device that lets media residing in one's iTunes library, including music, TV shows, feature films and podcasts, to be enjoyed on TV screens. Wirelessly.It will come equipped with a hard drive with enough capacity for 50 hours of movies and TV shows or about 9,000 songs.Apple TV also lets users store and display on TV screens their own photos and home movies and will show movie trailers via Apple.com.Analysts and Internet bloggers have been busy trying to figure out whether Apple TV will be a hit or miss -- or something in between -- since Jobs first spoke of an iTV gadget last year. A few weeks ago, he revealed the box and its exact functionality, as well as its change of name, only further fueling the debate."Wouldn't it be nice to just scroll through a list of your movies and TV shows and just pick the one you want?" one blogger asks."Apple TV is a solution in search of a problem," counters another. "Everything this $300 thing can do for me I can do with a $20 cable and my iPod."Plus, iTunes movies and TV shows are available for purchase on DVD or could easily have been recorded by a TiVo or other DVR. The true point of iTunes video is to make portable the stuff that you once needed a TV set for, Jupiter Research analyst Todd Chanko said."Is there really going to be a market for exporting that content back to the TV?" Chanko asks.Absolutely, counters Tobin Smith of ChangeWave Research, pointing to polling data to support his assertion.In December, Smith asked 228 members of his ChangeWave Alliance who are electronics industry professionals to name the company they thought was most likely to see success with "media centers," defined as high-power devices capable of managing digital content around the home.Apple, at 43%, was tops, followed by Sony (14%), Microsoft (11%), TiVo (8%), Hewlett-Packard (7%), Samsung (4%), Cisco Systems (4%) and Dell (4%).He also asked the panel about Apple TV specifically, and 65% predicted it is "very likely" or "somewhat likely" to be a huge success in the first year. Only 30% predicted it was somewhat or very unlikely to succeed."It's simple," Smith said. "Apple will soon deliver the 100% turnkey home computing, viewing, listening system."Look for Apple to next start selling LCD monitors up to 65 inches with Apple TV and wireless broadband connectivity built into them, Smith said."One wireless touch-screen remote running on WiFi, one portable keyboard for e-mails and text messaging and one box to run it all wirelessly to any monitor or PC in your house," he said.Not so fast, other analysts cautioned.Citigroup's Tony Wible doesn't see Apple TV "gaining widespread adoption in the near term" because of its $299 price tag and limited storage. He also calls it a "more complicated solution" than offered by others.TiVo, and other DVRs, have similar capabilities and DVRs will "represent a viable download platform in the future" for movies, he said.Either way, Apple TV further increases the company's focus on consumer electronics and entertainment products. Its iPod business already brought in the majority of overall company revenue for its latest fiscal year.Sean Badding, a senior analyst with the Carmel Group, said that if Apple can sell 500,000 Apple TV units in the first year then he will consider it a success."It's not a breakthrough product," he said. "Networking a computer to TV wirelessly has been done before. The question is, can Apple do it better? They weren't first to market with a digital music player either, but they blew the doors off the competition with their iPod."A couple of years from now, Apple TV, in addition to what it will be when it launches next month, also might have morphed into a DVR and even a video game platform, Badding said. "Hey, it has got the Apple name and Steve Jobs at the helm, and that's what will be on people's minds when they go out there kicking the tires on Apple TV," he said.

The Hollywood Reporter

YouTube, Wikipedia storm into 2006 top brand ranking

2007-01-26T09:36:00.000-08:00

Internet firm Google has again pipped Apple to the top spot in a global brand ranking that also sees YouTube and Wikipedia debut in the top five, a survey showed on Friday.
The annual survey by online branding magazine brandchannel.com often throws up controversial results, such as in 2004, when Arabic TV station Al Jazeera was named the world's fifth most influential brand.
This year the 3,625 branding professionals and students who voted have again surprised, awarding upstart firms star status when asked: "Which brand had the most impact on our lives in 2006?".
Google, the Internet search engine that has expanded regionally and moved into online advertising, mail and blogging, seized the top spot for the second consecutive year, ahead of Apple Inc, which again comes in second place.
More surprisingly, video-sharing Web site YouTube, which was bought by Google in October last year, stormed into third place. Online encyclopedia Wikipedia makes the fourth spot, pushing coffee shop behemoth Starbucks Corp. to fifth.
"The dramatic debut of these newcomers -- YouTube in third and Wikipedia in fourth -- is an indication of a larger trend -- the growing impact of online brands built on user-generated contents," editor Anthony Zumpano said in a statement.
Other new brand winners were News Corp's online chat site MySpace, debuting in 15th place in the North America rankings, and Al Jazeera, which advances to 19th place globally having launched its English language channel in November and after its drop from fifth to 25th in 2005.
The poll does not take account of economic brand value, the murky science of assigning a financial value to brand, which regularly puts Coca-Cola Co's Coke in first place.
Neither does it ask respondents to consider whether the brand's impact is positive or negative.
Brandchannel also split the poll by regions and in the North America the rundown was similar to the global outcome, albeit in a different order, with Apple in first place, followed by YouTube, Google, Starbucks and Wikipedia.
The top five places in the European list are from homegrown corporations, with Swedish furniture giant Ikea knocking Nokia off the top spot and into third place. Skype comes in second, with fast-fashion brand Zara in fourth and Adidas in fifth.
Likewise, local firms dominate the Asia-Pacific region poll with the top five places taken by Sony, Toyota, HSBC, Samsung and Honda. Third-placed HSBC has Asian roots although it is headquartered in London.
And in a refreshing change from the high-tech brands that dominate the global poll, Latin America's top two are party beverages Corona and Bacardi, with mobile phone operator Movistar in third. Sandal maker Havaianas takes fourth place and Bimbo, the world's number three bread maker, comes in fifth.

Reuters

Automaker Economists Issue Outlook for 2007

2007-01-26T06:48:00.000-08:00

THREE LEADING AUTO ECONOMISTS PREDICT that a slowdown in U.S. economic growth will have a ripple effect on auto sales this year, forecasting U.S. sales of light vehicles will remain steady or drop slightly -- to around 16.4 million units. But they expect gasoline prices will continue to decline, which could help segments such as sport-utility vehicles.
Economists from General Motors Corp., Ford Motor Co. and DaimlerChrysler AG laid out their predictions earlier this month at the Society of Automotive Analysts meeting in Detroit.
Van E. Jolissaint, Chrysler's chief economist and director of economic and market intelligence with DaimlerChrysler AG, said he expects U.S. gross domestic product will slow from around 3.5% to 2.5%. He predicts that by the middle of this year "housing construction will cease to be a drag on the U.S. economy."
Jolissaint also predicts that as gas prices stabilize, sales of trucks and SUVs will rebound. "We expect small and mid-size and even large cars to lose share somewhat in 2007, and we expect pick-ups and sport utilities and minivans to regain some share in 2007," he said.

Both GM's chief economist G. Mustafa Mohatarem and Ford's Ellen Hughes-Cromwick, director and chief economist, agreed that oil prices should stabilize. But they were less bullish about the U.S. auto industry's prospects for growth in 2007. Instead, they predict that virtually all the growth that will happen in the global car industry will come from outside the U.S. in the foreseeable future -- particularly from China and India.

The growth in those markets is likely to have an impact on the kinds of cars U.S. auto buyers choose, said other analysts speaking at the meeting. The small car market --think brands like Toyota's Yaris or the Nissan Versa -- is a tiny portion of the U.S. market.

Analysts such as Wim Van Acker, managing partner with the North American operations of Roland Berger Strategy Consultants, expects that to change in the next six years as more production from China becomes available in the U.S.
"The entry-level car is something which is beginning in the U.S.," he said, projecting sales will almost double, from 400,000 in 2006 to about 700,000 in 2012.

Van Acker said that while price and fuel economy are key deciding factors for small-car consumers, brands are also important to the decision-making process. "People always think that the product is the only thing. Well it's not. You have to handle the combination of car, care and core: The car being the product, care being the service around it, and core being the brand, which is supporting it."

MarketingDaily

eBay Holds Its Turf Against Google

2007-01-26T06:43:00.000-08:00

The online auctioneer fended off its new rival in the fourth quarter. Can Meg Whitman keep it going with her recent acquisitions?

Investors of eBay headed into the end of last year with some trepidation. The concern: an 800-pound-gorilla named Google (GOOG) would give eBay a drubbing during the 2006 holiday season. The search giant aggressively moved into eBay's (EBAY) e-commerce territory in 2005 with a product-listing service called Google Base. Last year, it stepped up the challenge, launching Google Checkout, a competitor to PayPal, eBay's online payment processing service. The new offering was dubbed by press as a PayPal "killer" before it even debuted.

But eBay kept that gorilla in check in the fourth quarter, judging from results released Jan. 24. The company said sales rose 29%, to $1.72 billion, exceeding analysts' expectations. The amount, which was about half a billion higher than what analysts were anticipating on average, grew 29% from last year. For the full year, revenue grew 31% from 2005, reaching $6 billion and meeting what CEO Meg Whitman called an internal company goal for "6 (billion) in '06." Investors liked what they heard, propelling eBay shares 13.3%, to $33.98, in extended trading. The stock gained another 7.8% on Jan. 25, to $32.35 in afternoon trading on the NASDAQ.

Positive Pruning

Whitman attributed the solid quarter, in part, to more product listings turning into actual sales on eBay's site. The company's core auction business had suffered last year from sellers dumping slow-selling and patently unwanted merchandise in their eBay stores, as well as pricing some items too high for eBay's bargain-hunting audience. The result was a poorer experience for buyers and inventory that sat on the site far longer than desired, Whitman explained.

Last spring and summer, eBay raised fees by roughly 6% in order to encourage merchants to sell items people want and to price them to move. So far, the plan seems to be working. The site saw declines in the inventory that languished in eBay stores before selling or that didn't sell at all. "We are moving toward a better eBay marketplace," Whitman said during the call, cautioning that there was still work to do this year. Company CFO Bob Swan said that conversion rates have yet to reach their 2005 levels, but that they markedly improved since 2006.

In a note to investors, Goldman Sachs (GS) analyst Anthony Noto indicated he was pleased with eBay's efforts to "prune" low-quality listings. "eBay's focus on successful listings, as opposed to listings at any cost, is the key focus and driver of growth for eBay at this juncture," he wrote, adding "improved revenue-per-listing trends reinforce our view that eBay is at the early stages of a multi-quarter period of stabilizing-to-accelerating growth."

PayPal Paying Well

Sales also got a boost from increased holiday traffic due in part to the hype over hard-to-find gifts such as the Nintendo Wii (NTDOY) and Sony PS3 (SNE). Holiday shoppers flocked to the site to bid on the items and, when they lost the bid, frequently continued shopping on the site anyway, Whitman said.
The big surprise of the season, however, was the strength of the services supposed to be suffering at the hands of Google. PayPal posted revenues of $417 million, a 37% growth rate compared with 2005’s fourth quarter. The payment-service company handled a record $11 billion in transactions, up 57%.

In fact, Whitman said that all the hype over Google Checkout actually boosted sales for market-leading PayPal, which reaped publicity amid the coverage of Google's foray. "I think we have disproportionately benefited from news in this category," Whitman said. She added that PayPal has an advantage over Google Checkout in that it's not just "a wrapper for Visa and Mastercard," but functions as an independent payment service.

Scott Devitt, an analyst at Stifel, Nicolaus & Company, says that acquiring PayPal was one of eBay's best moves. Ebay purchased the payment company for $1.5 billion in 2002. "PayPal has just been phenomenal," says Devitt. "It is one of the best acquisitions in the history of the Internet in terms of the returns."

Skype Question

In terms of acquisitions, Devitt also believes eBay picked a winner, for $310 million, in ticket reseller StubHub. Ebay expects that the site will bring in between $105 and $120 million in 2007. That would help boost the company's overall revenues this year. During the call, eBay raised its revenue estimates for 2007 to between $7.05 and $7.3 billion for the full year. It predicts earnings-per-share growth of between 20% and 23% in the range of $1.25 to $1.29.
Share gains aside, eBay thinks the stock merits a higher value and announced a plan to repurchase $2 billion in stock over the next two years. The plan shows the company's confidence in its ability to grow, says Devitt. He adds that he thinks the company will show mid- to upper-teens growth on a three-year basis.

Despite the positive glow overall, the jury is still out on the eBay acquisition of Skype. While many analysts agree that the service has potential, they worry about eBay's ability to make money off of Skype's growing number of users. One positive sign: Google is working with Skype in developing click-to-call ads, says Devitt. The move may show that Google isn't so confident about being able to effectively challenge Skype for pay-per-call ads with its own competing service.
Or it could show that, after Google's experience with Checkout, it's easier to keep eBay as a friend than a rival.

BusinessWeek

Norway Blocks iTunes; Germany, France May Follow

2007-01-26T06:41:00.000-08:00

Apple was dealt a blow in Europe on Wednesday when Norway’s powerful consumer ombudsman ruled that its iTunes online music store was illegal because it did not allow downloaded songs to be played on rival technology companies’ devices.

The decision is the first time any jurisdiction has concluded iTunes breaks its consumer protection laws and could prompt other European countries to review the situation.

The ombudsman has set a deadline of October 1 for the Apple to make its codes available to other technology companies so that it abides by Norwegian law. If it fails to do so, it will be taken to court, fined and eventually closed down.

Apple, whose iTunes dominates the legal download market, has its proprietory system Fairplay. Songs and tunes downloaded through iTunes are designed to work with Apple’s MP3 player iPod, but cannot be played on rival devices.

Torgeir Waterhouse, senior adviser to the Norwegian Consumer Council, who originally launched the complaint, told the Financial Times he was in negotiations with pan-European consumer groups to present a unified position on iTunes’ legality.
Sweden and Finland have already backed Norway’s stance, but have yet to take action, and Mr Waterhouse said the campaign was joined on Wednesday by Germany and France.

“We are satisfied the Federation of German Consumer Organisations and the French UFC Que Choisir are addressing this important issue. It means that iTunes is now being told by more than 100m European consumers to offer them a fair deal,” he said.

Apple signalled that it would fight efforts in Norway and elsewhere in Europe to prise open the iTunes service, though it struck a more conciliatory tone than early last year when it attacked a proposed French law as “state-sponsored piracy”.

“Apple is aware of the concerns we’ve heard from several agencies in Europe, and we’re looking forward to resolving these issues as quickly as possible,” it said in a statement. “Apple hopes that European governments will encourage a competitive environment that lets innovation thrive, protects intellectual property and allows consumers to decide which products are successful.”

The development comes as competition in the multi-billion dollar global market for digital music is intensifying.
Nokia, the world’s largest mobile phone maker, has set up a rival to iTunes, while Microsoft, the US technology company, has also launched its own digital music player called Zune to compete with the iPod.

However, the lack of interoperability has been blamed by some consumers and technology companies for hampering the growth of the legal digital music download market.

Record companies insist that the issue of interoperability is one for technology companies, and stress the importance of digital rights management in order to prevent piracy.
The IFPI, which represents record groups around the world, said that it “thoroughly supported interoperability, but wanted a market solution rather than one imposed by authorities”.

Financial Times

Nintendo Wii Sales On Track; New Role Unveiled

2007-01-26T06:34:00.000-08:00

NINTENDO IS MORE THAN HALFWAY to its goal of shipping 6 million Wii gaming consoles by March 31, the end of its current fiscal year, the company said when announcing its earnings for April-December 2006. Robust sales of Wii helped push the company's profit up 43% in the last nine months of 2006.
Nintendo said it had shipped 4 million Wii consoles by the end of 2006 and sold 3.19 million worldwide--1.25 million in North America and 1.14 million in Japan.
In an additional development to watch, Nintendo also announced yesterday that it will make news from AP available through the Wii console.
Rival Sony also estimates it will ship 6 million PlayStation 3 machines by March 31, although it has suffered considerable setbacks in reaching that goal. The company said it had shipped 2 million PlayStation 3 machines worldwide by mid-January, with its Japanese shipments delayed by two weeks, and the European launch of the PS3 delayed until later this year.
The success of the Wii has been attributed to Nintendo's long-standing formula of marketing easy-to-play games to a wider audience, rather than catering to a narrower audience of young, male gamers. The Wii has been bought by families and single males alike, both demographics responding positively to the console's usability and library of familiar games' title characters, like "The Legend of Zelda: Twilight Princess."
Nintendo's earnings growth was also boosted by strong sales of its DS portable player, which sold 18.9 million units worldwide in the first three quarters of 2006. The company's overall sales rose 73% to 713 billion yen ($5.9 billion) during the April-December period, from 412 billion yen in the year-ago period.

MarketingDaily

MSN Ad Revenue Increases 20%

2007-01-26T06:31:00.000-08:00

MSN'S ADVERTISING REVENUE INCREASED TO $462 million last quarter--marking an increase of $77 million, or 20%, from the last three months of 2005, Microsoft reported Thursday. The surge was led largely by growth in display advertising on home pages, portals, channels, email and messaging services.
"If you break that down into display and search, there's a better story on the display side," said Chris Liddell, Microsoft's chief financial officer, referring to the ad revenue.
While Microsoft did not provide specific numbers about search versus display ads, Nielsen//NetRatings estimated Thursday that MSN's revenue from image-based ads increased 28% from the last quarter of 2005, based on AdRelevance data.
Liddell also said in the earnings call that Microsoft was disappointed it had recently lost ground in search. "We lost market share during the quarter--we're clearly not happy with that," he said. But, he added, "we continue to take a long-term view on this business." According to comScore Networks, MSN search claimed just 10.5% of searches last month--down from 13.7% at the beginning of the year.
All of Microsoft's online service businesses posted a loss of $155 million last quarter--down from a profit of $58 million during the same period last year. Much of that decline stemmed from a loss in revenue from dial-up subscribers.
Revenue growth was offset by high costs from new hires and investment in developing adCenter, Windows Live and other online properties, Liddell added.

OnlineMediaDaily

One year later: Icahn gets his stock price -- without breaking up TWX

2007-01-24T09:36:00.000-08:00

It has been a year since Carl Icahn went to investment bank Lazard and asked the company to put together a valuation of Time Warner Inc. based on three methods of coming at the number. Lazard looked at each division and set a high and low value for the company's operations: Content, cable, publishing and AOL. The report ran 371 pages. Before saving for corporate general and administrative costs, Lazard said that the company was worth between $21.46 and $24.49.

TWX shares are lately trading around $22.50. Mr. Icahn got his wish, at least in part. And the company did not have to be broken into pieces to realize the value.
Still, it is interesting to look now at the Lazard value for each unit. Lazard combined the studio unit with the cable content operation (CNN, Turner) and came up with a value range of $55.9 billion to $61.4 billion. Cable's valuation was $43.3 billion to $48.5 billion.

AOL's value was put at $17.5 billion to $21 billion. That was before the decision to transform the operation into an advertising supported model, moving away from the Internet access business. The publishing unit was valued at $12.7 billion to $14.2 billion.

Lazard then subtracted the parent company's $30.5 billion in debt (only seems fair), to arrive at its valuation.
Time Warner's stock price got where Mr. Icahn wanted it to go. It only took a year, the company is still in one piece. And think of the investment banking fees he saved.

Blogging Stocks

Yahoo's Panama Pleases Investors

2007-01-24T09:32:00.000-08:00

The long-awaited upgrade to the portal's search-ad system will launch Feb. 4. The Street cheered the announcement—but will it be enough?

After struggling for more than a year to catch fast-growing Web giants such as Google and MySpace, Yahoo! isn't out of the woods yet. But it may finally be seeing some sunlight through the thicket.
On Jan. 23, the Internet portal reported fourth-quarter profit that handily outpaced expectations as sales rose 13%, to $1.7 billion. Profit fell 61%, to $269 million, from a year ago, when Yahoo logged a gain on the sale of a China operation, but the 19¢-a-share profit easily beat analysts' 13¢ prediction. Initially, that wasn't enough to thrill investors, who swiftly knocked the stock down about 2% in extended trading, thanks to a muted forecast for a 14% rise in sales this year.

Momentum

But as soon as Chief Executive Terry Semel mentioned that a long-awaited improvement to Yahoo's search-ad system, known as Project Panama, would roll out earlier than expected, the stock reversed course and shot up more than 5%. The rally reflected the relief of investors who already were betting the worst could be over for Yahoo and were watching for any sign to the contrary. Shares have risen 7% since the start of the year and have been up as much as 10% this month. That follows a 35% swoon last year.

Panama, originally scheduled to launch last year, is Yahoo's attempt to close a sales gap with Google. Yahoo's search ads produce far less revenue for advertisers because the company's formula for running ads is based solely on how much advertisers bid on search keywords—the words that trigger the placement of an ad alongside search results. By contrast, Google takes into account how many people click on those ads, so they end up being more relevant to searchers—and elicit two or three times as many clicks as ads on Yahoo.

For the past two years, Yahoo has tried to improve the performance but has run into delays getting Panama out the door. Now, the new platform goes live in the U.S. starting Feb. 5, followed by international markets, starting with Japan in the second quarter. Yahoo wouldn't say how much it expects Panama to improve search revenue besides promising that it would see a "double-digit" increase in revenue per search in the second half. "We expect to see revenue impact to begin in the second quarter and gain momentum throughout 2007," Semel said in a conference call with analysts.

"Transition"

Already, advertisers are champing at the bit. Despite Google's dominance in search ads—or perhaps because of it—companies crave an alternative so they're not overly dependent on Google. Despite some advertisers' difficulty learning the new system, early reviews of Panama from advertisers and agencies are positive, with many saying the system is easier and faster to use than Yahoo's current system. "We're definitely hoping it will help even the playing field," says Adam Kasper, senior vice-president and director of digital media for MediaContacts, a digital ad agency.
Panama is not the only upside opportunity in the coming year. Yahoo's deal to sell ads on eBay, its agreement with a newspaper consortium to run job ads online, and a partnership with ad network Right Media to sell space on less-trafficked Yahoo pages all could kick in this year. "There's some real tangible business catalysts," says Rob Sanderson of American Technology Research, who has a buy on the stock.

Even so, Yahoo is far from home free. Semel himself tacitly acknowledged as much by using the word "transition" to describe Yahoo's likely performance this year. That's usually a code word for a tough year, but it also may be an attempt to manage expectations at a time when Google's momentum shows little sign of slowing and Yahoo faces challenges on a number of fronts.
For one, Yahoo's growth in the first quarter, often soft post-holidays, could slow considerably. The company says first-quarter revenue will rise only 8%, thanks in part to higher costs to drive traffic and Panama's only partial impact on the quarter.

Getting Social

Indeed, Panama could take a while to have an impact. Advertisers need to learn how to use it, and the formulas Yahoo uses for determining the quality of the ads will need to adapt to what users end up clicking on. "Investors are betting that Panama will save the day," says Scott Devitt, an analyst with Stifel, Nicolaus & Co. in Manassas, Va. "It may, but there's no proof that Panama is working. You're betting on something that is at least six months out" in terms of bottom-line impact. Even then, it's unclear how great the impact will be. "Panama will improve things," says Ellen Siminoff, CEO of search marketing optimization firm Efficient Frontier and a former Yahoo executive. "It's just a matter of how much vs. expectations."

And while Panama may improve how Yahoo makes money on search, the company is still losing ground in search in the first place. Yahoo's share of Web search queries fell slightly from November, to 23.6%, according to market researcher Nielsen//NetRatings. Google, meanwhile, captured 50.8% of searches.
Yahoo's mainstay display-ad business also is under pressure. In the third quarter, the company surprised investors with an unexpected slowdown in display advertising. It blamed that slowdown partly on the rising popularity among advertisers of social sites such as MySpace, whose traffic overtook Yahoo's recently by one measure.
One key for Yahoo will be finding a way to generate revenue from its own social Web initiatives, such as the photo-sharing site Flickr, the Web-bookmarking site del.icio.us, and its Yahoo 360 service. "If they're not able to use those communities as strategic assets, they're useless," says Sandeep Swadia, vice-president of strategic markets for corporate-search service FAST Search & Transfer. Problem is, "fundamentally, communities don't want commercial interruptions."

Yahoo will have to make this happen with a shuffled management deck. In December, the company announced the exit later this year of Chief Operating Officer Dan Rosensweig and the elevation of Chief Financial Officer Sue Decker to head a publisher and advertiser division. A search for someone to head a new audience division is under way. But for now, it's up to Semel to return Yahoo to its former yodeling glory.

BusinessWeek

Future Of Music Is The Phone

2007-01-24T09:29:00.000-08:00

To keep up momentum, analysts recommend carriers develop improved content partnerships, aggressive pricing, licensing deals, distribution channels and marketing strategies.

