Affected employees were notified this morning, and executives are meeting with remaining staff this afternoon to do damage control.

Slowing consumer and business spending due to the econalypse is the obvious explanation for today’s cuts, though Rhapsody’s struggle to compete with other music services, among them Apple’s (AAPL) iTunes, clearly played a role here as well.

RealNetworks last implemented layoffs in December 2008 when it cut 7.5 percent of its workforce.

UPDATE: A Real spokesperson has confirmed the cuts, noting that the company is “placing greater emphasis on mobile devices and Web platforms and less on editorial and heavy client software.”

Tim Quirk, VP of music programming for Rhapsody, has taken to Twitter to try to drum up some job leads for the folks he just had to let go.

On the revenue-seeking side, BoomTown’s Twitter Business Plan Count-Up hasn’t yielded any real keepers yet. There is a real contender, though–since Jennifer Aniston so publicly broke up with her boyfriend, John Mayer, on account of his Twitter “addiction,” BoomTown suggests offering “Twitter rehab” for those not willing to lose their relationships just yet. Not sure how zoning would work on that one, but the profit margin could be nice. The Guardian’s Changing Media Summit in London didn’t provide a lot of hard answers to the revenue question either, but it did gather the curious together to discuss the matter further, ponder the Next Big Thing, and talk about what the media company of tomorrow looks like. And, perhaps proving that during hard times Americans love an unlikely hero (a Seabiscuit for our own economic disaster?), Steve Wozniak escaped elimination from “Dancing With The Stars” for yet another week–undoubtedly due to the will of the people and their appreciation of his determined and goodhearted willingness to look silly on national television. The Pillsbury Doughboy bit probably didn’t hurt, either.

On the cost-saving side, MediaMemo wrote about job and salary cuts at the New York Times (NYT). The job cuts were on the business side, but the company slashed all of its nonunion salaries by 2.5-5 percent. It will ask for similar cuts from its unionized newsroom employees, in a spirit of “shared sacrifice.” Google (GOOG) sacrificed 200 more jobs, this time from sales. One of the most drastic signs of recession, however, may be the fact that Condé Nast’s higher echelons are cutting back on chauffeured cars to get them around Manhattan.

According to Digital Daily, It was Black Thursday at IBM (IBM) on the 26th, with 1,674 job losses (and counting). 5,000 jobs are expected to be cut overall, with many of the lost U.S. positions being transferred offshore. Better news over at Viacom’s (VIA) MTV games–according to new statistics, the company’s Rock Band franchise recently surpassed $1 billion in North American retail sales, making it the number one title of 2008 across all genres, based on revenue. And that’s before Beatles: Rock Band even comes close to shipping. That’s the kind of magic shown so far by Palm’s (PALM) forthcoming Pre handset, which–without a price or a release date–has boosted the company’s share price more than $7 based on little more than a CES debut and some enthusiastic analysts. Digital Daily noted that not everyone feels magical, but the launch will tell.

Over in Personal Technology, Walt Mossberg offered quick reviews of the iPhone apps he uses most often and that make the shiny Apple (AAPL) gadget worth the price. In Mossberg’s Mailbox, Walt pointed out the usefulness of IE8’s compatibility button, which makes the browser act like IE7 in certain instances, on Web sites that were coded around the peccadilloes of the earlier versions of the Microsoft (MSFT) software. Other readers had questions about ordering broadband service without a land line and burning movies to Blu-ray discs using an iMac. Katie Boehret spent the week testing out a new TV from Samsung–the first to integrate with the Yahoo (YHOO) Widget Engine, which enables viewers to watch shows and access the Web on the same large screen. Her thoughts are in The Mossberg Solution.

More next week.

So perhaps this means that those talks are about to become more serious still. Time Warner (TWX) CEO Jeff Bewkes did say earlier this month that AOL’s future “will probably get decided fairly soon.”

And if it does and the company is able to ditch AOL on Yahoo? Well, as I’ve said before, Yahoo (YHOO) will no doubt spin such a combination as one that would bolster its domestic market position. But rather than a synergistic powerhouse, a merger of these companies is more like two louts coming together to make one cretin. Not exactly a proven formula, considering recent history. AOL+Compuserve = FAIL. AOL+Netscape = FAIL. AOL+Time Warner = FAIL. AOL+Yahoo?

The judge disagreed. And his reasons for doing so will undoubtedly come into play in the Viacom case and others as well. “Veoh has simply established a system whereby software automatically processes user-submitted content and recasts it in a format that is readily accessible to its users,” the judge wrote. “Veoh preselects the software parameters for the process from a range of default values set by the third-party software. … But Veoh does not itself actively participate or supervise the uploading of files. Nor does it preview or select the files before the upload is completed. Instead, video files are uploaded through an automated process which is initiated entirely at the volition of Veoh’s users.”

Google (GOOG) was understandably quite pleased with the ruling: “It is great to see the Court confirm that the DMCA protects services like YouTube that follow the law and respect copyrights,” Zahavah Levine, YouTube’s chief counsel,” said in a statement.

