Silicon Alley Insider

Google's Headcount Soars 57% To 19,000 (GOOG)

Dan Frommer — Mon, 12 May 2008 23:17:00 GMT

We may have to recalculate our estimate for Google's food costs: While the company has said it would start to ease off on its multi-year hiring binge, headcount continues to soar. At the end of Q1, Google (GOOG) had 19,156 full-time employees, according to a SEC filing. That's a 57% year-over-year increase, from 12,238 at the end of Q1 2007.

About 1,500 of the new employees came from the company's acquisition of DoubleClick. So without the deal, Google's headcount would have jumped 44% year-over-year.

But that's about right: Q1 revenues jumped 42% year-over-year to $5.2 billion.

Google: Getting Goose Eggs From YouTube, Six Other Businesses (GOOG)

Dan Frommer — Mon, 12 May 2008 23:05:00 GMT

Included in Google's (GOOG) quarterly update to the SEC: Its now-boilerplate list of businesses that aren't helping pay the bills.

"Revenues realized through the Google Print Ads Program, Google Audio Ads, Google TV Ads, Google Checkout, YouTube, Postini and DoubleClick were not material in any of the periods presented."

Granted, that's all relative: YouTube will likely generate something like $100 million this year, which would be material to just about any other company besides Google. And Google's DoubleClick acquisition, which closed late in Q1, will obviously generate revenue soon.

The others... don't hold your breath.

NY Tech Meetup Preview: A Twofer For Betaworks

Peter Kafka — Mon, 12 May 2008 23:01:00 GMT

Don't think we've seen this before: Two companies backed by the same ... group of investors* presenting at the same NY Tech Meetup.

Firefly, a cool display app for Websites, and Summize, a Twitter search engine, are two of the 14 companies that have gotten funding from John Borthwick's Betaworks since last fall. We've just started using Summize, and find it to be a pretty good utility; we'd like to try out Firefly once it's out of alpha but have liked what we've seen so far (see below).

The meetup has moved back to Cooper Union, and registration is full. Our totally-not-approved-by-meetup-hunch: You can get in if you really want to. Details for those with reservations here. The lineup:

ZocDoc online appointments with doctors and dentists
Wirewize consumer electronics support
Firefly
Summize
Mochila media marketplace for publishers

*You might think that Betaworks resembles an incubator. If you do make this mistake, don't compound it by saying it out loud in front of John, or you'll get a withering stare.

AMD Dumps Two Execs (AMD)

Vasanth Sridharan — Mon, 12 May 2008 22:10:00 GMT

AMD showed Mario Rivas, EVP and head of computing solutions, and Michel Cadieux, chief talent officer, the door, as the company tries anything to regroup after getting soundly whupped by Intel (INTC). AMD created a new central engineering organization, and promoted Randy Allen, the former head of the server business to take Rivas' place. Last month, the company fired CTO Phil Hester and said they would have to cut 10% of their workforce - about 1,680 jobs -- because of mounting losses and weak revenues.

Clear Channel (CCU) Links Up With Pandora

Hilary Lewis — Mon, 12 May 2008 22:00:00 GMT

As Clear Channel moves forward with plans to go private, the radio giant has reportedly reached a deal with Pandora to stream its customizable music stations across all of Clear Channel's Web sites. UPDATE: Clear Channel says that they are developing a personalized radio player but would not confirm that Pandora is involved.

While Pandora fans may fear that Clear Channel will destroy the innovative music service, the deal may actually help Pandora survive. It has been struggling with a dilemma that threatens to shut it down: Onerous "performance" royalty rates -- payable to the people who own the recordings of the songs the service plays -- as well as signficant publishing fees -- payble to the people who own the songs' underlying compositions.

Details of the deal have not been disclosed, but we have to assume that Clear Channel is using its deep pocket to help subsidize Pandora's costs, or else it couldn't possibly afford to work with the behemoth. Billboard says Clear Channel's Pandora-supplied personalized radio player will go live by the middle of the summer.

