14 December 2012

Urban Outfitters catalog gets naughty

originally appeared in USA Today:

At Urban Outfitters, the choice of being naughty or nice in its 2012 Christmas holiday catalog was easy: naughty wins.

The edgy apparel seller has shipped out a holiday catalog that's chock-full of naughtiness, including a $16 "It was f---ing awesome" photo album and a block candle that boldly spells out the f-word in wax. There's even an $18 "Let's f---ing reminisce" book.

Just a few years ago, Urban Outfitters might have received some serious, verbal raps on the knuckles from parents and protesters angered by the ultra-spicy language. But in today's social-media environment, along with those verbal raps, it's also receiving some surprising kudos from brand and marketing gurus.

It's brilliant, explosive, short-term marketing that generates buzz, it's the right voice for the teen markets according to the CEO of Havas PR and national trend-spotter.

Over the years, many of the most successful fashion brands -- from Calvin Klein to Benetton to Abercrombie & Fitch -- have relied upon racy imagery in their ads and catalogs to generate buzz, PR and sales. In a social-media age, however, such efforts appear to be emboldened.

Shocking imagery sells according to a senior fashion editor at Women's Wear Daily. On Twitter, Foursquare and Facebook, this is a way to get buzz.

Not everyone is impressed.

According to a leading brand guru it's all about getting up on Instagram or someone's Facebook page. This kind of marketing really isn't so rebellious. It's just kind of stupid.

Worse than that, says the director of the activist Christian group One Million Moms, it's tasteless and vulgar.  Her organization, which is affiliated with the American Family Association, isn't calling for a boycott but is asking its members to think hard before purchasing any Urban Outfitter products, she feels they'll be losing business from conservative families.

Executives from Urban Outfitters declined to return phone calls or respond to e-mails for this story. But one catalog guru says the company clearly knows its audience.

According to the president of Direct Marketing Insights, a catalog consulting firm, good marketing requires that you communicate with your customers on their same wavelength, they're speaking the language of their customers.

Specifically, to today's teens, the f-word doesn't even mean what it means to most adults, it no longer even has sexual connotations. It's almost a synonym for 'give me a break.'

Zimmerman sues NBC and reporters

George Zimmerman sued NBC on Thursday, claiming he was defamed when the network edited his 911 call to police after the shooting of Trayvon Martin to make it sound like he was racist.

The former neighborhood watch volunteer filed the lawsuit seeking an undisclosed amount of money in Seminole County, outside Orlando. Also named in the complaint were three reporters covering the story for NBC or an NBC-owned television station.

The complaint said the airing of the edited call has inflicted emotional distress on Zimmerman, making him fear for his life and causing him to suffer nausea, insomnia and anxiety.

The lawsuit claims NBC edited his phone call to a dispatcher last February. In the call, Zimmerman describes following Martin in the gated community where he lived, just moments before he fatally shot the 17-year-old teen during a confrontation.

The lawsuit claims NBC saw the death of Trayvon Martin not as a tragedy but as an opportunity to increase ratings, and so set about to create a myth that George Zimmerman was a racist and predatory villain.

An NBC spokeswoman said the network strongly disagreed with the accusations made in the complaint.

There was no intent to portray Mr. Zimmerman unfairly," the network said. NBC intends to vigorously defend their position in court.

Three employees of the network or its Miami affiliate lost their jobs because of the changes.

Zimmerman is charged with second-degree murder but has pleaded not guilty, claiming self-defense under Florida's "stand your ground law."

The call viewers heard was trimmed to suggest that Zimmerman volunteered to police, with no prompting, that Martin was black, according to what NBC broadcast, he said [Martin] looks like he's up to no good. He looks black.

But the portion of the tape that was deleted had the 911 dispatcher asking Zimmerman if the person who had raised his suspicion was black, white or Hispanic, to which Zimmerman responded that he looks black.

13 December 2012

The More Pandora Sells, the More It Loses

originally appeared in The Wall Street Journal:

Pandora Media Inc.'s 18% stock drop Wednesday is a sobering reminder that fractions add up, a tenth of a cent might not sound like a lot of money, except when advertising sales don't keep pace.

Pandora projected slower revenue growth and red ink in the current quarter, triggering a 19% plunge in the shares of the Internet radio company.

