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Over the past few years, downloadable forms of content have been eroding the traditional domain of retailers (CD and DVD sales). Today, in an effort to embrace those changes, big-box retailer Circuit City announced it was joining with Los Angeles based Napster on a new co-branded music download service.

The new service which is called Circuit City+Napster will compete with iTunes, Rhapsody, and other download services. The offering will launch April 29th and use Napster’s established subscription based model. For $14.95 a month subscribers will gain unlimited access to songs provided through the service. The music will be playable on PC’s, compatible cell phones (via Napster 2 Go) and compatible MP3 players. (Because Napster uses Windows WMA Digital Rights Management protections its music is not compatible with iPods which run on Apple’s Fairplay DRM system). In addition to the subscription service, individual songs will be sold for 99cents.

Partnerships have been an important part of Napster’s subscription growth. Click to Read More

On April 13th Google announced a definitive agreement to buy Double Click from private equity firm Hellman & Friedman for $3.1b in cash, a price equal to approximately 20x EBITDA.  Rumors of the sale had been floating for a few weeks (Business Week ran a story on April 3rd) but the deal and the price have raised more than a few eyebrows.

Here’s a brief look at the deal and some thoughts:

DoubleClick is known largely for its Display Ad network which large advertisers rely on for brand building and general online presence.  The network which was founded in in 1995 provides ad-management for pay-for-impression (Cost Per Impression: CPM Based) internet advertisers.  Double Click has more than 1,500 clients, most of which participate in its impression-based business and many of which are major online publishers including AOL and News Corp (MySpace).

Google’s ad business, while varied, is best known for its success with search advertising and pay for performance (P4P) model that generates revenue based on viewers click-thru behavior (sometimes called Cost Per Action or CPA).  Through this system Google has a huge pool of partner sites sharing revenue and displaying the ads.

In Display Advertising, Google has generally lagged and not had tremendous comparative success.  In acquiring Double Click, Google is buying a complimentary service that enhances an area where it is weak.  It is also buying a significant client list, and some valuable, but lesser known technology.  The marriage of services and client lists should give Google a nice opportunity to bundle and sell a larger range of services to its clients.  Buying DoubleClick will help Google compete Strength to Strength with Yahoo in the Display Ad Market.

While there is a clear value proposition for the transaction, one motivation for  the deal, and the price, is likely defensive.  There’s two parts to the defensive front:

First, thought not widely known outside the industry, DoubleClick’s portfolio includes a strong affiliate P4P /Affiliate advertising platform that it acquired through a company called Performics (which retains its name inside Doubleclick.) The search and affiliate marketing tools Performics offers are considered by many in the industry to be among the best products available from a technology standpoint..  In acquiring DoubleClick, Google will successfully keep this little jewel away from competitors who would have been able to use it to potentially eat in to Google’s stronger markets.

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In yesterdays post, I mentioned NPD’s newly released sales statistics for the gaming industry. The Nintendo’s Wii again led the race on next-generation consoles. Nintendo also led in the portables category. For those looking for just the numbers, here is the tops of the NPD report:

North American Hardware Sales:

1. Nintendo DS: 508K
2. Sony PlayStation 2: 280K
3. Nintendo Wii: 259K (2.1 million total)
4. Microsoft Xbox 360: 199K (5.3 million total)
5. Sony PSP: 180k
6. Nintendo Game Boy Advance: 148K
7. Sony PlayStation 3: 130K (1.2 million total)
8. Nintendo Gamecube: 22K

North American Software Sales:

1. God of War II (PS2): 833K
2. Tom Clancy’s Ghost Recon: Advanced Warfighter 2 (Xbox 360): 394K
3. Guitar Hero II w/guitar (Xbox 360):291K
4. Wii Play w/remote (Wii): 273K
5. Motorstorm (PS3): 199K
6. Diddy Kong Racing (DS): 189K
7. Spectrobes (DS): 165K
8. Major League Baseball 2K7 (Xbox 360): 165K
9. MLB ‘07: The Show (PS2): 164K
10. Def Jam Icon (Xbox 360): 148K

A couple weeks ago, I went looking to purchase a Nintendo Wii for my two nieces.  I was sold on the concept of the Wii’s interface.  Its relative ease of use (as compared to the increasingly complex controllers on many consoles) meant even my three year old niece could play. There were also games that could span generations; games that could be played by video game phobic grandparents, parents and children.  It was something, it seemed, all could enjoy.

On principle I refuse to pay the premiums sellers ask for a Wii on eBay.  Instead, I went store to store.  Over the course of ten days, I made fifty phone calls to different stores.  A few times I was laughed at when I asked if a store had, or was getting more, Wii’s in stock. Once I was hung up on.  Mostly, I was politely brushed off for my seeming ignorance. 

According to staff I questioned on the floor at both Toys R Us and Best Buy, stores have little control of their inventory.  The highly demanded Wii’s are dropped shipped to them directly, and the allocation of units per store is not specified – though typically it’s less than 12 units per store per shipment.   Those shipments are rarely publicized.  There’s no need for promotion.   If there is any promotion or advertising, it is usually limited – an ad in a Sunday paper for Wii’s that were on sale that day were likely gone by the time the ad was read with your morning coffee.

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Ebay (NASDAY: EBAY), reported a rise in profits in Q1 earnings.

Net income ws up $377.2m (.27c/share) over $248.3m (17c) for the same period last year on income of $1.77m (above analysts’ expectations of $1.72m).

The Paypal payments division showed growth with revenue up 31% to revenues of $439m.  The communications division, home of Skype, showed revenue of  $ 79m  (up from $66m in Q4).  Skype saw an 11% increase in calls and a 135% increase of fees, numbers I suspect, much lower, than eBay has been hoping for.

While profit margins were up, along with revenue and that was spun as a very positive piece of news, auction volume in the increasingly efficient auction marketplace was flat.  Non-store listings were up 4% over last year, but down 4% from Q4.  It was the third time in the last four quarters eBay failed to see quarter-to-quarter growth in auction listings.  Its European focus was also less than expected.

Initial market reaction to the news was mixed.

More detailed press coverage on Ebay’s finances can be found at:

Yahoo Finance
Google Finance
Marketwatch

Netflix  (NASDAQ: NFLX), battling with an aggressive marketing campaign from competitor Blockbuster, reported Q1 earnings slightly below expectations and reduced its outlook for the year.

Revenue was up 36% to $305.3m but earnings fell in 2cents below estimates.  The company earned 14cents a share ($9.9m) for the quarter, up substantially from 7 cents a share ($4.4m) for the same period last year.

There were 6.8m total subscribers but churn (customer cancellations) increased to 4.4% from 3.9%in the 4th Quarter

Guidance was adjusted downward to fiscal year revenue of $1.21b to $1.26b, off initial estimates of $1.25-$1.30b and analysts consensus (Thompson) of 41.29b

More detailed press coverage on Netflix’ finances can be found at:

Yahoo Finance
Google Finance
Marketwatch

Earlier in the week Accenture released the results of its annual survey of executives in the media and entertainment industries. The survey questioned 110 Senior Executives at advertising, film, music, publishing, radio, Internet, gaming and Television companies. 60 percent of the executives were from North America and 40 percent from Europe.

Among the findings published:

• 32% thought content would drive their revenues, up from 21% in the prior year.
• 53% cited short-form video as having the highest growth potential for their industry over the next 5 years. (13% picked video games, 11% feature-length/long-form film, 11% music, 9% consumer publishing and 4% chose business publishing.)
• 68% of respondents thought they would make money from user-generated content within the next 3 years.

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