Digital Media

Netflix subscribers who stream films over the Web will soon be getting access to a greater number of movies from Warner Bros.

In a groundbreaking deal for online movie rentals, Netflix and Warner Bros. Home Entertainment announced Wednesday that they have expanded their licensing arrangement for streaming movies, and Netflix now has licensing rights to more of the studio's catalog content. In exchange, Netflix agreed to do something it has never done before. The movie-by-mail service won't offer new releases from the studio on DVD or Blu-ray discs until 28 days after they go on sale.

Before you new-movie fans go berserk, listen to what the deal means for the studio and the Web's No. 1 film-rental service. Let's start with Netflix.

Netflix needs content for the company's streaming service and must obtain that content in a difficult market.

CEO Reed Hastings has proved he can obtain plenty of physical film discs, even when the studios have tried to stop him. But to stream movies, Netflix needs licensing rights and those are much tougher to come by than discs. With the Warner Bros. contract, Hastings has obtained those rights from one of the major Hollywood film studios. In addition, Warner Bros. has promised to provide Netflix with a greater number of DVD and Blu-ray discs to rent once the "sales-only" period for a film runs out.

"We're able to help an important business partner meet its objectives while improving service levels for our members by acquiring substantially more units...after a relatively short sell-through window," said Ted Sarandos, chief content officer at Netflix. "At the same time, we're able to extend the range of choices available to be streamed to our members."

Not everybody is buying the idea. On Wednesday afternoon, Twitter was awash in complaints about the 28-day waiting period. The naysayers may want to consider, however, that to secure content for its streaming service, which is undoubtedly the company's future, Netflix is going to have to either pay through the nose or find some other way to compensate the studios.

Netflix is in the precarious position of having to negotiate for content with companies that have at varying times distrusted Netflix's business model or were openly hostile towards it.

"It sounds like Warner has found a way to support sales while also supporting rental."

--Jan Saxton, Adams Media analyst

Here's the starting point: The studios would much rather sell consumers a DVD than rent them one. Profit margins on a movie sale are higher than on a rental.

In the past, when the studios tried to stop Netflix from obtaining content, the company has frustrated them by acquiring discs from other retailers. Then there was Netflix's deal with cable movie channel Starz. Instead of obtaining the streaming rights from the studios,' Netflix found what some studio execs consider a backdoor route to those movies. That didn't endear Hastings to them.

Then there's the competition. With almost everybody in film distribution charging to the Web, including cable and video-on-demand services that pay huge fees to obtain movie rights, the studios have plenty of people willing to compensate them for Internet rights. Hollywood isn't just going to give those rights away.

Netflix would unlikely be unable to pay the studios what they want for those rights continue to offer customers all-you-can-eat movie viewing for $9 a month.

This might be why Hastings dispatched Sarandos to Hollywood recently to sell the sales-only plan to studio chiefs.

For Hastings, it comes down to either helping the studios protect a sales-only window and forcing a 28-day waiting period for new releases--which only makes up about 30 percent of Netflix's business--or raising subscription fees. Which would you choose?

If you believe the Web is Netflix's future, it's an easy pick.

Jan Saxton, an analyst with Adams Media Research, called the deal "brilliant."

For Warner Bros., the deal could be a watershed moment if the studio can convince other services to respect a similar sales-only window. DVD sales are in decline and the studios are determined to try to preserve them. Saxton said that by striking this unprecedented deal with Netflix, Warner is proving that it is willing to experiment.

"What the studios are learning is that in the recession, as consumers are watching their dollars and the bargain for a single viewing is a better than buying," Saxton said. "It sounds like Warner has found a way to support sales while also supporting rental."

Saxton added that the agreement continues Netflix's long history of using technology and innovation to grow its business. First came the automated sorting machines to build the breakthrough mail-order business.

Then came the hardware deals with set-top makers, such as Roku, LG, and Microsoft that enabled viewers to watch Netflix's streaming video on their TV sets, which Saxton says was crucial.

"Netflix's management have proved to be extremely nimble and able," Saxton said. "Their leadership has been brilliant at adapting technology and using it to create the right approach for the market."

It used to be said that mamas shouldn't let their babies grow up to be cowboys.

In olden times, mamas were right. A cowboy's life can be lonely. You often commune more with animals than people. And then there's the problem of riding a horse in very tight Wranglers.

