It may be a lagging indicator, but the paid search advertising market actually surged during the fourth quarter of 2008, rising 43% over the same quarter in 2007. The estimates, which were released this morning as part of the latest edition of online analytics firm Covario's Global Search Spending Analysis, shows that paid search ad spending also continued to grow sequentially, posting a 7.2% gain over third quarter 2008, despite the financial crisis and the downturn in consumer and corporate confidence that manifested during the fourth quarter. "The strong growth rate is the result of budgets that were already committed to fourth quarter spending before the deteriorating macro-economic environment impacted corporate budget allocations, and the reluctance of large advertisers to cut spending during the holiday season," the report explains. The analysis, which is based on paid search spending of 12 of Covario's U.S.-based high tech and consumer electronics customers, indicates that paid search advertising volume continues to expand even as average prices paid continue to fall. The average cost-per-click (CPC) in the high tech sector fell to 86 cents in the fourth quarter, down 17% from the third quarter of 2008. "The steep fall in CPCs in the fourth quarter was a direct result of the macro-economic situation," Craig Macdonald, vice president-marketing and product management at Covario stated, adding that, "Large advertisers are migrating spend away from relatively high priced marketing terms that promote brand awareness toward terms which are about sales conversion, and tend to have lower CPC rates." The CPC fell on every major search platform with the exception of MSN, Covario notes, adding that the biggest decrease has been felt by Google, whose average CPC dropped to 89 cents in the fourth quarter from $1.14 in the third quarter of 2008. MSN, conversely, saw its average cost surge 45.7% since the fourth quarter of 2007, though it still commands only 3.7% of total paid search spending in the U.S. Interestingly, Covario also finds that Baidu, the dominant search advertising platform in China, is beginning to make significant inroads in North America. Baidu's share of paid search spending among North American high-tech firms jumped to 11.0% in the fourth quarter from only 5.6% in the third quarter of 2008.
After a year highlighted by Internet mega-deals in 2007, the total value of online media mergers and acquisitions fell by more than half to $16.9 billion in 2008, according to a new study. The analysis by Peachtree Media Advisors in New York shows that Internet-related M&A dollars plummeted 62% from last year's $44.4 billion, even as the overall number of deals increased almost 15% to 707. Boosting the dollar total last year were transactions such as Microsoft's $6 billion acquisition of aQuantive, Google's $3.1 billion buyout of DoubleClick and WPP Group's $650 million purchase of 24/7 Real Media. "There were less of those huge deals, and the reason is because a lot of the diversified media companies that were doing the buying have seen their own valuations go down," said John Doyle II, founder and managing director of Peachtree, an investment bank that focuses on the interactive marketing and out-of-home ad sectors. Meanwhile, 2008 was defined in M&A terms by a major deal that did not get done: Microsoft's proposed $4.7 billion takeover of Yahoo. The biggest chunk of M&A dollars--$6.2 billion, or 37%--nevertheless went toward consumer-focused businesses including social networks, online gaming and video properties, blogs and content sites. Online business services including ad networks and lead-generation accounted for $4.8 billion, or 28%; e-commerce and classifieds, $2.8 billion (16.7%); ad-serving and Web analytics, $2.5 billion, (14.6%); and mobile content and applications, $592 million, (3.5%). The biggest individual deal in the consumer category was CBS' bagging of CNet for $1.8 billion. AOL's $850 million acquisition of social network Bebo in March was another high-profile purchase. But that deal epitomized a perceived overvaluation of consumer Internet companies that led buyers to pull back on larger-scale transactions last year. "People feel that AOL overpaid for Bebo," said Doyle. "It's made it like, 'we don't want to make that same mistake." Under increased financial pressures themselves due to the recession, big media companies have less leeway to go out and make splashy deals. "They have to justify real tangible returns on these large acquisitions," added Doyle. In the Peachtree report, he warns that the AOL/Bebo deal "could decimate deal making in the social media sector for months to come." In 2008, however, social networking sites represented the most active M&A category, with a total of 102 transactions--up from 85 in 2007. When it comes to raising venture capital, Internet companies managed to keep funding flowing last