Silicon Valleywood

Time Warner 3Q03 October 28, 2003

Apologies for late posting, been on and off the road. Time Warner 3Q highlights below. As usual I’ll stick to industry rather than profit margin stuff. Earnings release is here. Slides from preso, including detail about AOL subscriber counts (slide 12) are here.

JupTake

Time Warner is very, very excited about premium digital cable services. Its digital penetration leads the industry and its DVR and SVOD adoption is pretty impressive. Mgmt is still not paying enough attention to AOL advertising. BYOA seems to be starting to gain some momentum; marketing expenses for it will be up in Q4.

Overall Time Warner

-Qly revenues up 4%; re-affirmed full-year guidance.
-Subscription revenue up 7% (cable, especially advanced services up 13%; AOL subscription revenue up 4% but mostly due to Euro exchange rate, AOL US flat; Turner, HBO also strong.)
-Advertising revenue up 3% (cable nets’ revenues growing slower than audience, but benefiting from competition with broadcast networks who have very tight inventory; TV ads up 14%, the WB up over 20%; AOL down, magazines very difficult & down 2%; intercompany ads again down $36M.)
-Content up 1% (movies & DVD sales very strong; music revenue decline of $25M.)
-Parsons very confident about debt reduction; broad hints about cable acquisitions in the future.

AOL

Advertising down 33% to $178M (that’s over $65M less than Yahoo). $68M in sales were from the backlog from old long-term contracts, which now is about flat versus 2Q at $277M. Management said the ad revenue decline has “bottomed out.”

US subscribers down 688K (down 846K last Q, and 289K in Q1). Over half those lost were from trial & retention, and 272K were from billed customers. Broadband is 2.6M, up 340K.

Cable & DTV

-131K net adds in digital cable, for 4.2M total, a 39% penetration. Expects 40% by year-end.
-250K DVR users and 750K SVOD subscribers. Expects nearly 10% DVR penetration by year-end.
-Over 3M broadband cable – 16.5% of eligible homes passed. Expects close to 18% by year-end.

Other Tidbits

-CPMs at The WB are up 40%.
-VOIP launched in Portland, Maine. 3-4 more cities before the end of 03.
-Regarding Comcast: 1st priority is to settle Kansas City and southwest Texas; 2nd priority is to dispose of Comcast’s 21% ownership of Time Warner Cable. Deals not necessarily tied together.

Newspeak or No-Speak? October 21, 2003

I was about to write one thing about ESPN’s firing of Gregg Easterbrook over apparently anti-semitic comments in his New Republic blog, but now I find myself with a whole new take. I was going to write: Since Disney let Rush Limbaugh resign for saying stupid things, they should have let Easterbrook do the same, but one way or another, he should go. He’s a professional journalist; he should know how to play by the rules.

I still think that.

But I’m disturbed that ESPN has removed all traces of Easterbrook from its site. I tried searching on “TMQ” (his Tuesday Morning QB column) or Easterbrook’s name, and instead of getting results, I was taken back to the ESPN home page. Other searches work fine. If you search on variants of “Potomac Drainage Basin Indigenous Persons,” Easterbrook’s pet name for my favorite team, you get zero results, but at least you get a response.

This is a news issue, even for a sports page. There was certainly no lack of Rush coverage.

Paying for Content, Part CCIV October 18, 2003

Yet another good, logic-based path of reasoning from Clay Shirky why PPV content online is tough. (I’d play down the blog angle, myself.) Our surveys show a strong preference for subscription versus pay per use, and for advertising-paid versus consumer-paid.

Digital Music Deluge October 16, 2003

Apple spruced up iTunes with the Windows release, beefing up the store catalogue to 400K songs and adding an allowance feature so parents can set up a debit system for their kids’ purchases. In my experience, it runs just as well on a PC now as on a Mac, though that elegant simplicity of Mac to iPod thru iTunes can’t be duplicated. There’s a little bit more content on iTunes now, with album notes and a handful of artist’s playlists. Michael Stipe has tATu and Justin Timberlake on his. Whoulda thunk?

I still like Napster’s and MusicMatch’s tighter integration of music discovery, consumption, and retail. But the iTunes store has really rejuvenated the digital music industry. Apple’s deal with AOL for easy sign-up and links throughout AOL’s hugely popular Music channel may be a partial solution to that integration.

Napster sees its store as a way to hook folks on digital music, and hopes to upgrade them to a service. They believe that a celestial jukebox will actually add incremental dollars to the industry. Nearly everybody listens to the radio, but 75% of all music purchased in the US is bought by about 25% of the population.

Jupiter Research forecasts that subscription services and digital download spending will remain roughly on par for the next several years. But we don’t think the CD is dead. Overall, the Internet will account for some 25% of US music spending by 2008, but only half of that will be digital – the other will be sales of CDs online. We think digital music spending (subs & downloads) will increase from less than $80M in 03 to over $200M next year, and $1.6B in 2008. We’re projecting slightly shrinking sales of physical music for the next five years – digital will help grow the industry only by a meager 1% CAGR.

