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Time Warner 1Q04 April 28, 2004

Posted by David Card in Uncategorized.
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Time Warner had a very good quarter overall, driven by filmed entertainment and TV networks. AOL keeps muddling along. It probably won’t be sold anytime soon – Parsons said it was “undervalued” by the market. But on the other hand, he didn’t pounce on a softball question that asked what competitive advantage owning AOL gave him over his media company competitors.

(I’m back-dating this post in case anyone looks for these things based on when TWX actually reports. My notes are from the archived webcast of the call.)

Tidbits from the earnings call:

AOL

– 2.8M BYOA for Broadband subs at the quarter’s end. “Most” of the 600K (slide rounds to 700K) net adds to broadband came via the $24.95 “BYOA” package that includes unlimited dial-up, plus a bunch of screen names. “Unclear how effective” that strategy is long-term.
– Claims to have 2M subscribers for various a la carte premium services.
– Advertising revenue was up 5% sequentially, down 5% year to year. Paid search totalled $74M, up 57% year to year.
– HTML conversion (to be completed by year-end) will increase available ad inventory, and allow incremental audience (outside the wall) for some parts of channels like News, Music, and Personal Finance.
– AOL lost another 360K paying subscribers, but only 32K from brands it’s actively marketing. I think. The 360K is a real number; the 32K may include trials and retentions. Detail on subscriber counts are here and here.

Cable and Broadband

– 4.5M digital subs; 41% of basic video subscribers
– Premium digital packages (PPV, VOD, SVOD, DVR) in aggregate grew just under 30% in revenues
– 1.2M SVOD subs; 26% of digital
– 460K DVR subs
– 3.4M broadband (residential) subs; 18% of eligible homes passed
– experimenting in several systems with tiered offerings: a lower-cost lower-speed tier for retention as well as a higher-cost higher-speed tier
– VOIP is “the major new inititiative.” The trial in Portland, Maine has 14K subs, about 10% of homes passed. Over 3/4 of phone subs have it as part of a triple play bundle
– VOIP has “some paying customers” in 5 of 31 systems, and some free ones in two other systems. Will be available in all systems by YE. But 05 is the big year for actually selling it.

Networks

– Ad revenues up 14% at Turner; up 6% at the WB (Turner comparisons are favorable because CNN was suffering from war coverage)
– 2nd quarter scatter “is pretty hot.” 20% CPM growth over the upfront which is higher than it was in Q1.

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AOL’s Agenda April 21, 2004

Posted by David Card in Uncategorized.
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Good story by Julia Angwin in the Journal sets the stage for AOL CEO Jonathan Miller’s presentation to the Time Warner board tomorrow. The Journal’s is a more reasoned view of the behind-the-wall-or-not debate going on at AOL than others’.

AOL is redesigning its major channels, one by one, in HTML rather than the proprietary Rainman, and, in many cases, with a more unified look and feel and common nav conventions. What AOL gets from this:

– Flexibility to take more content outside the wall. I don’t believe this necessarily means AOL will dump subscriptions and the big BYOA bundle for an a la carte paid and/or open ad-based approach, but now it has more options

– Better ability to use industry-standard ad formats and personalization techniques. Obviously, these can work behind the wall just as well.

– HTML plus common look and feel also enables, in theory, AOL to attempt to preserve the feel of a unified network without the wall and without client software.

Even behind the wall, AOL channels are usually competitive, and often leaders compared to their portal and genre-specific competitors. A JupiterResearch portal channels report illustrates this, as does last year’s JupiterResearch News CORE (the new one’s out of production; AOL’s still number one.)

But AOL faces two huge challenges that taking content outside of the wall won’t resolve. In fact, it might make them worse:

– Although it’s been losing ground, its reach is about the same as Yahoo and MSN, and the time its audience spends with AOL is much higher. By that measure, AOL’s ad revenues should be larger (2x larger in MSN’s case), but in fact, both its competitors are bigger. AOL burned so many bridges with agencies and marketers in its heyday, and has been so focused on the BYOA efforts, that it has lost what once was a gigantic lead.

– Given its reach – overall and for individual channels – how does taking content outside the wall help the ad story? Free or a la carte services dilute the consumer value of the BYOA bundle. And on top of that, open content weakens cross-network promotion capabilities for marketers.

