Reporting first-quarter earnings, Hon Hai said revenue fell 19.2 percent from the year prior, to NT$809 billion. That’s well below the NT$895 billion analysts were expecting, and the largest drop in revenue the company has suffered since 2000.

The reason for the precipitous decline? Hon Hai won’t say. But it’s likely to have something to do with Apple. Between 60 percent and 70 percent of Hon Hai’s revenue is believed to stem from the company’s partnership with Apple. So when it posts ugly earnings like these, the quick and easy explanation for them is a slowing in demand for the iPhones and iPads it manufactures. As KGI Securities analyst Ming-chi Kuo told Reuters today, “This shows that Hon Hai’s revenue depends too much on Apple, and iPhone orders corrected more than expected.”

That may be true. But it’s important to remember that Hon Hai’s customer list stretches well beyond Apple, and boasts a number of big names, Hewlett-Packard, Dell, Nokia and Nintendo among them. Given the decline in the PC market, and continuing struggles at Dell, Nintendo and Nokia, it’s entirely possible that there are some other factors at work here, as well.

But that’s just speculation until Apple next reports earnings on April 23.

Hon Hai and Apple both declined comment.

The ultimate native ads are the glossy fashion ads in Vogue: in most cases, they’re better than the editorial, and as a result, readers spend as much time with the ads — if not more — as they do with the edit.

– Felix Salmon, writing about the potential of native advertising on the Web

The company is on the block, and lots of folks think it is talking to Yahoo about a sale.

Five-year-old Grab Media makes its money by taking video from professional content makers like Reuters, NBC Universal and Hearst, and getting it embedded on thousands of other small sites. It’s very similar to 5Min, which AOL purchased in 2010, and has done very well with since then.

Grab has been able to grow into a decent-sized business. ComScore has it in 11th place in its U.S. “video content” rankings, with 29.9 million unique viewers. That puts it just behind Turner Digital and ahead of Amazon. Google/YouTube, of course, is way ahead of everyone, with 150 million uniques.

Grab CEO Alvin Bowles confirmed that his company has hired investment bank Mesa Global to look for potential buyers, but wouldn’t comment beyond that.

AOL video executive Greg Prosl laid out the case for a Yahoo deal earlier this week on his personal site, and I’m told that Yahoo has indeed talked to Grab about a deal; industry executives I’ve talked to think the company would sell for less than $50 million.

Grab, whose backers include SoftBank Capital, has gone through several incarnations. In 2011, it sold off an earlier version of itself, a unit that focused on video transcoding. Last year, Grab raised $5 million via a combination of internal financing and venture debt, according to a person familiar with the company.

Anonymity and pseudonymity are perfectly reasonable under some situations. But there are cases where in the transactions both parties really need to know who are we talking to. So what I’m looking for is not that we shut down anonymity, but rather that we offer an option when needed that can strongly authenticate who the parties are.

– Vint Cerf, in an interview with Reuters

Image copyright Vicki France

In spite of a soft economy, with about 14.5 million unemployed Americans and 8.2 million under-employed, people are still holding onto paid television, and actually consuming more video than ever before. Netflix has crossed over 30 million subscribers in the U.S., Hulu is approaching three million, but only 2.65 million people in the country “cut the cord” from traditional paid TV service. In fact, Americans are still spending about 33 hours a week watching traditional TV (that’s 4.5 hours a day!), compared to 27 minutes a week of streaming video. So where is this TV revolution the pundits have been blogging about??

Maybe we need to stop thinking of cable TV the way we think of phone service. It’s easy for technologists to predict that streaming video will do to cable companies what Skype did to the telcos, but I propose a new lens to filter TV technologies: an App that replaces broadcast television is like saying Yelp should replace Taco Bell.

My contention is that a “TV revolution,” as some are calling it, is not in the cards. Instead, I see a “transformation” of TV taking place, and while transformations are far less sexy to blog about than revolutions, I think this one could be pretty fun and pretty lucrative for tech companies that get it right. First, let’s clarify “transformation” versus “revolution,” in the context of Web services and Internet Apps:

• Revolutionary apps fundamentally overthrow an analog provider with a digital alternative. Examples: Skype is a substitute for your landline. iTunes is a substitute for Virgin Megastore. LinkedIn is a substitute for schmoozing. Match.com is a substitute for my pushy (but well-intentioned) auntie in India.
• Transformative Apps make analog providers a more pleasing or user-friendly experience. Examples: Fandango makes going to movies easy and predictable. Foodspotting makes finding the perfect entree a delightful experience. Mint makes banking more manageable and transparent. Driving from San Francisco to a cabin in Tahoe is a breeze thanks to Google Maps. None of these technologies replace the desired outcome, but they greatly enhance the experience to achieve it.

