Newspaper-Circulation Drop Sharpens

Most of the nation's biggest newspapers saw circulation tumble at an increased rate, a sign that the migration of readers online may be picking up speed.

The Audit Bureau of Circulations reported Monday that average weekday circulation at 534 daily newspapers fell 3.6% for the six months ended March 31, compared with the year-earlier period. The rate of decline is accelerating: ABC had reported an average weekday circulation drop of 2.1% in the year-earlier period and 2.6% in the six months to November.

Sunday circulation fell even more, losing 4.6% on average.

Newspaper circulation has been falling for more than 20 years amid increasing competition for advertising dollars and readers' attention. The latest results were grim but unsurprising, said John Morton, an independent newspaper analyst. "Big-city papers are suffering right now, and this is just reflective of that."

Newspaper publishers have also seen worsening drop-offs in print-ad revenue over the past few months, at least partly because of the economic slowdown.

Nearly all of the 10 biggest newspapers in the U.S. posted circulation declines. Circulation at the Los Angeles Times -- which has struggled with turnover among its newsroom management as real-estate magnate Sam Zell took effective control of its parent, Tribune Co., in December -- fell 5.1% to 773,884. The New York Times' average weekday circulation fell 3.9% to 1.08 million. It saw an even steeper drop in Sunday circulation, which was down 9.3% to 1.48 million.

"This was a decline that we planned and budgeted for," said New York Times spokeswoman Diane McNulty. The company has eliminated "bonus days," in which the Sunday paper was delivered to weekday subscribers, and has cut back on discounted and advertiser-paid distribution as it attempts to grow more-profitable circulation, she said. In that shift, she added, "We do expect to see some copy decline."

A Los Angeles Times spokeswoman said it too has cut bonus-day issues, which lowered circulation. She also noted a price increase for home-delivery subscribers and competing pressure from other media outlets.

Of the top 10, only two newspapers saw circulation growth. Gannett Co.'s USA Today, the largest paper in the U.S., posted a 0.3% increase in weekday circulation to 2.28 million. At The Wall Street Journal, which is owned by News Corp., the number of subscribers inched up 0.4% to 2.07 million, a figure that includes print subscriptions as well as about 352,000 online-only ones that qualify under the Audit Bureau's rules. The year-earlier figure included 340,618 online-only subscriptions. Other papers also offer electronic editions that qualify as part of their circulation, but the Journal has a far larger number of such subscriptions.

Some particularly big declines occurred among big newspapers below the top 10 ranking, including the Boston Globe (down 8.3%), which is owned by New York Times Co.; Cox Enterprises Inc.'s Atlanta Journal-Constitution (down 8.5%) and Advance Publications Inc.'s Star-Ledger of Newark, N.J., which lost 7.4%. A.H. Belo Corp.'s Dallas Morning News experienced the biggest percentage drop among the top 25 newspapers, losing 43,607 weekday subscribers, about 11% of its weekday circulation, compared with the year-ago report.

The Morning News said last year that its efforts to reduce bulk circulation -- free copies sent to hotels and airports -- as well as a smaller delivery zone, would cause it to lose circulation at a faster rate for a year.

The Daily News and the New York Post maintained their fierce battle for readers, although both lost subscribers. The Daily News, owned by real-estate developer Mortimer Zuckerman, ended the period with 649 more average weekday subscribers than its local rival the New York Post, which, like The Wall Street Journal, is owned by News Corp.

Both papers lost circulation, with the Daily News down 2.1% to 703,137 and the Post down 3.1% to 702,488.

The ABC announced in March changes that may allow papers to count more copies in their paid circulation, while separating some bulk circulation, including copies distributed at hotels, into a separate category. Those new rules won't go into effect for at least another year.


By: Andrew Lavallee
Wall Street Journal; April 29, 2008

Iconic Name Would Endure in Chicago

Chicagoans are abuzz about the possibility that the Wrigley name could be erased from one of their oldest institutions. But they are more likely to be thinking about Wrigley Field, home of the Chicago Cubs baseball team, than the Wm. Wrigley Jr. Co.

Cubs fans have griped that Sam Zell, who led the recent buyout of Wrigley Field owner Tribune Co., might rename the ballpark if a corporate sponsor pays for the rights. But the proposed merger between the 117-year-old gum giant and Mars Inc. isn't likely to have a significant effect on the nation's third-largest metropolitan economy, experts say.