Clearwire (CLWR) Sales Beat Street, Growth Ticks Down, Waiting For Sprint (S)

Dan Frommer — Mon, 12 May 2008 21:54:00 GMT

Clearwire's (CLWR) quarterly results won't matter much until after it combines with Sprint Nextel's (S) WiMax business later this year. But for what it's worth, the company reported decent Q1 results today. Shares are up 2% in after-hours trading, around $13.

Clearwire posted $51.5 million in Q1 revenue, up 76% year-over-year and handily beating the Street's $48.5 million consensus. EPS came in weaker than expected: a $1.08 loss versus the Street's $0.95 cents loss estimate.

Subscriber growth slowed a bit during Q1: The company added 48,000 net subscriber additions versus 52,000 during Q1 2007. Churn, the percentage of subscribers who leave the service each month, ticked up to 2.2%, from 1.6% a year ago. And Clearwire's cost-per-gross-addition increased 15% year-over-year to $393 from $343. These aren't great numbers/trends, but they won't kill Clearwire.

Again, not much about this company matters except its buildout and merger with Sprint, which the company expects to close in Q4. Once Clearwire blankets enough of the country in WiMax service and some decent WiMax devices are available, we'll get a better sense about the company's long-term prospects.

9 One-Of-A-Kind Laptops; Not An Apple Among Them

Vasanth Sridharan — Mon, 12 May 2008 21:07:00 GMT

Want a tricked out laptop? You can buy 8 of them on eBay. PC Magazine had 9 artists design HP (HPQ) laptops and is auctioning them off for charity. Bonus opportunity: A chance to remind the rest of us that you can own a cool laptop even if you haven't bought an Apple (AAPL) product.

Graffiti artist de la Vega's "my kid can do that" model has already been snapped up by Boston Red Sox pitcher Curt Schilling for an undisclosed amount (though maybe Curt will fess up on his blog). The other 8 went up for auction today, with a starting bid of 99 cents. But last we looked the bids had climbed to the $100 to $400 range, and since the auction ends next Monday, we don't think you're getting a bargain.

But you weren't bargain-hunting anyway, right? You just wanted a good excuse to give money to the National Cristina Foundation, which provides computer equipment to needy schools and non-profit organizations. And also, to remind people that you can still own a cool laptop even if you haven't bought an Apple product.

A little predictably, perhaps, we like the Paul Frank Studios one the best. But we're sticking with our SAI-issued machine for now.

Paul Frank Studio			Suzan Fellman
Shepard Fairey			Rebecca Minkoff
Peter Harper			Matt Bernson
DDCLAB			Coltrane Curtis
de la Vega (sold)

Sirius (SIRI): FCC Delay Hurting Satellite Radio Sales

Michael Learmonth — Mon, 12 May 2008 20:33:00 GMT

Both Sirius (SIRI) and XM Satellite Radio (XMSR) reported earnings today and one common theme emerged: people just aren't buying these things at retail and both companies are relying more and more on their deals with the automakers.

Both blamed the economy, but Sirius CEO Mel Karmazin had another culprit: the FCC. Karmazin believes confusion in the marketplace is affecting sales. While analysts are aware that both types of radios will work post-merger, consumers don't because SIRI and XM haven't marketed the merger yet to consumers.

As far as timing, Karmazin didn't make a guess, unlike XM Satellite CEO Nate Davis who predicted this morning that FCC approval would happen in Q2. Karmazin did say, however, is that the only thing that would stop a merger, in his mind, is if the FCC blocks the deal or imposes conditions so extensive that the merger no longer makes sense for shareholders.

Conference call notes:

Karmazin: Sirius added 2 milion subs from last year's quarter, an achievement, he says, given the state of the economy. Ford is increasing Sirius radio installs from 40% of models to 70% next year. Karmazin says Sirius has been stomping XM in number of new subscribers for the past 10 quarters. (note: they also pay a lot more per new subscriber than XM).

