Search giant Google issued its Q3 06 earnings report this afternoon and the results are nothing short of superb — revenues continue to surge while profits escalate. Revenues jumped 70% year-over-year and 10% sequentially to reach $2.69 billion. Net income almost doubled, increasing 92% year-over-year and 2% sequentially to $730 million.
As has always been the case, advertising revenues account for almost all (99%) of revenue. Google-owned site revenues accounted for 60% of the total, up from 56% of all revenue a year ago. Network, or AdSense, revenue accounted for 39% of ad revenue, down from the 43% of all ad revenue it represented a year ago. International revenue grew during the quarter, rising to 44% of all revenue, up from 42% in Q2 06 and 39% in Q3 05.
| Google Financial Data ($ in bil.) | |||||
| 3Q05 | 4Q05 | 1Q06 | 2Q06 | 3Q06 | |
| REVENUES | $1.58 | $1.92 | $2.25 | $2.46 | $2.69 |
| Google Web Sites | $0.88 | $1.10 | $1.30 | $1.43 | $1.63 |
| Google Network Web Sites | $0.68 | $0.80 | $0.93 | $1.00 | $1.04 |
| Total Ad Revenues | $1.56 | $1.90 | $2.23 | $2.43 | $2.66 |
| Licensing and Other Revenues | $0.02 | $0.02 | $0.03 | $0.03 | $0.03 |
| COSTS AND EXPENSES | $1.05 | $1.35 | $1.51 | $1.64 | $1.76 |
| INCOME FROM OPERATIONS | $0.53 | $0.57 | $0.74 | $0.82 | $0.93 |
| NET INCOME | $0.38 | $0.37 | $0.59 | $0.72 | $0.73 |
Aside from these basic facts, there’s not much more to say about the outstanding string of quarterly financial results that Google has produced. During the earnings call, CEO Eric Schimidt provide a few more details on the YouTube purchase, and indirectly confirmed that the record companies bought stakes in YouTube before the deal closed.
“We were able to do some very interesting deals using a combination of financial pre-payments, revenue shares and other ways in which the money flows. The best partnerships come when both partners have an ownership share in the deals,” Schmidt said.
He also touched on whether Google might be over-relying on the Digital Millennium Copyright Act’s take-down provisions as protection against infringement lawsuits. Schmidt’s straightforward answer: the law is the law and Google complies with the law.
“We are definitely not relying on a liberal or conservative interpretation of the DMCA. We are relying on the Digital Millennium Copyright Act as it’s being applied as a matter of law,” he said. “Whether people like it or not, it’s the law of the land and we abide by it.”
Posted by Cynthia Brumfield at 5:34 PM | Print | Comments (0)
Comcast’s programming arm, CN8, is launching on Friday an intriguing service that will probably get few viewers but definitely reflects well on the nation’s largest cable company. It’s called Candidates on Demand, and it’s a VOD channel for digital customers in Maryland, Delaware, Pennsylvania, New Jersey, Virginia and Washington, D.C that features round-the-clock video coverage of local, state and federal 2006 mid-term elections and the candidates running in the various races.
Comcast has devoted some money and time to the project — Candidates On Demand features 500 interview segments with candidates running for more than 350 gubernatorial, senate, house, mayoral and other local political races. That’s in addition to coverage of debates in local, state and federal races.
Posted by Cynthia Brumfield at 11:14 AM | Print | Comments (0)
No wonder that Universal Music filed suit against Grouper and Bolt and not YouTube. Aside from the fact that Universal cut a deal with YouTube that allows its music videos to be distributed over the site, Universal also bought a small stake in the company immediately prior to its acquisition deal with Google. The New York Times’ Andrew Ross Sorkin and Jeff Leeds have this piece today on how Universal Music, Sony BMG Music and Warner Music all bought stakes in YouTube just before the Google deal was announced.
It’s an easy $50 million profit for the three combined, according to the piece, and Google now has the added assurance that it won’t be sued by the litigious pack of record companies for YouTube-related infringement. What a brilliant piece of deal-making and it shows signs of a heretofore absent sense of business smarts on the part of the record companies.
