Apple Still Has 99 Problems, But A Music Patent Lawsuit Isn’t One of Them

Kid listening to music

What’s the rap lyric? “Mo’ money mo’ problems?” Or better yet, “with success comes stress?” Well, in the corporate world, oversized success invites lots of unwanted lawsuits and charges, and no one knows that better than Apple (NSDQ: AAPL). But the company has just managed to clear a few frivolities, shall we say. The first involved Sharing Sound, which recently lodged a sweeping set of patent lawsuits related to online music sales. In reality, most brilliant ideas have a thousand fathers, though patent trolling remains an incredibly expensive - and lucrative - legal endeavor that targets established companies. More on Digital Music News.


Microsoft Appoints New Presidents—For Mobile, Entertainment And Office

Microsoft Headquarters

Microsoft (NSDQ: MSFT) is turning to its existing executive ranks to fill the vacancies left by the departures of entertainment and devices president Robbie Bach and business division president Stephen Elop. The company is promoting three executives to the roles of president: Andy Lees, who has been SVP of Microsoft’s mobile communications business, will now be president of the mobile communications business; Don Mattrick, who has led the company’s Xbox business and added responsibility for Zune and Windows Media Center in January, will now be president of interactive entertainment; and Kurt DelBene, an SVP at the Microsoft Business Division, will now be president of the newly renamed Office Division.

The promotions add a seventh president to Microsoft’s executive team, since both interactive entertainment and mobile positions previously reported to Bach. By adding a president solely to oversee mobile, Microsoft once again shows its high hopes for that business, especially since the revenue mobile currently generates is a fraction of that generated by the businesses the other presidents watch over. Lees has led the development Windows Phone 7, which launches in 10 days and so far has had favorable reviews, although he also was responsible for the Kin, which famously flopped.

Despite the addition of a new president, the company is not changing how it reports its financial results. CNET’s Ina Fried says the company will still report results for five units—server and tools, entertainment and devices, online services, Windows, and the business division. Here’s the memo that Ballmer sent to employees announcing the promotions this morning.

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Spotify Still Expects U.S. Launch Before 2010’s Out

Daniel Ek And Martin Lorentzon

When Spotify planned a big party, in London’s fashionable Camden Thursday night, specifically “to celebrate reaching 10 million users across Europe”, I could hopefully be forgiven for having interpreted it as an acceptance that Europe (and Scandinavia) would remain the music service’s only customer territory, that its long-sought American dream had now foundered for good.

Indeed, with 500,000 paying subscribers (precisely in the five percent conversion rate that many consider a benchmark freemium ratio), Spotify is already amongst the world’s biggest subscription music services without having broken the U.S.

But word from the party, at which Spotify hosted a few hundred people, is that the start-up does indeed now expect to make good on its latest expectation, to launch before 2010’s end there. Specifically, a go-live date between Thanksgiving and Christmas is in the works.

Some label deals are thought to be signed or in the signing process. Regardless of detail, the company is not backing away from a 2010 launch timetable. Spotify’s top brass Daniel Ek (CEO) and Shakil Khan (“head of special projects”), who have spent many of the last few months in New York, jetting from London and Stockholm, were delayed from even their big soirée this evening, by business in the Big Apple.

Over the last year, healthy scepticism over whether Spotify can reconcile its likely large royalty outgoings with its free, ad-funded model and with its premium, device-centric service have given way to an obsession over whether the service can launch Stateside at all.

For sceptical U.S. onlookers, who forget that indigenous services like Rhapsody and Mog.com are not, by the same token, available outside North America, it seems to have become the only talking point surrounding the service, overshadowing both those original viability questions, Spotify’s ad and subscription gains to date and the slow progress of getting bundled with third-party billed services, even in Europe - a model it had been courting strongly.

U.S. labels have appeared more reticent to license their songs to free, ad-supported online music distributors, even though their European divisions, which apparently hold Spotify equity, have done so. Warner Music Group (NYSE: WMG) has proved particularly averse to the idea despite otherwise being a strong exponent of unlimited-access and mobile-access services like Spotify.

But then, Spotify is often misconstrued through onlookers’ fixation on that free model, and lately Spotify has been trying to clarify the perception Stateside. It’s not the only card in the deck - in truth, Spotify now has four tiers...
1) Free (the ad-supported, unlimited service is now effectively shut to newcomers except those with early-adopter invites).
2) Open (a free variant that’s limited to 20 hours a month as Spotify tries to manage bandwidth costs).
3) Unlimited (a £4.99pm plan that removes ads), and…
4) Premium (a £9.99, ad-free plan with access via mobile and other devices like Sonos).

Apparently, the U.S. launch is likely to involve some kind of free component, though it’s unclear what form.