Global spending on mobile music from ring tones to full-track downloads is expected to reach $32.2 billion by 2010, with consumers in the Asia-Pacific region and Japan leading the market, a researcher said Tuesday.
Spending on music for handsets is forecast to increase by nearly two and a half times this year's predicted $13.7 billion, Gartner said in its global outlook for the mobile music market. The growth will occur despite competition from digital music players, and a host of challenges faced by telecommunications carriers in delivering these services.
Ring tones today are the second most popular mobile data service, with text messaging No. 1 in terms of use and revenue, Gartner said. Driving the use of mobile music is personalization and entertainment. Ring tones and ring-back tones, for example, are part of the trend to turn mobile phones into a form of self-expression. Ring-back tones are a piece of music or audio clip that mobile phone users select for callers to hear instead of the traditional ringing signal when they dial a mobile number.
Carriers own the ring-tone business, but they are not in such a strong position on the entertainment side of mobile music, such as streaming and full-track downloads, Gartner analyst Stephanie Pittet said. Wireless companies stand to lose market share in the latter to makers of digital music players, record companies and others.
Examples of digital player manufacturers entering the market include Apple and its recently released iPhone. In addition, Apple iTunes and Microsoft Zune are examples of online digital music shops that would compete with portals from mobile carriers.
To prevent losing market share, carriers will need to develop content partnerships, pricing that's acceptable to consumers, licensing deals, distribution channels and marketing strategies, Pittet said. In addition, carriers will have to address technical challenges, such as copyright protection, storage capacity on devices and network coverage.
In terms of the global market, consumers in the Asia-Pacific region, including Japan, are expected to remain the biggest spenders on mobile music through 2010, with Western Europeans second and North Americans third. The Asia-Pacific consumers are expected to take the lead in full-track downloads to cellular phones, while North Americans are predicted to continue to favor "sideloading," which is the transfer of content from a PC to the phone.

Information Week

Pain returns for Yahoo, with options running out

2007-01-23T10:38:00.000-08:00

After being eclipsed on many fronts, going private looks better

Back in 2001, with the Internet industry adrift after the bubble burst, I asked aloud whether anything would be left of Yahoo Inc. in the future, other than the exclamation point in its brand name.
At the time, which seems like generations ago on the Internet, Google was not yet a public company. Social networking was still just a term for what we did at parties in the real world. "Second Life" referred to the hereafter.

And Yahoo had 210 million unique visitors on its Web site -- half of what it has today.
Hollywood veteran Terry Semel was just getting his feet wet, having taken the helm of Yahoo in May 2001. Yahoo's market valuation after he settled in was some $9.8 billion, and the stock traded at a split-adjusted level of $10, after having tumbled with the overall market since the spring of 2000. It was a period of "pain," as a big investment firm put it at the time.

Particularly painful for those at Yahoo. It was also a year that saw Semel cut jobs and revamp dozens of business units.
Six years later, Yahoo which reports fourth-quarter results Tuesday seems to be at a place of, if not of exactly similar circumstances, certainly painful ones.
After collapsing 36% last year, Yahoo sports a market valuation of about $39 billion and its stock looks more like that of an old-line media company than a nimble, fast-growing Web dynamo.
The average traditional media vehicle like Walt Disney, Time Warner or Viacom trades at 22 times estimated free cash flow for this year, according to Stanford Group Co. Yahoo currently has a multiple of 23 vs. 50 for Google.

If you look at 2008 estimates, Yahoo's multiple would be lower than those of traditional media giants.
Its stuck-in-the-mud price and relatively low multiple raises the question of whether the company is ripe, or close to that, to be a leveraged-buyout candidate.
After all, private-equity honchos are flush with cash and very active these days.
Just over a third of the value of mergers and acquisition deals last year (through mid-December) were conducted by private firms. That's up from 23% in 2005 and a 10-year average of 17%, according to PricewaterhouseCoopers. According to Thomson Financial and the National Venture Capital Association, buyout and mezzanine funds recorded the highest year ever, with 138 funds raising $102.9 billion.
"Yahoo's one that's had a lot of execution problems in the last 12 months," said Mark Mahaney, analyst at Citigroup. "If you have a good strategy for turning around an asset with still a lot of traffic, it's an interesting candidate."

Losing search, now branded?
The question is whether Yahoo will be able to maintain that traffic.
Although third-party traffic statistics are questionable these days, it appears that MySpace.com already has surpassed Yahoo's page views as of November, according to comScore Networks, and MySpace maintained that lead in December.

December was the first month that Google as a parent company (including its recent acquisition of YouTube) overtook Yahoo in unique visitors. Google properties attracted a unique audience of 112.2 million while Yahoo-owned sites had 111.184 million, according to Nielsen//NetRatings.
That's not a good sign for Terry Semel's company.
As recently as 2005, Fortune magazine thought that if any Internet company would define the Internet advertising future, it would be Yahoo, even more so than Google.
It didn't take long for Google to prove them wrong. In the second quarter of 2005, it eclipsed Yahoo in terms of net sales.
Then Google quickly outranked both Yahoo and eBay in terms of market valuation.
Since conceding search to Google, Yahoo focused on its media image.
Wall Street and other observers believed that even if Yahoo couldn't win in search, at least its massive breadth in properties would make it the go-to place once marketers put their brand dollars to work.
Today, however, that dominance in media is questionable.

Google, through the YouTube acquisition and its MySpace relationships, has a lot of display-advertising inventory at its disposal.
What does Yahoo have? Lack of certainty at the helm.

In December, Yahoo reorganized its operations into three groups -- audience, advertising and publishing, and technology. Yahoo also announced the departures of top executives, including Dan Rosensweig as chief operating officer, and Lloyd Braun, who led Yahoo's media group, and CFO Sue Decker got a more important managerial role as head of the advertiser & publisher group.
And, there's shaky loyalty within the management. To wit: Its Yahoo's ails were aired in a leaked internal memo, the now famous Peanut Butter Manifesto. Of course, much of the shakeup and public venting followed a year of the many blunders, such as the delay in the newly installed Panama advertising platform, losing out to Google in striking a search deal with News Corp. and failing to buy its own big social network at a time when Google snapped up YouTube.
In a recent edition of Fortune, Google was rated the No. 1 company to work for; Yahoo was 44th. Then again, Fortune isn't exactly a leading indicator of what's to come.
But what is to come is more branded advertising around video and across social networks.
That means less is riding on the shoulders of Yahoo's search group while a lot more pressure's on its media bosses like Vince Broady, head of games and entertainment, or Scott Moore, his counterpart in the news and information division.

After all, Yahoo lost the search wars to Google; it certainly doesn't want to the same to happen to its first-mover status in the online entertainment world.
Yahoo burst onto the stock market in April 1996, at a split-adjusted IPO price of 54 cents. Now it trades in the $27 range.

A buyout of the company would only occur at the right price. And even if Yahoo trades at a relatively low multiple based on its cash flow, Yahoo's multiple on earnings is still very high.
In its heyday, everyone understood what it meant "to Yahoo." It was a way to get around the Web. Maybe the Yahooligans need to reconsider what it means to say, "Do you Yahoo?"
And, maybe they need to do it in the private-investor market.

MarketWatch

Album sales slump as downloads rise

2007-01-23T10:32:00.000-08:00

As music-buying habits increasingly shift toward digital downloads, the industry experienced dramatic ups and downs in its 2005 sales results.
Down:
• Total album sales, falling from 666.7 million in 2004 to 618.9 million, according to Nielsen SoundScan, a drop of 7.2% after a 1.5% gain over 2003's sales total.
• CD sales (95% of total album sales), off even more dramatically, from 651.1 million to 598.9 million (down 8.0%).
• Most musical genres, many (soundtracks, classical, metal and R&B) suffering double-digit drops. Latin was the sole exception, rising 12.6%.
Up:
• Digital track downloads, rising from 150% to 352.7 million.
By the numbers
After a one-year gain, CD sales dropped again in 2005, by 8.0%. They're now 15.5% below 2000's record level. Digital track downloads continued to explode in 2005, rising 150% over 2004.
• Digital album downloads, climbing 194% to 16.2 million from 5.5 million.
• Internet album sales, up 11%, accounting for nearly 25 million sales.
• Overall music purchases (encompassing albums, singles, music video and digital downloads), which were up 22.7% over 2004 and passed 1 billion units for the first time.
Though the jumps are cause for long-term optimism, the overall picture for the year was far from rosy, because a digital track download sale amounts to one-tenth or less the revenue of a CD sale. This year, SoundScan began to tally track equivalent albums (TEAs), counting 10 track downloads as one album sale in an attempt to create a more realistic overall sales picture. Adding in the year's TEAs, the 2005 album-sales decline is just 3.9% (from 680.7 million units in 2004 to 654.1 this past year).

Geoff Mayfield, Billboard's director of charts, says the year is a disappointment for the music business but adds, "What we're seeing here and in other recent decline years is an industry transition."
He calls the digital-download sphere "a different business. It tends to lend itself to buying individual songs rather than albums. There was a pent-up demand on the consumer's part to be able to buy individual songs that wasn't being catered to."
Mayfield thinks the raw total of track downloads may surpass total CD sales "in the next year or two," but he is hopeful the industry will devise new ways to capitalize on the shift in music purchasing practices.
"The record industry tends to be challenged by hard times — the problems of the '70s and '80s led to a rethinking of business practices. The transformation from this round of innovation and suffering will be much more radical."

USA Today

The Inevitable Death of DRM

2007-01-23T10:29:00.000-08:00

Notwithstanding Apple’s announcement today of the sale of 2 billion songs on iTunes (all with DRM), most of the recent market signs suggest that the eventual demise of DRM is inevitable. Consumers are more frustrated than ever that certain file types are playable only on certain devices. The only real questions are when, and will it be replaced with something far more sinister?
The signs:
A year ago, Yahoo Music GM David Goldberg urged labels to abandon DRM
CD sales continue to drop and are down at least 15% from 2000, and current digital sales are not offsetting that lost revenue
eMusic, which sells only MP3s, is the no. 2 digital music reseller behind iTunes
Amazon is rumored to be opening a MP3-only music store
Sony Exec says “DRMs are going to become less important” as time goes on
etc.
Then there’s the Apple factor. The digital music market is starting to look like a monopsony for the big labels, with Apple as the only real reseller (20x the sales of no. 2 eMusic). No one else can gain enough critical mass to get users to buy a player and the music, or otherwise make much of a dent in iTunes. The only way others can sell music playable on the iPod is if it’s DRM-free. The labels will see it as a poison pill, but Apple is on a roll and their lead is getting stronger over time.
I spoke with Yahoo Music GM David Goldberg and VP Product Development Ian Rogers last week about their views on the future of DRM, given Goldberg’s comments about DRM a year ago (see above). The forty minute podcast is up at TalkCrunch. While they don’t quite agree that DRM’s demise is inevitable, they do have valuable insights as music insiders as to what may happen in the short term. One interesting prediction that Goldberg made is that we might see DRM and DRM-free tracks being sold side by side, with DRM music sold at a discount. I think that the general availability of illegal and quasi-legal alternatives may not allow that market to develop, but we’ll see. They also predict the rise of music subscription services.
Our advice remains the same. For legal reasons we do not condone the acquisition of music via BitTorrent or AllofMP3. We think Bill Gates’ advice is a pretty good way to go - buy the CD, rip and and do what you like with the music. You can listen to it on any device you own. But whatever you do, don’t buy DRM’d music. You’ll regret it down the road.

TechCrunch

News Corp. hopes to not 'screw up' MySpace

2007-01-23T05:19:00.000-08:00

Peter Chernin, the president and chief operating officer of MySpace parent News Corp., says company doesn't want to "Fox-ify" social networking site.

The president and chief operating officer of News Corp., the parent company of top social networking site MySpace as well as traditional media properties such as the Fox television network and movie studio, told investors that News Corp. plans to invest more heavily in MySpace this year but will be careful to not make changes that could alienate the site's users.
Peter Chernin, speaking at Citigroup's annual entertainment, media and telecommunications conference in Las Vegas, said that MySpace should remain popular as long as News Corp. (Charts) doesn't meddle too much with how the site looks and is run.
"Our job is to continue to do a couple of things. One, is to not screw it up, not make it restrictive or look to Fox-ify it," Chernin said. "Beyond that you have to continue to give users new tools. You don't shove it down their throat but you do offer them new ones and see what they like."
Chernin said that what makes the site work so well is that users aren't forced to use MySpace services if they don't want to on their pages. To that end, even though MySpace has its own online video and photo-sharing services, Chernin said that it would be a mistake to not let users post links on MySpace sites to competing sites, such as Google (Charts)-owned YouTube for videos or Yahoo! (Charts)-owned Flickr for photo sharing.
Investors have been excited about the prospects for MySpace, which News Corp. acquired in 2005 for $580 million, as online advertising spending is expected to increase strongly in 2007 and beyond. As such, last year, MySpace struck a multi-year online ad-revenue sharing agreement with Google. Google will be the exclusive provider of contextual ads on MySpace and MySpace is expected to receive a minimum of $900 million over three years as a result of the deal.
Chernin added during his comments that MySpace also will look to expand more aggressively in international markets this year. "We want to be not just the dominant social networking site in the U.S. but also globally," he said.
Turning to the topic of online video advertising, Chernin said that online video has the potential to be the biggest positive story for media companies in 2007. But he was quick to point out that, despite all the hype about user-generated video, he did not believe advertisers would embrace this medium.
"Many big advertisers are not advertising on YouTube yet. One, they're not sure about the content and there is no scarcity value. If you put an ad on a minute- long clip of someone falling off a skateboard, people can find that somewhere else. With user-generated videos there is little way to monetize the content," he said.
Instead, Chernin said that he believed more and more marketers would look to shift more and more of their ad dollars from traditional forms of media like television to copyrighted versions of TV shows and other videos that appear online.

cnnmoney.com

Put up or shut up time for Yahoo!

2007-01-23T05:15:00.000-08:00

After a rough 2006, Yahoo must reassure Wall Street that new search tool Panama will be a success and that it has a plan to compete with Google and MySpace.

Will Yahoo's fourth-quarter earnings and guidance for 2007 be smooth or chunky?
That's the question on investors' minds in the aftermath of the now infamous Peanut Butter Manifesto - a memo by a Yahoo (Charts) executive leaked to the media last November that took the online media firm to task for spreading itself too thin - and a subsequent management shake-up.
The company will report its fourth-quarter results, and give investors their first taste of how 2007 is shaping up, on Tuesday January 23. Wall Street expects the company to post revenue (excluding ad sales it shares with affiliates) of $1.22 billion and earnings of 13 cents a share in the quarter, according to figures compiled by Thomson Financial.
For the full year, analysts are predicting that Yahoo will report revenue of $5.5 billion, an expected increase of 20 percent from 2006, and profits of 59 cents a share, an anticipated jump of 28 percent.
Yahoo typically does not provide earnings per share guidance, however, so analysts and investors will be paying close attention to what the company's forecast for earnings before interest, taxes, depreciation and amortization (EBITDA) is. Analysts are predicting that Yahoo's 2007 EBITDA will be $2.2 billion.
Yahoo, the world's second most popular search engine behind industry leader Google, had a rough 2006. Shares of Yahoo plunged 35 percent due to concerns that the company was falling further behind Google (Charts) in search and was at risk of losing users and advertising dollars to the likes of popular social networking kingpins MySpace and Facebook as well as online video upstart YouTube.
Compounding matters, the release of Yahoo's much-anticipated new search platform, dubbed Project Panama, was delayed by a couple of months. (Yahoo is rolling Panama out to advertisers now, however).
And in September, Yahoo told Wall Street that third-quarter revenues would be at the low end of the company's expectations, news that stunned investors and sent the stock reeling. Yahoo blamed weak demand for online advertising from auto companies and financial services firms.
All this culminated in a management shuffle at the top of Yahoo in December. Chief financial officer Susan Decker was promoted to a new role - heading a unit dealing with advertisers - a position that many analysts said puts her in line to eventually succeed Yahoo chief executive officer Terry Semel.
Now investors are hoping that Yahoo's nightmare year is behind it. Analysts say they are looking for reassurance from the company about the adoption of Panama, which is meant to improve the relevancy of keyword results for advertisers and users and therefore boost the amount of revenue per query that Yahoo receives from its search business as well as Yahoo's market share in search.
Investors do seem to be betting that the worst may be behind the company. Shares of Yahoo have gained more than 10 percent so far this year, a possible sign that investors care more about what will happen in 2007 than how Yahoo did in the fourth quarter.
"The stock has definitely bounced nicely. The dirty laundry is out in the open," said Tim Boyd, an analyst with Caris & Co. "I don't think investors are too interested in the fourth quarter results. The 2007 guidance, which should be given on this call, will be vital because everyone will read into that what management's expectations for Panama are."
And Yahoo could clearly use a lift from Panama. According to figures from Web research firm comScore Networks released earlier this week, Yahoo trails Google by a fairly wide margin, with Google commanding 47.3 percent of the U.S. search market in December 2006 and Yahoo coming in second with 28.5 percent market share.
But Yahoo's market share did increase slightly from November and some analysts are optimistic that Panama will help Yahoo get back on track.
"The feedback we've gotten from agencies and advertisers about Panama is that it's a vastly improved product that is similar to Google. It allows advertisers to buy a greater breadth of keywords so there is strong enthusiasm for Panama," said Stewart Barry, an analyst with ThinkEquity Partners.
The company will also need to signal to investors that the weakness it cited last year in auto and financial services advertising was just temporary. There is already some skepticism about how real this slowdown was.
Jim Lanzone, chief executive officer of IAC/InterActive (Charts)-owned Ask.com, the number four search engine behind Google, Yahoo and Microsoft's (Charts) MSN, said that Ask.com did not see any weakness in online advertising at the end of 2006.
And Yahoo has to do more than just improve its search business to get investors excited again. Yahoo has been criticized by many investors and analysts for not being as aggressive as competitors in the burgeoning world of social networking. Media giant News Corp. (Charts) bought MySpace in 2005 and Google acquired YouTube last year.
Although the company has made acquisitions in the social networking arena, including photo sharing site Flickr and Web bookmarking site del.icio.us, some have argued that this isn't enough. To that end, there has been on-and-off speculation that Yahoo could buy Facebook in order to boost its presence in social networking.
"Aside from worries about search and Panama, the biggest concern is Yahoo's relative lack to exposure in social networking. One of the strongest assets Yahoo has is its enormous traffic base but if it doesn't find new ways to drive growth, that advantage will rapidly deteriorate," said Boyd.
The risk for Yahoo is that sites like MySpace and YouTube could begin to steal some of the so-called display advertising dollars from Yahoo. Display ads, which include banners, online video and other non-text based forms of ads, are an important part of Yahoo's business since it is area where it still has a lead over Google and other rivals such as MSN and Ask.com.
"Yahoo is known for being a leading company in display. But with the emergence of properties like MySpace, Facebook and YouTube, to what extent do those companies and similar offerings result in a degradation of the value proposition that Yahoo offers to advertisers?" said Scott Kessler, an equity analyst with Standard & Poor's. "Right now it's being concluded that Google and others will be the winners when it comes to social networking."
But before Yahoo can make bigger forays in social networking, it's probably going to need to find an executive to lead this push. When Yahoo announced its management changes in December, the company said it was also forming a new division that would be in charge of building Yahoo's audience base but it did not name a head of that unit.
Kessler said it is crucial for Yahoo to hire a new executive for this position soon, as well as find a replacement for Decker, who will give up the CFO spot to focus full-time on working with advertisers once her successor is hired.
"There are still a lot of questions about the new management structure. Last I checked you have important positions still open," Kessler said. "Investors are looking for details about a new CFO and a new head of the audience business. The lack of news frankly can't be construed as anything but problematic."
So it's clear that Yahoo quickly needs to prove to Wall Street that it has a plan to fend off challenges from new online media rivals like MySpace as well as get its growth back on track in search. If Yahoo doesn't deliver, Boyd said that the company may be forced to make more management changes or even look for a merger partner.
"This will definitely be a make or break year for Yahoo. If it's not a successful year then Semel, rightly or wrongly, would be gone," he said. "And if Panama does not succeed in improving Yahoo's search revenue growth, Yahoo could be an attractive buy for somebody like Microsoft."

cnnmoney.com

Investors: Stay Out Of Media

2007-01-23T05:11:00.000-08:00

We might have expected the traditional media companies to enjoy robust circumstances longer than they did. But with advertising numbers for 2006 beginning to filter in for the television broadcasters and the magazine publishers, it is becoming increasingly clear that the same sort of malady that has been so often discussed for newspapers is also pervasive for many traditional media companies.
At the newspaper publishers -- companies like New York Times (NYSE: NYT), Tribune (NYSE: TRB), and McClatchy (NYSE: MNI) -- a somewhat vicious circle of lower circulation is propelling reduced advertising revenues, which in turn is leading to talk of outright company buyouts in some cases and asset divestitures in others. The lower circulation figures themselves can be tied largely to the inherent lack of immediacy in the newspaper format and frequency.
A first pass at counting television advertising revenues for 2006 by accounting firm Ernst & Young -- and limited to a sampling of six New York stations -- now appears to substantiate somewhat the notion that advertising revenues for television may also have dipped for the second year in a row. According to the survey, the six stations billed about $1.402 billion, or about 0.3% below 2005.
Even given the biannual one-two punch provided by Olympic games and federal elections, the lack of growth was expected. And according to those who study broadcast advertising trends carefully, the "base market" -- total advertising dollars minus Olympics and political ads -- was up ever so slightly in 2006. Looking ahead, the expectation appears to be for that same base market to continue to grow in the low single digits this year, with a similarly expected decline in the overall market.
Interestingly, television broadcasters have experienced a variety of share price reactions amidst these market circumstances. Hearst-Argyle (NYSE: HTV), for instance, perhaps the purest play in television broadcasting, watched its share price increase by about 10% last year, while Belo (NYSE: BLC), which is both a newspaper publisher and a television broadcaster, experienced about an 18% share price reduction.
The world of magazines did not fare better than broadcasting last year. For instance, Time Warner's (NYSE: TWX) Time Inc. publishing unit experienced a 4.8% drop in ad pages, although its flagship Time held relatively steady, with just an 0.8% dip. At the same time, People dropped 2.8% and Sports Illustrated fell by 3.5%.
Over at Hearst Corporation, total ad pages were down 0.7%, but Esquire increased its count by 4.1% and Redbook was up 3.5%. Conversely, Cosmopolitan was 4.0% lower, and Country Living was down 4.4%. At Meredith (NYSE: MDP), which publishes mostly women's interest titles, the total decline was 1.4%, although Family Circle increased its advertising pages by a healthy 8.9%. Ladies' Home Journal was, however, essentially flat, with a 0.5% decline in ad pages, and Better Homes and Gardens fell by 8.2%.
What, then, is the lesson in these figures for Foolish investors? My take, quite simply, is that the optimum way to invest in the media space as we move into 2007 is either through those companies that were formed specifically to serve the Internet or those -- the cable operators are a noteworthy example -- whose fate is not highly dependent on advertising. The more traditional media companies clearly need more time for strategic redirections.

msnbc.com

eBay Protects PayPal From Google

2007-01-23T05:09:00.000-08:00

When it comes to online commerce, Google seems to have eBay spooked.
At least that's the way it seemed at eBay's eCommerce Forum in San Jose, Calif., this week. Though Google Checkout--the online payment system Google unveiled to consumers in June--is just a tiny fraction of eBay’s PayPal business, eBay unleashed a host of new initiatives to keep PayPal dominant in the market.
Last July, eBay banned the use of Checkout. This week it went further, looking to shore up revenue in the face of the nascent rival. At the event, to which 250 of the company’s most powerful sellers were invited, eBay decreed Wednesday that new sellers must offer PayPal or credit cards for payment.
“We know that PayPal is the safest way to pay on eBay, and we want to make sure our buyers have this option with new sellers,” eBay North American President Bill Cobb wrote in on a blog Wednesday. And though he spun the new requirement as a security feature, enforced PayPal revenue certainly doesn’t hurt the company's bottom line.
In addition, eBay added some PayPal-only rules and perks, which could motivate sellers to stick with eBay’s payment system. Want to sell your goods across country borders? You’ve got to become PayPal certified. Want $2,000 in free listings insurance coverage? You can have it if you use PayPal only.
Pushing sellers to choose PayPal is one thing, but eBay also tried Thursday to fight back against Checkout’s recent seller promotions by dropping its own listing fee down to 20 cents per day from the typical 30 cents. Checkout is free for sellers until the end of 2007. EBay is either unable or unwilling to engage in a real price war with Google.
Why so worried? Because slipping PayPal revenues might scare Wall Street. When eBay reports fourth quarter earnings on Jan. 24, analysts will check out PayPal’s net revenue, which totaled $350 million in the third quarter, out of the company’s $1.5 billion total revenue for the quarter. PayPal is a good gauge of the health of the company’s listings business. Shrinking PayPal revenues would signify a poor job of defending eBay’s payments market share against upstarts like Google.
EBay says its PayPal moves aren't defensive. "We don't make policy decisions based on competitors like Checkout," says eBay spokesman Hani Durzy. "We just do what's good for the community."
Google, meanwhile, spent as much as $20 million during the holiday quarter to get people to use Checkout, according to a Goldman Sachs estimate, and looks to be waiving any immediate revenues from Checkout.
The millions were spent to pay sellers' transaction fees, as well as to offer buyers $10 off purchases during the holidays. The company renewed that promotion Tuesday, as advertised by a prominent notice posted to Google.com. Google also highlights Google Checkout sellers among its most prominent ads in search results.
While Google won’t disclose how many consumers have tried buying something using Checkout, JPMorgan analyst Imran Khan polled consumers on their Internet shopping habits and found that 6% of them have used Checkout, he reported Wednesday.
That’s impressive for six months on the market, but 42% of those polled had used PayPal in 2006. Only 2.3% of Khan’s respondents said they would switch permanently from PayPal to Checkout, making eBay’s recent PayPal-driven announcements seem like an overreaction. These defensive moves could worry analysts and investors who may not have thought Checkout was such a threat. They’ll be looking for some reassurance at the company’s earnings call next week.

