Liberty Out Foxes Murdoch

Rupert Murdoch (L) and John Malone (R); Photo Credits: Getty Images

If you watched the machinations between Rupert Murdoch and John Malone over the recent months you may have been puzzled about why the big fuss. In fact, this amazing game of chess continues in spite of the announced settlement. My take is that Murdoch is being schooled by someone a bit smarter playing a long term game with a fist full of Aces. Murdoch is so tired of this game and so focused on the NewsCorp succession that he may have delivered too much NewsCorp value to Malone, even at the stated price tag of $11B.

To review, Malone, via Liberty Media, had accumulated a very nice position in News Corp. stock, almost 20%, or enough to be able to force Murdoch's hand on many issues, including his planned annointment of a son as successor. In Murdoch's self-centered view, the succession was all that mattered and he lost sight of the value of the Digital TV assets he transferred. Good thing for NewsCorp shareholders that Malone was not after access to the amazing News Corp content assets (Fox, Fox Digital, 20th Century Fox, BSkyB, Star, and MySpace). Or at least the announcement makes us think those remain untouched... Speculation is that once the dust settles, we may see that Malone has some very valuable DTV distribution rights to much of the NewsCorp content.

To Murdoch's one track mind, buying Malone's accumulated $11B News Corp stake for DirectTV stock, $550M in cash and three Fox Sports networks that were outside the NewsCorp focus areas seems a small price to pay to be rid of a very real headache in the succession process. For him it is a no-brainer.

So, a fight over the control of NewsCorp's destiny is avoided and an amicable settlement preserves what remains of the relationship between old friends? That's what the NY based media folks (WSJ, Times) are swallowing.

An even swap they say, done for tax reasons! Believe that? Not on your life!

This deal is the worst of several ridiculously incompetent moves made by Murdoch in proving that time has passed him by. From the post acquisition mismanagement of MySpace (particularly the failure to acquire any benefits from helping launch YouTube!) to the Judith Regan fiasco, Murdoch has been bungling.

Why is the Malone deal so bad? Because Murdoch, for the sole purpose of preserving the NewsCorp crown for a group of unworthy princes (James, Lachlan, et.al.) all but removed NewsCorp from its once articulated play of being an operating systems provider to the emerging digital television world.

For the last ten years Malone has been maneuvering for every piece of digital TV IP he can acquire, aggregating it all in subsidiaries of Liberty Media. But this very successful aggregation of IP was stymied by a lack of content and a controlled network that would allow the Liberty DTV software solutions to develop.

By tweaking the unrivalled Murdoch ego with the acquisition of stock that might stop him from annointing one of his sons as the future NewsCorp king and getting the expected ego driven reaction, Malone got what he needed! He rented some NewsCorp stock for a few months, threatened his rival and walked away with the keys to the Digital TV vault!

What did Liberty get in this stock swap? Insiders say that, in addition to the DirectTV stock, local sports networks and cash, Malone got a license to some very valuable IP in the NewsCorp Israeli subsidiary, NDS (News Data Systems) and a captured customer licensee (content and networks) when Liberty is ready to release its DTV software as Operating System for the DirectTV and Fox Regional Sports Networks! We'll see when the docs are filed unless they make the absurd argument that the cross licenses are not material.

With this deal, Malone emerges as the one true competitor to Microsoft in the DTV software space. With the related content license, he will also be able to reverse engineer his way into web solutions, likely through a MySpace DTV portal.

An amazing deal! Let's watch the filings and activities in the Fox world to see just how good it is for Liberty and bad for NewsCorp.

Google Checkout: Just How Big?

Harvard's Clayton Christensen is the brains behind Google's disruptive plans for e-Commerce (Photo Credit: Forbes.com)

With the marketing launch of its Checkout product, Google has officially entered its second line of business. Though interrelated with the ads biz (the merchant user class of Checkout customers are also the biggest buyers of Adwords), make no mistake- this is different and this is big...no, make that HUGE.

Again, Google attacks a huge market with a classic disruptive strategy- taking the business that the big players ignore because it is difficult or conceptually small, then applying resources and an understanding of technology and directions to go big and take on the bigger players from below.

The technorati media hype about this has Google going after the PayPal boys with this business. I would submit that while PayPal is a target, eventually, the market is far bigger and more meaningful than that. This business is all about going after the cash register in your local store! The full integration of e-commerce with commerce. Google will make even the most ardent anti-tech people into significant participants in the new media economy just by doing what they already do every day.

When you shop at the local store and go through the checkout line, your transaction will go through Google servers, payments will process through Google bank accounts. Google will take a transaction fee.

Are they replacing Visa, MasterCard and American Express? Not yet, but they are the long term target. In fact, in the near term those businesses will prosper because of the ease the new buisness brings to commerce. But, litle by little, Google will move up the value chain....

