Yahoo Inc. on Wednesday posted a profit more than double last year and raised its annual earnings guidance, sparked by a red hot Web advertising market and its recent acquisition of Overture Services.

Shares in Yahoo were up just over 1 percent at $39.31 in after-hours on Instinet, following the financial community's initial enthusiastic reaction.

"I think it was just an awesome result," said Safa Rashtchy, an analyst at U.S. Bancorp Piper Jaffray.

Sunnyvale, California-based Yahoo reported a net profit for the third quarter of $65.3 million, or 10 cents a share, compared with a year-earlier profit of $28.9 million, or 5 cents a share. Revenue rose to $356.8 million from $248.8 million last year.

Financial analysts' average estimates called for earnings per share of 9 cents on revenue of $337.2 million, according to Reuters Research, a unit of Reuters Group Plc.

Revenue in marketing services, the company's widely watched division responsible for advertising and sponsored search services, rose 48 percent from last year to $245.1 million.

"It was a very good quarter and illustrative of the fact that the online advertising business is thriving right now," said Derek Brown, of Pacific Growth Equities. Brown owns no Yahoo shares and his firm does no investment banking with the company.

The company posted a 38 percent rise in fees revenue, due mostly to its Internet access partnership with SBC Communications Inc. (NYSE:SBC - News) and other premium services such as games on demand. It also saw 26 percent growth in listings revenue, mostly from its HotJobs job search service.

Yahoo ended the quarter with 4.2 million unique paying subscribers to its services, and said it expects to add 500,000 to 700,000 subscribers in the current quarter.

INCOME, REVENUE VIEWS UP
For the fourth quarter, Yahoo forecast operating income before depreciation and amortization, or OIBDA, of $130 million to $150 million and revenue of $462 million to $502 million, excluding traffic acquisition costs, or TAC, incurred by its Overture subsidiary. Yahoo did not detail those costs.

Analysts surveyed by Reuters Research had expected OIBDA of $120.1 million on revenue of $372 million before Yahoo gave guidance that included the benefits of the Overture deal.

For the fiscal year, Yahoo raised guidance to OIBDA of $428 million to $448 million on revenue, excluding TAC, of $1.42 billion to $1.46 billion.

Yahoo previously expected OIBDA of $375 million to $400 million on revenue of $1.26 billion to $1.31 billion, and analysts had been expecting OIBDA of $401.8 million and revenue of $1.31 billion, according to Reuters Research. That forecast did not include the Overture contributions outlined by Yahoo.

Yahoo said it was more appropriate to give guidance for revenue that excludes Overture's costs of acquiring traffic to its sponsored search links, which traditionally made up a large part of its revenue.

Yahoo also said Overture has had "positive and productive discussions" with the MSN online unit of Microsoft Corp. (NasdaqNM:MSFT - News) in recent weeks about continuing their sponsored-search deal. LookSmart Ltd. (NasdaqNM:LOOK - News) recently lost half of its market value when it said its search deal with MSN would end.

MSN executives say they want to build their own full-featured search service, one that would give them greater control and a product more competitive against engines like Yahoo and Google (News - Websites) .

"Our expectation on the business side is we'd like very much to continue to work with the affiliates," Chief Operating Officer Dan Rosensweig told Reuters. "We expect to keep our fair share of affiliates and win new business."

Yahoo shares closed off 14 cents at $38.79 on the Nasdaq, before the release of earnings. (With reporting by Lisa Baertlein in Palo Alto)

Online micropayment is an idea that just won't die…nor will it quite come to life. Attractive as it may sound to consumers and some publishers, the idea of spending $2 or $3 here or there for a song, an article, or a day of access to a site remains in a zombie-like state. Despite increased interest in the model and no shortage of firms with payment solutions (see EContent's April issue), users just aren't buying in.

The Online Publishers Association's spring report on the state of the paid content market found that, while content purchases under $5 did increase 707% in 2002, it only represented a seven-fold jump from practically nothing. Micropayments on content in 2002 still only totaled $9.6 million—a mere 1% of the online content revenues altogether.