Karmazin says they're going to advertise to try to claim consumers' government stimulus checks this spring.

CFO: Overall satellite radio market is soft. We see some evidence that long merger approval is impacting consumer purchases. Says sales were impacted by reduced sales at Sirius OEM partner Chrysler.

Back to Mel Karmazin: This is our fifth quarterly conference call since we announced the merger. On March 24 the DOJ announced they concluded their investigation of our merger. The DOJ spent 6 months, had 30 lawyers and economists reviewing the merger. Several dozens subpoenas were issued and responded to. A dozen depositions were taken. Karmazin said even BLOGGERS were interviewed! Now we move to the FCC where we need to demonstrate that the merger is in the public interest. We believe it is in the public interest to offer more choice and lower prices (that, and who knows if two satellite radio operators will be in business if this thing doesn't go through).

We share the reasonable frustration of our investors. We are also outraged at press reports generated by opportunistic opponents looking to extract value that rightfully belongs to SIRI and XMSR shareholders. When it happens (the merger) there will be big efficiencies and we will be able to capture them immediately. This merger is so beneficial that it is worth waiting for. I am optimistic we are getting close to the finish line and we will be able to close the deal.

Mel takes questions:

You talked about confusion in the market over the merger--do you have any research that the OEM (auto installs) side has been affected by confusion over the merger?

Karmazin: The answer is no. This seems to be clearly a retail issue. David (Frear) in his remarks said our conversion rate is the same or slightly improved. I don't think we have given conversion by line of vehicle. It's something we monitor. In general, the more expensive the car, the higher the conversion rate.

5:04 p.m.: Can you comment on the progression in subscriber base?

Frear: We have normal seasonality to churn. Our churn rate has to be higher in q1 due to othe renewals that pile up after Christmas. They tend to impact the first quarter, but it tails off as you work through the year.

Karmazin: We don't have April numbers yet, but the churn numbers are trending down.

Of the people who churn out--are they adopting other services? Jumping to XM?

Karmazin: We get our subs from people who have never subscribed to satellite radio. As we told the DOJ, when we lose a customer they tend to go back to terrestrial radio.

5:10 p.m.: How many people do you believe will subscriber on an a la carte basis to just certain channels if the merger is approved?

Karmazin: We believe there might be some people who find a-la-carte attractive. There are also some people who find some of our packages for $9.99 attractive. Those may be useful as far as retention. Most exciting we believe the package we can offer post-merger, the Best Of Sirius--which XM Radio subscribers would also get.

How many activations through your used car program?

Karmazin: Not much this year but used car activations expected to increase in 2009.

Is there any point in time when you throw in the towel and just go forward on a standalone basis?

Karmazin: What we have said is the efficiencies created by this merger are very substantial and of great benefit to the consumer. We are going to continue--we believe in the merger even more than we announced it, even with the debt market going the other way.

If it turns out that the conditions are so eggregious that they are not in shareholders' interests, then we just won't do it. But we look forward to working with the FCC to get this deal done.

Call ends.

Sirius (SIRI) Narrows Losses, Meets Street Estimates

Michael Learmonth — Mon, 12 May 2008 20:22:00 GMT

Sirius Satellite Radio (SIRI) did a little better than its proposed merger partner XM Satellite Radio this morning, turning in Q1 results roughly in line with Wall Street estimates. SIRI ended the quarter with 8.6 million subscribers, up 31% from last year and, just a few ticks behind the once much-larger XM Satellite Radio, which finished the quarter with 9.3 million.

Like XM, Sirius is paying a boatload for each new subscriber--$91 in Q1, a slight improvement over $101 in Q1 last year. Stay tuned for the conference call where we'll listen for more color on what's holding up the merger at the FCC.

Revenue: $270.4 million, up 33% y/y vs average estimate of $272.3 million

Net Loss: $104 million vs loss of $144.7 million in Q1 2007

EPS: loss $0.07 per share vs $0.10 in 2007 and $0.07 Street estimate

Want News On The China Earthquake? Forget CNN and Try YouTube.