All evidence and viewership data suggests that YouTube, Hulu or Netflix isn’t a substitute for the experience of gathering around a big-screen to watch the Super Bowl or the latest episode of American Idol. Apps that make the offline experience of watching traditional television better, more fun and more social will be far more successful than those that try to overthrow TV. The Twitter app on my phone, for example, is the perfect TV companion and primary beneficiary of this phenomenon.

There is no question that on-demand, instant access to great shows on the iPad or laptop is one of the coolest things ever, but this is proving to be additive and incremental to traditional TV viewership at the moment. Most consumers still love the experience of watching TV on the TV.

In 2012, the Olympics provided the perfect case study for the transformation that’s taking place. Between the live streams on NBC.com, real-time access to event scoring and the medal count, we have never had this much access to the Olympics in history. Nearly every major event was available online, and usage was tremendous. But what pundits failed to point out this past summer is that we did not give up big screen, traditional television. NBC’s primetime broadcast, which was all taped coverage, averaged 31.1 million viewers per night, which was up 12 percent from the Beijing Olympics in 2008! According to NBC, many people who watched events, streaming live to a Web browser, also watched them again on television.

We have 70 years of consumer behavior patterns established and burned into the American psyche. And on top of that, television is big business. It exists on $65 billion of advertising spending and $60 billion of subscription revenue, and that’s 125 billion reasons why the industry will resist this revolution. In stark contrast to my friends in Silicon Valley who have said that they want to “destroy television,” I strongly believe that television should be transformed. And those of us inspired by the opportunity to innovate in the TV industry should be thinking about the opportunity in a transformational way if we hope to succeed.

Ashwin Navin is the CEO and co-founder of Flingo, the largest publisher of Smart TV software including apps from FOX, A+E Networks, Showtime, the WB, Transworld and TMZ.

Walmart is slashing the price of a few iPhone and iPad models — including Apple’s flagship iPhone 5 — in 3,000 stores, reports Reuters.

The 16 gigabyte iPhone 5 will cost $127, compared to the original price of $190 (with a two-year contract from Verizon Wireless, Sprint or AT&T). Wal-Mart is also selling the 16GB iPhone 4S for $47 — nearly half off. The 16GB iPad with Wi-Fi will cost $399, or $100 off.

Interestingly, the 30-day promotion has Apple’s blessing. A Walmart spokeswoman told Retuers that the discounts were arranged with Apple. But, after making a few inquiries, the discounts proved difficult to find in a handful of locations in Washington and California.

I was told that the iPhone is only carried at Walmart Supercenters, which, if true, should make the hunt easier, since there are only 3,100 supercenters in the U.S., roughly the equivalent number of stores where Walmart is supposedly offering the discounts. Instead, I found the inventory and prices to be wildly inconsistent.

My advice, if you plan on taking on the challenge, is be patient. It takes awhile to find the correct person in electronics to answer your question on the phone, and hold times can be long. In one case, I was hung up on; in another extreme case, a representative simply told me that the iPhone 5 would cost “a lot.”

After calling the stores close to my home, I found that some only carried phones for Verizon Wireless and sometimes AT&T, but never Sprint. Additionally, inventory was limited to the 16GB iPhone 5, with none carrying the higher-capacity 32GB model.

Finally, after calling two stores in the San Francisco area, I found one Supercenter that was selling the iPhone at a discount. The Walmart in American Canyon, Calif. said the phone from Verizon Wireless would cost $127 with a two-year contract, but the iPad remained at its original price of $499. The Supercenter in Napa continued to charge full price for all the devices.

Here’s one idea: To save time and the headache of calling around, go to one of the many stores that are offering to match the lowest prices this holiday season, including Best Buy and Target, which have both vowed to honor some competitors’ prices. Perhaps you’ll have better luck there.

First, HP’s total $8.8 billion write-down isn’t all Autonomy-related. Of that total amount, about $5 billion relates specifically to Autonomy. Moments ago, on a conference call with reporters, HP CFO Cathie Lesjak said that the rest stems from the drop in HP’s share price.

The core allegation is that people at Autonomy took certain accounting actions while still running Autonomy as a publicly held company in the U.K., which had the end effect of making Autonomy seem more valuable than it was. As CEO Meg Whitman put it on a conference call a few minutes ago: “There appears to have been a wilfull effort on the part of certain former Autonomy employees to inflate the underlying financials of the company in order to mislead investors and potential buyers.”

