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Orchard Shares Double On Buyout News

Shares of digital distributor The Orchard rose 38.9% during the trading day yesterday and then jumped another 70% after hours on news that majority...

...shareholder Dimensional Associates was moving to acquire all additional stock of the company that it did not currently own. Shares which began the day at $1.05 and ended at $1.45 were selling at $2.47 overnight.

In a late Friday filing The Orchard informed the Securities and Exchange Commission that it had received notice from Dimensional proposing a plan to acquire all outstanding common stock at $1.68 a share.
After discussions with a special committee of Orchard directors, Dimensional upped its offer to $1.84 - a 75.2% premium over The Orchard's Friday closing price.

In a related move, Dimensional's Danny Stein resigned as interim CEO of The Orchard, and the board appointed Brad Navin, the current EVP and General Manager, as interim CEO. Former CEO Greg Scholl left The Orchard last month for an executive position at NBC.
ANALYSIS:

Despite moves like the acquisition of TVT to diversify its position, The Orchard is at its core a digital music distributor - a business model that is facing constant downward price pressure. It's two largest competitors, IODA and INgrooves, have entered into extensive partnerships with Sony and Universal respectively. Though an investment by Sony has been rumored, this leaves The Orchard standing alone trying to compete in an increasingly difficult environment.

The end game for owners Dimensional Associates has always been the sale of both its music properties, The Orchard and eMusic, at a profit. But meltdowns in both the music sector and the greater economy have made that impossible.

Now with the stock near a 52 week low, the savvy investors at Dimensional are gambling that a turnaround is near and that the moves necessary to improve The Orchard's position and ultimately make it ready for sale are best made without the prying eyes of outside stockholders of the SEC.

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Google Falls Short for MySpace

There years ago, Google and MySpace signed a search deal. Google agreed to provide web, vertical and internal search and contextual ad sales for MySpace...

...and other Fox Interactive Media properties and pay them $900M (guaranteed as long as Fox met its traffic requirements) in shared advertising revenue over the lifetime of the deal. But it looks like this year, the last of the deal, Google has fallen short.

But, says MySpace execs and owner Rupert Murdoch, thats because Fox has failed to meet its traffic requirements. Meaning traffic is down on MySpace, just a few short years after they fell into the Trough of Disillusionment in the hype cycle (translation: the MSM turned on them).

And just how much are they falling off? Rupert Murdochs initial assessment on the recent earnings call was that they wouldnt see any income from Google this year -a $300M shortfall. But the other execs on the line disagreed, saying that theyd probably fall short by $90-$100M.

And because MySpace/FIM (now Digital Media Group, but whatever) didnt meet their very high guarantees, as Murdoch put it, its their own fault. Interestingly, at first the deal calmed some analyst and investor nerves, and allowed News Corp. to claim MySpace was paid for and then some, says paidContent. News Corp bought MySpcae for $580M in July 2005, and they have seen at least that much in revenue from the Google deal.

What do you think? Was this deal not the good idea it seemed three years ago? Or was this an unforeseeable circumstance?

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RealNetworks Reports Profit But Subscribers Down

RealNetworks has reported a $1.5 million Third Quarter profit or less than 1 cent per share. It marks the first time that Real has turned a profit in more than a year.

Music revenue declined 7% to $38.8 million, technology products fell 8% to $47.4 million and games dropped 14% to $29.5 million.

Subscribers to Real's Rhapsody music service were down 50,000 to 700,000 in the quarter. The company said that a recently released iPhone app will be primarily used by existing Rhapsody subscribers, rather than attracting new ones. The company, which faces increasing competition from free ad supported music services, has warned of weaker fourth quarter results. One bright spot is the company's inclusion in Google's new enhanced music search.

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Google Paid $1 Billion Too Much for YouTube?

What Will It Pay for Twitter? The big news this morning is a CNET report quoting Google CEO Eric Schmidts admission that he paid...

...around $1 billion too much for YouTube.

Heres an extract from Schmidts deposition in the ongoing Viacom suit:

Schmidt: I believe YouTube was worth somewhere around $600 million to $700 million.

(Viacom Attorney) Baskin: And you communicated that to the board?

Schmidt: I did.

Baskin: What methodology did you use to come up with that number?

Schmidt: My judgment.

Baskin: Was it based on cash flow analysis? Comparable companies? What were you using as the basis for your judgment?

Schmidt: Its just my judgment. Ive been doing this a long time.

Baskin: So you orally communicated to your board during the course of the board meeting that you thought a more correct valuation for YouTube was $600 million to $700 million; is that what you said, sir?

Schmidt: Again, to help you along, I believe that they were worth $600 million to $700 million.

Baskin: And am I correct that you were asking your board to approve an acquisition price of $1.65 billion; correct?