MSN Betas Free Video Service October 15, 2003

MSN announced it is launching a beta version of a free video streaming service aimed at RealNetworks’ RealOne SuperPass and Yahoo Platinum. The service is dubbed MSN Video even though MSNBC execs did most of the talking, and MSNBC, CNBC, and NBC News content makes up the bulk of the early offering.

The service is ad supported, with Starcom Mediavest managing MSN Video’s inventory, at least for now. It will run 15- and 30-second video spots every 5-6 minutes. The video spots will be supported by a synchronized 320×240 rich media fly-out and a 120×240 static banner leave-behind that stays up till the next ad.

The player is built on Windows Media 9 and features a three pane design. The main video window across the top has the ad forms, there’s a playlist window below, and a very lightly programmed Guide section, with pull-down menu channels for News, Business, Sports, Music, and TV/Movies. They playlist idea is intriguing: viewers choose stories and cue them up like a digital jukebox.

Going with an ad model rather than a consumer fee is bold, but way, way ahead of the market. It’s unclear how MSN will be able to afford to share revenues with content providers to guarantee exclusives. But ESPN’s had some success with its Motion cached video ads (now also at abc.com and abcnews.com). Jupiter Research forecasts that streaming ads will comprise 4% of the $3.5B in online media buys in 2004, growing to 14% of $7.1B in 2008.

Yahoo Q3 October 10, 2003

Yahoo had a very good quarter indeed. Results, including some good detail in slide format, are here.

Highlights from the concall:

Advertising & Marketing

– Marketing Services (ads and SEM) up 12% sequentially and 48% year over year to $245M

– “Branding” advertising – i.e., other than paid search – increased 20%. Blue chip traditional advertiser $ growth was closer to the 48% overall growth number. Better, longer contracts, & higher renewal rates.

– Yahoo said that as keyword-based contextual advertising rolls out across its channels, the difference between SEM and branding advertising is blurring, so it won’t report them separately anymore.

– Yahoo identified the following as ways to increase SEM revenues: contextual, global expansion, “optimized” pricing (CPCs were up, but Yahoo didn’t say how much), better integration with other small-business services, affinity/partnership distribution, and market share gain. Said every point of market share is worth “$200M in present value”

– Said Overture/Microsoft negotiations ongoing, “positive” & “productive”

Paid Content & Services

– 4.2 million fee-paying customers, up from 3.5M in Q2, and 1.6M a year ago. $79M in revenue, up 13% sequentially and 38% year over year. Yahoo has been adding about 700,000 payers per quarter, but since SBC upgrade uptick has naturally slowed, and Q3 had a baseball/football fantasy overlap, that growth should slow. Still, Yahoo expects to have 5M by year-end, which is faster than original plan

– Access/Content bundles (e.g., SBC, BT) is the biggest category, followed by premium e-mail, small business packages, personals, and fantasy football

– BT bundle launched 4 weeks ago and reports “significant uplift” and “higher upgrade rates” for BT broadband

– When asked about the possibility of a BYOA product offering similar to AOL’s and MSN’s and about the status of Platinum, Yahoo said this: 1st priority – launch BT, 2nd enhance SBC offering, 3rd create an offering for non-SBC users. Yahoo implied such a BYOA offering, which would have elements of the BT and SBC products, would precede any new vertical products, which might appear in 1Q04. I interpret that to mean BYOA in Q4, and that the so-far failing video Platinum offering will be tuned up in Q1.

Other Tidbits

– Listings revenue (Hotjobs and classifieds) flat sequentially but up 26% year over year at $32M. Hotjobs was “strong,” other categories “good”

– Users of its Affinity Engine feature within personals communicate 30-40% more than the average personals user

– 838,000 users posted reviews in Yahoo Movies

Great Excuse to Re-Run a Press Release October 7, 2003

Extra, extra, read all about it: AOL to re-launch in Boise.

This is almost precious. AOL dissed Boise in an ad:

America Online came to Boise at the suggestion of Idaho Governor Dirk Kempthorne, who wrote to Jon Miller, Chairman and CEO, America Online, Inc., after seeing an advertisement for AOL 9.0 Optimized in the New York Post. The ad stated, “You Didn’t Think We’d Launch Something Like This in Boise, Did You?”

…prompting a nasty letter from the mayor. So AOL turns around and holds a re-launch out west, with Counting Crows in tow. The Boise school district superintendent is even quoted in the press release.

As usual, very homespun and all-American. Reminds me of those Super Bowl or World Series bets between mayors.

No Role Reversal Here October 6, 2003

In an otherwise solid story, the NY Times once again falls into the trap of identifying a trend that’s not really a trend. The Times claims that mainstream media is breaking the Arnold scandal stories instead of the tabloids. “Like everything related to the election Tuesday, the news media landscape has turned topsy-turvy.”

There’s nothing new here. The Miami Herald broke Gary Hart/Donna Rice; Newsweek sat on Clinton/Lewinsky until Drudge outed them, etc. etc.