All Things Digital

HBO (TWX) has reportedly managed to do what NBC Universal (GE) failed so miserably at last year: convince Apple (AAPL) to adopt variable pricing at its iTunes digital media storefront.

Sources close to the network tell Portfolio.com that Apple will soon bring its programming to iTunes along with a separate and distinct pricing structure. No word yet on what that pricing structure is, but presumably it’s a lot more favorable than the one NBC Universal had.

An interesting move for Apple, and one that marks a shift in the company’s hard-line views of pricing. Perhaps the HBO arrangement is unique, perhaps not. But even if it is, it won’t be long before the entire content industry begins demanding similar deals.

As one of the original 13 colonies, you’d think that New York State would have a particular antipathy toward things like “taxation without representation.” And perhaps it does, just not when it’s the one doing the taxing.

The state recently passed a so-called Amazon Tax, a new law compelling out-of-state online retailers to start collecting New York sales tax. The law, designed to recover sales taxes potentially lost to Internet purchases, requires any e-tailer with even a single affiliate site with a New York State address–say, a blog that earns a referral fee for sending customers to Amazon (AMZN)–to collect sales tax on all goods sold in the state, even those not sold through the affiliate.

Its authors say it will contribute about $50 million to the state’s budget, and it might, if Amazon doesn’t get it declared unconstitutional first. Earlier this week, the company filed a suit challenging the law because it imposes tax-collection obligations on retailers, online and off, with no physical presence in the state. Worse, it does so based on nothing more than advertising in New York, a definition that includes retailers with even the slightest connection to the state.

Said Amazon: “This statute was intended to impose tax-collection obligations on out-of-state Internet retailers such as Amazon. Nonetheless, the statute, as drafted, on its face would also impose tax-collection obligations on non-Internet out-of-state retailers who pay New York print media, television or radio outlets to advertise their products and thereby refer New York customers to buy them.”

Comcast is apparently too busy drafting its “P2P Bill of Rights and Responsibilities” to bother attending the daylong hearing into its dubious “network management” practices. An odd decision for a company so intent on “clarifying” the practices ISPs should use to manage P2P applications running on their networks. But according to a company spokesperson, Comcast (CMCSA) “felt the issues specific to us were well covered at the first hearing, and the focus of this event should be broader than any individual company’s issues.”

Broader issues? Like reasonable network-management practices? The responsibility to deliver traffic fairly? Service disclosures? The sort of issues that might figure prominently in a “P2P Bill of Rights?”

Guess not.

Anyway, Comcast has already scrapped its policy of deliberately slowing some traffic flowing over BitTorrent and other P2P networks, so there’s really no need for Federal Communications Commission Chairman Kevin Martin to bust its chops anymore. As Mitch Bowling, Comcast’s senior vice president and general manger of its Internet service, told the New York Times, Comcast’s new policy is to slow traffic based on usage pattern, not application. “[Our new technique] will be based purely on individual consumption by consumers,” Bowling said. “Anything in addition to that is outside the scope of what our network management goal is.”

So the company plans to throttle traffic to the customers that use the most bandwidth. Hmmm. I wonder who those might be? The folks who use the Internet for email and Web browsing or those who use it for downloading digital media?

America Online acquired Time Warner for roughly $106 billion in stock and debt back in 2001. “I don’t think this is too much to say this really is a historic merger; a time when we’ve transformed the landscape of media and the Internet,” former AOL chairman and CEO Steve Case said at the time. “Time Warner will offer an incomparable portfolio of global brands that encompass the full spectrum of media and content.”

And it did. Problem was, AOL didn’t turn out to be one of them. And so today, Time Warner, which has been struggling for years now to turn AOL into the “digital media powerhouse” it was supposed to be, said it is splitting it in half.

“We need to complete AOL’s business-model transition and are working on separating AOL’s access and audiences business so we can run them independently,” said Time Warner CEO Jeff Bewkes. “This should significantly increase AOL’s strategic options for each of these main business sectors.”