AOL knows how to program a network – and blend in that mysterious ingredient of community – better than its competition. AOL used to know how to use that network for marketing and promotion. But what happens if it breaks up the network?

I still believe AOL’s best home is inside the world’s biggest media company. And that the network is worth more than the sum of its parts. But right now, neither AOL nor Time Warner overall is capitalizing on that.

Some Kind of Irony? April 20, 2004

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I just get all tingly when I read a sentence like this in the Wall Street Journal. Even when it’s a parenthetical statement.

Last month, on MTV’s new “Pimp My Ride,” in which dilapidated cars are updated at a custom body shop, show-host Xzibit referred to Cadillacs as “the king of cars.”

Mores Signs of the Decline of Western Civilization April 19, 2004

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NYTimes story on TV upfront. Reality is king. Some great bits:

Jeff Zucker, the president of NBC Entertainment, said: “It turns out that the next ‘Friends’ was not a half-hour scripted comedy. It was ‘The Apprentice.’ ”

Come on, Jeff, do you really think The Apprentice can survive without Trump? I give it two more rounds before the ratings tank. Todd and I both think this sounds like Millionaire all over again. Since ABC bet too big on Millionaire, and didn’t develop any franchise scripted shows, it’s been in the tank.

Zucker goes on: the reality show phenomenon is “not a fad. You can’t have 12 of the top 20 and keep believing it’s not going to stay around.”

No wonder people watch HBO. (I admit it: I like Survivor. Every now and then.)

Now the networks are embracing what Randy Falco, the group president of NBC, called “the right kind of reality – upscale reality.”

Upscale reality. Say it again, “upscale reality.” Lord help us. And this is coming from the “classy” network.

Now, this is interesting:

The Fox network, for example, has basically announced that because it has two pillars for its programming – baseball in the fall and “American Idol” in the winter – it no longer has a fall television season. Instead it plans to begin introducing a roster of new shows in June.

Real Apple? April 15, 2004

Posted by David Card in Digital Home & Personal Tech.
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Ah, Joe, I think not. My colleague and much of the punditocracy thinks Apple should license its DRM technology, especially via a deal with RealNetworks. I don’t. At least not now.

(Why the Times – seemingly manipulated by Apple – thinks this a big story is a mystery to me. I mean, of course Real would try to do a deal with Apple. Real has been trying to position itself as the mythical Switzerland of digital music since Day One.)

Apple’s music software and the iTunes store exist to sell iPods and Macs. Apple can meet all the demand for iPod legal downloads for the next 12-24 months all by itself, thank you very much. There isn’t that much, for one thing. I’d bet 99% of the songs on iPods are MP3, and will be for some time.

Apple isn’t promoting Fairplay as a platform or even a component of one. It’s not Quicktime. It only exists because the labels wouldn’t license to Apple otherwise. Jobs doesn’t believe in DRM; he believes in aggressive pricing. (I’m beginning to lean that way myself, but that’s for another discussion.)

Real is to-date a marginal player in online music stores and subscription services. That’s not a snub. Everybody is a marginal player right now. Except Apple’s store is way ahead of everybody else’s, just like the iPod is way ahead of any other disk-based MP3 player.

Jobs doesn’t believe in subscription services. He’s wrong, but being wrong isn’t hurting iPod sales right now, and won’t for a year. Apple won’t lose any share for a year, in iPods or in downloads. Apple sold more iPods than Macs last quarter; Dell just had to cut prices.

But what about unity versus Redmond, you say? Well, songs bought at one Microsoft technology-based store often don’t run on someone else’s Microsoft-based jukebox. Microsoft’s store (no service this year), probably launching this fall, is not a sure winner. MSN Shopping is a non-event, and its music channel is weak. Last I checked, WIMP ran on the Mac okay.

Standards, shmandards. Who ships, wins.

Companies Jobs might entertain:
– Amazon? Oh, yes, I think so.
– Sony? Nah. Remember, it’s devices Apple cares about.
– Yahoo/Launch? Maybe.
– AOL Music already promotes the iTunes store, even though its MusicNet service is Real-powered.

And try this idea I’m borrowing from Mark Mulligan on for size:

Yes, Virginia, there are entertainment businesses – even industries – that do not have cross-platform compatibility. Tried to use your Scientific Atlanta set-top in a Motorola market lately? Or even in another SA-based MSO’s market? Or how about videogames? Ask a game software company whether it makes more money in the console segment or in the compatible-PC market. You’ll see they usually like the console ecosystem better.