In the short term Google is actually filling a gap that has long been a well known opportunity, offering an easy way to process payments to merchants selling to online customers AND and cheaper and easier way for bricks and mortar merchants to process credit cards. Google's plan is to offer an easier way to process all commercial transactions with web based technologies.

They are not the first to try this. CyberSource has been around for years and VeriSign has long held designs in this area. Even Microsoft has made a pass at this sector. The difference is that Google is giving real merchants a reason to adopt their system- discounts and advantages on promotions by tying the Adwords business to Checkout. Simple and brilliant. Almost as good as selling keywords.

The amazing thing is that once again, Google is not first mover. Just as in the case of Yahoo! and Overture, CyberSource is there first with technologies and systems. PayPal and Verisign may have some IP as well. But just as with the search keyword ad business, Google will steamroll its opposition and pay them big later in settling any IP lawsuits.

Someone (Yahoo! or AOL or Fox or a PE player like Elevation) should take out CyberSource now because Google will be paying them lots later.

Next up- how the Content Rights Players can leverage Google (Checkout, Adwords and Adsense) and win big quickly.

Apple, iTunes & the "Piggyback" Players

Steve Jobs introduces new iPod (Getty Images)

When Apple launched iTunes >2 yrs ago, Steve Jobs got hyped again as the risk taking visionary who would save the record industry amid a world gone crazy with content theft as an accepted way of life for the generation born after 1985. Little did we suspect the real strategy (confirmed this week by the actual iPod usage #s)- Apple is just the latest and best of the 'piggyback' players who make real money enabling, enhancing and capitalizing on content theft while paying lip service to providing artists with a path to $.

In fact, based on released data, what Apple has actually done is extend and expand the acceptance of content theft to other generations of computer users (I wonder how President Bush got the tunes on his iPod- if the twins loaded it for him, I think we know...) making a fortune in the process and moving the theft environment from the computer where it was a bit 'clodgy' to the iPod where the many millions are thrilled to play their stolen tunes.

In case you were sleeping, Apple has saved its hide with a classic 'sell razor blades cheap' to enable sales of high margin 'razors' strategy. The great part of the Apple strategy is that they did not have to really go very far in the business of razor blades (iTunes) because free razor blades are so readily available on the Net.

The released data- the average iPod houses only 20 iTunes purchased releases! People are flocking to buy millions of iPods and getting their content elsewhere for free. Meanwhile CD sales are down, quality of new recordings is down (Taylor Hicks is an icon!) and the real musicians (Stones, Springsteen, Greenday, U2) are making most of their $ touring!

What Jobs has actually accomplished is making Apple the biggest winner in the 'Piggyback' space. He has climbed onto the backs of the musicians under false premises and is letting them save his company willingly while they tout him as the next coming. Crazy? Not at all- the music industry has never set its sights on the 'piggyback' enablers (AOL, Yahoo!, Microsoft, Intel, Dell, Google...) choosing instead to try to control consumer behavior in the face of the continuing proliferation of tools and strategies that encourage exactly what is killing them! So they sue kids and destroy Napster, Bit Torrent and others who have never made a penny from their rights while they let the real profiteers move right ahead, killing individual artists in the process.

Bruce Sprinsteen and Bono beg Jobs to let them promote iPods and iTunes for free and PDiddy sits on stage with Terry Semel (Yahoo!) and AOL's Jon Miller (NBA Tech Summit, 2003) "trying to solve the problem" while they have their hands in his pockets!

This is an amazing, willing transfer of wealth from the artists to the internet media companies. Why? Because the labels and rights holders are conflicted. They are better off in the long run if the new channels succeed. They make long term deals to share 'piggyback' wealth with the new channels in ways that do not reward the artists (M&A, investment, etc.). In effect, they 'climb aboard' with the piggybackers whle the artists trudge along because the hype about chasing Bit Torrent and Napster creates the false impression that the rights guys are doing something to protect artist rights!

What should artists do? Not everyone can create their own direct to consumer system like the touring Stones and Bono have done. The answer is clear but the path uncertain. The envronment is screaming for a new kind of rights player. For a minute it looked like Elevation was the team (Quadrangle before them), but they got lured into the quick wealth of playing the market with the piggybackers.

Someone will sense the oppty and put 5-10B in place and put a real rights enhancement system in place with toll booths on both the free and paid internet using systems that exist... this is screaming for a Mark McCormack type person to step forward and 'just do it'... mmmm let's see, if you bought Artists Direct, let Williams & Connolly be an investor, then set up a protective investment pool for artists and their unions and engaged the piggybackers in a very real 'come to Jesus' discussion....

Just dreamin?

We'll see.

MLBAM IPO?