However, these days, cowboys don't merely pick blackberries, they send raunchy texts on them, too (on BlackBerrys, that is). So some enterprising bejeaned geniuses came up with CowboySyndicate.org.

It's an odd choice of name, sounding as if John Wayne and Marlon Brando had gotten drunk one night and merged their family businesses. Indeed, it's an extension of an already existing marketing company run by Chris and Kelly Cooper. And, disappointingly, not Gary.

This husband-and-wife posse told the Austin American-Statesman that they recognized a need for cowboys to be cowboys in their own private online saloon. Their common interests Chris Cooper described as "rodeo, equine interests, music, fashion, agriculture, and so on."

However, this isn't your mama's cowboy world any more. Chris Cooper described his network's vision as the "New Western Order." Which might, for all I know, refer to a military coup cowboys are ready to stage in Texas.

The membership appears to have taken to the intimate exchange of online chatter. But far more interesting to the noncowboy are the topics that the site covers. Goat tying, for example. And the incomparably descriptive "mutton busting."

Kelly Cooper told the Statesman that participation comes from parts far and near: "Our members range in age from 16 to 75 and hail from all over the world--the U.S., Canada, the U.K., Japan, Sweden, Australia, France, and more. All of our members, no matter where they come from, have a love for both Western and mainstream lifestyles."

While you contemplate the main differences between "Western" and "mainstream" let me tell you that on the CowboySyndicate forum, you'll find a lady cowboy poet, who helpfully explains: "Can't call myself a cowgirl poet because I write most poems in the male gender." You'll also find cowboy DJs and even a discussion about the Trail of Painted Ponies. You know, those cute figurines of horses on your mama's mantlepiece.

I could find no postings from cowboys who were looking for someone to complete them, but I feel sure that CowboySyndicate will be an important forum for the future development of a culture whose values have had such a profound effect on recent world history.

High-quality online video has been in high demand in China, and Chinese search provider Baidu is hoping to fulfill that need.

Baidu announced on Wednesday that it is creating an independent company to offer premium online videos to Chinese Internet users. The new entity is designed to work with content providers to supply copyrighted material, including movies, TV shows, sports, and animation, and it will generate its revenue through advertisements.

"As China's Internet industry evolves, we have seen increasing demand for high-quality video content on our search platform. By establishing this new company, we will be able to better serve our users and customers with superior content and focused resources," Xuyang Ren, Baidu's vice president of marketing and business development, said in a statement.

"Online video is a rapidly growing sector in China, and I believe Baidu's search platform will provide a solid foundation for the new company to address the increasing demand for premium content," said Yu Gong, former president and chief operating officer of China Mobile's 12580 hotline service, who is set to head the new venture as CEO.

Baidu, which has outshined Google's Chinese search engine to become China's top search provider, has been eager to get into the online-video business.

But video has long been a thorny issue in China, as the country has grappled with video piracy for years. DVDs of pirated movies and TV shows have been a lucrative business in the Chinese market, with obviously no compensation to the studios, networks, and other content providers. Pressure from the United States has pushed the Chinese government to try to crack down on the illegal trade. But the low cost and wide availability of pirated videos have kept it a thriving market.

Piracy has gone more high-tech in recent years. More and more illegal videos, including full-length movies and TV shows, have shown up on popular Chinese video-streaming sites such as Youku and Tudou. A group of content providers filed a lawsuit late last year against some of these Chinese sites, charging them with copyright violation, China.org reported. So far, the case has resulted in a legal judgment against Youku, ordering it to pay a small sum in damages.

TVs with Internet access have also become a new haven for video piracy, as Chinese users can now download illegal videos directly off the Web into their living rooms. The Google-funded service Xunlei, a Chinese peer-to-peer file-sharing service, has been the target of lawsuits, alleging that it distributes copyrighted movies and TV shows without compensating the studios or networks.

Updated at 1:30 p.m. PST to include Best Buy's decision to eliminate CEO and president positions.

Best Buy has decided that the Napster music service is too top heavy and eliminated the music service's CEO and president positions, a company spokeswoman said Wednesday.

Chris Gorog announced that he is leaving as CEO, a move that comes some 15 months after the Web music service was acquired by retail chain Best Buy on the company's blog. Brad Duea, Napster's president, is also leaving the company, the spokeswoman said. She said Best Buy wanted to "streamline Napster's executive structure."