Michael Learmonth — Mon, 12 May 2008 19:58:00 GMT

Want to know what that giant earthquake in China's remote Sichuan looked like? Better yet, want to know what it's like to experience a 7.8 magnitude quake? Someone claiming to be a Sichuan University student posted the following video to Tudou (SAI 25 #22), where it's No. 2 on the homepage, and it was reposted on YouTube.

The video (58,713 YouTube views so far) shows interminable shaking, creaking and groaning of what appears to be a college dorm. After the tremors end, the cameraman runs to the window and shows students milling about in the courtyard. (For an interesting take on how to advertise on user-generated video, play the Tudou version.)

Also embedded below: a CCTV news report (in Chinese) and a report from a student in Shanghai, where the quake was strong enough to prompt evacuations.

Earlier: Following The China Quake Using Google, Twitter

Why The Dolans Want Newsday: A Theory

Michael Learmonth — Mon, 12 May 2008 19:45:00 GMT

Here's a deal few on Wall Street wanted the Dolan family to win. But could it be that Cablevision's (CVC) acquisition of Newsday from Tribune Co. for $650 million isn't so wacky, after all?

Consider: Cablevision already extracts $129.56 a month from an average household to which it provides cable TV, and often cable modem, as well as phone service. Even in the affluent suburbs of New York City, where Cablevision operates, that's a lot.

To keep raising that number, Cablevision has to keep adding services. That's why last week it announced it was going to build a local Wi-Fi network at a cost of $100 per household.

Say Cablevision adds Newsday to the mix, which it most certainly will. If Newsday is like most dailies, subscription revenue is a small part of its overall business; the vast majority of revenue comes from advertising. Cablevision could then cut the price of Newsday for those who buy other Cablevision services in a bundle.

In turn, Cablevision could put Newsday's local ad sales force to work not just selling the paper but Cablevision's online properties, as well as the company's TV properties like MSG and the ailing Madison Square Garden -- probably better than anyone the Dolans already have.

If this is the plan, and the Dolans can defend it, it would help if they actually communicated with investors instead of stonewalling on investor calls. So far, Wall Street is treating the deal with something between ambivalence and disgust; shares are down nearly 3% in Monday trading.

Apple's Newest Product Launch: Coming To A Theater Near You

Peter Kafka — Mon, 12 May 2008 19:30:00 GMT

Fortune breathlessly previews the newest bit of gleaming goodness to emerge from Steve Jobs' brain: Eve, a sexy/scary robot.

Eve isn't going on sale, though. She's an animated character in "Wall-E", Disney's newest Pixar movie, out next month. And she's not technically an el Jobso creation, either: Jobs sold Pixar to Disney in 2006. But Jobs' design guru Johnny Ive did consult with the Pixar guys for a single day about what the character might look like. Well, sort of:

[Wall-E director] Stanton said that it was a "lovefest" with Ive, but that the notoriously tight-lipped design wizard offered few specific modifications. "Apple is so proprietary and so secretive that he couldn't even really allude to where the future of technology was going," says Stanton. "The most he could do is nod his head to the things we said we wanted to do." (Through a spokesman, Ive declined to comment.)

But look. By the time Wall-E comes out, Jobs' developer conference will have come and gone, and we're almost certain to have seen iPhone 2.0. So we'll be desperate for something new. An imaginary product will do just fine.

HP (HPQ) Close To $12-13 Billion Deal For EDS (EDS)

Dan Frommer — Mon, 12 May 2008 19:23:00 GMT

Hewlett-Packard (HPQ) is close to a $12-13 billion deal to buy Electronic Data Systems (EDS), the Wall Street Journal reports. An announcement could come as early as tomorrow. WSJ:

A deal would bolster Hewlett-Packard's competitive position versus rival International Business Machines Corp. (IBM) as a provider of services such as tech consulting and customer support. The transaction could spark further large deals in the technology sector as cash rich, mature companies such as Hewlett-Packard look to acquisitions for growth.