Forbes.com

Coming Soon: Free, Ad-Supported Mobile Service

2007-01-23T04:11:00.000-08:00

People often say they do not like advertisements, but that may change if the ads start lowering their cellphone bills.
Cellular phone carriers like Verizon, Sprint and Cingular, now the new AT&T, are beginning to test and roll out advertising on mobile phone screens, and by next year, cellphone advertising is likely to be more common.
In exchange, the companies say, their subscribers will enjoy improved mobile Internet services and content provided free or at reduced prices. Other companies like Virgin Mobile USA and Amp’d Mobile are taking the idea a step further, rewarding customers for viewing ads by lowering their cellphone bills.
Amp’d, a cellphone company that aims its marketing at 18- to 24-year-olds in the United States, will begin offering an opt-in advertising plan this year. Customers who sign up will gain access to free shows and other content — if they are willing to put up with some ads.
“When people are consuming this stuff on their phones, it adds up to a lot of money,” said Brian Mullen, director for content business development for Amp’d.
Another company, Xero Mobile, plans to distribute one million free cellphones on college campuses across the United States this year and give customers 40 percent off on their calling plans, if they watch up to four commercials a day, said Rich Clayton, a spokesman for Xero. In Britain, a company called Blyk plans to provide a completely free plan on phones that are paid for by ads.
It was inevitable that advertising would hit the small screen sooner or later, industry analysts said. Cellphones are the most pervasive media device, beating out computers and televisions, as consumers keep their mobile phones at their side nearly every moment of the day.
A small but growing number of consumers, in particular, younger ones, are using their mobile phones for text messaging, surfing the mobile Internet, watching short shows, taking photos or videos and checking e-mail messages. Only time will tell if cellphones are destined to become like all other forms of media — supported by both subscription costs and by advertising.
Still, these new phone services will become mainstream only if their prices are lowered, possibly through advertising, analysts said. On average, consumers in the United States spend $50 to $60 a month for cellphone service, including data features. The average total bill has been flat for the last few years, even as voice call charges have decreased, because of the increase in fees for text messages and mobile e-mail messages.
“Advertising absolutely makes sense to extend expensive multimedia services and mobile TV to the mass market,” said Linda Barrabee, an analyst with the Yankee Group, a technology research and consulting firm based in Boston. “I think we will see consumers say, ‘You know what, I’m only going to spend this much money on my mobile phone.’ ”
In Asia, by contrast, multimedia mobile applications are more commonly used, and those services became more affordable there without advertising because of quick adaptation by consumers, analysts said.
The new uses of cellphones present vast opportunities for consumer brand companies, which are finding it difficult to reach customers through traditional media like magazines and television. Mobile phones can handle ads in many forms, including video, text messages, search and banner displays. And cellphone ads can be fine-tuned based on customer data.
But there is a chicken-and-egg factor when it comes to advertising. Big advertisers generally want to see further adoption of services before they pour significant money into mobile ads. Advertisers like Procter & Gamble, Burger King and Pepsi have been experimenting with mobile phone ads, but, in total, cellphone advertising generated only about $421 million in the United States last year, according to eMarketer, a digital advertising research firm. EMarketer predicted this month that mobile advertising would reach $4.8 billion across the country by 2011.
Despite the hopeful thinking, there is no guarantee mobile ads will catch on. “I would not want them on the phone even if that would help cut costs,” said Conor Kelly, 20, a student at Savannah College of Art and Design in Georgia. Mr. Kelly said he did not mind subtle sponsorships of content on his phone, but he would not want it go beyond that.
“It gets to a point where you’re almost encroaching on someone’s privacy,” Mr. Kelly said.
In the early days of the commercial Internet, some service providers tried giving away online access in exchange for showing ads to users, but those efforts did not pan out.
For the subsidized approach to work this time around, cellphone companies must prove that consumers pay attention to ads. “We have to ensure that the models that we pursue are those that actually get seen and acted on by consumers,” said Marc Lefar, chief marketing officer for AT&T’s wireless unit, which used to be called Cingular Wireless. AT&T is testing various forms of cellphone advertising, with introduction of ads planned this year.
As of now, text messaging is the most common venue for mobile phone ads. Signs, food packaging and even TV spots feature a code that phone users can text to be entered in promotions. 1-800-Flowers, for example, is running a sweepstakes in the New York area for a flower arrangement that comes in a small margarita glass. Next week, Nike will allow consumers to alter one of its TV commercials online and send their creations to their friends’ phones.
Some consumers may not realize that opt-in text message ads generate a charge for those who pay for each incoming text message. Such costs have deterred some marketers from creating mobile ads, said Sarah Kim Baehr, vice president for media at Avenue A Razorfish, an interactive ad agency that is part of aQuantive.
As mobile phones are used for more tasks, ads will pop up increasingly in more varied forms, ad executives said. Preroll video ads have already started to appear. Advertisers like Toyota have created 10-second commercials to run before miniepisodes of Fox shows, and the network promotes the strategy as a great way to reach a young audience.
“Look around,” said Mitch Feinman, senior vice president of Fox Mobile Entertainment. “All the young males and kids, they’re on their mobiles.”
Advertisers are generally paying a high price to try cellphone ads, about $40 for a thousand viewings of their ads, or twice as much as many TV spots, analysts said. The performance of these ads over the next year or so will determine whether they are likely to provide enough income to justify giving customers a price break on service fees.
Some companies are not waiting to find out. Virgin Mobile USA introduced a program last summer it calls Sugar Mama that compensates its phone users with free calling minutes for watching commercials, reading advertiser text messages and taking surveys from brands. Since last July, about 250,000 phone users have participated, earning a total of about three million minutes, said Howard Handler, chief marketing officer of Virgin Mobile USA.
Advertisers like the United States Navy and Levi Strauss Signature are showing ads through Virgin Mobile USA’s program, in part, because they liked the idea of compensating consumers for the time they spend watching their ads. “It gives us the assurance that our message is being heard,” said Stacy Doren, director for media and online at Levis Strauss Signature.
The carriers have so far been wary of exposing their customers to ads because the wireless marketplace is so competitive, said Scott A. Ellison, vice president for mobile at IDC, a technology and communications research firm.
“Advertisers are always hungry for new ways to reach people, however that’s a little scary for the carriers because they’re concerned over how the end user experience will be impacted,” Mr. Ellison said.
Google and Yahoo are also investing in mobile advertising, moving their search capacities to phones and selling sponsored search ads. Google executives have said publicly that they think phone service will one day be free and supported by advertising.
If advertising on mobile phones generates enough income to offer significant phone subsidies, many companies will probably allow phone users to choose whether they want ads, analysts said.
There are some consumers who would not want much advertising, no matter the price break. Younger consumers, whose parents do not want to upgrade their phones, and lower-income shoppers who cannot afford the upgrades may be the most receptive to ads.
Future ad packages might include free text messaging for people who agree to receive text message ads, said Roger Wood, senior vice president and general manager of the Americas region for Amobee Media Services, a company that is working with cellphone companies to test advertising-financed services in the United States and abroad. Underwriting mobile phone services would be a good opportunity for brands to provide value to customers rather than just blasting them with messages, said Mark Kingdon, the chief executive of Organic, a digital ad agency and part of the Omnicom Group.
Danny Herb, an avid text messager, said he would welcome advertising if it helped him cover his phone’s mobile video and Internet capacities. Mr. Herb, 25, said he did not use other features on his phone because they were expensive. But he said he would use them if they were free with ads.
“I wouldn’t pay for mobile Internet or video,” Mr. Herb said. “My text messaging costs me too much.”

To Keep Your Brand Going Strong, Shake It Up

2007-01-23T04:08:00.000-08:00

NEW YORK -- Want to make sure your brand is still viable? Then rip it up and start over every three to five years. And that doesn't mean overhauling the packaging.That's the key the finding of a new survey sponsored by the American Marketing Association, and independent firms Luth Research and MiresBall. The trio's State of the Brand Report found that brands that were refurbished within that time period scored highest on its success index.According to the survey, almost two-thirds of the 100-plus marketers polled online in the latter half of 2006—the majority of which were director level or above—believed their brand would benefit from a revitalization. Thirty-eight percent said they would like to fully reposition their brand; 57% of brands have been revitalized during the past two years and 83% during the past five. The efforts appear to be paying off: Brands that were refurbished during the past three to five years scored the highest on the survey's success index, which is based on market share, the ability to derive premium pricing and internal brand perception. Marketers surveyed said the challenges facing their brands motivated them to change things up. The top driver was strong competition, according to 59% of respondents. Thirty-six percent of those surveyed cited changing customer demographics/psychographics, pricing pressure and lack of brand awareness as their motivation. Surprisingly, despite all the revitalization efforts under way, marketers anticipate very little change in their brand's positioning over the next five years. "Brands seem to be clustering around premium, value and innovation. Brand positioning by definition should by differentiated," said Rachel Thomas, marketing director at design firm MiresBall in San Diego. "They're spending a lot of time and money keeping their brands fresh, but they're not making a whole lot of moves when it comes to positioning."As for marketing tactics, Web and interactive initiatives were deemed the most valuable for brand communication behind only word-of-mouth. Still, despite ranking 13th in terms of importance, broadcast advertising ranked No. 1 in terms of spend, largely because it's considered one of the best media for driving awareness. A third of respondents said driving such awareness was their primary goal. Another third said their priority was to create brand preference, while creating loyalty (24%) and understanding (11%) rounded out the mix. Though the study didn't cite any brands by name, recent refreshes by AT&T and Citibank (which is changing its name to Citi and considering ditching its red umbrella brand icon) underscore the trend. AT&T rebranded itself last year with a new logo and tag to battle rivals Verizon and Comcast. When it comes to wireless, landlines, cable, DSL and other services, "customers have articulated that they want to do business with one company, not a patchwork of providers," said Wendy Clark, svp-advertising at AT&T, San Antonio, Texas. Pepsi, meanwhile, is working with the Arnell Group, New York on refocusing itself around the concept of "sustainable discovery." For starters, the brand's bottles, cans and cups will have 35 new looks each, including Web addresses for exclusive online content, games and contests. The repositioning will also include a new tagline, likely: "Feel the Pepsi."James Miller, director of brand Pepsi in the U.S., said brand revitalization is "increasingly important these days, especially among youth-related, "badge" brands. What we found is young people are embracing change and constantly exploring for the next big thing. We need to deliver that on an ongoing basis." Martyn Tipping, co-founder of TippingSprung consultancy in New York, said such periodic changes are the best way for marketers to avoid obsolescence: "You don't want to get to a stage of the cycle where you say, 'Yikes we need an overhaul.'"

Brandweek

McDonald's Tests Bottles Of Pepsi-Made Products

2007-01-23T04:05:00.000-08:00

COLLEGE STATION, Texas - The dinner rush is on, and counter clerks at a McDonald's near Texas A&M University fill paper bags with cheeseburgers and hot french fries for slap-happy students in the throes of exams.
Every once in a while, instead of filling a cup with ice and a stream of fizzy Coke, the clerks reach into a cooler case and hand over something customers in only a few McDonald's around the world can get - a Pepsi-made Mountain Dew.
A quiet little test project in College Station and metro Kansas City is threatening Coca-Cola's more than 50-year-old monogamous relationship with McDonald's. For nine months, the fast-food giant has experimented with bottled drinks as it tries to win back revenue from burger-buying customers who get their bottle of pop from a convenience store next door. It also wants to keep customers who prefer energy and sports drinks to carbonated soft drinks.
The test includes popular drinks made by Coke and its archrival, PepsiCo, an unsettling reality for executives 800 miles away at Coke headquarters in Atlanta. Coke has had exclusive pouring rights at McDonald's since the chain's founding in 1955.
The test project represents a crack in the wall Coke has built around the burger company.
It's unlikely Pepsi could steal the lucrative McDonald's account from Coke anytime soon. But if the bottled drink test is expanded nationwide, especially with Pepsi products, it could chip away at Coke's profitable fountain drink business, which accounts for an estimated one-third of the company's U.S. profits.
For years, Coke has dominated the U.S. fountain drink market. The company now controls an estimated 70 percent share, according to industry newsletter Beverage Digest. Pepsi's share is about 20 percent.
McDonald's, with its nearly 14,000 outlets, sells more Coke than any other fast-food chain.
Coke sells large volumes of fountain syrup to McDonald's directly. For bottled and canned drinks, on the other hand, Coke sells concentrate to its bottlers, who mix the drinks with carbonated water, pour them into bottles and cans and sell them to retailers. That middle-man bottler soaks up part of the profit.
In Kansas City, the McDonald's test includes Mountain Dew, Gatorade, Propel Fitness Water, Lipton tea and Tropicana Pure Premium juice, all of which lead their categories in the United States. Pepsi's regular and diet colas have not been brought in to compete with the bottled Coke and Diet Coke in the test. A Pepsi "strategic initiatives team" has collaborated with McDonald's to price, promote and display the drinks, which are delivered by Pepsi trucks.
The test has included Coke competitors Arizona tea and Red Bull energy drink, as well as Coke's own canned energy drinks.
Carbonation going down
The drinks are kept in coolers like those you might find at the grocery checkout aisle or at the front of a convenience store. Customers can choose to have a bottled soda instead of a fountain drink with their combo meals - costing them about 10 cents extra for a medium-sized meal.
The 16.9-ounce bottle sells for $1.29 to $1.39, about the same price as a medium fountain drink at McDonald's or a 20-ounce bottle in a convenience store. The 16.9-ounce bottle holds about as much as McDonald's small fountain cup, which costs $1 in Texas. Clearly, customers are paying for convenience and portability.
McDonald's is testing the bottles for the same reason Coke and its competitors have developed a panoply of new drinks and packages in recent years: People want variety and convenience, said Matthew Reilly, a Chicago-based stock analyst for Morningstar.
"Consumers want the brands they know, and they want them wherever they are buying," Reilly said. "It's not going to be, 'Coke is the only thing,' anymore."
If customers like Josie Mejia of College Station want Pepsi's category-leading Gatorade and Mountain Dew, McDonald's may want them, too.
"That's my favorite drink," said Mejia after ordering a bottle of Mountain Dew with her McChicken sandwich.
Wall Street analyst William Pecoriello of Morgan Stanley recently warned that an expansion of the McDonald's test "could have significant profit implications for Coke" because it could open the door to Coke rivals. He also said that noncarbonated options could erode demand for traditional carbonated soft drinks, which are already on the decline in North America even though they are still a significant part of Coke's overall business.
McDonald's is so important to Coke it has an entire division devoted to the burger company. When McDonald's executives visit, a flag goes up in Coke's atrium.
Coke is important to McDonald's, as well. Coca-Cola has spent years developing a system that can service drink fountains at a moment's notice. If a fountain breaks down, Coke gets there fast to keep the profitable drinks flowing.
The relationship has been lucrative enough for both sides that Coke's pouring rights at McDonald's aren't sealed with a contract. It's a handshake deal held together by years of successful innovation and profit. The companies together developed the successful "extra value meal," for example, to drive up sales of Coke and hamburgers.
A spokeswoman for McDonald's wouldn't say whether the bottle test will be expanded to other parts of the country.
"We've certainly been encouraged by what we're hearing from customers, but it's still too early to speculate about test results or whether the tests will be expanded," said McDonald's spokeswoman Danya Proud.
Bottles catching on
In Texas, the test shows signs of permanence. McDonald's has built drink coolers right into the walls in some locations. At others, McDonald's has installed drive-up vending machines stocked with Coca-Cola products for people who want to grab and go.
The bottled drinks were heavily and consistently marketed in the half a dozen stores visited by The Atlanta Journal-Constitution. And McDonald's had just begun radio ads touting the bottled drinks, according to one manager.
Coke North America spokesman Ray Crockett deferred most questions about the test to McDonald's, saying, "Companies routinely test their products against competitors to better understand how their products interact in their product category.
"The beverage tests in McDonald's are no different," he said.
Fast-food restaurants have experimented with bottled drinks during recent years. Subway carries them, for example, and most McDonald's already sell bottled water marketed by Coke.
Dawn Hudson, president and CEO of Pepsi-Cola North America, said fast-food chains can't afford to ignore the trend, which they already are coming to late.
"They make a majority of their revenue not from what's in the center of the plate, but what's around the side," she said at an industry conference in New York last month.
But the higher-margin fountain drinks still rule. The McDonald's test includes a new strategy to boost those sales, too. The fountains at the Texas stores have been fitted with spigots that allow customers to add a shot of flavor, such as vanilla or cherry, to their drink. The restaurants also are experimenting with smoothies.
Joe Cunningham, manager of a McDonald's off George Bush Drive next to Texas A&M, said his morning rush includes customers who pull up to the drive-though window for a fountain soft drink and nothing else. So far he hasn't seen a clear shift to bottles during the test.
But on football game days, students often choose bottles because they are easier to carry to the stadium across the street.
Isiah Montemayor, a 20-year-old Texas A&M sophomore, said he prefers bottles.
"You don't have to worry about ice," he said as he climbed into a Mustang for a road trip home last month.
Montemayor, who ordered a Powerade with his Big Mac meal, said he doesn't like the way the ice melts and waters down a fountain drink when you take it with you.
Recently released research by Morgan Stanley found that 62 percent of people ages 13-65 would drink something different at quick-service restaurants if given the choice. Teens were most likely to move away from fountain drinks, primarily in favor of energy and sports drinks.
So what is Coke's next move in this latest phase of the Cola Wars?
For now, like it's famous formula, the company is keeping its strategy a secret.

DetNews.com

Google Starts Syndicating Sony BMG, Warner Music Videos

2007-01-23T04:02:00.000-08:00

GOOGLE IS NOW DISTRIBUTING MUSIC videos from Sony BMG and Warner Music to select AdSense publishers, the company announced on its AdSense blog Monday.
The initiative expands on a beta test that began in September, when Google first distributed clips from MTV Networks shows, including "Laguna Beach" and "SpongeBob Squarepants."
Although Google has added new content partners, the search giant isn't adding any new publisher partners. The content will be monetized by video ads billed on a cost-per-impression basis. Participating publishers will be able to embed a "channel" that will show music videos in different genres--like "rock" or "divas"--on their pages. Ad revenue is split three ways--one share for Google, one for the content owner, and one for the publisher.
Greg Sterling, principal with Sterling Marketing Intelligence, said that the video content network could serve to make AdSense a more attractive offering to publishers and advertisers. "It's been sort of the less attractive of the two major programs that Google has--it has not performed as well as AdWords, so they're putting a lot of effort into making it appealing to attract and retain new advertisers," he said. "Google's pushing out to the Fortune 1000 advertisers, and this has appeal to them, and it also makes the AdSense program sexier."

Online MediaDaily

Breakfast Dollar Menu: Burger King Beats McDonald's

2007-01-23T03:59:00.000-08:00

IT LOOKS LIKE EARLY-BIRD BURGER King has gotten the worm. It has beaten McDonald's out the door with a planned Feb. 19 national launch of its value breakfast meals. Ten items will be priced at $1 each, one of the fast-food sector's most effective traffic builders at lunch and dinner. The category is worth more than $30 billion in annual sales.
A McDonald's spokesperson said the company is continuing to test its Breakfast Dollar Menu in more than 20 markets nationwide and has received positive feedback, but that it is too early to say when McD's might follow suit.
Burger King's menu items will include a new ham, egg and cheese sandwich dressed with honey butter and served on a sesame-seed bun dubbed the Hamlette--the "star" of the 11,100-unit chain's breakfast menu.
Research firm Mintel has reported an increase in the number of people eating breakfast outside the home as adults consolidate commuting time with mealtime. Half the surveyed consumers between the ages of 18 and 24 reported that they are eating on the go more frequently than they were two years ago.

MarketingDaily

EBay Pressured to Move on Skype

2007-01-19T05:01:00.000-08:00

Analysts worry that the online auctioneer is moving too slowly on its multibillion-dollar investment. Will more content allay their concerns?

When eBay Chief Executive Meg Whitman acquired Skype in fall 2005, she said, "by combining the two leading e-commerce franchises, eBay and PayPal, with [Skype], we will create an extraordinarily powerful environment for business on the Net." The deal, valued at $2.6 billion in cash and stock, plus an extra $1.5 billion in additional payments through 2009 if certain performance targets are met, set Wall Street tongues wagging.
Among the hoped-for gains: added business lines, new buyers and sellers to the auction site, and a jump-start for growth. But more than a year after the deal was struck, many analysts question whether eBay (EBAY) has done all it can to harness Skype and its technology. Some investors concur, as evidenced by the 20% decline in eBay's share price since September, 2005.
Some of the slump is due to concerns that eBay's core auctions business, accounting for 66% of sales, is slowing as e-commerce and online search competitors muscle their way onto eBay turf. Still, "strategic questions remain about Skype," says Laura Martin, an analyst with Soleil—Media Metrics. "It's still unclear how it benefits the core eBay platform. And monetization [on eBay's investment] has been slower to occur than we had hoped."
Slow Mover
Analysts including Paul Keung, who covers eBay for CIBC World Markets, speculate that Skype didn't reach its first set of performance-based goals, resulting in missed payments, or so-called earn-outs. A recent management shuffle sent Skype President Alex Kazim back to an executive post at eBay after only six months. Skype declined to comment on earn-outs and claims Kazim left because his new responsibilities made for a long commute.
Sure, there's been movement in the right direction. The Web-calling outfit is expected to book $195 million in sales in 2006, three times the 2005 figure; in December, Skype introduced a subscription-based calling plan, and it's expected to announce other service fees and more paid service plans later this month.
The problem, say many on Wall Street, is the lack of a broader vision for Skype. "This is probably enough to offset regulation fees," Michael Arden, an analyst with consultancy ABI Research, says of the new fees. What's lacking is greater and speedier integration with other eBay properties and a grand, sweeping plan hinted at by Whitman and others at eBay back in 2005.

Skype's Potential
The company says big changes are on the way and that more of that vision will come to the fore. "We are working on developing new e-commerce- and content-oriented, and advertising-related revenue streams," says Don Albert, vice-president and general manager of Skype North America. For now, most of the company's sales derive from telecom services like SkypeOut, which allows for calls from PCs to phones. "Over time, we see these [other revenue streams] accounting for the larger share of Skype's revenues," Albert says.
Consider the potential in online search ad revenues. Since last August, Skype has been working with search heavyweight Google (GOOG) to enable so-called click-to-call ads, which let the user place a call to a desired number directly from a list of ads that appear next to search results. The new feature, due to be in place in late 2007, could let eBay offer a completely new category of listings—and maybe even to share in online advertising dollars collected by Google.

The company is also toying with the idea of offering contextual advertising as part of its new text chat and Skypecast feature, allowing dozens of users to join regular live conversations on various topics, or even virtual concerts, where members sing and play music instruments for each other. It's easy to imagine how a weekly chat on gadgets might feature ads for the latest phones from the likes of Motorola (MOT) or Nokia (NOK), which announced on Jan. 8 that it will integrate Skype into its new tablet PC. For now, Skypecast use is still limited.

eBay's Offerings
More promising are the possibilities of integrating Skype with other eBay properties. The auction site is expanding use of Skype Me! buttons in various auction categories. Limited data seems to show the feature helps clinch sales. Yet, sellers using Skype Me! buttons are "few and far between," because many sellers aren't interested in fielding phone calls, says Keung, who doesn't expect that attitude to change any time soon.
There's also wide latitude for integrating Skype with eBay's online payment service, PayPal. This year, PayPal will become the preferred payment method used on Skype worldwide. And, some time in 2007, Skype will enable users to send money to each other via PayPal, Albert says. That could increase eBay's share of the personal remittances business. Considering the size of Skype's user base (136 million users at the end of the third quarter), this move could hit money-transfer agents and banks hard and result in extra business for eBay.

All in all, though, telecommunications remains Skype's main focus. "We think there's a tremendous opportunity of capturing our consumers' telecom spending," Albert says. Indeed, while small today, the Web-calling business is expected to grow: Worldwide revenues from Voice over Internet Protocol (VoIP)—a fancy name for Web calling—will rise from $1.65 billion in 2006 to $19.1 billion in 2012, according to ABI Research. If Skype keeps its current 12% share of that money, its sales will reach nearly $2.3 billion by 2012. That would certainly be material for eBay, which booked $1.45 billion in the third quarter of 2006.

