I was hoping to take up space on the Media IAS blog by recounting the thrills of using the 3G iPhone and some of the "more than 500 applications," according to Apple, available in the new App Store.

Alas, as of 2 pm PT on Friday, 11 July 2008, I am not able to do that. In a generally rare set of missteps, Apple and AT&T managed to start the 3G iPhone in the morning at the height of the Peak of Inflated Expectations, to use Gartner Hype Cycle-speak, and hit the Trough of Disillusionment all before noon Pacific Time.

Much as I wanted to use the 3G iPhone today, by late afternoon Pacific Time, the activation process was looking to be suboptimal, at best, based on news stories like this one and this one. (Full disclosure: I will note that I've been using a first-gen iPhone loaned to me via Apple's editorial loaner program. I've been using it as my primary mobile phone since it was launched. I pay for my own service from AT&T. My experience is not going to be common because of my job. In short: I was given a loaner Friday, but it had a preassigned phone number, not the number I've had for 10 years. Apple said it's going to figure out what I need to do. Just pulling the old SIM card out and dumping it into the new iPhone left me with the ability to make emergency calls only.)

Friday's snafu is particularly glaring given the almost out-of-body experience provided by the activation process, which I and millions of other iPhone users could do from the comfort of our own home, provided we had a broadband connection and a Mac or PC running the appropriate version of iTunes. (Yes, there were problems for some, but again a problem of misaligned resources in the face of demand.) With the "unlocking" of first-gen iPhones a rampant problem, AT&T and Apple decided to require customers to activate the phones in the store. With the first-gen iPhone, I got the phone from Apple, took it home, hooked it up to a Mac, fired up iTunes, activated the phone and my account with AT&T, and ported my cell phone number from my previous carrier. Done. I seem to remember it took me less than 20 minutes, probably because I waited until later in the day.

Today's experience was different. Beyond the launch of a new phone, Apple was also launching the App Store for iPhone and iPod touch, delivering the 2.0 version of the iPhone software, and, Thursday night, releasing MobileMe software (and the new name for the .Mac service). Logistically, that seemed like a whole bunch, but given things like the transition to Intel or the original launch of the iPhone, it wasn't implausible to think it could get pulled off.

Of course, for media companies that are eyeing the App Store - or should be eyeing the App Store as a portal for distributing some compelling content- or brand-related applications that leverage capabilities such as location - and competitors, the pain of the 3G iPhone's first day means two things. First, Apple and AT&T are likely to work very hard to rectify the problems, which means they're likely to create a whole new news cycle about how they're fixing the problems (maintaining consumer interest in the product). Second, while schadenfreude is a tempting response for some, this kind of media frenzy only underscores the product's status.

In that vein, on Monday, 14 July 2008, Apple reported that 10 million applications were downloaded over the weekend and that it sold more than 1 million 3G iPhones.

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The privacy controversy around NebuAd and Phorm, two companies that harvest ISP clickstream data to extract ad targeting capabilities, is heating up the U.S. Senate today, as hearings are held to review the companies' standing with respect to applicable privacy policies. NebuAd, which operates in the U.S., has come under fire from the privacy advocacy group Center for Democracy & Technology, while Phorm, operating in the U.K., has been similarly criticized by a computer scientist from Cambridge University. NebuAd and Phorm, for their parts, have issued strong and unequivocal defenses of their systems, which do go to considerable lengths to address privacy issues and can make some legitimate claims of superiority to existing practices in the elimination of personally identifiable information and data retention. These arguments have naturally spawned a great deal of passionate commentary in the blogosphere, focusing on issues of consumer privacy rights and opt-out mechanisms, a fray I will not enter here.

What has received much less attention is the orientation of these systems toward Web sites that sit at the other end of the consumer's Internet connection. Media companies that operate these Web sites, especially those considered "premier" that count on online advertising revenue to build real businesses, have at least as great a stake in this debate as consumers, and yet their applicable rights, if they have any, are seldom considered.

The specific issue here is the methods that NebuAd and Phorm use to attach their own cookies to Web domains visited by participating consumers. This is done, in essence, by redirecting Web site requests that don't already carry such cookies to a server of their own, which tricks the user's browser into accepting their cookie as though it were issued by the requested Web site, to which the user is subsequently again invisibly redirected. The ISP-based systems then scan the newly cookied Web sites for behavioral targeting indicators that can help them determine whether the visit is indicative of an affinity with a relevant targeting category. If so, the interest indicator is stored, anonymously. In any case, the specific data about the visit is discarded, a point these services reiterate emphatically.

Web sites can opt out of being scanned using a standard "robots.txt" file, which informs all Web crawlers which parts of a site may be indexed. However, it's unclear whether this mechanism allows Web site owners to selectively opt out of scanning by Phorm or NebuAd specifically, and if so, the method for doing so doesn't appear to be disclosed. Therefore, it seems the default case is this: If a Web site wishes to be indexed by Google and other search engines, it will also be indexed, and its usage data harvested, by these ISP-based networks.

There are at least two reasons why Web site owners should care. First, these systems create a new form of third-party cookie that appears to a browser (and its privacy policies) as a first-party cookie. The cookie's status is thus a matter of interpretation, but could in principle violate the privacy policies of a site that specifically opts not to support third-party cookies as it seeks to establish a trusted relationship with its visitors, which is of particular sensitivity in areas like healthcare. The higher-level issue, however, is who (besides the consumer) should be able to profit from visiting a site? If site owners choose to participate in a behavioral targeting network, that's their choice. But if a new class of behavioral networks rises that extracts this information from a switch at the ISP level, then value is being explicitly tapped from the interaction without consideration to the site owners. The ISP-enabled networks may claim this is not a zero-sum game, that improvements in targeting efficiency can result in more revenue to go around, but it seems that if advertisers can get broader and better targeting results from ISP-based networks, they're likely to spend more with them and proportionately less with Web sites and networks that can't match the scale of a network fed by the traffic of multiple ISPs.