A lot of people seem not to be getting rich very quickly off of the micropayment dream. Even since we last reported on the model just a few months ago, yet another wave of witch doctors have emerged trying to make this zombie walk and talk like a real live business model. Each solution boasts its own particular brand of voodoo, but in talking to the three services that launched in recent months—Peppercoin, Paystone, and BitPass—they all spout a familiar mantra about how Web audiences have changed substantially enough for micropayments this time…no, really.

With ad revenue trickling in, and some subscription models picking up, "à la carte is the missing third leg of the stool," says Rob Carney, Peppercoin's VP of sales. Both publishers and consumers are seeing that content must be paid for and Peppercoin makes it possible to literally pay pennies. The company has a proprietary technique for aggregating tiny online charges into larger ones that are more efficient to process with the credit card companies. This is supposed to allow publishers to package fee-based downloadable content in novel ways that can be priced down to nickel and dime levels.

Why should publishers sell their wares for pennies rather than the more substantial subscription model? Subscriptions "have met with dismal failure because conversions are so low," claims Kurt Huang, CEO and co-founder of BitPass. His company uses the prepay model that lets the user load money into an online account, which they can debit down to a penny at sites in the network.

Brian Roberts, VP of sales and marketing at Paystone notes that the micropayment model has gotten some good PR boosts recently, like Apple's much-hyped $.99-a-song iTunes launch. Paystone, a Canadian company, also uses a prepay model, but partners with banks so that consumers can send funds that can be debited by micropayments across Paystone sites.

All of these solutions do seem to offer better terms for publishers than credit card or phone bill alternatives. All three pass along more than 80% of purchase price to the partner, which will be wonderful if any of these solutions survives. Carney says that in order for Peppercoin to flourish, it has to present "a compelling value proposition to the seller…and eliminate friction in the market." But making micropayment cheaper and easier for publishers may not be the real problem here. Independent and small music labels (which seem to be the first partners for all of these services) see the sense in micropayments because they weren't making anything online before, so there's little risk in testing this model.

Ultimately, it comes down to consumer behavior and there are no signs that that has substantially changed yet. Sure, millions of people are buying $.99 songs at iTunes, but according to Apple, most are buying them in larger album packages rather than nickel-and-dime purchases. People do not buy content the same way they do candy. Some of these micropayment solutions themselves admit that their early customers are not loading more money into their accounts than they expect to spend on initial buys, which suggests that a significant barrier for this model remains. Without a big enough network of partnered content sites, consumers don't buy into the network and spend across multiple partners. And without this kind of consumer support, no one company can break through to be ubiquitous in the market and attract the major content publishers.

As Peppercoin was about to launch, it boasted about a dozen partners, while BitPass was poised to launch with six. Paystone claims 700 content outlets, but most seem to be small music and news vendors, and the company isn't promoting it as a network. Of course, everyone is "talking to the major players" about their systems, but as of this writing, no big- or even medium-sized content brand has signed on. No doubt the big boys are being sensible by sitting back and waiting for the category to shake out, but unless a major content venue steps up to let itself and its customers experiment with these micropayment networks, the category may not shake-out so much as stay zombie-fied, waiting for the right voodoo.

On the eve of the widely watched relaunch of Napster, the music industry's first casualty in its war against online piracy, another battle is raging in music cybersales and it's between two legal formats: paid subscriptions and a la carte stores, industry sources said on Wednesday.

This new conflict is a far cry from the one that put Napster, the formerly free song swap service that will relaunch as a paid service on Thursday, out of business.

But right now both platforms are vying for the hearts, minds and pocketbooks of Web-savvy music fans. Several analysts believe both will survive but that subscriptions may provide more revenues overall. Others argue a combination of the two is the key to the industry's success.

