Facebook May Revamp Beacon

After pressure from MoveOn and members, the social network may change a policy on sharing info on users' Web buying and activities

In the wake of mounting criticism, Facebook executives are discussing changes to a controversial advertising tool that publicizes users' Web activities outside of the popular social network. Alterations to the recently introduced Beacon system could be announced as early as Nov. 29, BusinessWeek.com has learned.

Executives of the three-year-old company were in deep talks over proposed changes late into the afternoon on Nov. 28, according to a person familiar with the matter. At issue is the Beacon program, which alerts members' Facebook "friends" to purchases and other activities on third-party Web sites. A spokesperson for the company declined to discuss changes, reiterating an earlier statement: "Facebook is listening to feedback from its users and committed to evolving Beacon."

Too much disclosure

Critics say Beacon constitutes an invasion of privacy. They've clamored for the reversal of a feature that requires users to opt out of inclusion each time Facebook wants to send information and demanded that Facebook switch to an opt-in policy. A move to scale back Beacon may appease at least some of the more than 40,000 people who have signed a petition, begun Nov. 20 by public policy group MoveOn.org, that urged Facebook to turn off the system unless users explicitly say they want to share their actions. "It should have been an opt-in program to start out with," says Matt Flaschen, a Georgia Tech sophomore and Facebook member who signed MoveOn's petition. "If I want to go to a movie, why does everyone on my Facebook need to know about that?"

Even as Facebook mollifies disgruntled users, it risks rankling some of the partners that signed on in hopes of benefiting as members broadcast their purchases—say, from Blockbuster (BBI) or eBay (EBAY)—to a circle of friends. As part of the Beacon arrangement, partners pay for what Facebook CEO and founder Mark Zuckerberg has called "trusted referrals." The idea is that Facebook users will be more apt to patronize the sites and stores their friends are using. On Nov. 6, when he announced the system, Zuckerberg called trusted referrals the "holy grail" of advertising (BusinessWeek.com, 11/07/07).

"I Feel Duped"

Many users considered it more of an unholy alliance. One member complained of a spoiled Christmas after Facebook broadcast the person's purchases on Overstock.com (OSTK), a partner site. Other users said they were creeped out after friends learned of actions they never realized were forwarded to their Facebook lists.

Several people complained they weren't given the option not to share information publicly, or that pop-up notices on partner sites were too subtle to notice. Kim Garvey, a 21-year-old junior at Chicago's DePaul University, says she found out about Beacon after friends were alerted to a restaurant review she posted on Yelp. "I didn't see the little thing that popped up, and I didn't mean to tell everyone," Garvey says."For me, that was sort of uncomfortable." She adds that she was surprised Facebook "is willing to invade people's privacy."

On Nov. 27, Facebook tweaked its system to ensure that users were clearly notified, both on Facebook and on partner sites, that news of an off-Facebook activity would be sent to friends, unless the member explicitly declined to send that information. The change did little, however, to appease upset users, many of whom don't want Facebook to share information on their Web activity for advertising purposes—even if it's shared with people they’ve identified as friends. "I feel duped," says Frank Kruller, a Facebook member for seven months. "If I wanted to share something with my friends I'm pretty sure I could tell them myself."

Threatened mutiny

Any move that weakens Beacon's appeal to advertisers leaves Facebook under pressure to find other ways to lure marketers and justify the lofty $15 billion valuation bestowed by Microsoft (MSFT) in October, when it purchased a 5% stake for $240 million (BusinessWeek.com, 10/25/07). Users of social networks are typically less responsive to standard ad formats, such as the posterlike banner ads commonly seen on the Web, than to newer, more interactive or personalized advertisements. Some marketers say that when they place banner ads on Facebook, the so-called click-through rate, a measure of user responsiveness, is one-fifth the rate for the larger Web.

But many Facebook users insist that they, not marketers, should set the terms of how, and how much of, their information is shared for advertising purposes. Some threatened to move to other social networks or start their own blogs if Facebook takes that decision out of their hands. "I will set up my own blog," says Flaschen. "It is a little less convenient, but if [Facebook] can't understand the privacy implications of what they are doing then it's not worth it."

Adam Green, a spokesman for MoveOn, hopes other social networks that have their own Facebook-like feeds about users' actions—namely, News Corp.'s (NWS) MySpace—take heed of such warnings. "We hope that this is opening a lot of people's eyes to the very real privacy concerns on the Internet," says Green. "The privacy interests of Internet users should get put before the wish list of corporate advertisers."

Link to BusinessWeek Article

LinkedIn CEO: We’d only sell for “a helluva lot”

I sat down Tuesday afternoon in Mountain View, Calif., with Dan Nye, the newish CEO (he joined earlier this year) of LinkedIn. That’s the company that is like Facebook for grownups, a businessperson’s social networking site. Nye’s looking for press because LinkedIn plans to unveil some nifty new features on Dec. 10. (I got a look, but agreed not to divulge anything yet.) I was interested in hearing what he had to say, in part because of the rumors flying around that LinkedIn plans to sell the company early next year to News Corp. (NWS)

The buyout gossip began with an item last week in the UK version of TechCrunch. Never mind that LinkedIn founder Reid Hoffman (a made man in the PayPal mafia and a buddy of mine) categorically denied the rumor in the Daily Telegraph. Anything that suggests that Rupert Murdoch would expand his social-networking empire is sure to set tongues wagging. Breakingviews.com wrote an intelligent summary of why a LinkedIn acquisition would make sense, largely because of the opportunities to leverage LinkedIn’s tools with the Wall Street Journal readership.

Not surprisingly, Nye didn’t deny that News Corp. made an offer for his company. Instead, he said that when he joined the company he told the board — comprised of Hoffman, Sequoia’s Mark Kvamme and Greylock’s David Sze — that he was only interested in taking the job if the goal was to “go long.” But is he selling out anyway? “We’re excited about building this company,” said Nye. “It would take a helluva lot to get us off that path.” Does that mean $1 billion? “A lot more than that,” said Nye, who worked at Procter & Gamble (PG), Intuit (INTU) and Advent Software (ADVS) before joining LinkedIn.

LinkedIn clearly is playing to win. The company has mushroomed from 60 employees when Nye joined in February to almost 200 today. At the time, LinkedIn had 9 million members; today it has nearly 17 million. Nye predicted revenues will range from $75 million to $100 million next year.

LinkedIn has the virtue of having survived adversity. Before Facebook and MySpace existed — back when Friendster was hot — LinkedIn was just getting going. It’s still going. Independent or part of News Corp., it’s fun watching this plucky company succeed.

Link to Article

Smiles, Everyone

Online hookup site MySpace is beginning to look a lot less like Facebook and a lot more like MTV.

The show writes itself. four cute girls fresh out of college move into an apartment in Los Angeles. In one episode a leggy brunette, Peyton, walks in on Violet while she's in her lacy underwear. Another time Violet rubs on lotion and takes a bubble bath. Later in the season Peyton makes out with a guy on the couch in front of her friends.