At a news conference in Chicago on Monday, Wrigley Chairman William Wrigley Jr. declined to comment on what the Mars deal could mean for the ballpark, but said, "the Wrigley family loves the fact that the name's on the field."

If the Mars deal is completed, the Wrigley company will become a stand-alone entity within Mars, retaining its name and its signature downtown headquarters overlooking the Chicago River.

Mr. Wrigley said the company will continue its civic and philanthropic involvement in the city, and Wrigley's 16,000 employees shouldn't expect big changes. "We might actually be adding some people to the Chicago base," he said.

Wrigley shuttered a chewing-gum manufacturing plant in the city in late 2006. That came shortly after the company opened a research and development center, subsidized by millions of dollars in city and state money, on Chicago's north side. The shift reflects the broader Chicago economy's own evolution from one based largely on manufacturing to one that relies on a large swath of legal, marketing, financial and other service jobs.

In the last two decades, the city has lost many high-profile corporate headquarters to acquisitions and mergers, including Quaker Oats, Bank One and Amoco Corp., but other companies have chosen to move their base to Chicago, including Boeing Co., which arrived in the early 2000s.

"Overall the city is doing very well," said Edward Snyder, dean of the University of Chicago Graduate School of Business.

William Fruth, founder and owner of Policom Corp., an independent research firm based in Palm City, Fla., ranks Chicago ninth out of 363 metropolitan areas in the U.S. for overall economic strength.

"Anytime there is a loss of a headquarters or a manufacturing company it will negatively impact a local economy but the Chicago economy is so large the impact will likely be absorbed," Mr. Fruth said.

*Therefore, despite these manufacturing losses, Chicago still remains a highly desirable city, in which many live in downtown Chicago apartments.

The Wrigley company, founded in 1891, joined a booming confectionary industry around Chicago. By the 1920s Chicago was a national center for confectioners and was exporting its candy and gum around the world.

The Wrigley headquarters, a 30-story French-Renaissance-inspired stone structure that was once one of the city's tallest buildings, anchors the Magnificent Mile shopping strip. In 1920, the company founder bought the Chicago Cubs, and later their ballpark became Wrigley Field.

By: Ilan Brat & Douglas Belkin
Wall Street Journal; April 29, 2008

Cox Invests In Web Future With Adify Acquisition

Media conglomerate Cox Enterprises Inc., betting its future on Internet advertising as newspaper and television audiences shrink, plans to spend $300 million to buy a start-up that helps Web sites pool their ad space. The all-cash deal with Adify Corp. is set to be announced Tuesday. With Adify, Cox gets a technology platform that can help Web sites more successfully sell higher-priced ads targeted to specific audiences, such as travel enthusiasts.

By: Associated Press
Wall Street Journal; April 2008

Cruise Operators Target Asian Travelers, Pitching Short Trips From Local Ports

With two swimming pools, a rock-climbing wall, a plush theater, and cabins for 2,000 guests, the Rhapsody of the Seas is the biggest passenger cruise ship ever to have offered round-trip sailings from Hong Kong. The 11-story behemoth enticed newly prosperous Asians to try the unfamiliar pastime of Western-style luxury cruising while it was based here earlier this year, and its owner, Royal Caribbean Cruises Ltd., is hoping the ship's latest stint, in Shanghai, is a similar success.

Although Asia accounted for less than 5% of the global cruise market last year, the number of Asians taking cruises annually will swell to 1.5 million by 2010, up 40% from 2005, according to a forecast by Shanghai expects to open its striking new Ocean Shipping Consultants Ltd. That's faster growth than the 30% rise expected over the period in the more mature North American market, which had about 9.3 million cruise passengers in 2005.

Rising incomes, especially in China, are driving the Asian surge. Already, the number of mainland Chinese taking cruises from Hong Kong alone more than doubled to 459,000 last year from 201,000 in 2005, according to the Hong Kong Tourism Commission. "Everyone is eyeing this piece of the cake," says Michael Goh, vice president for sales and marketing at Malaysia-based Star Cruises Ltd., the world's third-biggest cruise company in terms of passengers, revenues and fleet size. And as cruise lines are finding their way in this market, Asian ports from Shanghai to Singapore are building fancy new passenger terminals to serve them.