Since the world's big labels like AOL Time Warner Inc.'s AOL.N Warner Music and Vivendi Universal's V.N EAUG.PA Universal Music first took Napster to court for copyright infringement in 1999, the industry has tried to find ways to lure Web surfers into paying for online music.

Subscriptions, in which users pay a monthly fee to listen to as many songs as they like, were last year's hot business model. A la carte services, paying one price for each download, are this year's hot new trend.

The recent success of Apple Computer Inc.'s AAPL.O iTunes music store has been hailed by the record industry, spawning similar a la carte services like Buy.com and Musicmatch and overshadowing subscription services like MusicNet, Rhapsody and FullAudio.

'FOLLOW THE LEADER'
"Everybody's playing follow the leader. Subscriptions were hyped to death and now the a la cartes are being hyped. It's a false debate as to whether one is mutually exclusive of the other," said Alan McGlade, chief of MusicNet, which runs a subscription service through partners like America Online, a unit of AOL Time Warner.

"They are both valid ways to consume music, and we believe they are most interesting together," said McGlade.

Roxio Inc. ROXI.O , which bought Napster last year, believes it will be the strongest service to date due to its broad brand-name appeal and the fact it will be the first to offer consumers both an a la carte model and a subscription platform.

Rival subscription service Rhapsody, owned by RealNetworks Inc. RNWK.O , said Napster's two-pronged approach shows the subscription model is still strong.

"As the number of a la carte stores proliferates, the news about Napster is a reminder that subscription services continue to attract a wide audience of consumers," said Matt Graves, a spokesman for Rhapsody.

Jupiter Research forecasts online music spending to quadruple to $3.3 billion over the next five years from under $1 billion in 2003, but sees subscriptions as the more viable.

"Although downloads will appeal to a larger customer base, subscription services will realize greater value," Lee Black, a former Jupiter analyst, said in a July report.

John Bernoff, analyst with Forrester Research, echoed that sentiment in a recent report saying that by 2005, music buyers will recognize that acquiring music a la carte makes for costly collections and that as fans get more comfortable with online music, subscriptions will overshadow a la carte services.

Making a buck selling songs online will be tough, but a raft of sites are at the ready

For years, record companies squelched efforts to sell tunes online, for fear of Napster-style piracy. Now, suddenly, the floodgates are opening. Giants ranging from Dell (DELL ) and Sony (SNE ) to Amazon.com (AMZN ) and Wal-Mart (WMT ) are scrambling to set up Web music stores. So are a number of smaller players including -- yes -- a revived Napster, which is being relaunched by Roxio (ROXI ) Inc. this month. Also within weeks Apple Computer (AAPL ) Inc. will likely go ahead with the much-anticipated launch of its iTunes online store for Windows users. "Within a very short period," says Dell Inc. CEO Michael Dell, "the labels will want to be on as many music stores as they can."

With at least a dozen players likely to enter the market over the next few months, competition will be fierce. Just as the real world has everything from Wal-Mart to the indie record store, the new entrants are looking to carve out niches. Two classes of winners will likely emerge: those with sufficient scale to convert meager per-song margins into meaningful profits and those that use music to sell add-ons, be it hardware, subscriptions to online music magazines, or concert tickets. Says Jonathan Hurd, a vice-president with management consultant Adventis Corp.:"The ones that get the customer experience right will benefit -- but there are many ways to mess up."

To avoid that fate, the new services will largely mimic the business model Apple created for its popular iTunes site. Most will sell songs for 99 cents apiece. Users will be able to burn the songs to as many CDs as they want and play them on up to three PCs or mobile devices. Music execs hope that will provide listeners with the flexibility they crave while preventing mass copying and file-sharing.

TOUGH ECONOMICS. But even at 99 cents a song, making profits selling music online could prove tough. Under existing arrangements, 75 cents or so will go to the label, and credit-card processors will pocket another 5 cents. That leaves just 19 cents for marketing, technology, and all other costs. The rush for market share will almost certainly force services to slash prices -- and to find other ways to make money. Earlier this year, Listen.com experimented by charging 49 cents a song but ultimately retreated to 79 cents -- and only for those with a $9.95 subscription.

