The heated debate over Net neutrality flared up again when the New York Times published a front page story by Edward Wyatt saying that a forthcoming agreement between the two companies could lead to favored content on the Internet. Google and Verizon -- along with representatives of AT&T, Skype, a cable trade association and a coalition for firms such as Amazon and public-interest groups -- had been meeting with the FCC behind closed doors to hash out a way forward on Net neutrality. The FCC’s ability to enforce the Internet regulations had been thrown into question by both a recent ruling, which found it had overstepped its authority in penalizing Comcast for slowing traffic, and congressional deadlock. In the wake of the Times revelation, the FCC called off its stakeholder meetings, while Google and Verizon rushed to clarify their position. The pair released a controversial “joint proposal for an open Internet,” which would seek to enshrine the FCC’s ability to enforce Net neutrality, but would leave the growing mobile web unregulated.
Reactions to the proposal were mostly negative. Although the CEOs of Google and Verizon claimed in a Washington Post op-ed that "our proposed policy presumes that prioritization of Internet traffic -- such as slowing down delivery of one video file so another arrives more quickly -- is harmful,” some commentators accused them of creating a back-door method to prioritize preferred content. Jon Healey of the L.A. Times noted that "the companies wrapped layers of nuance" around the definition of content discrimination and a clause which would allow Internet service providers to prioritize new consumer products. Consumer groups claim that if this proposal was implemented by lawmakers it could lead to the creation of a two-tiered public and private Internet. Their opposition to the pair’s wireless policies was even more strident. "The companies' plan puts wireless Internet service into a regulatory no-go zone and offers only toothless protection,” the Center for Democracy and Technology's Leslie Harris told the Post. Some accused Google, which previously supported wireless Net neutrality, of putting the business success of its Android mobile platform ahead of the future of the wireless web. Businesses are split: Wireless provider AT&T has cautiously supported the plan, while Facebook and other content companies have expressed strong reservations. The FCC has yet to officially comment.
Social gaming has become a big business. How can you tell? Have you noticed the number of status updates on Facebook from friends playing Farmville or Mafia Wars? Now Google is trying to make social gaming a new front on its battle with Facebook. The search giant recently purchased popular Facebook app maker Slide for $228 million. Plus, Google reportedly invested at least $100 million in Zynga, the maker of those aforementioned Farmville and Mafia Wars games. Google Ventures also invested a few million dollars in popular iPhone game developer Ngmoco. Although the company has yet to officially confirm it, Google’s plans to launch a Facebook challenger Google Me have been widely reported. TechCrunch reports that it has even reassigned its VP of engineering Vic Gundotra to be the "social general" in its war on Facebook. Gundotra most recently helped launch Google’s successful mobile challenger to iPhone, the Android OS.
And Google's not the only player involved in social gaming. The AFP confirmed reports that Apple is in discussions to buy Chinese Internet game developer Handseeing Information Technology, perhaps with an eye toward developing apps in-house for its popular devices. And Zynga itself bought one of Japan’s leading social gaming companies Unoh. This was the first product of a $150 million joint venture with Japanese telecom firm SoftBank. But as far as Google's moves go, the company has a lot to prove in social networking. Its Orkut network became popular, but mainly in Brazil and India. Google Buzz was immediately plagued by privacy issues and has failed to catch on. Collaborative email venture Google Wave was recently shut down. Om Malik predicts that Google won’t succeed where it has repeatedly failed before: “In order to understand social and win over the social web, companies need to understand people. I’m not sure Google is capable of understanding people on that level, and that’s the reason why the company strikes out whenever it tries.”
You have to wonder about a company that files for its initial public offering and makes the announcement on a Friday late afternoon. In August. That company, Demand Media, has been the poster child for "content farms" or "content mills," creating an assembly line of cheap content tailored for SEO. Despite repeated claims by Demand CEO Richard Rosenblatt (former CEO of Intermix, and chairman of MySpace) that the company was profitable, the IPO filing paints a much different picture: The company lost $22 million in 2009, and $6 million in the first half of 2010. Plus, Demand Media is heavily reliant on Google: 26% of its total revenue in the past six months came from soon-to-expire advertising arrangements with the search giant. While Google benefits from having Demand-produced videos on YouTube, it could choose not to renew its agreement with Demand or alter the way its algorithm ranks farmed content -- a move many publishers have been pushing for. And if Google decided to get into the content farming business, it could blow everyone else out of the water because its wealth of search data gives it what the Demand filings called a "significant competitive advantage."