Viacom (VIA) was equally displeased, understandably. “Even if the Veoh decision were to be considered by other courts, that case does nothing to change the fact that YouTube is a business built on infringement that has failed to take reasonable measures to respect the rights of creators and content owners,” the company said in a statement. “Google and YouTube have engaged in massive copyright infringement–conduct that is not protected by any law, including the DMCA.”

Given the option to pull copyrighted material posted to YouTube without their permission or to monetize it with YouTube’s new Content ID system, some 90 percent of copyright owners are choosing the latter. Since it was first announced, Content ID–which allows rights owners to block an infringing clip, leave it be or grant YouTube permission to sell ads against it–has won some impressive partners, including such media companies as CBS, Universal Music and Electronic Arts. (Obviously, there are some very notable exceptions).

And those who’ve decided to participate have good reason for signing on, as YouTube Product Manager David King points out in a post to the Official Google Blog. “… Our Video ID partners are seeing claimed content more than double their number of views, against which we can run ads,” King writes. “This means that if a partner has, say, 10,000 views of its content, leaving up videos claimed by our system will lead to an average additional 10,000 views of that same content. We call this “partner uplift,” and for some partners we’ve seen uplift as high as 9000 percent.”

At this point, the “partner uplift” to which King refers hasn’t generated much revenue. But it may have created something far more important: a paradigm shift. “We don’t want to condone people taking our intellectual property and using it without our permission,” Curt Marvis, the president of digital media at Lionsgate Entertainment, recently told the New York Times. “But we also don’t like the idea of keeping fans of our products from being able to engage with our content. For the most part, people who are uploading videos are fans of our movies. They’re not trying to be evil pirates, and they’re not trying to get revenue from it.”

But ultimately, the rights owners are. And now that YouTube has more than 70 million monthly unique viewers and a parent company well-practiced in hardball negotiating tactics, it seems they have little choice but to align themselves with the site. Which is ironic, in a way. Because this is exactly the scenario that Viacom CEO Philippe Dauman has been describing since the media behemoth filed its $1 billion copyright infringement suit over video clips on YouTube. Dauman has long maintained that Google’s (GOOG) strategy has been to defy copyright owners long enough to dominate the online video space and bend the content industry to its will. And, indeed, Google seems to have done exactly that.

Entrepreneur Mark Cuban once said, “Only a moron would buy YouTube.” Who’s the moron now?

So another angry finger is pointed at Google (GOOG). Not that the company seems to care all that much. “YouTube respects copyright holders and takes copyright issues very seriously,” Google said in a statement. “There is no need for legal action and all the associated costs.”

A predictable reply, but one that does little to address the fact that YouTube’s efforts to help rights owners easily manage their content haven’t exactly been working. If they were, Mediaset SpA wouldn’t have found 325 hours of its programming on the site, and earlier this month I wouldn’t have been able to watch the entire “Sex and the City Movie” as a series of YouTube clips.

It has, indeed. Which is why it’s so supremely ironic to hear that Viacom (VIA) and Google have reached a deal to mask the user IDs, visitor IDs and Internet protocol addresses contained in the YouTube database. From the agreement:

When producing data from the Logging Database pursuant to the Order, Defendants shall substitute values while preserving uniqueness for entries in the following fields: User ID, IP Address and Visitor ID. The parties shall agree as promptly as feasible on a specific protocol to govern this substitution whereby each unique value contained in these fields shall be assigned a correlative unique substituted value, and pre-existing interdependencies shall be retained in the version of the data produced.”

Why go to such trouble to conceal information that both companies claim isn’t personally identifiable?

Apparently, to protect the privacy of tens of millions of YouTube viewers who it personally identifies.

The federal judge presiding over Viacom’s (VIA) $1 billion copyright infringement lawsuit against Google (GOOG) and YouTube denied a motion for the pair to produce their source code Wednesday. “YouTube and Google should not be made to place this vital asset in hazard merely to allay speculation,” U.S. District Judge Louis L. Stanton wrote.

Apparently he didn’t feel quite as strongly about the privacy of YouTube users because he felt entirely comfortable turning that over to the media company. And so he ordered Google to provide Viacom with YouTube’s Logging database, which contains:

…for each instance a video is watched, the unique “login ID” of the user who watched it, the time when the user started to watch the video, the internet protocol address other devices connected to the internet use to identify the user’s computer (“IP address”), and the identifier for the video. That database (which is stored on live computer hard drives) is the only existing record of how often each video has been viewed during various time periods.”

To Stanton such data isn’t a “vital asset,” although the authors of the Video Privacy Protection Act and anyone else with an interest in personal privacy would likely disagree. Said the Electronic Frontier Foundation, “The Court’s erroneous ruling is a setback to privacy rights, and will allow Viacom to see what you are watching on YouTube. We urge Google to take all steps necessary to challenge this order and protect the rights of its users.”

