In an interview this afternoon, eBay CEO John Donahoe confirmed that it was indeed a “shock” — as he wrote to staff in a memo — after returning from a long New Year’s weekend, to learn that the head of one of the online commerce giant’s key divisions, PayPal President Scott Thompson, was leaving to be CEO of Yahoo.

With only 15 hours’ notice before the planned announcement this morning by Yahoo — and even earlier, given that AllThingsD.com scooped the news last night — Donahoe had no time to inform the company, especially those working at PayPal.

Still, he was as cordial as he could be, given the circumstances.

“Scott is a great guy, and he did a great job at PayPal, and I am one of his biggest supporters,” said Donahoe — known at the company for his even-handed demeanor — despite being blindsided by the longtime eBay exec and also Yahoo. “I told him, ‘I hope you are very successful at Yahoo.’”

But the eBay leader, who noted that he prefers to avoid corporate drama, shrugged off the suggestion that there would be any animosity going forward with Yahoo.

“It’s not the timing that I would have liked. It would have been nice for him to be able to tell the team, but that’s neither here nor there,” Donahoe said. “It’s no big deal.”

He also said he’s not holding a grudge against Thompson.

“Scott wanted to be a CEO, and that’s great. He felt the opportunity wasn’t going to come along again. He had the best non-CEO job in the world, but he wanted to be a CEO, and wanted to go for it,” said Donahoe. “I get that, and there’s not that many CEO jobs coming up.”

Still, after the news broke, one senior Yahoo leader joked to AllThingsD that he was afraid to call Donahoe.

Indeed, now that Yahoo has nabbed Thompson from its crosstown Internet peer, Donahoe will have to move fast to fill the exec shoes now abruptly left empty.

That’s especially true since Thompson’s departure is occurring at a most inopportune time.

First the good news: The digital payments division, which has been the bright spot at eBay, is on target to have a record 2011 performance, and is set to roll out several significant initiatives this year.

But the big item on PayPal’s agenda is daunting, too: To challenge both incumbent payment providers, along with new entrants, such as Google, by creating a digital wallet that can be used for physical payments at retail.

Nonetheless, the most pressing order of business, obviously, is that Thompson will have to be replaced.

And that’s no small task. The seven-year PayPal veteran has a deep knowledge of the digital payments market, and has a track record of success. PayPal has continued on a breakneck pace over the last couple of years, with the division’s revenue now on track to surpass that of eBay.

In addition, Thompson — often described as likable with an easy-going personality — was the company’s most visible cheerleader on payments, eagerly talking to major retailers and convincing them to get on board with its next generation of services.

Now, while PayPal has a plan and a budget for 2012, there is currently no sole person to implement the vision.

Donahoe, who will head up PayPal in the interim, said he addressed the PayPal executive team in a meeting this morning, in an effort to keep the momentum going.

“I got together with the team this morning and we spent a couple of hours together. Rest assured that they are driving ahead collectively to implement the plan that they helped put together over the last year,” Donahoe said. “They have a clear set of 2012 priorities, and they are excited.”

He added: “There was a shock in the morning, but by noontime, it was full speed ahead.”

As an example, Donahoe said eBay had already reassigned five of the company’s top 15 strategic accounts that Thompson was responsible for. Donahoe will take a couple of those, as will eBay CFO Bob Swan, and Devin Wenig, president of eBay’s Marketplaces unit.

But make no mistake, there needs to be a Thompson replacement, and quickly.

PayPal does have a deep bench of executive talent, and any number of senior executives could step up to take the role, although it’s also likely that eBay will conduct an external search before coming to that conclusion.

“I won’t worry about what’s next until we’ve made it a couple weeks into the year and are hitting our milestones,” said Donahoe, who noted that the company’s vision was shared by the management team, and even though Thompson was the one communicating externally, “It was not a one-person plan whatsoever.”

Donahoe declined to elaborate any further on how eBay would conduct a search.