Phorm, for its part, departs from NebuAd by using this data to seed an open ad exchange rather than simply using it in an arbitraged ad network. Domain owners can thus claim their inventory on the exchange and, Phorm argues, benefit from the enhanced targeting Phorm (and any other third parties) can provide. Yet, it's still an exchange seeded by data acquired without the domain owner's consent, which to some publishers is likely to feel coercive.

While NebuAd, Phorm and their ISP partners examine alternatives to cookies for opt-out and tracking, they need to also consider providing a clear, granular mechanism by which Web sites can control - and benefit more directly from - their participation. Online media companies and ad networks need to recognize they have a clear stake in this, and to protect their interests, they need to make sure they have their own privacy house in order.

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Flickr, a division of Yahoo, has entered into an agreement with Getty Images, a leading creator and distributor of images and multimedia, which will allow Getty to tap into the Flickr community as a source for licensed images to add to its portfolio. In short, Getty Images editors can reach into the pool of more than 2 billion Flickr photos and offer photographers in the community various license schemes for the rights to their works.

On the surface, it's a straightforward deal, particularly for Getty Images. For Getty, it allows its editors to tap into a rich set of images, allowing the company to expands its portfolio and fulfill projects that require a high degree of subject granularity. Given that Flickr affords powerful search capabilities and rich community tagging, Getty editors are likely able to find that photographic needle in a haystack. Once a photo is selected, Getty will offer three royalty payment schemes to Flick photographers: rights-managed (high production value, selected for a specific use), rights-ready (fixed price points based on usage) and royalty-free (based on image resolution, allows multiple uses).

Given the number of photographers on Flickr who use higher-end digital single-lens reflex (DSLR) cameras such as the Nikon D300, the pool of those who could reap financial benefit from the Getty deal is fairly substantial. For example, on 7 July, more than 70,000 images were uploaded to Flickr from those using the Nikon D300 and more than 30,000 from the Canon EOS 30D, another leading DSLR camera. Just how many photos Getty intends to select from the Flickr library remains to be seen, as the company retains its other acquisitions' channels.

Of greatest interest is how this deal shapes Flickr's future as part of Yahoo. Flickr, acquired by Yahoo in March 2005 from its founders, remains a crown jewel in the Yahoo stable, based on its monthly unique visitors (28.5 million according to Compete.com) and is the No. 20 domain. Despite those numbers, Flickr seems to be a siloed business around which Yahoo has not built a strong halo that connects it to its other social media efforts. With Flickr's two founders, Stewart Butterfield and Caterina Fake (who headed Yahoo's new media incubator lab), among the company's recent departures, Yahoo must not only keep Flickr's entrepreneurial spirit alive but also make better strides in using it as a centerpiece for other social media efforts, as well as exploit it to drive Yahoo's mantra to become an essential starting point for consumers. The Getty deal is smart in that it adds to the engagement level for Flickr community members but does little to add to Yahoo's strategic vision, which is in sore need of some energy.

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NBCU's acquisition of The Weather Channel from Landmark Communications gives NBC more than meets the eye. While The Weather Channel's cable, Web and mobile properties have very respectable reach and strong leadership positions in each of their respective media, weather.com, in addition to its reach, has a secret weapon that could raise the value of other NBC online properties. Of course, I'm talking about the weather.com cookie, which has a precious field called LocID containing the ZIP code you typed in the last time you used weather.com. That data is better than the ZIP code in your Facebook profile, because it's a good indicator of where you actually are or shortly plan to be, and is thus of significant value to marketers, which keeps weather.com's online ad rates high. This in turn makes weather.com a strong candidate for increasing the value of low-cost display advertising on other social networks, blogs and news sites that tend to lack strong contextual value for advertisers. In addition, it could give local NBC affiliates (including those owned and operated by NBC) new online venues for distributing local content such as traffic and news headlines as tickers or rollovers near weather data. So, combining NBC and Weather's sales capabilities with weather.com's targeting and NBC's online news and social properties (iVillage, NBC Primetime sites, cnbc.com, scifi.com, etc.) could be worth considerably more than the sum of the audiences.

Weather.com also has screensavers, toolbars, desktop widgets and gadgets, and mobile weather alerts, but here it appears some attention is needed. In the category of Web weather widgets, for example, which weather.com should presumably dominate, reviews have been critical and adoption spotty. The next generation of weather watchers on Facebook, MySpace, and Twitter could still slip away.

In any event, if NBC can successfully leverage the power of weather.com to boost the value of affiliated media properties to local advertisers, it will reinforce the growing notion that digital media is not just about audience size, but audience knowledge, which doesn't always come from the most obvious sources.

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I remember rather clearly, during the blue-sky days of interactive television (circa 1990), the dream of empowering couch potatoes to chat with one another while watching their favorite sitcom, sporting event or the evening news. Perhaps at the time, the concept had great appeal because it seemed so far out of reach that it seemed cool and sort of like the Jetsons by design. Today, with a number of Web-based simultaneous video viewing/chatting schemes emerging, it's time to think about the practical issues and commercial appeal of such a service.

SeeToo and NBC's reported Viewing Party are two of the more notable "chat while you watch" services, but Blinkx, Joost and even MLB.com are experimenting with or implementing some form of "watch with online friends" concept. SeeToo, which is the furthest along in functionality, enables one person to upload a video from his or her PC and invite others to watch and type messages back and forth. One of the initial target markets is young parents who want to share family videos with friends and family. That's a sensible target demo, but certainly not one that is large enough to become the next cool thing. SeeToo, no doubt, will be signing on various content providers, anxious to look for the means to create both differentiation and engagement. NBC's effort will be chat-room-based, according to reports, with rooms dedicated to various shows. No release date has been announced, but one would imagine it would be in place for the 2008 fall season.