It’s important to note that Autonomy’s founder and former CEO Mike Lynch has just issued a statement, essentially denying HP’s claims. I heard portions of the statement read on CNBC. In a statement being reported by Reuters, he has “flatly rejected” HP’s allegations. Also: “HP’s due diligence review was intensive, overseen on behalf of HP by KPMG, Barclays and Perella Weinberg. HP’s senior management has also been closely involved with running Autonomy for the past year.”

So what is alleged to have happened? For one thing, Autonomy, as HP tells it, was selling some hardware at a loss. During a period of about eight quarters prior to HP’s acquisition, Autonomy sold some hardware products that had a very low margin or on which it may have even taken a loss. It then allegedly turned around and booked those hardware sales as high-margin software sales. At least some portion of the cost on these products, Whitman said, was booked as a marketing expense, not as cost of goods sold.

There’s a second piece of the puzzle, where HP says that Autonomy was selling software to value-added resellers — the middlemen in so many technology transactions — in which there are ultimately no end users. That, too, inflated apparent revenue.

Third, there were some long-term hosting deals — essentially, Autonomy hosting applications for its customers on a subscription basis — that were converted to short-term licensing deals. Future revenue for software subscriptions — that should have been deferred or recorded as coming in the future but not yet booked — were stripped out and booked all at once.

John Schultz, HP’s general counsel, said there appeared to be what he called “a conscious effort by some former Autonomy employees to portray it as a pure software company.” The low-margin or loss-making hardware sales in particular, he said on the conference call, amounted to as much as 10 percent to 15 percent of Autonomy’s revenue during the eight-quarter period in question.

It had the effect, Schultz said, of not only closing the gap between actual financial growth and the consensus expectation of analysts — meeting the consensus is always a concern at a publicly held company — but also inflated the “growth metrics” of the company. “From an accounting perspective, there were improprieties, but also there were severe disclosure failures,” he said.

Lesjak said the problems are not only with the fact that revenue was inflated by itself, but the kinds of revenue. “These hardware sales were frequently reported as licenses. The VAR sales were reported as licenses, and they weren’t, in some sense, real sales, because there was no end user.”

The result, Lesjak said, was that Autonomy was able to boost its gross margins, a key measurement of profitability. Where Autonomy had been reporting gross margins in the neighborhood of 40 percent to 45 percent, Lesjak said a more realistic gross margin at Autonomy going forward is in the 28 percent to 30 percent range.

So what is HP going to do about it? First, it has reported the matter to the enforcement division of the U.S. Securities and Exchange Commission, and to the Serious Fraud Office in the U.K. Once those authorities have their say, HP will likely sue someone. Whitman conceded that it will likely take years before it’s all done. It’s going to get ugly before it’s over.

The Wall Street Journal just got a statement from former HP CEO Léo Apotheker, who did the Autonomy deal during his 11-month tenure as CEO. In a word, he says he’s “stunned.” He will also make himself available to help HP get to the bottom of it all.

Whitman was just on CNBC for several minutes, going through the particulars and reiterating much of what she said on the conference call with reporters. Here’s the video:

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Facebook needs its spiritual leader and chief innovator in a hoodie. But it doesn’t need him as CEO, placating investors in a collared shirt. There are plenty of people who could manage the Facebook business.

– Reuters blogger John Abell, writing about Mark Zuckerberg after Facebook’s first earnings report

CNET nabbed an exclusive interview with one of the nine jurors in the high-profile and complex trial.

The jury largely handed over a victory to Apple in the patent infringement case, along with an award of just over $1 billion.

Manuel Ilagan — who said debates among jurors were at times “heated,” in spite of the quickness of the verdict — told CNET that “Samsung’s internal emails about incorporating some of Apple’s technology into its devices, and the evasive way Samsung executives answered questions, was damning.”

Ilagan also denied that the jury was favoring Apple in any kind of “hometown bias.”

“We weren’t going for Apple,” he told CNET. “We weren’t thinking Apple or Samsung.”

The interview is well worth a full read here.

Reuters also talked to another key juror, foreman Velvin Hogan, about making sure Samsung knew it had done wrong.

Hogan, who holds a patent himself, said the jury “wanted to make sure the message we sent was not just a slap on the wrist. We wanted to make sure it was sufficiently high to be painful, but not unreasonable.”

Apple versus Samsung Full Coverage

But just in case, Barry Diller would like the Times to know he’s interested, too.

As Reuters reported earlier today, Diller’s IAC has put in its own bid for About. I don’t know the exact amount Diller says he’s willing to pay, but sources familiar with his offer say it is above $300 million and “substantially more” than $270 million.

And Diller may not be the only one willing to bid for About.