This is Roommates, a new faux reality show that is getting heavy promotion on MySpace. It has the distinction of being the first series conceived by, and exclusively for, the social networking Web site. Episodes are only three minutes. Plot is mostly nonexistent, and it seems to be a ripoff of MTV's The Hills, another show about young women living a reality-nonreality conundrum in L.A.

MySpace says Roommates is a hit, but that depends how you define "is" and "hit." The series' 19 shows have garnered a combined 3.7 million views, about half of what Katie Couric gets in one night. A typical YouTube hit gets 1 million views.

Hit or not, Roommates is making some waves for MySpace, owned by News Corp. (nyse: NWS - news - people ) MySpace is still the biggest in the business, with 72 million unique visitors in the U.S. in October, according to ComScore (nasdaq: SCOR - news - people ). Its home page is one of the most valuable on the Web, with 130 million page views each day, says MySpace. MySpace has been a great investment for Rupert Murdoch since his News Corp. swooped in with a $650 million deal for Intermix, the former parent of MySpace. This year MySpace is expected to earn News Corp. $200 million to $300 million before interest and taxes on $800 million in revenue.

But MySpace's user growth is slowing, those who go there are spending less time per visit, and rival networks such as Facebook are rising fast. And try as MySpace might to dominate Internet video, YouTube has pretty much walked off with the business (see chart).

"Everyone thinks YouTube is taking over TV on the Internet, but we had 51 million unique streamers [in June]," says MySpace Chief Christopher DeWolfe. But by September, that figure fell to 38 million. With growth slowing, DeWolfe is having to get creative--and that means going Hollywood and making his own content. "We have done dozens of new deals with Sony (nyse: SNE - news - people ), Fox, NBC, the NBA and the NHL, and now we have our own content," he says. He sees Internet video becoming one of MySpace's primary revenue streams.

Social networks were supposed to be anti-Big Media, created by and for other members. And while most of what's on MySpace continues to be of the babies-eating-dog-food genre, it turns out that this isn't worth much to advertisers, nor are the couple hundred million member-profile pages plastered with photos of people showing off their abs. "Brands like P&G do not want to advertise on Web pages that have 14-year-old girls kissing each other," says Jared Pobre of Ideal Exposure, an ad firm in Irvine, Calif.

But show a commercial before or during a professionally produced video and you can bring in as much as $60 per thousand visitors in ad revenue. MySpace has aired a teen drama series from Michael Eisner's Web production company, edited-down versions of retro TV shows such as Starsky & Hutch and in November debuted Quarterlife, a prime-time-quality drama series.

YouTube and Facebook have avoided spending money on original content and instead stick to letting their users and other producers make stuff for them. Previous attempts by Internet companies to become production houses--even when run by former TV executives--have failed. In early 2005 Yahoo (nasdaq: YHOO - news - people ) Media Group announced big plans to produce its own shows for the Web, to be spearheaded by former ABC Entertainment Television Group chairman Lloyd Braun. But Braun left under a cloud in late 2006, and Yahoo now produces almost no original content.

MySpace TV General Manager Jeffrey Berman insists he will not suffer the same fate: His bets are small, and he always tries to line up a sponsor first. "We're not going to do this if it means throwing millions of dollars down a hole," he says.

Online shows like Roommates can be made for $3,000. Per minute, that comes to 1% to 2% of what producers spend making prime-time shows for broadcast networks. MySpace is financing the 45 episodes, which are being made by Iron Sink Media, a producer in L.A. The show was profitable before the cameras rolled, thanks to an estimated $500,000 sponsorship from Ford. In one episode Sigourney buys a new car. Guess which brand? Viewers like girls more than ads. The episode in which Sigourney test-drives her Ford Focus has had 47,000 views so far. "The Exhibitionist," which features a half-naked girl, has had a million plays.

A year ago MySpace was unsure how to make money on its vault of videos. That changed in April when MySpace aired Prom Queen, an 80-episode (each a minute and a half) teen drama by Michael Eisner's new-media studio, Vuguru. The episodes, which aired on multiple sites, brought in an average 200,000 views apiece. Eisner's team sold product placements, proving that there was a way to make money advertising in online videos. A spinoff aired this summer.

MySpace TV became an official division in June under Berman, a former public defender from the D.C. suburbs. He has hired a handful of people from the TV industry, including folks from CNN, HBO and Scott Rudin Productions. They've already signed content deals with some veteran producers. MySpace distributes Sony's Minisode Network, which offers pared-down versions of old shows like Fantasy Island and What's Happening!! Honda (nyse: HMC - news - people ) is the sponsor.

Quarterlife is a show about coming of age in the blog era, by Marshall Herskovitz and Edward Zwick, the duo that created TV classics Thirtysomething and My So-Called Life. Herskovitz and Zwick, who originally conceived the show for prime-time TV, put up at least $50,000 to shoot each eight-minute episode. MySpace gets to run it exclusively for the first 24 hours. Then it gets syndicated to quarterlife.com and a week later to multiple sites, including YouTube, Facebook and Imeem.

Berman would rather keep the content on his site and grab more of the ad revenue. In MySpace's Artist on Artist, celebrity actors, musicians and filmmakers interview one another, coincidentally around the time they release a new record or movie, as was the case when The Darjeeling Limited director Wes Anderson and actor Owen Wilson did the show. The program, like many others, was conceived by MySpace's marketing department and leaves a subtle "I think I've just been advertised to" aftertaste.

MySpace has also put on 100 free concerts, called Secret Shows. Dates and locations are shared only with "friends" of Secret Shows. Headlining bands have included the Killers and Gnarls Barkley. Secret Shows spawned a similar program for comedians called Secret Stand-Up. MySpace also streams live concerts on its site and has its own record label.

Social networking sites have worries other media companies do not, like trying to avoid their association in the public's mind with perverts. In September MySpace arranged for starlet Amanda Bynes to appear at a free, MySpace-hosted screening of her new film, Sydney White. MySpace invited members who had "friended" MySpace's Black Curtain Screenings online. Bynes, 21, stood in front of the theater against a MySpace banner and fielded questions from the audience, which was filled with young girls and some older men who sat in the rear. One girl asked Bynes, who has MySpace pages for her movie and clothing line, if she also had a personal MySpace page. "No," said Bynes. "Why not?" asked the girl. "My parents won't let me. For security reasons. I don't want to get stalked." MySpace's marketers groaned.

MySpace cofounder Thomas Anderson is dismissive of the utilitarian approach taken by its faster-growing rival Facebook, which focuses on the software and leaves content creation to thousands of developers who've made popular games and other diversions that keep people coming back. "They want to be an operating system. We want to be fun and cool and relevant to culture," he says. Anderson is considering a number of new ventures, including offering an online invite service and helping MySpacers share reviews of restaurants and clubs.