New Leader Needed?
All of which leaves some analysts wondering: What is taking you so long? "They need to do something soon," says Arden. "If [some big move] is not announced, Skype is going to be seen as a bad investment." Some wonder why eBay hasn't moved to combine its properties, including Skype, to, say, start an online brokerage firm, a social-networking site competing with News Corp.'s (NWS) MySpace, or a video-sharing site like YouTube. Others say eBay could have begun selling its Skype application to more large companies.
Some query whether Skype might do better under a visionary like News Corp.'s Rupert Murdoch, or under Virgin's Richard Branson, says Web-calling expert Jeff Pulver. "If they are not getting all they can out of it, the property is still valuable, they've grown it a lot," says David Prokupek, the founder of Geronimo Financial, which invested in eBay stock as the auction powerhouse's valuation slid. "We suspect Skype is more valuable today than when they purchased it. In this [mergers and acquisitions] market, maybe someone else could do more with it." A spokesperson says eBay has no plans to sell or spin off Skype.

Whatever it does, eBay needs to move soon. A slew of competitors are pushing into its market. Take, for instance, an outfit called Jajah, backed by powerful venture capital firm Sequoia Capital. The company allows for free calling between cell phones—a service that Skype users need to download additional software and to pay SkypeOut charges for (see BusinessWeek.com, 09/26/06, "Jajah's Mobile Ambitions"). It's just the kind of service eBay could make work. "They are pretty creative people," says Donald Yacktman, portfolio manager for the Yacktman Funds, which purchased eBay shares on price weakness last summer. It may just be a matter of putting that creative energy to work.

BusinessWeek.com

The Real Genius of Apple's iPhone

2007-01-19T04:42:00.000-08:00

Word is the newly announced phone from Steve Jobs will transcend superficial design and deliver user-friendly function and limitless adaptability

Apple's (AAPL) introduction of the iPhone on Tuesday underscores the lesson Motorola learned with the Razr: A sleek, sexy design can create lots of buzz and drive sales, but without smart, usable interface design, consumers will end up angry and disinclined to buy your next "hot" mobile-phone offering.

Design has nominally been a priority of cell-phone makers for a while now, at least since Nokia took the No. 1 spot in the market, thanks, in part, to its focus on color and style. Samsung played the design card in its rise. Then came LG, with its "Chocolate." But design, as these companies have embraced it, is little more than styling. It is design in the service of product lust, rather than user experience.
In truth, the handset makers aren't entirely to blame for the poor customer experience so typical of the mobile-phone industry. Not only do the carriers control the buying experience (something Nokia is trying to change), the services, the network that determines the speed and kind of services that can be delivered, and the customer service, they also flex their muscle when it comes to the handset. By the time the handset makers and the carriers have fought out the fine points of a design that will work with the network, and the services that will drive revenue, the user's needs have long been forgotten.

Ready for a Friendly Phone
Now Apple must join with one of those very carriers, and its choice, Cingular, has already proven somewhat controversial with customers unimpressed with its existing service. And while Apple undoubtedly retains the upper hand, the partnership requires Apple Chief Executive Officer Steve Jobs to loosen his famously tight grip. Apple won't have the end-to-end control it has with the iPod, and when the iPhone goes on sale in June, consumers will still have to contend with the typical cell-phone experience: the unappealing store, the confusing plan options, the two-year contract, the less-than-stellar customer service.

But intuitive UI (user interface) and consumer-focused design is something that Apple does know all about—and seems to have retained control over. The navigation system of its iPod was both radical and defiantly simple—and it is with this same philosophy in mind that Apple has mounted its charge on the cell-phone industry. For some, it hasn't come a moment too soon.

"Finally we have what appears to be a cell phone designed for ordinary human beings, not just for children with incredibly thin fingers, brains of scientists, and better than 20-20 vision," says London-based designer Malcolm Garrett, creative director at the Applied Information Group. "Able to build on its proven strengths, Apple has taken the route of adding mobility and connectivity to an established and thoroughly considered operating system to give us a phone, Web browser, and media player that works well for each function."

Mac Operating System
"The clever, context-based navigational system cuts out irrelevant choices and provides the intelligent and gratifying user experience we have come to expect from Apple," agrees Jakob Trollbäck, creative director of New York-based design agency Trollbäck + Co. "By eliminating intermediary input devices such as keyboard or stylus, control has become tactile again. My Blackberry Pearl has 29 keys and you need to use complicated sequences involving modifier keys to do just about anything. Getting rid of them all in one swipe, the iPhone has an interface that is digital in every sense of the word."

Incorporating the existing Mac OS X operating system into the unit is a major step forward, one which Adaptive Path President and usability expert Jesse James Garrett reckons will provide a major headache for competitors. "Apple has been able to work backwards from its own OS, making adjustments to work on a smaller screen," he says. "This is not functionality that you can tack onto the existing phone operating systems out there. That has to be very troubling to the competition because it's going to take them years to develop similar technical sophistication. Mobile-phone Web browsers are uniformly awful." The iPhone, of course, uses Apple's own Safari browser.

Fluid Function
While for now, the functionality is not as extensive as some of the existing smart phones or MP3 players on the market—a reflection of Apple's preference for simplicity—it's clear that the device has the potential to be developed in many ways.

"Its perfectly ambiguous form can take on just about any personal-sized functionality," says Pentagram partner and interaction design specialist Lisa Strausfeld. "It's a truly chameleon device that, in theory, can become something new years after you purchase it. On a more pragmatic and even environmental note, one can now purchase a new phone, camera, PDA, MP3 player, or fill-in-your-personal-size-device-here through a simple software download."
There are a lot of neat touches that will also likely be influential. Sensors in the handset detect when the phone is in use, freezing the screen and preventing an overactive ear lobe from ending a call. Other sensors can alter the landscape of the screen, to make long-form reading less strenuous. In fact, many of the more revolutionary design aspects of the iPhone are—in hindsight—quite simple, provoking the much sought after 'Why didn't I think of that?' envy so often prompted by a genuinely good idea.

Sign Language
One of the biggest challenges the designers faced was how to provide a suitably sized usable keyboard—something every PDA or smartphone maker has struggled with. Apple bypassed the need for a button-based keyboard by providing virtual, on-screen QWERTY keys instead—and incorporated various tricks to enhance the typing experience, such as predictive spelling and what MIT Media Lab professor John Maeda describes as the "hover-expand" behavior of the keys.

"Each key can remain small and within an orderly grid at first glance; then, by hovering your finger, the on-screen key is made bigger so that you can see it better," he explains. "It's a fairly simple idea and probably not brand new, but definitely a step forward in the awkward task of typing on a tiny virtual keyboard."
"The multitouch interface is a breakthrough," adds Jesse James Garrett. "We've seen interfaces like this done as research projects, in academia, but this is the first time that someone has brought it to a consumer product. In [Jobs'] demo, the functionality they showed only scratches the surface of what could be possible."

Opening the Field
"Scratch" is the operative word here, and concerns have already been raised about the practicality and durability of the iPhone's large, unprotected screen (and how to keep it clean). Questions also remain unanswered about the compatibility of a phone (for which battery life is paramount) and a music player (which is often used for hours at a time). Putting the two together could significantly limit a device's lifetime.
"With so much technology packed in and with all its sensors and multitouch screen, there's a lot that could go wrong," says James Tindall, a British Web site and software developer and designer. "But it's clearly a radical step forward. For me, the iPhone is a Phone 2.0. Like Web 2.0, it just does everything it should do, in the simplest, clearest, most intuitive way possible."

One thing is for sure: The gauntlet truly has been thrown down. No doubt between now and June, when the iPhone is released, competing cell-phone, smartphone, and PDA makers will be scrambling to come up with devices that have the look, feel, and functionality of Apple's offering. Let's just hope that the hardware makers and carriers alike grasp the power of user-driven design and great customer experience. Like the music industry before it, the cell-phone industry needs a shakeup.

BusinessWeek.com

Connected Consumers Watch More Network Broadcasting

2007-01-19T04:34:00.000-08:00

A recent comprehensive study by CBS Research, examining consumers' attitudes towards digital media, and the role television will play in the near future, found that as the public at large becomes more connected to digital media, the more engaged they become in primetime television programming.
And, as viewers become aware of the deadline for full digital transmissions, the likelihood of them investing in new digital TV sets increases substantially.

David Poltrack, Chief Research Officer for CBS Corporation and President of CBS Vision, concludes "... By offering (consumers) new ways to connect to their favorite shows, whether it's websites, podcasts, ringtones or other mobile features, we've been able to deepen the bond these fully connected viewers have with our programming."
Among the findings of the study:

The population is gradually moving up to higher levels of connectivity, This "fully connected" segment of the population, the segment with both a broadband internet and a digital television connection at home, has grown from 22% in the fall of 2005 to over 30% this fall. The "fully connected" segment of the population is the segment that is most likely to watch the top broadcast network programs.
Although less than 30% of the population is aware of the 2009 deadline for broadcasters to switch to full digital transmissions, approximately one-half of these people have already purchased a digital set and another 30% plan to before the changeover. Of those who are not aware, when told of the change, 40% stated that they would upgrade to a digital set before 2009.
56% of those surveyed were aware that you could watch network television programs by streaming them over the internet. Of those aware of this streaming option, 46% have already streamed at least one program. Of those not aware of this streaming option, when told which programs were available for streaming, 62% selected at least one of the thirty-three available programs that they probably would watch via streaming over the internet in the future.

MediaPost

Fashion Phone From LG, Prada Features Touch Screen

2007-01-19T04:31:00.000-08:00

SOUTH KOREAN ELECTRONICS CONGLOMERATE LG and Italian luxury goods and fashion brand Prada have partnered to create what they are calling the world's first completely touch screen mobile phone.

The ultrathin Prada Phone by LG (KE850) has an extra-wide LCD screen which "eliminates the conventional keypad making the overall usage experience a highly tactile one," the companies said in a release announcing the phone, which will be available in Europe in February and in Asia in March. It is priced at 600 Euros ($776).
The "tactile" element of the large-screen phone face is reminiscent of Apple CEO Steve Jobs' proclamation upon introducing the iPhone that the best stylus for navigating anything are one's 10 fingers.

The iPhone will be available in the U.S. in June, but won't be on sale in Europe until the end of the year and won't be in Asia until 2008.

Both phones also function as MP3 and video players and have a 2-megapixel camera, although the Prada phone lacks the iPhone's fully enabled Web browser.

The new product announcement appears to eclipse one of the iPhone's claims to novelty. Cisco Systems Inc., meanwhile, has sued Apple over the use of the name iPhone, which it owns and actively uses.

Marketing Daily

Apple iPod Sales Hit Record; Zune Grabs 10% Share

2007-01-19T04:29:00.000-08:00

APPLE INC. SOLD A RECORD 21 million iPods for the holiday quarter, which helped boost the company's revenues by 50% and accounted for sales of $3.43 billion--half of Apple's total sales for the quarter, the company reported this week.
Stellar sales have earned the iPod a 72% share of the portable music player market, although Microsoft's Zune is making progress. Retail research firm NPD Group report that for December, Zune represented 10.2% of all units sold.
That growth is in line with Microsoft's expectations of exceeding 1 million units in sales by June 30. The company set a three-year plan to carve out a significant market share and build the Zune brand.
Microsoft has announced that it is working on a robust line of accessories with established and emerging manufacturers such as Harmon Kardon, JBL, Griffin, VAF and Belkin, most of who already make accessories for the iPod.
The growth of an accessories market is necessary for Zune to gain any significant mileage.
Microsoft has also said it is "getting traction with some of the top automotive brands like Ford and others to deliver integrated solutions for Zune while on the road," following in the tracks of Apple's relationships.

MediaPost

Analysts estimate 50% margins for Apple iPhone

2007-01-19T04:24:00.000-08:00

Apple Inc. will have plenty of room to eventually reduce the retail price of its upcoming iPhone, according to preliminary gross margin estimates by a market research company.

The iPhone, the combination cell phone-iPod media player that Apple unveiled last week, will yield gross margins of more than 50% at the current set of retail prices, iSuppli Corp. said in an analysis of presumed component and manufacturing costs.

The 4-gigabyte version of the iPhone, with a retail price of $499, will cost Apple $245.83 to make, iSuppli estimated. The 8-gigabyte version, priced at $599, will cost Apple $280.83."With a 50% gross margin, Apple is setting itself up for aggressive price declines going forward," said Jagdish Rebello, a director and principal analyst with iSuppli.Apple did not immediately return a phone call seeking comment.

Since Apple will face stiff competition in the cell phone market, the company may need to cut into its margins to reduce pricing in the future, he said.

The Apple iPhone, which was announced by CEO Steve Jobs last week, will be available starting in June exclusively through AT&T's Cingular Wireless. Apple has said it hopes to sell 10 million units in 2008, or about 1% of the market.That goal "seems attainable," Rebello said.

Hollywood Reporter

Apple's record $1 bil profit up 78% from year ago

2007-01-18T04:55:00.000-08:00

Apple Inc. shipped 21.1 million iPods in its first fiscal quarter, 50% more than in the same quarter a year ago, a primary factor in the company's Wednesday posting of a record $1 billion quarterly profit, 78% better than last year.Apple, which recently dropped "computer" from its corporate moniker, shipped 1.6 million Macs during the quarter, 28% more than a year ago.

Revenue increased 24.5% year-over-year to $7.1 billion, with $3.4 billion coming from iPod sales. Other music-related revenue, including sales at Apple's online iTunes store, totaled $634 million. Chief financial officer Peter Oppenheimer said the iTunes store now features 4 million songs, 350 television titles and 250 film titles, and he called demand for the iPod during the holiday season "extraordinary."IPod had a 72% share of the market of digital-music players in December, according to research firm NPD, and the International Federation of the Phonographic Industry said Wednesday that digital-music sales doubled last year to about $2 billion, or about 10% of all sales.

Oppenheimer said sales of Apple gift cards doubled year-over-year, and the company ended the quarter with $11.9 billion in cash.
The company managed to beat Wall Street expectations on all fronts -- revenue, earnings and earnings per share. Nevertheless, the stock fell 2.2% during regular trading and, after an initial $4-per-share surge after-hours when earnings were released, the stock continued its fall.

One issue dogging the stock has been the company's acknowledgment that it had backdated some stock-option grants. On a conference call Wednesday, Oppenheimer mostly deflected questions about the matter, saying not much more than that Apple was "voluntarily and proactively" cooperating with federal officials looking into the matter.
Also, Apple guided for up to $4.9 billion in revenue for its fiscal second quarter, while analysts were looking for about $5.2 billion.Apple ended the quarter with 170 stores, including five added during the quarter, and Oppenheimer said 28 million people visited the stores in the quarter.

Apple this year expects to be selling from those stores, as well as other outlets, its iPhone and Apple TV set-top box."We've just kicked off what is going to be a very strong new product year for Apple by launching Apple TV and the revolutionary iPhone," CEO Steve Jobs said in a statement. He was not on the conference call.

Oppenheimer said a lawsuit filed against Apple by Cisco Systems over the iPhone name was "silly," as other companies already have used the term to describe Voice-over Internet Protocol, and Apple is the first to use it on a cell phone.

The Hollywood Reporter

Global Online Music Sales Doubled In 2006

2007-01-18T04:20:00.000-08:00

RECORD LABELS HAVE SOLD AN estimated $2 billion worth of music online or through mobile phones in 2006, doubling the previous year's sales and accounting for 10% of the total music market, according to the International Federation of the Phonographic Industry (IFPI)' s Digital Music Report 2007.
The number of songs available online doubled to 4 million. Single-track downloads totaled approximately 795 million--up 89% from 2005. The U.S. accounted for the bulk of those sales, with 582 million single tracks sold online in 2006, up 65% from 2005.
Mobile music accounted for half of global digital revenues in 2006--although its prominence varies by country, such as in Japan, where 90% of digital music sales are mobile purchases.
The IFPI wrote that 2007 could be a banner year for mobile music with handset makers such as Nokia and Sony Ericsson developing their music phones, as well as the impending release of the Apple iPhone.
Portable players drove growth in the digital sector, while there also has been increased diversification of digital music distribution channels.
iTunes and other a-la-carte digital download services remain dominant, the report found, though they have gained competition from subscription services, mobile mastertones and advertising-supported models and video-licensing deals on sites like MySpace and YouTube.
The IFPI predicted that online sales would account for a quarter of all music sales worldwide by 2010.
Yet these strong figures and the inclusion of advertising-funded services as a source of revenue stream for record companies failed to compensate for an overall decline in CD sales.
More, the IFPI report expressed concern about the continued threat of digital piracy and the devaluation of music content, with the IFPI saying it would sue ISPs that allowed known digital music pirates to operate over their networks.
"The chief winners in the rise of digital music are consumers," said IFPI chairman and CEO John Kennedy in a statement. "Yet the market remains a challenge."

Mediapost.com

Nielsen's Top 10 For 2006: How Entertainment Fared

2007-01-03T08:55:00.000-08:00

ENTERTAINMENT LISTS TELL US WHERE we have been, where we should go--and more importantly, what not to do. In our part-two look at entertainment businesses, Nielsen showed us that 2006 had a little bit of all three.
Looking at Nielsen's top 10 list of Web brands, in terms of page views, Yahoo was easily the No. 1 site, followed by the usual suspects: MySpace, Google, eBay, MSN and AOL. The best--and only old-line traditional media/network brand--on the list was Nickelodeon, coming in at eighth place. Interestingly, as a Web brand, the large cable operator, Comcast, made it into ninth place.

The top theatrical box office film was overwhelmingly Walt Disney's "Pirates of the Caribbean: The Curse of the Black Pearl," with almost $425 million in U.S. revenues. The animated movie "Cars," also from Disney, came in second. Three other animated movies also made the top 10: "Ice Age: The Meltdown," "Over the Hedge" and "Happy Feet."
Only one comedy made the list: "Talladega Nights: The Ballad of Ricky Bobby."

The lack of comedies here might suggest a moratorium on big-budget theatrical comedies in 2007 with massive special effects. Studios won't get much bang for their buck. Or at least, don't expect much from low-budget comedy affairs. On the other hand, an animated film is good business.

In the music industry, one might do well to be in the high-school music business. Disney Channel's roaring success "High School Musical" was the best-selling album of the year. Rascal Flatts' "Me and My Gang" came in second. "American "Idol" favorite Carrie Underwood's "Some Hearts" came in third.

Looking to get into the ringtone business? Apparently, hordes want to know what Akon, Justin Timberlake, Hinder and Ludacris are up to. Consumers picked up those artists' music more than any other when it comes to phones.

The top 10 list of advertisers that spend the most online include GUS plc, the U.K. owners of the Experian credit service; Vonage, the Internet phone service company; NetFlix, the DVD rental company, NexTag, a shopping Web site; and the wireless, phone and Internet company Verizon. Nielsen says GUS spent nearly $700 million online this year--more than twice as much as second-place Vonage.

In the book business, it would be best to change your name to Patterson. Because this year, suspense writer James Patterson had four of the top 10 in best-selling hardcovers: "Beach Road," "The 5th Horseman," "Cross" and "Judge & Jury." Mitch Albom had the No. 1 fictional hardcover: "For One More Day."

In a newer category, top 10 audio books--which get a lot of play in cars--two of Patterson's books made the chart. Notably, two of the top 10 books are about language--and a signpost for the changing direction of culture: The second-best-selling audio book was "Complete Spanish: The Basics;" and in tenth place, "Learn In Your Car: Spanish Level 1."

Of course, for traditional media, it's ad spending that drives everything. Below is a list of Nielsen Monitor-Plus' ad spending:

Top 10 Advertisings In U.S. In 2006

1. Procter & Gamble-$2,903,645,851
2. General Motors Corp.-$1,953,993,498
3. AT&T Inc.-$1,440,567,658
4. Ford Motor Co. $1,429,333,335
5. DaimlerChrysler AG $1,299,331,574
6. Time Warner Inc. $1,165,728,375
7. Verizon Communications Inc. $1,131,024,907
8. Toyota Motor Corp. $1,087,515,526
9. Altria Group Inc. $1,038,685,970
10. Walt Disney Co. $1,028,170,671

Note: Data from Jan. 1-Oct. 31, 2006. Based on spending estimates in the following media: Network TV, Cable TV, Spot TV, Syndicated TV, Hispanic TV, Nat'l/Local Magazines, Network/Spot Radio, Outdoor, FSI (CPGs only), Nat'l/Local Newspapers (display ads only), Nat'l/Local Sunday Supplements.

MediaDailyNews.com

YouTube software threat to Google plans

2007-01-03T07:49:00.000-08:00

YouTube’s failure to complete a key piece of anti-piracy software as promised could represent a serious obstacle to efforts by Google, its new owner, to forge closer relations with the media and entertainment industry.

The video website, the internet sensation of 2006, promised in September the software would be ready by the end of this year. Known as a “content identification system”, the technology is meant to make it possible to track down copyrighted music or video on YouTube, making it the first line of defence against piracy on the wildly popular website.
YouTube said on Friday the technology would not be formally launched this year and YouTube’s offices were closed until the new year. While providing no further details about when the system would be made formally available, it said tests of the system had been under way with some media companies since October and the system remained “on track”.

Mike McGuire, a digital media analyst at Gartner, said the important part systems such as this played in building better relations between internet companies such as YouTube and the traditional media industry meant there was likely to be little patience for missed deadlines. “The technology industry really has to start living up to the media industry’s expectations,” he said.

If the delay lasts for more than a week or two into the new year, suggesting more than just a slight technical hitch, “this is certainly going to be a serious issue”, Mr McGuire added.
Leading music companies have already made clear they see completion of YouTube’s anti-piracy technology as an important step in any closer co-operation. Failure to build adequate systems to protect copyright owners could also add to the risk of legal action against the site.

Doug Morris, chief executive of Universal Music Group, hinted at legal action against YouTube late last summer, accusing both it and MySpace of being “content infringers [that] owe us tens of millions of dollars”. Universal went on to sue MySpace but was one of the companies to reach a partnership with YouTube, partly based on the ability of its promised content identification system to track down copyrighted music.

The delay to the software could also spell wider problems for Google, which has been trying to negotiate partnerships that will give it access to content from a number of big media and entertainment companies. The company could not immediately be reached for comment.

On Friday night, a YouTube spokeswoman said the company had never promised general availability by the end of the year.

Financial Times

Predictions 2007

2007-01-03T07:46:00.000-08:00

Yes, I'm at it again, but this year I promise to be a bit more pared down, a bit more to the point. I had nearly 20 predictions last year, I'm hoping that by the time I lift my fingers from the keyboard I'll have a few less. So Happy New Year, and to business:

1. Thanks to Google's dominance in search and media and a complacent DOJ, Microsoft will buy a better position in online media. Acknowledging that it can't build it, Microsoft will shop its way into a dominant position. AOL, Yahoo, or IAC will be leading candidates for acquisition. Microsoft will name a strong second in command to Steve Ballmer who will run their entire media division after this acquisition. If that person is not Steve Berkowitz, he will leave.
1. (a) If Microsoft does not buy AOL, Yahoo will, and failing that, AOL will go public, but the IPO will receive a lukewarm review.

2. A major media outlet will predict that the "Web 2.0" bubble has burst or deflated seriously. The prediction will be wrong. I've been seeing more and more respected voices out there claiming we're in a bubble of some sort or another when it comes to "Web 2.0." I predicted that the meme will have played out in 2006, and I think I was right, but the underlying foundational strength of what created that meme is far too strong to be a bubble or played out.

3. Google will integrate YouTube into its main services. YouTube will be promoted via the "video" tab on Google's home page. YouTube will keeps its name and domain, but the business/sales end will be interchangeable.

4. Related to this, Google Video Ads will dissappoint until Q4 2007. Why? Because advertisers in video have all sorts of structural reasons to not want to work the way Google wants them to work. Until the Fall of 07, when these differences will be worked out, and Google will have a slam dunk quarter in a form of advertising outside of text ads for the first time in its history.

5. Yahoo will not regain its luster, but will take the steps necessary to do so by the end of the year. I am not seeing anything out of Yahoo that says "radical change." There is a lot riding on Panama, but even an excellent new platform needs at least a year to get its footing. Hence, I would not predict a banner year for Yahoo, but a rebuilding year, sort of like the 49ers had this year.

6. eBay will have a major change in executive leadership. This feels overdue.

7. Amazon will continue to push beyond ecommerce into web services, the market will punish it for doing so, and by the end of the year Bezos will be forced to defend his investments as his stock takes a hit for those services' failing to find traction. It's not that I don't believe in Jeff's vision, it's the track record with things like Alexa and the very real sense I have that the market for what Jeff's selling is not yet fully baked.

8. There will be a brief, somewhat irrational spurt of acquisitions related to "content", in particular independent media sites with good demographics and a decent audience profile. I say irrational because by the end of the year, it will be clear why those sites were independent in the first place.

9. Speaking of the content business, it will face a major test as two forces converge to undermine the pageview model: Ajax, on the one hand, and ad blockers on the other. Both will be addressed with alarm and alacrity by industry efforts. By the end of the year, new metrics will emerge to help publishers and marketers understand audience engagement.