For starters, I wouldn’t be surprised to see Demand Media make an offer. Sources familiar with the companies say both IAC and Demand had signaled their interest in About earlier this year, but that the publisher “went dark” this spring, presumably because it was lining up its Answers deal.

The question is whether Diller and/or anyone else will ever have a chance to negotiate with the Times. As I reported earlier this month, Answers and its private equity backers have signed a letter of intent to buy About. That means Answers has some window of exclusivity to get the deal done, and the Times can’t shop it around until that expires.

Presumably, the Times could try to find some way to extract itself from that deal if it thought it could make a lot more money on About. But that would be messy. And my gut is that unless someone makes a truly outsized offer for the property, the Times would just as soon get About off its books quickly — a move Wall Street has already endorsed.

But if it is, the numbers don’t show it.

It’s easy to be confused about this stuff, but it’s also easy to clear it up: If you want to evaluate the state of the pay-TV business, you have to include the results from the telco guys, who have been taking share from the cable and satellite guys. And you have to look at numbers for the whole year, not a single quarter.

Once you do that, you end up with numbers that are basically flat, give or take a few thousand subscribers.

Here’s the data from the Reuters story, which uses publicly disclosed numbers from the country’s biggest pay-TV providers, who have been reporting second-quarter earnings over the last few days.

Q2 Video subscriber losses:
DirecTV: 52,000
Time Warner Cable: 169,000
Comcast: 176,000
Dish: 10,000
——————-
Total: 407,000 lost subscribers

Those numbers will likely get worse once we see results from Charter and Cablevision, who report next week. And there are still a bunch of small cable companies that aren’t public, so sussing out those numbers involves some guesswork. For argument’s sake, let’s say those companies followed the trendline of the last few years, and ended up collectively losing another 300,000 subs.

Estimated total: 700,000 lost subscribers

Still, that’s a loss, right? Yes. But as the Reuters piece itself notes, the second quarter of the year is always the worst for the pay-TV guys. College kids move away, people move into new homes, etc.

Last year, for instance, the pay-TV guys lost 442,000 subscribers in Q2. But they still ended up adding more than 200,000 subscribers by the end of 2011. That’s barely any growth at all — something like 0.2 percent — but it’s better than a loss.

This year’s trends look similar. Pay TV added 422,000 subscribers in Q1 – which means they’re basically flat for the year. If recent patterns hold, they’ll have another flat or down quarter in Q3, and then add more again in Q4.

You can argue that the pay-TV industry’s no-growth or barely-there growth is due to a weak economy and lousy household formation numbers. Or you can argue that it’s because people really are swapping out pay TV for Netflix, Apple TV, etc. Or a mix of both, or whatever.

But for now, at least, you can’t argue that the pay-TV industry is shrinking.

As part of restructuring, David Ko, Zynga’s chief mobile officer, and Steve Chiang, its EVP of games, will report directly to Pincus, according to Bloomberg, which first reported the changes.

Ko and Chiang previously reported to COO John Schappert, one of Zynga’s priciest — and most prized — recruits from Electronic Arts.

Update: Zynga provided an official statement this morning: “We can confirm that in order to unify our company around a multiplatform approach, we reorganized our teams in July to integrate web and mobile groups. These groups are led by David Ko, our Chief Mobile Officer and our EVP of Games Steve Chiang, who are overseeing our game divisions, our Chief Operating Officer John Schappert overseeing our day to day business operations and our CTO Cadir Lee, overseeing our new Platform division; all of whom report to our CEO Mark Pincus. Our players expect their favorite games on every platform and we want to unlock everyone in the company to continue moving quickly against the multiplatform opportunity.”

However, Bloomberg’s report suggests that Schappert has “lost support within the company and taken some of the blame for underperformance.”

According to sources that spoke to AllThingsD, the situation is more complicated than that, as the statement issued this morning suggests.

While at least one source agrees with the assessment that Schappert is in the dog house, other sources say the main purpose of the reorg is to make games work across multiple platforms by prioritizing mobile. That has been challenging for Zynga, since up until now it was easy to make increasingly more money on Facebook. Plus, as the founder, Pincus has always closely overseen game development, and at times continues to hold the title of Chief Product Officer.

More evidence that there continues to be a blurring of the lines is that Ko is now overseeing key game franchises on Facebook — not just mobile, insiders tell AllThingsD. By giving Ko more control, Pincus is obviously serious about helping the two game silos work closely together.

But going forward, it’s unclear what role Schappert is playing now.

As yet another example of his diminishing role, sources close to the situation say Schappert is no longer heading up the company’s ad technology, which has been handed off to Cadir Lee, Zynga’s CTO. The list of things that Schappert is responsible for is now relatively small, especially in comparison to the size of his paycheck.

