One thing stood out in the IAB’s report that online ads clocked in over $10B in the US alone.
How much went to Google?
Google generated $3.66B in Q1 2007 revenues and $3.871B in Q2 2007, that’s $7.531B.
Its Q1 revenues grew 63% compared to the first quarter of 2006.
Its Q2 revenues represented a 58% increase over second quarter 2006 revenues of $2.46 billion and a 6% increase over first quarter 2007 revenues of $3.66 billion.
Anyway, in the first 6 months, Google did $7.531B in sales. Q3 is slow for display/banner sales because, well, a lot of people are on vacation and the summer effect kicks in, only entertainment (think new movie releases) really see a spike in advertising. But with Google, I don’t think that will really be the case. Q4, we know, is always blowout quarter.
By my calculations, Google will do well over $15B in 2007.
Bear in mind, Google’s:
- 2002 revenues grew 409%
- 2003 revenues grew 234%
- 2004 revenues grew 118%
- 2005 revenues grew 92%
- 2006 revenues grew 67%.
CNN got it right (this was posted last week, so I hope so!):
Most of Google’s ad revenue, which is expected to exceed $15 billion this year, currently comes through online searches and Web pages viewed on personal computers connected to the Internet. [source]
Then can someone tell me why all of these analysts got the numbers so wrong?
[source]
Mind you, that poll was done in March 2006… which is another reminder of why outside-analysts will usually get the numbers wrong. As early as Q3 2006, I was calling for Google to hit $15B on the assumption that its 2006 revenues would probably be 70% growth (it did 67%) and that 2007 would be at least 50% higher than 2006. Do I get a sticker, at least?
Anyway, onto the question: how much did Google account for in the US?
Last year, it was reported that $1 out of every $4 of online advertising spent in the US went through Google. Not search, that was much more, we’re talking all online advertising.
If you consider that Google did $7.531B in Q1 and Q2, and all online advertising was $10B, and that Google’s global sales
- represented 48% of total revenues in the second quarter of 2007, or $1.75B
- represented 47% of total revenues in the first quarter of 2007, or $1.81B.
The math suggests that Google did $3.57B from global, and (oh-oh) $7.531-$3.57 = $3.97 Billion in the US in Q1 andQ2.
How much was online ad spending in the first half of 2007 again?
Right, “for the first six months of 2007 were nearly $10 billion”, not even $10B.
If my math is correct, the for the love of all things holy, Google accounted for nearly 40% of US online ads in Q1 and Q2?
Wow, maybe Google will be worth more than MSFT by 2010.
And good thing Google didn’t sell, after all.
Lisa Napoli was the moderator for the next panel.
- Josh Deustch, CEO Downtown Recordings
- Courtney Holt, EVP MTV Networks
- Hadi Partovi, President iLike
- Tim Westergren, Founder of Pandora could not attend.
When answering to Napoli’s question of “A band that has really leveraged social networking?”
Deutsch: “Bias aside, Gnarls Barkley, with 3M streams on MySpace. Social media is part of their DNA.”
His label looks for partners and platforms to promote artists in a new way. Another example: Cold War Kids, they “across MTV to be #1 video in channel, but it was the most blogged band as well, is there a relationship? It’s worth looking at, though I am not sure if it is quantifiable?”
One laid back, but wise dude.
Holt: “a hit is a hit, and social media is one of the many pieces in a puzzle… it all works together, but quality wins at the end of day.” Holt talked a bit about ”how kids consume content, how there are 20-30 touchpoints,” and everything including social media is part of the greater consumption ecosystem. Bands need to be exposed to all. “A record that peaks at MySpace does not translate to sales, Go Kid Go, for example was popular on YouTube, then on MTV, the sales came after MTV.” Holt is biased, but there’s some truth to that regardless.
Partovi: “It’s hard to imagine an artist that only got big by way of social networking, it’s silly to look only at one medium. It’s the sum of all the parts that help bands break. The new tools help consumers get access in a better, more personal way. Look at Dane Cook, he’s not a band, but he did have the most amount of friends, he had popularity before and his social tools and methods only grew the popularity.”
Holt: “Tila Tequila did not get a label deal, cause it was no good. Good product and good marketing plan succeeds, one without the other does not work…”
Napoli’s next question: “How to compete with MySpace?”
Holt: “We don’t.” It’s ironic since everyone knows that MySpace was being looked at by MTV and News Corp. and in the end, News Corp. won the auction. Anyway, back to Holt: “MTV is not about social networking. Our core is great programming, it presents and programs. MTV is not everything to everybody. We have to own that. We’re not a utility, if we can combine our core in programming with utility, we will win. We want a social experience, but not to own the utility. I want everybody who are part of the MTV ecosystem to see Kurt Cobain playing unplugged,” in other words, finding, presenting and programming the content, and not so much the platform or utility that does that.
The questioning then morphs into radio’s future…
Partovi: “The ability to personalize playlists will not kill radio, some people will program themselves while others will want it done for them… but the Web will allow for others to be DJs, etc., and not radio stations alone to program music. The kid down the block can become a DJ, for example. Tools become source of music, but won’t replace radio.”
The role of A/R is brought up by an audience member:
Deutsch: “A/R function is affected the least. Social network tools open the A/R process even more. We don’t chase Tila Tequila, for example. Social networking changes marketing dramatically, but not the A/R. You still roll the dice on someone’s ability to write great songs.” Holt agrees, “marketing is part of the process, so overall the impact is not as profound, but it does help with engagement.”
Another audience member asks: “They Might be Giants used music as voice answering machine messages,” suggesting social media has been used for a while, and nothing new.
Incidentally, Partovi lists Dane Cook who “does a new voice mall call for his MySpace page” as well. Didn’t Cook get accused of copying jokes as well. All right, we’re kidding, we like Dane.