It's too early to rule on MySpace's ability to dominate popular culture. Meanwhile, another episode of Roommates tapes at a nondescript house in L.A.'s Studio City, and Jeffrey Berman and his staff of mostly oh-so-cool kids in their 20s sit around a table in Beverly Hills, discussing a dozen ideas, including a dating show, a hidden camera show and a spoof on cop dramas.

Link to Forbes Article

Adobe Teams Up With Yahoo to Run Ads in PDF Files

By VAUHINI VARA
November 29, 2007; Page B3

The text-based advertisements that you are used to seeing on Web sites are coming soon to an unusual place: PDF documents.

Adobe Systems Inc., a maker of online-publishing software, announced Thursday a program in which publishers can get paid to run ads from Yahoo Inc.'s ad service alongside PDFs.

Adobe, San Jose, Calif., gives away the Reader software used for accessing documents in its "Portable Document Format" and makes money by selling the Acrobat software used for creating such documents. Until now, publishers could place ads in PDFs on their own, charging advertisers for static blocks of text or graphics that they would place in the document. But that meant the publishers had to sell the ads and lay them out on the page on their own.

Now, publishers will be able to show ads alongside their PDFs without selling and inserting the ads themselves, by uploading the PDF content to Adobe's Web site to ad-enable it, then distributing the PDFs as they previously did -- an easier and less costly option. Advertisers, meanwhile, can use Yahoo's existing self-service ad system to buy text ads that will run in a panel to the right of the PDF, when it is viewed in Acrobat or Reader. Yahoo will use the text of the PDF to place contextual ads that are relevant to the subject matter of the PDF -- similar to the text ads that run in blogs, for instance. For example, the editor of a newsletter for car enthusiasts could send out the newsletter at no charge and make money through the ad system, which might display ads for car accessories.

The revenue from the ad will be shared between the publisher, Adobe and Yahoo. The companies declined to give details on the revenue split.

"Consumers' expectation is that content is free," says Kurt Garbe, an entrepreneur in residence in advertising at Adobe. "Some content will be sold at premium pricing, but there's a whole bunch of content" that can be monetized through ads.

Publishers participating in the program, called Ads for Adobe PDF Powered by Yahoo, include Meredith Corp., Reed Elsevier PLC and Pearson PLC's Pearson Education, among others.

Link to Wall Street Journal Article (Sub. Req.)

Verizon Wireless to go open access

Verizon Wireless announced plans to open its network to allow subscribers to connect any device and to use any application as long as it meets some "minimal technical requirements." The carrier's new policy is called "Any Apps, Any Device," which should roll out across Verizon's network by the end of next year. The carrier plans to disclose the technical standards that devices must meet to gain activation on its network early next year. After the requirements are published, Verizon Wireless plans to host a conference for developers to explain how they can "achieve the company's goals for network performance" when writing software for the devices, which will have to be CDMA-based.

During a conference call following the announcement, Verizon Wireless executives said that users could port CDMA phones from Sprint or even Korea to the network, as long as they work on the same frequencies. All phones brought to the network will carry a "very reasonable" cost of certification. The carrier reiterated that the phones must by CDMA, meaning the iPhone will not be supported.

"This isn't just phones," Verizon Wireless president and CEO Lowell McAdam said. "It could be a very small module in a gaming station, a home appliance, something that goes into your car. It doesn't have to have the traditional distribution or volumes," he said. In the past, "if a device is not going to sell hundreds of thousands, it's hard to decide because of our scale, but now, if something only sells five, now it can be on our network."

press release

Link to FierceWireless Article

Rumour: News Corp to buy LinkedIn

An unconfirmed rumour has reached me via a reliable source that LinkedIn is in talks with media giant News Corporation over a possible buyout in January 2008. The reason I am running with this, is that the source is very well-placed. Furthermore, the rumour has the fundamental ring of truth about it. Consider the following.

LinkedIn is firmly in the mainstream. Most of its users are mature professionals and it has a healthy number of early adopters. These people are gradually abandoning recruitment advertising in newspapers. Instead they use LinkedIn and sites like it - even, increasingly, Facebook - to build their professional network and advance their careers. In particular, LinkedIn appeals to the top of the professional market because older business people have a tougher time seeing the value of Facebook’s wackiness. News Corporation, headed by the shrewd Rupert Murdoch, owns some of the premier advertising properties aimed at top-tier professionals including The Wall Street Journal and (in the UK) The Times and The Sunday Times. (Murdoch was smart enough to buy MySpace when it was ‘just’ $580m in 2005, long before the billions associated with Facebook).

In the new environment of professional online networking Newspaper classified advertising is becoming an anachronism (as I have argued in the distant past), and this trend is reflected in the decline of the advertising market in the newspaper sector.
Newspaper advertising is plummeting in the US, down 7.4 per cent year on year. In the UK classified advertising was down 8 per cent in 2006 and will decrease further this year, according to a forecast by media-buying network Zenith Optimedia. Meanwhile online spending grew by more than 41 per cent in 2006 to just over £2 billion, according to figures released by the Internet Advertising Bureau.

However, while online revenue is growing it isn’t offsetting the declines in print revenue. So newspapers need another way to monetise their online operations, and social networking - which is eating into classified revenues - is the natural route to take.

LinkedIn is also on an upward growth path which makes it a good acquisition target. It has more than 16 million registered users globally, spanning 150 industries in more than 400 economic regions and in the last year it experienced 189% growth. It is now the largest professional networking site in the UK, with over 1m users. It has a high calibre of members too - senior executives for 96 of the FTSE 100 companies have their own LinkedIn profile pages. In the US, all of the Fortune 500 companies have an executive level presence.

In January LinkedIn, which has been profitable since March 2006, announced a $12.8 million round of financing led by Bessemer and the European Founders Fund, bringing the total raised since launch to$26 million. The company had something over $10 million in revenue in 2006, and said they’ll do substantially more than that in 2007.

In the UK LinkedIn competes to some extent with with Ecademy, and in Xing in Europe/Asia, though its biggest competitor globally is Facebook. But the latter is too expensive a prize for News Corporation, even allowing for the tactical errors it’s made in recent weeks, which will have downgraded it from its $15 billion valuation, and the launch of Google’s competing OpenSocial platform for social applications.

There’s a further reason that LinkedIn could be in talks with News Corporation. Chairman and founder Reid Hoffman was this week in London to speak at MediaTech and an Oxford University event, affording him ample opportunity to visit News Corp executives here.

Although Hoffman hired a new CEO and became chairman in February he is still deeply involved in the business. Interestingly, in an interview with the Daily Telegraph this week, he was quoted as saying: “I would make LinkedIn a public company – but not until we’ve finished innovating. I find companies are more innovative when they’re private.”

This may indicate that LinkedIn will spend the remainder of this year working on the OpenSocial integration, prior to a sale. With Facebook snapping at its heels, it’s hard to see another route for it to take.

Link to TechCrunch Article

Digital Music: Just A Band-Aid For Music Industry's Gaping Wound

DIGITAL MUSIC WON'T SAVE THE recording industry, according to a new study.