A year ago in April, when Zynga first lured him away from EA, his compensation was valued at $42.8 million, according to Bloomberg’s estimates.

Last week, the company wildly missed its internal projections, blaming a number of woes, including changes made to the Facebook platform. In an interview with Schappert immediately following earnings, he did not let on that a shake-up was underway, and spoke about a wide range of topics, including the company’s future plans.

Yesterday, Zynga’s shares continued to spiral downward, losing another 2 percent, to close at $2.95 a share. Since raising $1 billion in a public offering late last year, the company’s stock has fallen more than 70 percent. In early trading this morning, shares reached a new low, crashing 3.7 percent to hit $2.84 share.

At this precipitous rate, it didn’t take long for lawsuits to start bubbling up. Following a cratering of that magnitude, shareholders filed a pair of lawsuits against Zynga, accusing the company of failing to warn about declines in user and revenue growth ahead of last week’s surprisingly weak results. The California suits are seeking class-action status, Reuters reports.

But bankruptcy is not likely one of them.

At the end of trading today, Groupon was down 6.5 percent, or 54 cents, to finish at an all-time low close of $7.77 a share. The Chicago company is now valued at roughly $5 billion, or about a third of what it was worth on its first day as a public company.

However, a complete financial meltdown is far from feasible at this point. At the end of the first quarter, the daily deals giant reported that it had $1.2 billion in cash and was cash-flow positive.

Additionally, the biggest liability it has on its books is “merchant payables,” which is running at less than $600 million, or about half the company’s cash balance. Groupon currently owes that money to retailers that are in the process of running deals with the company.

A bankruptcy would also imply that the company was not able to raise more capital. While it wouldn’t want to at these depressed prices, and it would likely be difficult, Groupon has plenty of equity left to sell.

But none of these factors kept people from speculating that a meltdown was on the horizon.

In a post today on TheStreet.com, which included a rant about a car-washing deal from Groupon, the author concluded in his final paragraph that “it would be a huge surprise if there is not a bankruptcy filing by this time next year from Groupon.” The bankruptcy rumor, which is not even a new one, gained a bit more credence after being mentioned live on CNBC.

However, if you take a closer look, there are more near-term concerns that are likely at the root of the stock collapse.

In a note issued late Tuesday, Citi analyst Mark Mahaney reiterated his “buy” rating on Groupon’s stock, but lowered his price target from $22 to $19 a share. So far, Mahaney said, the company’s growth has been extremely impressive, but there are at least three ongoing debates that must be settled to determine whether it can continue to be a success. He wrote:

1.  Could GRPN’s growth be sustained? 33% Q/Q North America revenue growth in Q1 — due in part to personalization & new products & Mobile — suggests Yes.
2. Could GRPN’s model really scale to the company’s 30% l-t Operating Margin goal? Two consecutive quarters of 50%+ incremental margins, with a similar outlook for Q2, strongly suggest Yes.
3. Could GRPN address its accounting issues? Beefing up its finance staff and Board (CFO of Amex and Vice Chair of Deloitte) suggests Yes.

As the stock continued to slide, a Reuters report suggested the collapse had to do with economic weakness in Europe, where Groupon gets about a quarter of its revenue. Sameet Sinha, an analyst at B. Riley & Co., told the wire service, “Europe is a concern, obviously.” But Mahaney was less concerned about Europe, saying that there’s not much evidence it will cause a material risk to estimates. Rather, he tweaked his price target because of lower 2013 estimates.

Additionally, the stock has not yet stabilized since last week when Eric Lefkofsky, Groupon’s executive chairman and co-founder, said he had stepped back from day-to-day work with the company so he could devote more attention to his venture capital firm, comfortable with that step given the recent additions to Groupon’s executive team.

Groupon is expected to report second-quarter results in late July or early August.

The online measurement company put up a brief preview of the report on Thursday, via a blog post. The headline gives you a good idea of what we’ll see next week: “It’s Time to Change the Discussion on Measuring Facebook Effectiveness.”

A summary of the summary:

• ComScore says that Facebook “earned media” ads — the kind that Facebook users distribute on their own, via “Likes” and “Shares” — do help sell stuff. In their words, the ads have a “statistically significant positive lift on people’s purchasing of a brand.”
• ComScore doesn’t put any stock in the Reuters survey that said 80 percent of users have never bought anything they’ve seen advertised on Facebook. That’s because it’s a survey of what people think they do, and “people generally don’t like to believe that advertising actually has an effect on their behavior.” ComScore, meanwhile, says it can measure both online behavior and offline purchases, and can connect the two.
• ComScore is also unimpressed with the Reuters survey question that shows a third of Facebook users visiting the service less often than they did six months ago. By its count, “time spent per user is actually up a few percent in that period.”