Bob Dupuy, Deputy Commissioner, MLB (Getty Images)

Word is out that MLBAM (Major League Baseball Advanced Media) is considering an IPO to hit the streets sometime during Major League Baseball's Spring Training. No less a luminary than Harvard's distinguished Clayton Christensen is touting the MLBAM plan (see Forbes article).

If you have followed this, you know that MLB had hired Morgan Stanley back in 2000, just before the bubble burst, to explore how they might cash in on the combined weight of MLB brands and the potential for an internet bonanza. Current Federal Reserve Governor Kevin Warsh was in charge of promoting the idea at Morgan. And MLB was not alone. NBA was working with JP Morgan at the same time on their own IPO plan for NBA Entertainment before agreeing to join up with Intel in the ill-fated Convera play (more on NBA and NFL later this week).

So, what is MLBAM doing and will it work and will the rewards be anything like the $2B value Christensen and the NY Times are pointing toward?

MLBAM is the brainchild of Bob DuPuy, baseball's 2nd in command. In 2000, with strong pushes from Southwest Sports and Tom Hicks, all MLB teams except the Yankees voted to put their internet assets into MLBAM. The teams dumped some meaningful cash into the startup, estimated at $40M to start (and supplemented since then). The Yankess opposed the idea because they wanted their Web assets to be part of their YES subsidiary, a network with its own IPO plans. Because MLB always moves forward as a group, the Yanks were forced to put their valuable assets into the MLBAM plan, but the Steinbrenner boys negotiated some very tough restrictions on how the content might be used.

Though MLB is very tight lipped about these facts, rumor has it that the teams' commitment was not open ended but for 10 years, expiring in 2010 and that after that they are free to go their own way. How MLBAM uses the upside of its possible IPO to get the Yanks and others to go along with a greater freedom for content deployment on the Web will ultimately determine the success of this offering.

When it launched, MLBAM was given a reaonable 10 yrs to succeed. Like any internet media startup from that era, they struggled through the first half of that decade, particularly since their strategy for selling subscriptions to internet media content proved to be a big bust.

Then just what is the $250M in revenues that serves as the backbone of the proposed IPO? The breakout for MLBAM has been ecommerce sales and ticket revenues. Once they proved enormously efficient at selling goods and tix, they had a real play. Combined with a best of breed technology service that they are now offering outside the MLB environment (NCAA to start), you start to see a real business.

With the stock market once again receptive to Internet service companies and a real chance that this IPO could drive very real value, don't doubt that MLB's teams will line up for another ten years to make this thing fly! Even the Yankees will understand that value, especially since their own YES deal is achieving tremendous traction as a Cable network and no longer needs the baseball internet rights.

MLBAM CEO Bob Bowman has put together a first rate team, a kick ass web site and has driven an amazing ecommerce story. Now MLB needs to take off the rights reins and let Bowman run hard with a content syndication strategy that will not only drive advertising revenues at least equal to ecommerce$, but will create the marketing engine that MLB needs to regain its place as the #1 sport. Effective use of MLBAM around the 2006 World Series could have avoided the tragic ratings...

If MLB does not give Bowman that kind of freedom then be careful with any MLBAM IPO stock. Don't fall for the mirage of the low margin ticket and ecommerce revenues if the upside is constrained by ill-considered content strategies.

The only thng that will stop MLBAM's success is the MLB teams! As always, Major League Baseball manages to put absurdity front and center!

Is Winer just Whining or is he right on the Demise of Web 2.0 (and Google)

Google's Founders, Brin and Page, not likely concerned about Dave Winer's view (Getty Images)

If you know who Dave Winer is (basically the first implementer of many great things web including RSS & Blogs), you have to take notice when he says that Google is going to come crashing down on the house of cards that is Web 2.0 (See NY Times Biz Section, Sunday, Dec. 3).

First, who the hell is Dave? Second, what exactly does he mean? Then we can assess...

Winer has been at the center of the internet from Day 1. He has built busineses, deployed new solutions and been a stellar commentator on the evolution of this new environment. Visionary is an understatement. Unfortunately for Dave, however, he has never been where the cash spigot is streaming, so, unlike his brethren- Filo & Yang, Brin and Page, Andreesen, Homer & Barksdale, he has not had the big liquidity event. He is more in the category of Internet do-gooder like Tim Berners-Lee.

So, when he says Google is going to crash, we probably do not need to suspect him as a short player; there is likely some strong basis for his prediction.

What is it? Well, I think it works like this- Web 2.0 is a whole series of bloggers and content thieves who do not have any real cash investment behind them; they come with bootstraps and put their content on MySpace, Flickr, Facebook, Blogspot (like me) and other places where posting is easy and tech smarts not required. Some make $ from ads from automated ad providers, of which Google is far and away the dominant provider. The small rev stream these ads provide the average Web 2.0 content folks is enough to keep them coming back and posting more and more content, in many cases. The rest of us are just crazy and think someone out there might care about what we have to say.