Despite the growth of digital spending to one-third of the U.S. consumer music market by 2012, it won't be enough to offset the decline in CD sales, according to JupiterResearch, a New York-based research company.

The study projects that digital music sales, including subscription services and downloads, will triple to $3.4 billion in 2012 from $1.04 billion in 2006. Digital sales this year are expected to hit $1.3 billion. But gains in the online business aren't expected to reverse the industry's overall slide--with total revenues estimated in 2012 at $10.1 billion, down from $11.6 billion in 2006.

"Digital music won't be enough to restore growth for the industry or replace the lost CD sales of the past," according to the report authored by Jupiter research director David Card. "But it's the only sector where there's significant growth."

Digital sales haven't replaced CDs on a one-to-one basis because on-demand subscription services appeal only to a niche audience of serious music fans, while downloads generally amount to only a few a year. Online spending geared toward singles priced at 99 cents each can't make up for the declining dollars spent on albums priced at $13 or $14 apiece.

"Everybody listens to music...but a lot of people don't spend a lot on music," Card tells Online Media Daily.

The study doesn't envision advertising playing a big role in online music anytime soon. On one hand, users say they would prefer an ad-supported on-demand music service to a typical subscription model that charges $10 to $15 a month. But Jupiter finds that existing licensing practices make ad-driven music ventures difficult. "It's hard to imagine anyone selling $8 to $10 worth of ads per user per month, when there is hardly any audio advertising online," according to the report.

SpiralFrog, the most high-profile ad-supported music effort, launched last August after a series of delays and the departure of then-CEO Robin Kent. On Tuesday, privately held SpiralFrog reported a third-quarter loss of $3.4 million on revenue of just $20,400. In exchange for free tunes, users view advertising on the site while downloading music. But SpiralFrog so far offers only about 800,000 songs compared to other services such as iTunes and Rhapsody, which have at least 2 million songs each.

"There's no question in my mind that there will be an ad-supported business model that will emerge eventually, but not one that will emerge right away to make up for declining CD sales," Card says. The report notes, for instance, that Rhapsody and Napster have both introduced limited ad-supported offerings to lure new customers.

Despite the challenges, the study encourages music labels and publishers to seek out new licensing revenue streams through advertising and ringtones, as well as both online and terrestrial digital radio. "The industry needs to work hard on these things and experiment boldly, because artists have to get paid at end of the day," Card says.

Link to MediaPost Article

Yahoo Signs Licensing Deal With Sony BMG

YAHOO HAS SIGNED A BROAD new licensing agreement with Sony BMG that allows consumers to add music and video content from the label and its artists to user-generated creations.

The deal expands the catalog of music videos on Yahoo Music from Sony BMG, whose artists include Alicia Keys, Daughtry, Bruce Springsteen and Jennifer Lopez. It also allows the distribution of videos through a media player that users can access on other Yahoo properties and embed on third-party sites.

Terms of the deal were not disclosed, but they include a revenue-sharing agreement between Yahoo and Sony BMG on video advertising.

The agreement marks the first time Yahoo has licensed content from a major record label in connection with user-generated videos. Sony BMG signed a similar licensing deal with Google last year, and struck another last month with social networking site MySpace.

Under that deal, Sony will license music videos, select audio material and other content from its artist roster, and will make the content available on its artists' MySpace profile pages. The moves reflect a growing willingness by music companies to make their assets available online with fewer restrictions.

A new report released by JupiterResearch on Tuesday says that while digital sales will make up one-third of the music market by 2012, the growth online won't offset the drop in CD sales.

Piracy has been a chief concern of record labels and other traditional media companies heading online. Last month, a group of major media and Internet companies including Disney, NBC Universal, MySpace and Veto announced a set of guidelines calling for the use of filtering technologies and other steps to block the unauthorized use of copyrighted material in user-generated content online.

Yahoo is not part of the coalition, but plans to introduce its own monitoring and filtering system for unauthorized content next year.

Link to MediaPost Article

Facebook's hopes to enter the tangled web of China gain momentum

Facebook appears to have decided on acquisition as its preferred method of entering the booming Chinese market, after months of speculation about how the social networking website would tap the country’s rapid growth and avoid the pitfalls that have slowed earlier overseas venturers.

Facebook is reported to have offered $85 million (£41 million) to buy Zhanzuo.com, its largest Chinese counterpart, which has an estimated seven million active users and a popular base among students.

It would give Facebook a ready-made entry point to the largest internet market outside the United States.

A spokeswoman told The Times that Jack Zhang, Zhanzuo’s chief executive, and Mark Zuckerberg, the Facebook founder, were acquainted but this did not mean that they intended to reach a deal – for the moment.

She added, however, that “there could be more information by the end of the month”.

Facebook already boasts more than 100,000 users of its English-language network in China and rumours of its local-language entry were fuelled with the company’s recent registration in China of the domain facebook.cn.

Entering the Chinese market carries risks for foreign companies.

The publicity that surrounded Yahoo!’s decision to comply with Chinese police demands to provide details of the e-mails of Shi Tao, a journalist later sentenced to ten years in jail on charges of leaking state secrets, has served as a warning to outside players.

Moreover, censorship and state monitoring of the internet provide a potential quagmire for would-be internet entrants.

Any attempt to search for the three T’s of Tibet, Taiwan and Tiananmen Square sets off alarm bells among China’s vigilant cyberspace police, likewise an attempt to find reference to the banned Falun Gong quasi-religious movement.

Most servers have barriers in place that tell a user to try another term in these cases.

Rebecca Mackinnon, an expert in new media at the University of Hong Kong’s Journalism and Media Studies Centre, said that foreign firms may prefer to use a local partner who is more aware of where the line is drawn and how to avoid crossing it.

Ms MacKinnon said: “If the authorities see people organising a group with political aims not consistent with the Communist Party, then they will shut it down.

"The nightmare would be if someone organised a Falun Gong cell on their watch and the officials come in and close down your business.”

Tangos Chan, an internet analyst, thought that the entry of Facebook was only a question of time, but said: “There has been no successful foreign acquisition in China.”

It was too early, he added, to tell if the April launch of a Chinese-language Myspace had been a success.

Link to Times UK Article

Southern Comfort Spins Rhapsody Downloads, Party Tricks

Southern Comfort is now inviting fans to upload party tricks, and offering Rhapsody downloads to participants. The giveaway, which started earlier this month, involves a total of 50,000 downloads. That action is happening online at the SoCo Night Institute (soconightinstitute.com), a tongue-in-cheek academy that features user-uploaded video instructions on how to create concoctions, serve after-party snacks, and perform party tricks. Each submission is rewarded with a free Rhapsody download, and if the video is accepted into the "nightlife skills curriculum," a total of 10 downloads are offered.

For Southern Comfort, the Institute is designed to create a good times theme around its brand. But whether consumers are motivated by gratis downloads remains questionable, especially given the quick availability of freebies elsewhere. That is the difficult terrain that Rhapsody has struggled against, though the SoCo partnership is part of a serious promotional and advertising ramp-up. Just recently, Rhapsody owner RealNetworks was joined by MTV Networks in a joint digital music partnership, a power-play aimed at unseating Apple and luring finicky music fans. The two companies now jointly oversee the Rhapsody brand.

