Digital Media

Apparently, the digital download didn't kill the album after all.

The four largest recording companies and Apple reportedly have plans to create what they hope is the next-generation album. Driving the efforts is the hope that music can once again deliver fat profits, instead of the scrawny margins earned on 99 cent downloads.

On Sunday evening, the Financial Times reported that Apple plans to entice customers to accept packaged music by throwing in "photos, lyric sheets and liner notes" and also enable consumers "to play songs directly from the interactive book without clicking back into Apple's iTunes software."

A music industry source told me the labels are working on their own interactive album format and they will offer it to Amazon and other music services. Apple and the labels are shooting to release their album versions in the fall.

Critics will undoubtedly say such plans are folly. For nearly a decade, digital technology has enabled music consumers to bust the CD into pieces and obtain only the songs they wanted. Even music industry execs have acknowledged that for too long, fans were forced to pay on the order of $15 to obtain 12 or so songs of which only two might be any good.

Whatever the next-gen album is, it can't be a vehicle that forces unwanted music on fans for premium prices.

But the music industry's dilemma was sized up candidly earlier this year by David Ring, executive vice president of business development for Universal Music Group's digital arm.

"If what we're trying to do is one-by-one downloads...that's not a business that can grow," Ring told EconMusic Conference attendees. "It won't be healthy for the industry."

What that means is that there's too little money in selling individual songs. The ailing music industry appears to be looking for ways to give people music and then entice them to dig deeper into their wallets for extras.

Earlier this month, EMI began selling the "digital 45" to mark the 60th anniversary of the vinyl 45 single. A 45 was a vinyl record that was smaller in size than the standard album and typically featured two songs, one tune on the A-side and another song on the B-side. To create a similar effect, EMI began bundling hit singles with B-sides in a download format.

When it comes to boosting margins, the labels have already achieved some success.

Last January, in an unprecedented move, iTunes maker Apple announced that it would allow the recording industry to charge something other than the traditional 99 cents per song.

Perhaps Apple and the labels can come up with content combos that people will find valuable. But the danger here is in trying to force the packages on consumers and possibly alienating them even more, which could send them sailing into new piracy waters.

When news broke late Sunday that Apple has plans to create the next-generation music album, some in the record industry were steamed.

The Financial Times reported that Apple was working on a plan code-named "Cocktail" that involves the creation of "new type of interactive album material, including photos, lyric sheets and liner notes that allow users to click through to items that they find most interesting." That's nearly identical to a plan that executives from some of the four largest music labels pitched Apple about 18 months ago, said a music industry source who requested anonymity.

Even as the music industry cooperates with Apple's efforts, what has some insiders upset is that Apple rejected the labels' plan. By seizing credit, Apple is being "disingenuous," said the source. He added that Apple's attempt to develop a proprietary technology around the new interactive album is an example of the company once again falling back on "the walled garden approach."

What he was referring to was how users of Apple's iPod were prevented from playing songs wrapped in digital rights management made by competitors. That effectively blocked anybody but Apple's iTunes from selling music files to iPod owners. Now, most download stores sell songs in the MP3 format and these DRM-free tunes can play on iPods and iPhones.

Apple representatives did not respond to an interview request.

But Apple's refusal to participate in the labels' plan didn't mean they gave up. The largest recording companies have continued to develop software that will help them release their own version of a new interactive album. Apple will have Cocktail, but Amazon and all the other competing services will get access to the labels' version, which will offer more content than Apple's, said the music industry source.

Apple plans to have Cocktail ready to launch by September, according to the Financial Times, and that's when the labels hope to have their version ready as well, said the source.

Both Apple and the top recording companies appear to be pursuing the same goal: rejuvenating the album, which was the benchmark sales unit that helped the music business generate billions of dollars over the past half-century. Up until the digital download turned the music industry on its head, the album was the standard means for music distribution. Even after the switch from vinyl to the CD, the album format was preserved, as most CDs featured about a dozen tracks.

Record industry execs have long said that there's no way to grow the business by selling single-song tracks. But the big labels have an uphill fight--many consumers may well resent any attempt to force them into paying a premium for packages that include unwanted tracks.