A great question followed up: “what are record labels’ digital plans to change the landscape to prepare for the Kodak moment.” If you don’t get the reference, for example, Kodak stopped investing a single dollar in analog, and fully went into digital at some point in the 1990s.
Holt adds: “Business is down 20%, CD business is off the cliff, the need to create access models is here.” The need for mobility of music comes up, with Holt crediting “Comcast + Rhapsody + Tivo” as a nice example of what needs to be done.
This was a question I wanted to ask:
“will we ever realistically have a solution, that is one box where a user can go to, enter the band or song and get that song, be able to listen to bits and parts for free, then download and own for life that song, with an easy ability to buy the rest of the album - if albums even exist then for new releases - as well as numerous albums or entire catalogues, and then is allowed to talk about the music, share it, reference it etc. etc.”
I don’t need to, cause the general theme is that the “relationships between artists, publishers, etc. have to change and will take a lot of work,” I am not really referencing the panel here, but everyone seems to look at others, which explains the neutral state of things, Napster, after all, was launched 8 years ago (and killed seven years ago) and we’re still wondering what needs to be done.
Of note, iLike crossed 1M users last week, Partovi said that he is “not worried about revenue now”… good thing, I guess, given how prevalent stealing music has become.
Deutsch: “There’s no fantasy, people will never stop to steal music. 3 million sales is the new 10M in terms of sales. We need to look to ad-supported models. Move from beyond just labels…
Holt: ”Opportunity meets challenge, record company is half the equation…”
A canuck in the room asks: “Is the Web not ‘do it yourself’ for musicians? All these middleman, are we seeing a correction? Or is there a place for everyone in the equation?”
Deutsch: There is a different skill set to create music vs. sell music.
And to cap it off, indeed Napoli is right, you better be a marketer to be a musician these days, or as I think: you better be web savvy as well.
Again, the solution in music is simple, but the current generation that is about to retire needs to go, the new generation that saw how “3M is the new 10M” will be very receptive to new models, while those who cling onto somehow putting the genie back into the bottle will never embrace the new reality.
I chose music over news, which is a shame cause I really wanted to see how news companies were tackling the new reality and challenges. Here’s a link to Paid Content’s coverage of it. And here are a couple of random stuff we’ve written on news and news organizations in the 21st century:
- Newspapers Online Revenues Slowing
- Are Magazines the CDs of the Media World?
- Understanding TV Executives’ Web Video Envy
- Stop the Newspaper Obituary, Please
- Will Digital Revenues Really Ever be Incremental?
- Monaco Media Forum Showcases Print Malaise
I spent a lot of time traveling over the past couple of days. As a result, I probably read about 10-25 articles on the proposed XM/Sirius merger. Tonight, I read some more. Let me say this: can we please instead take a step back and realize the disastrous and costly mess satellite radio was, is and will be if we maintain this pace.
Niche product
First off, satellite radio is a niche product intended for a very small percentage of consumers. The simple reality nowadays is that the user wants to be in charge of programming in a non-linear fashion. Satellite radio’s programming is linear, it is non-linear in the sense that you get 130 or 170 channels, but so what?
Content is King, But Not at Any Cost
Both XM and Sirius have gone out and lured a lot of talent for a lot of money. Frankly, if the merger goes through, then the bidding war goes away. That means that the money won’t be that good. And since the audiences are lame, then the vanity-seeking talent will head back to terrestrial radio.
Terrestrial Radio Sucks, Sure… but Satellite Radio is Lame Too
The problem facing radio is that 99% of people who have access to radio have access to terrestrial radio and that sucks. Just because satellite radio is in theory a tad better does not mean that people will rush to get it next time they buy a car. When you buy a car, you have to pick and choose your options and while a satellite radio box and a monthly payment might not cost prohibitive, in today’s media landscape, there are far better bells and whistles to spend your money on (sunroof, etc.)
Irrational Exuberance
Investors are suckers. That’s what I think. Investors have bid up these assets despite the high levels of debt, massive, staggering losses and abysmal user subscription figures. $6B in losses for 14M people. Hmm… what does that remind me of?
Oh yes…
Remember Priceline.com? Pets.com?
The first day Priceline.com went public, its market cap was greater than the cumulative market cap of all of the players in the transportation industry (at least that’s what I read in John Cassidy’s Dot Con). The point is, that was crazy. At the time, the uncertainty of the world wide web led us to think that growth rates will be so high, and the market was so vast, that the mere upside was worth valuing so richly. We expected - somewhat sheepishly - for Pets.com to become larger than brick and mortar stores… did we forget the insanity of thinking that Walmart would be bought out by Amazon.com or that AOL.com would buy Time Warner. Oh, wait. That happened. What was that? Oh yeah, investors are suckers.
Distribition is not Price Elastic
The point is that much the same way that content is not worth any price, distribution is not worth any price either. Google today is worth $150B on $10B in sales because we assume that consumers will forever bid any thing on keywords no matter what the return is.
Guess what, yes, Google might one day be Worth More than MSFT by 2010 and could very easily be the World’s First Trillion Dollar Company, but there is a strong likelihood that over time, less consumers are willing to pay anything for any keyword. That’s right, if something does not make economic sense, there is nothing that can change that.
Niche product, did we mention that?
Which brings us back to point 1: satellite radio is something the big radio (or media) companies need to have as an offering. Satellite radio is not a standalone company. Trust me, the wrong decision is to merge these companies. The better decision is to fold XM into a (for example) News Corp. and a Sirius into a CBS (would that not be ironic). Doesn’t Rupert Murdoch own Direct TV, which is basically TV via satellite. Would turning off the video off those satellites and transmitting audio only not be a better way to go? Come on people, work with me… CBS owns Infinity Radio… just get them to buy the other one. Oh, I am aware: Clear Channel owns a chunk of XM Radio, so maybe they can buy XM.