Will all these details hurt the expected $1.5 billion valuation some analysts had been mentioning before the company opened its books? That figure, which would make Demand worth more than the New York Times Company, undervalues the company by over $300 million, according to calculations by Bryne Hobart posted on the Business Insider. Others see risky questions that went unanswered in the company’s SEC filings. Erik Sherman of BNet wonders if Demand can continue to attract enough poorly paid freelancers to keep fueling its expansion. James Ledbetter of Slate asks a more pointed question: Why did traffic to Demand Media sites drop by as much as 75% in the days leading up to the IPO? With these lingering issues as well as the risks and lack of profits outlined in Demand’s filings, Kevin Kelleher of DailyFinance concludes that its “stock probably won't have the kind of stellar debut that could ignite a flurry of investor interest in other content company IPOs...So in the end, Demand Media's IPO may not be something worth writing home about, not even for $5 an article.”
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Like America’s Big Three automakers, its top newsweeklies have also struggled of late. While US News moved to a biweekly schedule and focused on consumer rankings, British imports such as The Economist and The Week have increased competition. Their impact has been less problematic for Time magazine, which remains the most widely read American newsweekly and seems to be turning around after the downturn. Time's magazine unit recorded a 4% rise in ad revenue but that gain was offset by other loses, leaving it flat for the quarter. Although Time Inc. has had trouble working out the details of a subscription pricing plan with Apple, the company also announced plans to begin offering subscribers to all of its magazines access to iPad versions. Finally, the company acknowledged that it had poached Jack Griffin from Meredith to take over as president and, eventually, chairman of Time Inc. At Meredith, Griffin helped the publisher successfully expand into offering digital marketing services via its stake in Hyperfactory. Referring to this accomplishment, David Kaplan of paidContent says that at Time “he’s expected to pursue the same strategy, albeit on a bigger canvas.”
The apparent recovery in the ad market has done little to buoy Time's longtime nemesis Newsweek. With a redesign that had cut circulation but failed to inspire the remaining readers or advertisers, the Washington Post Company put the loss-making newsweekly on the auction block after owning the company for nearly 50 years. While up for sale, the magazine inked a content-sharing deal with TheStreet.com -- a deal which may be modeled on the partnership it struck with MSNBC.com in 2000. The winning bid for the troubled magazine from audio magnate Sidney Harmon was for an estimated $1 and included the assumption of some $50 million in debt. That it has been warmly received on all sides says much about the dire financial straits the magazine was in. As paidContent’s Kaplan reports, Newsweek burned through $26.5 million in 2009 alone. Harman has promised to keep most of the editorial staff and, according to David Carr of the New York Times, he even told them “I’m not here to make money.” That is probably a good thing, because Newsweek faces a long road back to profitability.
Email has long been the king of time-wasting on home computers. But that's shifting quickly to social networking and online gaming, according to a recent Nielsen study. The research firm found that Americans are spending more of their time on home computers accessing social networks (22.7%) and playing online games (10.2%) than they are checking email (8.3%). But the study separates mobile Internet access from these figures. On the mobile side, email is still the killer app. Accessing email has increased from 37.4% to 41.6% of U.S. mobile Internet time. With 10.5% of mobile Internet users’ time spent on social networks, they are only the third most popular destination, but they have narrowed the time gap separating social networks from portals by 5.1 percentage points since 2009. Their gains have been even greater on PCs: Time spent on social networks increased 43% over last year. Online games, many of which are played in Facebook, rode this wave of popularity to a 10% annual increase. As Christina Warren of Mashable concludes, the outlook for email is uncertain:"[It] is still more versatile, but for users that have a heavily populated social graph, sometimes social networking services can offer a more convenient messaging experience."
The mobile data market continues to expand at a double digit pace with Android smartphones capturing an increasing share of the growing market. A study by consulting firm Chetan Sharma found that in the second quarter, U.S. wireless data usage had grown 6% over the same period in 2009 bringing in $13.2 billion in data service revenues. The market is also up 22% over the first half of last year and on pace to meet the firm’s initial data revenue estimate of $54 billion for all of 2010. Chetan Sharma says that nearly every U.S. citizen above age five has a mobile subscription, leaving data plans for smartphone and tablet devices as one of the few remaining growth areas for wireless companies. It says "31% of the U.S. subscription base is now smartphones,” a figure that Mark Walsh of MediaPost notes is higher than most analysts’ estimates.
This burgeoning market is primarily controlled by two big players that together rake in 70% of the data services revenue: AT&T, the home of the iPhone and iPad; and top carrier Verizon, which features many popular Android models. A study from Nielsen suggests that much of Verizon’s continued market domination can be attributed to the growing popularity of Android smartphones. Only Blackberry phones, which accounted for 33% of all smartphones sold in the first half of 2010, have sold better than Android phones (27%). This surge in sales also helps explain the stunning increase in Android shipments worldwide, according to data analysis firm Canalys: They are up 886% over the second quarter of 2009. According to Google honcho Eric Schmidt, there are 200,000 Android phone activations each day.
The OPA Intelligence Report is a bi-weekly email summarizing and commenting on important news and research for the online publishing industry. As always, feedback is welcome at email@example.com.