To the point though, it must be asked, what is there to talk about while watching "The Office" or "Without a Trace"? "Hey, did you notice Anthony LaPaglia's new haircut? Or "Do you think Jim will marry Pam?" Another scenario, one that networks should worry about, is one in which these TV chats turn into just another cyberchat venue - something the online world does not need. The point here is that communication in social settings is highly valuable, but pointless drivel in the guise of watercooler TV talk has about as much appeal as a rerun of "Welcome Back, Kotter."

Not to dismiss the entire notion of TV chat, certain programs such as sports and news might be appealing for this concept. The sports leagues, as well as the NCAA, would be wise to look at this in conjunction with new rights packages. In addition, using moderated chats in conjunction with new programs would be a smart way for TV networks to get direct feedback on new shows. Such targeted usage of the watch-along concept might also have commercial appeal to advertisers and sponsors. Sponsored chats might have some branding potential if done unobtrusively (like those that sponsor the on-screen timers for soccer or football).

Welcome or not, this watch-along concept is coming to a PC (or perhaps an IP-enabled TV) near you. There will be many misfires along the path to adoption, but there is something intriguing about the concept. The trick, as in most new services, will be finding the right niche that provides a value-add and commercial appeal.

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The shadow that Apple's iTunes casts over the online music market frequently hides developments. Some would say that is a pernicious byproduct of a single company's dominance. Others might say the shadow and attention on iTunes give Apple cover to come up with something new.

By announcing V Cast Music with Rhapsody (Wall Street Journal, subscription required), I think RealNetworks and Verizon would opt for the latter interpretation. In the case of Rhapsody, the subscription site that claims to have somewhere north of two million subscribers, executives were able to scurry around and secure DRM-free catalogs from the four major labels and top independents for an a la carte download store. Its hope: Upsell the DRM-free downloaders to the subscription model. For Verizon, although it pushed its V Cast service hard in the past couple of years, it never seemed to get the market traction the nation's largest wireless carrier wanted. For Verizon, this deal gives it a relatively easy way to integrate an online music subscription service and a DRM-free download store — all in the hopes that it can drive some incremental revenue.

The immediate reaction by many in the press and the business will be to ask whether this partnership threatens iTunes. In short, no. At this point in the market's development, the competitive imperative shouldn't necessarily be to displace or knock off x percentage of iTunes' market share. The focus needs to be on growing the overall market for people who are willing to pay to acquire content online. We believe the Verizon-Rhapsody partnership is one of those steps that could lead to an overall increase in the market.

By partnering with Rhapsody, Verizon is making a smart move to enhance its mobile music offerings. Using Rhapsody's desktop PC software, Verizon customers, assuming they have MP3-enabled mobile phones, can download DRM-free tracks at $.99 each to their PCs and sideboard the content to phones or players. Or they can pay $1.99 per track to download over the air (under the so-called dual-download model where a second copy is available to download onto the user's PC). Verizon customers will also have the choice of a $14.99/month subscription service that will let them access music and create playlists of songs on their computers, as well as synchronize content to their mobile phones. (Verizon currently provides at least nine models supporting the new music service.) Under the to-go model, consumers download the songs and playlists they want onto their mobile phones and can play the songs without having the phone connected. However, the mobile phone does need to be synced to the user's PC and the service at least once a month to authenticate it.

It appears that, rather than investing directly in content, Verizon is looking to be more of a channel partner for content developers and (service) providers. What it is bringing to the table is access to its core assets: unique customer data and knowledge, the billing platform, and communications. (The preceding paraphrases a recommendation in a document I wrote with Gartner Dataquest's Alex Winogradoff entitled, "Dataquest Insight: Apple's Impact On The Telecom Service Provider Market.")

It's an interesting blend, this new announcement: the partnership of two companies, each one a purveyor of a model for acquiring music that many thought would be dominating the marketplace — mobile downloads and online subscription service.

In the U.S. in particular, where consumers have a longer history of acquiring and (sometimes) paying for content via broadband-connected PCs, mobile music service offerings have lacked the compelling and seamless experience of an iTunes online store. In most instances, the mobile alternatives' compelling differentiation (or so their marketers say) from an online store such as iTunes is the ability to purchase music over the air directly to the phone. In other words, instant gratification. With Rhapsody's subscription model as celestial jukebox in the sky made real, the challenges come from trying to map to a set of consumer preferences and expectations that clash with the business model the company was able to fashion given the state of music licensing and publishing realities. For any content subscription business, if it's not being used heavily by the consumer, the subscription is always at risk of being cut from the monthly budget.

By paying attention to the details and their customers, we might see Rhapsody and Verizon help grow their respective customer bases, which, in turn, means we could see the overall market for online music grow.

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Yahoo's announcements that talks with Microsoft have ended, and that it has reached an agreement with Google to carry Google AdSense ads on Yahoo and Yahoo partner pages (where they would be resold from Panama), were both presented by Yahoo in the context of their vision of "search and display convergence," a phrase repeated several times but neither explained nor explicitly connected to either action.

What is "search and display convergence?"

"Search and display convergence" is commonly taken to mean ad forms that combine the creative format of a display ad (graphics and rich media) with the targeting and performance pricing of a search ad (keyword-based contextual targeting). Thus, a banner ad placed through Google AdSense, Yahoo Panama, or Microsoft AdCenter would apply. Google Gadget Ads and Yahoo SmartAds are more elaborate projects in this category. Another possibility would be use of contextual targeting in a display ad network or exchange, such as Yahoo's BlueLithium or Right Media Exchange. So the question becomes, if search and display converge, which contribution will dominate growth, the keyword-targeting prowess of search, or the high-engagement branding potential of display?

Now, it's well known that Google's search advertising business is more profitable than Yahoo's display business, and that both Yahoo and Microsoft have struggled to catch up. How much better is Google at search? Yahoo's announcement gives us a basis for comparison: Yahoo estimated the annual revenue opportunity at $800 million, and expects the agreement to generate $250 to $450 million in incremental cash flow. So, assuming the CPC rates are comparable, that means that Yahoo must figure that Google's click-through-rates (CTRs) will be least twice as high as its own, taking into account that the incremental revenue from these ads must be split between Google and Yahoo (at an undisclosed TAC). How does Google achieve such superior CTRs? They have two things going for them: their contextual matching algorithm which evaluates relevance as a predictor of CTR, and the network effect of their superior scale of affiliates and advertisers to select from. This network effect, in which scale drives growth, is the key battleground for Yahoo's "search and display convergence."