If you want a reason to be skeptical about this, you’d note that Facebook is a comScore client, and that the two companies worked together last summer to produce a study about the way brands use Facebook. The report they’re putting out next week is a sequel to that one, and it’s reasonable to wonder what would have happened if comScore concluded that ads don’t work on Facebook.

But comScore carries a lot of clout in the online ad world, so it’s very likely that lots of marketers will take next week’s news quite seriously. Which will cheer the Facebook folks quite a bit.

(Image courtesy of Shutterstock/Tyler Olson)

Twitter’s still in its honeymoon period, but that won’t last forever. At some point, it’s going to be less of a wunderkammer, and more of a regrettable necessity.

– Reuters finance blogger Felix Salmon, in an article entitled “Why Twitter will get more annoying”

That’s the first time Netflix has handed off its customer billing to a third party. And it’s a significant step for Reed Hastings and company.

For starters, it will make it that much easier for Netflix to sign up more users. But it also sets up a model for a possible Netflix-cable provider deal.

Reuters reported yesterday that Hastings was looking to bundle his service with pay-TV operators, and to deliver movies and TV shows through cable providers’ set-top boxes. But people familiar with his thinking tell me the Apple TV model is a more plausible tie-up: Netflix would be happy to let cable operators take care of billing, but wants to send its video over the Web, just like it always has.

That assumes that the cable guys buy the argument Hastings has been making for some time — that his service isn’t for cord-cutters, but for people who like watching lots of video, and don’t mind paying another $8 for what is essentially another cable channel.

How much would Netflix be willing to pay to let a third party market its service and take on billing duties as well? I don’t know.

But I have a hunch that that it’s less than the 30 percent per month that Apple has previously required from subscription services that want to let users sign up via its iOS devices.

One hint: Though you’ll now be able to sign up for Netflix using Apple TV, you still won’t be able to do that with Apple’s iPhones, iPads and iPods. Those devices will still require you to sign up somewhere else before you can stream video on their screens.

Worth noting that Netflix isn’t the only outside service handing over billing to Apple. Major League Baseball is doing the same thing with its app, and presumably we’ll see more down the line. Curious to see if Hulu Plus joins in.

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The San Francisco social games company is looking to raise as much as $1.15 billion, which would make it the largest IPO from a U.S. Internet company since Google raised $1.7 billion in 2004.

Shares will likely be sold on Thursday, with the company trading under the ticker ZNGA for the first time on Friday. In the meantime, the company is trying to jockey for the best price and the most shares sold.

At a luncheon yesterday with potential investors, CEO Mark Pincus made one of his boldest predictions yet when it comes to how well its games will monetize.

Currently, Zynga has about 227 million monthly active users who play games for free on Facebook, such as FarmVille, CityVille, Zynga Poker and Mafia Wars. But only a small fraction — around 3 percent — pay for additional features, such as decorative items for a farm or new clothes for an avatar.

“We could see that doubling,” said Pincus, according to Reuters.

Doubling? That’s sure to whet investors’ appetites.

But it’s hard to know how the company will accomplish that.

To be sure, Zynga is about to enter one of its biggest growth periods yet and anticipates launching several new games over the next few months.

On one level, more games will likely translate to more players. But will it translate to more players willing to pay?

That seems like a leap of faith.

However, based on documents filed with the Securities & Exchange Commission, we have gleaned that some of Zynga’s growth prospects are guaranteed thanks to the company’s close – albeit complicated – relationship with Facebook.

As one of the conditions of its partnerships, Facebook is obligated to help Zynga meet certain growth targets. In return, Zynga has committed to offering Facebook a number of exclusive game titles.

The specific details of the relationship were redacted in the document, so it’s not clear how aggressive those growth targets are over the five-year life of the contract.

Zynga also has close ties with Google, which has recently launched its own games network. Zynga has already launched several titles there, including CityVille. Following the offering, Google will own 3.8 percent of the company.

Also during yesterday’s lunch, Zynga’s executives were grilled about player retention and churn rates and its growth prospects for mobile.

Among several responses, Pincus joked about how Alec Baldwin was recently kicked off a flight after getting caught playing Words With Friends while still at the gate.

It seemed investors were not as interested in hearing about recent negative reports that Pincus’s hard-charging personality has made it an unfavorable working environment or that some employees were asked to give up their stock options.

Plus, it’s a crowd that Pincus should be comfortable speaking in front of. This will be the second company the Wharton and Harvard Business School grad has taken public.