Maybe, just maybe, digital music will have a few closed-looped systems, too.

Branded Entertainment Bust April 12, 2004

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The Journal reports that Victoria’s Secrets won’t be doing its show on CBS. A Limited exec “characterized the harsh regulatory climate as only 25% of the decision to halt the lingerie show.” But the Journal notes that ABC had previously dropped it after complaints from the FCC and from Disney management. Show supposedly costs $10M is is not a ratings hit.

Nielsen Ratings for Videogame Ads April 8, 2004

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The Journal says Nielsen is going to do gamer-meters. Mediapost adds its two cents. Apparently, Activision’s next version of the console game “Tony Hawk’s Underground” will be tagged, to report viewing back to the mothership via an Internet connection. Yeah, right.

Don’t get me wrong, I think ads and product placement in games is a great opportunity. But maybe 15-20% of the top game titles have ads in ’em, although nearly half of US homes (52M in ’03) have a console. Jupiter forecasts that about 6M US households will have Internet-connected consoles in 2004, going to 23M in 2008. Best opportunity I see here would be to use the panel as an incentive to boost Internet consoles.

Perhaps Nielsen Entertainment’s sister company should get its act together on TV ratings before it gets all hot and bothered about ads in games.

Yahoo 1Q04 April 7, 2004

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Another really solid quarter for Yahoo. Tidbits from the earnings call:

– Marketing revenues (SEM and display ads) hit $635 million. “Organic growth,” i.e. growth that isn’t from acquisitions – was 48% year over year. Yahoo raised its guidance for 04 – it now thinks marketing revenues will grow 35%. It believes it is outgrowing the industry. If Yahoo actually does grow that fast, it will. Jupiter forecasts those segments (what we call online display ads and paid search) will grow a combined 22% in ’04.

– “Paid relationships” – the heading under which Yahoo includes consumer and small business subscribers – are now 5.8 million, up from 4.9 million in Q4 and 2.9 million a year ago. Access bundles are the leader (broadband packages with SBC and BT). BT bundles grew faster than Yahoo expected, but the flip side of that is that the initial upgrade cycle is over. Personals is number two, driven in part by international launches.

– Yahoo raised its 04 outlook for paid relationships. It was saying it would hit 7-7.75M by yearend, it now thinks it will reach 7.5-8M. ARPU should be $3-5/month.

– Fees from those relationships hit $88 million. Sequential growth was slower in dollars than in subscriptions because fantasy sports dropped off seasonally with the end of football, and Yahoo is de-emphasizing its enterprise business (presumably the old broadcast.com hosting, rather than small biz). Yahoo claims that if you don’t count enterprise, fees grew 60% year over year.

– In answer to a question, Yahoo said it would do several major redesigns in the next 12 months. Mgmt specifically mentioned:
-the Yahoo homepage
-broadband content
-broadband impact on personalization and clubs
-IM
-entertainment channels

I imagine that means the homepage will more closely resemble the SBC and BT versions. While it’s high time Yahoo took a heavier editorial hand on its front page, it’s always risky to try to do too much to an extremely familiar and well-used utility. I doubt it will go all the way to AOL Welcome Screen territory. It’s probably more of an MSN-like cosmetic update.

– Yahoo will launch a big ad campaign this quarter, focusing on search, music, and services.

In the Immortal Words of Gordon Gekko… April 7, 2004

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Around these parts, I’m known as something of a record label or music industry apologist. But enough is enough. The Journal reports:

For months, digital-music services have been touting albums for $9.99 to entice more people to buy online. But Apple Computer Inc.’s iTunes Music Store has been charging $16.99 for “Fly or Die,” while Roxio Inc.’s Napster service sells the 12-song collection for $13.99. Both prices are higher than the $13.49 that Amazon.com charges for the CD itself…

…All five of the major music companies are discussing ways to boost the price of single-song downloads on hot releases — to anywhere from $1.25 to as much as $2.49.

Yes, Jupiter has done analysis showing one-off sales of singles carry a COGS of $0.82 to $1.17. But that same research shows that $0.99 pricing hits a sweet spot. And the Journal story says it’s not clear whether the labels or retailers are at fault. But this is plain dumb.