Thompson’s direct reports and key leaders include:

Ed Eger, SVP and GM of North America, core payments and emerging markets; John McCabe, SVP of worldwide operations and customer service; Patrick Dupuis, CFO; Gary Marino, SVP of credit products and risk, who joined through the acquisition of Bill Me Later; Mark Lavelle, VP of strategy and business development, also from Bill Me Later; Rupert Keeley, SVP of Asia Pacific; Sam Shrauger, VP of global product and experience; James Barrese, VP of product development; David Marcus, VP of mobile, who joined through the acquisition of Zong; and Ranjana Clark, SVP and chief customer and marketing officer.

And there is a fairly long list of companies for eBay to attempt to cherry-pick from.

One obvious company is Amazon, which has a competing payments division. If PayPal could legally pull it off, Matt Swann, VP and general manager of payments of Amazon, would be a prime candidate to run the company.

There are also other companies with payment talent — many of which are also situated near eBay in Silicon Valley — including Apple, Google, Facebook, VeriFone, Intuit and the traditional payments providers, such as Visa, MasterCard or American Express.

While analysts viewed Thompson’s departure as a negative, they were still largely optimistic about PayPal’s future.

Colin Sebastian of Baird Equity wrote in a note to investors that “the core PayPal consumer value proposition remains strong, in our view, and remains well positioned for long-term growth.”

Citi Analyst Mark Mahaney pointed out that Thompson’s departure comes on the heels of a number of PayPal executive departures, including Stephanie Tilenius and Osama Bedier, both of whom left for Google; and Lorrie Norrington, who left eBay for personal reasons.

Still, eBay’s stock dropped $1.18 a share, or nearly 4 percent, on the Thompson news, to close at $30.16.

It is interesting to note that eBay’s market cap hovers close to $40 billion, which is still twice Yahoo’s market valuation.

Barring a last-minute hitch, EMI’s recorded-music unit will be sold to Vivendi SA’s Universal Music Group for $1.9 billion, while a group spearheaded by Sony Corp.’s music division will buy the publishing operation for $2.2 billion, according to a person familiar with the matter. The deal, valued at $4.1 billion in total, could be announced later Friday, but the bank may wait until the weekend, the person said.

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But don’t expect Amazon to crack open the books to provide anything more concrete than that, even during the company’s third-quarter earnings report, being released tomorrow.

The Seattle-based e-commerce giant has yet to provide numbers on how well its lineup of Kindles is selling, and that’s not likely to change.

For the most part, Amazon doesn’t share these figures because it doesn’t have to. Piper Jaffray Analyst Gene Munster points out that the Kindle is a fairly small part of Amazon’s business and, according to his best guess, makes up only about 4 percent of revenues.

And if Amazon doesn’t have to disclose sales, why would it want to? The numbers would only tip off Apple and Barnes & Noble on how well its tablet business is doing.

But expect Amazon to be under increasing pressure to start divulging more information as the Kindle makes a greater impact on its bottom line.

Analyst Mark Mahaney of Citi largely expects the third and fourth quarters to be strong; however, his guidance is lower compared to the Street consensus because of the financial hit the Kindle Fire launch could have on earnings.

“There is the distinct possibility that an aggressive/successful Fire launch could materially negatively impact AMZN’s margins and EPS near-term,” he wrote in a note to investors.

He expects a profit of 19 cents a share on revenues of $10.8 billion. The Street’s consensus is a profit of 24 cents a share on revenues of $10.9 billion.

As an indication of how well the full lineup of Kindle devices is selling, the top seven bestsellers in Amazon’s electronics store are Kindles of different shapes and sizes.

The Kindle Fire, which ships Nov. 15, is the most expensive and has been in the top slot for the past 27 days. The next best-selling Kindle is the cheapest model, at $79.

J.P. Morgan is estimating that in the fourth quarter, Amazon could sell five million Fires.

But all those sales may not be the best of news.

The Kindle Fire could result in lower earnings because of its aggressive price point. At just $199, it costs less than half of Apple’s entry-level iPad, which makes it appealing to the mass audience. But Amazon could be losing about $50 per Fire, according to some estimates.

However, the lower margin could be offset by the company’s new “offers” business, which basically places advertising on the devices to subsidize the cost of the hardware.