The company will continue to have meetings today and into next week. So far, reports indicate that the conversations are going well.

Zynga has apparently already received enough orders to cover all the shares being sold in its initial public offering, reports BusinessWeek, which talked to two people with knowledge of the situation. Zynga plans to sell 100 million shares for $8.50 to $10 apiece, which would value the company at as much as $7 billion.

So congrats to Reuters’ Yinka Adegoke and Sinead Carew, along with The Wall Street Journal’s Sam Schechner, Anton Troianovski and Spencer Ante on their new gigs! If you guys ever want to get together and trade tips (Google Analytics or Chartbeat? etc.) I’m totally down for a Meetup. It would be good to get out of my pajamas …

Meanwhile, this blogger can also report that Verizon has been talking to programmers about a Netflix-style video service. There don’t appear to be any signed deals, and there may not be anything formal on the table yet, so don’t expect to see anything until next spring at the earliest.

But the idea of offering packages of video programming, delivered over the Web, is a fairly straightforward one. Which is why it has also appealed to satellite TV provider Dish Networks, which has also had grown-up conversations about the idea. And to Microsoft, and Google, and Apple, whose discussions about it over the years haven’t progressed very far.

And, of course, to Hulu and Amazon, who are already doing it.

So we’re certain to see more “over the top” video from big brand names down the line. “Shame on those [Netflix] competitors for not being in the market years ago,” says a TV executive — who would be happy to sell any of them some programming when/if they do get into the market.

So if that’s the case, what does that mean for companies like Verizon, which sell traditional pay TV services right now?

Here McAdam, speaking at the UBS media/telco conference this morning, doesn’t just disagree with professional typers. He’s also butting rhetorical heads with Ivan Seidenberg, whose last job was … CEO of Verizon.

A year ago, Seidenberg told investors that “over the top” video — stuff that comes from the Web instead of a cable subscription — was going to be a big problem for pay TV services: “Young people are pretty smart. They’re not going to pay for something they don’t need to … Over the top is going to be a pretty big issue for cable.”

Nah, says the new guy, who takes the conventional line that over the top is a complement to his business, not a threat. Or at least not anytime soon. “We have a tendency to see trends like this in the industry and extrapolate it to become the majority. I think it will be many years before it is,” he said.

Still! McAdam did allow that Verizon was interested in offering stuff that sounds a whole lot like the “over the top” options that Reuters and the Journal reported about yesterday (and I am reporting this morning! From my basement!).

He acknowledged, as we reported earlier this year, that the company had kicked the tires on Hulu this summer. “We kind of  looked at that,” he said. “And we’ll continue to look at alternatives.”

The service will have limited programming, will operate outside of where Verizon offers its FIOS video service, and is being put together in conjunction with television operators, the authors report.

Read the rest of this post on the original site »

The New York-based start-up has been at this in various incarnations since 2009, but CEO Shafqat Islam says he’s getting some traction, and is able to charge Web publishers $3,000 to $5,000 a month per “vertical” for access to his (borrowed) content. He says he’ll do $1 million in revenue this year; last month, Islam raised a $4 million Series A round led by First Mark, along with Lerer Ventures, AOL Ventures and Shari Redstone’s Advancit Capital.

Content syndicators aren’t a new idea, by any means, and NewsCred’s basic pitch sounds quite similar to Mochilla, which has raised a pile of money. Several folks are trying versions of this in video, including AOL’s 5min and U.K.-based Perform Group’s ePlayer. And Demand Media has tried putting its super-low-cost freelancers to work for publishers including USA Today.

NewsCred’s basic pitch seems to be that it has a better selection of blue-chip content makers, all of which are getting guaranteed payments for their stuff. Islam pitches his product as a disruptor out to take on the likes of the Associated Press, but he also syndicates content from Reuters and Bloomberg, also giant newswires. So presumably they don’t feel threatened quite yet.

Here’s an interview I conducted with Islam earlier this week, featuring a cameo from Pat the Contractor (NewsCred is in the process of moving into its own place, after graduating from start-up launcher General Assembly).

(Side note: To get a sense of how difficult it is to hammer out some of these content deals, or just get a foot in the door, see this email exchange between Islam and an executive at Dow Jones, which, like this Web site, is owned by News Corp.)

]]> http://allthingsd.com/20111130/newscred-raises-4-million-for-its-web-based-newswire/feed/ 0 http://allthingsd.com/20110823/apple-planning-cheaper-iphone-4/ http://allthingsd.com/20110823/apple-planning-cheaper-iphone-4/#comments Tue, 23 Aug 2011 14:59:22 +0000 John Paczkowski http://allthingsd.com/?p=113005 When Apple’s next-generation iPhone finally arrives at market, it may be accompanied by a more inexpensive version of its predecessor.