Winer's point is that if you look at the Qs and Ks, Google's growth is coming to a large degree from its Adsense biz and the Adsense biz has its base in Web 2.0. Since the vitality of Web 2.0 is dependent on the Web 2.0 content providers showing up and putting up new content, regularly, if those guys get bored or get a job or just take a few days off, it could have an impact on Google's Adsense revenues. In fact, if they organized and boycotted Google, it could be ugly (are there any other $ options for these guys- not yet- come on Yahoo!- see yesterday's Kiles Blog).

If you are Google, how do you deal with this Web 2.0 Armageddon? Not so esay, but there are options-
1. Buy/hire everybody (AOL tried that with Weblogs, Inc. and six months after the huge announcement Jason Calcanis was gone); or at least the best of the lot; but that makes them a content company, something they have tried to avoid...
2. Increase Adsense payments so that there is a real living to be had- focus on driving traffic and making tools for blogger success. (They are actually trying to help here, but probably need to do more).
3. Spur investment in the Blogosphere- the easiest course of action, an Intel Capital type play (purposely put 'dumb' money in bad deals that support you strategically). Hype the investments that best support Google revenues and give the bloggers hope. This could be the most interesting, successful strategy, but could be costly and embarrassing- how do you control what the blogosphere says!

All in all, maybe the best Google play is to ignore the Whiners of the world, let Web 2.0 come crashing down and, assuming the unlikely scenario that it does, be there with best of breed technology at the center of the next universe.

If there is one thing consistent about the internet, it is that the smart guys always win.

I'm betting on Google. Dave Winer's perspective is interesting but Google is in control and a Web 2.0 crash would be nothing more than a speed bump. In fact, the best of breed will survive and consistent with Google's Christensen based "Disruptive Plan", by the time it does, they will be so far up the food chain (radio, TV, classifieds, media sites) with their Ads, they will never notice that there was a demise and Web 2.0's crash will be nothing more than a footnote to history, if that.

Advice for Terry Semel

Making sure he listens to Kiles? Not Likely! Yahoo!'s Terry Semel. (Getty Images)

Why is Yahoo! flagging so badly, losing traction in ad revenues during a legitimate advertising boom?

Just today they announced a reorg in the face of falling stock price and (apparently) a completely blown opportunity with their Overture assets. CFO Susan Decker is now in charge of online ad sales in addition to marshalling the books.

Honestly, things do not look good. Yahoo!, just 2 years ago everyone's darling after a few years of buckling down and becoming an internet media engine while parlaying an IP lawsuit with Google into billions, is now viewed as a Company that simply missed it, heading toward the door with AOL.

What happened and what can they do about it?

What happened can and does happen to everyone- they did not see a tsunami- the social networking wave was huge and they missed it, losing out completely as portal to the MySpace generation. YHOO had neither the tools to manage content (Google was already the search engine of choice) or the focus on self aggrandizement the new "me" generation looks for with MySpace and YouTube or the autommated ad system to capitalize. In short- they missed an opportunity because they were not prepared!

Now it's time to watch their reaction and see what they do about it. They are under immense pressure to respond with a social solution of their own, take on MySpace...My take is that they have already missed that ship and that they should stay the course.

If they cannot compete with Google in technology and have lost the social space to MySpace, what do they do to compete?

Yhoo must make a play now to become a significant media company, internet rights holder and manager of important content. They should take a hard look at the CEO and ask what does this guy know anything about?

Bing! You got it! Terry Semel is a studio genius! He knows how to build a studio from the financial perspective and attract the very best to his world. He has bright guys working with him. Now they need a real internet content guy. Not Lloyd Braun, but a real Valley guy that knows media and technology; someone who can create a system for churning out compelling content for the internet environment and start pouring it into the Yahoo! distribution monster. Roger MacNamee or someone like him (Geoff Yang?)

Forget about Hollywood- focus is still the Movies and TV and will always be. Yahoo needs internet content and that happens in their backyard. They need to be the home of massively multi-player games and interactive images and video. They should open the doors and create opportunity for the publishing community to create and make $. Make tools for creating, engineers for refining, systems for hosting, offer customers for distribution and ad systems for $. Make it generally available to anyone for free in exchange for content rights of well developed content. But insist on quality!

Find the developers on MySpace, YouTube and Facebook and bring them to Yahoo! Make their lives so easy that they can succeed if they just create content! Yhoo does the rest! Invest $10B in internet content over the next 5 yrs! Not in purchasing rights but in delivering the systems required to create...

I ask you Terry Semel, is that much different than what you made happen so successfuly at Warner? Do what you know how to do and do it well!

Go out and do something wonderful! Now is the time!