Comcast, the largest U.S. cable operator, and consumer electronics maker Matsushita Electric Industrial's Panasonic unit will launch a co-branded portable digital video player that can show videos like Apple's iPod and record shows from any U.S. cable operator's system.
The AnyPlay device is the first of a range of new electronic devices based on technology developed jointly by the cable industry and consumer electronics makers intended to increase interoperability among cable operators -- and increase their threat to satellite TV rivals.
AnyPlay can record up to 60 hours of video and plays DVDs and CDs. It also features an 8.5-inch display screen. The device will be unveiled on Monday at the Consumer Electronics Show in Las Vegas.
Comcast Chief Executive Brian Roberts told Reuters ahead of the show that the industry had been working on the technology standard for several years and now plans to roll it out across the United States this year.
"We knew we needed an open, national and interoperable structure between cable companies," said Roberts, who is also chair of industry technology trade body Cable Labs.
Cable companies have faced increasing competition for video subscribers from both satellite pay-TV companies such as DIRECTV Group DTV.O and EchoStar Communications Corp as well as nascent video services from phone companies such as AT&T and Verizon Communications.
"We also knew there would be more competition and we had to change," said Roberts. "The era of closed cable is over and the era of open cable is here." Reuters' Yinka Adegoke reports
Link to MediaWeek's Article
Tuesday, February 5, 2008
DRM Is Dead, But Watermarks Rise From Its Ashes
With all of the Big Four record labels now jettisoning digital rights management, music fans have every reason to rejoice. But consumer advocates are singing a note of caution, as the music industry experiments with digital-watermarking technology as a DRM substitute.
Watermarking offers copyright protection by letting a company track music that finds its way to illegal peer-to-peer networks. At its most precise, a watermark could encode a unique serial number that a music company could match to the original purchaser. So far, though, labels say they won't do that: Warner and EMI have not embraced watermarking at all, while Sony's and Universal's DRM-free lineups contain "anonymous" watermarks that won't trace to an individual.
Still, privacy advocates were quick to point out that the watermarking is likely to produce fresh, empirical data that copyright material is ping-ponging across peer-to-peer sites -- data the industry would use in its ongoing bid to tighten copyright controls, and to browbeat internet service providers to implement large-scale copyright-filtering operations.
"It gives them the ability to put pressure on policy makers and ISPs to do filtering," said Fred Von Lohmann, an Electronic Frontier Foundation attorney.
Eric Garland, the chief executive officer of research group BigChampagne, said analyses of watermarked traffic can be done with "forensic precision," and that the results could give the music industry hard evidence of copyright music transiting specific internet providers' networks.
"Any empirical evidence that harm is being done to their legitimate business is a huge asset when it comes to their bargaining power with ISPs and third-party partners," said Garland.
Sony BMG on Thursday became the final of the Big Four music concerns to announce it would sell its downloads free of DRM. The others, Universal Music Group, Warner Music Group and EMI, made similar announcements last year -- all in a bid to compete with Apple's iTunes music store, which controls about 80 percent of the digital-download market with mostly DRM-laden songs.
Watermarking codes are digitally woven into the fabric of a download and do not restrict listeners from making backup copies or sharing music with friends, as does DRM coding.
Microsoft is betting on watermarking's future, winning a patent for a "stealthy audio watermarking" scheme called El Dorado in September.
According to the patent, El Dorado is, among other things, "designed to survive all typical kinds of processing, including compression, equalization, D/A and A/D conversion, recording on analog tape and so forth. It is also designed to survive malicious attacks that attempt to remove or modify the watermark from the signal, including changes in time and frequency scales, pitch shifting and cut/paste editing."
Universal and Sony declined to discuss who developed their watermarks and what they would do with the information they cull from their analyses.
Art Brodsky, of Public Knowledge, was quick to provide an answer.
"They'll do anything they can to get ammunition, including submitting the information to Congress, publishing research and whatever, so long as they can blame everything on piracy," Brodsky said.
EFF's Von Lohmann speculated that watermarks could even enable ISPs to filter out peer-to-peer traffic when they detect a copyright work in transit.
It's no secret that the Motion Picture Association of America and the Recording Industry Association of America are working with ISPs toward the goal of network-wide piracy filters. Representatives from AT&T discussed that at the Consumer Electronics Show in Las Vegas on Tuesday.
But Von Lohmann added it's too soon to conclude that watermarks will be put to that kind of Orwellian use.
Amazon.com and Pepsi Partner For Free Download Promo
AMAZON.COM AND PEPSI HAVE TEAMED up in a Super Bowl promotion that gives consumers access to more than 3.25 million songs free of digital rights management restrictions (DRM) from 270,000 artists through Amazon MP3, a DRM-free music service introduced in September.
Four billion specially marked Pepsi packages will allow consumers to collect points and redeem them for music from a special section on the Amazon Web site. Consumers can play the digital songs they download on virtually any music-capable device, including PCs, Macs iPods, Zune iPhones, RAZRs and BlackBerrys, as well as organized in any music management application or burned to a compact disc.
This year, Justin Timberlake backs Pepsi's promotion. In a Super Bowl Pepsi Stuff commercial, Timberlake demonstrates how every sip of Pepsi can attract the music and stuff viewers want.
Several wild stunts have him flying high and rolling low as he narrowly escapes disaster at every turn in the "Magnetic Attraction" spot. Directed by Craig Gillespie and created by New York-based BBDO, the commercial demonstrates how Pepsi Stuff brings people closer to music, merchandise and apparel.
Beginning Feb. 1, consumers purchasing Pepsi products can bank their points on PepsiStuff.com and redeem them for music on Amazon MP3. Five points earn consumers one MP3 song download from the libraries of EMI Music, Sony BMG Music Entertainment and Warner Music Group, among other music labels. Universal Music Group has music available at Amazon MP3, but declined to participate in the promotion.
"Amazon is the only site that offers 100% of their music catalog in the DRM-free MP3 format, and that includes music from the major and independent labels," says Nicole Bradley, Pepsi spokeswoman.
The promotion was made possible after the four major music labels agreed to offer their music catalogs for sale on Amazon MP3 in the unrestricted format, without DRM technology that prohibits consumers from making copies or moving the songs from one player platform to another.
Bradley says the brands participating in the Pepsi Stuff promotion fall under the trademark Pepsi, such as Pepsi, Diet Pepsi, Wild Cherry Pepsi, Diet Pepsi Max, and Diet Pepsi Jazz, among others. The products come in 20-ounce, 1-liter, 2-liter, 12-pack cans and 24-pack cans.
Each bottle cap and the take-home package of the participating products feature a 10-digit alphanumeric code. Once the codes are submitted on the Pepsi Stuff site, consumers are told how many points the code is worth. Consumers trade in the points for music at Amazon MP3. The promotion runs through December.
Music lovers and industry watchers are waiting to see whether Amazon's customer-centric business model can blossom into a credible music download service. "MP3 is the most universally compatible format, and the lack of interoperability is the reason people don't buy music," says Pete Baltaxe, director of digital music at Amazon. "The labels came to understand that Amazon is very in tune with customers, and they saw it our way."
That way gives consumers access to the top 100 tracks for about 89 cents, and millions more for 99 cents. Every song in the Amazon MP3 music download store is encoded at 256 Kbps to deliver high audio quality, and made available through its 1-Click shopping feature.
Consumers also can enter a daily sweepstakes for the chance to win trips to the Super Bowl, the MLB All-Star game, and the Daytona 500, as well as for cash and other big prizes. Consumers may sign up now to be reminded when the promotion begins at pepsistuff.com.
Pepsi has a long history in music, and has featured the biggest recording artists and a diverse range of chart-topping music in marketing campaigns. Recent campaigns have featured Kanye West, Mariah Carey, Mary J. Bilge, Gwen Stefani and P. Diddy.
Young Adults Hit Online Video Sites
"Did you see the new video on YouTube?"
If you heard that question a lot last year, there's a reason.
Nearly half of Internet users surveyed in December 2007 said they had visited a video-sharing site such as YouTube, according to the Pew Internet & American Life Project.
That's up from the year before when one-third of Internet users said they had visited such sites.