For example, the Kindle Touch with Special Offers costs only $99, but if you want one without ads, it costs $40 more. The new Kindle, without a touchscreen, costs $109 — or $79 for the ad-subsidized model. It’s not clear at this time if the Fire will ship with offers or not.

The offers appear on the device’s screensaver and do not appear while reading the text of a book or at any other time. They are sold by both Amazon and LivingSocial, which is second to Groupon in the deals niche and backed by Amazon.

As part of the announcement, Google declared that it will also be working with Visa, American Express and Discover in addition to its original partners MasterCard and Citi to bring the technology to more consumers.

The Google Wallet will be pushed to owners of the Sprint Nexus S 4G in an over-the-air software update, according to a Google blog post.

The announcement has been expected since May, when Google unveiled its plans for an official launch this summer.

Still, the rollout is more symbolic today than anything since the impact to consumers will be small until near field communication is adopted more widely by merchants, carriers and wireless handset makers.

The addition of Visa, American Express and Discover into the offering will help some of the adoption concerns as more cards can be added to the Wallet in the future versions.

Users will be able to tap and pay at roughly 150,000 terminals in the U.S that are enabled by MasterCard’s PayPass technology. And, with the addition of Visa, Google also will have access to Visa’s payWave NFC-enabled terminals totaling “hundreds of thousands of retail locations worldwide,” according to a statement by Visa.

The online restaurant reservations company said today it has appointed Duncan Robertson to the position of CFO. Robertson previously co-founded and served as CFO of SnapStick, a mobile app company. Prior to that, he was CFO of Aricent, a technology services company.

Three months ago, the company surprised Wall Street when its CFO Matthew Roberts was promoted to president and CEO and said Jeff Jordan, the president and CEO, would transition to executive chairman.

Jordan has since taken a job at Andreessen Horowitz, the large Silicon Valley VC firm.

When Jordan’s departure was announced, OpenTable’s stock fell $17 to $96. Today, the company’s stock continued spiraling downward, slipping another 9.5 percent, or $6.51 a share, to stop at $68.90 a share in after-hours trading.

OpenTable reported second-quarter revenues of $34.3 million, a 53 percent increase over the same period a year earlier. It was that figure that narrowly missed analyst expectations of $35.3 million, according to Thomson Reuters.

The company’s quarterly profits totaled $6.3 million, or 26 cents a share, up from $2.6 million or 11 cents a share in the second quarter 2010.

Despite executives playing musical chairs, Citi’s Internet Research Managing Director Mark Mahaney wrote in a note to investors that the company reported an “intrinsically robust” second quarter, and that revenues were only modestly below his estimates, whereas adjusted earnings per share of 33 cents beat expectations.

Other positive results:

• Its base of restaurants increased 27 percent to 15,560 year over year and diners seated totaled 22.2 million, a 47 percent increase in North America.
• Internationally, it saw even stronger growth, with its installed base of restaurants growing by 276 percent and seated diners up 249 percent year over year.

Tomorrow, Yahoo will announce its second-quarter earnings and, once again, Wall Street is expecting yet another meh performance from the Internet giant.

In his “cheat sheet” report, Citi analyst Mark Mahaney’s take is pretty typical of the sentiment of investors weary of waiting for a rebound in Yahoo’s growth.

“From $15, we believe YHOO shares have upwards bias,” wrote Mahaney, “but we don’t have real conviction.”

That’s become the unfortunate norm for Yahoo, whose management has continued to struggle with a variety of issues, from its ongoing talent drain to an unexpected and still unresolved fight with its main partner in China to the troubles in its search partnership with Microsoft to the overall lack of ability to turbocharge its advertising and other businesses as has been long promised.

While it is certainly not for lack of trying, the prospect of Yahoo CEO Carol Bartz wheeling out another series of excuses for the lack of turnaround and — something many have been looking for most of all — a clearer strategic vision for the company on the earnings call on Tuesday, will surely not produce a dulcet impact on its depressed shares.

The stock has continued to dip well below $15 a share, down almost six percent last week and 13 percent for the last six months.