Christopher Allen, Napster's chief operating officer, will run the site and has been named Napster's general manager.

"We began with a simple idea--legalizing Napster," Gorog wrote, "and spent almost a decade trying to perfect that dream."

That dream went largely unfulfilled--that is, if it included building a large audience and generating significant revenues. The original Napster was started by a then teen-aged Shawn Fanning as a pioneering file-sharing service that enabled anyone to download unauthorized music. The people who purchased the Napster name tried to cash in on the brand by turning it into a completely legal subscription service.

At best, the efforts were met with mixed results. Napster plummeted in popularity and has been eclipsed by many competitors.

In addition, subscription services have failed to stir music fans, and the reason typically given is that people don't like renting music. As with most subscription offerings, Napster subscribers lose access to their songs once they stop paying for them. In his post, Gorog, who plans to start his own company sometime in the future, defended Napster's business model.

"We were criticized at times for 'renting' music," he wrote. "But we thought then--and still believe quite strongly--that we had a better approach to digital music. Why buy downloads when for a small monthly fee you can have access to everything?

"I believe over the next decade the idea of 'owning' entertainment content in the digital age will become a passe concept," he continued. (It will be) replaced by paying a fair fee for access to everything. All the music, movies, and games your heart desires."

Indeed, there are plenty of people in the music business looking for new ideas on how to make paid subscriptions more palatable to fans.

Last year brought market share growth for all major browsers except Microsoft's Internet Explorer, according to Net Applications' annual industry report released Wednesday.

The year ended with Mozilla's Firefox and Google's Chrome enjoying gains of about 3 percentage points, while Apple's Safari climbed a single percentage point. Opera stayed relatively flat with a gain of 0.23 points, but IE saw a decline of nearly 8 percentage points.

Though IE's popularity may have sunk, the Microsoft browser still boasts a greater market share than all the other browsers combined with 62.69 percent of the audience.

Firefox now has a 24.61 percent share, leaving Chrome with 4.63 percent, Safari with 4.46 percent, and Opera with 2.4 percent.

Internet Explorer's gradual loss of market share occurred despite Microsoft's launch of IE 8. The new version may not be able to stem the tide, according to Net Applications. For years, IE faced virtually no competition, so Microsoft had few reasons to enhance or innovate as market leader. As Firefox usage started to climb and Chrome joined the ranks, Microsoft released IE 8 and hoped that its new features would halt the browser's decline. But with more browsers in the market, competition is tighter than ever. And so far, IE 8 hasn't had much impact on recapturing lost market share.

Microsoft also now faces a cloudy browser environment in Europe. In 2007, Norway-based Opera Software pressed the European Commission to investigate Microsoft over IE's alleged browser monopoly on the desktop. To placate the EC, Redmond was forced to design a Choice Screen that displays a list of 12 different browsers that people can install and set up as the default. Though the effect of the Choice Screen remains to be seen, Net Applications believes it will significantly alter browser market share in Europe.

For relative newcomer Chrome, 2009 was a banner year. After its unveiling in late 2008, Google's browser took awhile to catch on but then saw its use double over the first half of 2009. Chrome, which trailed Safari in market share virtually all of last year, finally surpassed Apple's browser in December for the first time, making it the third most popular browser.

Though Chrome's 4.63 percent share of the market is still far behind that of second place Firefox, Mozilla now needs to look at not just catching up with IE but at holding off Google's up and comer, Net Applications said.

Safari's gains have come about mostly as the Mac OS has grown in popularity. With the debut of Windows 7 OS in October, Windows seems to have halted some of the loss in market share to Apple, notes Net Applications. But Safari still grew throughout the year, especially in December, thanks in large part to its use on mobile devices. Mobile browsers now account for 1.3 percent of all Web browsing.

The sheer number of retailers accused of betraying customer trust, and the scrutiny being directed toward credit card companies, has churned up an unprecedented scandal for the e-commerce sector.