Cruise operators say their biggest challenge in mainland China is getting out the message to prospective customers that a cruise ship isn't just a means of transportation, like a ferry. They have another issue in the special Chinese territory of Hong Kong, where passengers mostly sailed into international waters just to gamble.

Star Cruises still offers a one-day round trip to nowhere in the South China Sea, but it plays down its casinos now. Instead the company promotes "family karaoke" and waterslides, as Asians take their children on cruises more often than their counterparts in Europe or North America. At the same time, Star Cruises tries to tempt adults with events such as Mexican-style fiestas featuring "invigorating tequila," as described on its Web site.

Star is the dominant player in Asia now, with a total of seven ships in Singapore, Hong Kong and Taiwan. Passengers on its cruises to destinations such as Thailand and Cambodia are overwhelmingly Asian, though the company won't disclose specific numbers. This month, Hong Kong became the new home for its largest ship, the SuperStar Virgo, with a capacity of 1,870. Star says it moved its flagship here from Singapore to better exploit demand in mainland China, Taiwan and Hong Kong.

Royal Caribbean, the world's No.2 cruise line in terms of fleet size, passengers and revenue, has tailored the Rhapsody of the Seas for Asia's nascent market by offering acrobatic and magic shows-"language-neutral" entertainment for passengers who don't necessarily share languages or understand English. Crucially, it and other cruise companies are offering Asians shorter itineraries, as people here get less vacation time than Europeans or Americans. In another part ofthe world, the Rhapsody might take passengers on intercontinental journeys lasting weeks. In Asia, typical cruises last just five to seven days.

"If you try to offer something over seven days, you are dead. There is no market," says Massimo Brancaleoni, vice president for operations in Asia at Costa Crociere SpA, a Genoa, Italy, company that is part of the No. 1 cruise operator Canival Corp. Cost Crociere, which has 12 ships around the world, since 2006 has based the 1,000-passenger Costa Allegra in Hong Kong and Shanghai. In March, it plans to put another ship in Asia that can carry up to 1,700 passengers.

Teddy Tsang, a 48-year-old publishing plant manager in Hong Kong, took a four-day cruise on the Rhapsody in February with his wife and daughter after seeing "a lot of newspaper ads" in local Chinese-language papers touting the company's cruises and hearing recommendations from friends. His only previous cruise on a gambling ship had left him unimpressed. "I went a few times to the casino, but I didn't want to spend the whole day gambling," he says. But after the latest cruise, which cost around $385 per person, he enthused about a dinner of herb crusted cod with saffron-champagne sauce and the staff's swift delivery of extra towels to his cabin.

Before bringing the Rhapsody to Asia, Royal Carribbean in July transferred the headquarters of its Asian business to Singapore from Miami. Previously, the company had offered only intermittent cruises in Asia- stopping them altogether in 2002 - and targeted non-Asians with journeys lasting around two weeks. When the Rhapsody was based in Hong Kong in February and March, at least 65% of its passengers were Asian. The ship sailed to destinations including Vietnam, China, Taiwan and Japan, and it filled four out of every five cabins on average, the company says.

"Very few Asians have experience in cruising, but our experience here so far demonstrates that that's only because there has been little opportunity in the past," says Richard Fain, Royal . Caribbean's chairman and chief executive officer. The Asian business generated an insignificant share of the company's total sales of $6.15 billion last year, but the market is "enormous," he says. "I'm convinced the demand is there."

But Rhapsody's very size presents a problem. The ship is too tall to squeeze beneath all of Shanghai's bridges and dock in the city's downtown area; it's also too large to berth at the cruise terminal in Singapore. Therefore, Royal Caribbean plans this year to transfer Rhapsody to Australia and New Zealand, both booming cruise markets, and replace it in December with a slightly smaller sister ship, Legend of the Seas .

Legend has room for 1,800 passengers, 200 fewer than Rhapsody, but the ships have similar amenities. Indeed, the smaller ship has one feature that its sister lacks: an 18- hole miniature golf course. Legend will offer cruises lasting between four and seven days and will operate from Singapore and Shanghai.

