All Things Digital

If the old media advertising economy is in the toilet, then its new media counterpart is sitting atop it.

According to figures compiled by the Interactive Advertising Bureau, spending on Internet advertising in 2007 rose to $21.2 billion, up 26% from the prior year. That’s a record high and one that exceeds the $20.9 billion spent on print, radio, outdoor and cable TV.

Unsurprisingly, keyword search, Google’s (GOOG) cash-cow ranch, generated the most revenue and claimed the largest market share–41%. Display advertising followed with 34%, classifieds at 16%.

(Image Credit: Tyler Jordan, eVisibility Insider)

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.”

The U.S. Justice Department has managed the impossible. It’s brought Howard Stern and Oprah Winfrey together under a single aegis.

This morning the DOJ approved the merger of satellite radio companies Sirius Satellite Radio (SIRI) (home to Stern) and XM Satellite Radio (XMSR) (home to Winfrey), a move that will create a satellite radio company with about 14 million subscribers.

In a statement, the DOJ said it found no reason to think that combining the only two satellite radio players in the market would create a pay-radio monopoly. “After a careful and thorough review of the proposed transaction, the division concluded that the evidence does not demonstrate that the proposed merger of XM and Sirius is likely to substantially lessen competition, and that the transaction therefore is not likely to harm consumers,” the DOJ explained.

“The Division reached this conclusion because the evidence did not show that the merger would enable the parties to profitably increase prices to satellite radio customers for several reasons, including: a lack of competition between the parties in important segments even without the merger; the competitive alternative services available to consumers; technological change that is expected to make those alternatives increasingly attractive over time; and efficiencies likely to flow from the transaction that could benefit consumers,” said the DOJ.

It might be 100 billion times smaller than the first commercial radios, but the University of California at Berkeley’s nanoradio still sounds halfway decent through the right headphones.

Alex Zettl, a professor of physics at the university, has managed to construct a working radio out of a single carbon nanotube that’s about 10,000 times thinner than a human hair. “The single nanotube serves, at once, as all major components of a radio: antenna, tuner, amplifier and demodulator,” Zettl explains. “Moreover, the antenna and tuner are implemented in a radically different manner than traditional radios, receiving signals via high-frequency mechanical vibrations of the nanotube rather than through traditional electrical means.”

Zettl and his team christened the device with its FM broadcast last year–Derek and the Dominos’ “Layla.” Watch the video below and you’ll here that unmistakable guitar riff not quite as clear as day, but clear enough.

Astonishing, eh? A single nanotube performing all the functions of a working radio. “I hate to sound like I’m selling a Ginsu knife–’But wait, there’s more! It also slices and dices!’–but this one nanotube does everything,” Zettl told the San Francisco Chronicle. And its practical applications? Apparently there are quite a few: climate-monitoring systems, cellphones and who knows what else. Says Zettl, “Maybe the kids will be wearing these instead of iPods, inside their ears.”

Bear Stearns Internet analyst Robert Peck is apparently taking the same cold medicines former Wall Street analyst Henry Blodget favors, just not in the same massive quantities.

Earlier this week Blodget–who in 2006 was laying out scenarios for a massive contraction in Google’s price–suggested the company’s shares might someday trade at $2,000. “Remember a couple years back when some analyst floated the idea that Google could eventually be worth $2,000 a share–and was ridiculed from coast to coast?” Blodget wrote. “Well, first it’s worth noting that Google is now almost a third of the way there. Second, it’s worth noting that $2,000 a share would mean a market cap of about $750 billion, which–given a reasonable time horizon–just isn’t that far-fetched.”

Well, according to Peck, Google will soon be just $1,300 from that stratospheric valuation. This morning he set a $700 target on Google shares for year-end 2008. “Google remains one of the best operating companies within our coverage universe, with EBITDA and EPS growth estimated at 21% and 20%, respectively, over the next three to five years,” Peck wrote in a research note to investors. “Google continues to gain market in search queries while continuing to face a bevy of competitors. … Further, Google’s efforts in online video, radio and print have added a layer of value that is absent from its competitors’ portfolio of offerings and which has the potential to yield significant financial rewards.”

If things continue as they are, the Buggles may have to re-record their 1979 New Wave masterpiece with a new lyric: “Imbeciles Killed the Radio Star.” Thousands of Internet radio stations went quiet today in observance of a “Day of Silence” organized to protest a catastrophic increase in royalty rates that threatens to cripple Internet radio. From the Radio and Internet Newsletter:

Although a royalty rate like this is typically 4% to 5% of revenues in other media (e.g., satellite radio), for other rights (e.g., the musical compositions), and in other countries–the rates set by the Copyright Royalty Board judges equate to roughly 50% of revenues for large webcasters like Yahoo LAUNCHcast (and probably many terrestrial station streamers), 150% to 300% of revenues for small webcasters like AccuRadio, radioio and Digitally Imported, and, for Webcasters with large numbers of channels like Rhapsody and Pandora, well more than 1,000% of revenues.”

SoundExchange–an organization spun off from the Recording Industry Association of America to collect royalties on the behalf of sound-recording copyright owners–argues that the royalty increase, slated to go into effect July 15, is fair payment for the right to stream digital music. But 50% to 300% of revenues does seem a bit steep, doesn’t it?

Steeper still, when you consider the fact that SoundExchange doesn’t always manage to disburse all the royalties it collects. That’s right. In the first quarter of 2006, the organization collected some $14.2 million in royalties, but distributed just $8.5 million. Where’s the remaining $5.7 million? SoundExchange says it’s being “held in reserve for artists and sound-recording copyright owners that have not been identified or located.” And it is. Until June 30, when those missing artists–all 8,353 of them–forfeit it to SoundExchange.

The irony is enough to make your head explode.

It’s criminal. Anyone at any time can simply turn on a radio and hear a copyrighted song. Making matters worse, these radio stations often play the best, catchiest song off the album over and over until people get sick of it. Where is the incentive for people to go out and buy the album?”

–RIAA President Hilary Rosen as channeled by the Onion, circa 2002

Why on Earth would the Recording Industry Association of America do anything to prevent us from listening to music, when it’s in the business of selling it? That’s a question at the top of mind today, now that the RIAA is pressing Congress to repeal a federal law that exempts broadcast radio stations from paying performance royalties to its member labels. While composers and publishers have long collected royalties from radio stations who play their songs, record labels and performers have not, because of the recognized promotional value of radio airplay.

“Terrestrial radio could not exist without the music provided by the record labels,” the Information Technology and Innovation Foundation explained in a recent report. “However, they have managed to avoid paying royalty fees for sound recordings. On the other hand, the record labels depend on terrestrial radio to create hits, promote their music and drive music sales. If copyright owners could establish separate royalty fees for each sound recording, some copyright owners would actually allow radio stations to broadcast their music for free, and some would even pay the radio station. Getting your music played on the radio provides a huge boost for an artist.”

It certainly does. Remember, there was a time when record labels paid broadcasters to play their songs. They even coined a word for the practice: payola. But apparently, the recording industry’s institutional memory is about as solid as its crumbling business model, because it’s trying to kill the broadcast exemption. If it succeeds, it stands to collect hundreds of millions of dollars annually in new royalties–which will more than cover the $12.5 million settlement it agreed to pay to resolve possible payola violations in April.