That’s why some think that Yahoo’s interest in bidding for the Hulu premium video service, which is being sold by its media giant owners, might be just the bold and risky move to get the company centered around.

With the online video ad business growing and the need for Yahoo to focus its many ambitions, some think Hulu could be a key piece in becoming the “premier digital media company” that the Internet giant has recently taken to calling itself.

By doubling down on what Hulu represents — that would be the premium online video business — it’s a fast-growing category Yahoo’s large sales force would be well-suited for.

In addition, a purchase of Hulu could give Yahoo some much-needed talent in the arena, including its CEO Jason Kilar and others.

“Of all the buyers, Yahoo is the most in need of a purchase to change its paradigm,” said one observer. “If it could not pay too much, Hulu would give Yahoo some differentiating that it really needs.”

Of course, paying too much for Hulu is a key consideration mentioned by all who are looking at it, including Google, AT&T, Amazon and others.

How to determine the value of Hulu’s content licenses, both now and later — given that once those rights expire whoever owns Hulu will eventually have to compete in acquiring the often high-priced material from Hollywood — is the biggest question they are asking.

Is that worth $1 billion or $2 billion? Can a new owner keep up the momentum needed to successfully maintain the Hulu business well after those content rights expire? And, of course, which company would be best suited to accomplish this task?

Yahoo certainly has all the potential to be at the front of that line, despite being managed erratically for far too long. But — also as usual — there is the endless debate internally over whether buying it will fix problems.

Whatever happens, most agree that something dramatic needs to happen at Yahoo, rather than the continual story of flatness that has been coming out of the company for far too long.

And we’ll all see if that’s improved after the close of the market tomorrow, when Wall Street is expecting Yahoo to report revenue of $1.11 billion on earnings of 18 cents.

That’s a revenue decline of two percent, which is not great, especially considering Google’s strong performance last week. Then again, it’s better than the first quarter’s six percent drop in revenue for Yahoo.

Like I said: Meh.

Hey Larry! How are you?

Come on in! Take a seat! Tell us how things are going!

No? Gotta run?

OK, then. See you in three months …

That’s a replay, more or less, of Google’s earnings call last quarter, the first one under the Larry Page regime.

Lots of folks thought it might be nice to hear what the new boss had to say about his company, but Page didn’t play along. He showed up for the first few minutes, muttered 370 nondescriptive words, and took off.

You can argue, convincingly, that Larry Page is the co-founder of a really, really successful company, and that if he doesn’t want to follow Wall Street tradition — like sticking around for the duration of his earnings call — he shouldn’t have to.

Still, Google’s stock did plummet after that call, and has yet to recover, even after a post-Google+ runup.

It’s much more likely that Google shares dropped because Wall Street is more worried about the company’s spending, and competition from Facebook, than about Page’s presentational skills. But wouldn’t it be nice to remove that bit of uncertainty from the equation?

As usual, here’s Citigroup analyst Mark Mahaney’s “cheat sheet” for today’s proceedings, so you can play along at home. The market is looking for revenues of $6.54 billion and earnings of $7.87; given last quarter’s performance, it’s reasonable to assume investors will also be looking closely at capital expenditures and margins. (Click image to enlarge).

Also as usual, many of us will hope to hear more about Google’s efforts beyond its core search business — YouTube, mobile and now social. That information doesn’t have to come from Page, of course. But if he wants to speak up, we won’t complain.

Samsung confirmed Khan’s departure in a statement on Monday morning.

“Omar Khan was a valued member of the Samsung Mobile US team but has decided to leave Samsung Mobile to pursue another opportunity,” the cellphone maker said. “Omar is not leaving to join a competitor to Samsung, and we anticipate having a continued relationship with him once he settles into his new role.”

As for Khan’s duties, most of them will fall to Tim Rowden, Samsung said, while the job of being the public spokesperson for the Korean firm’s U.S. arm will be assumed by Nick Dicarlo and Gavin Kim.

Khan joined Samsung Mobile in 2008 as Senior VP of strategy, leaving a post as a vice president at Motorola.

Word of Khan’s departure was first published Sunday evening by Android-related site The Droid Guy.