Marketers in credit card scandal start lobby effort

Webloyalty, Vertrue, and Affinion--under government scrutiny for their controversial marketing practices--are looking for help on Capitol Hill.
(Posted in Media Maverick by Greg Sandoval)
January 6, 2010 4:00 AM PST

E-tail Scrooges and how one woman defeated them

This is no "It's a Wonderful Life," but the thousands stung by Web marketing practices now under government scrutiny may find it a feel-good story anyway.
(Posted in Media Maverick by Greg Sandoval)
December 29, 2009 4:00 AM PST

Priceline shrinks from marketing scandal

Travel site has ended relationship with Affinion, one of the marketing firms accused of misleading consumers into signing up for monthly fees.
(Posted in Media Maverick by Greg Sandoval)
December 14, 2009 8:34 AM PST

Congress probes Visa, AmEx role in Web scam

Senate commerce committee wants the big credit card companies to explain how a Web marketing scam involving top retailers went on under their noses for years.
(Posted in Media Maverick by Greg Sandoval)
December 8, 2009 10:20 AM PST

Another e-tailer named in probe changes course

VistaPrint, an online printing company, says it is no longer connected to Affinion, one of three marketing companies accused of duping consumers into paying monthly fees.
(Posted in Media Maverick by Greg Sandoval)
December 1, 2009 5:28 PM PST

This holiday, who's looking out for online shoppers?

A long-running marketing ploy now under federal investigation has raised questions about why it was allowed to go on for nearly a decade.
(Posted in Media Maverick by Greg Sandoval)
November 25, 2009 4:00 AM PST

E-tailers snagged in marketing 'scam' blame customers

Priceline, Classmates.com, and Orbitz say customers should read the fine print before complaining about being charged recurring monthly fees to join loyalty programs they didn't want.
(Posted in Security by Greg Sandoval)
November 23, 2009 4:00 AM PST

Feds: Top e-tailers profit from billion-dollar Web scam

An investigation by a Senate subcommittee says millions of Americans were "tricked" into signing up for online membership clubs and were betrayed by many Web retailers.
(Posted in Digital Media by Greg Sandoval)
November 17, 2009 12:12 PM PST

Senate to disclose findings in Web 'mystery charge' probe

Numerous shoppers have traced mystery credit card charges to Webloyalty, Affinion, and Vertrue. Congress will reveal the results at a hearing Tuesday.
(Posted in Digital Media by Greg Sandoval)
November 16, 2009 2:50 PM PST

previous coverage

Congress demands info from Web loyalty firm

Vertrue, one of three companies accused of misleading consumers into signing up for recurring fees, gets a subpoena from a Senate committee.
(Posted in Digital Media by Greg Sandoval)
July 29, 2009 12:31 PM PDT

Buy.com, Orbitz linked to controversial marketers

Consumers hold "Web loyalty" companies responsible for mysterious charges on their credit card statements, but prominent e-tailers are still doing business with them.
(Posted in Digital Media by Greg Sandoval)
July 24, 2009 4:00 AM PDT

Representatives from some of the post-transaction marketing firms now under government scrutiny for allegedly duping consumers into signing up for membership programs are trying to whip up support on Capitol Hill.

According to my sources in Washington, D.C., some of the marketers have sent representatives to meet with individual lawmakers about taking up their side as the U.S. Senate commerce committee continues to investigate the practices of three firms: Webloyalty, Affinion, and Vertrue.

These companies, all based in Connecticut, are accused by Sen. John Rockefeller (D-W.V.), the committee's chairman, of misleading as many as 30 million people into joining their membership programs during visits at Buy.com, Orbitz, and other Web stores, and then locking them into paying monthly fees. In what has turned into a major e-commerce scandal, the government has alleged that one of the ways the marketers are able to get their hands on consumers' money is that they paid 88 well-known online merchants to hand over access to their customers' credit card information.

Under most of the agreements between the marketing firms and retailers, an advertising page is presented to a shopper while they complete a transaction at the retailer's online store. Many shoppers say they entered their e-mail address and pushed a large "Yes" button on the ad because it appears to be a $10 cash-back offer or coupon. Many of those who complain say they thought they were being rewarded by the retailer for making a purchase.

What appears to lull many shoppers into a false sense of security is the wide belief that a credit card owner is the only one who can use the card to complete an online transaction. Not so.