year. Investment increased 22% to $3.5 billion from $2.9 billion, with ad-serving and Web analytics businesses and mobile startups enjoying the biggest gains. The latter increased financing nearly sixfold to $341 million. But the Peachtree figures showed that venture financing slowed significantly during the year. There were 99 venture transactions amounting to a total of $1.1 billion in the first quarter, compared to 73 raising a total of $535 million in the fourth quarter. "With investors less willing to finance cash burn from operations, online media companies are being forced to turn a profit or face selling to a strategic buyer at a relatively low valuation," according to the report. The pool of venture capital may also start to dry up as investors shift dollars from online media to green technology and health care companies. That all adds up to a more challenging test for Internet businesses in 2009. "The companies that are able to endure the next 12 months will have a crystal clear understanding of who their customer is, what they are selling, and then develop a strong relationship with that customer," advises the Peachtree report. For Web publishers, that means a sharper focus on aligning advertisers with their core audience by creating niche properties targeting particular consumer demographics. Investors will also be looking beyond just eyeballs, imposing higher demands for revenue growth and profitability. The outlook is not entirely bleak. The investment firm expects social networking sites to continue steady growth, projecting that the economic downturn will prompt people to spend more time socializing online instead of going out. It also predicts gains for lead-generation and direct marketing players as online retailers increasingly turn to them to find customers. Doyle also expects deal-making to rebound as buyers and sellers begin to find common ground on pricing again. "I see it picking up towards the second half of the year," he said. "Companies are going to bring down valuations or not be in business."
Net neutrality advocacy group Free Press is cheering news that the Federal Communications Commission is continuing to investigate Comcast for how it manages its broadband network. The FCC, which has already sanctioned Comcast for impeding peer-to-peer traffic, just sent a letter to the company demanding an explanation for why it appears to favor its own digital telephone services over those of competitors. On Monday, Free Press praised the move--saying that it, too, saw cause for concern over how Comcast handles Voice over Internet Protocol phone service. "This letter is a positive sign that the FCC's Comcast decision was not a one-and-done action on net neutrality," Ben Scott, policy director of Free Press, said in a statement. "We are pleased that the commission is conducting an ongoing investigation into network management practices that might impact users' access to the online content and services of their choice." A Comcast spokesperson said the company is still reviewing the FCC's letter, but has "fully complied with the FCC's order regarding our congestion management." Comcast posts on its Web site that it might occasionally slow Voice over Internet Protocol telephone service to control traffic, but will not do so for its own Digital Voice service. The FCC questioned that policy in its Jan. 18 letter to Comcast. "We ... ask that you provide a detailed justification for Comcast's disparate treatment of its own VoIP service as compared to that offered by other competitors on its network," the FCC said in the letter, addressed to Comcast vice president for regulatory affairs Kathryn Zachem. The FCC's latest missive to Comcast comes several months after outgoing chair Kevin Martin voted with the two Democratic commissioners to sanction the company for violating net neutrality principles by impeding peer-to-peer traffic. The broadband company acknowledged that it slowed such traffic to manage congestion--but last year, while under investigation by the FCC, it promised to deploy protocol-agnostic techniques going forward. Comcast's new system places users in two buckets--"priority best effort" or the potentially slower "best effort." Subscribers start off in "priority best effort," but can be downgraded to "best effort" if they have used a high amount of bandwidth in a 15-minute period at a time of peak traffic. When those users decrease bandwidth use for a 15-minute period, they are returned to "priority best effort" status. Comcast says that users downgraded to "best effort" might potentially notice some choppiness in VoIP calls, but not calls placed through its own Internet telephone services. Free Press raised questions about Comcast's new system as far back as last October. "To put it plainly, is Comcast Digital Voice being given a free pass around the congestion to which it contributes?" the group asked in an FCC filing.