Schmidt: I did.

Baskin: Im not very good at math, but I think that would be $1 billion or so more than you thought the company was, in fact, worth.

Schmidt: That is correct.

Is anyone really shocked by this? Did the jaw of any Pilgrim not drop when the purchase price was originally revealed? I mean, Google paid $1.65 billion for a company that had no discernable revenue. It paid that price based Schmidts "judgment."

It paid based on hype.

Which leads us to Twitter. And you thought youd get to read at least one post without mention of Twitter. ;-)

You see, Twitter is the modern-day YouTube. It has all the hype and none of the revenues. If you removed hype from the math, Twitter is worth a couple hundred million. Throw hype and momentum back into the mix and Twitter is easily worth more than what Google paid for YouTube.

All Twitter needs to do is create a rumor that one of the big tech companies"Microsoft for example"is sniffing around. Thats what caused Schmidt to abandon logic:

"And they had indicated to us that they would be sold, and we believed that there would be a competing offer"because of who Google was"paying much more than they were worth."

Sometimes you buy a company based on what it would be worth if your biggest rival got its hands on it. To Google, that was worth the extra $1 billion. Now we just need to see how badly someone wants to get their hands on Twitter!

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WMG Pacts With Outrigger To Monetize Videos

Warner Music Group is partnering with Outrigger Media to sell online advertising and sponsorships. Outrigger will represent the label group...

...to potential sponsors and advertisers for WMG operated sites, third-party video sites and other digital media platforms. Current Outrigger clients include Veoh, Next New Networks, Transpera and Vuguru.

This deal, which follows on the heels of WMG's return to YouTube, is part of a broader strategy to increase revenue and extend the artist brand through video content. As part of the same effort, WMG recently announced plans for a premium online video ad platform that will feature artist-branded channels. Artists will share in the revenue through targeted advertising embedded in the video, approved sponsorships and direct-to-fan sales.

From the press release:

We are thrilled to work with one of the worlds leading music companies and to have a role in what is clearly one of the music industrys most innovative business models, said Mike Henry, Outrigger Medias Chief Executive Officer. WMG understands that their most powerful brands are their artists and the significant investments it makes to develop and strengthen those brands creates enormous opportunities for advertisers. The most effective advertising programs will be built around those artists and their intense relationships with the audiences they attract. The extent of those relationships is demonstrated online through the enormous popularity of music videos, original online content, photos, social networks and blogs. By putting the artist at the center of the conversation were able to build comprehensive digital partnerships that are both effective and scalable.

Were pleased to have found such experienced and forward-thinking partners in Outrigger Media to represent our renowned artists and content to the advertising community. This new partnership enables us to leverage Outriggers ad targeting platform to effectively exploit key audiences, said Michael Nash, Executive Vice President, Digital Strategy and Business Development. With a majority of our active artists now signed to expanded rights deals, we are constantly seeking ways to build new revenue streams to monetize those partnerships. We look forward to working with Outrigger to help us maximize the value of our artists online presence.

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Bloggers Face $11k FTC Fines...

...For Not Disclosing Paid Endorsements. This blog post was not sponsored by anyone. If it were, I would have to disclose such a relationship...

...or face up to $11,000 in fines from the Federal Trade Commission, according to newly published guidelines.

An update to FTCs Guides Concerning the Use of Endorsements and Testimonials in Advertising includes the following language (emphasis added):

"The revised Guides also add new examples to illustrate the long standing principle that material connections (sometimes payments or free products) between advertisers and endorsers " connections that consumers would not expect " must be disclosed. These examples address what constitutes an endorsement when the message is conveyed by bloggers or other word-of-mouth marketers. The revised Guides specify that while decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement. Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service. Likewise, if a company refers in an advertisement to the findings of a research organization that conducted research sponsored by the company, the advertisement must disclose the connection between the advertiser and the research organization. And a paid endorsement " like any other advertisement " is deceptive if it makes false or misleading claims."

The above language is a done deal"its already passed an FTC commission vote 4-0.
What does this mean for bloggers?

Well, aside from the obvious pay for post deals"which now need full disclosure"in-kind endorsements are also a no-no without disclosure. So the next time a celebrity or A-list blogger raves about the latest camera or computer, theyd better disclose any relationship they have"or dig deep into their pockets.

Interestingly, the language appears to close the loophole I see used the most. Brand X didnt actually pay for the post, so we didnt need to disclose anything. Well, actually, it appears you will have to from now on. If you post a glowing endorsement about the new Nikon camera, but fail to mention that you also consult with the company on its social media initiatives, that would count as a material connection and could result in a fine.

The only gray area appears to be where do you post the disclosure"does it have to be within the post, or is a disclosures page sufficient"and, do you have to disclose what you received in compensation?