The actions of the marketers and their e-tailing partners were heavily criticized by members of the commerce committee during a November hearing on Capitol Hill. Since then, several notable merchants have stopped working with the marketing firms. They include VistaPrint, Continental Airlines, Priceline, and 1-800-Flowers, which just a couple of weeks announced it had cut ties with Affinion. Such companies banked millions of dollars from selling their customers' financial data.

But the marketers have gone on the offensive since then. Their representatives have told lawmakers and the public that they have been unjustly vilified, that they obey all applicable laws, and that they have modified their business practices--such as requiring consumers to enter the last four digits of their credit card number before they can be signed up to a program. Some e-commerce experts say these changes don't come close to solving the problem, though.

To help spread their message to the public, Affinion and Webloyalty have turned to Washington, D.C.-based public relations firms that specialize in so-called crisis management.

But what do these PR companies hope to achieve in a

climate that has seen hundreds of highly critical stories written about the marketers, as well as U.S. senators characterizing their practices as "theft" and a "scam"?

Who knows? What I do know is this issue hasn't been resolved. Nobody has passed any laws that prevent e-tailers from selling their customers' credit card data. Something else that should make consumers nervous: a second hearing that Rockefeller suggested he might hold has yet to be scheduled.

Note to Rockefeller: hold the hearing.

Those who have struggled to get their money back from these companies, such as Caroline Butler and her daughter JoAnna, deserve to see the CEOs of Webloyalty, Vertrue, and Affinion (respectively Richard Fernandes, Gary Johnson and Nathaniel Lipman), hauled into the Senate to answer questions about their methods.

And don't stop there. While you're at it, call United Online CEO Mark Goldston, Orbitz CEO Barney Harford, and any of the other merchants accused of selling out their customers. These executive are accused of breaking faith with customers in a serious way.

If it sounds like I want to snatch the rights of these Web marketers to appeal to their elected officials, that's not my intention. The companies have the resources and the right to do that. They also have the resources and the right to try to sway public perception.

But what Rockefeller and his committee must ask themselves is how many of the consumers who the government claims were misled by Affinion, Webloyalty, and Vertrue possess similar resources.

Who lobbies on their behalf?

Amazon.com announced late Tuesday that it is expanding its Kindle e-book reader family with the addition of a "global wireless" Kindle DX.

The larger Kindle DX, which features a 9.7-inch electronic ink display, will allow wireless downloads of books in more than 100 countries. The retailer is taking pre-orders for the $489 e-reader and plans to ship them to customers beginning January 19.

Amazon, which introduced a smaller 6-inch version of the wireless Kindle last October, said the new e-reader has a PDF reader, auto-rotate capability, and 3.3GB of memory for storage of up to 3,500 books. More than 400,000 titles are now available at Amazon's Kindle Store. Like the previous wireless Kindle, the new e-reader will be capable of downloading books and periodicals via Amazon's Whispernet.

The Seattle-based e-tailer announced in December that the Kindle was Amazon's "most gifted item ever " in the company's history. The e-tailer also said that on Christmas Day, for the first time ever, Amazon customers bought more Kindle books than physical books. The company didn't offer specific numbers for either category.

Nearly three-quarters of American adults use the Internet, more than half connect wirelessly via laptop or handheld, and 60 percent use broadband connections at home, according to a survey released Tuesday.

The Pew Research Center survey (PDF) also found that Internet users in the U.S. tend to be young, white, and educated, with an equal distribution between men and women.

The results show that 74 percent of people surveyed use the Internet. Other demographics are:

• 93 percent of people between the ages of 18 and 29 years old said they use the Web, followed by 81 percent in the 30-to-49 age range.

• 76 percent of caucasian respondents said they use the Internet, while 59 percent of African-American respondents did, and 55 percent of Hispanics did.

• 94 percent of people with a household income of $75,000 or more use the Internet.

• And Internet users are somewhat geographically balanced, with 77 percent of suburbanites using the Web, 74 percent of people living in urban areas using it, and 70 percent of rural residents reporting they are online.

The overall 74 percent Internet usage figure is down slightly from the 79 percent who said they use the Internet in April 2009, but the inclusion of 61 interviews in Spanish makes a direct comparison between the two surveys difficult. The Spanish interviews likely also skewed the broadband figure, which dropped slightly from 63 percent in April 2009, according to the study.

More than 2,250 adults were interviewed over the phone in December for the survey, which has a margin of error of plus or minus 2 percentage points.