Acting more like a TV network than a social network, MySpace has tapped Endemol, the producers of "Deal or No Deal," to create a 13-episode reality series, "Get Married on MySpace." Slated to debut on MySpace TV this spring, the show will bestow a free wedding upon one lucky couple in exchange for letting MySpace users--and several brand sponsors--plan and experience the big day with them. By voting online, MySpace users will help cast the couple, pick the dress, and choose the location, among other big decisions. The series will then culminate with a wedding ceremony broadcast on MySpace. In the past, MySpace has helped distribute original programming, including teen drama "quarterlife," and hidden-camera show "Special Delivery." In 2007, the News Corp.-owned site even co-created an original Web series, "Roommates," with new-media production studio Iron Sink Productions. This is MySpace's biggest original-programming endeavor to date, yet keeping costs down is still an issue, according to Jason Kirk, vice president of video and entertainment at MySpace. "In the end, we chose to work with Endemol because they know how to produce great content within a reasonable budget," said Kirk. "We brought the idea to them, but they share our vision." With the help of MySpace's sales force and Endemol, Kirk is presently on the hunt for the appropriate brands to integrate into the "Get Married" series. "Whether it's jewelry, travel, or beauty, this is about finding the right brands to complement the wedding experience," Kirk said. "Even a wireless brand could help show how a couple communicates during the process." Endemol is a television production company based in the Netherlands with subsidiaries and joint ventures in 23 countries, including the U.S.
Last summer, entertainment companies claimed victory when an administrator of a site that enabled piracy became the first person in the country who was convicted by a jury of criminal copyright infringement. But a more recent court ruling in the case could make it harder for copyright owners to obtain damages from defendants in civil lawsuits. U.S. District Court Judge James Jones in the western district of Virginia declined to order Daniel Dove to make restitution because the entertainment companies had not proven how much money they lost as a result of the Web piracy. "Customers who download music and movies for free would not necessarily spend money to acquire the same product," Jones wrote in his decision. Dove is currently serving 18 months in prison for helping to run the site EliteTorrents, which allowed Web users to find and download pirated music, movies, video games and other content. Two entities, the Recording Industry Association of America and Lionsgate, also sought restitution. Although Jones's ruling was made in the context of a criminal case and not a civil lawsuit, some defense lawyers say the decision could affect whether other judges impose fines against civil defendants, including grad student Joel Tenenbaum or Minnesota resident Jammie Thomas. "Our case stands on its own merits, but each additional judge that sees the outrageousness of the amounts that are being sought, in proportion to the damage supposedly caused, is a big plus," says Harvard Law professor Charles Nesson, who leads Tenenbaum's defense team. Defense attorney Ray Beckerman, who authors the blog Recording Industry vs. The People, also said he anticipated the ruling would benefit defendants facing civil lawsuits. "It directly refutes the RIAA's entire theory in support of the reasonableness of its damages," he said. The copyright statute mandates damages of between $750 and $150,000 per infringement, regardless of whether the copyright owners prove they were injured by piracy. But Tenenbaum, facing suit in federal court in Boston for allegedly sharing tracks, argues that such an amount would be unconstitutional because it's "far in excess of any possible damages" the group suffered. Jammie Thomas, the first RIAA defendant found liable by a jury, made a similar argument in a motion to set aside the verdict ordering her to pay $220,000 for sharing 24 tracks on Kazaa. The judge in her case, Michael Davis of Duluth, declared a mistrial for other reasons, but also said that the damages awarded, which amounted to more than 500 times the cost of purchasing three CDs, were "wholly disproportionate to the damages suffered." The RIAA recently said it will stop bringing civil lawsuits against individuals suspected of sharing music at peer-to-peer sites, but cases in progress are continuing. Since 2003, the organization has targeted more than 30,000 alleged file-sharers and extracted four-figure settlements from many of them. In the Dove case, the RIAA submitted evidence that Dove's server transferred 183 albums a combined total of 17,281 times. The RIAA calculated that it was owed more than $124,000--a figure it arrived at by multiplying the number of album transfers by the average wholesale price of $7.22. Jones rejected the RIAA's formulation, ruling that there was no proof that each person who downloaded an album would have otherwise purchased it. "I am skeptical that customers would pay $7.22 ... for something they got for free," he wrote. Jones issued the ruling last November, but the opinion just recently surfaced on blogs that report on the record industry's lawsuits. The RIAA declined to comment for this article.