Talking to AOL CEO Tim Armstrong earlier this week about its investors day tomorrow, he used the word “execution” a lot.

No, not the kind evoking a firing squad if he did not succeed at turning around the New York-based Internet giant soon as he has long promised.

Instead, Armstrong was referring to reassuring big shareholders and Wall Street analysts that AOL was now in a mode of making sure all its many moves to turn around the company will finally begin to pay off.

“Basically, our point is going to be about fully operating around the strategy we’ve built,” said Armstrong in a wide-ranging interview. “It seems right for investors to ask about executing on what we have been doing for the last year and a half.”

It’s certainly the right message for the charismatic executive to be delivering, as he and other top AOL execs present their plans moving forward, especially after what has turned out to be a very hyperactive year.

After deep layoffs, a massive rejiggering of its management ranks and a number of shifts of its business focus, without much advertising increase to show for it yet, Armstrong has also pushed through a series of acquisitions.

It culminated in the high-profile and decidedly dramatic purchase of the Huffington Post in January for $350 million in cash.

Now, said Armstrong, deals will be taking a back seat to products.

“We are diligently staying on strategy and really focusing on products and services,” said Armstrong. “We have laid out the path we are on and now investors want proof of the concept.”

To Armstrong, that means the push of “branded content” and a continued focus on significant properties in key topic areas.

Tomorrow, in news that could worry investors, AOL will be noting that traffic is flat year over year, but explaining that it is due to the outsourcing of its sports and health sites.

“If you added that back in, we would have had a phenomenal year of growth,” said Armstrong. “Our main point will be that this is the right path for AOL.”

In fact, in an unusual wording, he said AOL was betting on the “urbanization” of the Web around big branded sites, which is, in many ways, exactly where the Web was a decade ago with Yahoo, Excite and others.

But Armstrong will be making the point that this retro idea is perfect for today, as marketers look for quality content that attracts big audiences, which has seen its most energetic application in the Huffington Post.

Thus, his linchpin remains the flashy news site’s even flashier co-founder Arianna Huffington, who has cut a very wide swath through AOL’s content efforts since Amstrong made her media czar of the company.

As Armstrong did, she also stressed the focus on unique visitors and ad growth, more video and a laser focus on local.

This includes shoving editorial into every AOL property, including unlikely ones such as Moviefone and MapQuest, and integrating it all to point back to the Huffington Post mothership.

“Much better editorial integration is a centerpiece of what we are doing, surfacing content in new places it was not before,” said Huffington, who used examples of local stories via its Patch unit that have gone global with a special push.

And by global, that also means the creation of new content sites in Europe and elsewhere, in order to build this unusual dream of a fully aggregating world.

“It is a big test of the HuffPo platform aggregation to do this,” said Huffington, who has clearly longed for the kind of money and staff to do this for a very long time. “It has moved a lot faster than I thought it would … but it feels good to be moving on so many fronts at once.”

Many fronts indeed, which might make investors pause. So far, those shareholders have had a continued wait-and-see attitude toward AOL, which has seen its stock decline almost 13 percent from its late 2009 IPO debut.

That’s mostly due to worries about whether the continued and expected fall-off of its lucrative access business can be met by similar increases in its ad business.

That share drop has been especially steep since the beginning of the year, but it has also not been drastic, indicating an interest in continuing to believe Armstrong’s confident — well, confidently delivered, at least — narrative.

As Citi’s Mark Mahaney wrote in a one-hand-other-hand note yesterday about the investor day:

Positives: 1) AOL still remains a top 5 U.S. Internet property; 2) In the latest quarter, AOL’s Display segment grew Y/Y for the first time in ~3 years, and this improvement seems sustainable; 3) At 4x ’11 EV/EBITDA, AOL’s valuation is among the lowest of any ’Net Stock. Negatives: 1) Deteriorating fundamentals; 2) Significant market share losses — ’Net usage, Display Advertising revenue & Search queries; 3) A significant profit hole from the structural decline of its Subs biz; 4) Substantial competitive risk; and 5) An unproven (@ AOL) management team.