I can probably think of more ideal fits if I actually spend any time on this, but apparently, the fellas running XM and Sirius seem to think that two wrong will make a right, and trust me, that ain’t right.
Monopoly, Advertising… Oil Industry
So now, with a Republican administration looking to further set America back in its last two years in office, the powers that be at XM and Sirius realize that they have a better shot of merging than they would in two years when Democrats will (barring, well, what Democrats tend to do, i.e. implode and self-destruct) take office. But guess what, a few years ago the oil industry was in shambles, and the powers that be allowed Exxon and Mobil to merge, thinking that a lack of a merger would make it impossible for either to “operate.”
The problem with satellite radio is that the companies spend 40-50% on advertising. The reason they spend that percentage on advertising is because, sit down Mr. Karmazin and “the other guy”, no one really wants your product.
Well, consumers actually need, consume pay for oil. Satellite radio. No, that ain’t happening. I have listened to Sirius once when I rented a car in SF and last night on a Jetblue flight I briefly listened to XM. I sincerely doubt ever being a paid client, as have 5,986,000,000 other human beings. Actually, there are almost 6.5B people, so the number of people who do not use, need or pay for satellite radio is 6,486,000,000 people… which, when you think about it, is the cumulative losses of these two loss-guzzling charities trying to pass as companies.
Added Later As Per Reader/Commentor Request: At the time of writing, I do not own any stock, derivatives etc. in either XM or Sirius. In fact, I do not own any stock or derivatives in any of the companies mentioned (News Corp., CBS, etc.), though I did briefly work in News Corp.’s FIM unit after they bought the company that bought my company. As a general rule, if not stated, I don’t own any of the companies I write about, if I do, I would mention.
The NY Post is reporting that the rumor is about to be confirmed, XM and Sirius spent all weekend trying to finalize a merger of equals.
What can I say, with the momentum of Internet radio, music online in general, podcasting and everything else you can get online, satellite radio was losing steam. We knew the industry was due for some changes, and this was one of the least original ways to make things happen. We called this to some extent in our Top 10 Storylines of 2007.
I do not know what this says, I am surprised the government will even approve it, since satellite radio is now a one-company industry. Wow, signs of strength, I tell you.
Just a week ago, we published our Top 10 Storylines of 2006. We were going to avoid the Top 10 Trends or Predictions of 2007 and instead do something else (we still will do that, expect it on January 1st).
But then Pete Cashmore of Mashable.com challenged us to suggest some predictions for 2007, you know our saying: “Ash and you shall receive” (though we already somewhat covered this back in October here):
To see our trends, scroll down to after the Indented portion (for an imagination run wild scroll down to #6 - 6 - ACQUISITIONS & MANAGEMENT SHUFFLE, or course, take the scenic route).
Our philosophy for trendspotting is:
It’s important to note that every year, something that is adopted by early adopters online in the previous year takes off with mainstream masses the ensuing year; while something that was already very much in vogue with mainstream audiences the previous year takes off and crystalizes.
A look back at history reveals a familiar pattern:
We’ll start from 2004. After all, 2003 can be viewed as the turning point and renaissance of the Web.
2001 was the abyss, no doubt. In 2002, things began to stabilize, and 2003 marked the turnaround. This was confirmed and highlighted with Google’s IPO in 2004, which left no doubt that the Web had shaken its hangover off and would go on to become a viable medium, and a very viable one at that.
In 2004, blogs were the buzz word (even though these were around for years). The macro-level phenomena to draw blogs into the pop culture lexicon were clearly the escalation of troubles in Iraq (and the mainstream media’s reluctance to cover them) as well as the Presidential Elections. For example, as the mainstream media sugarcoated Iraq, bloggers covered the facts as they were, or rather, as they viewed it.
In 2005, it was social networks that became hot while blogs became more and more mainstream. Think of how many more people started blogging in 2005. The reason why social networking took off, frankly, had to do both with demographics and technology. Social networks like Tribe, Friendster and MySpace had been around before 2005 of course. Demographically, the so-called trend-setting 16-17 year old crowd had entered high school at a time when the Web was part of the curriculum and de rigueur in classrooms. Technologically, broadband had taken off, camcorders and cell phones made digital media commonplace; the two were a match made in heaven and social networks like MySpace took off.
2006 will surely go down as the year of online video, partially due to broadband becoming prevalent in more than 50% of homes and the falling price of hosting. Similarly, the adoption of social networks became very commonplace. Today, for example, it was noted that the average age of someone with a profile on MySpace was much older than expected: over 50% are 35 and older, up from under 40% last year. I know, not exactly fossile-status, mind you, but you get the point. In the meantime, every one now has a blog, even the President of Iran… (he’s even set up with RSS feed and all!)
But of course, that was October, 2006, before YouTube sold to Google, before Yahoo! announced its shake-up. All right, not mich of a shakeup, but you know what I mean.
So if:
2004 marked Blogs
2005 marked Social Networks
2006 marked Video
Then 2007 will see the following:
1 - VIDEO
a) FLIGHT TO QUALITY IN CONTENT
As a result of a regression to the mean, users will demand some more quality in the video found online. We’ve gone a bit too far to one end of the spectrum in terms of, well, having too much crap online. Folks, America’s Funniest Home Videos was one (albeit popular) show, but it was not the only show, on for 24/7, and one that spawned stars.
Yet, somehow every media company wants to make funny home videos the cornerstone of their digital video strategy. It’s lame, it’s enough. Move on.