Royal Caribbean's new Azamara Cruises unit plans to begin operating its first ship from Asian ports in January. Azamara targets a wealthier clientele than Royal Caribbean International, the brand for Legend and Rhapsody

Cruise lines are still learning how best to satisfy their Asian customers. Kelvin Tan, Royal Caribbean's director of business development in the Asia-Pacific region, says his company's cruises aim to be "very family friendly," with activities such as a "pirates night" dress-up event for kids. For adults, offerings include cooking classes, spa services, ping-pong competitions and singles mixers.

Nevertheless, Mr. Tsang, who sailed to Taiwan on his Rhapsody cruise, complains that he and his family sometimes found themselves "hanging around" with not enough to do. "For the Asian people, we need more aggressive staff that will set up a program for passengers," he says.

By August, Shanghai expects to open a new cruise-ship terminal near the city's historic downtown district designed to handle up to one million passengers a year. It will be one of Asia's most unusual terminals, a three-story, glassed-in bubble that looks "like a UFO," says Helen Huang, deputy general manager of corporate affairs at Shanghai International Port (Group) Co., the main developer of the $100 million project.

Singapore plans to build a bigger cruise terminal by 2010, and Hong Kong expects to open a new one by 2012.

Hong Kong's needs are particularly acute. When the 150,000-ton Queen Mary II docked here last spring, the city took a public-relations hit as bewildered passengers, rather than docking in Victoria Harbor, had to disembark at a gritty container port-the only facility that could accommodate the massive Cunard Lines ship.

By: Bruce Stanley
Wall Street Journal; April 28, 2008

Tudou Raises $57 Million in Web Boom

Tudou.com, one of China's leading online video Web sites, raised $57 million in fresh funds, suggesting that investors remain keen on the sector despite recently issued rules that have sparked concern about how it will be regulated in the future.

The new fundraising, which closely held Tudou announced Monday, reflects investors' continued strong interest in China amid a global economic slowdown. In the first quarter of the year, 116 Chinese firms received $940.7 million in venture-capit funds, more than double the $419 million that companies in China raised in the same three months of 2007, according to a report last week by Zer02IPO Group, Beijing-based research company.

Overall, foreign direct invesl ment in China in the first quartE surged 61% from a year earlier t $27.41 billion, according to government statistics.

Online video is a growing industry in China, which by some estimates has the world's largest population of Internet users, with more than 220 million. But the technology has also challenged the government's control over distribution of video images.

In December, Chinese regulators suprised industry executives by announcing new rules requiring all viedo-streaming Web sites to be owned or controlled by government entities. The state agencies that issued the rules later clarified that these wouldn't apply to existing, privately owned video sites whose content is in compliance with regulations.

Given uncertainty so far about how the new rules will be applied, it isn't guaranteed that China's three video-sharing leaders - Tudou, Youku.com and 56.com - in the futures can continue to operate as they currently do.

Liu Bin, an analyst for BDA China Ltd., a Beiking-based technology research first, said the new investment in tudou, which proceeded despite that uncertainty, indicated that investors are still eager to bet on the online-video sector.

Tudou, the oldest of China's three major online video companies, received a warning last month from the State Administration of Radio, Film, and Television for carrying content the agency said violated government censorship rules. Neither the state body nor Tudou has disclosed the specific reason for the warning. Pornography, violence and politically sensitive topics are among the content categories that China's government requires Web companies to censor.

Tudou didn't name its investors, but said they include family and venture funds from overseas, including Singapore and the U.S. Including Monday's amount, Tudou has completed four rounds of funding - raising a total of $85 million - since it was founded three years ago.

By: Loretta Chao
Wall Street Journal; April 2008

Verizon Rings Up 9.8% Increase in Profit

Wireless Unit Helps Compensate for Decline In Land -Line Business

Verizon Communications Inc.'s profit climbed 9.8% as the telecommunications carrier took the biggest share of the industry's best wireless customers.

As with rival AT&T Inc., Verizon's results suggest the industry is largely shrugging off the effects of a slowing economy.

"We're really not seeing a change in trends," Chief Financial Officer Doreen Toben said in an interview. "How many people are really going to drop their wireless phone?"