So what about that endorsement on Twitter? Do you need to worry about that? It appears so:

"The revised Guides also make it clear that celebrities have a duty to disclose their relationships with advertisers when making endorsements outside the context of traditional ads, such as on talk shows or in social media."

Of course, the above guidelines are not binding"the FTC would need to prove that your actions violated the FTC Act"but Im not willing to be the blogger that gets to put them to the test.

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Loudcrowd Gets $3M. Will Visitors Follow?

Conduit Labs has gotten $3 million in second round financing to expand its Loudcrowd social music community. I admit that I had not even...

...heard of the site before the new multi-million dollar commitment.

In fact, most people probably haven't either. Loudcrowd's monthly unique visitors sit at under 7000.

The site is aimed at the dance music community including fans and DJ's. It's a hybrid virtual world and social game set in a nightclub. Time will tell if that's enough differentiation in the over-crowded social networking mix. Do users want to connect with all their casual friends on Facebook or prefer to spend their time in a niche network of like minded people? Perhaps they'll find the time for both.

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Adobe buys Omniture : What are they thinking?

To think that they could have announced this Friday at X Changebig missed opportunityand I would love to have heard the ensuing discussion!

This was a shocker and it certainly electrified our afternoon. I got the word about 10 minutes after the news hit the wire with a call from an analyst. I will admit to being deeply surprised with the fact of an acquisition and, even more so, with the acquirer.

I talk to investor analysts following our community regularly and so, of course, I often hear speculation about Omniture as a potential acquisition target. Certainly Omniture is, in many respects, a very plausible acquisition candidate. But while I had heard companies like Oracle, Microsoft, Google and IBM all mentioned, no one had ever surfaced Adobe. And if they had, I probably would have expressed deep doubt.

But I dont mean that one should take my What are they thinking? headline in the caustic, disbelieving sense that I might apply it to a congressional debate or an Oakland Raiders draft choice. I really mean to suggest the sense of a genuine question " what are they thinking?

Of all the acquisition candidates touted for Omniture, I favored IBM, though I doubted them all. Omniture has always felt like a company where there is still plenty of room to grow, the management team seemed intensely engaged in that process, and they seemed unlikely to give up control of that process for anything less than an exorbitant premium.

Nevertheless, I favored IBM if there was a candidate because I saw Omniture as a classic enterprise software play. Omniture has a solution with a heavy services component, deep penetration at the high-end enterprise level, and they are a company that might benefit from the infrastructure, internationalization and services side of IBMs business.

At first glance Adobe seems like a stretch.

Yes, there are some obvious synergies. As a multifaceted international software company, Adobe brings a certain amount of infrastructure and international markets to the table. But a deal like this isnt about cost-cutting or internationalization and, in any case, Omnitures big costs are focused around capital expenditures to support the SaaS model " not something that Adobe is hugely involved in.

One tends to think of Adobe as primarily a design-oriented software company and that looks like a problem because measurement and design arent simply different they are generally armed opposing camps. So you wouldnt expect Adobes brand champions to be very measurement focused and, in my opinion, they arent.

On the other hand, there has been a big fight brewing for years now about who will control the web application environment. Its a war being fought at both ends and by many of the same players. At the browser level, its a war to see who will own the window into the internet that consumers use and the advantages that come along with that. But on the producer side, its increasingly become a war to see who will own the applications that drive the web.

Its taking a long time, but HTML is dying. I heard that someone at X Change predicted that in five years, javascript tagging will dead. Im not sure about the context, but if the increasingly applications-driven web we see our clients deploying is representative, it makes perfect sense. When youre building apps not web sites, the measurement will be embedded directly into the application. Many of the same observations hold true in the online ad market as well. Ad units are becoming more like miniature applications than roadside signs.

Adobe has long owned the design space, but they are just starting to seriously penetrate the development space and with these two disciplines merging, it seems like it's an open playing field.

Adobe is a major player in this development/design space. But its hardly uncontested. Owning the application space for the web is a very big business and, like most design and software development systems, there are strong tendencies toward monopoly.

Developers and designers tend to gravitate toward the winning solution (for simple career reasons) and then deployment must inevitably follow the expertise.

Its in this space that having an integrated measurement solution would be a substantial win vis--vis the competition. Tagging Flex applications for example " tagging any application really " is a mess right now. And with Omniture essentially owning the enterprise analytics desktop, it would be difficult for competitors like Microsoft to counter an integrated measurement system by just rolling their own measurement solution.

Plus I suspect that elements of the culture " at last on the product side " are fairly congenial. Adobe, like Omniture, is deeply focused in the online world and its development.