So why the rush to jump in? For hardware giants such as Dell, Sony, or Apple, the real money will be made selling music players. Dell is clearly counting on its online music offerings to create demand for its new player, the DJ, set to launch this month. And for Wal-Mart, which accounts for 20% of all music sold in the U.S., it's too big a market to ignore.

Smaller players are counting on selling premium content. For a monthly subscription of $10 or so, customers of Musicmatch Inc. and Napster 2.0 will get a range of perks -- say, exclusive recordings or the ability to easily buy a song heard on a Web radio station.

Whatever the model, getting downloaders to pay for online music will mean giving them sufficient control over their songs. Already, there are signs that the labels will be slightly less flexible with the vast Windows universe than they were with Apple; with 2% of the market, it was less of a piracy concern. Industry insiders say that to discourage users from sharing playlists of, for instance, dance or jazz tunes, EMI (EMI ) Group PLC has forced the services to reduce the number of playlists consumers can burn to a CD to five, for example. That's down from 10 at iTunes.

Other limitations could also give music fans pause. Many new songs won't be available, and acts such as the Beatles still won't be online. Different services, moreover, will use different technologies to ensure customers don't cheat on copying or downloading. Without standards, users will find their portable players won't play songs from every online service.

Still, a year from now, many kinks will be gone. The best services may match the elegance of iTunes, and prices will probably have dropped. That's the best news music fans have heard in a long time.

U.S. consumer spending for paid Internet content jumped during the first half of 2003, due partly to more people looking for a mate online, according to a new study.

The Online Publishers Association reported that spending on paid content grew to $748 million in the first half of 2003, an increase of 23 percent over the same period last year. The study, conducted by ComScore Networks for OPA, showed 25 percent growth in the first quarter of 2003 with spending reaching $368 million, compared with $294 million for the first quarter of 2002.

OPA said the top three paid content categories--personals and dating, business and investment, and entertainment and lifestyles--accounted for 65 percent of spending in the first half of 2003, up from 61 percent in 2002. U.S. consumers spent $214.3 million on personals content in the first half of 2003, a 76 percent increase for the segment over the first half of 2002, according to the report.

"This shows us that as the Internet matures, more people are becoming familiar and comfortable with paying for content," said Michael Zimbalist, executive director of OPA. "We know that the more time people spend online, the more open they become to making transactions."

Zimbalist said the results for the first half of the year serve to prove that the market has gotten back on track after a disappointing fourth quarter in 2002, when sales for paid content dipped to $359 million, a 7 percent drop compared with the third quarter of 2002. Zimbalist said it is too early to determine if the fourth-quarter shortfall was related to seasonal consumer spending habits, but he indicated that 2003 performance should help give OPA more clues.

According to Zimbalist, OPA is expecting at least 20 percent growth for the paid content market for 2003.

The OPA study indicated that the overall number of Internet users who paid for content in the second quarter of 2003 grew to 10.9 percent, representing a 15 percent rise compared with the same period last year.

"What you see here is that younger users respond to paid content more favorably," Zimbalist said. "We think this is because many of these users have grown up with the Internet and therefore see paid content as a more reasonable proposition."

Subscriptions continue to be the dominant price model, accounting for 88.5 percent of paid content revenue in the first half of 2003. Web sites that charge users $5 or less have held steady over the past three quarters, comprising roughly 8 percent of all spending, according to the report.

In a related study, OPA found that consumers of paid content tend to be younger and more affluent, and they spend more time online than most Internet users.

Roughly 25 percent of paid content consumers have household incomes of $100,000 or more, compared with only 20.5 percent of the total Internet population, according to OPA. Paid content consumers also tend to visit more than twice the number of Web pages than the average Internet user does, and they spend more than twice as much time online. They are also 14 percent more likely than the average user to have broadband access, according to OPA.