"The fact that younger Internet users are far more likely to be regular visitors to video-sharing sites points to a fork in the road,” said David Hallerman, senior analyst at eMarketer. YouTube usage generally increased in 2007, according to Harris Interactive data released at the same time as the Pew study. But while many Internet users have dipped their toes into the video-sharing pool, a solid majority of YouTube users surveyed still said they had visited only once or a few times. The Pew study also captured demographics for active video-sharing site users. As might be expected, they skewed younger. "On the one hand, marketers looking to target the under-30 demographic can more reliably find them on these video sites. "On the other hand, the door is open for big content providers—mainly the TV networks, both broadcast and cable—to bulk up their online offerings, both in quantity and quality," Hallerman said. He also said that such counter programming could help attract the over-30 audience, which is accustomed to traditional TV content. Such content could draw ad dollars from marketers who want online-video ad inventory that is consistently appropriate for marketing, as opposed to a lot of user-generated content found on video-sharing sites.
TicketMaster Buys Online Scalper TicketsNow For $265 Million
Just in time for the Super Bowl and ahead of IAC’s breakup, Ticketmaster has struck a deal to acquire online ticket scalper TicketsNow for $265 million.
This follows eBay’s acquisition of StubHub for $310 million last year. TicketsNow is the second-largest online ticket scalper after StubHub, having sold $200 million worth of tickets in 2006. Sources tell us Ticketmaster first looked at RazorGator for about the same price, but that deal fell through during due diligence. Once they took a look at the books, they passed. The $265 million paid for TicketsNow, we are told by another knowledgeable industry source, is 35 times EBITDA and about 5X revenues (of $60 million).
This follows eBay’s acquisition of StubHub for $310 million last year. TicketsNow is the second-largest online ticket scalper after StubHub, having sold $200 million worth of tickets in 2006. Sources tell us Ticketmaster first looked at RazorGator for about the same price, but that deal fell through during due diligence. Once they took a look at the books, they passed. The $265 million paid for TicketsNow, we are told by another knowledgeable industry source, is 35 times EBITDA and about 5X revenues (of $60 million). Many of the tickets that scalpers, er, brokers, sell on these secondary marketplaces are initially purchased from the Ticketmasters of the world. So the markup is a missed opportunity for Ticketmaster, whose own TicketExchange
The TicketsNow deal shows how hot the secondary event ticket market is becoming, and Ticketmaster’s entry will likely help legitimize the sector (see our previous coverage on some of the problems with the industry).
The WSJ, which broke the story, reports
Ticketmaster President and Chief Executive Sean Moriarty said the company plans to share revenue from its new division with clients that own venues or promote events, although he said details on how the money would be distributed aren’t final. He said the move highlights a shift in the way ticket resellers are perceived, both by the public and by concert-industry participants. Where resellers once were viewed as shady scalpers, now, thanks largely to the Internet, they are becoming more respectable.“Clients who five years ago were not willing to allow a ticket to be resold now want a piece of it,” Mr. Moriarty said. The size of the secondary ticket market is hard to judge, but estimates range from $2.5 billion to $5 billion a year in the U.S.
That’s a nice growth market for a business that is about to be spun off as its own stock.
According to comScore, TicketsNow had 1.5 million unique visitors in December, about the same it did a year ago, while StubHub attracted 3.4 million and has been growing nicely under eBay’s wing (although it took a major hit in November).
Oprah Gets A Channel Of Her OWN--Literally, Teams With Discovery
LOOKING TO CREATE A HIGHER profile for one of its lackluster channels, Discovery Communications has made a deal with Oprah Winfrey to revamp its Discovery Health under a new name: "OWN: The Oprah Winfrey Network." Discovery Health had been bringing in about 20% of the viewership of the company's flagship, Discovery Channel, and that of its other main channel, TLC. Still, Discovery Health has valuable distribution in the form of 70 million cable subscribers.
The 8-year-old network will be 50-50 owned by Discovery and Harpo Productions, Oprah Winfrey's production company, and will launch in 2009. No cash was transacted for this deal.
"In essence, this was an opportunity Discovery could not pass up," says Bill Carroll, vice president and director of programming for TV sales rep Katz Television Group. "Plus, they get the two big things: a presence on Oprah's Web site, as well as cross-promotion on her [syndicated] program."
The non-cash deal makes sense to industry watchers. "Discovery gets the advantage of her name, and she gets the distribution and background operations," adds Carroll.
Typically, when a cable network owner looks to radically change programming as well as the channel name, multiple system cable operators, according to their affiliate agreements, can drop the channel. But executives don't believe cable operators will have a problem with this move.
With Winfrey's new cable channel, local cable systems can now sell to TV advertisers what TV stations have been selling to advertisers for years--via Winfrey's syndication TV program--Oprah Winfrey-branded TV content.
Continuing the focus of her syndicated TV show, OWN's "mission is to create multiple platforms for women, men and their families with a purpose and a passion: to celebrate life, to inspire and entertain, empowering viewers around the world to live their best lives..." according to a press release about the deal.
While Discovery Communications will provide much of the back-office operations for the new channel, handling distribution, origination and other operational duties, it won't totally control advertising sales. The two companies say "both organizations will contribute advertising sales services to the venture."
Some speculate that Winfrey has been looking to turn her company into a version of Martha Stewart Living Omnimedia. MSLO controls all advertising and marketing deals. At present, that isn't the case. Oprah magazine is produced by Hearst Publications, which also sells the ad space. CBS Distribution Television, which distributed her syndicated TV shows, sells the show's TV advertising time.
This is not Winfrey's first go-around in the cable network arena. She was an original investor in Oxygen Media, which was acquired by NBC Universal last year.
Winfrey will serve as chairman of The Oprah Winfrey Network, LLC. The company is now searching for a CEO.
The attack of the ad-sponsored phone call
Internet telephony companies seek to sell seconds of airtime before connecting your calls.
NEW YORK (Fortune) -- Callers beware: Marketers are about to invade one of life's last advertising-free zones, the private phone call. At the end of last year, privately held Internet phone company Jangl started testing "in-call" advertising: While customers wait for Jangl to connect their calls, the originating party may hear a short audio advertisement. Potential advertisers, Jangl says, include wireless game and ringtone purveyors.Meanwhile, Jajah, also an Internet-based communications company, is set to launch in-call ads this year. Customers will opt into the service, and in exchange for listening to a 15-second clip, they'll earn credits that will offset their phone bills.
A sample sound bite from an earlier Jajah trial goes something like this: "Please hold while Jajah's connecting your free call, brought to you by the Sony Image Station. With Sony the results are beautiful."
These ads are a variation of the marketing messages consumers are used to hearing while they're on hold with, say, an airline reservation line or customer service. But thanks to Internet Protocol, or IP, which powers these next-generation phone calls, operators such as Jangl and Jajah can target the advertisements they serve callers - much the way Yahoo (YHOO, Fortune 500) or Google (GOOG, Fortune 500) can deliver relevant ads to users of their search and portal services. So a caller who frequently calls Boston using an IP-based phone service might start hearing ads promoting new flights to Logan Airport.
Long-distance carrier IDT (IDT), for example, now inserts targeted advertisements before it completes some calling-card calls made by its ex-pat clientele: A person who is using a calling card to contact the Dominican Republic, for example, might hear an advertisement promoting new flights to Santo Domingo. IDT uses a start-up called VoodooVox to insert ads before calls, and says marketing messages from VoodooVox run on approximately 30 percent of calling-card calls. Advertisers include airlines, banks, movie studios and other blue-chip companies.
Pioneers in the nascent in-call industry acknowledge that in-call marketing is pretty cutting edge. "We know this is kind of bold," says Jangl founder Michael Cerda. "But these are bold times." It is so cutting edge, in fact, that a lot of advertising agencies haven't even heard of in-call marketing, and those that have are somewhat skeptical. "The first question I would have is how is privacy being handled," says Angela Steele, a mobile marketing vice president at ad buyer Starcom USA. "People need to know that by using the service, that information can be used for advertising."
Because in-call marketing is so new, companies such as VoodooVox end up having to produce the ad messages for customers, says J. Scott Hamilton, the company's CEO. Hamilton says the market is growing, though. VoodooVox had revenue of about $4 million in 2007, he says, and he expects revenue to increase at least ten-fold in 2008.
He says he's a big believer in advertising as a way to subsidize calls, but he acknowledges it isn't for everyone. He says: "If it doesn't work for the caller, it doesn't matter how many other stakeholders want it, they'll find another way to make calls."
'Idol' Sponsors Coke, Ford, AT&T Paying More
Coca-Cola, Ford and AT&T are back again as the three main sponsors of Fox's megahit American Idol, but it’s going to cost them.