“We all like Tim and what he says makes a lot of sense,” added one big investor, who is also attending and has many questions about the efficacy of what AOL is doing, in a common sentiment among its large shareholders. “But we also need to see real results soon.”

“We believe a foundry relationship may be forming between Intel and Apple,” Yeung says. “Our discussions with the hardware supply chain tend to support this belief. Intel has previously acknowledged they would be amenable to such a relationship, under the right conditions.”

Among those conditions, says Yeung: An agreement from Apple to someday convert from an ARM-based core for handsets and tablets to x86, which would essentially give Intel Apple’s chip business. That would obviously be a huge win for Intel, as it stands to gain much from Apple’s market share in smartphones and tablets.

But there is one problem. Apple’s A4 and A5 chips are based on an ARM design and Intel isn’t exactly a big fan of ARM. Asked during Intel’s recent investor meeting if the company would consider fabbing chips based on the ARM architecture, CEO Paul Otellini had this to say: “The short answer is ‘No.’”

A foundry partnership with Apple would require a rethinking of that answer, at least for the short term. And Intel certainly could do it. It has the necessary ARM licenses. It just needs to convince Apple to dump Samsung, which currently handles chip fabrication for it, and migrate its mobile devices over to its forthcoming low-power x86-based chips next year.

Fourfold growth in a single year. An astonishing increase, though inevitable given the rapidity of growth we’ve seen in mobile recently. And great news for Google (GOOG), for which mobile search is already big business. By Citi analyst Mark Mahaney’s estimate, Google Mobile revenue will exit 2010 at a $500MM net revenue run rate.

AOL’s earnings numbers were sent out of whack by a giant $1.4 billion goodwill charge. Most of that comes from the write-down the company took when it sold off Bebo for a bag of potato chips. But that’s not all of it.

The company’s description: “The underlying drivers of the impairment were a significant increase in net assets due principally to cash provided by continuing operations and a significant deferred tax asset associated with Bebo concurrent with a significant decline in AOL’s stock price since April.”

In any case, if you strip out those charges, AOL recorded the earnings equivalent of $0.66 a share, just under Wall Street’s $0.67 consensus.

But the two important things to watch here are the rate of decline at AOL’s subscription business (which powers the company in the present tense) and the story at AOL’s ad business (which is its putative future). Here’s the breakdown:

That 27 percent subscription revenue drop is steeper than expected. Perhaps people, like my in-laws — who continue to pay AOL a monthly fee even though I beg them not to — are wising up.

The bright spot for the company is its U.S. domestic display sales — that 7 percent decline is better than Wall Street had expected, and AOL says that if you net everything out, sales numbers for its premium inventory are essentially flat, which is the new up!

AOL’s words: “Domestic display advertising revenues reflect flat premium inventory sales compared to the prior year period, despite beginning Q2 2010 with a smaller pipeline, due to incremental revenue generated intra-quarter by AOL sales representatives, offset by the impact on sales of a salesforce reorganization in Q1 2010.”

Here’s Citigroup’s Q2 cheat sheet, via Mark Mahaney:

Armstrong’s opening message to investors during the 8 am earnings call: “Nobody likes to show up to these calls and report down numbers in an up market.” But he restated his mantra: AOL is in the midst of a long turnaround, and eventually, investors will be able to see results.

In an incident that highlights the growing security challenges around wireless apps, Citi said its iPhone app accidentally saved personal account information in a hidden file on users’ iPhones. Information that may have been stored includes their account numbers, bill payments and security access codes.

The information may also have been saved to a user’s computer if they synced their iPhone with a PC.

It wasn’t immediately clear whether the information was stored in an area that could have been accessed by a hacker, but Citi said it doesn’t believe the data was breached and said its new app corrects the problem.

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In a statement, the bank said it “sincerely apologizes to [Jason] Goldberg for this misunderstanding. This situation had nothing to do with the content of his web site and any comments by our staff to the contrary were incorrect; we are reviewing what happened.” But questions remain about the bank’s policies; Deal Journal reported last week that a business selling underwear online was denied a Citi account because of the bank’s concerns about content.