In March, Ms. Toben reassured Wall Street that the New York telecom giant was on track to duplicate its solid performance from last year but hinted that an economic slowdown was making a small dent in its wireless business. In the past several months, telecom operators have signaled to varying degrees that they were being affected by broader economic problems as consumers pulled back on spending. Cable operators and satellite operators have also partly blamed lackluster results on the souring economy.

In focus has been the rate of customers who have canceled their services because they could no longer afford to pay their bills. Ms. Toben said during a conference call Monday the rate in the landline side had improved, while the wireless side had stabilized.

Like AT&T, which has posted more rapid profit growth than Verizon in the past two quarters, wireless business drove Verizon's total results. Revenue rose 13% at Verizon Wireless, a joint venture with Vodafone Group PLC. The turnover rate rose to 1.18% from 1.08% a year earlier. Average monthly revenue per customer rose 1.3%.

New-subscriber growth slipped 12% to 1.5 million, putting total subscribers at 67.2 million. More important, 1.3 million of the new customers were ones who signed long-term contracts, or nearly twice as many as AT&T had in the first quarter.

The $99 unlimited-calling plans, which all the major carriers unveiled in February, were driving growth in high-end consumers and' helped results, said Dennis Strigl, chief operating officer of Verizon.

The wireless unit's performance is compensating for the deteriorating land-line business. The 13% increase in revenue at Verizon Wireless helped offset the 1.4% decline in wire-line revenue Verizon's total base of phone fell 8.2%.

"Wire line is losing the battle, but wireless is winning the war," said Moffett, an analyst at Sanford C. stein & Co. LLC.

Broadband connections stood at 8.5 million as of March 31, up 15%. Sales of wireless and Internet services have helped phone companies such as Verizon and AT&T ease the impact of declining sales of fixed lines.

Verizon added 263,000 FiOS TV customers, taking the total to 1.2 million on March 31. Verizon is using FiOS as its weapon to beat back cable television operators that offer all-in-one packages of video, phone and internet services.

Shares of Verizon were up 91 or 2.5%, to $37.95 in 4 p.m. New York Stock Exchange composite trading.

By: Roger Cheng
Wall Street Journal; April 29, 2008

Microsoft Tries Selling Office Software via Subscription-Based Model

Microsoft Corp. is experimenting with a subscription-based model to sell its popular Office software suite and other applications to U.S. consumers, as the company faces heightened competition in its core desktop-products market.

In a statement on its Web site Friday, Microsoft said that the program, code-named “Albany,” had been launched in a private beta testing, with plans to release the product before the end of 2008.

If launched, Albany will mark the first time Microsoft, the dominant maker of consumer office software, has experimented with a subscription-based Office product in the U.S. The company has already launched subscription-based versions of its Office products in some emerging markets.

The package will include the latest versions of word-processing application Word, spreadsheet tool Excel and presentation-software tool PowerPoint. It will also include security tools to blog viruses.

A Microsoft spokesman said pricing and distribution details for the commercial launch of the product hadn't been set and declined to comment on the planned launch date.

Bryson Gordon, group product manager for Microsoft Albany, said on the company's Web site that the test was designed to address consumer demand.

“Consumers...expressed frustration at having to spend time and effort installing different types of software, keeping current on new versions and getting their computers set up,” he said.

“We found from our research that when yo bring these categories together and keep them automatically updated, a subscription model makes a lot of sense.”

The test comes amid heightened competition from search gaint Google Inc., which has recently been making applications, including word-processing and spreadsheet tools, available free over the Internet.

Other Internet companies, including Yahoo Inc. and Salesforce.cm Inc., have recently been making similar business and office applications targeted at consumers and small businesses available free over the Internet.

By: Jessica Hodgson
Wall Street Journal; April 2008

Agencies Know the Score on Web Tracking

ComScore's Bust On Google Clicks Is Hardly a Surprise

A discrepancy between Google click data and comScore's estimates of those data before they were released caused the Web-measurement firm's share price to plunge last week. But on Madison Avenue, the difference wasn't much of a shock. Rather, it was another reminder that the science of tracking Internet usage is still far from perfect.

Digital-advertising executives say they have long taken comScore numbers with a grain of salt and don't plan on curtailing their use of the Reston, Va., research firm because of the Google flap. "We have not expected the numbers to be 100% accurate," says Sarah Fay, chief executive of both Carat and Isobar US, ad companies owned by Aegis Group. "I think that comScore has been as good as anything we've had previously."