Reuters claims Apple’s manufacturing partners are ramping up production of a cheaper version of the iPhone 4. The device is said to have an eight gigabyte flash drive and is expected to hit the market this fall; Reuters says September.

Not that this should come as a surprise to anyone. Apple typically drops the storage on older model iPhones to 8 GB as it prepares to release a new version of the handset.

“As a matter of practice, Apple drops their old model iPhones down to the $99 price range when new models launch and extends the life of the older product by a year or more,” Wedge Partners analyst Brian Blair told AllThingsD. “We saw this with the 3GS and the 3G, and the iPhone 4 will see the same thing in the weeks to come. As the price of the iPhone components in older models drops, Apple can take the capacity of the older model down to 8 GB and sell the handset to carriers at a discounted price, putting it into the hands of more consumers.”

Particularly those in emerging markets. As we’ve noted before, a lower-tier version of the iPhone could be a real bonanza for the company in regions it views as prime targets for a more affordable iPhone.

“[A more affordable iPhone would allow] Apple and carriers to ease back on the device and service pricing and extend Apple’s reach into new and lower consumer segments with only minimal cannibalization to the iPhone’s high-end position,” Oppenheimer analyst Ittai Kidron wrote earlier this year. “Clearly, there is a large untapped market available to Apple once it lowers price, and it makes sense to approach these markets in the same way that the iPod found its way to lower price tiers.”

]]> http://allthingsd.com/20110823/apple-planning-cheaper-iphone-4/feed/ 0 http://allthingsd.com/20110628/exclusive-skype-employees-were-briefed-in-plain-english-the-internal-equity-incentive-plan-deck/ http://allthingsd.com/20110628/exclusive-skype-employees-were-briefed-in-plain-english-the-internal-equity-incentive-plan-deck/#comments Tue, 28 Jun 2011 20:14:21 +0000 Kara Swisher http://allthingsd.com/?p=92265 I have largely stayed away from opining about the he-said-he-said over what or what not Skype employees were told about the treatment of their stock options.

Some employees are alleging they were duped via complicated legalese and double-talk in employment contracts about how their shares would be handled upon termination or voluntary departure from the Internet telephony giant.

That matters, since Skype was recently sold to Microsoft for $8.5 billion, well above previous valuations. Thus, those who were, as a Skype PR person said, not in it to win it, um, lost.

Dramatic stuff, to be sure. But, even with all the fervor around the employment contract issue, the handwringing about what it means for compensation issues in Silicon Valley and a whole big dose of how private equity companies (in this case, a firm that had bought Skype called Silver Lake) are evil, it’s struck me as little more than an insider read-the-legally-obtuse-contract dispute.

And, although I love Reuters’ Felix Salmon’s epic tsk-tsking posts, that’s why I like to see real documents as proof of what people knew and when.

Apparently, a lot and rather clearly from this PowerPoint that was given to employees of Skype as of December 2009 as part of its changing ownership, after Silver Lake and other investors bought it from eBay.

While it’s not proof of what employees got it — typically, it is standard HR policy to hand this stuff out to everyone — and who read it (no accounting for slaggards!), it is pretty clear on what happens upon leaving Skype, either by a firing or quitting.

On the eighth slide, as you can see above, it says, in part:

“Good Leaver”: someone who gets fired without “Cause”

* Gets the fair-market value of their currently vested options

“Bad Leaver”: someone who resigns, or is fired for “Cause”

* Skype buys back their options at the lower of fair-market value or strike price

* This provision lapses post-IPO

It seems pretty buyer-beware clear, but check it out for yourself:

Skype – Employee Presentation

]]> http://allthingsd.com/20110628/exclusive-skype-employees-were-briefed-in-plain-english-the-internal-equity-incentive-plan-deck/feed/ 0 http://allthingsd.com/20110420/iphone-5-release-date-rumors-may-persist-through-fall/ http://allthingsd.com/20110420/iphone-5-release-date-rumors-may-persist-through-fall/#comments Wed, 20 Apr 2011 16:09:34 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=60758 Another report to add to the pile of prognostications claiming Apple will launch the next iPhone in the fall, not the summer as it has in the past. Three unnamed sources tell Reuters iPhone 5 will hit manufacturing in July or August and ship in September.

Not the first time we’ve heard such a thing and I’m sure it won’t be the last. As I’ve reported here before, Apple doesn’t plan to unveil a new iPhone at its Worldwide Developers Conference. And increasingly, I’m hearing the company may use its annual September media event to launch the device instead.

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