10. "Blog 2.0" will become a reality. By this I mean that Version 1.0 blogsites, of which I think Searchblog is a good example, will begin to look dated and fade in comparison to sites that employ better approaches to content management, navigation, intelligent widgets and web services, etc.

11. One major Internet player will really screw up the privacy/trust issue, in a way bigger than even AOL did last year.

12. The Google founders will find themselves the subject of at least one major "takedown" piece in the mainstream media. The piece will claim they have lost touch with the company they founded, that it has outgrown them, and that they have become enamored of the life of the super wealthy - hobnobbing with stars, flying to exotic locations to kite surf, testing fighter jets and the like. This piece is inevitable, in my view.

13. Allow me, for the third year now, to repeat my mobile prediction in the hope it will come true: Mobile will finally be plugged into the web in a way that makes sense for the average user and a major mobile innovation - the kind that makes us all say - Jeez that was obvious - will occur. At the core of this innovation will be the concept of search. The outlines of such an innovation: it'll be a way for mobile users to gather the unstructured data they leverage every day while talking on the phone and make it useful to their personal web (including email and RSS, in particular). And it will be a business that looks and feels like a Web 2.0 business - leveraging iterative web development practices, open APIs, and innovation in assembly - that makes the leap.

14. Lastly, I will begin work on my second book. Yes, I have an idea...but it's not entirely fleshed out yet... and, I will stop making predictions about FM. It was fine to do last year, but this year, I feel like the business is in a new place, one that feels wrong to predict. It could go in so many great directions this year, I don't want to jinx any of them.

Blog Batellemedia.com

Pressure to Reduce the Cost of Producing TV Commercials

2007-01-03T05:07:00.000-08:00

How the YouTube Effect is Impacting Small Agency Clients

Looking forward into 2007 I predict that agencies will come under new kinds of pressure to lower the costs of producing television commercials.

I've been hearing from more and more clients about this issue in recent months and much of what they are talking about is related to the way consumer-created content has been rapidly raising its profile and successfully drawing surprisingly large audiences. Agency clients are catching on to this.

Call it the YouTube effect. Millions of consumers watch amateur videos posted on YouTube.com, more than watch most network spots. And the cost of producing these videos is insignificant even as they generate remarkable levels of buzz.

Some of the YouTube video performances that have drawn millions of viewers were made with absurdly inexpensive web cams mounted on the performer's computer monitor. The overall cost of producing such works is about the same as the price of a lunch at McDonald's

Is it any wonder that client are balking at spending $250,000 or more to produce a :30 spot?

I also believe smaller agencies will feel these cost-reduction pressures more than the larger shops. Or, at least, we'll feel it sooner than the big shops. That's because our clients have more limited budgets, and are more aggressive in their quest to discover lower cost, more effective ways to produce TV spots, so they can put more of their budget into media and other projects.

Like anything else, however, I feel you get what you pay for. Poorly produced spots affect brand image. For the most part, a good idea, cheaply produced, reflects well on the clients' budget, but not so well on the agency that produced it. Even more important, consumers can see the product or service in a different light. If the spot looks cheesy, the product will be perceived as such.

I said "for the most part." That's because there are still plenty of ways to produce spots for a fraction of what they used to cost. Video equipment is more affordable, and a lot of small-to-midsize agencies have their own, and can shoot and edit spots in-house. Plus, there are a lot of ideas that don't warrant costly production, or actually benefit from the look of a smaller production budget.

If this low-cost production trend continues, one day there won't even be a catering budget on the set. That will be a dark day indeed.

AdAge.com

Mobile Marketing Has Potential (to Be Really Annoying)

2007-01-03T04:45:00.000-08:00

Forrester Study Finds Consumers Embrace Data but Are Wary of Ads

The good news for mobile marketing is that advertisers can target by location, demographic and create actionable responses. The bad news? More than three-quarters of Americans are annoyed just thinking about it.

That's the latest finding in a report from Forrester Research on the state of the mobile-marketing industry titled "Is the U.S. Ready for Mobile Marketing?" But while the answer to that question overall is yes, according to Forrester, 79% of online consumers find the idea of ads on their mobile phones annoying and only 3% say they trust text ads on mobile phones. And that means marketers must tread lightly when it comes to mobile advertising, offering something of value in exchange for the message.

Christine Spivey Overby, a Forrester analyst who co-authored the study, said she was surprised by those numbers until she started to think about what consumers were responding to.

"We've grown up with this view of the TV commercial interrupting our favorite program," she said. "There's this ad-equals-interruption mind-set that we have, and when you think about something as personal as the mobile phone that you hold in your hand and carry in your pocket, the idea of a marketer interrupting you while you have the phone, that's an idea that consumers hate. "

Much of that public disdain for mobile marketing may be fueled by bad PR, such as recent TV news reports about consumers getting spam on their phones -- and then having to pay for it through data charges. At first the major carriers were reticent to carry ads on mobile devices, citing the cost of handling customer complaints, and problems such as being forced to give consumers money back on their bills for products the consumers said they didn't request.

Sprint this fall became the first major carrier to announce it would offer ads on its "deck," the landing page for mobile consumers as they access information on the mobile web. (Ads have long appeared on "off-deck" websites, those sites accessed from outside a carrier's portal. Those sites typically are more difficult to access than a carrier's portal and carry far less traffic than a carrier's decks.)

Last week, Verizon Wireless became the second major carrier said it will place banner ads on its deck starting this year. Cingular Wireless, about to be renamed AT&T pending final government approval, has kept mum on its advertising policy. Mobile marketing spending has increased from $45 million in 2005 to an anticipated $150 million in 2006, and is expected to grow to nearly $1.3 billion by 2009, according to research firm Ovum.

It's all about value, wrote Ms. Spivey Overby with Forrester analyst Charles Golvin. The key is to avoid the mind-set that the marketing message will be an interruption and instead give consumers something they want.

"When you get into these intimate media like a mobile phone you have to change the way you think about marketing," Ms. Spivey Overby said. "You have to change the rules. It's a new mobile mindset-replacing the view of interruption with value

The report outlines three ways marketers can use the medium: text messaging, such as offering coupons and short codes; advertising with banner ads on a mobile browser; or creating ad-supported applications and content. But there are pros and cons to each. While text messaging is the most ubiquitous with the highest consumer adoption rate, it's far less immersive and interactive than ad-sponsored games, for example. And carriers are still reticent to allow advertisers to support free content on their service because it cannibalizes what has become a big business of selling ringtones, wallpaper and games.

Ultimately, Forrester advises that marketers consider the medium and the message. Keep the message abbreviated and be sure to measure the response, even using mobile responses to gauge the effectiveness of a broadcast media. Target campaigns to the people most likely to respond -- Gen X and Y are the targets most likely reached through mobile marketing. And adopt a mind-set of value -- Forrester advises finding a consumer who's unfamiliar with the campaign and asking him or her to find the value in it.

While it might be difficult for marketers to adjust their thinking, Ms. Spivey Overby said she sees some good early signs, such as what Toyota is doing with its Yaris brand by sponsoring Fox's mobisodes, a term for short videos for mobile.

Fox is "using shorter, punchier commercials," she said. "But many advertisers who aren't familiar in the space need to turn to their agency or a partner that understands the space to build for this medium."

And despite a negative public perception of mobile marketing, the study says there have been some early successes -- especially when ads are well-targeted and when the value of participating is clear. For example, the study discusses a Cambridge, Mass.-based grocer that replaced its loyalty cards with a mobile phone-based program. About 82% of shoppers now belong to the program.

"Marketers can't dismiss mobile," said Ms. Spivey Overby. "2007 is an exploratory year for most mainstream advertisers and we need to keep this in perspective because it's still a very new market."

AdAge.com

Big year for major media as congloms rebound

2007-01-03T04:16:00.000-08:00

About this time a year ago, executives at most large entertainment companies were coming to terms with stock performances that couldn't keep pace with the major averages. The Walt Disney Co., News Corp., Time Warner Inc. and Viacom Inc. were each off about 10% in 2005. Investors looking for healthy returns more likely found them in new media than old.Last year, new media was a mixed bag, while Disney, News Corp. and TW advanced 44.3%, 34.7% and 26.3%, respectively.

Sure, Sony Corp., one of 2005's few winners among the big conglomerates, rose only 5.5% last year and Viacom only rose a paltry 2.5%, but CBS Corp., split from Viacom early last year, climbed 22.3%.

Some of it was predictable, given the unfavorable environment for media stocks in general -- not just in 2005 but also for the two years before that. In fact, as analysts do, they put their predictions in writing.

William Drewry of Credit Suisse, for example, wrote a year ago that "the biggest disconnect in market performance in 2005 was the underperformance of Disney and News Corp.," and he predicted Disney shares would climb as much as 65%.

Likewise, Jessica Reif Cohen of Merrill Lynch named Disney and News Corp., along with Comcast Corp., as her top picks. Comcast shares advanced 64.7% last year. More recently she's been bullish on shares of DreamWorks Animation SKG, which advanced 20.1% last year.

By contrast, new-media leaders like Yahoo! Inc. saw its shares sink 35.3% on the year. Even shares of Google Inc., enjoying a modest 11% rise, were no match for old media. And shares of Netflix Inc., which surged an index-leading 121% in 2005, sunk 4.4% last year.In fact, of the top 10 movers from The Hollywood Reporter's Showbiz 50 stock index, only one, RealNetworks Inc., is generally considered a new-media company. RealNetworks rose 39.8% last year.

The top movers on the index were Charter Communications Inc., up 148.4%, Dolby Laboratories Inc., up 81.9%, DirecTV Group Inc., up 76.4% and Marvel Entertainment Inc., up 65.1%.

Among the biggest losers were big-screen maven Imax Corp. and a host of radio companies.Imax, which couldn't find itself a buyer last year so took itself off the auction block, sank 47.3% during the year. Among the Showbiz 50, only Emmis Communications Corp., owner of about two dozen radio stations, and radio content provider Westwood One Inc. performed worse, down 58.7% and 55.2%, respectively.

Rounding out the index's bottom five were Sirius Satellite Radio, down 47%, and XM Satellite Radio, down 46.8%.Analysts had been worrying the entire year about satellite radio companies' growth prospects. Both firms reined in their subscriber-growth projections during 2006.

Sirius on Tuesday said it hit previously reduced numbers, ending the year with a little more than 6 million subscribers, 82% more than it had at year's end 2005. Sirius, run by Mel Karmazin, also said it achieved its first-ever quarter of positive free cash flow in the just-ended fourth quarter.

On top of a banner year for media stocks last year, analysts remain largely bullish this year.Miller Tabak & Co. analyst David Joyce, for example, predicts that shares of Lionsgate Entertainment, which advanced 39.5% last year, will go up about another 21% in the next year, while Disney shares will advance about 11%.

Even after Charter's near-150% surge, the stock is not about to rest, according to Pali Research analyst Richard Greenfield, who sees about another 47% upside this year.As for the world's largest entertainment conglomerate, analysts see TW shares being boosted by AOL's resurgence, brought about by a dramatic re-embrace of online advertising, as well as the company's Time Warner Cable.Prudential Group analyst Katherine Styponias, for example, said that TW shares will be worth about 24% more in the next year.Part of the reason is that Styponias is more bullish on a TWC initial public offering than other analysts. That IPO, which she thinks could happen early this year, is, according to one of her recent research reports, "the place to be."

The Hollywood Reporter

Year of the Comeback at overseas boxoffice

2007-01-03T04:07:00.000-08:00

Six high-profile U.S. films, led by "Night at the Museum's" $48.9 million haul, collected more than $134 million at the overseas boxoffice as the final weekend of the festive season came to a triumphant close, cementing 2006 as the Year of the Comeback after 2005's Year of the Slump. Other high rollers as 2007 loomed were "Eragon," with $20.6 million, "Happy Feet" ($20.5 million), "Casino Royale" ($16.6 million), "The Holiday" ($16 million) and "Deja Vu" ($10.1 million).

Although 19 films each topped the benchmark $100 million in 2006, compared with 23 in depressed 2005, there was an amazing crop of bigger-than-ever grossers in 2006.Buena Vista International, the Walt Disney Co.'s overseas distribution arm, set a company record as "Pirates of the Caribbean: Dead Man's Chest" brought in $642 million from offshore movie houses.

The Johnny Depp starrer became the third film in industry history to hurdle $1 billion ($1.06 billion) at the worldwide boxoffice, following 2003's "The Lord of the Rings: The Return of the King" ($1.12 billion) and 1997's "Titanic" ($1.83 billion).

Other weighty overseas scorers in 2006 included Sony's "The Da Vinci Code," with $539.1 million, 20th Century Fox's "Ice Age: The Meltdown" ($452 million) and Sony's "Casino" ($338.3 million).

In the over-$200 million bracket for 2006 were UIP/Paramount's "Mission: Impossible III," BVI's "The Chronicles of Narnia: The Lion, the Witch and the Wardrobe" ($453.5 million for an '05-'06 foreign total), Fox's "X-Men: The Last Stand" and BVI's "Cars." Two films topped $190 million, one surpassed $180 million, and eight exceeded $100 million. The overall '06 offshore boxoffice also was bolstered by a batch of over-$90 million achievers, among them BVI's "Chicken Little," UIP/Paramount's "World Trade Center," UIP/Universal's "Inside Man" and "The Fast and Furious: Tokyo Drift"; Sony's "Click" and "Open Season"; and Summit Entertainment/Constantin's "Perfume: The Story of a Murderer."As has been a recent trend, a greater percentage of films are bringing in more from abroad than from North America -- for example, "Dead Man's Chest's" $642 million compared with domestic's $423.3 million; "Da Vinci's" $539.1 million compared with $217.5 million; "Ice Age's" $452 million compared with $195.3 million; and "Casino's" $338.3 million compared with $154.9 million.

And the international market frequently helps to bail out big-budget contenders from total disaster. "Poseidon's" meager $60.7 million from domestic release was somewhat salvaged by foreign's $121 million take. The family entry "Garfield: A Tail of Two Kitties" picked up only $28.4 million domestically while bringing in $112.2 million overseas.

Over the weekend, "Night" played on 4,859 screens in 30 countries and reached an international cume of $70 million after two weekends. The Ben Stiller comedy pulled in $15 million (including previews) from holiday crowds in the U.K. attending at 479 screens. Australia delivered $5.1 million from 365; Germany ($6.2 million from 852); Mexico ($7.4 million from 927 -- hailed by Fox as the third-biggest all-time opening in the market); Korea ($3.8 million from 368); Taiwan ($2.6 million from 162); and Russia ($1.9 million from 427).

Fox's family fantasy "Eragon" lifted to $105.7 million in its third weekend in release, opening at No. 1 in Brazil with $1.5 million, called the third-biggest opening of the year in the territory. The second weekend in France increased 24% to $5.4 million for a market cume of $11.7 million; Germany took in $10.3 million in three weekends; Italy, $8.8 million in two; and Spain, $10.4 million in three.

The animated "Happy Feet" jumped to $114.2 million after picking up $20.5 million from 6,100 screens in 58 markets.The romantic comedy "Holiday" did better than it did over the Christmas weekend, drawing $16 million from 3,400 dates in 40 territories, raising its international gross to $70 million.

James Bond fans turned out in droves for "Casino" over the holiday weekend, delivering $16.6 million from 5,285 screens in 61 territories to hoist the international gross to $338.3 million.The Denzel Washington thriller "Deja Vu" hit a cume of $51.6 million after picking $10.1 million from 2,903 screens in 33 countries.

The Hollywood Reporter

Downloaded Digital Sound Tracks Up Two Thirds

2007-01-03T03:58:00.000-08:00

Nielsen SoundScan reports that through the first 49 weeks of 2006, sales of individually downloaded digital tracks are up more than 67% over the same period in 2005, accounting for more than 525 million digital downloads; already 173 million more than 2005's annual total.

In 2005, digital track sales reached 353 million; 150% higher than total track sales for all of 2004.
In 2004, digital download track sales broke the 100 million mark with more than 140 million digital tracks sold.
In 2006 to date, 54 tracks have sold more than 500,000 units as opposed to only 22 tracks in all of 2005. None reached that sales mark in 2004.

Digitally downloaded albums have increased more than 100% with 29.7 million YTD in 2006 versus 14.5 million in the same time period in 2005. In 2006 to date, 11 albums have sold more than 100,000 units digitally comparing to only 3 for the entire year in 2005 and none in 2004.
Nielsen SoundScan data coverage represents more than 95% of the digital music sales market, and Rob Sisco, President Nielsen Music, concludes that "It is clear that digitally downloaded music is continuing to enjoy tremendous and growing consumer acceptance."

Center for Media Research

Starbucks Starts Trans Fats Withdrawal

2007-01-03T03:53:00.000-08:00

SEATTLE-BASED STARBUCKS HAS BECOME THE latest restaurant company to hop on the trans-fats-free trolley. The chain announced that today it begins serving trans-fats-free baked goods in 10 cities: Seattle, San Francisco, Chicago, Los Angeles, San Diego, Boston, New York, Philadelphia, Washington, D.C. and Portland, Ore.
The initial 10-city rollout applies to stand-alone stores but not satellite locations like grocery or airport kiosks. Those locations are licensed by Starbucks, but run by other businesses.
The rollout has been in the works for about two years, according to a Starbucks spokesman. He also said that New York City's ban on trans fats did not spark Starbucks' decision. The New York City ban calls for restaurant cooking oil to be trans-fats-free by July 1, and for the fat to be absent from baked goods by July of 2008.
Health professionals consider trans fats, which are found in partially hydrogenated oils, to be dangerous to heart health.
Starbucks, which operates about 13,000 stores worldwide, posted net revenue (for its food service operations and coffee business) of $7.8 billion for fiscal 2006, which ended Nov. 16. The chain opened 2,199 new restaurants worldwide last year.

mediapost.com

The Year of the Music industry

2007-01-02T09:22:00.000-08:00

If 2006 was the year of user-generated content, 2007 will be the year the music industry learns to generate new revenue from the hugely popular trend.
Labels are striking licensing deals with sites like YouTube so that fans can post copyrighted content or include it in videos they make themselves. Additionally, labels are expected to start releasing new types of content -- such as unused clips or video montages -- specifically created for fans to manipulate in new ways.
By doing so, record labels can then share in the advertising revenue these sites collect. Rather than just suing YouTube and its ilk for how their sites are used, the music industry can now profit from them, not to mention reap the promotional benefits.
"They're doing it anyway," says Ted Cohen, former EMI Music Group digital executive and now founding partner of consulting firm TAG Strategic. "There's a chance to monetize this behavior."
Additionally, music companies have the chance to let their fans actually sell music to one another via playlist-sharing services and peer-recommendation sites. Word-of-mouth marketing is exploding online through user-generated activity, creating a new generation of tastemakers. How well labels tap this effective source of music discovery will be a barometer of their overall digital strategies.

Reuters/Billboard

Consumer Packaged Goods Marketer of the Year: Unilever's Dove

2007-01-02T04:49:00.001-08:00

TWO YEARS AGO, DOVE GAVE an old brand new life with a revolutionary marketing campaign that redefined the word beauty. Unilever continues to keep the initiative fresh, and to extend the brand by positioning it on the leading edge of cultural trends.
"The Campaign For Real Beauty" uses real women whose ages, waistlines, skin color, and hair texture deviate from the stereotypical size 2 supermodel.
The images of ordinary women on billboards, print ads, TV spots, and Web videos are remarkable--and remark-worthy. Two-and-a-half million people have visited CampaignForRealBeauty.com to judge the advertising, discuss the definition of beauty, and download educational programs since 2004.
The secret to Dove's 2006 marketing success is its trend-forwardness. Unilever and WPP Group's Ogilvy & Mather kept the brand aloft this year by immersing it in popular culture through viral marketing, social networking, consumer-generated ads, and talent searches. According to TNS Media Intelligence, Unilever spent $144 million on measured media in 2004, $153.6 million in 2005, and $128.4 million from January through September 2006.
Dove kept apace with popular culture despite turnover on the marketing team in June--when Silvia Lagnado, senior vice president of the global brand, became Unilever's group vice president for savory foods.
Dove's 2006 "Self Esteem" spot stood out like a fresh bar of soap on a sticky frat-room floor during Super Bowl XL in February, a non-traditional venue for a beauty brand. The one-time-only, 45-second commercial via Ogilvy & Mather focused on girls and the negative images they have of themselves, such as "Thinks she's fat" or "Hates her freckles." In the background, the Girl Scouts of Nassau County Chorus from Long Island, New York sang a version of "True Colors." The spot launched the Dove Self-Esteem Fund, which aims to build the self-confidence of 1 million young people by 2008.
"A lot of people said, 'Why are you going on the Super Bowl? Viewers just want to drink beer and eat popcorn--they don't want to think about these things,' "says Stacie Bright, senior communications marketing manager for Dove. "Well, there is the obvious reason--there are 90 million viewers, and half of them are women. It was successful because it was a jarring message that stopped people in their tracks. We got e-mails from fathers thanking us for that campaign, which was really amazing and surprising."
In the fourth quarter of 2006, Dove hit on another popular trend: viral marketing. When Spain banned overly thin models from its fashion runways in September, Dove responded with a short film called "Evolution" that shows a woman--in this case a Canadian cartoonist--being transformed into a billboard model by hair and makeup artists and photo-re-imaging technicians, who elongate her neck, among other things. The tagline: "No wonder our perception of beauty is distorted."
The fast-motion, 75-second film was created by Ogilvy & Mather, Toronto, and put up on CampaignForRealBeauty.com. People were driven to the site by PR via Edelman, and the film raced through the Internet. It was viewed by upwards of 2 million on YouTube, and generated an 8,000 percent increase in visits to Dove's Web site. "Our Webmasters thought someone was hacking into the system," says Bright.
In December, Dove hit on two other popular trends: consumer-generated media and TV talent searches. It issued a call for "real women" to create 30-second TV spots for a new product called Dove Cream Oil Body Wash. Consumers can use their own material or visit DoveCreamOil.com to access online tools, artwork, photos, and music to create ads. The winning spot will air during ABC's Academy Awards program in February.
"We're tapping into people's need to develop their own content. People want to be heard," Bright says.
They also want Dove products. According to Information Resources, Inc., sales of Dove soap brands grew 7% to $281.3 million from Jan. 1 to Nov. 5, 2006; Dove hair care products sales grew 13.3% to $102.5 million; and Dove skin care products and lotions grew 16.2% to $117 million in that time period. Unilever posits that one in every three households uses a Dove product.
The Campaign For Real Beauty works not just because of its trendability factor. It works because the message--that all women are beautiful--is authentic to the brand. "A lot of brand managers tell us, 'We want to have the next Dove campaign.' We tell them you have to find what your real essence is and be true to your brand," Bright says. "You have to have a clean voice, one that your brand has the authority and right to speak in."

Marketing Daily

Restaurant Marketer of the Year: McDonald's

2007-01-02T04:45:00.000-08:00

SAPPY ADS, BURGERS AND FRIES, yellow-and-red stores, and a clown: That's so last-century McDonald's.
The 21st-century McDonald's engages in target marketing, and has dipped its toe into digital media. It's expanding its menu to reach new customers, and redesigning its 13,600 domestic restaurants with earth tones, comfortable furniture, and WiFi.
Unlike its rivals, McDonald's hasn't launched a best-selling Xbox game, signed a major hip-hop mogul to be its spokesman, or added headline-grabbing, super-caloric items to its menu. And it trails its competitors in solving one of the restaurant industry's biggest conundrums: removing trans fats from foods.
Apparently, all that doesn't matter. McDonald's sophisticated, wide-reaching marketing efforts encompass both new media and old. On the new side: Digital efforts, such as a Filet-O-Fish "webisode" posted on YouTube and an online version of its successful Monopoly promotion. On the old side: Sponsorship of the 2008 Olympic Games in Beijing, and the continuation of "I'm Lovin' It," its long-running advertising campaign.

Customers are responding with their feet: The chain has posted 44 months of consecutive same-store sales increases. And Wall Street is lovin' it: In late December, McDonald's stock price hit a seven-year high.
"They are one of the most effective marketers across the board," says Ron Paul, president of Technomic, a Chicago-based restaurant research firm.

"There's an awful lot going on" with McDonald's marketing," Paul adds. "I don't think any of us knows all that is going on."
The marketing initiatives have a single goal: reaching customers, whether they're 40-something moms or 20-something men. "It's all about customer relevancy," says Mary Dillon, executive vice president and global chief marketing officer at Oak Brook, Ill.-based McDonald's.

"I think we really dig deep for consumer insights, and deliver with innovation," Dillon says.
What McDonald's really delivers is a menu that's growing beyond its burgers-and-fries basics, but logically and rationally. (McDonald's followers will remember its now-abandoned test of pizza; there's no similar frippery these days.) "Customers' tastes and what they eat are changing," says Wendy Cook, vice president of menu management at McDonald's.
Hits for 2006 included a chicken snack wrap and gourmet coffee; for 2007, the roll is likely to continue, thanks to a multitude of products in test, among them Angus burgers, all-day breakfast service, a dollar breakfast menu, and deli sandwiches.