While Google dominates search advertising, Yahoo has a much greater share of display. The next question is: why has search resulted in such superior economics to display? The answer, again, is related to the model that combines performance pricing (CPC) with high CTR, a combination display has been unable to replicate. There is, however, a well-known bias in the way such things are conventionally measured. Conversion attribution has by convention awarded credit to the last activity before a sale, which tends to favor search (even paid search, by virtue of its placement) as that tends to be the last action a user takes in what may be a prolonged build-up toward a buying decision (see Engagement Metrics, Get Real). There's a movement afoot to revise this convention, which could raise the relative appraisal of display in the eyes of advertisers. At the same time, the direct-response efficiency of search has great appeal to direct marketers, while we may anticipate a shift of more branding money to online, which also tends to favor the more impactful display (and in-banner video) formats. Yahoo, which has focused more on cultivating relationships in the traditional publishing and advertising markets, may be advantaged by this shift, but much will depend on AMP's ability to deliver on its promises to these constituencies.

The connection between "search and display convergence" and Yahoo's deal-making rationale thus appears to be the proposition to these more traditional advertisers and publishers that Yahoo, by maintaining control of its inventory while partnering with Google, and rejecting the spin-off and sale of its search business to Microsoft, can offer a more complete and efficient range of options. Then again, so can Google.

So back to the question: which core competency will dominate revenue share growth, efficiency targeting or creative options? In the end, accountability must win, and so far it appears that targeting is a better predictor of advertising effectiveness than creative. Contextual targeting will ultimately give way to more sophisticated techniques that combine behavioral and demographic elements with context, and the ability to adapt creative options to context will also be a key, but when it comes to marketing databases, size matters.

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Apple and Steve Jobs unveiled their 3G iPhone Monday at the Worldwide Developers Conference, while also unveiling the new iPhone software development kit (SDK) and showcasing a number of new third-party applications. Taking all of the related iPhone news together and then considering what Nokia's been doing with its Nseries phones, its Ovi platform and its own developer efforts, one sees a pretty interesting future. I was thinking the best way to express this is: Today, we have "Mobile media"; as Nokia and Apple develop their ecosystems, we'll have "(mobile) Media."

The apps ranged from a find-a-friend location-based application, a very slick new music-making application ("Band") utilizing the iPhone's multitouch screen and a very neat medical-imaging application. The new iPhones, available in the U.S. on 11 July, will have GPS built in, with Google Maps as the default, among other new features, and will carry a $199 price tag (that will be subsidized by AT&T). That $199 price tag (for an 8GB unit, $299 for a 16GB unit) will be the maximum price worldwide in the 70 countries Apple plans to introduce it this year.

The other big news from our perspective was the SDK, third-party application demos. Underscoring this news was a host of third-party application developer presentations and video testimonials that all noted how rapidly (days or a couple of weeks) they were able to prototype and get applications running with the SDK. These testimonials included CIOs at Disney, the US Army and a major law firm, and all deemed the platform a viable enterprise mobile platform. TypePad showed a new application that will let bloggers capture photos, write blog entries, index entries according to whatever categories they've created for their blogs and post directly from the iPhone.

Apple also unveiled the revamp of the .Mac portal, which will now be the MobileMe. This is a new Internet service that will enable subscribers ($99 for one, or a family plan that costs $149/year) to have e-mail, contacts and calendar entries pushed out to their iPhones, iPod Touch, Macs or PCs via a "cloud"-type service. The service will also link to iDisk, so users can store and access files too large to send via e-mail.

On the face of it, there were not a bunch of media-specific announcements, save for a new Associated Press local-news application and a new application from Major League Baseball, exclusively for 3G iPhone users, that provides real-time score updates and selected highlight videos (but not the actual telecast) of a given game.

However, taking the short-term and long-term views is always important. Here are some top-line thoughts:
• Lower price, increase potential market of buyers: By eliminating the revenue-sharing deal that dealt a cut of subscriber revenue to Apple under the original iPhone, AT&T is clearly back to subsidization in order to bring the retail price down, opening the market up to more potential buyers. So, clearly Apple and AT&T are hoping to pay to grow the installed base, hence building a larger audience for content. (And advertising at some point?) The trade-off? 3G iPhone customers will have to activate the phone at an Apple or AT&T store (unlike the first iPhone, which could be provisioned at home with a broadband-connected PC or Mac running iTunes); and data plans will be purchased separately (for the original iPhone, the data plan was built into all the service plans).
• Expand iPhone base worldwide: Apple announced it plans to make the iPhone available in 22 countries on 11 July, with an additional 48 countries coming online during the rest of the year. (On a world map displayed on the screens during this section of Jobs' keynote, the countries covered in this year's rollout all flashed red; Hong Kong flashed red, as in it will have the 3G iPhone, but mainland China did not.)
• App Store could do for applications (especially social-media applications) what iTunes did for music and the iPod: What has the iTunes store and software showed us? Apple knows how to distribute bits, and it knows how to charge for and collect money from those bits. Look back on the history of the iPod, and remember that the first iPod was really just an MP3 player. In fact, the first one was kind of big and kind of expensive. Then came the iTunes jukebox software and then the iTunes store. And that's when everything changed. The App Store provides a ready infrastructure for both distributing and monetizing applications for developers. Yes, Apple does take 30% of any application sold via the App Store, but the price is set by the developers.
• Short term, it means looking very carefully at that list of 70 countries and then mapping your distribution options in those countries. Content cleared for Internet-based distribution in those countries needs to be made available on the iTunes store - if there's one running - in those countries. iPhone's already iconic status means consumers are going to be looking to access content.
• Short term II, the Apple SDK has to be a priority for any development efforts targeting mobile devices and/or social-networking applications.
• Long term, the combination of the SDK and the App Store (and free apps can be distributed via the store; it's not just those carrying price tags) means the media company looking to find a path to extend its content and brand into a mobile context, and looking to engage fans directly, must critically evaluate the iPhone platform. Online video platform providers take note: The iPhone needs to be at the top of the shortlist.

