FUROR ERUPTS OVER NET NEUTRALITY RULES

Original Story:  USAToday.com

A battle has erupted over the Federal Communications Commission chairman's new proposal for net neutrality rules that would allow content providers to pay for Internet express lanes.

In the first formal step toward reinstating net neutrality, FCC Chairman Tom Wheeler presented a draft of the revised rules to his fellow commissioners Thursday. The rules would prevent Internet service providers from blocking or discriminating against lawful content.

But the proposal allows fast lanes to consumers' homes, the so-called "last mile," that content providers such as Netflix can purchase as long as the same opportunities are available to others on "commercially reasonable" terms. The new rules give the FCC the authority to review such arrangements to ensure that they don't harm consumers and competition.

Critics of the new approach immediately asserted that fast lanes are a form of discrimination that could leave small businesses and entrepreneurs at a disadvantage. The FCC should include specific language to prevent such deals, or ISPs should be classified as public utilities that can be regulated more strictly, they say.

"Net neutrality prevents that overcharge, which gets passed along to consumers and stifles innovation," says Gabe Rottman of the American Civil Liberties Union.

Net neutrality proponents were also concerned that the new rules do not address traffic over the back-end Internet pipes used by content providers to send data to ISPs' front doors.

Netflix caused an industry furor earlier this year when it agreed, albeit reluctantly, to pay Comcast for a more direct connection between its servers and Comcast's network to provide faster delivery. "Where they are headed with this is down the wrong path, as ISPs get explicit legal permission to do deals with Internet companies," says Netflix spokesman Joris Evers.

The FCC's Open Internet rules were enacted in 2010 to ensure that Internet providers do not discriminate against lawful content. Following an industry challenge, a federal appeals court invalidated the rules earlier this year but allowed the FCC to recast them.

Wheeler said his goal is to enact rules similar to the earlier ones that pass muster with the court. The commission will vote on them at the agency's May 15 meeting. If they are approved, public comment will be taken before the rules go into effect, which Wheeler hopes will be by the end of the year.

Yahoo Struggles With Content

First appeared in the Wall Street Journal

Ousted Yahoo Inc. Chief Executive Carol Bartz faced a plight all too familiar to many of her peers: Making money off digital content isn't easy and it's getting harder.

As Web traffic explodes, Internet companies are struggling to profit off ads shown next to the articles, videos and other content offered to viewers.

It's a simple rule of any market. The more information that is created, the more the value is reduced. And despite attempts to woo spending with bigger, bolder and more targeted ads, services that help consumers navigate that content, namely search, remain the big money makers online.

"People tell me that content is king, but that is not true at all," says Rishad Tobaccowala, chief strategy and innovation officer at Vivaki, the digital-media unit of Publicis Groupe SA. "Most people make money pointing to content, not creating, curating or collecting content."

Internet pioneers Yahoo and AOL Inc. are losing out to Facebook Inc. and Google Inc., both of which are adept at helping point the way to pertinent or interesting material. As a result, Yahoo and AOL are getting left behind in the fast-growing U.S. market for online advertising, which ballooned 20% to $31.3 billion from 2010 to 2011, according to eMarketer.

Yahoo and AOL's shares of the overall U.S. online advertising market will drop to 11% and 2.7% in 2011, respectively, according to the research from, down from 16.1% and 4.4% in 2009.

Their businesses have been plagued by a range of missteps that extend far beyond their current regimes. Both were slow to recognize the appeal of social-networking and to update their once dominant email services to compete with new rivals.

Excessive turnover and extensive bureaucracies have strained their relations with Madison Avenue, say advertising executives. Ms. Bartz recently attributed Yahoo's weaker-than-expected ad sales to heavy turnover among advertising executives.

Yahoo said in a statement that the company has been meeting with advertisers and agencies who say they excited by the advertising opportunities at the company. A spokesman for AOL declined to comment.

A few years ago, scale virtually guaranteed profits if Internet companies had relationships with marketers, as there were few sites that could deliver large audiences to advertisers. But advertisers now can turn to a wide range of competitors to reach a similar number of people, and that has pushed down the amount of money they spend on those sites and the price for ad rates on the portals.

"What do Yahoo and AOL bring? In fact, they don't bring all that much," said Rob Norman, chief executive of WPP PLC's GroupM North America, who says marketers view them as large quantities of mostly commoditized inventory. "Just because you have a lot doesn't mean that you have something that is of distinct value."