I suppose that its the synergy in this area that probably drove the acquisition. Like most synergies, it seems attractive but its hardly risk free. After all, Omnitures real community is marketing folks. They arent entrenched with the folks who actually run, design or build the web in the way that Adobe is. So the two companies target a somewhat different corporate audience. I think thats a significant challenge.

Nor is it obvious to me that superior baked-in measurement will be easy to attain. There really arent good paradigms for application measurement in the marketplace right now. And if it is easy to attain, will it be sustainable as an advantage? And what about the vast non-enterprise Adobe audience that would probably much prefer measurement integrated with Google Analytics?

Im always skeptical of acquisitions " especially ones without an obvious cost-cutting component. Its incredibly challenging to merge two big companies, two different cultures, and two different types of products into a coherent whole. So theyll probably need to be both good AND lucky to make this deal work.

Adobe has more expertise than most in this game, and its gratifying to see measurement make such a big splash. Our little industry is growing up fast. Thats mostly to the good; but though I wont miss those green drinks at the Omniture Summit (I guess they can make them red now), it just wont be quite the same will it?

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Georgia Tech Edison Fund Invests In Band Metrics

Music analytics firm Band Metrics has received an investment from the Georgia Tech Edison Fund, an early-stage technology fund managed by the...

...Advanced Technology Development Center. The amount of the investment was not disclosed.

Band Metrics is a web based system that provides in-depth geographical reporting of where and how music is played, shared and discussed online. Artists, managers, labels and others can identify fans, measure social engagement, find hot markets, track radio play, discover trends and gauge attitudes. The site is presently in private beta, but you can register for an account.

Were thrilled about the investment and grateful to the ATDC, as the investment will assist us in completing our initial product offering for our public beta release later this year, and continued development in 2010. stated Duncan Freeman, Founder and President of Band Metrics.

Additionally, we could not have asked for a better investment partner, as the ATDC, one of the nations leading university-based technology accelerators is committed to Atlantas thriving technology community, and helping startups become successful companies.

About the Georgia Tech Edison Fund:

Launched by a multi-year grant from the Charles A. Edison Fund (named for Thomas Edisons son, a successful businessman, former United States Secretary of the Navy and 42nd Governor of New Jersey), the Georgia Tech Edison Fund provides seed funding for early-stage technology companies that have a close association with Georgia Tech. Specifically, companies need to be either founded by Georgia Tech faculty, students and graduates; licensing technology from Georgia Tech; sponsoring research at Georgia Tech; or hiring large numbers of Georgia Tech alumni. The Edison Fund is managed by the Advanced Technology Development Center.

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Nimbit Facebook Commerce Platform

Music commerce services provider Nimbit has launched Nimbit MyStore for Facebook, which they say is the first direct to fan social commerce solution.

Previously, fans on Facebook who wanted to purchase music or merchandise from an artist would be re-directed to a third party site like iTunes, and artists had no way to to track the purchase. Plus as Nimbit co-founder Phil Antoniades states, "People dont spend three hours a day watching their iTunes application window...the power of friends watching other friends shop and purchase provides a new level of viral recommendation to a connected, like-minded network.

With Nimbit MyStore for Facebook, fans don't leave the artists Facebook page enabling higher artist profit margins, capture of fan information and more control over the artist's brand. Every interaction with MyStore (comment, recommend, play, share, buy) is shared with that fans social network. Artists can also sell pre-releases to their Facebook fans and enlist them in generating buzz. All sales are tracked in real-time and get reported to SoundScan.

Nimbit MyStore features include:

Facebook is a known user experience
Sales directly on Facebook through a single shopping cart accepting all credit cards and PayPal
Sale of digital tracks and albums, CDs, DVDs, T-shirts, posters, other merchandise, eTickets, and download cards
Post and promote new releases, shows and tours
Create and sell targeted promotions and custom packages based on fan buying behaviors.
Installs quickly (video tutorial below)
Physical warehousing and fulfillment
Changes in content or catalog is automatically updated on Facebook
Sales analytics

300 Facebook Stores At Launch

At launch, more than 300 artists are live with Nimbit MyStore on Facebook including developing artists like Chase Coy and Bang Camaro and established acts like The Alan Parsons Project and Tom Rush. Nimbit has really done a fantastic job with Nimbit MyStore for Facebook, said Dan Beach of Studio 8H. We've set it up for my client, Tom Rush, and expect to add it to other client Facebook pages as well. This is by far the best application of its type I've seen.

Nimbit MyStore for Facebook merges the best of social networking has to offer with Nimbits Direct-to-Fan music business platform used today by thousands of artists, said Patrick Faucher, Nimbits Chief Artist Advocate and CEO. Weve integrated deeply into the social fabric of Facebook so artists can market and sell to their fans in a completely natural and seamless way.

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