While much of the buzz around the iPhone launch is focused on radio physics (3G and GPS), those are just the radios. The real changes ahead for the media and mobile media markets are going to manifest themselves over the coming months as developers start spinning out applications. The same can be said about Nokia. So maybe a year from now, we'll be talking about "(mobile) Media."

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When a company like Comcast manages to find itself in the news defending allegations of throttling its customers' P2P and BitTorrent traffic, and then to be called out by the FCC for those allegations, taking a financial stake in companies that develop technology designed to let an ISP efficiently manage P2P or Torrent traffic could strike the cynical as a PR gambit. Or maybe it's merely an acknowledgment that the company has a real need to find ways to accommodate such traffic in order to preserve the overall throughput for all of its customers, as well as potentially develop new revenue streams that appeal to content providers.

It's probably all of those things and more. On the bandwidth preservation and management front, Comcast is assuredly tracking the results of the Pando Networks trial done with Verizon, so we know efficiency is a clear driver for ISPs and MSOs to be looking at these distributed networking protocols.

But we think the "and more" threat is posed by the development of direct-to-the-consumer over-the-top video hardware and services, which bypass the cable company and satellite networks, driven solely by home network infrastructure. In this scenario, the notion of a consumer paying a cable company for access to broadcast TV content, premium cable content and broadband access becomes, well, quaint. In this scenario, a fast, reliable broadband connection and a content world in which a la carte programming for services such as HBO and Showtime are all that is required for a big chunk of the consumer base. No more paying upward of $50 to $60 to a cable company just for the privilege of getting to pay additional money for the premium content packages.

Name one service that gets close to this model? Netflix and its deal with Roku for a $99 set-top box capable of receiving streams of movies and other programming over a broadband connection and driving it to a TV screen.

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YouTube is always looking for ways to move its image away from being the home of lowest-common-denominator consumer-generated video, populated by tell-it-all webcam clips or "my pet can out-trick your pet" snippets. With the launch of a CitizenNews channel, Google's billion-dollar baby hopes to be a conduit for folks that have a nose for news who come armed with a video camera (and a point of view). This effort appears to be a good-natured attempt at empowering citizens to tell stories, but in no way should it be labeled "news" or anything even close.

Take Vancouver, B.C.-based NowPublic, a company that understands the power of citizen media and its relationship to the news. It has built out a portal, platform and set of very handy tools, which has resulted in what most critics agree is the model for citizen media. It is CEO Len Brody who offered me the quote of the year when he said, "Calling people 'citizen journalists' is like saying you can be a 'citizen dentist.'" Understanding that NowPublic understands that credibility with consumers (and now with newspapers, which take his company very seriously) is what builds brand. NowPublic has tamed the citizen media mess by instituting a layer of checks and balances in the form of volunteer editors, experienced guides and a group of staff editors (including a former BBC News exec) who become final arbiters for content quality. YouTube's efforts only help to make NowPublic's case that citizen media is not easy and requires more than a name and fairly good intentions.

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With a vision of the cup always being half full, CBS has purchased San Francisco-based CNet, a leader in multiplatform creation and distribution of technology news and reviews, as well as owner of such sites as ZDNet and GameSpot. CBS hopes to gain access to a much-sought-after demographic of digital natives who are interested in new forms of online programming as well as being highly sought after by advertisers. The addition of CNet will make CBS a possible top 10 Web property in terms of audience traffic.

The cup is half full because CNet has made more than its share of strategic missteps, which have manifested in a lawsuit from New York hedge fund Jana Partners (CNet's largest shareholder), claiming CNet has failed to make the right business moves and, as its largest shareholder, has pushed for "strategic and operational change." This sale, which includes a 44% premium over the current stock price, might very well put an end to this shareholder action.

CNet is a textbook example of the pioneer with arrows in its back. The company has maintained its brand promise as an unbiased source for technology news and reviews despite a failed attempt at TV programming (which has since been relaunched in a limited fashion), a failed attempt at owning a broadcast radio station and financial issues that forced its high-profile CEO, Shelby Bonnie, to resign in 2006. On the positive side of the ledger, CNet was among the first Web-based news outlets to use blogs, podcasts and even video as part of its content mix and has been known to unflinchingly take on Internet icons such as Google and Microsoft.

While CNet is a solid acquisition for CBS, just what the network does with its new property will be worth watching. As the former co-owner of MarketWatch, which it sold to Dow Jones in 2005, CBS does not have a great track record in exploiting a targeted tech content property. With much of its recent online efforts focused on streaming TV content via its audience network and social network partners, CBS will need to carefully build out a plan that allows CNet to retain its brand promise yet capitalize on the network's resources. And how exactly CBS News, which carries the legacy of Murrow, Cronkite and Rather, will use this new tech content resource should be a major news story of its own.

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News Corp. recently announced that Fox Interactive Media, operators of MySpace, would miss revenue targets by 10% due to softness in the social network advertising market. eMarketer revised its U.S. social network ad spending forecast down by 12.5%, to $1.4B for 2008. And a study from PubMatic, an online ad services company that maintains an ad price index called AdPrice, revealed "surprising weakness in monetization for the vast majority of Web sites," citing a 23% drop in average pricing between March and April, with social networking leading the plunge with a precipitous 47% drop.