Apparently, NBC Universal doesn’t know that jumping into rebound relationships after a particularly painful breakup is rarely a good idea. After Apple tossed its fall TV lineup off iTunes in August, saying the two companies couldn’t agree on pricing, the broadcast network has been spitefully seeking out distribution deals wherever it can find them: Hulu. Then Amazon Unbox. The hilariously ill-conceived NBC Direct. And Netflix.

Now SanDisk. Today, NBC U said it would make its shows available on SanDisk’s recently launched Fanfare PC-to-TV video player service. Come January, consumers will be able to download episodes of NBC series they can no longer purchase on iTunes, and transfer them to their TVs via SanDisk’s TakeTV product.

“Fanfare is going to be an iTunes-like store for us,” NBC U’s president of digital distribution, Jean-Briac Perrette, told Silicon Alley Insider. But with one noteworthy difference: NBC U controls pricing. “The business model is one we like,” said Perrette. “It’s normal for content owners to control the wholesale price of their content. This is no different than any other wholesale relationship; it’s not different in the sense that Wal-Mart decides to price DVDs at a loss. Ultimately we still set the wholesale price.”

Time to shelf that TiVo obituary. The “TiVolution” is picking up some new agitators. After years of struggle, the digital video recorder pioneer is back on its feet again with some new partnerships, old partnerships that are finally coming to fruition and a new business.

In the past few weeks, TiVo has signed deals with online photo-sharing services Photobucket and Picasa and the music-and-video network Music Choice. It’s begun fulfilling its contracts with cable outfits Comcast and Cox. It’s entered the media-services market, partnering with NBC Universal to provide second-by-second ratings of programs and commercials, based on the TV-watching habits of subscribers to the company’s digital video recorders.

“We are very much a technology company,” TiVo CEO Tom Rogers told the New York Times. “At the same time, in the last year and a half, we’ve substantially moved in the direction of becoming a media company.” And that’s proven a prudent move for TiVo, where things are beginning to look up. Shares of the company hit a 52-week high of $8.53 Friday. Today they were trading at around $8.35.

Too bad for TiVo that days of the standalone digital video recorder are reportedly numbered. According to Yankee Group, the standalone DVR product category will cease to exist by 2010, “and its dissolution will result in the end of TiVo as we know it.”

Having blown its chance to develop LiveJournal into what could well have been an early Facebook, the site’s owner, Six Apart, agreed yesterday to sell it to Moscow-based online media company SUP.

Financial terms weren’t disclosed, though Kommersant reports the deal to be worth some $30 million. The sale comes about a year after Six Apart and SUP allied to bring LiveJournal to Russia, where the platform quickly gained a lot of traction. Today www.livejournal.ru accounts for 28% of LiveJournal’s overall audience. As SUP CEO Andrew Paulson once said, “LiveJournal is the ‘blogosphere’ in Russia.”

The acquisition, then, would appear to make perfect sense. Six Apart unburdens itself of a tiring distraction and SUP gears up to transform LiveJournal into what its previous owners could not. “This is pretty cool because [SUP is] ridiculously excited about LiveJournal, and [has] been for a while,” writes LiveJournal founder Brad Fitzpatrick. “They want to throw a lot of resources at LiveJournal in terms of product development and engineers. ‘LiveJournal.com, Inc.’ now stands alone again, focusing on nothing but LJ. “

Good thing Viacom and CBS Corp. Chairman Sumner Redstone plans to live at least another 50 years; he may actually be around long enough to see the realization of Viacom’s grand Internet strategy and its bet on the marriage of old-line media assets with new distribution technologies. Assuming, of course, the sanctity of copyright is preserved.