Marketers rely heavily on comScore and the other major Web-measurement company, Nielsen Online, when trying to decide how to spend their online ad dollars. Advertisers study their data -- including a Web site's total visitors or page views and time spent on the site -- to try to determine which sites are popular among particular demographic groups or in certain topic areas, such as news or sports. They typically compare those data with a Web site's own figures.

Both Web-measurement companies have gaps in their research. Because they use panels of Web users to gather data and then extrapolate, the results are estimates. And both companies lack the capacity to measure total international audiences.

The companies are trying to address those shortcomings by looking for ways to increase the size and depth of their panels, investing in technology and expanding overseas. Nielsen Online, which is owned by the audience-measurement firm Nielsen, also is trying to combine its Web research with usage data from other media, such as mobile-phone and television measures.

To complicate matters, disparities between comScore and Nielsen data are common, as the two companies use different methodologies to measure their audience panels. For instance, according to comScore Media Metrix, Yahoo's finance site received 15.8 million unique U.S. visitors in March. According to Nielsen Online, the site received 20.2 million unique U.S. visitors during that period.

"There is no truth on the Internet, but you have two companies vying to say they are the truth of the Internet, and they disagree," says Brad Bortner, an analyst with Cambridge, Mass.-based Forrester Research.

In its earnings report Thursday, Google said consumer clicks on its advertisements in the first quarter increased 20% from a year earlier. Earlier in the week, comScore had estimated 1.8% growth in U.S. clicks from a year earlier. ComScore's stock dropped more than 8% in after-hours trading Thursday. Friday, comScore shares closed down 1.7%, or 40 cents, to $23.18.

ComScore points out that Google's and comScore's numbers aren't an apples-to-apples comparison and says that explains the discrepancy. ComScore tallied only U.S. clicks and excluded Google's nonsearch ads. Google's own numbers were overall, world-wide figures.

"We anticipated that Google's revenues would do better than what our paid-click data were interpreted to imply," says comScore CEO Magid Abraham. "We are always concerned about maintaining our reputation and want to be as accurate as possible."

The syndicated data from comScore and Nielsen are used by media buyers as a research tool -- but not to determine how much advertisers pay. The pricing is calculated by outside ad-serving firms, such as Google's DoubleClick, that track the performance of ad campaigns for such measures as how many times an ad is clicked or viewed.

"We are not going to look at comScore to determine the effectiveness of Google. We are going to look at our own campaign-performance measures," says Sean Muzzy, senior partner and media director at Neo@Ogilvy, a digital ad agency owned by WPP Group's Ogilvy & Mather.

Even though they are fully aware of the holes in comScore's and Nielsen's data, media buyers sometimes put more weight in them than they probably should. "When time is really pressed, or when the complications are overwhelming, the temptation has got to be that media buyers take them more seriously than any of us should," says Sarah Chubb, president of CondéNet, the digital division of magazine publisher Condé Nast.

The reliability of third-party Web-measurement data has been a hot topic in the online media world for some time. About a year ago, the Interactive Advertising Bureau, a trade group that includes more than 375 Web publishers, asked comScore and Nielsen to submit to an outside audit to find out why the two companies report such different measurements for the same Web sites. The measurement firms are in the midst of completing those audits, which are expected to continue through the year and detail the differences between their panels and methodologies.

By: Emily Steel
Wall Street Journal; April 21, 2008

Google tweaked search 450 times in 2007

Google is typically tight-lipped about it the inner workings of its search business, but there are a few nuggets worth looking at in a Popular Mechanics interview with Udi Manber, the Google vice president who oversees search quality. Among them: Google rejiggered its search algorithm 450 times last year.

The job of the algorithm is to best match Web pages with people's search terms. One tweak the company tried last week was increasing the "diversity" of search results so the listed Web pages would cover a broader scope in an attempt to compensate for the ambiguities of search terms, he said.

And while some might see the industry of search engine optimization (SEO), which strives to get Web sites higher placement on search sites, as gaming the system, Manber said that at least a basic amount would make his life easier.

"I wish people would put more effort into thinking about how other people will find them and putting the right keywords onto their pages," he said.

He also said Google doesn't adjust search results by hand.