Though subscription is naturally the biggest income source, Spotify says its ad sales - a mix of visual display, audio and engagement - are growing nicely in to a healthy business in its own right. Royalty outgoings are thought to be considerable, but it’s hard to know how much Spotify is spending there since, bound by its label relations, neither Spotify nor the PRS For Music royalty collector will talk about what kind of license the service pays. Spotify is not yet thought to be profitable - but then, how many start-ups, as Spotify still considers itself, are?

The real question marks must be not over the U.S. launch nor the route to profit (both are progressing) but in getting carried with third-party services. Nearly 12 months ago, Ek said: “The key for us is getting music in to people’s existing billing habits.” And he spoke about how - by getting Spotify bundled with mobile tariffs, ISP packages, cable plans and inside TVs - he could grow the number of internet music transactions to “trillions”.

Mobile listeners, who require subscriptions, have been the big premium driver so far - but that’s all still direct-customer custom. Spotify still only has two such bundled-service deals - with Telia TV, broadband and mobile in its native Sweden, where Spotify now accounts for a significant share of all music revenue, and with mobile carrier Three in the UK. Talk of a Chinese mobile deal has gone off the boil despite one of its main investors being the chairman of Three owner, China’s Hutchison Whampoa.

Half a million subscribers, most paying £9.99 a month, is already a significant business (up to about £5 million in monthly revenue, by logical, though unconfirmed, back-of-the-envelope calculations). But it’s in bundling, if Spotify remains interested, where the real potential could lay.

Problem is, in many of the segments Spotify has likely targeted for bundling, incumbent players are launching their own music service - on games consoles, Xbox now has its own Zune Marketplace, Playstation 3 is adding Sony’s Qriocity; in TV, BSkyB (NYSE: BSY) has Sky Songs , Virgin Media (NSDQ: VMED) has something in the works; all of the mobile operators already have music initiatives, albeit not necessarily in the unlimited-access segment.

That’s why Spotify’s U.S. fortunes must be watched not solely for whether it can get label deals, nor whether it can fight the likes of Rhapsody, Mog.com and Rdio on their home turf, but, just as at home, on which, if any, partners Spotify can find to be its Trojan Horse.


Petsky Prunier: Media M&A Grew 27 Percent In Q3—But Dropped Off From Q2

Money - dollars

M&A activity in the marketing, information and digital media/commerce areas rose 27 percent Q3, but fell compared to the second quarter of this year, says media investment bank Petsky Prunier, which tracked 200 deals for this survey. The sequential drop-off in M&A was not too surprising, as deals have a certain seasonality and dealmakers tend to take things a little bit slower in August. As a sign that dealmaking has come back this year, prices were up 41 percent to $10.7 billion compared to Q309, primarily due to several larger transactions during the quarter.

Among the biggest deals in Q3 were IBM’s $1.7 billion acquisition of Netezza, which was the highest was the Marketing Technology segment, which happened to also be the most active area for M&A. Mobile Technology was the most active sub-segment within Marketing Technology with 10 deals, including four acquisitions and six investments worth $108 million. Transactions included Motorola’s acquisition of 280 North for $20 million, Walt Disney’s purchase of Tapulous and WebTrends’ acquisition of Transpond. Among investments, PocketGear raised $15 million from Trident Capital, Shopkick raised $15 million from Kleiner, Perkins, Caufield & Byers and Ngmoco raised $5 million from Google (NSDQ: GOOG) Ventures.

Digital Media/Commerce was the second most active segment. The 53 deals included 33 acquisitions and 20 investments valued at roughly $2.5 billion. Within that industry, e-commerce led the way with 19 transactions for $416 million.

In second place behind e-commerce in terms of activity was social media, with 13 transactions worth $231 million. Dividing the category further, there were 10 deals in the social games sub-segment for nearly $939 million.

On the Digital Media/Commerce end, there was Hellman & Friedman’s purchase of Internet Brands for $640 million, Walt Disney’s acquisition of Playdom for $563 million, Google’s acquisitions of Slide and Like.com for $228 million and $100 million, respectively; there was also OpenTable’s acquisition of TopTable.com for $55 million. Among investments, Etsy raised $20 million from Index Venture Partners, BuyWithMe raised $16 million from Bain Capital Ventures, Hi5 Networks raised $14 million from Crosslink Capital, Beyond the Rack raised $12 million from Highland Capital Partner.

Despite the continued economic volatility and the fears of a double-dip recession, it doesn’t seem that deals will be slowing down in the last quarter. If anything, volume will almost certainly hold steady, and even more likely continue to rise further as both buyers’ and sellers’ desires and demands match up more closely.

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Comcast Interactive Shifts Fandango’s Budkofsky To Run Mobile Ads

Bruce Budkofsky, Comcast Interactive Media

As its parent company’s pending merger with NBC Universal (NYSE: GE) continues at a languid pace, the recently reorganized Comcast Interactive Media (NSDQ: CMCSA) is continuing to shift executives into new roles. The latest is CIM’s promotion of Fandango’s Bruce Budkofsky as its senior director for national sales for mobile, social and strategic partnerships. Fandango, the movie ticketing service, along with women’s shopping and lifestyle e-newsletter Daily Candy previously fell under CIM’s umbrella of online properties, which now just include FancastXfinity, E! Online and G4tv.com.