The three are forking over roughly $35 million each for the opportunity to be featured in America's most watched TV show, as well as air commercials during Idol, post online content and run off-air co-branded marketing programs.
The $35 million price tag is up slightly from the estimated $30 million the sponsors spent last season, but the advertisers are likely to get an even better return on their costly investment than they had hoped for. With the writers strike having shut down production on most original scripted programming, Idol—which premieres Tuesday night—is expected to be an even bigger ratings juggernaut than ever.
As far as this season's integrations, Ford, Coca-Cola and AT&T will for the most part be repeating their in-show performances from years past, with a few new revisions in either content or products featured.
Ford, which will again be featuring its vehicles in music videos with the final 12 contestants that air during the show, will be seeking to incorporate its Ford Escape Hybrid into the program this season. While the final details of Ford's integration have not yet been decided, Ford will give away Hybrids to the two top finalists instead of the Ford Mustangs it has awarded in years past.
"As all of Hollywood and the world is going green and looking at more environmental initiatives, I wouldn't be surprised to see more involvement creatively from the Ford Escape Hybrid in American Idol," said Bob Witter, Ford global brand entertainment manager.
Ford is also planning to heavily promote its new crossover vehicle the Ford Edge in this season's Idol as well as its new Sync voice-activated communications and entertainment system for mobile phones and digital music players, which was developed with Microsoft.
Coca-Cola will be back with its branded cups on the judges' table, the Coca-Cola red room where the Idol contestants are interviewed by host Ryan Seacrest and hang out backstage, and Coke graphics on the LCD flat screen that sits behind contestants on stage as they are being interviewed by Seacrest.
Coca-Cola spokeswoman Susan Stribling said the red room will be refreshed with some new design elements and the flat screen images on stage will be updated as well with "Coke Side of Life" graphics.
AT&T, which is believed to reap the greatest benefits of all the partners from its sponsorship of the text message voting every week, as well as Idol downloads, ringtones and even video of bad auditions and performances last year, is expected to be back with very similar on-air and off-air elements to its campaign. "We're delighted to be back," said AT&T spokesman Mark Siegel. "It's a great partnership and sponsorship for us."
While the writers strike may deliver stronger ratings than ever for Idol, Ford, Coke and AT&T—all major network advertisers—are losing out overall, with the strike causing ratings shortfalls in other shows in which they may be running spots or be integrated.
Nestle is also back for the second year as an off-air promotional partner. Other off-air partnerships are expected to be announced in the coming weeks. Last year, Fremantle lined up six promotional partners including McDonald's, Samsung, Pringles and Dreyer's, all of whom are believed to have paid over $1 million for the rights to feature Idol branding on their packaging, products and marketing programs.
This year, Nestle announced an on-pack "Idol Elimination" game promotion offering fans the chance to win $1 million if they correctly choose who will be eliminated each week from the top 24 contestants. Specially marked packages of Nestle candy bars will feature a code that allows fans to play the game online at www.americanidol.com.
Link to BrandWeek Article
The three are forking over roughly $35 million each for the opportunity to be featured in America's most watched TV show, as well as air commercials during Idol, post online content and run off-air co-branded marketing programs.
The $35 million price tag is up slightly from the estimated $30 million the sponsors spent last season, but the advertisers are likely to get an even better return on their costly investment than they had hoped for. With the writers strike having shut down production on most original scripted programming, Idol—which premieres Tuesday night—is expected to be an even bigger ratings juggernaut than ever.
As far as this season's integrations, Ford, Coca-Cola and AT&T will for the most part be repeating their in-show performances from years past, with a few new revisions in either content or products featured.
Ford, which will again be featuring its vehicles in music videos with the final 12 contestants that air during the show, will be seeking to incorporate its Ford Escape Hybrid into the program this season. While the final details of Ford's integration have not yet been decided, Ford will give away Hybrids to the two top finalists instead of the Ford Mustangs it has awarded in years past.
"As all of Hollywood and the world is going green and looking at more environmental initiatives, I wouldn't be surprised to see more involvement creatively from the Ford Escape Hybrid in American Idol," said Bob Witter, Ford global brand entertainment manager.
Ford is also planning to heavily promote its new crossover vehicle the Ford Edge in this season's Idol as well as its new Sync voice-activated communications and entertainment system for mobile phones and digital music players, which was developed with Microsoft.
Coca-Cola will be back with its branded cups on the judges' table, the Coca-Cola red room where the Idol contestants are interviewed by host Ryan Seacrest and hang out backstage, and Coke graphics on the LCD flat screen that sits behind contestants on stage as they are being interviewed by Seacrest.
Coca-Cola spokeswoman Susan Stribling said the red room will be refreshed with some new design elements and the flat screen images on stage will be updated as well with "Coke Side of Life" graphics.
AT&T, which is believed to reap the greatest benefits of all the partners from its sponsorship of the text message voting every week, as well as Idol downloads, ringtones and even video of bad auditions and performances last year, is expected to be back with very similar on-air and off-air elements to its campaign. "We're delighted to be back," said AT&T spokesman Mark Siegel. "It's a great partnership and sponsorship for us."
While the writers strike may deliver stronger ratings than ever for Idol, Ford, Coke and AT&T—all major network advertisers—are losing out overall, with the strike causing ratings shortfalls in other shows in which they may be running spots or be integrated.
Nestle is also back for the second year as an off-air promotional partner. Other off-air partnerships are expected to be announced in the coming weeks. Last year, Fremantle lined up six promotional partners including McDonald's, Samsung, Pringles and Dreyer's, all of whom are believed to have paid over $1 million for the rights to feature Idol branding on their packaging, products and marketing programs.
This year, Nestle announced an on-pack "Idol Elimination" game promotion offering fans the chance to win $1 million if they correctly choose who will be eliminated each week from the top 24 contestants. Specially marked packages of Nestle candy bars will feature a code that allows fans to play the game online at www.americanidol.com.
Link to BrandWeek Article
MySpace Ruled U.S. Social Nets In 2007
ALTHOUGH FACEBOOK GARNERED THE LION'S share of media attention, News Corp.'s MySpace ruled the U.S. social networking space in terms of sheer volume in 2007, according to new stats from Hitwise.
MySpace received more than three-quarters of all the social networking traffic in the U.S. last year, managing to stay atop the heap of 53 social media sites despite pressures from several state Attorneys General for possibly harboring sex offenders, and the Facebook juggernaut. Not surprisingly, Facebook took the number two spot--snagging nearly 13% of all social net traffic, followed by Bebo with about 1%.
But in December 2007, traffic to MySpace was actually down by 8% from the previous year. In contrast, traffic to Facebook was up by some 51%, Disney's Club Penguin climbed by 48%, and MyYearbook shot up by more than 400% year-over-year. Traffic to all of the social nets measured was up by 4%.
Facebook took the lead in terms of increased user engagement, as members spent an average of about 20 minutes on the site in December--up 100% from the previous year. Engagement on MySpace remained relatively flat at about 30 minutes, but Bebo took a slight lead with an average time of 30:30 minutes, a gain of 4%. BlackPlanet also scored high engagement marks, with users spending an average of 25 minutes on the site--a 13% lift from 2006.
Music DRM's Final Days
But will higher sales follow? 
Less than a year after eMarketer asked "Is DRM Doomed?," the answer is fast becoming "yes."
As The New York Times reported, Sony is the last of the big four music labels to offer music unrestricted by DRM for download from Amazon.com.
The move is important for several reasons, but music marketers will likely be most excited by the prospect of a larger online music market.
The problem is not that consumers aren't buying digital music. Indeed, digital track sales grew by 45% last year, according to the Nielsen SoundScan "2007 Year-End Music Industry Report."
Yet digital music sales are not making up for a CD sales slump, and online music consumption will have to be far more widespread than it is today to do so.
eMarketer and other firms have pegged DRM as one of the things keeping consumers from buying more music digitally. Why should consumers buy digital music, the thinking goes, if it lets them do less with their music than a CD, such as load music onto multiple computers and portable devices?
In this light, Amazon has made a bold entry into the music download wars. The company launched Amazon MP3 in September 2007, and already it has brought the largest music labels, which had previously been skittish about parting with DRM, together on the same service.
The move threatens to undermine Apple’s leadership in this area. It had gone essentially unchallenged since the emergence of the iTunes Music Store in 2003.