Social network and media sites that either sell ad space through third-party networks or allow consumers to upload videos on their servers need to remain vigilant about the content running across their networks, several online security experts warn. Banner ads, video content and fake social network profiles have become the pipeline for stealing personal information as more consumers jump online. In the past year, ads on highly trafficked Web sites such as Expedia, Rhapsody, Blick and MySpace have triggered malware downloads. Most of the malware is distributed through pop-up ads, and not all of them require a click. David Perry, global director of education at Trend Micro, a Cupertino, Calif.-based computer antivirus software company, said it's important to know the type of security software that third-party ad networks and sites run. Providing one example, he said pop-up ads for Anti Virus 2009, still in circulation, continue to promote software from a fake anti-malware company. "The problem is, the bad guys don't have to create fake ads anymore if they are good enough," he said, explaining they can infect legitimate ads on commercial Web pages, too. For instance, an online travel agency that rented parts of their online page as a method to generate revenue never suspected hackers would use it to steal information from consumers. The way it worked was a company rented ad space from the travel agent through a third-party ad network. It began serving up legitimate shockwave ads that eventually rotated to those containing malware and rogue antivirus software that installed keyloggers on the consumers' machines. The challenge is for legitimate sites that host banner ads to ensure that part of their agreement backend systems include continuing to vet the posted content, said Jamz Yaneza, Trend Micro senior threat analyst. In this case, failing to do so resulted in malicious click-throughs to hosted malware. Hackers also recently seeded LinkedIn, Twitter and the Barack Obama campaign Web site with fake profiles and pages infected with malware. In fact, unbeknownst to consumers, many social networks are home to fake links that lead to sites infected with malware. "We have seen cases where bad guys set up fake social network profiles and then establish connections with friends on buddy lists to gain more information through phishing attacks," said Paul Wood, senior analyst at MessageLabs, Gloucester, United Kingdom. Woods said there was also an increase in spam during the holidays as the global credit crisis hooked people into falling for email offers they might not have in the past. "People falling on difficult times are more inclined to look at these online offers," he said. "In one week at the end of December 2007, only around 2% of spam fell in this category. In the first week in January 2008, it rose about 1%. Compare this with the end of 2008 and the first week in this year, and those numbers rose to 4.2% and 10.2%, respectively."