So, how much trouble is social media in? Shades of 2001? Some chilling thoughts to keep in mind:
• First, advertising's a soft market to begin with, and the most experimental media should not be surprised to bear the brunt of overall advertising cutbacks in difficult economic regions.
• Second, it shouldn't be that surprising that social media advertising is particularly volatile, as it suffers from being neither fish nor fowl: It's not an accountable performance medium, like search, as is evident from weak click-through rates (even Sergey Brin at Google has expressed disappointment with its results from social media advertising, including its search arrangement with MySpace). It's also not (yet) a branding medium, lacking an environment that makes brand marketers feel secure that their ads will be noticed and not ridiculed.
• Third, there are indications that social network spam (SNS) is on the rise, which could create further hostility toward advertising in these environments.
• Lastly, and most importantly, it's simply far from clear that buying display advertising in social media is the right way to use the medium for marketing. Most of the success stories that involve social media are about participation of brands with engaging social profiles in conversations and viral (meaning unpaid) distribution of branded entertainment experiences - frequently to market entertainment products. Despite considerable investment in promising technologies such as HyperTargeting, a great deal of social media banner inventory still gets sold through networks as low-cost remnants.

There are, however, a few rays of hope:
• First, CNET cannily points out that PubMatic's only released two AdPrice Index reports to date, so these results should be taken with a grain of salt: There could still be problems with its methodology.
• Second, while the PubMatic report showed significant weakness in large Web site inventory, smaller sites (with fewer than 1 million monthly page views) actually showed improvement during the same period, raising their average CPMs from $1.18 to $1.29. This indicates that the strategy of online publishers extending their footprint of managed inventory to more focused niche sites on the long tail holds promise.
• Third, in-stream video advertising in online professional and protail content seems to be selling out at high CPMs, and the supply of quality syndicated online video is increasing rapidly, which will continue to attract more brands looking for places to run their TV spots in front of the missing primetime TV audience. With social media sites developing ways to export profile data to other sites and services, they should be able to monetize this profile data by supplying it to enhance more palatable advertising formats than banners on social pages.
• Lastly, the traffic on social networks seems to be holding steady, so eventually the advertisers will have to come around. That makes the social sites of 2008 fundamentally different from Pets.com in 2001.

The bottom line is, monetizing social media is hard. So is using it to market products. But both sides have to figure out how to make it work. And that will continue to keep us up at night for the rest of the year.

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One of the great content catalogs missing from iTunes finally showed up: HBO. (I'm biased as I am a huge "Deadwood" fan and one of three people in the U.S. who actually enjoyed "John From Cincinnati.")

Licensing its trove of acclaimed shows - "The Wire," "The Sopranos," "Sex and the City," "Rome" - to iTunes (and presumably other online services with substantial customer bases in the future) is one of the latest in HBO's moves in the online space. Notable among these is a market trial in Wisconsin for a broadband online service that streams shows and movies to consumers' computers.

As interesting, and perhaps more important over time than is obvious now, HBO was able to get Apple to agree to a tiered pricing scheme. Some shows, such as "Sex and the City" and "Flight of the Conchords," are $1.99 per episode, while "Deadwood," "Rome" and "The Sopranos" are $2.99 per episode. In the past year, Apple appears to have become a bit more flexible in its pricing rules. While labels openly rebelled at Apple's rigid $0.99-per-song pricing, EMI was able to get Apple to agree to a $1.29-per-song price for the DRM-free, 256 Kbps tracks it sells on the store (presumably, the premium being reasonable for the consumer who was getting a DRM-free song at a higher bit rate).

But what were the criteria for pricing "Sex and the City" $1 less than "Deadwood" or "Rome"? Critical acclaim? Creator or director requirements? Probably something to do with rights clearances.

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"The walls around the garden are coming down," according to Chris DeWolfe, the CEO and co-founder of MySpace, still the world's No. 1 social network according to many measures. He was referring to MySpace's announcement of its Data Availability initiative, which will let members opt in to share MySpace profile data with other Web sites, including Yahoo, eBay, Photobucket and Twitter.

Data portability in social networks has become a hot-button topic, and a great deal of power hangs in the balance as the social networking giants contemplate how best to liberate their users' data without either:
a) creating a privacy or security backlash, or
b) giving away the store (that is, both their traffic and their proprietary access to profile data of great potential value for targeted advertising)

In this announcement, MySpace has signaled a cautious phased and modular approach to the issue. It has stepped - but not leapt - ahead of the crowd by carefully limiting the capabilities of the offering, while keeping open plenty of options for its next step.

At the foundation of this offering is the OAuth standard, which governs how an API supplying data can authenticate itself to a third party - for instance, how a site like Twitter can allow a user to disclose data from an unrelated service provider such as MySpace and authenticate that the data it receives really is from MySpace. There are two important things to observe about this. First, OAuth covers only the authentication of the API data, not the user, who is authenticated through an external dialogue directly with myspace.com. Third-party authentication of users is the province of OpenID, a related standard that MySpace has indicated it may support in the future but has not yet committed to. Second, as a direct result, the data sharing model is unidirectional - that is, MySpace can export but not import profile data, restricting the service to MySpace members who wish to apply their profile data elsewhere, not users of other social networks who wish to import data to MySpace. This is why the offering is not a leap into the unknown.

Also not included is a business model, such as third-party sites using disclosed MySpace profile data to target advertising on their sites for a revenue share back to MySpace. At first glance, this seems like a triple play: third parties get higher CPMs from MySpace's HyperTargeting system, MySpace gets more revenue, and users and privacy advocates get truly transparent opt-in control. The fact that MySpace has restrained the scope of this announcement to omit this feature, which would surely please some anxious shareholders, is another indication of the measured pace of innovation in this tricky area.

All of this leads to the question of why, given all the risks along with MySpace's persistent membership loyalty even in the face of challengers as formidable as Facebook, MySpace would do this. Its answer rings true: MySpace's audience is demanding it, and better to give them what they want by carefully opening the door while trying to maintain order than to wait for them to crash the gates.