As Sorkin and Leeds point out, the music industry’s legal battles against Napster and other P2P services ended up in pyrrhic victories that left record companies with favorable court decisions but dwindling coffers. Even though Universal has lodged suits against other video sharing sites, its decision to cut a deal with YouTube is a ray of hope that record companies might try to adapt rather than fight change.
The decision to take a stake in YouTube is a sharp departure from the tack that record companies took regarding Napster, the pioneering file-swapping service that transformed the industry in 1999. Back then, after the major companies filed suits against Napster, the two sides discussed various settlements that involved the music companies receiving a big equity stake.Posted by Cynthia Brumfield at 10:00 AM | Print | Comments (0)
The Napster talks, which were led on the industry side by Edgar Bronfman Jr., then the chief of Universal’s then-parent Seagram — eventually broke down.
The record companies went on to win a series of legal victories that ultimately forced Napster to shut its site, but the labels have been fighting an uphill battle against free peer-to-peer services ever since. The music industry has also filed thousands of lawsuits against individuals, hoping the threat of civil fines will reduce unauthorized sharing of songs.
But the failure to end digital piracy and the continuing slump in CD sales has slowly pressured record executives to rethink their approach to Internet distribution.
The Wall Street Journal’s Brook Barnes has this excellent Page One scoop on NBC Universal’s decision to slash costs. The broadcast TV network plans to cut $750 million out of its budget by the end of 2007, largely by eliminating around 700 jobs in the coming months.
In an effort to perhaps make the bloodletting palatable to those left behind, NBC is calling this effort NBCU 2.0. Company Chairman Bob Wright says “We can’t have new digital expenses and the same analog expenses.”
To keep the network alive, the company has decided to stop scheduling expensive dramas and comedies in the 8 pm to 9 pm slot and will fill that hole instead with inexpensive game shows and other low-cost programming. News, of course, will carry the brunt of the burden initially — the company’s NBC, MSNBC, CNBC and Telemundo operations will consolidate facilities and feel the earliest sting of the staff layoffs.
As Barnes notes, NBC’s move is merely a sign of the times. The old model of “broadcast television” is simply not sustainable in a world with hundreds of cable channels and millions of Internet and mobile video competitors.
Twenty years ago, the big broadcast networks dominated television. On any given night, the majority of U.S. households with televisions were tuned in to programming on ABC, CBS or NBC. Each network paid for gold-plated TV news operations — not only to meet government requirements but also because news conferred power and prestige.
Then came competition from Fox and an explosion of cable networks. More recently, video games, broadband Internet access and cellphone services such as text messaging have further eroded the networks’ hold.
Not every part of NBCU will experience cost cuts. The company plans to step up its spending on digital initiatives by $150 million over the next two years in an effort to keep pace with the rapidly changing reality of entertainment and video competition. NBC, like all broadcast networks, has already started to turn its attention to the new forms of distribution that are, at the same time, sinking the network.
The company says revenue from digital initiatives such as new Internet offerings will exceed $1 billion by 2009, up from $400 million this year. Over the last year, Telemundo has joined with Yahoo Inc. to develop a Hispanic Internet destination, and NBC started streaming episodes of popular programs on its Web site. The cable channel Bravo has rolled out broadband sites that are dedicated to comedy (dotcomedy.com) and canceled TV shows (brilliantbutcancelled.com).
Virtually all of NBC’s shows, from “Days of Our Lives” to “Law & Order,” now come equipped with digital add-ons such as blogs written by actors and Internet only “webisodes.”
Another smart observation from Barnes: NBC’s move could spark similar efforts at ABC and CBS (Fox is already a thrifty competitor). These networks have no doubt been dying to slash costs but feared being trounced by their rivals. Now, the cost ceiling can be lowered across the broadcast network business and no one gets hurt.
Although the details of the cost-cutting are interesting, the bigger picture is this: broadcast network television as we know it is at an end. As was the case with radio when television came along, the old business models don’t work anymore. That doesn’t mean that ABC, CBS and NBC will soon be dead. Just like radio, broadcast networks have to find new, low-cost (think talk radio) programming formats to keep themselves alive.
Posted by Cynthia Brumfield at 8:03 AM | Print | Comments (1)
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