The move comes after last week’s reorg of CIM, which was formerly a standalone unit. Previously, CIM had been run by Amy Banse before being split up. The new CIM is now part of cable operations and headed by Matt Strauss.

In promoting Budkofsky, CIM put an extra emphasis on the importance of mobile advertising. “Comcast Interactive Media’s portfolio of popular mobile platforms gives partners direct access to engaged and active consumers seeking out mobile entertainment,” said Scott Schiller, CIM’s SVP of ad sales, in a statement. Despite the split, Fandango will still fall under Budkofsky responsibilities, as he will handle the ad sales for Comcast Digital Entertainment mobile websites and apps.

Before arriving at Fandango five years ago, Budkofsky spent over six years at The Weather Channel and Weather.com handling ad duties. 

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Watch an Ad, Make a (Virtual) Buck

You don’t really like ads–but you don’t hate them. And you really like Farmville.

So SVnetwork has a proposition for you: Take a quick break from the virtual farming game, click through this Toyota ad and you’ll get free credits to buy more sheep. Or whatever.

If this sounds familiar, there’s a good reason: It’s similar to the “offers” programs that generated so much controversy for Farmville publisher Zynga last year.

But there’s a big difference here: Consumers aren’t asked to sign up for anything more binding than a Facebook fan page. And generally, SVnetwork’s advertisers are happy if surfers just agree to soak up some brand advertising.

SVnetwork has done 100 campaigns like this, for big advertisers like Apple (AAPL), Disney (DIS) and Microsoft (MSFT)–that’s an example of a Bing campaign above. And CEO Jay Samit, who came to the start-up after stints in the digital divisions of Sony (SNE) and EMI Music, thinks the company is onto something. It might be.

Right now, the two big display ad strategies on the Web are:

  1. Target Web surfers by tracking their online behavior, and hope that doesn’t freak them out too much, and/or…
  2. Run ads at ever-increasing sizes–blotting out the whole page, if you can get away with it–and hope that doesn’t annoy them too much.

SVnetwork’s seems like a pretty good compromise: Consumers opt in, and they know they’re getting a reward at the end. They might even generate warm feelings for the advertiser, and/or decide to share the ad with their pals via Facebook.

Zynga still runs offers, by the way, though it insists it has become very picky about the advertisers it works with, and that the offer dollars make up a small slice of its revenue.

And people familiar with the company say that offers generate more money for the game company than SVnetwork’s spots do. Advertisers pay something in the $0.50 to $1 range for each user who clicks through, while a Netflix (NFLX) may still pay Zynga north of $20 for each successful offer. But it’s possible that the ads will eclipse offers down the line.

RealNetworks Launches A New RealPlayer Focused On Mobile First

RealNetworks Launchs A New RealPlayer In Beta

Today, RealNetworks (NSDQ: RNWK) has relaunched one of its oldies, but goodies: The RealPlayer.

The new media player is in line with the Seattle company’s objective to make its current products more attractive as it beefs up its essentially nonexistent pipeline. To that end, the latest version of the RealPlayer is being repositioned as a product for mobile, by helping you transfer content between the phone and PC.

RealNetworks is not in an envious position. The Seattle-based company is only starting to rebound after its new CEO Bob Kimball led a period of deep job cuts and a realization that it had to make due with what its got while it can build new products and services.

If there’s a good example of making due with what you’ve got, it’s the new RealPlayer. The free application, which is available in beta, will let consumers move photos, videos and music across a wide range of devices—a task that even Google (NSDQ: GOOG) or BlackBerry doesn’t make simple on the handset.

In this version, users will have to tether their device to the computer to transfer content, but eventually, the product is expected to support wireless syncing. RealNetworks promises an easy process that includes connecting the device and clicking once to download and transfer. It will automatically take a lot of hassles out of the experience, including handling conversions and file types. For instance, it can assist in downloading a video from YouTube, and then converting it to an appropriate file size for your iPhone, iPad, Android, BlackBerry or other device. Next month, an upgrade for $39.99 that will include accelerated video downloading and advanced CD and DVD burning capabilities.

In a release, Peter Kellogg-Smith, VP at RealNetworks, said: “Most people today have a mounting collection of videos, photos and music piling up across their computers, mobile devices and smart phones, and sometimes, this content doesn’t even make it off those devices.”

RealNetworks is not alone in trying to solve this problem, but it has the advantage of having real users. Over the past year, RealPlayer has been downloaded more than 140 million times and has been used to download over 1 billion videos. Other companies solving this problem span the wireless ecosystem, including handset-makers, operating system-makers, carriers, and third-party startups.

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