U.S. consumer spending for paid Internet content jumped during the first half of 2003, due partly to more people looking for a mate online, according to a new study.

The Online Publishers Association reported that spending on paid content grew to $748 million in the first half of 2003, an increase of 23 percent over the same period last year. The study, conducted by ComScore Networks for OPA, showed 25 percent growth in the first quarter of 2003 with spending reaching $368 million, compared with $294 million for the first quarter of 2002.

OPA said the top three paid content categories--personals and dating, business and investment, and entertainment and lifestyles--accounted for 65 percent of spending in the first half of 2003, up from 61 percent I can color inside the lines.

I would also not recommend going to the dentist hungover. When she sat me up in the chair when I was done, I thought I was going to hurl into the mini sink. That would have not been good on my newly pearled whites. Suzy, Stephanie and I went to Edison's last night, and I don't remember paying for at least half my drinks. Not that I can't remember because I had so many, but because I wasn't ordering them for myself. The bartender was just making shots for us. And I really really wanted to steal the shot glasses (they were tall and skinny), but alas, there was no birthday gift bags in sight this time. We had a great time last night meeting some fun people and catching up. A note to guys though -- do not lie to a girl about your age. And don't make her guess either. And then lie about it. And then tell her she was wrong. Because then she just gets irritated and doesn't know if you were telling the truth about anything. But usually if you buy her a martini or three, she'll forgive you.

Time to pretend to study before the football game starts.a martini or three, she'll forgive you.

Time to pretend to study before the football game starts.

Making a buck selling songs online will be tough, but a raft of sites are at the ready For years, record companies squelched efforts to sell tunes online, for fear of Napster-style piracy. Now, suddenly, the floodgates are opening. Giants ranging from Dell (DELL ) and Sony (SNE ) to Amazon.com (AMZN ) and Wal-Mart (WMT ) are scrambling to set up Web music stores. So are a number of smaller players including -- yes -- a revived Napster, which is being relaunched by Roxio (ROXI ) Inc. this month. Also within weeks Apple Computer (AAPL ) Inc. will likely go ahead with the much-anticipated launch of its iTunes online store for Windows users. "Within a very short period," says Dell Inc. CEO Michael Dell, "the labels will want to be on as many music stores as they can."

With at least a dozen players likely to enter the market over the next few months, competition will be fierce. Just as the real world has everything from Wal-Mart to the indie record store, the new entrants are looking to carve out niches. Two classes of winners will likely emerge: those with sufficient scale to convert meager per-song margins into meaningful profits and those that use music to sell add-ons, be it hardware, subscriptions to online music magazines, or concert tickets. Says Jonathan Hurd, a vice-president with management consultant Adventis Corp.:"The ones that get the customer experience right will benefit -- but there are many ways to mess up."

To avoid that fate, the new services will largely mimic the business model Apple created for its popular iTunes site. Most will sell songs for 99 cents a piece. Users will be able to burn the songs to as many CDs as they want and play them on up to three PCs or mobile devices. Music execs hope that will provide listeners with the flexibility they crave while preventing mass copying and file-sharing.

TOUGH ECONOMICS. But even at 99 cents a song, making profits selling music online could prove tough. Under existing arrangements, 75 cents or so will go to the label, and credit-card processors will pocket another 5 cents. That leaves just 19 cents for marketing, technology, and all other costs. The rush for market share will almost certainly force services to slash prices -- and to find other ways to make money. Earlier this year, Listen.com experimented by charging 49 cents a song but ultimately retreated to 79 cents -- and only for those with a $9.95 subscription.

So why the rush to jump in? For hardware giants such as Dell, Sony, or Apple, the real money will be made selling music players. Dell is clearly counting on its online music offerings to create demand for its new player, the DJ, set to launch this month. And for Wal-Mart, which accounts for 20% of all music sold in the U.S., it's too big a market to ignore.

