Week of July 21, 2008

AOL Sends A Message

Friday, July 25, 2008

AOL, once the poster child for the walled garden strategy of approaching the Internet, has sent a compelling message that preaches the opposite this week with the announced closings or sale of various AOL businesses. The best example is XDrive, which is AOL's web-based mass-storage solution. In an email to employees, AOL's Kevin Conroy noted: "To effectively grow the XDrive online storage business we would need to focus on subscription revenues vs. monetizing through advertising revenue, and this business model is not in strategic alignment with our company's goals."

In other words, AOL is selling the company that represents a paid service and walled garden because it was no longer fit with the company's goals. With this announcement, AOL has come full circle, and the lesson is there for all digital companies: A closed approach that relies on subscriptions or limited access (the strategy that eroded AOL's massive initial Internet market share) is very difficult to pull off in the face of free services that rely on advertising (the strategy the new AOL is using to rebuild).

Online Video Ad Rates Rising

Thursday, July 24, 2008

Even thought the pace of online advertising is slowing, it's still the only medium that's showing increase for 2008. According to TV Week, there's more good news for online programmers: the CPM (Cost Per Thousand) for online video ads continues to rise. The rates for professionally-produced long-form programming is on top, followed by short form, with UGC (User Generated Content) trailing the pack.

Here are the CPM rates for all three categories for this year, as well as projections for 2013:

2008 rates Projected 2013

Long-form professional

$40

Short-form professional

$30

User generated content

$15

More On Music & Games

Wednesday, July 23, 2008

Gaming has had a big impact on music sales for a number of years, especially as labels, artists and management looked for alternative means of marketing. All of the above quickly realized by the late 90s that a large and captive audience for video games provides tremendous exposure to the music in the games. The various game titles now outsell most of the big music releases.

Now, thanks to games like Guitar Heroes and Rock Band, the connection between gaming and music is even more obvious. Several recent moves show just how important:

1. Metallica's announcement that it will release its upcoming new album simultaneously through Guitar Heroes, as well as traditional retail outlets.

2. Guns 'N Roses deal to release a new single in Rock Band 2.

3. The Jimi Hendrix estate licensing several Hendrix songs for the next version of Guitar Heroes.

4. Rock Band's library of songs will expand to 500 by year's end.

Like TV and movie soundtracks, placement of music in video games has become an important source of revenue for everyone in the music business, more than 6 degrees of separation in the new 360 models.

Online Ad Growth Slowing

Tuesday, July 22, 2008

Online advertising growth has started to slow down. Evidence of this came a few days ago when Google and Microsoft reported quarterly earnings that were below expectations. And although the numbers from the two giants aren't directly attributable to ad spending, reports from other online advertising companies shows a noticeable decline in online advertising growth in the second quarter.

The key phrase is slower growth. Unlike other media, online advertising continues to grow, even in the face of a sluggish economy. However, now the growth is listed in the single figures, instead of double figures. Of course, the meteoric growth was bound to slow down as the medium matured, but the economy seems to be speeding the process along. Still, for radio, which has seen on-air advertising drop 8% in May and 10% in June, an increase seems a long way off.

Is the iPhone Pandora's Box?

Monday, July 21, 2008

Pandora's iPhone application has become the third most popular item in the iTunes App Store. That's driven Pandora to its most successful week ever. In the first 5 days, Pandora said it had streamed 3.3 million songs to iPhone users. Additionally, they said that 200,000 new stations had been created on iPhones and that those users were spending an hour a day listening. Once the novelty wears off, these numbers will fall back, but it's an impressive start for Pandora, which has just moved beyond the status of "Internet Radio."