Mr. Goldberg, whose site fabulis recently received $625,000 in funding from investors led by The Washington Post Co. (WPO), said in an interview that he opened a business account with Citi and deposited that seed money into the account last month. Earlier this week, he said, he found himself unable to access the funds. He blogged about his experience, describing repeated conversations with Citibank staff in which he says they told him about a review process that found the content of his site was not in compliance with the bank’s policies.

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Even if you don’t follow this stuff, you may have heard of Limelight’s much bigger rival, Akamai (AKAM), which moves a good portion of the Web’s data.

This was supposed to be a booming business, but it hasn’t panned out in recent years. The problem: Big Web players are putting more and more stuff online, but the prices content delivery networks charge to bring it to your desktop keep dropping lower and lower.

So you’re left with a fast-moving industry that doesn’t actually go anywhere, at least in terms of revenue. Citi’s (C) Mark Mahaney, citing industry analyst Dan Rayburn, figures that volume increased around 35 percent this year, but that pricing dropped by the same amount.

Limelight’s most recent financials illustrate the dilemma quite nicely: Third-quarter revenue of $32.5 million was up just one percent from the previous quarter and down slightly from the $33.1 million the company generated the previous year. Its losses, at least, are shrinking.

So diversification couldn’t hurt, right? And this makes sense on paper: Privately held Eye Wonder specializes in selling video and “rich media” ads–the kind of data-intensive stuff that was supposed to help the likes of Limelight grow in the first place.

[Image credit: kamshots]

And it turns out that people still care about John, Paul, et al.

EMI says it has sold a staggering 10 million copies of the band’s remastered albums since September. The total includes the giant box sets of the band’s work (if you bought the stereo set, that accounted for 14 albums in one purchase; if you went with the mono discs, that counted for 11), as well as downloads for the sort-of successful Beatles Rock Band game.

And, of course, nada from iTunes. Sidebar: If and when the band finally starts selling its music on Apple’s (AAPL) digital storefront, will there be anyone left to buy it?

But back to EMI, which has much more unpleasant news to deal with, namely that owner Terra Firma seems to be at the end of its rope. The private equity firm is now suing Citibank (C), which lent it the billions it needed to buy the music company in 2007, for fraud.

And Terra Firma is reportedly looking for investors to lend it another $1.6 billion to keep the company afloat, in large part because it fears it will default on the money it has already borrowed from Citi.

The conventional wisdom, meanwhile, is that all of this is simply a precursor to an eventual combination between EMI and Warner Music Group (WMG)–a deal the two companies have been trying to pull off for close to a decade.

Terra Firma’s complaint, via the New York Times’s Dealbook, makes for fascinating reading, in large part because of the cognitive dissonance created by Terra Firma’s description of itself.

The company describes itself as a clueless investor duped by Citigroup into buying the music company in an auction with no other bidders and as a savvy manager that has turned around the ailing music company.

Can both descriptions be true?

Terra Firma’s Lawsuit Against Citi Over EMI

(Also, some free fact-checking for Terra Firma’s attorneys: The iTunes Store launched in 2003, not 2005.)

So, a 50-50 chance for a deal. Sounds about right, with Carol Bartz the wild card that could swing the odds as quickly and easily as she drops the F-bomb and with Microsoft as the desperate gambler looking to win back the deed to the search market it lost. Said Citi’s Mark S. Mahaney, “Although we view the likelihood of a major transaction as unlikely near-term, we continue to view Yahoo as the only logical long-term acquisition target for any company seeking scale in Internet advertising.”

Can’t wait for the debut of Kindle 2.0, which should arrive around 10 a.m. this morning in New York?

Here’s a splash of cold water, courtesy of Jeffrey Lindsay: The Bernstein Research analyst says Amazon’s much-hyped e-book reader is merely a “niche product”–and that the e-commerce giant wants to keep it that way.

Lindsay’s argument in a nutshell: Electronic delivery of content may be the future of Amazon’s (AMZN) business, but it’s going to make most of its money selling physical goods for a long time to come. So Jeff Bezos and company won’t make the moves that, say, Steve Jobs and Apple (AAPL) might make if those guys were pushing e-books.