EDS shares are up 27% late Monday, trading around $23.80, while HP shares gave up all of their gains on the news. EDS had an enterprise value of $9.95 billion this morning, according to Yahoo Finance, so a $12-13 billion deal represents a 20-30% premium. EDS made $716 million last year on $22.1 billion of sales.

Slow Sales Of PS3? Blame It On Marketing (SNE)

Vasanth Sridharan — Mon, 12 May 2008 18:28:00 GMT

PS3 sales have been on the uptick this year. The system has beat out the Xbox 360 (MSFT) for two out of the first three months, and may have done it again in April.

So what's the reason? Sony Computer Entertainment president Kaz Hirai has a puzzling explanation. He says that Sony's marketing of the system as an entertainment hub rather than a straight game system confused developers, and sales started to increase once he cleared everything up:

'Some of the third parties didn't understand and they wanted to scale back a little and see how things went before they really put in their resources. But when I re-positioned the PS3 as a video games console at Tokyo Game Show I think everybody got that message loud and clear.'

We don't think that any game developer really doubted that this was a video game console, nor do we think potential buyers were turned off by the marketing. In fact most people we know expected non-game features from the system, especially people who already used the PS2 as their primary DVD player.

So what's more likely the cause of Sony's recent successes? Sony won the hi-def format wars, the price of the system has gone down and there are more games to choose from now than there were 1.5 years ago. Pick one -- or all three.

Gates Foundation Finds A Graceful Exit For Jeff Raikes

Vasanth Sridharan — Mon, 12 May 2008 18:02:00 GMT

Jeff Raikes, the man who's in charge of Microsoft Office and other business software at Microsoft (MSFT), announced he was leaving the company in January, but he's not going far. He's going to run the Bill and Melinda Gates Foundation. Replacing him at Microsoft is Stephen Elop, the former COO of Juniper Networks.

Raikes, 49, has worked at Microsoft since 1981, and he was once considered a contender to run the company, but that was before Ray Ozzie came aboard and Microsoft engaged in a wrenching management overhaul that's still working its way down the org chart.

Raikes is replacing Patty Stonesifer, who has overseen the Gates' charitable activities since the mid 1990s, and is a former Microsoft executive herself. She steps down from the CEO spot at the end of the year, and Raikes will join the foundation in September.

Sprint Nextel (S) Affiliate iPCS Sues Sprint Over Clearwire (CLWR) Deal, Wants In

Dan Frommer — Mon, 12 May 2008 17:57:00 GMT

A potential new hurdle in the way of Sprint's deal to spin off its super-fast WiMax wireless network into Clearwire (CLWR): A lawsuit filed today by Sprint Nextel (S) affiliate iPCS (IPCS).

In a complaint filed in a Illinois Circuit Court, iPCS alleged that Sprint's deal with Clearwire violates its exclusive right to sell service in certain geographic areas. iPCS wants the court to prevent Sprint and Clearwire from closing their deal until it accounts for iPCS's exclusivity rights.

Sprint and iPCS are no strangers in court: They've been in legal battle for three years, mainly regarding iPCS's exclusivity rights. Because of this, Sprint had already asked a Delaware court for a "Declaratory Judgment that Sprint's affiliate agreements with iPCS in no way prevent the operation of the new Clearwire in iPCS territory," a Sprint rep said by email. "This latest action by iPCS is simply a response to our request," he said.

iPCS, meanwhile, says Sprint is trying to evade an Illinois judgment that requires Sprint to "cease owning, operating and managing the Nextel network in iPCS Wireless's territory," in a release (PDF).

Tiny iPCS has about 640,000 wireless subscribers in seven states in and around the Midwest. The conventional wisdom is that someday Sprint will buy iPCS (market cap $495 million) in a tuck-in acquisition. So far, no deal, but the market is excited today: iPCS shares are up 6.5% on the news of the suit. Sprint shares, meanwhile, are down 2.3% after reporting lousy Q1 earnings this morning.