As the menu changes, it brings more--and different--customers to McDonald's. One example: Chicken. Five years ago, McDonald's launched a strategy to slowly add more chicken items to the menu. First up: Crispy and grilled chicken salads, the debut of which sparked the first of the 44 months of consecutive comp-store increases. McDonald's changed the McNuggets recipe to all-white meat, added chicken strips, then premium chicken sandwiches in 2005, and the snack wrap in August of 2006.

That chicken--and the female-friendly ads that tout it--pull in incremental sales, namely among "women that are moms and young adults, and kids," Cook says. Hence the redesign, which trades McDonald's signature red-and-yellow scheme for earth tones, soft furniture, and flat-screen TVs. "We are offering our customers the kind of menu experience that they might expect to get at a sit-down restaurant, but at McDonald's convenience and value," Cook says. So far, 6,000 restaurants have been remodeled, and 8,000 offer WiFi to customers.

McDonald's is hardly ignoring young men. A "Pirates of the Caribbean" game featured peel-off stickers that revealed either a prize or a code. Customers who received a code could go to the Internet and look it up to see whether they'd won a prize. Cook describes the gambit as "a tiny thing in the promotion that makes it more relevant to young adults."
Of course, McDonald's marketing reach extends to customers outside the U.S. Last year, the company announced a Global Casting Call, a worldwide search for McDonald's customers to grace its packaging. The casting-call Web site received 13 million visits, and 13,000 McDonald's customers submitted photos and 100-word essays that described themselves "lovin' it." Twenty-five customers were chosen, and their pictures will be on McDonald's packaging in the spring. Thanks to the Global Casting Call's success, McDonald's plans to expand its digital presence.

The chain has hired AKQA, a San Francisco digital agency that has worked with Nike and Microsoft, to help with its digital strategy. The Internet "is a fun, engaging way to market," Dillon says. McDonald's next big global venture: Beijing in 2008. McDonald's hopes to have 1,000 restaurants open in China by then, and will get involved in the Olympics by sponsoring programs, in conjunction with the International Olympic Committee, that bring kids and athletes together. (The company sponsored a similar effort, called the Player Escort Program, during the 2006 World Cup.)

"All eyes will be on China for the Olympics," Dillon says. "It's a huge opportunity for us."

Marketing Daily

Automotive Marketer of the Year: Toyota

2007-01-02T04:44:00.000-08:00

TOYOTA MARKETING EXECUTIVES HAVE LONG been accused of having the easiest job in the business, since--as the saying goes--"Toyotas sell themselves" because of their reliability and quality.
But in 2006, Toyota proved that it not only makes high-quality cars, it also knows a thing or two about making great marketing.
Toyota started off the year with four very different vehicles to launch--a redesigned Camry, the niche sport-utility FJ Cruiser, the tiny subcompact Yaris, and the full-size Tundra truck, which comes out in early 2007. In the midst of all that, it also signed a landmark deal for "engagement guarantees" from NBC that promises viewers will be engaged in the programming based on new measurements from panel surveys, instead of the traditional audience-size model that has been in place since the 1950s.
Toyota also set itself a goal of attracting more customers in America's heartland, where domestic brands still have a stronghold. Add to that the task of keeping Scion--its successful youth brand--on the cutting edge of marketing and maintaining Toyota's lead as the environmental car brand, and 2006 was a busy year for the marketers at Toyota's U.S headquarters in Torrance, Calif.
All those tasks required an unusual breadth and depth of marketing. And to top it all off, Toyota is expected to steal the No. 2 automotive brand spot from Ford for 2006--with sales in excess of 2.5 million cars and trucks.
Toyota started off 2006 with a bang, using the Super Bowl to launch the Camry. But even though it used a traditional national campaign, it showed off its marketing smarts by focusing on the unusual in the ads themselves. The Super Bowl ad featured Camry's hybrid electric-gasoline engine model and used a Hispanic-language version of the ad on national television.
"We wanted to open up people's minds to Camry," says Kim McCullough, corporate marketing manager for the Toyota division. "Sure--Camry has been successful, but it's also easy for consumers to dismiss it as a car that is for somebody else."
Even as Toyota was launching the Camry on national television, it shunned most traditional media for the FJ Cruiser and focused on events that would show off the vehicle's off-road capability.
The FJ Cruiser is a four-wheel-drive sport-utility vehicle with an unusual design that could easily have marketed itself as a fashion statement for outdoor wannabes, McCullough says. But, she says, Toyota wanted FJ Cruiser to be a true contender in the off-road segment where looks are less important than what is under the hood and between the tires.
Toyota created Trail Teams and took the FJ Cruiser to off-road events to prove its mettle. The vehicle did so well that bloggers and online enthusiasts began talking about its accomplishments on their sites.
The FJ Cruiser marketing group also created black-and-white inserts for serious four-wheel magazines that focused solely on the vehicle's off-road capability--not its colorful paint choices or fashion-forward design. Toyota used the same tactics of sponsorships and event marketing to pursue the brand's "heartland" strategy to increase its sales in the middle of the country. It has signed sponsorships with NASCAR, and is now the official brand of Bass Pro Shops, taking over from Chevrolet. It also is giving trucks to Future Farmers of America's members to drive for a set amount of time.
"We've got to change people's minds about Toyota one person at a time," McCullough says.
The launch of the Yaris, a tiny subcompact car, pushed the Toyota marketing team to make certain that the little car didn't target Scion's potential customers. The Yaris' under $15,000 price tag and its size put it in direct competition with Scions.
"Scion is the bleeding edge of youth," McCullough says. "Yaris is for more mainstream youth."
Cutting the youth market in such a manner meant that the Scion brand was featured on Second Life, a virtual world that is still not a part of mainstream culture. By contrast, Yaris launched with its own page on MySpace, where a majority of U.S. teenagers hang out online. Scion created its own broadband radio channels, while Yaris used "mobi-sodes"--television shows shown on mobile phones--to reach potential consumers.
Scion remains an internal learning lab for Toyota's marketers, McCullough says, with marketing programs considered too mainstream for Scion handed off to other brands to consider. For example, Lexus gave away a free music CD during the launch of its LS 460, a tactic once used by Scion.
Lexus also has studied how Scion stays a step ahead of its customers, so that it never feels boring or complacent. For years, Lexus sponsored a fashion show at Pebble Beach, Calif.--but it wasn't until 2006 that it began to work with Vogue to create a much more fashion-forward show to be in tune with younger, affluent consumers who were moving up to the Lexus.
Another way that Toyota has infused Scion learning throughout the marketing organization is to move its marketers around to other brands instead of up into other non-marketing jobs. For example, Jim Farley, now group vice president of marketing, once headed up Scion. Brian Bolain, who once worked on Scion, now works on Lexus.

Marketing Daily

Marketer of the Year: Apple Computer

2007-01-02T04:41:00.000-08:00

IF THERE'S A RECIPE FOR success in the relentlessly churning PC and digital entertainment industries, it may go something like this: Combine innovative, consumer-friendly technology with sleek design. Add impeccably crafted, integrated branding and marketing strategies. Stir and serve ... quickly.
Amid a formidable and growing cast of competitors, Apple has been pulling off this tricky soufflé with iron chef mastery. Steve Jobs has racked up an impressive list of feats since returning as CEO in 1996, and that list grew longer last year.
Our Marketer of the Year has defied predictions that it could not sustain the momentum of the iPod brand juggernaut, unleashed in 2001. The company's once-moribund Mac is making a comeback. Apple now boasts the world's fastest-growing retail chain. And it continues to unveil major new products and initiatives, while also feeding a steady stream of upgraded and expanded offerings into the marketplace.
Apple shareholders have reaped a 50%+ total annualized return during the company's past five fiscal years, and results for fiscal 2006 (ending September) have further polished the company's golden aura on Wall Street. Net sales jumped nearly 39%, to $19.3 billion. Profits soared 49%, to nearly $2 billion. Basic earnings per share shot to $2.36, from $1.64.
(Apple delayed filing official SEC results for fiscal fourth quarter and full-year 2006 because it discovered irregularities in some stock-option grants made between 1997 and 2002. The company charged an independent committee with investigating, and in late December, it restated its preliminary results for fiscal '06--lowering earnings by $4 million--to reflect the above number, and also lowered its earning statements for fiscal '05 and '04 by $7 million and $10 million, respectively. Wall Street's response to this announcement? Apple shares' value roles.)
The year 2006 also saw the iPod continue to make beautiful music: 8.7 million units were shipped in the fourth fiscal quarter (2 million more than in the same '05 period) and 39 million units were shipped for the year. Apple fed the fire by launching an even smaller version of the iPod shuffle and new models of the iPod nano with more storage capacity and redesigned cases. (Both devices debuted only the year before, along with the ground-breaking, video-capable iPod.) And for good measure, Apple signed a deal with Disney, adding movies to the TV shows, videos, and music downloadable from its iTunes Store.
Yet, Apple's biggest headline-grabber for the year was the Mac's increasingly strong performance. The company shipped 1.61 million Macs in its fourth quarter (out of the 5.3 million shipped for the year)--a 30% period-over-period gain and the computer's best-ever single-quarter showing.
Gartner reported that Mac shipments grew 31% in the first three quarters of calendar '06, jacking up the brand's estimated share of the U.S. PC market from 4.6% to 6.1%. While Dell and Hewlett-Packard remain the giants--with 32% and 23% market shares, respectively--Apple's performance put it a hair's-breadth behind No. 3 computer maker Gateway (with a 6.4% share), causing some analysts to hail a long-awaited tipping point from niche marketer to big-league contender.

Mac's 2006 One-Two Punch

Apple produced a one-two punch on the Mac front last year: a milestone in technology and a new advertising campaign generally considered one of the most ingenious and effective in a 30-year corporate history strewn with memorable marketing efforts.
In what was--in the words of Jobs himself--"an incredibly complex architecture transition," Apple moved the Mac OS X operating system from IBM and Freescale Semiconductor chips to Intel chips. Starting last January with the desktop iMac and MacBook Pro portable (renamed from PowerBook) and finishing in August with the Mac Pro professional desktop, Apple rolled out significantly speedier iterations of all the Mac models.
But you wouldn't know that from looking at the hardware. "One of the interesting things about this transition was that Apple deliberately chose not to change the physical look of the computers, so as not to send out a mixed message," notes Macworld Editorial Director Jason Snell. "They recognized that changing the outside of the Macs at the same time that they made this huge change to the operating system could confuse people or freak them out."
Apple and long-time agency partner TBWA/Chiat/Day laid the groundwork for the new generation of Macs with an early 2006 campaign declaring that the Intel chip had at last been freed from "dull little boxes dutifully performing dull little tasks." The way-cooler-than-Windows message was unfurled full-force in May, with the "I'm a Mac" campaign.
The ads' ostensibly simple premise: Two comic actors--respectively playing the hip, young Mac guy and the middle-aged, nerdish PC guy--engage in friendly comparisons of what each computer can do. In one of the spots, for instance, PC guy brags that his computer has a calculator and clock; Mac guy helpfully points out that the iMac boasts the entire iLife suite of applications, including iTunes, iWeb, iMovie, and iPhoto.
The ads' cleverly implied "Which guy would you rather be?" message and visceral punch have created love-'em/hate 'em camps, probably roughly split between people who consider themselves innovators versus those struggling to keep up with new technology. In other words, precisely the dynamic that Apple--renowned for keeping its marketing strategies as close to the vest as its product plans--presumably had in mind. The instantly iconic campaign quickly spawned satiric takeoffs ("The Lost Mac Ads") on VH1.
"The PC guy versus the Mac guy campaign demonstrates once again that Apple is the best youth marketer in the business today," declares marketing strategist Jack Trout. Others detect aspirations beyond merely capturing a whole new generation of computer users before they have a chance to get accustomed to Windows.
"Instead of trying to appeal to everyone--which never works--they've moved to clearly conveying that the Mac is not for everyone," says Laura Ries, co-partner in the Ries & Ries marketing consultancy. "The Mac has never been embraced by businesses, with the exception of ones that are graphically oriented, like advertising. Apple is in essence acknowledging that Windows is the standard for numbers, Excel sheets, accounting, basic business functions, and saying, 'We're the more user-friendly experience for people who want to use their computers for photos and videos and visual graphics.'"
The piece de resistance, says Ries, is that this somewhat narrower message is in fact aimed at a rapidly growing market: average consumers--spanning several generations--now using their home computers to whip up and distribute their own multimedia creations. "Apple recognized that technology is redefining what a 'graphic artist' is," she says. "Today, anyone with the urge can be a graphic artist."
How much of Mac's '06 sales gains are attributable to the Intel conversion, and how much to the marketing? "Apple knows that even with computers, decisions in the consumer marketplace are mostly emotional, not rational," observes brand consultant Robert Passikoff. "They've done a superb job over the years of differentiating themselves as the technological innovator. But at the same time, they understand that you don't connect with people by comparing gigabytes. They're masters at creating messages based on a brand's engagement with consumers--meaning how and why a technological innovation connects with people on a meaningful level. In an increasingly commoditized world, they know how to imbue a brand with attributes that people value."
In Passikoff's opinion, the current Mac campaign is a clear example of Apple's marketing intelligence. "Plenty of companies do a lot of consumer research, then spend a lot of money grinding out [advertising] that's ultimately meaningless and ineffective," he says. "Not Apple. It would've been so easy to just show their machines; instead, they used people. Viewers get a clear sense that you can do more with a Mac--videos, whatever you want. The ads are believable and entertaining, and they leave you feeling better about the brand. You can't ask much more than that from a TV commercial."
Indeed, some admirers rate the latest Mac campaign as Apple's best since the "1984" Super Bowl commercial that introduced the Mac and made the world sit up and take notice. In it, a mesmerized population is liberated by a fearless female warrior (read: Macintosh) who hurls a hammer through the giant communications screen used by an evil dictator (read: IBM).
The "I'm a Mac" campaign demonstrates Apple's commitment not only to getting the creative for its major product innovations right, but to supporting it with media saturation. To drive home the Intel-enhanced message, Apple upped its ad spend for the full Mac line to $85.4 million in last year's first nine months (compared with $7.4 million for the same period in '05).

iPod Phenomenon Keeps Growing

The creation and nurturing of the iPod brand is a marketing case study all on its own. "Apple wasn't first-to-market, but they came out with a better product that was brilliantly designed and marketed, and they became first-to-mind," sums up Ries. "Everyone else was doing convergence, adding applications. Apple offered a simple, easy-to-use music player."
"They took the concept of a Walkman and moved it to the next generation--catching Sony asleep at the switch," adds Trout.
iPod's catchy name, and its white case and earphones, added to its cachet and further set it apart from existing MP3 players.
Jobs' marketing instincts being equal to his instincts for product design and the next must-have application, iPod's advertising was in perfect pitch--suggesting rather than stating the message that you could no longer be hip unless you owned an iPod.
Apple has bombarded the marketplace for years with variations on the streamlined ads featuring "dancing silhouettes," white earphones, and precious few words. Like virtually all of Apple's campaigns over the years, the iPod ads reflect Apple's genius for associating the brand and its products with coolness and innovation while rarely showing the hardware itself.
One thing's for certain: Even with the iPod's application and design strengths, it could not have sold 68 million units worth $14 billion in revenue and captured an estimated 75% market share in the space of a few years without the astute marketing and Apple's aggressive expansion of the brand.
"There used to be a thing called an MP3 player; now it's an iPod," sums up Passikoff.
"They had a lot of running room to make the iPod a generic brand, and they made the most of it," adds Trout. "In everyone's minds, everything else now coming out is 'iPod-like.'"
Indeed, the Mac's resurgence aside, the iPod franchise still accounts for nearly 40% of Apple's revenue, and is generally viewed as the linchpin of the company's future fortunes. Apple is clearly focused on fending off Microsoft's Zune (which debuted in November) and a growing list of other competitors. Apple continues to cement users' bond with the iPod via continual releases of new iterations of the player--and thus far is also holding fast to what some label a "proprietary" iTunes strategy.
The decision to make content purchased online from iTunes compatible only with iPods (with stress on a seamlessly compatible user experience) was hardly surprising. Jobs set this direction almost from the day that Apple opened its doors, and paved the way for the personal computer revolution with the Apple I and its more successful successor, the Apple II.
Michael Gartenberg, vice president and research director at JupiterResearch, maintains that Apple's '90's slump came down to failure to introduce innovative new products and mishandling some existing ones--not from any failure to license its operating technology. "It's wrong to say that the iPod is 'proprietary,'" he adds. "People can and do play their existing music collections on their iPods. Zune is basically an uphill battle for Microsoft. To make any headway, they'll have to provide a compelling reason for consumers to switch to Zune. But for most consumers, iPod is the answer. It's not like people are dissatisfied and looking for something else."
In addition to driving iPod sales, the iTunes Store is a profit center. According to analyst Piper Jaffray, the number of songs sold on iTunes jumped 78% in the first nine months of last year, to 695 million (averaging 18.5 million per week). Apple reports having sold more than 1.5 billion music tracks, and tens of millions of TV shows and movies, since iTunes launched in 2003. Its fiscal fourth quarter '06 results included $452 million in "other music-related products and services" (which include iTunes, iPod services, and Apple-branded and third-party iPod accessories).

Third Act Begins

How can Jobs possibly follow this amazing Second Act? For starters, Apple will keep expanding The Apple Store. The chain had more than 170 stores as of year-end 2006, including 18 in the UK, Japan, and Canada. (Apple may have only about 2% of the world computer market at the moment, but some think the retail strategy could move that needle over the next several years as well.)
The stores reportedly bring in nearly $2,500 per square foot--far better than the performance of mass retailers such as Best Buy. Existing stores showed 40%+ sales growth between 2004 and 2005, and Apple is now busily redesigning every store to replicate the particularly successful format of its showcase New York City store. In fiscal '06, the retail stores sold 886,000 computers and did $3.3 billion in business, generating $198 million in profit. Little wonder that Dell is emulating Apple's retail strategy--although Dell had just two stores as of year-end 2006.
"The Apple stores are more proof of Apple's understanding of the need to surround the consumer," says Passikoff. "The retail model allows them to build a personal relationship with the customer with an easy support system and a face-to-face experience."
And, of course, those stores will be selling a raft of more new products. In fact, in October, Jobs declared that 2007 "is likely to be one of the most exciting new product years in Apple's history." Breaking with Apple's policy of staying mum about new offerings before their actual release, Jobs last fall announced Apple's next big thing: The early 2007 launch of the iTV. Attached to TVs or other entertainment devices, iTV will enable consumers to enjoy music, movies, and other content from computers in a home-theater environment.
"Apple is in your den, Apple is in your living room," says Jobs. "Apple is in your car, and of course, Apple is in your pocket with iPods."
Increasingly, Apple is also in Microsoft's face. "Apple controls not just the music player, but a growing number of other critical end points," observes JupiterResearch's Gartenberg. "It all adds up to a long-term threat for Microsoft."

Marketing Daily

Consumers Prefer to Steal Movies and Other Content

2007-01-02T04:22:00.000-08:00

A recent study from NPD Group, a research firm covering the music industry, claims that movie downloads using peer-to-peer software and servers is outpacing purchases made from legitimate download services, such as CinemaNow or Apple's iTunes. The study, compiled from NPD's VideoWatch tracking software, finds that just 2% of online households purchase movies from movie download services, whereas 8% utilize illegal P2P services.For the consumer, there are several compelling reasons to steal content rather than pay for it. First is the cost. Second, the movie download biz fails to offer a single, comprehensive location from which to download movies. Instead, there are several fractious and competing services all struggling to reach agreements with movie producers. Digital Rights Management, which prohibits copyright downloads from easily being transferred from one device to another, is both limiting and annoying. Also, seasoned P2P users can easily find higher quality downloads than those being offered by services--and for free. Which is why people steal in the first place.

Ars Technica

Backdating Scandal Hits Apple's Steve Jobs

2007-01-02T04:19:00.000-08:00

Steve Jobs is in more trouble after an SEC filing revealed that the Apple chief executive was handed 7.5 million stock options in 2001-- without proper authorization from the company's board of directors. Later, records were forged to indicate that a full board meeting had taken place to approve stock option grant.The SEC has now to decide whether to pursue legal action against the company or any specific individuals involved in the incident. A regulatory filing indicating the extent of the transgression should be unveiled by the end of the week. In October, Apple and Jobs issued a contradictory statement saying that the CEO had not exercised his options and would instead take a grant of restricted stock. More than 160 companies have owned up to stock-option backdating in the last year. While not technically illegal before the passage of Sarbannes-Oxley a few years ago, companies were expected to own up to it. Options backdating refers to companies allowing employees to exercise their grants at prior dates that yield more favorable results. Many, including Apple, have not done so until this year, which led to the departure of numerous CEOs. If Steve Jobs and Apple are taken to court for forgery and failure to disclose options backdating, don't expect Jobs to be around much longer at Apple.

Financial Times

Holiday E-Commerce Sales Surpass $23B

2006-12-29T04:35:00.000-08:00

ONLINE HOLIDAY SPENDING IN 2006 increased 26% over last year to $23.11 billion for the nearly two-month period ending Dec. 26, according to data released Thursday by comScore Networks. A late surge of Internet shopping in the week before Christmas--a 38% jump over the year-earlier period--helped push the total to new levels.
"That online retail consumer spending for the year-to-date has surpassed the $100 billion mark is a testament to the continued growth and strength of the online marketplace," said Gian Fulgoni, chairman of comScore Networks, in a prepared statement. He added that retail e-commerce now accounts for 7% of U.S. consumer retail spending, excluding gas, autos and food.
Amazon led all retailers in online holiday sales, followed by Dell.com, Yahoo.com, Walmart.com and Ticketmaster.com. BestBuy.com, Walmart.com and Ticketmaster.com posted the biggest gains over last year, with each site increasing sales by more than 50%.
E-commerce sales growth was fueled mainly by buying in big-ticket and popular gift categories including jewelry and watches (up 67%), video games (64%) video game consoles (63%), event tickets (55%), and consumer electronics (39%).
The 26% increase in 2006 online holiday sales is just slightly more than the 24% gain in e-commerce activity during the rest of the year. Web retail sales from January to October increased from $62.6 billion to $77.5 billion, according to comScore.