Speaking at the Dow Jones and Nielsen Media and Money conference this week, Redstone, whose company is suing YouTube seeking $1 billion in damages for what it terms “massive intentional copyright infringement,” said content still rules the digital domain. “Copyright compels creativity,” he said. “It furnishes the incentive to innovate. If you limit the protection of copyrights, you stifle the expression of new ideas. Think about it. You cannot pay the rent posting videos on YouTube. And most aspiring novelists do not aspire to self-publish. You cannot make it as a musician or filmmaker or writer without the shelter of effective and enforced copyright legislation.

“… If content is king,” Redstone concluded, “then copyright–the legal and moral position that the fruits of intellectual labor should be protected in order to encourage creative expression–is its castle.”

And YouTube is, clearly, the Trojan rabbit that’s already made it past the gates …

Web 2.0 will be known as the name of a bubble. And 3.0 would only be a marketing disaster.”
Ross Mayfield’s Weblog, Nov. 12, 2006

Web 2.0 acolytes who shelled out 1,100 euros for admission to Web 2.0 Expo Berlin, which kicks off today, will no doubt be dismayed to learn that the term “Web 2.0″ is no longer an enchanted aegis under which to quest for venture capital. Seems the VC community has finally had it with Web 2.0, its hobbies masquerading as businesses and start-up brands with a reclusive letter “e.”

To wit, Kleiner Perkins Caufield & Byers, one of Silicon Valley’s most prestigious venture capital firms, is reportedly no longer investing in Web 2.0 start-ups. “We have absolutely no interest in funding Web 2.0 companies,” KPCB partner Randy Komisar recently told Silicon Valley Watcher’s Tom Foremski, adding that he’d recently told John Battelle, conference chair of Web 2.0 Summit, that the term is viewed with disdain in the VC community.

As the Globe and Mail’s Mathew Ingram notes, Komisar’s remark is for Web 2.0 devotees “a little like King Arthur telling you he’s really not that hot on the whole Grail thing any more, and you can stop looking now.”

It’s also more than a little ironic. Because, according to a report from Dow Jones VentureOne and Ernst & Young, emerging Web 2.0 companies snared almost $1 billion in venture capital worldwide in the first six months of 2007. That said, very little of it was from KPCB, which seems to have sat most of Web 2.0 out. “I’m personally not doing much in Web 2.0 at the moment,” Komisar told VentureBeat in January. “I’m looking for more fundamental innovations. I’m less interested in the content and media fallout. There are no strong barriers to entry in Web 2.0. If by Web 2.0, you mean companies that build an audience to be monetized by Google, I am not actively pursuing them; though I should never say never. I’m not sure how long YouTube would have remained an independent business had they not been bought by Google. Google has an efficient search engine to monetize large audiences. If you’re creating Web 2.0 products and media, its tough to build anything of sufficient scale to remain independent–you are more likely to end up being a feature on Google, Microsoft or Yahoo.”

Mediated contract negotiations between the Writers Guild of America and Hollywood producers broke off last night setting the stage for a writers’ strike that could leave sitcoms without scripts, late-night shows without topical monologues and television viewers with an even more limited choice of broadcast dross than they have now (”America’s Next Top Model,” “Dancing With the Stars” and “Farmer Wants a Wife” on the CW! How will I ever decide?)

Seems writers and producers still can’t agree on pay schedules for content distributed on the Internet and via other digital media. Or rather, the Alliance of Motion Picture & Television Producers is a bit too attached to the lousy DVD deal it convinced the writers to agree to 20 years ago, which gives writers, directors and actors a combined 20 cents for each DVD sale–30 cents less than the sum given to manufacturers of DVD packaging material.

“The companies refused to continue to bargain unless we agree that the hated DVD formula be extended to Internet downloads,” the guild said in a statement. “[W]e presented the AMPTP with a comprehensive package of proposals that included movement on DVDs, new media, and jurisdictional issues. We also took nine proposals off the table. The companies returned six hours later and said they would not respond to our package until we capitulated to their Internet demand. After three and a half months of bargaining, the AMPTP still has not responded to a single one of our important proposals.”