Link to Digital Music News Article

British Paid Downloads Cross 150 Million Mark

The British recording industry has now sold 150 million paid downloads, according to information shared by the Official UK Charts Company and label trade group BPI. The tally represents a modest acceleration for the UK-based paid download market, and the BPI appeared bullish on both digital and physical trends.

In March of this year, paid download sales topped the symbolic 100 million mark, a per-month rate of roughly 5 million purchases. The latest benchmark ups that monthly rate to roughly 6.25 million. Across the pond, the United States is experiencing far headier sales levels, and concerns of a possible market plateau.

Elsewhere, the BPI pointed to a broader surge in holiday quarter sales, though year-end totals will be closely watched. The holiday action is being led by heavy-selling debut artist Leona Lewis, who threatens to outstrip a first week debut sales record previously established by the Arctic Monkeys. Elsewhere, a number of stars recently pushed past the 100,000 sales mark during their opening weeks, including James Blunt, Westlife, and the Eagles. But despite the strength, broader sales issues linger. During the summer, the BPI disclosed a rather pronounced dip in first half sales, a development that reversed an earlier resilience by the British recording industry.

Link to Digital Music News Article

MSN, Control Room Ready Jay-Z Performance Broadcast

Jay-Z may have shunned iTunes on this latest release, American Gangster, but the rapper is embracing other platforms. Apple refuses to offer album-only downloads, a stance that caused Jay-Z to pull his content from the iTunes Store. But live performance streams are less permanent and more promotional in nature, and that allowed MSN and Control Room to broker an upcoming broadcast.

On Tuesday, the duo will stream a Jay-Z show from the Hammerstein Ballroom in New York, the first date on a short, six-city tour. Diddy, Li'l Wayne, and Rock Boyz are also on the bill. "Control Room's mission is to bring artists of this caliber and exclusive live performances, like this one, to a worldwide audience," explained Aaron Grosky, president of Control Room. The performance is part of a larger, multi-year partnership between Control Room and MSN, a pact that first surfaced late last year. American Gangster was the best-selling album last week, though digital sales were predictably small.

The broadcast starts at 2 o'clock pm EST at music.msn.com/jayz.

Link to Digital Media News

Service, Convenience Create Loyalty Leaders Like Google

RISING GASOLINE PRICES, THE NEED for speed, and convenience are cited as driving consumers' loyalty to Internet companies and online catalogues. Google is, in fact, the No. 1 brand in the 10th annual Brand Keys Loyalty Leaders List, compiled by the New York-based marketing consultancy.

About half of the Top 10 brands in the study are search engines or clothing catalogues. In this year's clothing catalogue category, J. Crew jumped 100 spots to the No. 6 position.

Robert Passikoff, founder and president of the firm, which polled 26,000 people 18 to 60 years of age nationwide, says service and convenience carries the day. The cost of traveling has especially helped the Web-based companies and traditional companies marketing online.

"You don't have to leave your home to be able to utilize their services, and they have been doing the same price reductions as brick-and-mortar stores," he says. "And it's been confounded further by the gasoline crisis."

Passikoff says that loyalty transcends practical considerations. "We estimate that 70% of loyalty is emotionally based, which is why Internet companies like Amazon.com are doing so well: either serendipitously or by strategic plan, they decided that they wouldn't be merely an electronic cash register, but that they would form a kind of community, and that's where the emotional bond comes in."

And the power of strong customer service transcends distribution models; consumers are loyal to companies that treat them right, regardless of whether they do so over the counter or through the Web. "Nordstrom, which was founded on strong customer service, ranks very high," he says. "Ultimately, it's the service and convenience factors and how well a brand meets and exceeds expectations."

No. 2 on the Loyalty Leader list is Yahoo, moving up from No. 5. "The gap between them has been getting smaller and smaller every year," notes Passikoff. L.L. Bean is No. 4, Sears is No. 14, Eddie Bauer is No. 22 and Lands' End is 24.

In addition to J. Crew, the study gave the biggest loyalty leaps to Verizon, which is at 10 and up from 54, Dunkin' Donuts, which jumped from 159 to 83 and Kohl's, which went from 134 to 84 this year.

Passikoff says packaged goods companies have a more difficult issue with loyalty because of price, variety and the perception that many such products are commodities hamper loyalty. And that, he says, is why that 70% solution of emotionality becomes critical for things like detergent and toothpaste.

"It's not that they are doing something wrong, it's that it's so easy to switch from Tide to Whisk. It is one of the reasons these companies are so anxious to support their brands and create emotional bonds, because if you don't, you become a category placeholder."

The bottom five brands in the study are Taco Bell, Diet Dr Pepper, The Gap, Con Edison and the NHL. At least one of these could be a poster child for the power of the Internet to disassemble branding: Passikoff suggests that the bottom brands have, in some way or other, "disappointed people in an extraordinarily emotional fashion."

Taco Bell is still suffering from the infamous rodent-cam fiasco of last year. "Nothing travels faster than the speed of light except bad news on the Internet," he says. "The NHL has not been able to create the interest, and some of that is rational in nature: They don't have TV infrastructure."

He says the big surprise was that so many catalogue houses were among top brands for loyalty. He says it's obvious why when one "takes a step back and sees that they are delivering at a good price, and their consumers don't have to get in their cars."

Link to MediaPost Article

Facebook, LinkedIn Biggest Social Network Movers

The latest social networking numbers don't jive with comScore's findings or the companies' own internal data, but nevertheless, October growth figures from Nielsen Online reaffirm what other traffic firms know: Facebook continues to outpace News Corp.'s MySpace in the growth department. Year-over-year, Facebook's October traffic surged 125 percent, from 8.6 to 19.5 million.

But that's still light-years away from MySpace's monster numbers: 58.8 million users for the month, up from 49.5 million a year earlier, representing 19 percent growth. Facebook added nearly 11 million users in October, only slightly more than MySpace, which added 9.3 million. You decide what's more important, a faster rate of growth or the actual numbers.

Other winners and losers on Nielsen's growth chart were Classmates.com, the sector's former No. 2, which actually lost 2 percent of its users over the last year, with 13.3 million, MSN's Windows Live Spaces, which added 2.4 million users to reach 10.3 million, AOL Hometown, which lost 1.4 million users, at 7.9 million, and finally, LinkedIn--surprisingly the sector's biggest mover--up a whopping 189 percent to 4.9 million. Last year at this time, the social network for professionals recorded just 1.7 million unique users. Disney's Club Penguin also receives an honorable mention for its 157 percent growth, which saw it move from 1.5 million to 3.9 million monthly uniques.

Read the whole story...