For the love of all things holy, the folks at WatchMojo.com seem to put more time, energy and effort in the Web TV strategy that some major media companies do and let’s face it, that ain’t right.
b) CONSOLIDATION IN TECHNOLOGY
Way too many platforms, way too many formats etc., as an industry we need a sweeping determination of standards (imagine where online advertising would be if there was no standard ad sizes!)
We also will see a lot of companies merge due to a shortage of talent at the top (you simply can’t take an old media executive and parachute him at a Guba, for example, it will not succeed… but take Revver and Guba, and you might have a match of senior management strengths, of course, there is ego matters, but that’s not our problem) or technology and content (say Revver has the “business model” but lacks content, and Metacafe has boatloads of content but no model - I have no idea if they do, just using as example), these could merge and will have to because…
The bottom line is that for most online video sites that are merely technology platforms, VCs will simply not fund more money. The technology alone is not impenetrable. The audience is fickle. Heavy.com is a video site that just raised more money, but it’s a content aggregation and publishing site.
Read: Online Video: It was the best of time, It was the worst of times | Tough Times Ahead After GooTube Deal.
2 - PERSONALIZATION
For a few years now, we’ve seen developers, programmers, engineers, des
ers (can you tell I don’t know who does what - I’m kidding, well…) create fantastic tools, features and applications that streamline and faciliate the content creation and aggregation process. Blogging software is just one example.
We’ve seen publishers - old and new - increasingly harness and master these tools to better manage and distribute content.
We’ve also seen individual users pull up a seat at the big boys’ table and create compelling content. Rafat Ali has more influence that most if not all writers at the New York Times to web audiences, mind you. Along with the regression to the mean, these two will converge. But you get our point.
Lower along the totem pole, some of the content is crap, some of it is ok, some of it is wonderful (like my nugget of wisdom says: “there’s hot girls in all countries!”).
Point is, people who want content will be able to pick and choose what they want (through RSS, newsletters, etc.) and people who create content can push it out by customizing what and how they produce content. Think My.Yahoo on a large scale.
The main challenge we face now is noise - pure and simple. Too many blogs all blogging about the same thing to get linked, too many image-sharing sites, too many video file-sharing sites… but this will start to “clean up” in 2007 and become a reality in 2008. One reason why to follow below.
3 - INTERMEDIATION
When Bear Stearns Cable and Satellite analyst Spencer Wang published: “Why Aggregation & Context and Not (Necessarily) Content are King in Entertainment,” he was not saying anything new to legions of web-wannabe-analysts (the WWA baby!). And yes, yours truly is definitely included amongst the WWA.
Content has evolved online, we won’t see new portals per se, but we will see vertical portals, or countless niche sites, some of which produce niche, contextual content along verticals and others who do not create any content but simply aggregate it.
As a direct result of intermediation and personalization, a lot of people will drop Digging (I’m using the term here for what Digg represents: the good, bad and ugly of Web 2.0 and not only contributors to Digg) and the like and start doing similar things for themselves.
We have a social bookmarking tool ready and go that cost very little to create. There’s nothing defensible about that, and the system to duplicate it is somewhat easy.
As per Digg’s users: people are inherently greedy. Remember: “Greed is good…” and people will realize that toiling away to generate content for Digg while a select few laugh all the way to the bank is not a fair system, especially when the community is asked to clean up spammers and Digg gamers and the CEO says “what problem?”
Being a top Digger does not get you laid after all, getting paid does.
Combine that with the fact that a lot of these diggers will hit puberty and they realize that they’d rather own a tiny space online instead of, well, you know what: nothing of Digg.
Social media will not disappear, but it will change. People will take ownership back. I edited a few posts to Wikipedia about two topics I know more of than the average person: Def Leppard and Alexander the Great (did I just admit that?). Yet the Wikimafia deleted it. So I built two sites to showcase my interest in Def Leppard and Alexander the Great.
4 - THE RETURN OF EMAIL
It won’t make large waves, but with CAN-SPAM having cleaned up the spam situation, and with more and more people signing up to feeds and what not, we see email marketing making a slow but sure return to the landscape in 2007.
5 - VERTICAL RISING
The rise of vertical communities will continue. You will have large vertical sites, you will have people maintaining tiny vertical sites. The point is, this is something that started in 2004 and 2005, rose to prominence thanks to things like Mr. Wang’s study and will only accelerate in 2007 and beyond.
6 - ACQUISITIONS & MANAGEMENT SHUFFLE
CNET for sale? Perhaps. With Shelby Bonnie gone - nothing against Mr. Ashe - we see CNET being acquired. We also think it’s possible that CNET makes one or two small, somewhat medium-sized deals to bolster itself for an acquisition.
Yahoo! and AOL? We think Google will block that like the tease they are. Read more on that here.
MSFT won’t make a huge acquisition. It’s not in their culture. But we do see it buying an online ad company like Blue Lithium, aQuantive or Valueclick. Read our analysis here.
But eBay will probably make a major move, maybe even with InterActive Corp. Together, they’ll have more bargaining power with advertisers, since both are traditionally weak there and mainly e-Commerce powerhouses. With e-Commerce gaining prominence, this will position them for growth over time.
Barry Diller will be needed as Meg Whitman will leave eBay. Where to? Keep reading.
Peter Levinsohn - who replaced Ross Levinsohn - will prove to be great in many ways but in the end Mr. Murdoch will begin to ask for immediate returns (as in, in addition to Google’s $900 million deal, which we think they overpaid for in a defensive move against Yahoo! and MSN) and a series of events will mark changes atop FIM.