By one estimate, Apple controlled 70% of the US market for single-track downloads in 2006, and there is no evidence to suggest that Apple’s numbers have shrunk considerably since then.
Paul Verna, senior analyst at eMarketer, said that Amazon has a number of competitive advantages that may change the market share picture going forward, including:
- Historic strength in online retailing, a space the Seattle company helped pioneer
- Deep expertise in music retailing through years of selling CDs online
- The potential to link customers to physical product in cases where digital product might not be available (or vice versa)
- A time-tested customer-recommendation system that could easily be parlayed into a powerful music discovery tool
Regardless of who wins the market share contest, DRM is likely to play a role. Rhapsody, Napster and MSN Music all use Windows Media Player DRM protection, and all continue to struggle with low market shares.
Mr. Verna predicted that the elimination of DRM would level the playing field for the digital music industry.
"In 2008 and beyond, the winners and losers will be decided not by technological restrictions but by how they price and market digital music, and how successfully they build online communities around music," he said.
MySpace May Still Dominate in the U.S., But (Surprise!) Facebook is Catching Up Fast Worldwide
Here’s a little anti-spin on the Hitwise numbers that just came out showing that MySpace still rules social networking in the U.S. (See Duncan’s earlier post). Hitwise says that MySpace commands a 72 percent market share of visits to the top ten social networking sites, while Facebook has only gained a 16 percent market share. I find the way Hitwise discloses its data to be confusing—72 percent of what exactly? Why don’t they just tell us how many people they think visited the site? We can do our own math.
Any way you slice it, the numbers are surprising. Isn’t Facebook supposed to be on a rocket ride? So I decided to look at what comScore has to say on the matter of MySpace versus Facebook (not that they are perfect, but at least they give an actual estimate of how many people they think visited a particular site).
The numbers on comScore corroborate that Facebook is still lagging MySpace, but not by as much as Hitwise would have you think. In December, comScore reports that MySpace had 69 million unique visitors compared to 35 million for Facebook. That would give Facebook about half the market share of MySpace, not one fifth.
Maybe by”visits,” Hitwise means page views. Again, the comScore numbers confirm that MySpace is trouncing Facebook in the U.S. with 38 billion page views in December 2007, versus 13 billion for Facebook. Even so, that gives Facebook a third as much “market share” as MySpace. Of course, Hitwise data and comScore data are apples and oranges because they’ve been collected using different methods and different sources. I offer this more as a gut check.
Regardless of what data better reflects who is winning the social-networking race in the U.S., the real story is happening elsewhere. A peak at the global comScore numbers (as of November 2007) produces this doozy: Facebook has nearly caught up to MySpace with 93 million unique visitors worldwide versus MySpace’s 105 million. And in minutes spent on the site, it has actually surpassed MySpace with 21 billion minutes for Facebook versus 17 billion minutes for MySpace. (Although, it is still lagging in page views, 42 billion to 48 billion). The Web is a global game, and MySpace might be about to lose it.
Stones sign one-album record deal
The Rolling Stones have signed a one-album deal with record label Universal to release a live CD recorded in New York in 2006.
The CD - to accompany Martin Scorsese's Rolling Stones documentary Shine A Light - will come out in March.
The announcement comes as the band considers its options after its record deal with troubled EMI ends next month.
The Stones, who have been with EMI for 16 years, will be free to talk to other labels when that deal ends.
A new deal would incorporate the Stones' back catalogue from 1971 onwards - which is owned by the band - as well as new recordings.
But an EMI spokesman said: "The Rolling Stones have not signed to Universal and they have not left EMI."
Shine A Light, which will open next month's Berlin Film Festival, features coverage of two gigs played at New York's Beacon Theatre in autumn 2006 as well as rare archive and behind-the-scenes footage.
Special guests Jack White, of the White Stripes, and singer Christina Aguilera joined the Stones onstage.
A spokesman for the Rolling Stones said: "The band are looking forward to working with Universal Music and are excited about this new venture."
Job losses
Meanwhile, Universal - whose artists include Elton John, the Scissor Sisters and the Kaiser Chiefs - said it was proud to be working with "true music legends".
News of the deal follows reports that other EMI giants, including Kylie Minogue and Coldplay, are considering jumping ship.
The deal will trigger speculation that the Rolling Stones are considering following the lead of long-time contemporary Sir Paul McCartney, as well as Radiohead, in leaving the label.
After leaving EMI, Sir Paul branded the label "boring", saying its handling of his music was "symbolic of the treadmill".
Last week, Robbie Williams' manager Tim Clark said the singer would withhold new records if assurances were not given over marketing and promotion.
EMI's recent woes were compounded earlier this week when Mr Hands announced the loss of between 1,500 and 2,000 jobs in a bid to reduce costs by £200m a year.
Mr Hands, the boss of private equity firm Terra Firma - which bought EMI for £3.2bn last year - said the changes would allow the label to target investment in new acts.
The Rolling Stones, renowned for extensive tours, were the highest-earning musical act between June 2006 and 2007 making $88m (£43m), according to US business publication Forbes.
Last August, their A Bigger Bang World Tour came to an end at London's O2 Arena.
The tour grossed $437m (£217m), Forbes said.
Band members Ronnie Wood and Keith Richards controversially flouted the month-old smoking ban by lighting up on the O2 stage.
The pair escaped with a fine.
Time Warner To Test Pay-Per-Download Plan
IN A MOVE THAT COULD reshape the debate about net neutrality, Time Warner will start charging some broadband users access fees based on how much they download each month, rather than assessing a fixed fee unlimited service.
The company Thursday said it planned to start testing the new pricing system this year as part of an effort to manage traffic. "We want the network to maximize returns for all of our customers," said spokesman Alex Dudley, adding that a small number of users currently consume a disproportionate share of bandwidth. "Ninety-five percent of our users would not be the extreme users who are driving this."
Once the test starts, new customers will be offered a choice of four plans that allow them to download set amounts each month--5, 10, 20 or 40 Gigabytes. As with cell phone service packages, those who go over their allotment will be charged extra. Time Warner hasn't yet determined the price of each tier. The test will start later this year with new subscribers in Beaumont, Tex.
Some advocates for net neutrality--or the principle that Internet service providers should treat traffic equally--said Time Warner's plan sounds like a better approach to traffic management than some other alternatives.
"It's entirely fair and appropriate for carriers who choose to do so to vary their charges to users based on how much those users are consuming," said David Sohn, senior policy counsel at the Center for Democracy & Technology. "The key is to be agnostic as to what the bandwidth is being used for."
Public Knowledge President Gigi Sohn (no relation to David Sohn) also supported the decision. "There are neutral ways to manage the network, this is a good one," she said.
By contrast, Comcast has drawn fire from advocates for slowing down visits to peer-to-peer sites in what it says is an attempt to manage traffic on its network. The Federal Communications Commission is investigating complaints by Public Knowledge and others that the company violates net neutrality principles by treating traffic to BitTorrent and other bandwidth-hungry peer-to-peer sites differently than traffic to other Web sites.
While net neutrality advocates say that Time Warner's metering plan is preferable to interfering with traffic to some sites, some are also afraid that moving away from unlimited pricing will discourage people from using the Web.
"Telling consumers they must choose between blocking and metered pricing is a worrying development," Ben Scott, policy director of Free Press, said in a statement. "The best answer to any capacity crunch is to build the kind of high-capacity networks available in the world's leading broadband nations."
Public Knowledge's Sohn agreed that any long-term solution to bandwidth problems requires improving the infrastructure. "The ultimate goal has got to be a fatter pipe," Gigi Sohn said.
Link to MediaPost Article
Blogs Influence Availability of News, But Not Quality
Blogs Influence Availability of News, But Not Quality
According to a survey of US journalists by Brodeur, a unit of Omnicom Group, blogs are not only having an impact on the speed and availability of news but also influencing the tone and editorial direction of reporting. The biggest impact of blogs, says the study, is in the speed and availability of news, while 61.8% of the respondents said that blogs were having a significant impact on the "tone" of news reporting, and 51.1% said they influenced "editorial direction.
The majority of journalists said blogs were having a significant impact on news reporting in all areas tested, except news quality. The biggest impact has been in speed and availability of news, and secondarily to tone and editorial direction.