Too bad for the writers then. Because AMPTP president Nick Counter says increasing the DVD formula (a huge money-maker for the studios) is a nonstarter. “We want to make a deal,” he told WGA negotiators. “We think doing so is in your best interests, in your members’ best interests, in the best interests of our companies and in the best interests of the industry. But, as I said, no further movement is possible to close the gap between us so long as your DVD proposal remains on the table.”

Way to extend that desiccated olive branch, Nick. As John Scott Lewinski notes over at Wired, the producers offering to settle if the Guild drops all that is like the Galactic Empire telling Luke Skywalker, “OK, we’ll surrender … but only if we get to keep the Death Star.”

Many, many years ago, when the digital-music business consisted of little else besides Napster and the Recording Industry Association of America’s lawsuits against it, Apple proved that there was indeed a decent business to be had in selling music online for $1 per song. With iTunes, it quickly established a market for paid downloads as the music industry wrung its hands in utter incomprehension at this new age of digital distribution that was dawning.

So it is ironic, enormously ironic, to hear NBC Universal Chief Executive Jeff Zucker accuse Apple of ruining the music business (like that second Lindsay Lohan album didn’t do any damage at all). Speaking at a breakfast organized by Syracuse University’s Newhouse School, Zucker said Apple “destroyed the music business in terms of pricing” and will invariably do the same to the online video business.

Noting that NBCU booked just $15 million in revenue during the last year of its iTunes deal, Zucker described the company’s deal with Apple’s digital media store as one that was corrosive to its media business. “We don’t want to replace the dollars we were making in the analog world with pennies on the digital side,” he said. What Zucker does want is a piece of Apple’s iPod business. “Apple sold millions of dollars worth of hardware off the back of our content and made a lot of money,” Zucker said. “They did not want to share in what they were making off the hardware or allow us to adjust pricing.”

Can’t imagine that’s going to change anytime soon, either–no matter how loudly Zucker whines. Apple CEO Steve Jobs would probably rather swallow a Zune whole than be pressured into handing over a percentage of iPod sales to record labels, as Microsoft has done with Zune.

We have nothing to do, the writers aren’t here. So a guy’s gonna come in and shave me. Fifty-five minutes, ladies and gentlemen! Fifty-five minutes to go!”

–David Letterman wings it during the last writers’ strike in 1988.

Unscripted reality TV, box-office bombs, endless reruns–dreck. There’s plenty of it on television now and there will be even more if the industry’s writers and producers cannot agree on a new contract by the end of the month. Because the writers’ unions–the Writers Guild of America, both West and East–have voted overwhelmingly to authorize a strike should negotiators determine that a fair deal cannot be reached with producers.

At the top of their list of grievances: pay schedules for content distributed on the Internet and via other digital media. The guilds were screwed years ago when they agreed to a discounted pay schedule for DVDs, only to see that business blossom. And they’re determined not to make the same mistake. “The guild made a bad deal 20 years ago, and they’ve been angry ever since and they don’t want to do it again,” entertainment industry attorney Jonathan Handel told the Los Angeles Times. “That’s why we’re seeing a line drawn in the sand.”

Problem is, the Alliance of Motion Picture & Television Producers doesn’t seem to be paying that line much mind. It claims there have been profound economic changes in the industry in recent years that make the terms and conditions of writing for digital platforms the guilds have proposed untenable. And hey, just because writers are paid residuals whenever their work is rebroadcast or sold on DVD doesn’t mean they should be paid residuals when their work is streamed over the Web–even if distribution costs are lower.

“[The guilds] continue to pursue numerous financial proposals that would result in astronomical increases in our costs,” said Nick Counter, president of the producers’ alliance. “Their proposals would also further restrict our ability to promote and market TV series and films and prohibit us from experimenting with programming and business models in new media. Instead of working toward solutions that would give the industry the flexibility it needs to meet today’s business challenges, [they continue] to hold onto demands that would impose unreasonable restrictions and unjustified costs.”