Pricing trends across both properties vary depending on where the ads appear, advertisers say, but overall rates aren't rising fast enough to compensate for meager to flat traffic growth. In the second quarter, AOL's revenue fell 8.4% from the year earlier to $542.2 million.

Yahoo's revenue fell 23% to $1.3 billion.

The average cost to reach one thousand views across both Yahoo and AOL sites has fallen steadily in the past year, ad executives say. At Yahoo, that rate dropped to an average $6.50 in July 2011 from $7.65 in July 2010, while at AOL, that rate dropped to an average of $7 in July 2011 from $9.45 in July 2010, according to SQAD WebCosts. Back in July of 1998, Yahoo was fetching about $25 per thousand. A Yahoo spokeswoman said their internal data isn't consistent with WebCosts' data.

Some companies have responded by cutting back the number of ads to boost their value. AOL stripped ads off several of its marquee sites in recent years, including AOL.com, its fashion site Stylelist and movie site Moviefone to make room for more premium advertising.

Both AOL and Yahoo are under pressure from "advertising exchanges," the lingo for services that allows advertisers to bid for ad space across a multitude of properties that reach a particular type of user. Increasingly, marketers will turn to the advertising exchanges directly to buy high volumes of cheap online ads instead of negotiating with big publishers like Yahoo and AOL for more expensive ads.

In addition, marketers can target those ads bought via exchanges directly to people who are likely to be interested in their product or service, regardless of the context of the site where they appear. That gives the big portals less bargaining power, advertisers say. Yahoo runs a major exchange but the business isn't growing fast enough to restore overall revenue growth.

While it's a juggernaut, Facebook isn't immune from the problem of expanding inventory. Advertisers say most ad rates on the social network remain low, as its growing traffic leads to a proliferating number of pages it can show ads on.

"Sometimes there is an irrational desire to be involved with things that are just on upswings," says Mr. Norman. "The value of (marketing on Facebook) may be open to some questions."

Smaller publishers are also feeling the changing economics acutely. News sites such as Salon and Slate aren't consistently profitable. Upstarts like the Daily Beast have yet to reach profitability though executives say the three-year-old site is ahead of its pace. Slate last month laid off a handful of editorial staffers, citing unexpected "head winds" in advertising.

AOL Shifts Emphasis

The Wall Street Journal

 

 

AOL Inc. went on a shopping binge Tuesday, announcing three acquisitions, as it tries to redefine itself as a hub for Internet videos and articles on various trendy topics.

Back when it was called America Online, AOL was the first introduction to the Internet for many Americans. In recent years, though, its influence has waned. AOL's latest rejuvenation efforts—which include Tuesday's deals to buy the TechCrunch blog, online video company 5min Media and Web-based software company Thing Labs Inc.— mark an important case study of the difficulty shedding old business models in order to move ahead with a fresh face.

While the company continues to invest in its new strategy, its business hasn't moved much beyond its old one: More than 40% of its revenue still comes from selling dial-up Internet service and related subscription products, the legacy business it has been trying to shed for years.

"I don't see anything in the near term that will compensate for their subscription business," says Doug Anmuth, an Internet analyst with Barclays Capital. "It is a pretty massive transition that they are trying to pull off."

In an interview Tuesday, AOL Chief Executive Tim Armstrong said that AOL's efforts to remake itself will take time and pointed to its latest deals as signs of momentum. In TechCrunch, the company is acquiring one of the most prominent tech blogs, with more than 3.8 million unique monthly U.S. visitors, according to comScore Inc., a firm that measures Web traffic. TechCrunch is bringing in revenue at a rate of about $10 million a year.

The company also purchased 5min, a site known for instructional videos on topics like fitness and cooking.

The acquisitions "are in the strike zone," he said, adding that AOL had a multi-year agreement to retain TechCrunch's high-profile blogger Michael Arrington, who founded the site in 2005. "The one thing that doesn't change is people's consumption of content."

All three are relatively small buys. AOL paid roughly $65 million for 5min and around $30 million for TechCrunch, according to people familiar with the matter. The third deal was said to be even smaller. Thing Labs makes Brizzly, an online application that allows users to post and read updates to Twitter and Facebook from one website.

But, for AOL, a lot is at stake.

In the second quarter of the year, AOL's revenue plunged 26%, and subscription and advertising revenue each fell 27%. Unique monthly U.S. visitors to AOL sites declined 3% from February to August, according to comScore.

AOL's stock is about flat since its first day of trading following its separation from Time Warner Inc. last December.