Lindsay: “Unlike Apple with the iPod, which cannibalized somebody else’s sales–namely the music industry–Amazon with Kindle is in part cannibalizing sales of its bestselling product, and this must be factored into the economics.”

Translation: Don’t expect to see super-cheap (say, $99) Kindles anytime soon.

Lindsay’s numbers aren’t radically different than those of Mark Mahaney, the Citi (C) analyst who has been notably bullish about the Kindle and its impact on Amazon’s business.

Both men estimate that Amazon sold about 500,000 devices last year. And while Mahaney thinks Amazon’s hardware and software sales will be a $1.2 billion business by the end of next year, Lindsay has a more conservative $900 million estimate.

Even by 2012, when Lindsay thinks Amazon will be selling two million Kindles a year, this won’t mean that much: Amazon’s revenues could actually decline by 0.6 percent because of slower physical book sales, while the company’s earnings would increase by perhaps 2.9 percent, the analyst predicts.

All worthy thoughts to contemplate–a little later on today. But in the very near term, most Kindle-watchers will be focused on more prosaic concerns. Like are those “leaked” Kindle 2.0 product shots real? We should have answers in a few hours, when Amazon holds its press conference at the Morgan Library.

Check back at All Things Digital at 10 a.m., where I’ll be liveblogging the event.

The company predicted that it would have 10.1 million to 10.3 million subscribers by the end of March, and 10.6 million to 11.3 million by the end of the year. Those numbers trump consensus expectations of 9.6 million and 10.3 million, respectively.

The rest of the company’s guidance was also strong: Netflix beat expectations with its predictions for Q1 and full-year revenue and earnings per share.

The company had already tipped its hand about its Q4 results when it told investors that it had “a remarkably strong quarter,” so those numbers aren’t that important in Wall Street’s eyes. For what it’s worth, the company posted earnings of 38 cents per share on revenues of $359 million versus expectations of 34 cents a share and $354 million.

“Consumers embraced the Netflix experience in near record numbers last quarter,” said CEO Reed Hastings, “with growth in our core DVD offering and growing momentum with internet streaming.”

Investors have been betting for quite some time that Netflix would be able to weather a recession, and even thrive during one, as consumers hunker down in front of their flat screens instead of spending money on more expensive entertainment. And they’re also hopeful about the strides the company had made toward delivering movies via broadband–a technology that so far flummoxed rival Blockbuster (BBI).

I’ll be listening to the company’s earnings call, which begins at 5 p.m. Eastern time, and will update this post if there’s anything particularly illuminating.

Here’s Citi (C) analyst Mark Mahaney’s helpful “cheat sheet” if you want to evaluate the results on your own (click to enlarge):

[Image Credit: jeknee]

One of the first duties for new Yahoo CEO Carol Bartz: Deliver a brutal fourth-quarter report card for the company she just inherited.

So says Citi (C) analyst Mark Mahaney, who predicts that Yahoo (YHOO) will post a one percent year-over-year decline in its core display ad business when it reports fourth-quarter earnings Jan. 27. That would be the first time that’s ever happened in the company’s history. Mahaney, in his best dry analyst-speak, describes that as a “significant negative.”

It also won’t be a huge surprise: As the chart above (click to enlarge) illustrates, Yahoo’s display advertising has been weakening throughout the year. The same has been happening to its peers, too: Time Warner’s (TWX) AOL may be about to post an 18 percent drop in its ad revenue.

Industrywide, Mahaney thinks, display ads will climb two percent this year. (That makes him an optimist in some quarters.)

And if Bartz does have to deliver lousy news, now is the best possible time to do it: This will get laid at the feet of Jerry Yang, Sue Decker and the economy in general.

Next quarter, though? A different story.

We continue to be big fans of this product. And we continue to believe that Amazon has a hit on its hands with this device. The problem is that Amazon (AMZN) sold out of these devices way too early this holiday period. And Amazon still doesn’t have International versions available. Hard to see a premier consumer electronics company (e.g. Apple) (AAPL) making these types of errors. But then again, Amazon isn’t a premier consumer electronics company.”

– Citi’s Mark Mahaney on the Kindle