And Google will almost certainly do that. But it may have its work cut out for it, because in this case it’s fighting not just Viacom and the presiding court, but itself. You see, in granting Viacom’s request for YouTube’s Logging database, Stanton cited Google’s own argument that IP addresses aren’t always personal data. “Defendants argue that the data should not be disclosed because of the users’ privacy concerns, saying that ‘Plaintiffs would likely be able to determine the viewing and video uploading habits of YouTube’s users based on the user’s login ID and the user’s IP address,’ ” Stanton wrote. “But defendants cite no authority barring them from disclosing such information in civil discovery proceedings, and their privacy concerns are speculative. Defendants do not refute that the ‘login ID is an anonymous pseudonym that users create for themselves when they sign up with YouTube,’ which without more ‘cannot identify specific individuals,’ and Google has elsewhere stated:

We … are strong supporters of the idea that data protection laws should apply to any data that could identify you. The reality is though that in most cases, an IP address without additional information cannot.”

–Google Software Engineer Alma Whitten, Are IP addresses personal?, GOOGLE PUBLIC POLICY BLOG (Feb. 22, 2008)

Ironic, no?

This morning the video site, which is jointly owned by NBC Universal (GE) and News Corp. (NWS) (which also owns Dow Jones and this site), said it will offer full episodes of “The Daily Show with Jon Stewart” and the “Colbert Report” beginning today. The deal, which brings the popular late-night satirists to the site just in time for the presidential election, is something of a surprise, since Comedy Central parent company Viacom (VIA) has so far refused to sign on to Hulu.

But that may change if this first tentative experiment bears fruit. “I think with success breeds success. It could open some other doors,” said Erik Flannigan, executive vice president of digital media at MTV Networks, the Viacom division that runs Comedy Central. “Hulu in many ways may put the shows in front of some people who might be more casual viewers but who might be interested in what’s going on with the elections.”

“It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer,” Icahn wrote in a letter to Yahoo’s leadership. “I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet.”

So strongly, in fact, that Icahn–who owns 59 million Yahoo shares–has asked the Federal Trade Commission for permission to buy as much as $2.5 billion more of the company’s stock and has assembled a 10-member alternative board slate. Among the directors nominated, Icahn himself, his lieutenant Keith Meister, former Viacom Inc. (VIA) Chief Executive Frank J. Biondi Jr., and Dallas Mavericks owner Mark Cuban (Mark Cuban?!?).

And lest there be any doubt that Icahn was gunning for anything less than a referendum on Microsoft’s takeover offer, the financier concluded his letter with a parting word of advice: “I sincerely hope you heed the wishes of your shareholders and move expeditiously to negotiate a merger with Microsoft, thereby making a proxy fight unnecessary.”

What’s not yet clear is whether Microsoft is even willing to resume merger talks. Though it’s certainly possible that Microsoft CEO Steve Ballmer and Icahn have been having some back-channel chats about the issue recently …

Yahoo and Microsoft are both trading higher on the news.

This morning the company said it’s exiting the subscription-music market and throwing its support behind Rhapsody America, a joint venture company owned by RealNetworks and Viacom. In the coming months, Yahoo Music Unlimited subscribers will be transitioned over to Rhapsody and Yahoo will begin promoting the new service on its properties.

The deal leaves us with a subscription services market of three: Rhapsody, Napster and Microsoft’s Zune Marketplace. And among those, Rhapsody–with just under 1 million subscribers–will be the leader. “This takes away a competitor, and gives Rhapsody potentially some marketing muscle,” Jupiter analyst David Card told USA Today. “This is good for Rhapsody.”

Indeed. But only if the deal lasts. And there’s good reason to believe it won’t, given Microsoft’s hostile bid for Yahoo. The software giant and Real aren’t exactly old friends.

Looking five, six, seven, 10 years ahead, advertising will become 15%, 20%, 25% of Microsoft’s business. As much as people have bones to pick with advertising, people much prefer an advertising-funded experience to one they pay for.”

–Microsoft CEO Steve Ballmer

Viacom has a new online advertising partner and–big surprise–it’s not Google. It’s Microsoft.

The entertainment broadcaster has signed a far-reaching, five-year strategic partnership with the world’s largest software company valued at approximately $500 million. Under its terms, Microsoft will buy ads across Viacom’s broadcast and online networks and license content from its MTV, Comedy Central, BET and Paramount Pictures properties for use on the MSN Web site and the Xbox 360.

In return, Viacom will adopt Microsoft’s Atlas AdManager digital-advertising technology and grant Redmond the exclusive right to sell remnant display-advertising inventory on its U.S. sites.

Quite the partnership, and one that may further in evolve in the years ahead. “This broad-based relationship will lead to conversations in other business areas,” Viacom CEO Philippe Dauman told Reuters. “What impressed me was the extent to which Microsoft is making the commitment–technological, financial and otherwise–to be a winner in this space.”

“Financial and otherwise,” indeed. As Om Malik notes, Viacom seems to have gotten itself quite a deal from Microsoft. “Viacom doesn’t have to spend anything and at the same time it is getting advertising dollars and more distribution for their content,” he writes. “I get a feeling that, going forward, this is going to become a template deal for all large media companies with content assets. For them it’s a green light to pillage Microsoft’s overflowing coffers. Deals like this will increase the pressure on Google to do similar ones with other content providers, mostly to thwart Microsoft’s advertising ambitions.”