Mr. Armstrong and other AOL executives have been trying to offset the gloom by trumpeting the new strategy, speaking out at industry conferences including Advertising Week in New York this week, which AOL has been blanketing with posters playing up its new content plans.

Advertisers like the idea of making AOL a go-to place for buzzworthy news and entertainment. But they aren't convinced it will work.

"We see good intentions, but it doesn't seem to be playing out yet," says Steve Kerho, senior vice president media and analytics for Organic, a digital-marketing firm owned by advertising agency Omnicom Group Inc. "It is a little worrisome."

TechCrunch's Mr. Arrington is an influential yet polarizing figure in Silicon Valley. He commands respect from entrepreneurs keen for him to cover their businesses and breaks a fair amount of news about the industry. But he doesn't shy from speaking his mind on controversial issues. Recently, he set the blogosphere abuzz with a post accusing tech investors of colluding on deals.

Messrs. Arrington and Armstrong announced their pact on stage at a conference the website was hosting Tuesday. In brief remarks, Mr. Armstrong said that the company would seek to build out a major technology content business, with Mr. Arrington and the TechCrunch team as one pillar.

AOL's transition beyond its legacy dial-up business began in 2006 when the company, then owned by Time Warner, decided to stop charging a subscription fee for users who already had high-speed Internet service or dial-up. That meant that AOL members with their own Internet connections, could browse its services for free.

It was a bold gamble that a brand that built itself on charging consumers to connect them to the Internet would find its future growth from online advertising instead.

Mr. Armstrong, a former senior advertising executive at Google Inc., ran with the vision. After joining the company in April 2009, he kicked off a lengthy review, code-named "Project Atlas" to address whether to sell the access business, which was hemorrhaging subscribers.

He decided not to, noticing that AOL's paying subscribers were big users of AOL sites and responded to more ads. Instead, he focused on increasing advertising revenue by acquiring and producing more content to show ads against.

As the market for basic online services, like email, has grown more competitive in recent years, Web companies are trying to draw viewers and advertisers by supplying them with articles and videos about topics they care about, ranging from cooking to cars. To do so, they've been hunting for content companies focused on select audiences, like moms, as well as those that can generate lots of content inexpensively by relying on freelancers and technology that tracks what's popular.

AOL has been particularly zealous. It acquired two companies that specialize in local news, Going Inc. and Patch Media Corp. Patch operates close to 200 local community sites devoted to towns like Agoura Hills, Calif., and Montclair, N.J. It also launched new technology to mass-produce articles based on popular topics and struck deals with celebrities including the Jonas Brothers. AOL also acquired online video company Studio Now Inc. in January for about $36.5 million.

Still, in 2009, around 43% of the company's revenue came from its dial-up business and related paid services, like software that provides extra privacy protection. For 2010, several analysts are estimating that figure will stick to around 42%.

In the second quarter, the number of people in the U.S. who paid $9.99 a month or more for AOL's Internet service fell 25% from the previous year to 4.36 million.

Mr. Armstrong estimates that about 10 million to 12 million visitors to AOL sites are tied to its dial-up subscription business. Overall, the AOL site had roughly 107 million unique monthly U.S. visitors in August, according to comScore.

Mr. Armstrong said in an interview that the company isn't giving up on the subscription business and has plans to expand it by offering more paid services, along the lines of the security or fitness-tracking software it already offers.

"Paid services is an interesting part of our business and our future," he said.

Murdoch Banks on Rooney Hooker, Coke Binge to Push Paywall Plans‏

Bloomberg

James Murdoch’s plan to charge for online access to U.K. tabloid News of the World shows he’s extending his paywall model even as advertisers flee websites of two of his other newspapers where Internet readers have to pay.

News of the World, which this month featured a video of boxer Ricky Hatton purportedly snorting cocaine and published an interview with a prostitute who said she had sex with Manchester United footballer Wayne Rooney while his wife was pregnant, will seek payment from Web readers from next month. The move follows Murdoch-controlled News Corp.’s July push to get London papers The Times and The Sunday Times into the online-pay arena.

With more people getting their news from the Internet, newspapers are increasingly charging for online access to make up for lost revenue from print advertising. Murdoch’s strategy to put all stories of his U.K. newspapers behind an online paywall differs from the approach of some other newspapers such as the Financial Times which first gives access to some stories online before it starts charging.