"If we find, for a particular query, that result No. 4 should be result No. 1, we do not have the capability to manually change it," he said. "We have to find what weakness in the algorithm caused that result and find a general solution to that, evaluate whether a general solution really works and if it's better, and then launch a general solution."

For those interested in the subject, I also recommend the New York Times interview with Manber from last year and another from Eric Enge at SEO firm Stone Temple Consulting. (I can't help but note that the latter piece shows up higher in Google search results.)

Posted by Stephen Shankland on news.com
April 17, 2008

Google Profit Rose 30%, Quelling Investor Fears

Google Inc.'s GO-GO era apparently isn't over.

The Internet giant topped Wallstreet estimates for first-quarter revenue and fit, and it said that the weak economy don't hurt its business, as some investors had red. Google's solid performance came despite slowing growth in the number of times consumers clicked on ads that appear alongside Google's Web-search results and on partner sites.

Google's shares surged more than 17% in after hours trading after it reported first-quarter profit rose 30% from the year before, compared with 17% profit growth in the 2007 fourth quarter. Revenue rose 42% from a year earlier. Before the earnings were released Thursday afternoon, Google's shares had dropped 35% since the beginning of the year.

Chief Executive Eric Schmidt said that the Mountain View, Calif., company has studied the potential for any impact from a weaker economy in the future. "Our conclusion is we're well-positioned, should economics change, to continue to do well because our model is so targeted, and targeted advertising does well in pretty much most scenarios," he said. Investors have worried that a consumer slowdown could affect online advertising, which represents about 99% of Google's revenue.

Google reported that clicks on the ads it shows increased 20% in the first quarter from a year earlier, compared with 30% in the fourth quarter. Google generally charges advertisers only when a consumer clicks on the ads.

The overall paid-click gains in the quarter were significantly greater than research firm comScore Inc.'s Tuesday estimate of 1.8% growth in U.S. clicks-excluding some nonsearch Google partners-from a year earlier. ComScore's estimates had fueled concerns during the quarter that Google was being hurt by the softness in the U.S. economy, though the research firm said the cause was more likely Google-initiated changes.

"The comScore data have caused a lot of angst and anxiety for investors that look largely unfounded," said Jeffrey Lindsay, Internet analyst with Sanford C. Bernstein, whose firm makes a market in Google shares. ComScore declined to comment, but its Chief Executive Magid Abraham said in an interview Wednesday that some investors had jumped to conclusions that comScore's data don't support.

Google said it has continued to take measures to reduce the number of ads that consumers see per search query in order to show only the most relevant ads, which will lead to sales for advertisers.

"We're showing fewer but much better ads in each cycle, and that's a key part ofthe Google success story," Mr. Schmidt said.

On average, advertisers are paying more for each click. Mr. Schmidt acknowledged in an interview that, in some unspecified areas, those prices are near the maximum levels advertisers may be willing to pay, given their other advertising options.

"There are some 'verticals' where we might be hitting limits, and there are plenty of verticals where we're not-but in aggregate there's still plenty of room for growth," he said. He also specifed that there were hundreds of thousands of vertical advertising categories in Google's systems, factoring in such things as types of advertisers and regions. The price of search advertisements is determined by an auction-based system where advertisers bid against each other to have their ads displayed more prominently.

In 4 p.m. Nasdaq Stock Market composite trading, Google's shares dropped $5.49, or 1.2%, to $449.54. Following the news, shares rose 17% in after-hours trading to $526.62, adding almost $25 billion to the company's valuation.

Google executives highlighted their efforts to sell advertisements beyond the small text ads that are currently the company's core revenue driver. One key development during the quarter was the closing of its $3.2 billion acquisition of DoubleClick Inc., which offers services to Web publishers, ad agencies and advertisers for handling display advertisements, such as banner ads. "We're in a position to become the world's largest display-ads provider," said Jonathan Rosenberg, senior vice president for product management. Yahoo Inc., the target of an unsolicited takeover bid by Microsoft Corp., is the largest U.S. display ad seller, according to research firm eMarketer Inc.

Mr. Rosenberg said Google has seen consumer clicks in some categories traditionally affected by economic softness grow "a little less rapidly" than the overall growth. "But on an absolute basis, they are all showing healthy growth in ad revenue," he added. Areas such as financial services are among those analysts say are probably affected.