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Tag Heuer Pumps Up Holiday Campaign With Pros

SWISS LUXURY WATCHMAKER TAG HEUER has launched its first major online initiative, a rich media ad campaign timed for the holidays that features athletes Tiger Woods, Maria Sharapova and Jeff Gordon reprising their roles as campaign spokespersons.

The campaign features a standard rich media leaderboard paired with a smaller, square banner that's nestled in the editorial content, and the message jumps between both units. With the Tiger Woods ad, for example, the main banner features Woods on a mesh golf course, ready to take a swing. After he hits the ball, it actually bursts through mock editorial copy in the smaller unit.

Chicago-based Bagby and Co. handled the creative, with WPP's MediaCom behind the media strategy.

This banner-centric creative furthers Tag Heuer's "What Are You Made Of?" brand philosophy--a tagline launched in 2003 via TV and print. It also complements recent product placement spots in movies like Universal Pictures' "The Bourne Ultimatum" and Warner Bros' "The Brave One" that feature tough, resilient protagonists.

Clicking on the ad takes users to a landing page featuring the athlete, and copy referencing past experiences they have had with overcoming hardships--essentially defining "what they were made of." There is also information on the specific watch each spokesperson wears, as well as links to the rest of the Tag Heuer site and authorized watch retailers.

For an initial investment of $1 million, Tag Heuer's message will be conveyed via more than 26 million impressions across sites like CondéNet's Style.com, PGA.com, CNNMoney, and Yahoo--establishing parent company Louis Vuitton Moet Hennessey's most costly single-brand online presence to date.

But the banners are just Tag Heuer's initial campaign launch in North America. The company plans to use digital ads for future product introductions.

"We already have one of the broadest and most innovative marketing strategies in the luxury watch world," says Jenna Fagnan, VP/marketing for Tag Heuer, North America. "The digital initiative adds the next layer and enables us to reach these consumers where they are spending an average of three hours a day--online."

Link to MediaPost Article

Warner Boss: Our Music Approach Was Wrong

At mobile wireless conference in Asia, Warner Music Chief Edgar Bronfman basically admitted that the music industry has been wrong in its reaction to peer-to-peer file-sharing networks, over which millions of copyrighted materials are illegally downloaded every day. Bronfman warned the mobile industry against making the same mistake.

"How were we wrong? By standing still or moving at a glacial pace, we inadvertently went to war with consumers by denying them what they wanted and could otherwise find and as a result of course, consumers won," he said.

Turning to mobile content, Bronfman said "the sad truth is that most of what consumers are being offered today on the mobile platform is boring, banal and basic." He said consumers want more interesting mobile content available to them anywhere and at anytime--and they want to purchase it with a single click. A seamless user experience like say, the one provided by Apple's iTunes, would be the order of the day going forward.

Read the whole story...

Link to MediaPost Article

Linked-In: Fastest-Growing Social Network

AMONG TOP SOCIAL NETWORKS, LINKED-IN was the fastest-growing over the last year, according to October ratings released Wednesday by Nielsen Online.

The site geared toward professional users drew 4.9 million visitors last month, up from 1.7 million a year ago.

Other fast-growing social networks included kiddie site Club Penguin, up 157% to 3.8 million users, and Facebook, more than doubling its audience to 19.5 million in the last year. MySpace remained the top social network with 58.8 million users, up 19% from 2006.

Blogger was the top blog-hosting service in October with 34 million users, followed by WordPress.com (11.4 million) and Six Apart (10.6 million.

Link to MediaPost Article

Google, Yahoo Plan Social Home Pages

Both Google and Yahoo aim to turn their email services into social networks. Both plan to introduce social features that keep people using their applications for longer. The idea is to turn iGoogle and MyYahoo into a more central hub that serves the triple purpose of being a personalized home page, an email inbox and a social networking profile.

So you can ignore Orkut, OpenSocial, Yahoo Mash and Yahoo 360-baby steps in a broader plan-although these will one day be integrated with the new socialized home pages. Google was shorter on details about its plan, but Joe Kraus, the executive who runs the OpenSocial alliance, admits there are opportunities with iGoogle, which syncs with Gmail and Google Talk.

Yahoo, on the other hand, is calls its social home page drive "Inbox 2.0." Yahoo Mail will add features like more prominently displaying messages from those whom you communicate with more. It also plans to add personal profile pages, links to other profile pages (not necessarily Yahoo-based), a news feed-like feature called "vitality," birthday lists, etc. Inbox 2.0 will compile data from all Yahoo services-from Yahoo Music to Yahoo Shopping-to create user profiles.

Read the whole story...

Link to MediaPost Article

Bebo Strikes Revolutionary Content Deals

Bebo on Tuesday became the first social network to invite major media companies to make their content available to its 20 million-strong user base. The site's users can now legally post music and video files to their profile pages. The initiative, called Open, has an impressive list of launch partners, too: Viacom's MTV, CBS Corp., Walt Disney Co.'s ESPN, Yahoo Inc., Sony Pictures Entertainment Co.'s Crackle and JibJab Media Inc.

Bebo is the No. 3 social network on the Web, but its strategy of connecting users through entertainment--which now includes both original programming and traditional media content--encroaches more on the territory of No. 1 ranked MySpace than No. 2 ranked Facebook. MySpace distributes content from News Corp.'s own Fox Studios in addition to hosting Hulu.com. It also produces original content.

With Open, Bebo's partners will keep ad revenue gleaned from their own material; the social network benefits by keeping users at its site for longer. According to comScore, MySpace drew 107 million worldwide visitors in September, followed by Facebook with 73.5 million and Bebo with 19.7 million.

Read the whole story...

Link to MediaPost Article

Recorded Music Sales Hit a Downbeat

NOVEMBER 14, 2007

Who’s to blame? The artists? The recording companies? The Internet? All of the above?

The global recording industry is struggling in a rapidly changing marketplace.

"Digital formats such as online downloads, ringtones, mastertones, full tracks delivered to mobile handsets and Internet and mobile subscription services are providing new and growing revenue streams," says Paul Verna, eMarketer senior analyst and author of the new report Recorded Music: Digital Falls Short.

“But these new revenue streams are simply not enough to pick up the slack from free-falling CD sales,” he adds.

Bad news. But worse is that unless there is a sudden reversal of current trends, the recording industry can look forward to continued losses in the coming years.

eMarketer estimates that worldwide spending on recorded music will actually decline—falling from $31.8 billion in 2006 to $26.2 billion in 2011.

Similarly, US spending on recorded music is expected to drop from $11.5 billion to $9.3 billion during the same period.

“The situation in the industry has gotten so bad that many top recording artists are steering clear of music companies and signing up with brand marketers whose expertise lies outside of the recording industry,” says Mr. Verna. “Witness the alliances between Paul McCartney and Starbucks, the Spice Girls and Victoria’s Secret, and Madonna and Live Nation.”

Recently, the UK band Radiohead took the unprecedented step of issuing its latest album, “In Rainbows,” in digital form and allowing its fans to determine the download price.

“Digital distribution may be no panacea, though,” says Mr. Verna. “The results of the Radiohead experiment are discouraging for the industry and the value that music fans place on recorded product.”