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Well, the so-called "PRO-IP" amendment to copyright law has cleared the House. The proposed bill seeks to increase the penalties for pirating content (with a special focus on counterfeiting) to include asset seizures such as computers and even real estate. Yet, what caught our eye are the provisions for the creation in the Executive Office of the President of an Intellectual Property Enforcement Officer (similar to the U.S.'s Trade Representative.)

Not surprisingly, it is backed by the major media companies, which on the face of it doesn't necessarily mean it's evil, but it does mean one shouldn't blindly accept it. The question I have is: Where is all the extra enforcement going to come from? Aren't most law enforcement agencies pretty busy already? Who will set the policy objectives for the Intellectual Property Enforcement Officer? Already, the Justice Department is raising objections to the bill, fearing the IPEO (nice acronym) may infringe on its turf.

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As the world searches for deeper meaning in the final chapter of the Microsoft-Yahoo acquisition story (…or is it?), one emerging storyline defines this as the moment when Microsoft saw its last, best chance to catch the new computing champion, Google, slip through its fingers. The New York Times, for example, claims "Google…has leapt far ahead in markets like web advertising." Well, besides web advertising…or, more precisely, web search advertising, what markets would those be? Of course there's much enthusiasm about the future of cloud computing services, but today these are speculative notions with no significant revenue attached. No, this deal was about digital advertising, and its ability to supply the economic fuel necessary to innovate computing’s nebulous future. The point is, as important as advertising revenue may be, Google's dominant paid search model is surely no hammerlock on innovation, and even Google itself continues to adjust and optimize that model in anticipation of shifts in the market. In this sense, Microsoft may be better off focusing on innovations of its own in the areas of search and online ad management, rather than wrestling with daunting service integration issues which many feared with aYahoo merger.

Then there's the storyline about Yahoo's comeback hopes, frequently pinned to a potential search alliance with Google. This, too, seems overblown. Such an alliance, assuming it could evade antitrust concerns, can only take Yahoo so far. Yahoo, like Microsoft, will also need to innovate boldly to capture the next wave of digital ad spending, which is multichannel (including mobile and next generation TV platforms) and driven by persistent demands for more accountability from more sophisticated advertisers who have not yet fully embraced any of the three leaders. With online video and social media still struggling to find the right formula for monetization, and big advertisers leaving the TV upfronts with their wallets still full of cash, the field is much more open than these storylines would have us believe. The point here is Yahoo, which has been stepping up its efforts lately in spite of the noise, needs now to accelerate these efforts if it's to keep its shareholders at bay for the next couple of quarters. A Google search deal, while good for headlines, is unlikely to be a stroke that changes the game.

So don't fret that the race is over. We're still in the early heats, and there are bound to be more thrills and spills ahead as focus shifts back to integrating smaller, more tactical acquisitions and innovating new game-changing services.

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The news that Starbucks is taking a step back and reassessing (here and here, the second link is to a WSJ story; subscription required) its efforts to link its coffee-selling "experience" with entertainment properties can be viewed as a cautionary tale about the limits of brand expansion in a world where digital media choices are limitless. But that is not to say that we think Starbucks should abandon its efforts at linking entertainment with its in-store "experience." In fact, we would argue the company needs to redouble its efforts but bring some serious focus to its role as a media intermediary.

Back in 2004, Starbucks, the global coffee brand, was making aggressive steps to leverage its customer base and its built-in Wi-Fi access. The company owned the music label, Hear Music (acquired in 1999), and started selling CDs (including the top-selling Ray Charles CD, "Genius Loves Company"). At the center of this foray into entertainment, reportedly a pet project of Starbucks Chairman Howard Schultz, was Ken Lombard, who joined the company after playing an instrumental role in helping build Magic Johnson's business empire. Lombard joined Starbucks in May 2004, and very quickly Starbucks' entertainment efforts began to take shape. With Lombard pushing things, Starbucks tested an in-store music CD-burning capability, forged a partnership with the William Morris Agency to find books and movie projects to promote, and created its own channel in iTunes to sell Hear Music artists. The company's underlying coffee business appeared to be the kind of cash machine that would support the aggressive development of a new type of media company. In fact, we cast Starbucks as an up-and-coming "media titan," because we saw the marrying of a huge network of stores with Wi-Fi access (3,100 stores in the U.S. had Wi-Fi as of October 2004) as an important audience aggregator of online consumers.

Well, while Charles' album went on to garner multiple Grammys and sell nearly 800,000 copies, the movies Starbucks promoted didn't exactly light up ticket sales in theaters, and the music-related efforts seemed to suffer from a benign neglect that consigned CDs to just another retail display among dozens of coffee cups, commuter mugs and coffee makers. In conversations we had with Lombard in 2004 and 2005, it was clear he understood the potential business benefits of linking the store experience with music and other forms of content. However, he also underscored that the primary mission for the company was to keep people in the stores and buying. As long as the entertainment unit's media efforts were obvious and logical extensions of the Starbucks brand, and they kept people coming into the stores, he said the company would consider an array of possible media-related opportunities. Apparently, the success, or lack thereof, can be found in Lombard's resignation.

Where do we think Starbucks' entertainment division took its eyes off the ball, or more accurately, swung at the wrong pitch? First, it has failed to extend and link the content business with the company's focus on making the stores a "third place" (besides home and work) to spend time. In many stores, the cafe section is often outfitted with stuffed chairs and tables with hard-backed chairs. Most stores provide free electricity for customers, and many stores also provide wireless Internet access (provided in American stores by AT&T, in Canadian stores by Bell Mobility, and by T-Mobile in the U.K.).

While the store design achieves the physical requirements of being a third place, Starbucks couldn't add the media link. In particular, we believed (and still do) that local newspapers and news organizations could partner with Starbucks' network of stores, providing a hyperlocal news segment delivered to Starbucks customers logging on at any of the stores, for example. Given the state of U.S. newspapers, this would still seem to be a viable tactic.