Online MediaDaily

A Tumultuous Year In Review For The Auto Industry

2006-12-29T04:33:00.000-08:00

THE YEAR JUST PASSED WAS tumultuous even for the typically stormy automotive business.
It was a year in which Nissan North America made its corporate move from the heart of U.S. auto culture, southern California, to the relative hinterlands of Tennessee.
It's a year in which Ford and GM, after a rocky 2005, launched new turnaround plans. It was a year full of rumors of deaths exaggerated and alliances unrealized: that Ford, struggling to stay afloat after losing in 2005, would go under, in some form; that GM CEO Rick Wagoner, fending off stakeholder Kirk Kerkorian, would himself be ousted; that DaimlerChrysler would spin off its Chrysler Group; that GM would ally with Nissan; and most recently, that Ford would form an alliance with Toyota.
It was a year that, despite record gasoline prices, managed to finish with what will likely be around 16.4 million units sold.
The gainers were import brands, but General Motors has managed to hold on to share partly with a new warranty deal, and new versions of its Silverado and Sierra pickups.
The Chevy Silverado, representing the biggest portion of the highest single-platform volume for GM, launched with patriotic fanfare in September, using a Campbell-Ewald-created campaign derided by ad critics but celebrated by dealers and featuring the song, "My Country" by rocker John Cougar Mellencamp, and a theme, "Our country. Our truck." The patriotism is emblematic of an effort to counter Toyota, which has been running corporate advertising all year promoting its U.S. product footprint as a setup to its most important launch in years, the redesigned Tundra in the first quarter next year.
In turnaround mode all year was General Motors, which lost $10.6 billion in 2005, hasn't earned a quarterly profit in the U.S. since 2004, and saw its share of the U.S. market drop to around 24% this year, from over 30% 10 years ago. In addition to efforts to streamline operations, more sharply define its divisional brands, and get its vehicles on the shopping lists of the younger buyers who have forsaken the domestics, the company has tried to get away from incentive blitzes by focusing on "value" rather than deal-of-the week offers. For example, GM this year launched a 5-year, 100,000-mile transferable powertrain warranty program to validate its quality improvements.
Divisionally, the company has anointed Saturn as its ambassador to the world of Toyota and Honda owners, by giving that formerly product-starved division new vehicles and new ads. A new campaign this year, featuring the tagline "Like always. Like never before," preceded the launch of several vehicles, including the Aura sedan, a new version of the Vue SUV, a hybrid version, and a new crossover called Outlook.
High gasoline prices hurt SUV and trucks sales, especially at Chrysler Group, which lost its CEO Dieter Zetsche to the home office in Stuttgart, Germany at around the time inventories of hitherto hot vehicles like Chrysler 300, Dodge Magnum, and Dodge Ram and Durango, began hitting record levels.
The change, which put Tom LaSorda in the top position, also coincided with rising dealer ire about having to take delivery of vehicles they couldn't sell. Thus the ouster, in the fall, of sales and marketing chief Joe Eberhardt, and rumors that Wolfgang Bernhardt, who left Chrysler for VW might be headed back, especially since musical chairs at Volkswagen's Wolfsburg, Germany HQ, puts Audi chief Martin Winterkorn in the chairman's position at VW starting next week.
While it's unlikely Bernhardt would want anything less than top position at Chrysler, one thing is certain: the company is counting on new smaller vehicles, like Jeep Compass and Dodge Caliber to ignite sales. Currently, around 75% of Chrysler's volume is weighted toward minivans, pickups and SUVs.
Last week Chrysler Group CEO LaSorda went to Stuttgart to present a restructuring plan, after Chrysler lost $1.5 billion in the third quarter. Reports suggest that the plan, which the company will unveil in February, includes layoffs and the closure of at least two plants in the U.S.
Ford, whose "Way Forward" plan helped fuel its largest quarterly loss in 14 years, $5.8 billion last quarter, has put its operations up for collateral to borrow $18 billion to fund restructuring. But before that, CEO Bill Ford stepped aside after running the company for five years. Former Boeing leader Alan Mulally took over this fall as Ford's financial and sales woes deepened despite "Way Forward," which began in late 2005. The company is counting on its new crossover Edge, backed by a campaign aimed squarely at urban and culturally diverse audiences, to turn its fortunes around, as it trims its payroll to cut costs.
Last year saw imports continue to dominate in cars even as they expanded control of SUVs and crossovers. Nothing proves that more than Toyota becoming the No. 2 automaker worldwide, surpassing Ford and on track to be No. 1.
Toyota, which is set to oust GM in worldwide sales next year, sold 8.8 million vehicles this year. That is below the 9.2 million vehicles GM predicted it would sell worldwide this year. But while Toyota, which plans to sell 9.34 million vehicles next year, is expanding its factory footprint in the U.S., GM and Ford are both closing plants and tightening capacity.
General Motors' former 10% stakeholder Kirk Kerkorian had counted on his proxy on the board Jerry York to force changes, such as an alliance between GM, Nissan and Renault. When that deal fell apart, Kirk bailed out of General Motors entirely.
Meanwhile, analysts say next year will be slower than it has been in almost a decade. Detroit firm CSM predicts 16.2 million units will move next year.
While the good news for buyers is that they will have more vehicles to choose from and more deals to sway them, automakers are faced with shoehorning vehicles into a packed market. CSM--which said that automakers launched 60 new models in 2006, and will roll out 40 more next year--predicts that GM will stay level with about 23.5% of the US market next year; with Ford at 18.2% and Toyota at 16.3%. DaimlerChrysler--including Mercedes and Chrysler Group brands--will round out 2007 with a 14.7 share of the market.

Marketing Daily

Burger King Sells 2 Million Xbox Games

2006-12-29T04:31:00.000-08:00

BURGER KING SOLD 2 MILLION of its $3.99 co-branded special edition Xbox Game Series in six weeks, making it a top-seller for the Microsoft game line.
"Most video games are considered a blockbuster when they reach the 1 million mark in sales, and this collection has achieved twice that," said Russ Klein, president, global marketing, strategy and innovation, Burger King Corporation, in a statement.
The three games in the collection, "Pocketbike Racer," "Big Bumpin'," and "Sneak King," incorporated Burger King brand icons, such as the King and Subservient Chicken. Sales rival other best-selling Xbox titles, such as "Gears of War," which sold 1 million copies in the first two weeks of release.
The BK Xbox Game Series was supported by television and print advertising, in-restaurant merchandising, custom packaging, direct-to-consumer events and a Web site aimed at 12- to-20-year-old males.

Marketing Daily

Strong summer movies drive DVDs to '06

2006-12-29T04:23:00.000-08:00

Call it the year of smoke and mirrors. When 2006 began, fearful studio executives were still reeling with the first down year in DVD history.

They were anxiously looking for salvation, and hoping to find it in high-definition discs, digital downloads or perhaps a combination of the two.The next generation of software did launch in 2006, regrettably with two incompatible formats, first HD-DVD in April and then Blu-ray Disc in June.

Digital downloading began as well, with all the big Hollywood studios aggressively selling their hot new movies on Movielink, CinemaNow, Apple's iTunes and other download services. Studio executives even coined a new term, "electronic sell-through," or EST, for the lucrative business model.But in the end, none of these technological marvels really mattered. High-def discs still are a blip on the sales radar, and digital downloading are even less of a blip. And lo and behold, what saved the day for home entertainment was an unexpected resurgence in the DVD market, fueled by a powerful slate of summer theatricals.And thus it was that in a year when everything seemed to change, nothing really did. The bottom line was still good boxoffice leads to good video sales, as it has since this business was launched nearly 30 years ago. Or, as New Line Home Entertainment president Stephen Einhorn said, "At the end of the day, home entertainment is still a new release-driven business."

"What we're looking at is a market that is up slightly from last year, overall," Sony Pictures Home Entertainment president David Bishop said. "But if you break down the components, we're projecting DVD sales to be up 3%, year-over-year, and rental to be up about 12%. What drags the industry down to a flat or slightly up basis is that VHS sales and rentals are virtually going away.""The industry is up as a whole, despite a decrease in overall pricing," said Kelley Avery, president of worldwide home entertainment at Paramount Pictures. "Contrary to popular belief, reports of the decline of DVD have been exaggerated."Other studio presidents agree.

The year is expected to again finish more or less flat, but this time no one's running for the hills. It's become clear now that the home entertainment business has entered the mature phase, and the Great Slowdown of 2005 was due more to a weak boxoffice (which traditionally precedes a down video market), as well as a dramatic drop in videocassette sales and rentals, than anything else."Everyone's feeling pretty good," 20th Century Fox Home Entertainment president Mike Dunn said. "Thanks to the fourth quarter, the year may wind up in positive territory, and a big reason is the strong slate of summer theatricals -- as well as TV-DVD and some really strong catalog titles and promotions.""Notwithstanding last year's disparaging headlines regarding declining boxoffice and DVD sales, 2006 ticket sales and DVD purchases proved that the public actively enjoys moviegoing and the in-home DVD experience despite the proliferation of other entertainment alternatives," Genius Products CEO Trevor Drinkwater said.

Much of the cheery-eyed optimism floating around the studio DVD divisions stems from the fact that the industry has just come off an exceptionally strong fourth quarter. Things got off to a good start when 20th Century Fox's "X-Men: The Last Stand" and Buena Vista's "The Little Mermaid Platinum Edition" generated $80 million in consumer spending in a single day. Further triumphs came as the quarter progressed, culminating this month when Buena Vista's "Pirates of the Caribbean: Dead Man's Chest" sold 10.5 million DVDs its first week in stores, putting it on track to become the top-selling live-action DVD ever."A couple of interesting things happened in the fourth quarter," Warner Home Video president Ron Sanders said. "You had some very strong theatricals that performed very well across the board, and you also had the additional benefit of TV-DVD continuing to have a huge upside, year-over-year. All of this pointed to a very healthy category.""The consumer is the ultimate arbiter of what moves in the marketplace," Buena Vista Home Entertainment general manager North America Lori MacPherson said. "And when good entertainment is released to the home entertainment market, the consumer responds."The fourth-quarter DVD sales rally was probably the biggest home entertainment story of 2006, even though it didn't make the biggest headlines. That honor went to the launch of the two high-def disc formats and the flurry of major studio deals with digital downloading services.

On the packaged-media front, the launch of two rival, incompatible formats was, if not a disaster, a major disappointment. But the real culprit, and the reason software sales have been anemic (fewer than 10,000 units of even a really big title are typical), wasn't so much a lack of a unified standard. It was the fact that consumer electronics manufacturers really dropped the ball, with a series of delays that really pinged adoption rates. The HD-DVD camp never got beyond two Toshiba models, including an entry-level model retailing for $499, while only at the very end of the year did Blu-ray get additional players to join the $999 Samsung model that arrived in stores in late June."Everyone was disappointed in the quantity (of players) that came out of the electronics companies," Sanders said. "But what is encouraging is that the attach rate of the software was amazingly high.

On average, consumers bought 28 to 30 movies per set-top box, and that's just below what it was for DVD in the same time frame."Digital downloading, simmering on the back burner for several years, also had its official coming out in April when five of the six major studios begin selling downloads of their movies over the Internet, through services Movielink and CinemaNow. New releases went out day-and-date with the DVDs. Holdout Disney soon joined the party, and by year's end, the two dedicated download services were joined by a wide variety of others, including Apple's iTunes, Amazon.com and file-swapping service BitTorrent. The only hitch was that in most cases, downloaded movies could not be burned to standard DVDs for easy transport into the living room."We determined that there is consumer interest in the ability to download content digitally," Sanders said. "What is unclear is how big the economic potential is and what platforms will ultimately win out. But every studio wants to place a lot of bets, so we are leading consumer trends instead of following them, as the music industry did."The year brought other developments, as well.

Several major shifts took place on the content distribution side, with the MGM library moving to 20th Century Fox, DreamWorks transferring over to Paramount, and brothers Bob and Harvey Weinstein tapping Genius Products to distribute content from their film studio, the Weinstein Co. The brothers subsequently bought a 70% interest in Genius.Genius' Drinkwater sees a common thread: A desire by content providers to obtain "more control of how their products are marketed and distributed."In the retail world, the mass merchants continued to clobber each other over price and exclusive gifts with purchase on hot new theatrical DVD releases, while two veteran audio-video combo chains, Musicland and Tower Records and Video, bit the dust. The former was acquired by Trans World Entertainment after filing for bankruptcy, while Tower, which also filed for Chapter 11 bankruptcy protection, wound up being purchased by a liquidator.

So what lies ahead for 2007? For starters, studio presidents expect big things from high-def discs. The prognosis for 2007 is that one of the two rival formats will fall by the wayside, consumer electronics makers will rally and start cranking out players, the Chinese will weigh in with cheap players of their own and by the fourth quarter, high-def discs will be a viable, significant business."We're seeing tremendous growth in household penetration for high-definition displays and big-screen televisions," Dunn said. "At the same time, you have broadcast, cable and satellite delivery of high-def programming growing at an incredible rate. Given the popularity of purchasing and collecting movies, the next logical step is making those films available in a packaged-media format.""Consumers are buying more high-definition TVs than ever before," Universal Studios Home Entertainment president Craig Kornblau said.
And once they get hooked on high-definition entertainment through digital cable, he said, consumers are going to want, even expect, high-def content from all their media, spurring demand for high-def discs.Lionsgate president Steve Beeks agrees, noting that "the most sought-after gifts this holiday season were HD television sets" and predicting sales of high-def discs will mushroom in 2007 once hardware prices fall and a unified format is established.

The digital download market, too, is expected to grow significantly, particularly with the prospect that consumers will be able to burn downloaded movies onto DVDs playable in their set-top units. CinemaNow introduced the download-to-burn option on select catalog titles during the summer, but this year the gates are expected to be thrust wide open. An encouraging sign: The DVD Forum in late November gave its formal nod to a new type of recordable disc that will accept movies and other content encrypted with CSS, the same copy-protection system used on commercial DVDs, for playback on set-up players.

Depending on how well the summer theatrical features fare at the boxoffice, studio chiefs say 2007 could be a very good year, overall, for home entertainment."Certainly boxoffice is a key indicator in a maturing business, so that will do a lot to drive our business," Bishop said. "But I would say this time next year we are going to be in a growth mode. Will it be double-digit growth? I would say probably not. But I think you are going to start to see Blu-ray Disc get some traction in the marketplace and for whatever flatness we have in DVD you're going to start to see some incremental growth come out of that category.""The great story coming out of 2006 is that despite the drag of VHS, DVD still kept us flat for the year," Sanders said. "And when you look at 2007, when you factor in no VHS drag with the upside of high definition, you have nothing but great prospects for the year. When you look at the lineup of summer theatricals -- sequels to 'Harry Potter,' 'Spider-Man,' 'Pirates of the Caribbean,' 'Shrek 3' -- it's the biggest summer in memory. So for home entertainment, I think it's going to be a massive 2007."

The Hollywood Reporter

'Pirates' helps push '06 boxoffice tally up 5%

2006-12-29T04:10:00.001-08:00

Boffice slump? What boxoffice slump?

The theatrical boxoffice might be under siege, but it fought back and actually gained some ground in 2006. As the boxoffice year, which will conclude with the New Year's holiday weekend, winds to an end, the total national tally is headed toward an estimated $9.42 billion, which would represent an increase of nearly 5% compared with 2005's $8.99 billion.Certainly, records were set along the way: The biggest cheers surrounded the record-breaking opening of "Pirates of the Caribbean: Dead Man's Chest," which set both an opening-day and single-day record of $55.8 million when it bowed July 7, supplanting the mark established a little more than a year earlier, when "Star Wars: Episode III -- Revenge of the Sith," debuted to $50 million on May 19, 2005."Dead Man's Chest's" opening weekend of $135.6 million also supplanted "Spider-Man's" $114.8 million record set in 2002. It also took just two days for "Dead Man's Chest" to pass the $100 million mark, another first.That helped set the tone for what proved to be a much more hopeful year -- at points during the summer, the year-to-date boxoffice was running as high as 6%-7% above the comparable 2005 figures.

Some of those increases declined in the final months. Although Hollywood opened a number of holiday offerings that turned into hits, none was as big as 2005's crop of year-end blockbusters. This year's biggest November/December release is "Happy Feet," with more than $165 million to date. By comparison, November 2005 unleashed "Harry Potter and the Goblet of Fire," which conjured up $276.9 million by the end of that year.

In point of fact, despite a few statistical upticks, the overall boxoffice picture for 2006 did not change dramatically from 2005. If the Cassandras decrying the end of the theatrical business last year were overly alarmist, the Candides proclaiming that this year represented the best of all possible worlds were just as overly optimistic.

Throughout much of 2005, Hollywood fretted and the media raised alarms as national boxoffice grosses declined nearly 6% from the previous record-breaking year. Industry executives and outside observers began assembling a lineup of possible suspects: Increasing competition from DVD sales as the window between theatrical openings and DVD releases narrowed; dissatisfaction with higher ticket prices, expensive concessions and unruly audiences; competition from such rival platforms as video games and music downloads for the minds and disposable income of the ever-more-elusive under-25 males. An endemic change in viewing habits seemed to be taking place.

Nonsense, insisted the skeptics, who argued that the big problem in 2005 was simply too many bad movies. Make better movies, and the audiences will come back.Last year was branded the Year of the Slump, when it suffered through a record 19 consecutive weekends during the first half in which boxoffice grosses fell below the numbers set during the comparable frames in 2004.

But a rally that carried into 2006 began in November 2005, when a number of high-profile movies, beginning with "Goblet of Fire" and continuing through "The Chronicles of Narnia: The Lion, the Witch and the Wardrobe" and "King Kong," broke through and began attracting audiences en masse.

For the most part, this year maintained that momentum. Overall, the movies might not have been necessarily better, but moviegoers found them more appealing.Critics, many of whom applauded Johnny Depp's performance as rascally pirate Captain Jack Sparrow when he first sashayed into sight in 2003's "Pirates of the Caribbean: The Curse of the Black Pearl," were less enthusiastic about its big, action-packed sequel -- again directed by Gore Verbinski and produced by Jerry Bruckheimer -- but audiences were eager to embrace the movie.By year's end, it topped out at $423.3 million; by contrast, 2005's top-grossing movie, "Sith," had to settle for a mere $380.3 million.

Although this year is on track to become the fourth best-grossing year in Hollywood history -- knocking 2005 down to fifth -- the upturn wasn't strong enough to challenge 2004, which holds the record with $9.54 billion, or even to catch 2002 or 2003, which grossed $9.52 billion and $9.49 billion, respectively.

Discounting for a slight rise in ticket prices, the number of admissions increased only marginally between 2005 and 2006. Last year, admissions numbered 1.4 billion. This year, they are headed toward a projected 1.44 billion, a nearly 3% increase.

Drill down through the numbers, though, and not that much really changed. In fact, by some standards, 2006's crop of hits were not quite as robust as the biggest movies of 2005 -- or years before that. Only one film passed $300 million this year and last, while three films reached more than $300 million in 2004 and two each were in that category in 2003 and 2002.In 2005, seven movies crested the $200 million mark, with "Sith" going on to top $300 million.This year, "Dead Man's Chest" might have gone on to pass the $400 million mark -- a mark that wasn't reached in 2005 -- but only five other films grossed more than $200 million domestically during the year, two fewer than last year.In addition to "Dead Man's Chest," this year's select class of $200 million-plus winners includes "Cars" ($244.1 million), "X-Men: The Last Stand" ($234.4 million), "The Da Vinci Code" ($217.5 million) and "Superman Returns" ($200.1 million).

In the $100 million-$200 million category, 2006 did improve slightly compared with 2005. Last year boasted 10 movies on that level, while 11 of this year's releases made the list.

In part, this year relied on the relative reliability of sequels and remakes to win over moviegoers. This year, there were five direct sequels in the top 20 as well as two series relaunches -- "Superman Returns" and "Casino Royale" (with $147.6 million to date). Last year's top 20 included only three direct sequels and one series relaunch, "Batman Begins."This year's big winners were slightly more original; 2006's top 20 didn't include any remakes -- unlike last year's top 20, which included four.Animated movies took up more top slots this year than in 2005, when three animated films reached the top 20. This year there were five, with Pixar's "Cars," the second highest-grossing movie of the year, easily outdistancing the competition.

Given all that animated fare, it's not surprising that there was no room for an R-rated movie in this year's top 10. In 2005, "Wedding Crashers," in fifth place with $209.2 million, was the top-grossing R-rated movie; this year, "Borat," in 13th place with nearly $125 million to date, took that honor.

Shifting to the indie sector, 2006 also showed some weaknesses. Following last year's pattern, genre movies released by indie outfits led the roster: Lionsgate's "Saw II," which grossed $87 million, was the leader in 2005, while this year, Dimension's horror spoof "Scary Movie 4" ($90.7 million) and Lionsgate's "Saw III" ($80.2 million) led the field. As far as more traditional indie fare goes, the big winner in 2005 was Warner Independent Pictures' "March of the Penguins," with $77.4 million. (Focus Features' Oscar-winning "Brokeback Mountain" eventually would gross $83 million, though at year's end it had collected just $15.1 million.)This year, by contrast, the biggest nongenre indie movie is Fox Searchlight's "Little Miss Sunshine," which has picked up nearly $60 million to date, though hoped-for Oscar noms could boost that tally.

There were more wide releases (movies bowing in more than 1,000 theaters) this year than last -- 160 vs. 145. But fewer movies received ultrawide bows of 3,000 theaters or more, as those releases were scaled back from 55 in 2005 to 52 this year.Possibly as a result, the average opening-weekend gross for a new film fell from $17.6 million in 2005 to $16.9 million this year. On average, movies debuted in slightly fewer theaters -- 2,543 this year vs. 2,591 last year -- but scored a slightly lower per-theater average. This year it was $6,663, compared with $6,782 last year. As for average second-weekend drops, they were slightly steeper this year -- 45% vs. last year's 43%.

With so many of the statistical markers appearing to tread water, the theatrical release business did appear to be holding its own. But does that mean the boxoffice declines that bedeviled first-half 2005 have been halted and a genuine recovery is under way? Or does it suggest a yearlong pause in an inevitable decline?Next year's lineup includes several movies that could head into $400 million-plus territory -- "Spider-Man 3," "Shrek the Third" and "Pirates of the Caribbean: At World's End" -- and help to lift 2007's boxoffice above 2006's level. If that does happen, then the boxoffice revival will genuinely have taken root.

The Hollywood Reporter

The Golden Oldie Of Gaming

2006-12-28T11:37:00.000-08:00

Sony's PS2 is likely to outsell newer consoles such as the PS3—not just this year but next

In December video game maker Square Enix Co. began running prime-time TV ads in Japan featuring battle scenes from its new adventure game Seiken Densetsu 4, or Legend of the Sacred Sword. Every 30-second spot ended with a familiar logo: PlayStation. But the game isn't played on Sony Corp.'s new PlayStation 3 console. It's for the PlayStation 2.
This might seem an odd time to launch an ad blitz for a game designed for the PS2, which has been around since 2000. The PS3, after all, was just introduced this fall and offers richer graphics with more lifelike action. But despite all the hype surrounding the PS3, its predecessor is likely to outsell it for two more years. "The PS2 will have legs well into 2008," says Michael Pachter, an analyst at Wedbush Morgan Securities in Los Angeles. And while Nintendo Co.'s Wii console is getting most of the industry buzz, and the Xbox 360 from Microsoft Corp. has racked up big sales in its year on the market, some say the PS2 might even beat out each of those offerings in 2007. "The PS2 probably has the capacity to sell more than any other gaming" console, says Simon Jeffrey, chief operating officer at game maker Sega of America.
The PS2 already owns the industry's all-time sales record. As of last March, Sony had shipped more than 103 million units worldwide. In the year ending in March, 2007, Sony expects to sell an additional 11 million—and just 6 million PS3s. In the following year, Sony will likely ship another 11 million PS2s vs. 7 million PS3s, according to research by rating agency Standard & Poor's.
The PS2's direct rivals, Microsoft's original Xbox and Nintendo's GameCube, are no longer in production. So why is the PS2 doing so well this late in life? For starters, it's cheap. Sony has cut the PS2's price to about $130, down from a high of $300, to entice casual gamers and kids. And with continuing sales and so many PS2 consoles in living rooms worldwide, there's plenty of demand for new titles. "All the media focus is on next-gen consoles and games, but a lot of the software companies will make a substantial portion of their earnings by selling [older] games," says Erik Whiteford, marketing director at California game maker 2K Sports.
FAMILY FARE
To keep sales growing, software makers are tweaking their PS2 efforts. In the console's early days, hard-core gamers were its main audience, but those diehards are now moving on to the PS3. So makers are beefing up offerings of family-oriented titles, kids' games, and movie tie-ins. Square Enix next spring plans to sell Kingdom Hearts II: Final Mix Plus, a collaboration with Walt Disney Co. Around the same time, Paris-based Ubisoft will unveil Teenage Mutant Ninja Turtles to coincide with the release of a film in that series. And Sega is working on a game based on a film from Philip Pullman's story The Golden Compass, due before the holidays in late 2007. While some of these will be available for other platforms as well, game makers have no plans to discontinue PS2 titles.
Nor is Sony in any hurry to kill the PS2. The launch of a new console always puts game makers in the red, and the PS3 is no exception. With delays and production snafus for the machine, Sony's game unit is expecting a $1.7 billion loss this fiscal year. The PS2, meanwhile, long ago turned profitable as component prices have plunged and development costs have been written off. Even at $130 a pop, Sony earns about $8 on each PS2 it sells, compared with an estimated loss of $250 per PS3. (Nintendo is believed to break even on the Wii, while Microsoft takes a loss on the Xbox 360.) And Sony will rake in some $1.4 billion this year from license fees paid by game makers and sales of its own game titles for the PS2 and its predecessor, the PSOne, Goldman, Sachs & Co. estimates. So it's clear Sony will want to milk the PS2 for all it's worth.

BusinessWeek.com

Google Passes Yahoo in Tally of Visitors

2006-12-27T03:13:00.000-08:00

Google, the search engine company, displaced Yahoo as the world’s second-most-visited Web site in November and closed in on the leader, Microsoft, a market researcher said yesterday.
Visitors to Google’s sites rose 9.1 percent, to 475.7 million in November from a year earlier, while those to Yahoo sites rose 5.2 percent, to 475.3 million, the researcher, ComScore Networks, said. Both sites trail Microsoft, which had 501.7 million visitors, ComScore said.
It was the first time that Google, based in Mountain View, Calif., attracted more visitors than Yahoo, reflecting Google’s growing popularity outside the United States. Yahoo, based in Sunnyvale, Calif., is still the most-visited site within the United States, ComScore said. Microsoft’s visitors increased 3.3 percent from a year earlier.
Visitors to Fox Interactive Media sites, owned by the News Corporation, rose almost fivefold, to 130.4 million, in November from a year ago, reflecting a surge from the purchase of MySpace.com.
Visitors at YouTube, bought by Google for $1.65 billion in November, rose more than 24-fold to 107.9 million, ComScore said.