According to comScore Networks, worldwide only 38% of those who downloaded the full-length album chose to pay for it.

And even then the average price paid by each downloader for “In Rainbows” was merely $2.26.

“There is one caveat in comScore’s findings, however,” says Mr. Verna. “The sample audience comprised ‘home and work locations’ but not colleges.”

Given Radiohead’s popularity among college-age fans, including that group in the survey might have yielded different results.

“The next few years will be critical as labels, online retailers, mobile carriers and artists attempt to find new models, or refine existing ones, in an effort to restore some of the gold and platinum shine that the business has lost in the digital era,” says Mr. Verna.

Link to eMarketer Article

Sony Ericsson Plans Music Store, Pushes DRM-Free Options

Sony Ericsson recently announced plans to deliver a broader music store offering, a move that closely follows entrances from both Nokia and Vodafone in the UK. Sony Ericsson is not planning its release until the spring of next year, according to information disclosed Monday. The mobile music heavyweight will offer a total of five million songs, licensed from major labels and various independents. Sony Ericsson also noted that a "majority" of its store will feature DRM-free content, though obvious licensing issues remain.

The store represents a broadening of PlayNow, an initiative that currently offers ringtones, themes, wallpapers, games, and a limited selection of full-track, over-the-air (OTA) downloads. The upcoming store will be multi-platform, a more common approach to mobile music commerce. Currently, PlayNow is planted in 32 countries, according to the company. The stepped-up, "PlayNow Arena" represents the next phase of the vision, which first started in 2004 as a ringtone-focused preview and purchasing concept.

Link to Digital Music News Article

Red Bull Pushes Music Initiative, Taps Label Executives

Red Bull is now pushing a serious music initiative, according to numerous sources to Digital Music News. The initiative has been underway for a considerable period of time, and already involves executive placements and the construction of a studio facility. The exact nature or charter of the group remains unclear, and may be fluid, according to one source. A stand-alone recording label appears one possibility, though a broader, 360-degree concept that integrates into larger Red Bull branding seems more plausible.

The presence of a studio offers an artist-friendly environment, and a starting point for creative projects. Over the past few weeks, three separate sources have confirmed the construction of a high-end studio at the Red Bull offices in Santa Monica, California. One source pointed to a "board the size of a bus," while another confirmed a very well-groomed recording facility.

Red Bull declined to discuss the initiative, despite multiple calls over the past few weeks. But several music industry executives are tied into the project, including General Manager David Burrier from Atlantic Records. A&R-focused executives Meredith Chinn (from Warner Bros. Records) and Greg Hammer (from Universal Records) are also said to be involved. Mitch Geller is also understood to be a top figure in the operation, and the reporting structure appears to run directly to Austria-based Red Bull owner Dietrich Mateschitz. Digital Music News was unable to confirm specific artists or signings.


Link to Digital Music News Article

Music, Videos Drive $6 Billion Asia Pacific Mobile Market

Music and video assets are now driving a $6 billion premium mobile market in the Asia Pacific, according to research from Frost & Sullivan. According to the group, the premium mobile market grew 57.4 percent last year to reach revenues of $5.98 billion. The gains cover ten countries within the region outside of Japan and Australasia. A major stimulant comes from 3G, which is encouraging the use of music and video applications. "3G enhances user experience and encourages the development of compelling premium content applications such as music and video, identified as one of the fastest-growing segments in mobile entertainment," said senior Frost & Sullivan research analyst Jeff Teh.

The figures are enough to make stateside operators drool, though content providers are also cashing in. According to the report, third-party content providers received $4.62 billion of the action, while mobile operators retained the remaining 22.8 percent. Meanwhile, assets like text messaging and ringtones remained strong contributors, though newer formats like ringback tones, OTA downloads and mobile gaming posted strong gains. "Music and video applications are believed to hold the strongest potential to increase operators' average revenue per user (ARPU)," the group said.

Link to Digital Music News Article

Radiohead Numbers Emerge, 62 Percent Paid Nothing

Just 38 percent of Radiohead fans paid for the latest album, according to data recently supplied by comScore. The band allowed fans to name their price for the downloadable release, In Rainbows, a closely-watched experiment. While most fans grabbed the album for nothing, a significant percentage paid modest amounts. According to the data, 17 percent paid an average of $4 for the album, while 12 percent paid between $8 and $12.

The result deflates the excitement surrounding the effort, heralded by many as a groundbreaking model. It also challenges the levels of loyalty that established bands can expect from longtime fans. But 38 percent still represents a meaningful number, and earnings appear respectable. Radiohead sold well past one million units on the album, and the band no longer pays a label cut.

Elsewhere, large numbers of fans continue to grab the album outside of the Radiohead website on free file-sharing networks, another unexpected development.

Link to Digital Music News Article

The Old College Try: Who Will Give Students Their Facebook Back?

While Alice Mathias may have overplayed the frivolous uses of Facebook for college students in her article called The Fakebook Generation published in the Grey Lady a few weeks ago, she was certainly correct in saying that Facebook lost a certain je ne sais quoi for students when it opened up to the real world last fall.

So instead of trying to take this $15 billion animal head on, as one $222 billion beast is attempting to do, startups might be wise to try capturing the niche that Facebook has intentionally left behind. Of course, there are a handful of reasons to think there will never be another social network that catches on so quickly and so thoroughly with college students. Namely, Facebook itself, which still holds the attention of the vast majority of college students. Personally, I think any company that tries to create a social network for college students faces a very steep uphill battle. But you can’t blame them for trying.

Let’s say you did want to capitalize on students’ (growing?) discontent with the “mature” Facebook; what strategy would you follow? You’d probably want to take a few pages out of Facebook’s own, er, book by restricting membership to users with .edu email addresses, gradually opening up to elite schools, and keeping things stupidly simple. But you’d also have to provide something particularly unique, useful, or entertaining that tempts mainstream Facebook users to jump ship.

We’ve taken a look at the websites out there claiming that they are the next “it” social network for college students. And we’ve got to say: overall, we’re not terribly impressed. Only one stands out - a website called College Tonight - and this because of its novel attempt to bring social networking back into the real world. College Tonight is well-designed and has some features you won’t find in other social networks, such as an area for lost and found items at your school and a place to “drunk dial” with messages you can take back in the morning (if you’re up and out of bed in time). The company behind this site, which launches Monday, also has a set of undisclosed features in the works that tempt us into believing that they might actually appeal enough to college students to survive. We’ll have to write more about them later once we’re more informed.

The other decent site among the bunch is Carmun, a site that encourages students to help each other study. Students post questions they have about essays and tests the are studying for, and others hypothetically help them find the answers and information they need. While the site is attractive enough, I don’t see many students helping other students with the homework no one wants to do.