While we put MySpace atop our Top 10 Best Web Acquisitions of All Time, in 2007 Mr. Murdoch will ask for more tangible results. After all, News Corp.’s stock rose 30% in 2006 due to the giddiness over MySpace, so investors will ask to see financial results from FIM in 2007. Disney too rose 30% but it was powered on financial metrics, hence why we made Disney the media stock of 2007.
What are these events?
Rupert Murdoch is clever and wise and for a few years will not not tinker with MySpace. But in May 2007, it will be two years and Mr. Murdoch will get impatient.
He’ll push Levinsohn to make changes at MySpace, who will in turn push Chris DeWolfe and Tom Anderson (MySpace founders) for changes. DeWolfe and Anderson will push back and grumblings from these two about their discontent over the Intermix deal, where they feel they got jipped.
To quiet the potential mutiny, Murdoch will side with the MySpace guys, which in turn makes the job impossible for Levinsohn. News Corp. will begin to tweak with MySpace in subtle ways. Ultimately, by mid-year, Murdoch openly asks why not enough Fortune 500 advertisers are on the site “with the most pageviews” and as a result, will push to clean the site. The result: the users will migrate elsewhere… adding to the rise of the verticals.
After MySpace fails with advertisers, Rupert Murdoch will turn to eBay’s Meg Whitman and lure her to run FIM/MySpace. Between her experiences at Disney and eBay, Mr. Murdoch views her as perfect for the new and improved e-Commerce fueled MySpace. Peter Levinsohn will focus on other areas of FIM, notably, IGN’s Digital Distribution platform.
Over time, IGN will look like the crown jewel as more and more media companies slowly but surely move to embrace IGN’s digital distribution platform. IGN’s in-game advertising continues to grow as video game companies hire IGN to plug away advertisers in their games. Meanwhile, IGN’s media properties continue to grow. Rumors begin to swirl that IGN is worth $6 billion (investors and analysts wonder where they have heard this before) and Mr. Murdoch is planning an IPO while Mark Jung, who has been sitting idle since leaving the firm, is rumored to have Great Hill Partners finance a potential buyout.
CBS Digital and the NYT will get into a slugfest over Rafat Ali of PaidContent.org. In the end, Ali prefers to walk to the beat of his own drums and Paidcontent.org remains independent. Neither company makes a deal. Quincy Smith wonders what his next career move will be when he sees few news takeover targets that will move the needle. He joins Montgomery Securities.
Viacom’s Philip Dauman will go insane and pull 3 deals: one for less than $200 million in Q1, but the Street will say it’s not enough, so he’ll pull a $500 million and one massive one for $1 billion by year’s end.
Facebook will not sell. That ship has sailed. Of course, never say never, this could be the massive $1B+ deal Viacom finally pulls but we doubt it. Investor Peter Thiel’s mega successful hedge fund is making so much money that the notion of a modest Facebook exit of $1B is not worth his time. Zuckerberg graces cover after cover, while the MySpace guys’ jealousy raise to the point of rage.
Disney will grow organically online, we called it the stock of 2007 in media and it will simply look internally and test the waters by adding content from Disney, ABC and ESPN online. It’s squeaky clean image will help it with F500 advertisers online.
Disney will be even more successful in 2007 than in 2006.
7 - OLD MEDIA TO TAKE ON OLD, NEW MEDIA; RESURGE
After many failed attemtps, old media wake up and realize that Google is worth much more than they are combined and they try to collude to take on Google. They continue to think defensively and ask Google to cease indexing their sites, Google refuses; things get ugly and they ask all video file sharing sites to take down videos. Google pays off one media company to play one against the others.
The charade ends when Google buys a media company: either a newspaper company, a magazine company or a radio company. The notion of a fat, juicy premium from Google makes the more diversified media companies calm down.
However, no offensive gameplan: no successor to Napster or AllofMP3, no successor to or YouTube Killer.
All right, so they won’t ask Google not to index their content. But it would be a pretty amazing showdown.
The Street wonders where Yahoo!’s Terry Semel will fare… more on this below.
2006 marked a year when many old media companies fared well: Disney, News Corp, Time Warner and even Clear Channel did well. We expect this to continue as many shed underperforming assets and expect more from faster growing divisions.
Which leads us to…
8 - OUTDOOR TAKES OFF
Clear Channel begins to integrate Wifi billboards, Viacom (or is it CBS Outdoors now?) enables digital outdoor signs to allow for audio and video ads, time-targeted and weather-targeted ads.
9 - SATELLITE RADIO CRASHES
Crash is too strong of a word, but we don’t see satellite radio getting stronger. For more details, click here. Sirius’ Mel Karmazin resigns… and joins Yahoo! as CEO. Terry Semel hands off the baton, looking like a genius and joins an old media company’s board.
10 - WIRELESS HYPE
We’re big believers in wireless, who isn’t. But it’s still 75% hype and 25% substance. There will be some common sense injected in this market: companies raising $100 million in financing? Give me a break.
So, there you have it.
DISCLOSURE: I think all disclosures are in there. Please note that as a writer and entrepreneur, some of these “so-called” trends I believe in so much that I am also trying to capitalize on. It’s not the other way around.
Otherwise, of the companies mentioned above I only own shares in Yahoo!
In the spirit of how I was asked to pontificate on the matter, let’s go with Podtech’s John Furrier (podcasting/entrepreneurship), Henry “Da Bull” Blodget (the analyst), Howard Lindzon (the investor/entrepreneur), Nitin (Software/search), Emergic (Global perspective) and Marshall Kirkpatrick (formerly of Tech Crunch and who joined a new video startup recently).
2006 was another exciting year on the Web. With the world Internet penetration reaching 16%, led by the Chinese, Indian and South American markets, the Web is definitely about to undergo another period of radical change and innovation.
With that in mind, we bring you the top 10 newsworthy storylines of 2006.