A coalition of advertising industry trade groups have agreed on new guidelines for privacy related to behavioral targeting on the Web. Officially released on Thursday and expected to go into effect early next year, the set of principles concern what advertisers can do with personal data collected in order to zero in on target audiences.

The groups involved are the American Association of Advertising Agencies (4A's), the Association of National Advertisers (ANA), the Direct Marketing Association (DMA), and the Interactive Advertising Bureau (IAB).

The guidelines take the form of seven principles, ranging from a commitment to better consumer education about behavioral targeting, to a focus on keeping potentially sensitive data secure.

"Consumers deserve transparency regarding the collection and use of their data for behavioral advertising purposes. I am gratified that a group of influential associations--representing a significant component of the Internet community--has responded to so many of the privacy concerns raised by my colleagues and myself," Federal Trade Commission (FTC) commissioner Pamela Jones Harbour said in a release.

"These associations have invested substantial efforts to actually deliver a draft set of privacy principles, which have the potential to dramatically advance the cause of consumer privacy. I commend these organizations for taking this important first step."

Lawmakers have paid close attention to the evolution of online behavioral targeting over the past few years, especially as the vast amount of personal data on social networks makes it possible for advertisers to target more and more specific niches. Some have even suggested that behavioral targeting should be opt-in by default.

Last month, several subcommittees of the U.S. House of Representatives Committee on Energy and Commerce hosted a hearing about behavioral ad standards, and executives from companies like Facebook, Yahoo, and Google testified. At least one of those companies has come out publicly in support of the new guidelines.

"One of the key strengths of the principles is the fact that they apply to a broad range of companies participating in online advertising--advertisers, publishers, and ad networks," a post about the new measures on Google's public policy blog read.

Buffeted by a steep drop in its advertising revenues, News Corp. on Thursday reported an 8.4 percent decline in its fiscal second quarter revenues and missed analysts expectations.

Revenues fell to $7.9 billion in the quarter ended December 31, compared with $8.6 billion for the same quarter a year ago. Wall Street was expecting the media giant to generate $8.39 billion, according to Thomson Reuters.

News Corp. posted a net loss of $6.4 billion, or $2.45 a share, during the quarter, compared with a net profit of $832 million, or 27 cents a share, a year earlier.

Excluding impairment charges, the company generated a net profit of 12 cents a share. Analysts, however, were expecting the media giant to post a profit of 19 cents a share, according to Thomson Reuters.

News Corp. CEO Rupert Murdoch said in a statement:

Our results for the quarter are a direct reflection of the grim economic climate. While we anticipated a weakening, the downturn is more severe and likely longer lasting than previously thought.

As a result, we have been taking actions to preserve a solid level of operational profitability and a strong balance sheet without sacrificing future growth. We are implementing rigorous cost-cutting across all operations and reducing head count where appropriate.

News Corp. shares were up 2.01 percent in after-hours trading to $7.60 a share. During the regular trading session, News Corp. posted a gain of 2.76 percent to $7.45 a share.

During the quarter, News Corp. reported an adjusted operating loss of $38 million from its "other" category, which includes Fox Interactive Media, as well as Fox's MySpace site. The decline in Fox Interactive was spurred on by, in part, by its launch of MySpace Music. Additional contributing factors included a growth in unique users and an internal expansion of Fox Interactive.

As Americans tuned into their computers during December, the number of online videos viewed jumped 13 percent over the previous month, according to a report released Wednesday by comScore.

In the U.S., viewers watched 14.3 billion online videos in December. That translates into nearly 150 million users watching an average of 96 videos each, comScore noted in its report.

The average viewer, meanwhile, spent more than a total of 5 hours with their eyes glued to the videos, which ran an average of 3.2 minutes. Hulu viewers, however, watched online videos that ran an average of 10.1 minutes.

Sites that attracted the most unique viewers included Google Web sites, which captured the attention of 100,092 unique visitors, who watched an average of 59 videos each.

Google received a big boost from its YouTube site, which accounted for 99 percent of the 5.9 billion videos viewed from its Web sites, according to comScore.

Other sites that attracted a sizable following included Fox Interactive Media, which had 56,895 unique viewers in December who watched an average of 7.8 videos, followed by Yahoo Web sites with 42,761 unique visitors viewing an average of 7.7 videos.