Smaller players are counting on selling premium content. For a monthly subscription of $10 or so, customers of Musicmatch Inc. and Napster 2.0 will get a range of perks -- say, exclusive recordings or the ability to easily buy a song heard on a Web radio station.

Whatever the model, getting downloaders to pay for online music will mean giving them sufficient control over their songs. Already, there are signs that the labels will be slightly less flexible with the vast Windows universe than they were with Apple; with 2% of the market, it was less of a piracy concern. Industry insiders say that to discourage users from sharing playlists of, for instance, dance or jazz tunes, EMI (EMI ) Group PLC has forced the services to reduce the number of playlists consumers can burn to a CD to five, for example. That's down from 10 at iTunes.

Other limitations could also give music fans pause. Many new songs won't be available, and acts such as the Beatles still won't be online. Different services, moreover, will use different technologies to ensure customers don't cheat on copying or downloading. Without standards, users will find their portable players won't play songs from every online service.

Still, a year from now, many kinks will be gone. The best services may match the elegance of iTunes, and prices will probably have dropped. That's the best news music fans have heard in a long time.

In the world of entertainment and advertising, youth has always been what is promoted most. More time is spent selling the emblems and ideas of youth than nearly anything else. That's surprising given that what would constitute "youth" makes up less than the average American lifespan. It is even more surprising when you think that those over 30 years of age have substantially more resources and earn more money than those under 30. But the reason for the selling of youth is simple: because those that have it flaunt it and those that don't want it.

But when selling TO youth, what is it that companies should keep in mind about this audience in the era of the Internet?

Young people have always wanted independence and control. Getting one's drivers license has a lot more to do with having the freedom to go where one pleases beyond the spying eyes of our elders than it does with any fascination with motor vehicles.

More than anything else in the modern era, young folk want control over their information. This is possibly the most important thing to note about Generation Y and how they use the Internet. The fact that the Internet is the medium they spend the most time with means that other media do not get used as much, but it does not mean that other media are not still important to them.

Generation Y is among the most adept multi-tasking media consumers alive. When Millennials are online, 50% of them are also watching TV, and 45% of them say they also listen to the radio. They way this generation seizes control of the information that besets them from all sides is to look to the Internet as the place to extend their engagement with what they are receiving from elsewhere. An upcoming event is announced on the radio? They go to the Internet to learn more about it and find out whether or not it is something they want to be a part of. A news item of interest flashes across the TV screen and they cruise the web to confirm, deny, or learn more about what was just shown.

What this means is that the Internet has become the dip around which all of the other chips rotate. The Web is at the center of the media Lazy Susan. The implications of this should not be lost on any marketer or advertiser. This kind of multi-tasking media consumption indicates that perhaps advertisers should start looking to multi-media marketing communications opportunities.

Some marketers have hung on far too long to the notion that they can reach enough of who they need to sustain their business in only one or two media environments, but the reality of media usage among some of us older folks, and the truth of media usage by most of the younger folks suggests that advertisers had better start changing their approach is they wish to be a significant brand in the future.

"I think the fluidity of attention definitely puts the pressure on advertisers and their creative agencies to get the attention of kids," says Roberta McConochie, director of consumer and industry trends at Arbitron, quoted in a story done by MediaLife.

"The smartest thing that you can do is use cross-media synergies to make sure your message gets through and, obviously, do things that get their attention with the message content."

Marketers had better start looking at "surround sound" marketing strategies if they want to be a force with the consumer of the future, and that consumer of the future is Generation Y. Between 1982 and 2002, nearly 100 million persons will belong to this generation, half of them now in their teens an in college. When they enter the age of acquisition (post-college to their mid-50s), they are going to be a spending force to be reckoned with.

To assume that your brand will maintain its relevance if you simply continue to pour your money into television, with annual double-digit CPM increases and declining viewer ship is believing that sending telegrams to your national workforce will keep you competitive with those companies that are communicating with their employees using the telephone. If marketers and advertisers are honest with themselves, they have to realize that to talk to the future they have to be present in it.