Pandora's music royalty costs, typically paid in tenths of a cent, are skyrocketing. At the same time, the more people who listen to Pandora via mobile devices, such as on smartphones, tablets or through car dashboards, the less advertisers pay to reach those listeners, compared to the ones listening on desktop or laptop computers.

In other words, the more successful Pandora becomes, the more it loses. And those through-the-looking-glass economics of Internet radio set off the drop in Pandora shares.

Pandora's audience statistics would be the envy of many media companies: In the most recent quarter, it had 59.2 million active users who listened to nearly 3.6 billion hours of music. And they appear highly loyal: its giant 47% uptick in active users was outpaced by a 67% increase in the amount of music served, meaning more people are using the service to listen to more music than ever.

Yet because Pandora must pay record companies and music publishers for every one of those "listens," its "content acquisition" costs—the price it pays the owners of all that music—rose nearly 75%. At $65.7 million, those costs ate up nearly 55% of Pandora's revenue for the three months ended Oct. 31.

Pandora's ad revenue totaled $106.3 million in the quarter, up 61%. It also brought in $13.7 million in subscription fees from users who pay $3 a month to listen without ads.

They are in many ways a victim of their own success according to Triton Research LLC, which analyzes startup companies for investors. (The firm is unrelated to Triton Digital, which audits Pandora's usage.)

While the company's audience and related costs have ballooned, 77% of its listening hours now take place on mobile devices, which generate less ad-sales revenue for the company than laptop and desktop listening.

The company sold $21.56 worth of ads per 1,000 hours of mobile listening in the past year—a slight uptick but less than half what it made from the same amount of desktop listening. The company made $55.18 in ad sales per thousand hours of desktop listening in the same period.

According to Pandora's CFO, if a TV network had to pay the production house more for every viewer of 'Breaking Bad'—and they didn't have a real ad-sales force in place—they would hate it if they had a big audience.

After their fall Wednesday, Pandora shares now trade at $7.80, close to their 52-week lows. The stock debuted in June, 2011 at $16 per share.

The company is making efforts to turn the situation around. Pandora's advertising sales force is 75% larger than a year earlier.

Pandora's CEO said they've demonstrated in Q3 that in mobile we can grow revenue faster than listener hours. We think we can continue that trend and that is what defines our success.

But the big issue facing the company is the cost of the music it plays, which is dictated by a blanket agreement between online radio companies and record labels, represented by an arm of their lobbying group called SoundExchange.

Under that agreement, which lasts through 2015, the rate goes up gradually each year. The rate paid per song will rise to 0.14 cent in 2015 from 0.11 cent this year. The rate schedule was negotiated in 2009, when Pandora was not the behemoth it is today.

Pandora has aggressively lobbied Congress for a law that would significantly cut those royalties. The Internet Radio Fairness Act, as the proposed legislation is known, may be the company's only chance at robust profits, says Triton's chief research officer.

He feels that from a strategy perspective it's the best single thing they could do for their business, without that, if they run their business perfectly, they are a low-margin business.

Pandora argues it has been paying disproportionate fees to artists, and that the legislation would put it on an equal footing with rivals. It also says whatever artists lose in the short term will be made up for in the future, because more attractive royalty rates would create a boom in Internet radio.

The Internet Radio Fairness Act would establish the same criteria for setting Internet radio royalty rates that is now applied to satellite radio company Sirius XM Radio Inc., SIRI +1.08% which pays significantly less than Pandora and other webcasters.

Not surprisingly, many artists, who stand to have their royalties cut sharply, object to the legislation, especially as Internet radio promises to catch on.

Jonatha Brooke, a singer with several albums released both on major labels and independently, estimates that one million plays of her work on Pandora nets her a bit less than $500. If the legislation passes, she believes proceeds from the same number of plays could be less than $100.

She says that these streams are becoming more and more important. The idea of Pandora crying the blues and wanting an 85% cut in what they have to pay me is just galling.

Ms. Brooke's name appeared with hundreds of other artists in an ad in Billboard magazine last month, criticizing Pandora's efforts on behalf of the bill.

Pandora's CEO will pay about $250 million in royalties to SoundExchange this year. He declined to speculate on how that amount may change in the future should the Internet Radio Fairness Act pass.

Pandora's founder says he has been trying to make personal contact with musicians about the issue. His hope and belief is that after this wave of rhetoric and mercenary type of PR, there will be a discussion based on the facts.