The digital unit that oversees MySpace and Photobucket for News Corp. has laid off about 100 people, or 5 percent of its workforce, according to The Wall Street Journal.

Fox Interactive Media was formed in 2005 to oversee News Corp.'s digital holdings.

MySpace CEO Chris DeWolfe said last year that the social-network site has seen big gains in ad growth. But some of News Corp.'s other digital holdings don't appear to be faring as well. Staci Kramer at the blog PaidContent.org reported last week that FIM had plans to shut down its storage site, Flektor and that there were layoffs at sports site Scout Media--another FIM property.

A FIM representative declined to comment on the Journal's numbers but did not deny layoffs. A MySpace spokeswoman said there were no layoffs at MySpace.

The growing economic slump doesn't appear to have fully struck Web advertising.

Internet advertising revenues for the third quarter were nearly $5.9 billion, representing an 11 percent increase over the same period last year, according to the Interactive Advertising Bureau.

The bad news is online advertising appears to be slowing down. The third quarter in 2008 was up only two percent from the second quarter. For the first three quarters of the year, however, ad revenues totaled $17.3 billion, up from $15.2 billion for the first three quarters of 2007. The IAB said the $5.9 billion quarterly results were the second best ever.

Meanwhile, ComScore issued an ad-focus ranking for October. Platform A, AOL's ad platform reached 173 million Americans or 91 percent of the 190.6 million American's online. The Yahoo Network came in second by reaching 164 million people and was followed by Google's Ad Network with 158 million.

Post updated 11:45 AM PST

Beet.TV has the scoop on Nielsen Online's tracking of video streams for September 2008. Yahoo Video streams surged 56 percent and unique users grew 35 percent month over month.

The month of September was also good for Google's YouTube, which had 12 percent growth in streams. Fox Interactive, MSN/Windows Live and Nickelodeon all had negative growth from August to September 2008, according to Nielsen Online.

It's unclear why Yahoo Video saw such a dramatic increase compared to other sites in September. CNET News has call into the company and Nielsen to check this out.

Update: A Yahoo spokesperson attributed the growth to contextual placement of the videos and traffic due to major news events. Yahoo had record traffic for Yahoo Finance and Yahoo News in September 2008.

It would seem that sites with video related to the economy and politics would show some growth in September. Given the frenzied October financial meltdown and Obama-McCain face-off, October should be a strong month for growth.

See also: Jimmy Pitaro, head of entertainment and sports at Yahoo, discusses his division's video strategy with Beet.TV.

Despite an economic turndown, online advertising--and search in particular--is managing to keep its market intact, according to reports on Tuesday by an industry trade group and Wall Street analyst.

According to the Interactive Advertising Bureau, Internet advertising revenues rose 15.2 percent, to $11.5 billion during the first six months of the year, compared with the same period last year. And search advertising grabbed a larger piece of the share, accounting for 44 percent of the market--up 3 percentage points.

Search advertising generated nearly $5.1 billion during the first half of the year, up 24 percent from a year ago. Display advertising, meanwhile, also grew at a double-digit pace of 19 percent to $3.8 billion over the course of the first half of the year.

But what about the third quarter and the market meltdown during the early days of the fourth quarter?

Two players in online advertising say conditions are remaining stable, according to a Tuesday report by JPMorgan analyst Imran Khan.

Search engine marketing (SEM) companies such as Didit and Reprise Media report that third-quarter search budgets were up, mainly due to a shift from more traditional marketing to search advertising.

Didit.com, which manages 100 accounts, with an annual advertising budget of $150 million to $200 million, and Reprise Media, which has 80 clients, with a minimum ad spend of $100,000, report that their respective customer bases increased their search advertising budgets by anywhere from 3 percent to 7 percent in the third quarter, compared to the previous quarter.

And these advertising companies noted that one of the contributors was the emergence of new categories for search advertising, such as pharmaceuticals and entertainment.

Khan, in his research report, noted:

We feel comfortable with our U.S. search-advertising revenue estimates. As we are seeing our thesis of increased performance-based online ad spend play out, we are comfortable with our 2008 U.S. search-advertising revenue growth estimate of 27 percent year over year. We also feel that our (third quarter) estimate for low-single-digit sequential U.S. revenue growth at Google is achievable.

Additional charts from the Interactive Advertising Bureau