Impact of Social Media and Blogs on News Reporting (% of respondents) | |||
| Aspect | Very Significant | Somewhat Significant | Not Significant |
| Speed of news | 32.0% | 42.1% | 24.8% |
| Availability of news | 32.6 | 36.0 | 30.9 |
| Tone of discussion | 10.7 | 51.1 | 37.0 |
| Editorial direction | 8.4 | 42.7 | 49.4 |
| Quality of news | 12.4 | 30.9 | 55.6 |
| Source: Brodeur, January 2008 | |||
Jerry Johnson, head of strategic planning at Brodeur, said "While only a small percentage of journalists feel that blogs are helpful in generating sources or exclusives, they do see blogs as particularly useful in helping them better understand the context of a story, a new story angle, or a new story idea."
Blogs are a regular source for journalists: Over three-quarters of reporters see blogs as helpful in giving them story ideas, story angles and insight into the tone of an issue.
| Helpfulness of Certain Aspects of Blogs (% of respondents) | |||
| Insight | Very Helpful | Somewhat Helpful | Not Helpful |
| Getting story ideas and new anlges | 23.4% | 54.9% | 21.7% |
| Gaining insight into the tone of a debate or discussion | 27.3 | 48.9 | 23/9 |
| Getting information on breaking news | 10.7 | 36.2 | 53.1 |
| Identifying and validating news sources | 7.3 | 24.3 | 68.2 |
| Finding quotes and soundbites | 3.4 | 24.3 | 72.3 |
| Source: Brodeur, January 2008 | |||
Nearly 70% of all reporters check a blog list on a regular basis:
- Over one in five (20.9%) reporters said they spend over an hour per day reading blogs
- Nearly three in five (57.1%) reporters said they read blogs at least two to three times a week
- 71% of journalists have a list of blogs that they check on a regular basis
- 47.7% have five or fewer blogs
- 23.3% have a regular blog list of six or more
- 29.9% of journalists have no regular list
One in five reporters spend over an hour a day reading blogs, and nearly three in five read blogs at least 2 to 3 times a week.
| Time Spent Reading Blogs by Reporters (% of respondents) | |
| Hours Reading | Percent Reading |
| >4 hours a day | 2.3% |
| 1-2 hours a day | 18.6 |
| 2-3 times a week | 36.2 |
| 2-3 times a month | 33.3 |
| Never | 9.6 |
| Source: Brodeur, January 2008 | |
Journalists are increasingly active participants in the blogosphere:
- One in four reporters (27.7%) have their own blogs
- Nearly one in five (16.3%) have their own social networking page
- About half of reporters (47.5%) say they are "lurkers" - reading blogs but rarely commenting.
Johnson said, "…reporters are still creating their stories by going out and developing their own ideas and talking to their sources… The blogosphere's tail is not wagging the media body - at least not yet."
For the detailed release, please visit Marketing Charts here, or to download the PDF file, go here.
Link to MediaPost Article
Global Mobile Entertainment Market To Top $64 Billion by 2012
THE LATEST REPORT FROM JUNIPER Research is pegging the global mobile entertainment market to top $64 billion in the next four years, driven primarily by music, but with strong growth from games and TV.
UK-based Juniper Research also includes user-generated content, gambling, adult and infotainment content in the mobile entertainment mix, but the most growth is slated to come from music, with revenues rising to $17.5 billion in 2012. The 94% growth from 2007 will be fueled by the increased availability of full-track download and streaming music services.
Mobile games usage will actually surpass music in terms of revenue growth, surging by 220% to reach nearly $16 billion in the next four years. The spike will mostly stem from rapid growth in the development of casual games. Meanwhile, growth in global revenues from mobile TV will be driven by the launch of multiple mobile broadcast networks in both developed and emerging markets, to the tune of almost $12 billion.
"With revenues from voice services declining and messaging revenues flatlining, last year finally saw a number of more sophisticated entertainment services begin to fulfill their potential and redress the balance," said report author and Juniper analyst Dr. Windsor Holden. "With more widespread penetration of 3G handsets--or entertainment-focused 2.5G handsets like the iPhone--there is likely to be a much greater surge in both the adoption and overall usage in rich media services."
EMI Music's Partnership with SendMe Expands Mobile Company's Offerings
EMI MUSIC AND MOBILE MUSIC company SendMe, Inc. enter into a strategic agreement today that gives SendMeMobile.com members access to EMI's full catalog of mobile content, including 4,000 new ringtones.
Russell Klein, co-founder and CEO of SendMe, said the addition of EMI's catalog to SendMeMobile.com builds on the company's promise to give members "the broadest premium content out there."
EMI Music's record labels include Angel, Astralwerks, Blue Note, Capitol, Capitol Nashville, EMI Classics, EMI CMG, EMI Records, EMI Televisa Music, Manhattan, Mute, Parlophone and Virgin. EMI artists that are now available at SendMeMobile.com include 30 Seconds to Mars, A Fine Frenzy, Lily Allen, Corinne Bailey Rae, Belinda, Beastie Boys, Dierks Bentley, Chemical Brothers, The B-52's, Coldplay, Daft Punk, Norah Jones, Lenny Kravitz, J. Holiday, Dean Martin, Bob Seger, Frank Sinatra, Joss Stone, The Rolling Stones, K.T. Tunstall and Keith Urban.
SendMe's other content partners include Universal, Glu, Telcogames, Sony Pictures and The Orchard. Members have access to games and music. SendMe's built-in community allows members to create and share their favorites with friends and family on-the-go.
"SendMe is another innovative way for us to strengthen the bond between our artists and fans," said Lauren Berkowitz, senior vice president, digital for EMI Music North America, in a statement.
Global Digital Music Sales Up 40 Percent, But Overall Sales Down 10 Percent
The sale of digital music globally hit $2.9 billion in 2007, up 40 percent from 2006. But, as we’ve seen in the U.S. alone, that was not enough to offset the 10 percent decline in overall music sales to 17.6 billion, according to a report by the International Federation of the Phonographic Industry
. Digital sales now account for 15 percent of the global market. Compared to other industries, music is second only to games in its transition to digital revenues. For newspapers, it is 7 percent, for films it is 3 percent, and for books only 2 percent. (All of these are global figures). 
Other stats from the report:
—There are more than 500 legal music services worldwide, ten times as many as four years ago.
—About 6 million individual digital songs are available legally.
—1.7 billion digital tracks were downloaded legally last year, up 53 percent.
—Tens of billions of songs were swapped illegally.
—The ratio of unlicensed tracks to legal tracks downloaded is 20 to 1.
Thursday, January 17, 2008
Pedigree Dog Food Lands ‘Celebrity Apprentice’ Tie In
Donald Trump’s “Celebrity Apprentice” series goes to the dogs proactively this week in a deal to elevate consumer consciousness about canine homelessness.
The NBC reality series will present a scenario focusing on the very real need to adopt homeless dogs as a precursor to Pedigree Food for Dogs’ annual adoption drive. The two competing celebrity teams are tasked with creating a community awareness campaign during the Jan. 10 episode sponsored by Pedigree that conveys the message of the dog adoption effort.
The resulting winning public service announcement will air during USA Network’s carriage of the 132nd annual Westminster Kennel Club Dog Show on Feb. 11 and 12. That coincides with the kick-off of the Pedigree Adoption Drive on Feb. 7.
“Our hope is that after this episode airs, the importance of dog adoption will be a cause that hits home for dog lovers everywhere,” said Rob Leibowitz, vice president of marketing for Mars Petcare U.S., in a statement.
Mars Petcare U.S. is the U.S. pet care operation of brand manufacturer Mars, Inc. Pedigree is one of its brands.
This year’s adoption drive activities include the creation of a dog adoption focused store in New York City’s Times Square during February, offering consumers opportunities to adopt pets and purchase ‘Dogs Rule’ gear to support the cause. Pedigree print and broadcast ads will also push the message during the month-long campaign.
Doritos Narrows Super Bowl Music Contest to Three
And now it’s down to three.
Frito-Lay is giving people the final say to vote for their favorite tune from three finalists in the latest Crash the Super Bowl contest. In it, music enthusiasts developed original songs for a chance to win a record deal with Interscope Geffen A&M Records and create a music video.
Visitors to http://www.snackstrongproductions.com can vote through Jan. 28 from three finalists: Kina Grannis, 22, of Austin, TX, “Message From Your Heart,” Landon Austin, 19, of Dallas, “Waitin’” and Nivla, 27, featuring P. Oberoi of New York, “Be Easy (Koi Naa).” Each will receive $10,000 and a trip to Phoenix to attend the Doritos Super Bowl party.