The rest of them are either really badly designed, ghost towns, gimmicks, or abandoned by their owners (plus, most don’t require .edu addresses to register so what’s the point?). Let’s take a look:

ConnectU - This site was created by the very same Harvard students currently in court with Facebook over whether or not Mark Zuckerberg stole their code. It’s poorly designed, not very functional, and doesn’t look like it’s been updated significantly for a long time.

CollegeHotList - An NYU project that has not yet launched…and probably will never launch (I’ve seen talk on the internet about it that dates back to early 2006).

PlayboyU - A social network built on Ning but branded by Playboy that has only 5,000-some members after launching on August 22. The whole thing feels like a gimmick, and many of the profiles appear to be fake (there’s no way that many attractive people signed up on their own). There’s very little value added by its association with Playboy.

CampusMatch - A romantically-themed college social network that dates back quite a few years and is almost certainly abandoned. It’s too bad too, because a college network with a focus on love/hooking up has a lot of potential.

CampusGrind - This one has a cluttered design and serves more as an information center for teens, with its advice columns, than a true social network.

CampusBug - A site overwhelmed by its sponsorships and overloaded with educational tools like a bibliography creator and flashcards.

CampusCentral - It’s not a good sign when the copyright at the bottom of your pages says 2005. This one’s a ghost town, and tailored to Canadian students, too.

CrushTV - This one’s filled mostly with video and photographic content provided by the site itself. While having videos of babes in bikinis will draw some eyeballs, don’t expect many college students to stay too long.

LifeAtCollege - Awful, awful design.

College.com - Packed with too many extraneous features like sections for news, academics, and greek life. Plus, who wants to rate their professors in their social network?

Uspot - Launched in early 2006…now says “We’ll be back shortly…” on homepage. Not good.

So there you have it. Now who’s going to step up to the plate and give college students an attractive alternative to Facebook? As you can see, you won’t have much competition aside from maybe College Tonight. So get on it, my collegiate friends.

Link to TechCrunch Article

Universal Music Takes on iTunes

Universal chief Doug Morris is enlisting other big music players for a service to challenge the Jobs juggernaut

Relationships in the entertainment world can be famously fraught. And few are more so these days than the one between Steve Jobs and Universal Music chief Doug Morris. You may recall that Morris recently refused to re-up a multi-year contract to put his company's music on Apple's iTunes Music Store. That's because Jobs wouldn't ease his stringent terms, which limit how record companies can market their music.

Now, Morris is going on the offensive. The world's most powerful music executive aims to join forces with other record companies to launch an industry-owned subscription service. BusinessWeek has learned that Morris has already enlisted Sony BMG Music Entertainment as a potential partner and is talking to Warner Music Group. Together the three would control about 75% of the music sold in the U.S. Besides competing head-on with Apple Inc.'s (AAPL ) music store, Morris and his allies hope to move digital music beyond the iPod-iTunes universe by nurturing the likes of Microsoft's Zune media player and Sony's PlayStation and by working with the wireless carriers. The service, which is one of several initiatives the music majors are considering to help reverse sliding sales, will be called Total Music. (Morris was unavailable for comment.)

This isn't only about Jobs; Morris badly needs to boost his business, and Apple is the one to beat. The iTunes store has grabbed about 70% of downloads in the U.S. And the iPod--well, what's left to say about that juggernaut? Plus, music companies have been here before. A few years ago they launched services with the aim of defeating Napster-style file-sharing--and failed miserably. And let's not forget that existing subscription services have signed up only a few million people, vs. hundreds of millions of iTunes software downloads.

While the details are in flux, insiders say Morris & Co. have an intriguing business model: get hardware makers or cell carriers to absorb the cost of a roughly $5-per-month subscription fee so consumers get a device with all-you-can-eat music that's essentially free. Music companies would collect the subscription fee, while hardware makers theoretically would move many more players. "Doug is doing the right thing taking on Steve Jobs," says ex-MCA Records Chairman Irving Azoff, whose Azoff Music Management Group represents the Eagles, Journey, Christina Aguilera, and others. "The artists are behind him."

Morris and Jobs were once the best of allies. When Jobs began pushing his idea for a simple-to-use download store in 2003, Morris backed him. Industry insiders say Jobs felt that Morris, unlike many other music executives, understood that they had to adapt or die. And in the years that followed, Apple and Universal moved in near lockstep.

But before long, Morris realized he and his fellow music executives had ceded too much control to Jobs. "We got rolled like a bunch of puppies," he said during a recent meeting, according to people who were there. And though Morris hasn't publicly blasted Jobs, his boss at Universal parent Vivendi is not nearly so hesitant. The split with record labels--Apple takes 29 cents of the 99 cents--"is indecent," Vivendi CEO Jean-Bernard Levy told reporters in September. "Our contracts give too good a share to Apple."

After unilaterally breaking off talks with Apple in July, Morris continued offering Universal's roster--Eminem, 50 Cent, U2, and other artists--to Apple, but on a month-to-month basis. That freed Universal to cut special deals with other vendors, such as cell carriers eager to generate revenues. AT&T (T ) is packaging ringtones and music videos of Universal artists and is expected to start selling downloaded tracks with videos soon.

That's not all: In August, Morris announced a five-month test with Wal-Mart (WMT ), Google (GOOG ), and Best Buy (BBY ). The three companies will sell music downloads that can be played on any device--a freedom not available to buyers of iTunes songs, most of which play only on Apple devices and software. Morris wants to see if the downloads, which won't have copy protection, will help cut into piracy and hike sales. And of course he won't be upset if iPod owners bypass iTunes.

With the Total Music service, Morris and his allies are trying to hit reset on how digital music is consumed. In essence, Morris & Co. are telling consumers that music is a utility to which they are entitled, like water or gas. Buy one of the Total Music devices, and you've got it all. Ironically, the plan takes Jobs' basic strategy-- getting people to pay a few hundred bucks for a music player but a measly 99 cents for the music that gives it value--and pushes it to its extreme. After all, the Total Music subscriber pays only for the device--and never shells out a penny for the music. "You know that it's there, and it costs something," says one tech company executive who has seen Morris' presentation. "But you never write a check for it."

The big question is whether the makers of music players and phones can charge enough to cover the cost of baking in the subscription. Under one scenario industry insiders figure the cost per player would amount to about $90. They arrived at that number by assuming people hang on to a music player or phone for 18 months before upgrading. Eighteen times a $5 subscription fee equals $90. There is precedent here. When Microsoft was looking to launch a subscription service for Zune, Morris played hardball. He got the tech giant to fork over $1 for every player sold, plus royalties. Total Music would take that concept even further. "If the object is to wrest control of the market from Steve Jobs," says Gartner analyst Mike McGuire, "this is a credible way to try it."

Of course, Morris still needs Jobs. It's noteworthy that Universal has not pulled its music from iTunes--Morris simply can't afford to do that. Universal's earnings fell 25% in the first half. Jobs, of course, knows that and can afford to be magnanimous. "Doug's a very special guy," the Apple chief told BusinessWeek. "He's the last of the great music executives who came up through A&R. He's old school. I like him a lot."

Link to BusinessWeek Article