Rupert Murdoch, Blogger?

Peter Kafka — Mon, 12 May 2008 17:51:00 GMT

Buyout mogul Carl Icahn says he's just about ready to start blogging at his personal site, The Icahn Report, any day now -- as long as he gets the OK from his lawyers. Has he started a trend?

At a party for Arianna Huffington last week, one of her eager employers cornered Rupert Murdoch, and asked the News Corp. (NWS) boss whether he'd like to start writing posts for free, too. The exchange, via the NY Observer:

'Would you blog for us?' said a young political reporter. 'Would you ever want to do a blog for us?'
Mr. Murdoch gazed at him silently for a few seconds, then smiled. 'I'd love to,' he said.

We're not sure that this represents an ironclad commitment on Rupe's part. But if it is, we have a proposal for his first contribution: "Why I Was Sure I Was Going To Buy Newsday A Week Ago, And What Happened Next".

Google And Facebook Team Up: Where's MySpace?

Vasanth Sridharan — Mon, 12 May 2008 17:42:00 GMT

Last week was busy for MySpace (NWS) and Facebook -- they both announced separate programs that would allow users to share profile data with other Web sites. This morning Google announced a similar program, Friend Connect, which allows users to make connections with each other via a series of sites that use the service.

The main connective tissue here is Google's anti-Facebook "OpenSocial" coalition -- the group of social sites that have supposedly banded together to create a common app platform, in an effort to take on Facebook's status as the site of choice for app developers.

But there are two curveballs here:

Three of the sites joining up with Google on Friend Connect are OpenSocial members: Hi5, Plaxo and Google's Orkut. The fourth is... Facebook.
Not included in the rollout: MySpace -- the largest social network on the OpenSocial Initiative.

What's going on? We don't think that this is tantamount to Facebook formally joining OpenSocial. But it is worth noting that a company famous for its walled garden is suddenly opening a lot of gates. And that the best possible outcome for social networks -- portability of all their stuff to sites across the Web -- doesn't look like it's going to become real anytime soon.

Apple's 3G iPhone Coming This Week? No.

Dan Frommer — Mon, 12 May 2008 17:30:00 GMT

Apple's 8-gig and 16-gig iPhones are out of stock at apple.com and at some retail stores. TechCrunch takes this to mean that we "might be seeing a next-gen iPhone in the next few days." Engadget Mobile, meanwhile, wonders if Apple's 3G iPhone "is a whole heck of a lot closer than we could've imagined."

No, it's not.

We don't know for sure why Apple doesn't have any iPhones in stock, but we imagine it's related to the same supply issues that the company had last quarter.

We continue to think that Apple will introduce its 3G iPhone at its annual Worldwide Developers Conference early next month, and will begin shipping them in late June.

Why then and not now?

- Apple's "iPhone 2.0" software update, including support for third-party apps and corporate email, rolls out in June. It makes sense for new iPhones to go on sale around the same time the new software becomes available.

- Before Apple can start selling a 3G iPhone in the U.S., it needs to be approved by the FCC. And as of 10:45 this morning, the FCC hasn't approved any new iPhones. Last year, the FCC approved iPhone 1.0 on May 17. It didn't go on sale until June 29 -- 43 days later. We expect to see FCC approval for the 3G iPhone sooner than later, but we don't expect the phone to start selling for a few weeks (or longer) after it's approved by the Feds.

- AT&T (T) has requested its employees not to take vacations from mid-June to mid-July. We assume this is to be able to handle the bigger-than-usual crowds that a new iPhone will bring to AT&T stores, customer service, etc. If the iPhone were to go on sale much sooner, we don't think AT&T would have made this request.

- We still think Apple and its carrier partners will continue to sell the current iPhone as a cheaper alternative to the new, 3G iPhone. Which would require keeping the current iPhone in stock, too.