This is the second consumer vote in the contest. Doritos asked people to choose their favorite from 10 finalists last month (Promo Xtra, Dec. 18, 2007).
http://promomagazine.com/contests/news/doritos_pares_super_bowl_contest/index.html
The company received more than 350 entries. TV spots support the promotion.
In addition to the record deal, the top winner will have a 60-second video of their song played during the Super Bowl in place of a traditional ad Doritos typically runs during the Big Game on Feb. 3.
This is the second Super Bowl promotion Doritos has launched using user-generated content. Last year, the company ran a contest asking people to submit 30-seconds spots for the brand, yielding more than 1,000 entries.
The Marketing Arm is handling overall concept development and in-store design elements. Goodby Silverstein & Partners, Doritos’ ad agency, oversees the Web site development and on-air execution. OMD is managing media buying while Davie-Brown is handling the record label details. Ketchum is in charge of PR.
Comcast to Launch Portable Digital Video Player
Comcast, the largest U.S. cable operator, and consumer electronics maker Matsushita Electric Industrial's Panasonic unit will launch a co-branded portable digital video player that can show videos like Apple's iPod and record shows from any U.S. cable operator's system.
The AnyPlay device is the first of a range of new electronic devices based on technology developed jointly by the cable industry and consumer electronics makers intended to increase interoperability among cable operators -- and increase their threat to satellite TV rivals.
AnyPlay can record up to 60 hours of video and plays DVDs and CDs. It also features an 8.5-inch display screen. The device will be unveiled on Monday at the Consumer Electronics Show in Las Vegas.
Comcast Chief Executive Brian Roberts told Reuters ahead of the show that the industry had been working on the technology standard for several years and now plans to roll it out across the United States this year.
"We knew we needed an open, national and interoperable structure between cable companies," said Roberts, who is also chair of industry technology trade body Cable Labs.
Cable companies have faced increasing competition for video subscribers from both satellite pay-TV companies such as DIRECTV Group DTV.O and EchoStar Communications Corp as well as nascent video services from phone companies such as AT&T and Verizon Communications.
"We also knew there would be more competition and we had to change," said Roberts. "The era of closed cable is over and the era of open cable is here." Reuters' Yinka Adegoke reports
Link to Media Week Article
The AnyPlay device is the first of a range of new electronic devices based on technology developed jointly by the cable industry and consumer electronics makers intended to increase interoperability among cable operators -- and increase their threat to satellite TV rivals.
AnyPlay can record up to 60 hours of video and plays DVDs and CDs. It also features an 8.5-inch display screen. The device will be unveiled on Monday at the Consumer Electronics Show in Las Vegas.
Comcast Chief Executive Brian Roberts told Reuters ahead of the show that the industry had been working on the technology standard for several years and now plans to roll it out across the United States this year.
"We knew we needed an open, national and interoperable structure between cable companies," said Roberts, who is also chair of industry technology trade body Cable Labs.
Cable companies have faced increasing competition for video subscribers from both satellite pay-TV companies such as DIRECTV Group DTV.O and EchoStar Communications Corp as well as nascent video services from phone companies such as AT&T and Verizon Communications.
"We also knew there would be more competition and we had to change," said Roberts. "The era of closed cable is over and the era of open cable is here." Reuters' Yinka Adegoke reports
Link to Media Week Article
Yahoo Is Clearly Up To Something Big Around Music
There have been rumors that Yahoo Music is preparing to launch a big new product sometime soon. And when I read this overview
Some background: Rogers, along with former Yahoo music GM David Goldberg, was one of the first music industry insiders to actively call for the dismantling of the DRM machine (I interviewed both
Rogers also made an impassioned speech last October calling for sanity in the music industry. “Inconvenience doesn’t scale,” he said. And - suing Napster for popularizing music sharing was “like throwing Newton in jail for popularizing the concept of gravity.” He ended that talk by saying he wouldn’t let Yahoo spend any more money on flawed music models. He specifically called all-you-can-eat subscription models flawed; and Yahoo is a big provider of that service already.
But he went further this time, saying “We’re in the process of redefining what Yahoo! Music is, and making it the Music destination in Yahoo!’s successful image.” He also says Yahoo isn’t a music retailer and suggests they won’t be in the future.
So what are they up to? He is championing the merger of content (which is what the labels control) with context (all the great user generated content around the passion of music - Last.fm popular songs, MySpace content, blog posts around new music, etc. This is a well of useful contextual information that helps people decide what they want to consume. He calls for the evolution of open standards to facilitate this goal - making media “a first-class object in HTML,” agreeing on ways to describe collections of media objects (playlists), standards for sharing user data, and defining services (search, resolution of media between services, and purchase or provisioning).
In one set of slides near the end of the presentation, he shows a use case where a user discovers music on Yahoo, links to purchase it at Amazon, and then manages it again back at Yahoo. My guess is this is exactly what Yahoo will be. They’ll abandon their subscription music service (Rogers previously said the model was deeply flawed and has failed to get many users) and promote third party music download sites like Amazon instead. But I also imagine they’ll do this via a set of open standards where any service can participate. Yahoo is the worlds largest music site, so they can afford to be inclusive. It’s likely they’ll manage to keep their fair share of the users, even in an open world.
Half of me hopes that Yahoo pulls the plug on the project before it launches. What I’d really like to see is Rogers leave Yahoo and create a new startup based on the principles he believes in, without any compromise. Now that could be something interesting.
Motorola Acquires Online Music Store Soundbuzz
Motorola has acquired Singapore based music downloads site Soundbuzz.
Link to TechCrunch Article
. Soundbuzz offers online music purchases throughout the South East Asia and Oceania region and currently has partnerships with Hutchison 3, Motorola, Airtel, SingTel, M1, Optus Zoo, Telstra/ BigPond Music, Microsoft (Windows Media Player 10), Creative Technology and Sony BMG. Downloads from the Soundbuzz retail store sell in Australia for $1.69 AUD ($1.47) per single.
Motorola said it would use Soundbuzz to expland its MOTOMUSIC service into India, Southeast Asia, Australia and New Zealand.
The terms of the acquisition were not disclosed.
One word of warning though, if you do wish to check out Soundbuzz, don’t try it with anything other than Internet ExplorerLink to TechCrunch Article
Sony BMG Confirms DRM Free Music, But Will Force Customers to Visit A Store To Buy It
As we reported January 4, Sony BMG will become the last of the big four record companies to sell DRM free music, but with one very stupid catch.
DRM free music from Sony BMG will be available from January 15 to those who purchase a plastic card called the “Platinum Music Pass” for the album they want from a retail store for $12.99. Buyers will then have to visit MusicPass.com and enter a code to download the DRM free album they selected in the store.
According to a USA Today report
When we first wrote about Sony BMG offering DRM free music we were positive on the move, and it still is a step forward, but forcing customers who want to buy digital music into a physical store where they will be forced to pick the album then and there, then go home to download it…WTF?. It’s nearly like Sony BMG is setting this up to fail, so they can then go back to only selling DRM infested music whilst saying that there wasn’t demand for DRM free music because this experiment failed.
Yahoo Opens Up Its Mobile Platform To Third Parties
Google has experimented with it, as has Yahoo through their Go application
They’re relaunching the platform tomorrow. In addition to generic “improved performance,” for the first time third parties will be able to add their own software to the platform. It’s an open environment, meaning anyone can create a widget for Yahoo Go. Users will find them on Yahoo’s mobile site and can add them to their phone.
A software development kit for developers will be made available in the coming weeks, Yahoo says. Until then, users can add pre-made widgets from eBay, MySpace and MTV.
The Yahoo Mobile team has been chatting about this off record for almost a year now. We first expected to see it launch last Spring, but it never came. But they’ve finally got it out the door.
The Yahoo Mobile home page is also being relaunched tomorrow.