Bear in mind that somewhat fittingly, we’re delivering this list in text and video format for your reading and viewing please.
For the text list, do nothing. Just keep reading, to see the video format, click here.
10. SATELLITE RADIO GROUNDED? (see video)
Yes, we know. Terrestrial radio sucks. Mel Karmazin moved from Viacom to Sirius. And yes, Howard Stern followed. But, who cares. Who do you know that actually owns a satellite radio? I don’t. Not when you have Web radio anyway. Web radio is this year’s satellite radio. Last year satellite radio was on such lists. But something went wrong, very wrong.
First off, as bad as plain old radio might be, it didn’t go out of business altogether. In fact, radio giant Clear Channel Communications Inc. has a market cap of over $17 billion. That’s approximately double the market cap of Sirius and XM combined. Clear Channel’s stock has outperformed the shares of both satellite radio companies over the last two years by a wide margin.
And the nature of competition changed. Enter Apple, podcasts and even, Nokia. In fact, we think that companies with outdoor assets (Clear Channel for example) can Wifi-enable billboards and beam their signals to listeners and totally redefine the radio market.
The iPod was launched in 2001 and sold 70 million units in five years. Nokia Corporation thinks it will sell 80 million music phones this year. These devices are obviously delivery mechanisms and platforms for whatever radio is, becomes and competes with.
It’s not like people are not excited about radio, it’s just that the excitement has shifted: over the past five years, Apple Computer Inc.’s stock has risen from about $11 to $91.
One thing that keeps their stocks, well, on the ground is the heavy debt burden: XM and Sirius have balance sheets with over $1 billion in debt and they’re losing money to this day in 2006 off quarterly revenues of some $200 million.
Oh, I know what you are thinking, they are building market share, right. Well, let’s examine the tale of the tape:
XM finished the third quarter with more than 7.2 million subscribers. Sirius has more than 5 million subscribers.
More importantly, both companies are reducing targets. That’s weak. Sirius cut its subscriber goal for the year and now say it expects to end 2006 with 5.9 million to 6.1 million subscribers, down from its previous estimate of 6.3 million. XM has cut its subscriber goal at least twice this year. It expects to end the year with 7.7 million to 7.9 million subscribers.
Come on? It’s so weak that some are calling for a merger. Problem. Who buys who?
XM’s enterprise value smaller than Sirius’ even though XM has a larger subscriber base. What does that say? One word: hype. Another word: flash.
Two wrongs don’t make a right. Besides, the FCC will probably not allow it, it sold two licenses to XM and Sirius to ensure competition. If it views satellite radio as one entity taking on terrestrial radio and Web radio, then it says a lot about the future of satellite radio, which held so much promise recently.
And… with Democrats in office, we don’t think that a one company market is realistic.
Lastly, the fact is that the companies’ technologies are somewhat different: they use different codecs.
So where does this lead Mel Karmazin? Who knows, Yahoo! maybe? I hear they need a good salesman.
9. VIDEO GAME MARKET ENTERS A NEW PHASE OF COMPETITION (see video)
2006 marked the year that the Consoles Wars entered a whole new phase of competition: Wii vs. Ps3 vs. XBOX 360, with the latter coming out in 2005 and enjoying a one year advantage over the PS3, which missed its spring 2006 release date and had to take on Nintendo’s Wii in November, which at $250 is half the price of the PS3.
What happened? According to market researcher NPD:
In the end: Sony Corp. sold 197,000 PlayStation 3 consoles in the U.S. during November, missing its goal for initial shipments by half after parts shortages slowed production
Nintendo Co.’s Wii, which also was introduced last month, sold 476,000 units.
The Microsoft Corp. Xbox 360, on the market for the past year, sold 511,000 machines.
In November 2006, to pre-empt Sony’s PS3 release, MSFT converted its XBOX 360 into an actual entertainment system. Microsoft’s vice president of entertainment and devices division (which oversees Xbox), Peter Moore, forecasts 13-15 million Xbox 360s by end the end of 2007, considering the news todat that just one year after the November 22, 2005 launch of the XBOX 360, MSFT will be unleashing over 1,000 hours of programming and getting TV content to an audience that has in the past few years avoided television for video gaming, this is an interesting development. We’re talking content from Ultimate Fighting Championship, CBS, Viacom, WB and many others.
While analysts and gamers alike were busy talking about who won and who lost between the three, the mainstream media covered the sheer madness surrounding the release, reiterating once again that the video game industry deserves its place at the main table.
Video games will never be the same.
8. VERTICAL: CONTEXT IS KING (see video)
As the leaders galvanize their positions and the Web becomes more mature in general, it’s only normal that there is a movement to develop and aggregate content along vertical, niche or contextual lines. Recently, Spencer Wang, Bear Stearns Entertainment & Cable/Satellite TV Analyst unveiled a report called Why Aggregation & Context and Not (Necessarily) Content are King in Entertainment highlighted these trends quite well.
This is really not all that different than ABC, NBC and CBS making room for the cable stations as TV evolved.
Call it deportalization, call it maturing, whatever you call it, we expect this trend to accelerate in next year as even the major portals launch vertical niche properties.
7. NET NEUTRALITY (see video)
In 2006 a controversy erupted in the United States regarding the extent to which network neutrality should apply to the regulation of the Internet. The companies that provide the backbone on the Web sought to offer end users a better quality of service for their own service offerings or to services who pay the providers. However, five attempts by supporters to get bills with network neutrality provisions passed by Congress were defeated.
What’s the definition? Taken literally from Wikipedia:
Network neutrality is a general principle of Internet carrier regulation requiring networks to satisfy all application needs equally. For example, a perfectly neutral network would not give better service to some web sites than others, and it is argued that it would likewise not favor web-surfing or blogging over online gaming or Voice over IP.