Google's solid financial performance comes as Yahoo is testing using Google ads alongside a small percentage of its Web search results. People familiar with the matter have said that test, announced last week, has been performing well, increasing the likelihood of a broader pact. But any such deal would probably face tough regulatory scrutiny because of the companies' combined majority share of the search-ad market.

Mr. Schmidt declined to discuss the test in any detail, but he said, "It's nice to be working with Yahoo-we like them very much."

International operations generated 51% of Google's revenue in the first quarter, compared with 48% in the fourth quarter. "International was a big part of the surprise here," said Rob Sanderson, Internet analyst with American Technology Research Inc. Google's employee growth rate in the first quarter climbed to 14%, compared with 6% in the fourth quarter.

By: Kevin Delaney
Wall Street Journal; April 18, 2008

EBay's Auction Arm, PayPal Drive Net

Titan Faces Challenges With Slowing Growth At Flagship Business

EBay Inc.'s first-quarter profit climbed 22% and revenue increased 24%, propelled by its flagship online auction business and its Pay Pal electronic-payments unit.

The San Jose, Calif., company also raised its forecast for 2008 revenue and earnings, surpassing Wall Street estimates. EBay expects revenue for the full year in the range of $8.7 'billion to $9 billion, up fr9m the mean forecast by analysts surveyed by Thomson Financial of $8.79 billion. EBay also said it expects earnings, excluding items, of $1.70 to $1.75 a share.

The report marks John Donahoe's debut as chief executive of eBay and the first since he introduced in February big structural changes-such as better customer service and a different fee structure-aimed at rejuvenating the company's flagship auction site. While those policy changes helped somewhat to generate higher revenue, the company said revenue growth in its main auction business unit was driven primarily by advertising, elassifieds and the online-ticketing unit Stub Hub, rather than by expansion in core auction sales.

Revenue exceeded Wall Street's forecast of $2.07 billion and surpassed eBay projected range of $2 billion to $2.05 billion.

While revenue from the flagship auction business rose 19% to $1.48 billion and new listings rose 10%, eBay's active users rose 1%, its slowest-ever growth rate.

The revenue growth rate is down from 23% a year earlier. And early feedback from merchants offers a mixed picture of how the changes are affecting them; some sellers are concerned that buyers haven't returned to the site.

"The noncore businesses performed better but there are certainly challenges in the core [auction business]," said Jeetil Patel, a Deutsche Bank Securities analyst.

The company's PayPal electronic-payments unit had a strong quarter. Revenue rose 32% to $582 million as PayPal did more business with merchants such as JetBlue Airways Corp. Skype, eBay's Internet-calling business, generated revenue of $126 million, up 61%.

Ebay's forecast for the current quarter, which ends in late June, essentially matched analysts' expectations. The company said it expects revenue in the range of $2.1 billion. It projected earnings, excluding items, of 39 cents to 41 cents a share.

Yahoo-Google Plan Advances

Yahoo Inc. moved closer to outsourcing its search advertising to Google Inc. after an initial test of the system yielded what the two firms deemed positive results, people familiar with the matter said.

A broader partnership between the companies is now increasingly likely, the people said. Yahoo and Google said last week that they would undertake the test to evaluate the revenue potential of a broader search-ad outsourcing arrangement.

A deal might increase Yahoo’s cash flow by more than $1 billion a year, according to Citigroup Global Markets analyst Mark Mahaney.

But a partnership also might serve as needed leverage for Yahoo as it tries to ward off an unwelcome $44.6 billion bid from Microsoft Corp., of Redmond, Wash. Some view the potential combination as gamesmanship, particularly in light of antitrust concerns of a Google-Yahoo linkup.

A broad partnership between Google, based in Mountain View, Calif., and Yahoo could complicate Microsoft efforts but doesn’t derail it immediately. Yahoo could simply pull out of the partnership should it agree to a takeover by Microsoft.

Nevertheless, a deal with Google might make it easier for Yahoo, of Sunnyvale, Calif., to do a separate deal it has been deliberating with Time Warner Inc’s AOL. Yahoo has been in talks with New York-based Time Warner about merging with AOL. Time Warner would receive a stake of about 20% in the merged entity in return.

By: Matthew Karnitshnig
Wall Street Journal; April 17, 2008