BLOOMBERG NEWS

Nike's iPod Connection Pays

2006-12-26T07:04:00.000-08:00

FUELED BY STRONG SALES OF its Nike+ and Converse lines, Nike reported a 10% increase in sales for its second quarter to $3.8 billion, compared to $3.5 billion for the same period last year. Net income for the period rose 8% to $325.6 million.
In the U.S., footwear sales gained 8% for the quarter, while apparel sales in the U.S. grew 10%.
"Nike+ is turning out to be huge," the company said in its conference call. "In less than 6 months Nike+ users have logged more than 3 million miles . . . and there are over 3 million Plus-ready shoes in the global marketplace and we expect to double by year end. Clearly, our confidence in this concept is proving to be accurate."
Nike+ shoes feature a built-in pocket under the insole specially engineered for the Nike+ iPod sensor.
Converse was also a bright spot, with "revenue up nearly 50 percent. Dwyane Wade was named Sports Illustrated's Sportsman of the Year. And Footwear News named Converse "'Brand of the Year' for 2006," the company said. Cole Haan revenues gained 9% over the prior year, driven by sales of its Dress Air product.
The company also said it increased "'demand creation' spending 27% versus relatively low spending levels last year, driven by advertising campaigns behind Nike Air, LeBron, Nike Pro and Nike+."
Separately, the company announced that it would celebrate the 25th-year anniversary of the Air Force 1 performance basketball shoe with the launch of the new Air Force 25 (AF25), available Dec. 26.
Retailing for $175, the shoe can already be seen on such players as Indiana Pacers' Jermaine O'Neal and the Phoenix Suns' Shawn Marion.

Marketing Daily

Are Big Media Companies Lining Up To Buy AOL, Yahoo?

2006-12-26T07:00:00.000-08:00

Wall Street's Abuzz

ARE BIG ONLINE PORTALS AOL and Yahoo about to go into play, and could a major traditional media company like, say News Corp. or Comcast, be preparing to buy one or the other? That's what Wall Street is beginning to buzz about, according to a report released Friday morning by the equity research team at Merrill Lynch. "We believe there are several trends that could push either AOL or Yahoo! Towards a major transaction, with each other or with another competitor," the securities report speculates. "In the past year, AOL has shifted towards an advertising-supported model, but is still losing significant share in search. Likewise, Yahoo's technology and revenue results have fallen behind Google, resulting in a lagging stock performance."
The note predicts those trends could lead AOL and/or Yahoo to explore a "transformative transaction" over the next 12- to 24-months, and likely scenarios include:
* An AOL-Yahoo "tie-up," which Merrill Lynch deems the "most logical" outcome.
* An acquisition by Microsoft (the next most logical conclusion).
* An acquisition by a major traditional media player such as Comcast or News Corp.
While the least likely scenario, Merrill Lynch's analysis is that the math of a traditional media company play "could work," citing News Corp.'s previous acquisition of MySpace.com.
"News Corp. and Comcast are two media companies that have been speculated as potential candidates to purchase Yahoo!. Although we understand the rationale for each, neither appears likely," writes the firm, throwing water on the traditional media scenario. "Of the two, we see more logic in a possible News Corp.-Yahoo combination."

MediaDailyNews

Xbox Live challenge is to reach masses

2006-12-26T06:56:00.000-08:00

Letting video game players compete against others online has distinguished Microsoft Corp's Xbox 360 console from Nintendo and Sony Corp. rivals, but casual gamers have yet to embrace the service in droves.
Xbox Live allows free game downloads, video chat sessions and more, but its main success is allowing gamers to play competitively against others online, often in violent games. Some 4 million subscribers pay $50 per year for the service.
But the runaway success of Nintendo's new Wii, a game console that openly caters to the mass market, has underlined the importance of more casual gamers to the industry. The console debuted mid-November and is expected to sell 4 million consoles worldwide by the end of the year.
"Microsoft has gotten a solid base of hardcore gamers who are drawn to its first person shooters," said video game analyst David Cole, president of DFC Intelligence. "But that is one small segment of the game market."
Even games with heralded online features are often played alone.
Cole says that even though 6 million copies of the hit alien-killing game Halo 2 were sold, only 2 million of those users took the game online, despite online being heralded as its most important feature.
"A lot of casual gamers are intimidated by online in general, both in terms of the technology and the human competition," said Cole. "That's changing, but it still has a ways to go."
SOCIAL NETWORK IN THE LIVING ROOM
Xbox Live's subscribers are spread across 24 million original Xboxes as well as Xbox 360s, which Microsoft says should have 10 million units shipped by the end of December.
The most popular games on Live are usually shooters such as Halo 2, Gears of War, Call of Duty 2 & 3 and Rainbow Six Vegas, and so the online environment is often full of aggressive and sometime verbally abusive players, which can make even experienced gamers uncomfortable at times.
"You kind of gravitate toward playing with your friends and co-workers," said Bryan Intihar, the reviews editor at Electronic Gaming Monthly, a video game magazine. "There's a lot of immature people playing online, but that's a problem that's been there since day one."
Microsoft hopes to counter any perception of Live as a service for the hardcore only. The company recently launched a video download service that allows users to download movies and television shows to their Xbox 360 consoles for a fee.
"We're building a social network in the living room," said Aaron Greenberg, the group product manager for Xbox Live. "I believe it's delivering on being something your mom, dad and kids can use.
Greenberg said that only 10 percent of original Xboxes were connected to the Internet, while more than 50 percent of all Xbox 360s are taken online, proving that the Live community is becoming more inclusive.
But Cole said new features like Xbox Live video are more enhancements for existing users, and not a huge attraction for mass market casual gamers.
Games that do not depend on Web play -- such as some roll-playing games -- are most important, he added.
"The key to the 360's overall success is what they'll offer consumers who don't go online," Cole said.

Reuters

Part 2: S&P's 2007 Tech Sector Outlook

2006-12-26T06:49:00.000-08:00

A look at S&P analysts' expectations for key IT industries in the coming year—and their top picks within those groups

Here is the second of a two-part rundown of Standard & Poor's Equity Research information technology analysts' 2007 outlooks for selected tech subindustries and stocks, covering application software, systems software, home entertainment software, it consulting and data processing services, and Internet software and services. Part 1 featured outlooks on semiconductors, semiconductor equipment, computer hardware, electronic manufacturing services, and computer storage and peripherals.
Application Software
Analyst: Zaineb Bokhari
Standard & Poor's expects corporate spending on enterprise software to continue to grow at a mid- to high-single-digit rate in 2007, comparable to growth seen in 2006. We expect corporate spending in areas such as business intelligence, customer relationship management, and enterprise resource planning to do well, as we expect IT budgets to remain healthy for these programs. At the high end, we think there is some pent-up demand for application software due to the recent consolidation of several major players by Oracle (ORCL) and the expected delivery of new products and upgrades by large vendors such as SAP (SAP) and Oracle, which will likely take place in the 2007-2008 period.
We expect large purchasers of software to continue to exercise great discipline in their buying decisions and maintain a keen focus on return on investment and total cost of ownership. In this buyers' market, we think software vendors face intense competition and ongoing pricing pressure.
As a result, many vendors who have traditionally catered to the high end are looking to the underserved small and medium-size business (SMB) market as an area of growth. SAP plans to introduce new products targeted at the SMB market in the first half of 2007 and is adding features to its on-demand offerings to capture some of the growth seen by newcomer Salesforce.com (CRM; ranked 2 STARS, sell).
We have a strong buy recommendation on the ADRs of SAP partially because the company has been posting strong, largely organic growth in license revenues despite its massive size. We believe there are drivers currently in place for SAP to continue to grow at above-average rates. It has been making notable progress in the SMB market, in our view, and we like the company's largely organic product strategy, which has been less disruptive to customers than one driven by acquisitions.
By our analysis, this has promoted add-on sales of newer product introductions. We note that the recent weakening of the U.S. dollar relative to the euro is a concern to us, as it could affect reported growth rates.
Based on our optimistic outlook for future success of the company's current acquisition strategy, we have a strong buy recommendation on Oracle shares. While we think the company's acquisitive strategy comes with significant risks, we like Oracle because of its considerable technology assets, significant installed base, sizable maintenance revenue stream, high profitability, and attractive valuation relative to peers.
Systems Software
Analyst: Jim Yin
We forecast that PC growth in 2007 will be aided by the release of Microsoft's (MSFT) Windows Vista. Although most computers sold to consumers will have Vista as their operating system, we believe its adoption by businesses will be gradual and occur over several years as they evaluate and review compliance before upgrading from prior versions of Windows. As such, we view the launch of Vista as a positive, but not a major catalyst for increased IT spending.
We have a positive outlook on the systems software group as we enter 2007. One company that we like, and which is ranked strong buy, is Citrix Systems (CTXS). We expect Citrix to benefit from increased worker mobility, which requires remote connectivity from home and mobile devices. The company plans to release new products in the first half of 2007, which we expect to accelerate its revenue growth in the second half of the year. Citrix derives approximately 46% of its revenue from international operations and could benefit from the expected weakness in the U.S. dollar. We believe Citrix shares are undervalued following a recent price decline.
We have buy recommendations on two CAD/CAM companies: ANSYS (ANSS) and Autodesk (ADSK). ANSYS develops, markets, and supports software for design analysis and optimization. We expect its software license revenue to increase 43% in 2007, aided by the acquisition of Fluent. We see additional revenue growth coming from cross-selling opportunities as a result of the Fluent acquisition and a broader product portfolio.
Autodesk has seen strong demand for its 3D products, as sales increased 36% year-over-year for these products in the most recent quarter. We think its 3D products are in the early stages of a long-term growth cycle, with only 10% of its 2D installed base having been upgraded. We expect revenue growth of 15% in fiscal year 2008 (January) and operating margin expansion of 4% through better economies of scale.
Home Entertainment Software
Analyst: Clyde Montevirgen
The S&P Home Entertainment Software Index increased approximately 9% year-to-date through Dec. 8, vs. a gain of about 13% for the S&P 1500. Video game makers have been enduring highly variable sales and margins as the subindustry undergoes the transition to next-generation video game consoles, including Microsoft's Xbox 360, Sony's (SNE) PlayStation 3, and Nintendo's (NTDOY) Wii. However, share prices have rebounded dramatically from their midsummer lows in anticipation of improving fundamentals aided by expected growth in the installed bases for these consoles over the next few years.
We currently have a neutral outlook on home entertainment software companies. We believe near-term uncertainties will persist in the first half of 2007, as game makers decide how much to spend on developing and marketing games to support various platforms. We also think that as the profile of the video game player broadens and reflects that of the average consumer discretionary demographic, video game purchases will likely be more cyclical than in past cycles.
We expect sales and market-share growth to be driven primarily by releases of hit titles during the early stages of the console transition. But we see more robust growth in the second half of 2007, when installed bases for newer consoles should grow at more predictable rates and be large enough to entice developers to release titles more aggressively. We continue to favor companies with reasonable valuations and with a library of hit titles that appeal to a broad range of game players.
We have a buy recommendation on Activision (ATVI), hold opinions on Electronic Arts (ERTS) and THQ (THQI), and a strong sell on Take-Two Interactive (TTWO).
IT Consulting & Other Services; Data Processing & Outsourced Services
Analyst: Dylan Cathers
We expect the IT consulting and outsourcing subindustry to continue to benefit in 2007, as companies look for ways to reduce the costs of running their businesses. Companies in nearly all industries have continued to shift the burden of noncore tasks, such as finance, human resources, and customer service to third parties. The most notable trend in the industry has been the move to outsource these tasks overseas to areas with low-cost, high-quality workers.
No country has benefited from this trend as much as India. Indian IT outsourcers have routinely posted revenue growth in the 30% range, while their U.S. counterparts have typically seen revenue growth at 10% or less during the past couple of years. To try to compete with the Indian outsourcers, U.S. companies, such as IBM (IBM), Electronic Data Systems (EDS), and Accenture (ACN; ranked 3 STARS, hold), have opened facilities on the subcontinent to try to take advantage of the labor arbitrage opportunities. The problem has become, however, that as demand for these skilled workers has grown, the supply of workers has begun to dwindle and wages have been on the rise.
One strong buy-ranked stock in the group is Automatic Data Processing (ADP). We believe the company will be better positioned to grow its mainstay employer services business now that is has sold its claims services business and announced plans to spin off it brokerage services unit. Further, the company's balance sheet remains strong, in our view, with $2.9 billion in cash and marketable securities and nearly no debt.
Other picks include Electronic Data Systems and SRA International (SRX). We believe EDS is in the midst of a recovery, after being battered by unprofitable contracts and rising costs. The company has spent over a year restructuring, lowering its cost structure, and it has been active in increasing its use of less-expensive overseas labor, particularly in India.
SRA International specializes in providing services for the U.S. federal government, with a focus on the defense community. We believe that the company stands to benefit as the government ratchets up spending for defense and Homeland Security in the face of budget constraints.
Internet Software & Services
Analyst: Scott Kessler
It was a challenging year for many Internet companies and stocks in 2006. Year-to-date through Dec. 8, Internet software and services was the worst performing subindustry in the technology sector, and Internet retail was the second-worst performing subindustry in the consumer discretionary sector. We believe this underperformance reflects notable competition among Internet bellwethers, traditional companies, and startups. However, we expect 2007 to be better, in part due to intact fundamentals, strong balance sheets, and more reasonable valuations.
EBay (EBAY) is our only strong buy-ranked stock in Internet software and services. We believe its brands and businesses (including PayPal and Skype) have notable growth potential, especially outside the U.S. We also believe advertising could provide upside to 2007 forecasts.
In Internet retail, we have a buy opinion on priceline.com (PCLN). We recently upgraded the shares to reflect what we see as compelling international opportunities and an attractive relative valuation.
We have a strong sell opinion on VeriSign (VRSN), due largely to our concerns about organic growth, potential troubles in communications services, aggressive and perhaps excessive mergers-and-acquisitions activity over the past few years, corporate governance issues including options backdating, and a valuation we consider excessive (VeriSign's p-e and p-e-to-growth notably exceed those of the S&P 500 Technology sector).
In addition, we recently downgraded CNET Networks (CNET) to sell, from hold, owing in part to unfavorable traffic trends, substantial management turnover in 2006, balance sheet challenges, and well-above-peers p-e and p-e-to-growth-rate ratios.

BusinessWeek.com

Part 1: S&P's 2007 Tech Sector Outlook

2006-12-26T06:46:00.000-08:00

Part 1 of a rundown of analysts' expectations for key IT industries in the coming year—and their top stock picks

Things generally happen pretty quickly in the technology sector. Market positions shift rapidly (consider the PC segment, for example) and tech stocks can move quickly as well. However, 2006 was marked by things that didn't happen as fast as some had expected, namely the introduction of several major new products and services. Microsoft's (MSFT; ranked 3 STARS, hold) Vista and Office, Sony's (SNE; ranked 3 STARS, hold) PlayStation 3, and Yahoo!'s (YHOO; ranked 3 STARS, hold) Panama search-technology upgrade are a few noteworthy offerings that were delayed during the year.
While the postponements hurt the 2006 results of associated companies, these and other offerings from the likes of Apple Computer (AAPL; ranked 4 STARS, buy) and Adobe Systems (ADBE; ranked 3 STARS, hold), among others, should contribute to notable revenue and profit growth in 2007.
Nonetheless, we at Standard & Poor's Equity Research continue to recommend market-weighting the Information Technology sector. Despite underperforming the S&P 500 since 2003, the sector's outperformance since mid-2006 has resulted in what we consider full valuations based on price-earnings and p-e-to-growth metrics.
Here is the first of a two-part rundown of our IT analysts' outlooks for selected tech sub-industries and stocks, covering semiconductors, semiconductor equipment, computer hardware, and electronic manufacturing services, and computer storage and peripherals. Part Two, featuring outlooks on application software, systems software, home entertainment software, IT consulting and data processing services, and Internet software and services, will follow at a subsequent date.
Semiconductors
Analyst: Clyde Montevirgen
We have a neutral opinion on the semiconductors subindustry. While 2006 witnessed healthy growth, reflecting sold demand from the cell-phone and consumer-electronics markets, we think current inventory congestion, possible erosion in average selling prices for certain chip types, and questionable end-market demand will likely present difficult year-over-year comparisons for the first half of 2007. However we believe that stocks are trading at relatively low levels and note that share prices could quickly rise on anticipation of improving industry fundamentals.
We project industry sales to grow 8% in 2007, lower than the Semiconductor Industry Assn.'s estimate of a 10% increase, based on our view of slower sales growth across a broad variety of chips. Economic growth is decelerating, and many companies have pared down capital expenditure plans for 2007 in the face of reduced demand visibility and inventory buildup. Although we see certain chip types experiencing substantial unit growth, we think that the combined average selling price may erode due to potential overcapacity, price wars, and unfavorable sales mix.
Year-to-date through Dec. 15, the S&P Semiconductor Index declined approximately 6%, vs. a gain of roughly 13% for the S&P 1500. We believe that shares of semiconductor producers are somewhat inexpensive based on historical relatives, and still see potential outperformance for companies that produce faster-growing chip types, such as high-end analog, graphics, and high-end microcontrollers, as well as for those that have market leadership in broad end-markets. We currently have strong buy recommendations on Texas Instruments (TXN) and Microchip Technology (MCHP).
Semiconductor Equipment
Analyst: David Kaplan
Following an estimated 25% rise in sales of semiconductor equipment in 2006, which we view as unsustainably above our long-term growth projection of around 10%, we see a period of digestion in the first half of 2007. Furthermore, with elevated semiconductor inventories and forecasts for a slowing global economy, we expect sequential declines in revenues for the first two quarters of 2007.
However, we see industry sales picking up in the second half of 2007, resulting in full-year sales being roughly flat with 2006. Our forecast incorporates our view that this slump will be less severe than historical downturns.
We view the shares of most semiconductor equipment companies as fairly valued, reflecting our expectations for a recovery in the latter half of 2007. However, we believe some stocks in this group are undervalued.
We have a strong buy recommendation on Axcelis Technologies (ACLS), which lost favor with investors after market-share losses in recent years. We see a turnaround for Axcelis in 2007 as the company's Optima HD tool gains traction. We believe these shares offer compelling value, as they recently traded at around 12 times our 2007 earnings per share estimate of 50 cents, and 12.8 times the consensus EPS estimate of 47 cents.
We also like the shares of Brooks Automation (BRKS), which is ranked buy. We expect the company to benefit from the increasing need for automation in 300mm-semiconductor manufacturing facilities.
Another stock on which we have a buy recommendation is photomask producer Photronics (PLAB), which is out of favor with investors, in our view, following lackluster performance in recent years. Photronics recently traded at 14 times our fiscal year 2007 (ending in October) estimate of $1.16 and 13 times the consensus EPS projection of $1.25. The company recently entered a joint venture with Micron Technology (MU; ranked 5 STARS, or strong buy) in a strategic shift toward selling higher-priced and higher-margin, leading-edge photomasks.
Computer Hardware
Analyst: Richard Stice
We have a neutral fundamental outlook on the S&P Computer Hardware subindustry. We anticipate PC unit growth of 10%-12% in 2007, in line with our 2006 forecast. Growth should be aided by the release of Microsoft's Vista operating system, as well as continued expansion in emerging geographies. Within the server market, we also believe unit growth in the low double-digit range is likely over the next 12 months as companies continue to build on the trend toward lower-end and bladed systems. However, we think profitability for both product lines will be somewhat inhibited by ongoing pricing pressures and a slowing U.S. economy.
Our favorite stocks within this sub-industry are Apple (AAPL), which carries a buy recommendation, and IBM (IBM), which is ranked strong buy. In the case of Apple, we believe the shares will benefit from new product introductions in early 2007, including a new operating system, its iTV offering, and an expected iPhone device. In addition, we anticipate further gains in the PC market and a sustained market share in the MP3 player category.
For IBM, we view its market leadership position in a variety of sectors, improving business mix, and significant research and development expenditures as favorable catalysts. Moreover, the shares trade at a discount to the S&P 500 on a p-e basis.
Electronic Manufacturing Services
Analyst: Jawahar Hingorani
Our outlook for the electronic manufacturing services (EMS) group is neutral for 2007, as businesses balance the need to cut costs with the need for greater flexibility in pricing and delivery, as well as help in managing their supply and distribution channels. Key differentiators in this group, in our view, include maintaining a global footprint, adapting to a continually declining cost structure, collaborating in design and development, and providing superior services across the customer's supply chain. Execution is also key, as companies winning new programs are required to demonstrate superior cash conversion cycles—that is, the time taken to convert orders into collected cash—while delivering high levels of quality and service to their customers.
One buy-ranked stock in this sub-industry is Flextronics (FLEX). We view Flextronics as the leader among the publicly traded EMS providers in the U.S. not just due to its size, but also due to the breadth of its offerings and its ability to compete across the board. Recent program wins, and strategic moves like the acquisition of International DisplayWorks and the divestiture of part of its software group, demonstrate in our view, the ability of this EMS leader to continually focus on growth. Organizing itself around a core of sound design, manufacturing, and supply-chain management services enables Flextronics to maintain that focus. We believe the company has the ability to gain market share on many of its competitors and maintain its leadership position in the EMS space in 2007.
Our other EMS picks (ranked buy) are Jabil Circuit (JBL) and Benchmark Electronics (BHE).
Computer Storage & Peripherals
Analyst: Jawahar Hingorani
We believe data-storage continues to be a top priority for large enterprises, as well as small and midsize businesses, particularly relating to regulatory compliance. We are encouraged by several favorable trends as the industry heads into 2007. Increasing amounts of data and content and the proliferation of broadband access have necessitated the need for greater capacity across the storage infrastructure. Faster transport has required network infrastructure for storage to evolve, and companies in this industry have achieved this through a combination of R&D spending, as well as strategic acquisitions. Aggressive pricing practices due to competitive pressures could squeeze margins, and long-term visibility will likely be a key to picking winners and losers in the group.
One company in this group that we favor is Western Digital (WDC), on which we have a strong buy recommendation. We believe Western Digital is positioned to increase its market share and compete with large rivals without having to invest immediately in technology or acquisitions. The company aims to take its successes in the traditional computing markets and capitalize on its ability to provide long-term quality and service to address new markets like portable media players and mobile handsets. We believe Western Digital's balance sheet is another attractive feature, with close to $3.40 a share in cash and investments and negligible long-term debt.
We also have a strong buy opinion on Emulex (ELX), due to what we see as the company's demonstrated ability to execute on its strategy, as well as grow faster than the market in many of the segments it serves. Additionally, we note Emulex's consistent record of cash generation, and its attractive valuation relative to peers.

BusinessWeek.com

AT&T Launches Telco TV In 7 Markets

2006-12-26T06:40:00.000-08:00

Plans To Out-Maneuver Cable With 'Quadruple Play'

AT&T IS BUSY. IT HAS launched its fledgling telco TV service in the extended San Francisco area, but continues to miss deadlines promised for its national rollout. Still, this week, AT&T plans to announce that the service will kick off in seven additional markets--although the company declines to name them.
So far, the service known as AT&T U-verse--which is intended to compete with cable and satellite operators as another way to get multichannel TV service--has launched in parts of San Antonio, Houston, San Francisco (also Oakland and Fremont) and San Jose (also Sunnyvale and Santa Clara). San Francisco and San Jose are in the same DMA, but AT&T considers them two separate markets.
AT&T says it will be in 11 markets by Jan. 1--down from the 15 it initially promised by that date. An AT&T representative said the delay is to ensure that all the kinks are worked out, so customers continue to get "the best experience" when it debuts in a community. Any hint that the service is rife with technical hitches could taint the product. As is, AT&T faces a challenge in introducing it to consumers as a viable alternative.
The AT&T representative said that expansion into new markets will continue next year, but declined to cite any goals.
One advantage that U-verse could hold over large cable operators for consumers: its large bandwidth capacity, possibly allowing it to offer more channels than cable. It now offers the much-hyped NFL Network (on upper-level tiers), which cable operators Time Warner and Cablevision are not carrying, due to a dispute with the NFL over rights fees.
For advertisers, the speed (and specific markets) of U-verse's rollout is significant. It could offer them a third option for running spots on the local avails cable channels give to operators. Plus, AT&T may lower prices, compared to cable and satellite operators, to jump-start interest.
AT&T says it will offer TV service to customers in 19 million homes by the end of 2008. Leading cable operators, such as Comcast and Time Warner, have downplayed any threat--at least in the near term--from telco TV services offered by AT&T and competitor Verizon. (Verizon says it will make its FiOS service available to 18 million homes by 2010.)
So far, AT&T says about 10% of eligible customers in the areas it serves have opted for the service. If the goal of 19 million homes is met, and AT&T can double the adoption rate to 20%, its distribution would be equivalent to the fifth-largest cable operator, passing Cablevision.
Cable operators have had notable success with the rollout of the so-called "triple play" service, in which they offer TV, Internet and phone service as a bundle. AT&T will offer the same bundle next year; so far, phone service is not part of U-verse.
Eventually, AT&T plans to out-maneuver cable with a "quadruple play" that offers a bundle with wireless phone service. (Verizon already offers the triple-play bundle and plans to go with the "quadruple" as well.)
The AT&T rep also said DVR features could provide a leg up, including the opportunity to program DVRs from any Web connection worldwide, and the ability to record up to four programs at once.
Verizon is farther along than AT&T with its FiOS TV service, offering it to 150 communities in eight states, including the New York City area, where it has run a TV campaign to attract customers.
An email from Verizon referred to the scope of AT&T's slower-than-anticipated rollout as "oft-announced, often-changing and often delayed plans," showing that the two telcos may be building a rivalry, even as they each battle cable and satellite.

MediaDailyNews