So, in May 2008, we have Starbucks reviewing its options in the entertainment space, while Chairman Schultz tries to maintain Starbucks' "experience." Despite having an impressive infrastructure of stores and Wi-Fi access, as well as a strong if somewhat buffeted brand, Starbucks remains more of an aspiring media titan than a true "player" in the industry.

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In the wake of Yahoo's celebrated December 2006 dismissal of Lloyd Braun, then head of the company's media group, marking what most thought was the end of an effort to create original TV programming, it appears the Web search and portal giant has not lost the desire to be the next Fred Silverman. Two new "shows," "Prime Time in No Time" and "Good Morning Yahoo!" (GMY; which replaced "The 9") are fixtures on Yahoo these days, both created in the style of E's "The Soup," which mashes up short TV clips with comments from an on-screen host. As a side note, actor Greg Kinnear started off as the first host of "The Soup," but rest assured neither Yahoo host has the chops to go beyond Web-based TV.

Parsing Yahoo's TV/video strategy based on these programs leads us to believe: 1) Yahoo believes there is a business in being a content creator despite the plethora of high-quality small production companies bursting into the TV space (Next New Networks and Federated Media, to name two); and 2) advertisers are buying into this foray, with Verizon sponsoring "Prime Time" and Dunkin' Donuts paying the bills for "GMY." But that's where the clarity around Yahoo's TV strategy ends.

Yahoo TV, the company's "starting point" for all things TV, includes "Prime Time" in its featured listings, but does not showcase "GMY." Based on the "URL," I think Yahoo considers that show "news," but even so, why not promote it everywhere possible? Even in 2.0 parlance, it is TV. All three major networks promote their morning shows on their Web sites despite the fact they all fall under the jurisdiction of their news departments. And speaking of "GMY," it seems that Yahoo Go, the company's major mobile "starting point," would be an ideal home for the show, providing it competitive differentiation from "regular TV" morning fare, but checking Go thoroughly, it was nowhere to be found.

Being in the TV business is not for dabblers. There is a middle ground between being so deliberate (as some networks have been) that you appear late to the game and behind the curve and having a strategy that consists of just tossing out a show or two for the sake of being part of a trend.

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Google manifests its video efforts in two ways: 1) YouTube, the world's most popular video community, which allows folks the options to upload and view videos as well as use a host of Web 2.0 sharing and community features; and 2) Google Video, a vertical search page that crawls the Web and indexes video from both YouTube and the Web at large. Google Video recently changed its fit and finish to resemble more of an online TV viewing experience, while adding a few bells and whistles such as the ability to sort searches by most blogged or most shared. The changes are fairly subtle and leave Google followers wondering what the company's long-term vision for video will look like. Will it remain a dabbler or follow the big-picture path it took in advertising by acquiring DoubleClick?

Leaving aside the inherent issues surrounding Google's limited approach to video search (such as the lack of speech-to-text search capabilities), the current dual strategy in video is a neither-here-nor-there weakness, but it also could represent Google laying low with a large bombshell in the works. As Google continues to build out businesses that are "repeatable and scalable" (so says Eric Schmidt in the 1Q08 earnings call), the company's emerging cloud business could become a major high-bandwidth video network that offers content providers of all sorts the ability to upload, efficiently broadcast, track and monetize video content. In essence, the cloud would contain a series of video delivery applications and services, some built by Google, some built by third parties. On the surface, this next-gen video strategy might appear to replicate Google's current YouTube brand, which in many ways has been field-testing the viability of this cloud video network concept for the past few years. At some point, however, it would make sense for Google to create two cloud/network offerings: one dedicated to consumer creators (YouTube) and the other for professional creators, each with its own set of applications and liquidity options, not to mention copyright-screening and accounting needs.

One ingredient to accelerate this strategy would be in Google's acquisition of an online video publishing platform provider (see "A Market Overview of Online Video Publishing Platform Providers") to enhance its cloud-based roster of such services as ingestion, transcoding and player customization. Alternatively, Google could stay neutral and just remain the "arms dealer" that provides content owners and application developers the network sandbox in which TV moves to a new level.

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Here's a radical new twist (via The New York Times) in the privacy-vs.-online-ad-targeting controversy: The Newspaper Association of America (NAA) has filed testimony with the Federal Trade Commission (FTC) opposing the commission's recently proposed Online Behavioral Advertising Privacy Principles, claiming that its right to use behavioral-targeting platforms such as AOL's Tacoda and Revenue Science is protected by the First Amendment, as a form of "editorial judgment." Behavioral targeting (BT) relies on users' accumulated browsing history to select which ads they'll see, and it represents a significant source of increased revenue for online advertising, especially for non-category-specific news pages.

We know things are desperate in the newspaper industry, but this is a dangerous balancing act. The NAA could have simply crafted an argument from economic necessity, which is a major theme of the filing. But by claiming that privacy regulations are a form of unconstitutional censorship, the NAA appears to have adopted an antipopulist position on a tinderbox issue. A key stress point here is its attempt to draw a boundary between BT and deceptive advertising, claiming that "no connection between behavioral targeting and falsity or misleadingness (sic) has been demonstrated."

This assertion is directly at odds with the position of most privacy advocate groups, for whom the lack of transparency inherent in most BT practices is on its face misleading, because most data collection contexts (that is, Web sites that collect visitor data for behavioral networks by hosting their third-party cookies) do not clearly disclose their tracking practices. The FTC has tried to strike a balance, promoting common-sense, self-regulatory principles of "clear, consumer-friendly, and prominent" disclosures and giving consumers "the ability to choose whether or not to have their information collected for such purpose." These principles are difficult to oppose, especially on constitutional grounds.

It would behoove the NAA and its members to take a more nuanced position on this issue. More disclosure and consumer control will improve, not undermine, the efficacy and acceptability of BT. Moreover, online newspapers - especially local ones - have a profound and historic opportunity to forge closer and more profitable relationships with their readers by taking the lead on opt-in profiling and trust issues in general. Arguing that the First Amendment protects the right to obstruct transparency for the sake of higher ad rates is as counterproductive as it is counterintuitive.

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