So far, The Times and The Sunday Times have seen readers leave to access free news elsewhere, with advertisers following suit. “I can go to the Guardian or CNN and get an audience,” said Chris Bailes, digital trading manager at Starcom MediaVest Group, a media buyer owned by Publicis Groupe SA. “No one is indispensable.”

Starcom MediaVest, which has placed ads for the Emirates airline and Continental Airlines Inc., has cut its advertising on the Times and Sunday Times by more than 50 percent, Bailes said. News Corp.’s international unit hasn’t communicated with media buyers about its online figures, he said.

“We wouldn’t put our money where we don’t know the numbers, just as you wouldn’t invest in a stock,” Bailes said.

Fewer Visitors

James, Rupert Murdoch’s son, is the chairman and chief executive officer of News Corp.’s European and Asian operations that oversee the U.K. news titles. A News Corp. spokeswoman declined to comment on Times readership or advertising since the paywall was installed.

Visits to the website of The Times fell to a third as of July 20, several weeks after the paywall was put up, data compiled by Experian Hitwise showed. Murdoch has not publicly commented on the traffic.

The News of the World might be able to turn the paywall model into more of a success, some analysts said.

News of the World will re-launch its site in October and make it available for 1 pound ($1.6) a day or 1.99 pounds for four weeks, News Corp.’s international unit, News International said in a statement yesterday. An Apple Inc. iPad application will follow for 1.19 pounds a week. Access to the site of “Fabulous” magazine will be included in the pricing, it said.

Tabloid Model

The News of the World website “will be the third of our titles to launch a paid-for digital proposition in under four months,” News International Chief Executive Officer Rebekah Brooks said in the statement.

“News of the World has a lot of content and videos and it could be easier to attract paying readers,” said Benedict Evans, a media analyst at Enders Analysis in London. “People buy the paper to read about a footballer having sex, so why not do the same online?”

The Financial Times and Murdoch’s Wall Street Journal already charge for online access, and have enjoyed a degree of success because they offer premium content for a niche group of readers, analysts said.

Paper Paywalls

“I couldn’t imagine the same would happen for the New York Post or even Bild in Germany because they are general,” said Karsten Weide, a research vice president for digital media and entertainment at Interactive Data Corp. Bild is Germany’s biggest tabloid and the New York Post is an U.S. tabloid owned by News Corp.

Paid-for online versions of The New York Times and Washington Post could also do well because their readers are typically wealthy and better educated, Weide said. The paid-for online model could also work at local newspapers, where the content isn’t widely available, he said.

The New York Times plans to erect an Internet paywall next year. The newspaper will see “some effect” on readership after it implements a paywall next year, New York Times Co. Chief Executive Officer Janet Robinson said in June. “We feel that we will protect as much of the audience as possible” with a “metering” approach, that allows free access to a limited number of stories, she said at the time.

Different Approaches

The difficulty for general titles such as The Times is that similar news is available free from many more websites, including those of competing U.K. newspapers the Guardian, the Independent and the Daily Telegraph.

Stories from The Times online aren’t even available on the Google search engine so readers have no idea what the Times’ journalists are writing about, according to Enders’s Evans.

“The Financial Times paywall approach is better because it allows you several free articles a month and you can at least see what the stories are and share the content with your friends even if you cannot open all the stories,” he said.

Rupert and James Murdoch have both lobbied in the past for governments to do more to protect copyright online and prevent people from taking online content without paying for it.

The money an online reader generates is about a third or quarter that of a print reader. That’s because online ad rates are lower and the average online reader skims through about five pages, while an offline print reader averages 70 to 80 pages, Enders’s Evans said, citing figures by researcher ComScore.

IPad Effect

With contact details on a small base of loyal, paying online readers, marketers target users. Also, News Corp. could bundle newspaper subscriptions with TV offerings from pay-TV operator British Sky Broadcasting Group Plc, which it controls.

Paywalls are about developing a closer relationship with readers, said Alan Brydon, head of trading at the MPG media buying agency, owned by France’s Havas SA. The paywall allows marketers to target more effectively and send tailored messages to users to start a dialog, he said.

“I thought a year ago that paywalls were rubbish, but then you see the iPad and that’s how people will read a paper,” said Brydon. “In three to five years when iPads are as ubiquitous as iPods you will see people subscribing.”

MPG has probably cut its ads on the Times and Sunday Times by 90 percent, from advertisers including Air France-KLM and Sporting Index, Brydon said.

“There’s no shortage of places to go online to advertise, but if you have a database of 10,000 people with their details then that becomes very interesting,” he said.