Back On: Clear Channel's PE Buyout

Michael Learmonth — Mon, 12 May 2008 17:22:00 GMT

Shares in Clear Channel Communications (CCU) are up more than 10% after the WSJ reported a buyout deal, in limbo for more than a year, looks like its going to happen after all.

The Journal says a settlement in at least one of the lawsuits filed over the Clear Channel deal appears "imminent," and the banks, which had recently balked at financing the deal, have aggreed to fund it at $36 per share.

That's less than the original $39.20 the deal was supposed to go for, but that deal was struck all the way back in late 2006 -- a lifetime ago in the credit markets. The banks that originally agreed to back the deal have tried squirm out, so the PE firms looking to take Clear Channel private, Thomas H. Lee Partners and Bain Capital, filed suit last month to force the banks to live up to the deal.

Now those banks--Citigroup Inc., Morgan Stanley, Credit Suisse Group, Royal Bank of Scotland Group, Deutsche Bank and Wachovia--are back on board. Under the renegotiated deal, the banks would put in $17.9 billion, down from $19.4 billion when the deal was initially struck.

Pearlstine Leaves Carlyle For Bloomberg

Michael Learmonth — Mon, 12 May 2008 16:27:00 GMT

Norm Pearlstine, former top editor at the Wall Street Journal and Time Inc., is leaving private equity to re-enter the media business. Pearlstine, a partner at buyout firm Carlyle Group for the past two years, is joining Bloomberg L.P. as "chief content officer", a new position. He'll be charged with seeking "growth opportunities for its television, radio, magazine and online products."

Pearlstine will report to Bloomberg president and former mayoral aide Dan Doctoroff, who describes the role as a partnership with Bloomberg editor-in-chief Matthew Winkler. Both will report to Doctoroff. In a statement, Doctoroff said "he and Mat Winkler, working side by side, will be one of the most powerful teams in journalism."

Last week Pearlstine gave a scathing assessment of newspapers as a business, but showed some quick familiarity with Bloomberg (2400 journalists produce 5k stories a day), and held it out as an example of a sustainable model for journalism. Funny how that worked out.

"Bloomberg is not making money from its news products; they are all subsidized, but [Bloomberg] sees news as essential to the brand," he said.

Apple (AAPL) Caves On iTunes Pricing For HBO (TWX)

Michael Learmonth — Mon, 12 May 2008 16:05:00 GMT

Time Warner (TWX) pay channel HBO has managed to crack Steve Jobs' stranglehold on iTunes pricing. Sources tell Portfolio that Time Warner is set to announce an iTunes deal for HBO that gives it what other content partners have longed for, but never got -- the ability to sell its stuff at different prices.

HBO sources say the new deal, set to be announced "in a week or two," allows HBO to set different prices for TV shows than the standard $1.99 per show rate. Not explained: Whether HBO will be moving its wholesale prices around as well, and what happens to Apple's (AAPL) gross margin on each sale (it generally keeps about a third of the retail price for each video and music single it sells, though movies are a different story).

If true, Apple is in for a tough round of negotiations as its next round of iTunes content deals expire. The studios are eager to keep iTunes from dictating pricing on video, as it does for music, and the ability to move prices up (or down, in theory) have been a major demand, but Apple has yet to cave.

That's what led NBC U to yank its TV content of iTunes last fall. CEO Jeff Zucker said at the time that he won't do deals with retailers that inflexibly dictate pricing--and last week announced a TV deal with Microsoft's Zune player.

If Showtime is any indication, HBO shows like the "Sopranos" should be popular on iTunes. Two series from CBS's Showtime--"Dexter" and "The Tudors"--are in iTunes' top 10 TV series.