Tim Berners-Lee defines it so as to allow connection to the Internet at various service levels and defines it as: “If I pay to connect to the net with a given quality of service, and you pay to connect to the net with the same or higher quality of service, then you and I can communicate across the net, with that quality of service.”We are not sure if this will ever pass, especially now that companies like Google – who oppose the bill – have established lobbyists on Capitol Hill.
6. OLD MEDIA MALAISE (see video)
We’re not usually ones to cast old media as the troubled folk that some other new media sources do. Traditional networks, newspaper, radio magazines are powerhouses with strong balance sheet and stronger income statements.
But there has been a sense this year that so-called old media views the web as an integral and important part of their business.
This has been highlighted by management shuffle with musical chairs at:
- Time Warner AOL fired Jon Miller and replaced him with NBC ad exec Randy Falco.
- CBS Digital brought in M&A dealmaker Quincy Smith
- News Corp.’s FIM’s CEO Ross Levinsohn resigns and is replaced by cousin Peter.
- Viacom gets rid of Tom Freston and brings in Philippe Dauman, a lawyer with dealmaking expertise.
Old Media also embraced many open networks to get their content out to the masses.
Viacom struck a deal with Google. YouTube signed a deal with most media companies. Of course, Universal Music Group sued MySpace, but hey, at least they’re talking. Jokes aside, Bit Torrent too signed a deal with the labels.
All small and not so small steps bridging the gap between online and offline.
5. INTERNET GAMBLING TAKES A HIT (see video)
Like porn, gambling is one of those industries that lies beneath the surface, in the underbelly of the Web.
But much like porn, it is one of the most successful and lucrative ones.
When some politicians began to circulate the Internet Gambling Prohibition Act, a lot of people thought it would not pass. The measure was sent to President George W. Bush to sign into law, and sign it he did.
When President Bush, the House of Representatives and Senate passed the Internet Gambling Prohibition Act, they approved a bill that made it illegal for banks and credit-card companies to make payments to online gambling sites, effectively squeezing out an industry from the landscape.
The result: the stock market capitalization of the major gambling companies tumbled by $6.5 billion.
Britain’s PartyGaming Plc, operator of leading Internet poker site PartyPoker.com, and rivals Sportingbet and 888 Plc pulled out of the United States, their biggest source of revenue.
“This development is a significant setback for our company, our shareholders, our players and our industry,” PartyGaming Chief Executive Mitch Garber said.
“We believe that this will have a very material impact on the long-term prospects of online gambling, and in particular poker,” said analyst Julian Easthope at UBS. “This will lead to a rapid decline in the use of online poker sites.”
Whether or not these laws would be reversed or not will have a major, major implication.
One side factor is that we expect Fantasy gaming to pick up the slack in terms of presence and mindshare online, though clearly, for obvious reasons, that is a very different and smaller ballgame.
4. MICROSOFT GETS BACK ITS MOJO (see video)
The launch of Microsoft Corp.’s Windows Vista will generate 100,000 new jobs and $70 billion in revenue to U.S. companies in the information technology industry during 2007, according to a report from research firm IDC.
Windows Vista will be installed on more than 90 million computers worldwide in its first year of shipment, according to IDC analyst John Gantz in a report. He said about 35 million units would be installed in the United States, driving nearly $4 billion in revenue to Microsoft.
Industry estimates for the Microsoft’s fiscal 2007 total revenue are around $50 billion.
“In the scheme of total IT spending” Vista revenue “will be small - about 1% of total IT spending in the US in 2007 and less than 4% of total spending on software, Gantz said.
Vista’s business versions entered the market on Nov. 30. The consumer version debut is scheduled for Jan. 30. Windows runs on about 90% of computers worldwide and is one of the two products (the other being Office) that make up about 90% of the company’s overall earnings. The last Windows update was in 2001 with Windows XP.
The report says that for every $1 of revenue that Microsoft earns from Vista, the technology “ecosystem” will reap $18. Microsoft’s partners are expected
In November as well, to pre-empt Sony’s PS3 release, MSFT converted its XBOX 360 into an actual entertainment system Microsoft’s vice president of entertainment and devices division (which oversees Xbox), Peter Moore, forecasts 13-15 million Xbox 360s by end the end of 2007, considering the news todat that just one year after the November 22, 2005 launch of the XBOX 360, MSFT will be unleashing over 1,000 hours of programming and getting TV content to an audience that has in the past few years avoided television for video gaming, this is an interesting development. We’re talking content from Ultimate Fighting Championship, CBS, Viacom, WB and many others.
Microsoft’s much ballyhooed music player, Zune, was unveiled to a lukewarm reception. But with sales of 1 million units projected by June, there’s a lot of upside for Redmond in music.
MSN Search? Well, sitting in third spot behind Google and Yahoo!, let’s just say that Microsoft has nowhere to go but up.
Best stat of all: in the past 12 months, Microsoft technically beat Google in terms of stock market return.
3. GOOGLE DOMINANCE (see video)
We’ve written plenty on Google. While Google’s stock did not have the torrid growth of previous years, its business model strengthened as it gained traction.
Highlights include Google entering Partnerships with Sun that suggest an Operating System might materialize sooner than later.
Google acquired numerous companies to develop an online productivity suite: online word processor Writely, a spreadsheet company and Wiki Jotspot. When it added bells and whistles in its Gmail email service – like the ability to open and save documents from Microsoft in Google’s productivity system – it what was the clearest signal yet that Google was planning an assault on Microsoft’s core business, as Microsoft staged a strike on Google’s search business with the launch (or is it a relaunch) of MSN Search.