Link to TechCrunch Article
Online Holiday Sales Up 20%, Total Retail Almost 5% Over Last Year
Online Holiday Sales Up 20%, Total Retail Almost 5% Over Last Year
According to an update from comScore, Inc. for the 57 days of the 2007 holiday season (November 1 - December 27, nearly $28 billion has been spent online during the season-to-date, marking a 19-percent gain versus the corresponding days last year.
| 2007 Holiday Season To Date vs. Corresponding Shopping Days in 2006 Non-Travel Retail Spending (Total U.S. - Home/Work/University Locations (Billion $) | |||
| Holiday Season to Date | 2006 | 2007 | Pct Change |
| November 1 - December 27 | $23.56 | $27.96 | 19% |
| Thanksgiving Day (November 22) | $0.21 | $0.27 | 29% |
| "Black Friday" (November 23) | $0.43 | $0.53 | 22% |
| "Cyber Monday" (November 26) | $0.61 | $0.73 | 21% |
| "Green Monday" (December 10) | $0.66 | $0.88 | 33% |
| Source: comScore, Inc. | |||
comScore Chairman, Gian Fulgoni, said "...we continue to see some relatively strong online spending days... the day after Christmas saw online sales of $545 million, more than double the sales on the same day last year... indicat(ing) that consumers were... able, to take advantage of... late-season promotions and price discounts offered by retailers this year."
Another means of gauging the strength of online holiday spending, says the study, is to examine the period between Thanksgiving and Christmas, which represents the core of the holiday shopping season. This year, there were 32-days between Thanksgiving and Christmas, compared to 31-days last year. During this period in 2007, online sales grew by 21 percent versus year ago, a full 2 percentage points higher than the overall holiday season-to-date growth rate.
| 2007 Holiday Season Retail Spending vs. Same Period in 2006 (Total U.S. - Home/Work/University Locations Billion $) | |||
|
| 2006 | 2007 | Pct Change |
| Black Friday - Christmas Eve | $14.82 | $17.98 | 21% |
| Source: comScore, Inc. | |||
Mr. Fulgoni added "Warm weather during the early part of November took its toll on online retail sales, and played a role in holding down the growth in spending over the entire holiday season to a 19-percent rate, which is below last year's level of 26 percent."
| 2007 Retail Online Retail Consumer Spending (E-Commerce Forecast Total U.S. - Home/Work/University Locations Billion $) | |||
|
| 2006 | 2007 | Pct Change |
| January - October | $77.5 | $93.6 | 21% |
| Holiday Season (Nov-Dec) | $24.6 | $29.5* | 20%* |
| Source: comScore, Inc. (*comScore forecast) | |||
And, a follow-up report by Internet Retailer through December 29th, puts retail sales for the week ended Dec. 29 up 14% over the comparable week a year ago, according to the National Retail Sales Estimate compiled by ShopperTrak RCT Corp. Foot traffic to stores was up 6.9% over last year.
The late shopping push puts retail sales on track to reach the 3.6% gain in overall retail sales for the holiday season. By contrast, web measurement firm comScore Networks has projected a 20% increase in holiday online sales.
Total retail sales for the week that ended Saturday were down an anticipated 17.7% from the week ended Dec. 22, which included the busy final Saturday before Christmas, and foot traffic to stores was down 7.9%, ShopperTrak reports.
Bill Martin, co-founder of ShopperTrak, said "... on Sunday and Monday, retailers experienced the expected boost provided by procrastinating shoppers... in the days immediately following Christmas consumers flocked to stores to take advantage of post-Christmas sales and to begin redeeming gift cards... "
McDonald's Takes On A Weakened Starbucks
Food Giant to Install Specialty Coffee Bars, Sees $1 Billion Business
![[Big Mac Attack]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_u0gD26O6JNtF0giZgA_xqn85uDKNYIrwdbdxdEzLK3b6CsJwHDOjI_rOlzNZzUJQ9qLp7GrIYZOhi8BUGNqFzQq65dEYljpelsAijQDQ9rZHyT94kqqxE6pJk41bRJk_QiYBCR0mTuwcRBT3eZ=s0-d)
![[What Are You Drinking?]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_uYN2szoczU65ZuSN6BOduDiU_f6kPWw4MswMUd-PNuEvJVcCti4LYqAQU4gf-fJ-UE_hM3sWQzCW6iYg8YbsRFYHNK3LTi7zwgB8FufSZltVmjzGFOavII0O9x2dNLQvSXxsbykLBoWPB9nDAl-A=s0-d)
OLATHE, Kan. -- This fall, a McDonald's here added a position to its crew: barista.
McDonald's is setting out to poach Starbucks customers with the biggest addition to its menu in 30 years. Starting this year, the company's nearly 14,000 U.S. locations will install coffee bars with "baristas" serving cappuccinos, lattes, mochas and the Frappe, similar to Starbucks' ice-blended Frappuccino.
Internal documents from 2007 say the program, which also will add smoothies and bottled beverages, will add $1 billion to McDonald's annual sales of $21.6 billion.
The confrontation between Starbucks Corp. and McDonald's Corp. once seemed improbable. Hailing from very different corners of the restaurant world, the two chains have gradually encroached on each other's turf. McDonald's upgraded its drip coffee and its interiors, while Starbucks added drive-through windows and hot breakfast sandwiches.
The growing overlap between the chains shows how convenience has become the dominant force shaping the food-service industry. Consumers who are unwilling to cross the street to get coffee or make a left turn to grab lunch have pushed all food purveyors to adapt the strategies of fast-food chains.
It also shows how the chains' efforts to adapt to a changing market have had drastically different results on their bottom lines. McDonald's is entering the sixth year of a successful turnaround, while Starbucks has begun struggling after years of strong earnings and stock growth.
Still, the new coffee program is a risky bet for McDonald's. It could slow down operations and alienate customers who come to McDonald's for cheap, simple fare rather than theatrics. Franchisees say that many of their customers don't know what a latte is.
The program attempts to replicate the Starbucks experience in many ways -- starting with borrowing the barista moniker. Espresso machines will be displayed at the front counters, a big shift for a company that has always hidden its food assembly from customers. McDonald's says it wants customers to see the coffee beans being ground and baristas topping the mochas and Frappes with whipped cream.
"You create a little bit more of a theater there," says John Betts, McDonald's vice president of national beverage strategy.
Ads for the espresso drinks running in the Kansas City area, where the concept is already being tested, say you don't get a "condescending look" for mispronouncing the size of the drink at McDonald's -- a jab at the "grande" and "venti" sizes at Starbucks. (At McDonald's, you just ask for small, medium or large.)
Starbucks Chairman Howard Schultz popularized lattes and cappuccinos in the U.S. after borrowing the idea from espresso bars he visited in Italy. When he began expanding Starbucks beyond Seattle in the late 1980s, he said he wanted the cafes to serve as a "third place" where people gather between home and work and feel some of the romance of the European cafe.
But the coffee chain has evolved into more of a filling station. It is now battling fast-food outlets for some of the same customers and meal dollars. Today, about 80% of the orders purchased at U.S. Starbucks are consumed outside the store. The average income and education levels of Starbucks customers have gone down, the company has said. As part of a big push into food, Starbucks sells lunch at more than two-thirds of its company-owned locations in the U.S.
Starbucks's rapid store and menu expansion have slowed traffic at older locations and gummed up operations behind its counters. After years of downplaying threats from rivals, Starbucks executives now say they're preparing for competitive encroachment.
"We understand all too well that we have built a very attractive business for others to look at and try and take away," Mr. Schultz told investors on a conference call this November. "We are up for the defense and we are going to get on the offense." Starbucks declined to make executives available for this story or specifically address competition from McDonald's.
McDonald's executives say they aren't launching espresso drinks to go after Starbucks, but instead to cater to consumers' growing interest in specialty drinks. And although McDonald's is encroaching on the business that Starbucks invented, analysts say McDonald's may pose more of a threat to Dunkin' Donuts, which has a more similar customer base. Analysts also point out that McDonald's overall beverage expansion, which includes bottled drinks, is as much aimed at taking business from convenience stores and vending machines as it is from specialty cafes.
![[The espresso machine at the counter in Olathe, Kan.]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_uVXPJOVPoOLTspDxf_0VnpCYELJGZ9DVybzsH8oo_B6JbX56ASepCgNVl7OwkPp7UAW9iQq_SJSWClQaTi91hi7MmsYN80PR9Kk13QyxnbYq4uo1mS-WF2TmtaM4x1sOzgC5HFbyeXzNm0G6gL=s0-d) |
| The espresso machine at the counter in Olathe, Kan. |
Starbucks increased its sales even in parts of the country where Dunkin' Donuts has a strong presence. Some analysts say Dunkin' and other fast-food competitors actually have helped Starbucks by expanding the total market for upscale coffee drinks.
A Dunkin' spokeswoman says the company doesn't comment on competition but says the chain believes it has "democratized" espresso and become a coffee destination.