Following up a similar election-related effort, The New York Times is launching an inauguration-themed campaign on Facebook featuring ads aimed at driving traffic to its presence within the social networking site. The one-day promotion, timed to correspond with Inauguration Day, centers on a video engagement ad inviting users to visit the Times' Facebook page to answer the question: "What should Barack Obama first address as President?" The initiative allows people to post their views on what issues Obama should tackle upon taking office. The Times will also run a virtual gift ad touting an Obama virtual stamp designed by artist Christoph Niemann, according to the Inside Facebook blog. The interactive engagement ads that Facebook began testing last summer allow users to post comments, become a "fan" of a brand's Facebook page and send virtual gifts. Within the units, people can also read friends' comments, and see who else is a brand fan or shared virtual items. The Times' inauguration-focused campaign is patterned after one the newspaper ran immediately following the election in November featuring a video ad roadblocked on the Facebook home page and a sponsored virtual gift of an image of the Times' edition bearing the "Obama Wins" banner headline. According to an internal Times memo circulated at the time, that effort drew impressive results. Among them:
GoFish Corp. isn't simply changing its name, but is re-launching as what its officials believe is the industry's first attention-based media company. The name change to Betawave--a cognitive term for the mind state of active concentration--reflects the company's belief that consumer attention will become the new economic basis for brand media, said Betawave CEO Matt Freeman. Betawave will focus exclusively on the highest attention-span media environments as measured by time spent per month, time spent per page and receptivity to brand advertising. This approach, coupled with an emphasis on immersive advertising products, allows Betawave to weave brands into the fabric of consumer experiences and deliver measurable results that far exceed industry norms. The company remains focused on casual gaming, virtual worlds, social play and entertainment publishers, and its platform is specifically designed to support innovative and entertaining campaigns (ones that consumers actually enjoy rather than ignore) like advergames, virtual world integrations, rich media and video. "The basic idea is to aggregate audiences that are relaxed and paying attention, and then help brands make an attention-grabbing contribution to that consumer experience," Freeman said. Betawave is headquartered in San Francisco and New York with sales offices in Los Angeles and Chicago. The Betawave portfolio of publishers reaches over 25 million unduplicated online users domestically and 69 million worldwide, according to comScore Media Metrix Media Trend, December 2008. It ranks as the third-largest online U.S. youth opportunity and a top five "mom" opportunity for advertisers.
The election that captivated the U.S. in 2008 is about to reach its pinnacle with the inauguration of President Obama today. Millions of eager people from all over the world will be watching this historic event in American history unfold with an optimistic view for what the future might hold. But for a vast majority of people, how they plan to consume this experience is different than in years past. For the first time, audiences will turn to the Internet, specifically to live Internet television, to partake in this once-in-a-lifetime occurrence. There was exponential growth in Internet television viewership in 2008. With the launch of Hulu, the sustained popularity of YouTube and the success of broadcast Web sites like ABC.com, people migrated to the Web to get their news, sports and entertainment on-demand. As such, programmers determined that in order to maintain audience loyalty and uphold ad revenue, embracing the Internet as a viable medium for their television programming was a necessity, not a novelty. In September, the Democratic National Committee Convention (DNCC) was broadcast live on the Internet on a number of both domestic and international Web sites. And viewers tuned-in in historic numbers. In fact, DemConvention.com received 3.2 million visits with more than 350,000 hours of viewing time. By week's end, the average viewer had watched 80.4 total minutes of coverage. The success of the DNCC has led programmers to put an important emphasis on Internet television coverage of the inauguration. In a recent interview with The Associated Press, Sean McManus, president of CBS News stated that:
"There are a lot of people who are going to be captivated by the entire day, and a lot of them are not going to be able to have a television set in the office, or have access to a television. The online coverage has a much higher priority than it has in the past."But is it simply just the availability of the inauguration online that will drive viewership, or is it the quality of the program that will determine overall ratings? Going back to the DNCC example, Rafat Ali, editor of the Web site paidcontent.org stated that:
"Every major site and TV network is streaming it (the convention) online in full ... But the most awesome ... online video feed is on the official Democratic convention site ... it certainly shows how great HD video can look online."It's no secret that with traditional television, quality drives viewership. And the same can now be said for Internet television. As Internet television continues its evolution into the mainstream, audiences are not just expecting, but demanding a high-quality viewing experience similar to that found on traditional television. And the quality of this experience is not limited to PCs or laptops but extends to any Internet connected device including mobile, set-top box and gaming consoles. We all know that 2008 was a monumental year for Barack Obama. But for those of us in the media businesses it is important to know that 2008 was also an important year for the Internet television industry. As the new president deals with the struggling economy, wars abroad and other domestic and foreign issues, it will be Internet television, not just traditional television that delivers all of the important news to the American people. And those Internet television providers that view this opportunity with as much enthusiasm as we do, already realize that the quality of the Internet television experience is of the utmost importance to the success of each programmer. Good luck to President Obama and the Internet television industry for years to come.