Earlier: NBC: Free, Full Episodes Of 'The Office' and '30 Rock' For iPhones
Microsoft's Zune Adds NBC Shows, Other Features; Still Unable To Combat Fierce Apathy

Video Games Make Lousy Movies. Expect To See Plenty More Of Them

Vasanth Sridharan — Mon, 12 May 2008 14:52:00 GMT

Video game movies have a terrible, and well-deserved, reputation. So why does Hollywood keep making them? Because some of them make money.

On Friday, Universal (GE) signed a deal with Take-Two (TTWO) to make a movie based on Bioshock, which came out in August and has sold more than 2 million copies. The movie will be directed by Gore Verbinski, of Pirates of the Caribbean fame. If he can take a theme park ride and make it box office gold, maybe he can do the same with a video game.

It's not a terrible idea, which is why Hollywood has been doing it for quite a while. No one's arguing that any of the video game movies were robbed of their rightful Oscars for Best Pictures. But we're talking about show business here, and there's reasonably solid business logic underlying these projects: By basing a movie on a game, Hollywood has a product that's:

1) Pre-marketed: Everyone who's bought or played the game will be a much easier sell.

2) Pre-marketed to the right audience: The video game audience is exactly the same audience that Hollywood is most intent on luring to theaters -- in part because they've been leaving the theaters to play video games.

That said, just slapping a video game title on a crappy movie doesn't ensure success: It just means you have a crappy movie. Then again, we haven't seen any good movies with Freddie Prinze Jr. So maybe Wing Commander could have worked with a different cast

Video game movies released since 1998 (international box office gross from boxofficemojo.com):

1. Lara Croft: Tomb Raider (2001): $274,703,340
2. Lara Croft Tomb Raider: The Cradle of Life (2003): $156,505,388
3. Resident Evil: Extinction (2007): $147,717,833
4. Resident Evil: Apocalypse (2004): $129,394,835
5. Resident Evil (2002): $102,441,078
6. Hitman (2008): $99,611,509
7. Silent Hill (2006): $97,607,453
8. Final Fantasy (2001): $85,131,830
9. Doom (2005): $55,987,321
10. House of The Dead (2003): $13,818,181
11. In The Name of The King: A Dungeon Siege Tale (2008): $11,820,292
12. Wing Commander (1999): $11,578,059
13. Alone In The Dark (2005): $8,191,971
14. DOA: Dead or Alive (2002): $7,500,497
15. BloodRayne (2005): $3,650,275

Zucker: Enough About Ratings, Let's Talk Margins

Michael Learmonth — Mon, 12 May 2008 14:22:00 GMT

NBC kicks off the network upfronts today, where it shows off its upcoming schedule for advertisers. But don't pay attention to the clips of the shows the networks are showcasing: A skillful editor can make Joey look good, given the right conditions.

Instead, pay attention to the body language -- or at least the verbal posturing -- of the network titans. NBC U chief Jeff Zucker has given a few interviews, and interestingly, he's not promising NBC's fall schedule will make it No. 1 again. After a bunch of years stuck in last place, he's got a different message: NBC's fall schedule will be profitable for the network.

Zucker explained to TVWeek:

We want to have great shows. We think we do with 'Heroes,' and 'Law & Order: SVU' and 'The Office' and '30 Rock' and 'Friday Night Lights,' you know, up and down the line. But we're managing for margin, not for ratings. So it's the expense of our shows, the consistency of our shows being on the schedule. It's not determined by the size of the ratings, because the size of the ratings of a show we cannot afford is not going to do us any good anymore. This is not because we do not have the outsized hits that we once did. This is because we are in a different environment where the difference between the first and fourth or second and third is incredibly minimal.

This is more a Wall Street message than a Madison Avenue message. Translation: upfront ad dollars may be down this year, but we're running the business for profitability.

This has, by the way, has also become the networks' most powerful message. The writers strike helped accellerate the decline of broadcast ratings--and the shift of viewers to cable--but the parent companies of all four networks, NBC (GE), CBS (CBS), Fox (NWS), and ABC (DIS), reported higher TV profits due, in part, to less spending on expensive TV pilots and writer/producer deals.