McDonald's grew from a single San Bernardino, Calif., hamburger outlet that opened in 1948 into the world's largest restaurant chain by offering consistent hamburgers and french fries served quickly and at a low price. Its beverage lineup, anchored by Coca-Cola Co. sodas, was designed to complement its food.
McDonald's executives watching the growth of Starbucks at the beginning of this decade realized that they were missing out on the fastest-growing parts of the beverage business. Data showed that soda sales had flattened while sales of specialty coffee and smoothies were growing at a double-digit rate outside McDonald's. Customers were buying food at McDonald's, then going to convenience stores to get bottled energy drinks, sports drinks and tea, as well as sodas by Coke competitors.
Early on, Starbucks didn't see the Golden Arches as a competitor "because McDonald's was selling hot, brown liquid masquerading as coffee," says John Moore, who spent almost a decade in Starbucks's marketing department before leaving in 2003.
McDonald's move into upscale coffees dates back to a concept that is unfamiliar to most of its customers: the McCafé. It started in Australia in 1993. McDonald's brought the cafes to the U.S. in 2001 by carving out a corner of the restaurant, decorating it with leather couches and adding a counter that sold cappuccinos and sweets. But the cafes never took off here because they didn't feed into McDonald's drive-through business, where two-thirds of sales take place, says Don Thompson, president of the chain's U.S. business.
In 2003, McDonald's initiated a turnaround strategy called Plan to Win. Among other things, it included a total remodeling at thousands of U.S. locations. Molded plastic booths were replaced with oversized chairs, lighting was softened and muted tones took the place of bright colors. Wireless Internet access was also added.
"We began to realize...we could definitely sell coffee in this environment," Mr. Thompson said. In 2006, McDonald's changed its drip coffee to a stronger blend and began marketing it as a "premium" roast.
In recent years, Starbucks started to see fast-food chains as more of a threat, according to former employees and people close to the company. In parts of the Northeast, store managers told baristas their biggest competition was Dunkin' Donuts, now a unit of Dunkin' Brands Inc., which made a national push into espresso drinks in 2004.
Starbucks increased the pace of its store expansion at the beginning of this decade. Some changes, including drive-through windows and breakfast sandwiches similar to the Egg McMuffin, mirrored techniques used by fast-food chains. This led to tensions among management and employees about whether the chain was eroding the core of the Starbucks experience, according to former employees and people close to the company.
At McDonald's, the success of its upgraded drip coffee emboldened the chain. In 2005, it began testing drinks sold under the McCafé banner at a handful of franchises in Michigan. It sold lattes and cappuccinos from the front counter so it could pass them to the drive-through windows.
McDonald's researchers contacted customers of Starbucks and other coffee purveyors and conducted three-hour interviews where they videotaped the customers talking about their coffee-buying habits. The researchers got in the cars of the customers and drove with them to their favorite coffee place, then took them to McDonald's and had them try the espresso drinks.
"There was a surprise factor," says Patrick Roney, a director of U.S. consumer and business insights at McDonald's. "The people who were on the fence...there was an opportunity to get those."
Restaurants that tested the drinks began passing out complimentary small mochas and lattes. "A lot of our customers don't know what a latte is," says John DeVera, an Overland Park, Kan., franchisee who is testing the drinks.
Management advised restaurant operators to hire baristas who are "very friendly" and show a "willingness to learn about the competitor's product," according to a 2006 internal memo about how to start selling the drinks. "For example, a typical Starbucks customer would ask for a Grande Latte; our Baristas need to know that this is a medium size drink," the memo says.
Unlike at Starbucks, where baristas steam pitchers of milk then combine it with the espresso, McDonald's process is more automated. It uses a single machine to make all the components of each drink. Espresso is brewed using beans with a darker roast that are more finely ground than those for drip coffee, resulting in a concentrated form that's usually mixed with hot milk to make lattes and cappuccinos. McDonald's has three flavors it adds to its espresso drinks, a significantly narrower lineup than Starbucks, which boasts thousands of drink combinations.
During testing, plain shots of espresso were taken off the menu and more whipped cream was added to some drinks. The company also moved the espresso machines to the front counter from the back after realizing the drinks undersold when employees made them with their backs to the customer.
Drinks are priced from $1.99 to $3.29 and come in vanilla, caramel and mocha flavors. In advertisements in test markets, McDonald's tells customers those are 60 cents to 80 cents less than competitors' prices.
Heather Pelis, a 19-year-old babysitter from Rayville, Mo., says she didn't like the McDonald's vanilla latte when she tried it. "It was a little syrupy tasting," Ms. Pelis said recently while drinking a drip coffee at a McDonald's in Liberty, Mo. But she says she'd be willing to try another espresso drink because they are cheaper than the caramel macchiatos she buys at Starbucks, and because McDonald's is more conveniently located. The nearest Starbucks is a 30-minute drive from her, she says.
McDonald's franchisees say they think the new coffee drinks will be particularly helpful in drawing young consumers who prefer them to drip coffee. Gary Granader, a Detroit-area McDonald's franchisee, has started seeing groups of teenagers at some of his restaurants after school since he added espresso drinks a year ago. Mr. Thompson says McDonald's also is considering adding some type of music-downloading service at its locations.
McDonald's beverage expansion will add a new line of bottled drinks by Coke competitors. The drinks being considered include PepsiCo Inc.'s Mountain Dew, Lipton green tea and Red Bull GmbH's namesake caffeine drink. Restaurants also are getting a soda fountain with flavor shots that allow customers to create their own drinks like cherry Sprite and vanilla Diet Coke. Mr. Thompson said that Coke remains the "big brand" at McDonald's, and a Coke spokesman said the company is not concerned about the competing beverages being sold at McDonald's.
Only about 800 of McDonald's U.S. restaurants have the specialty coffee drinks now, and some may not get the full beverage program until 2009. Executives and franchisees will not give specifics on how well the espresso drinks have sold in tests.
McDonald's has already made some headway in gaining coffee credibility. In February, the magazine Consumer Reports rated the chain's drip coffee as better-tasting than Starbucks. Starbucks responded that taste is subjective and its millions of customer visits per week demonstrated the popularity of its coffee.
The rating nevertheless angered some top officials at Starbucks, according to a person familiar with the situation. Around the same time, Mr. Schultz sent a memo to Starbucks executives warning that the chain may be commoditizing its brand and making itself more vulnerable to competition from fast-food chains and other coffee shops. He lamented the loss of the "romance and theatre" that occurred when the company switched to automated espresso machines several years ago.
To improve store traffic and same-store sales growth, Starbucks has said it is trying to make its operations more consistent. It is reducing the number of items and promotions it offers and is focusing on what executives call the "vital few" areas that improve results, like selling more beverages and attracting more customers.
Starbucks executives have attributed the slowdown in sales growth and store traffic in the U.S. to the weak economy.
Mr. Schultz has said that new competition actually helps Starbucks by expanding the specialty-coffee category. "Those consumers over time are going to trade up," he told investors in November. "They're going to trade up because they are not going to be satisfied with the commoditized experience or the flavor." He has emphasized that Starbucks's baristas, who are instructed to memorize customers' drink orders and make genuine conversation with patrons, will continue to set the chain apart.
But some Starbucks baristas say that the chain's push into food and drive-through service has made that a lot more difficult. Some workers say their managers instruct them to ask customers whether they want a breakfast sandwich with their coffee -- a selling technique that feels unnatural when they know the customer doesn't want one.
"The more and more business they get in the store, the more it seems like another fast-food job," says Joe Tessone, a Chicago barista who has worked at Starbucks for three years.
The overlap between McDonald's and Starbucks has put Jack Rodgers in an unusual position. In 1958, McDonald's pioneer Ray Kroc granted Mr. Rodgers one of the chain's first franchises for a restaurant in St. Charles, Ill. Mr. Rodgers eventually traded that location and today owns part of three McDonald's around Newport Beach, Calif.
Mr. Rodgers later moved to Seattle where in 1985 he wound up investing in the predecessor chain of the modern-day Starbucks cafe. He later became a Starbucks board member and executive. He left the company in 1996 but remains a shareholder and a friend of Mr. Schultz.
Now Mr. Rodgers is looking at adding the lattes and cappuccinos to his McDonald's restaurants. He didn't envision the chains would compete so closely when he first invested in Starbucks. "Not in my wildest dreams did I see this coming," he says.
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