If there was any doubt of Google’s supremacy online, it was made clear when in the third quarter, Google accounted for 25% of all US Ad Dollars spent online. Yep, that stat is correct. Google owns web search and web advertising.
To ensure that it could benefit from up and coming advertising trends such as video, Google went out and purchased YouTube for a whopping $1.65 billion.
We still maintain that this deal was done before Steve Chen and Chad Hurley got a check from Sequoia, for our conspiracy theory, click here.
Google is also positioning itself for the wireless web and in fact to circumvent any spillover results of Net Neutrality becoming law. It has purchased tremendous amounts of dark fiber and rumors have circulated that Google might even make a run for a company like Level 3. Of course, these are merely rumors.
Google’s data mining ambitions continued to cause some to worry about Google’s long term plans. The company, quite simply, has more information on more people in more countries, than any other company at any point in history. And being in the information age, that is a cause for concern. Ironically, Google never had a registration service until a few years ago, but being able to track IPs and what not, it did not even that per se.
While we doubt Google can realistically overtake Microsoft in terms of market capitalization, it is feasible if many trends hold up. We also do not think that Google will be the first/only company to boast a market capitalization of a trillion dollars.
But we do know that Google is well on pace to be the Standard Oil and Microsoft of the 21st century.
We’re just not sure if that is a good or bad thing in the information age.
So we have covered #10 to #3, #2 and #1 have a lot to do with the “little guy” taking control of the helms due to major trends with media and technology. (see video)
- Broadband now reaches over 50% of households.
- US is no longer the sole engine of Web growth.
- Total web internet population just over 17%, at just over 1 billion people.
- Cheaper hardware.
- Technology companies opening up their Open APIs.
- Free publishing tools such as blogging software have enabled millions of new properties to launch and scale, thanks to RSS and other media sharing tools and applications.
- Podcasting, which earned the Word of the Year in 2005 by New Oxford American Dictionary continued to gain traction, though it remains a very small sector.
- Venture capitalists getting back into the game.
The Web 2.0 hype died down, but that was more of a matter of semantics than anything else. What it represented only got stronger.
So, without further ado, the top two trends and storylines of 2006 are:
2. EXPLOSION OF SOCIAL MEDIA (see video)
The term social media was first coined back in 2004. Chris Shipley (Co-founder and Global Research Director for Guidewire Group) used the term in the months leading up to The BlogOn 2004 conference in July 2004.
Social media can take many different forms, including text, images, audio, and video.
Social media can include podcasts, videoblogging, photoblogging, blogging, wikis, mailing lists, bulletin boards, message boards, social bookmarking, multiple player gaming, social networks and viral video.
Social media, for the purposes of this article, is broken up into:
- Social news: digg vs. netscape
- Social bookmarking tools:
- Social networking: myspace, facebook, etc.
Our reasoning is that social bookmarking tools enable the sharing of media (what makes it social), whereas social networking tends to personal and entertainment oriented, social news is community oriented and generally informative.
Mainly, this is where we see the trends diverging in 2007. The model is too nascent to decree a final breakdown frankly.
By 2005, MySpace had galvanizes its leadership role and others began to develop niches. We no longer heard of new social networking sites replacing MySpace, but rather, competing with them.
What does the future hold for social media? Well, that’s up to you to decide, really.
1. ONLINE VIDEO (see video)
The trends that we highlighted above caused web video to simply explode. It was a matter of time really, but many of the people who expected web and video to mesh so well in the late 1990s were simply ahead of their time.
YouTube, a company that launched a mere 19 months ago scaled rapidly to now serve up 100 million daily video streams.
This year, Google ponied up $1.65 billion to acquire it. This was not a great thing for second tier video sites, many of whom will have a hard time gaining traction now that GooTube will consolidate the file sharing video space.
The online video industry is still largely nascent: 27 online video companies secured $126.7 million in financing in 2003, 23 secured $121 million in 2004, and 37 companies secured $160.7 million in financing in 2005 (Thomson Financial).
However, in 2005, the entire U.S. venture capital industry invested $20 billion in 3,000 new companies, so only 5.3% of that was invested in online video.
Most of these funded companies are video technology and distribution companies, very few are content companies.
Regardless, from the amateur filmmaker, to the funny home video sitting in one’s library, to libraries of film studios, the Web created an entirely new demand and market for them all.
During the second quarter of this year, Sirius gained 600,460 new subscribers, while industry leader XM garnered 398,000. Not bad for Sirius, which still trails XM in overall subscribers with 4.67 million to XM’s 6.89 million. Will Sirius, with the likes of Howard Stern, pull even soon?
Source: CNET blog
I am not sure I agree with Business 2.0’s list, but then again, I do not matter.
Apple Computer is entitled to use the apple logo on its iTunes Music Store, a judge ruled Monday, rejecting a suit filed by Apple Corps, the guardian of the Beatles’ commercial interests.
Judge Edward Mann ruled that Apple Computer used the fruit logo in association with the store, not the music, and thus did not breach the agreement.
“I conclude that the use of the apple logo … does not suggest a relevant connection with the creative work,” Mann said in his written judgment. “I think that the use of the apple logo is a fair and reasonable use of the mark in connection with the service, which does not go further and unfairly or unreasonably suggest an additional association with the creative works themselves.”
Read more.
Opposites do attract after all.
Yellowstone spokesman Al Nash said officials are working on “an environmental assessment for wireless communications,” but as yet have made no decision to expand existing services. The planning is designed simply to set the stage for such decisions in the future, he said.
“The goal is to give us an appropriate framework and a plan on which we can make solid decisions.”
The plan will look at two-way radio, cellular communications, wireless Internet and research devices, he said, adding that any potential new cell towers would be in “existing, disturbed, developed areas,” where most people congregate and roads and power already exist.
Read more.
PLAY
