Digital Media

Online holiday spending declined 3 percent compared with last year's online shopping season, the first negative growth rate in the past eight years, according to a ComScore report released Tuesday.

Between November 1 and December 23, U.S. online merchants recorded $25.5 billion in sales, down from $26.3 billion during the same period last year, ComScore reported. Gian Fulgoni, the research firm's chairman, blamed economic pessimism for the poor results:

The combination of having five fewer shopping days between Thanksgiving and Christmas and the severe economic headwinds faced by consumers has made this a really tough season for retailers, both offline and online.

Sales declined despite a 15 percent increase in sales on Cyber Monday, the second biggest day of online shopping ever. Cyber Monday saw sales of $846 million, capping off a successful Thanksgiving holiday weekend for the industry, which overall saw spending jump 13 percent.

When October sales are factored in, the sales picture appears even more bleak. Between October 1 and December 28, online sales declined 4 percent to $36.8 billion, according to ComScore's numbers.

However, traffic to top e-tailer sites increased 5 percent in December over the same period last year, according to ComScore numbers. Online auctioneer eBay saw a traffic decline of 4 percent, while Amazon.com saw an increase of 7 percent. Other gainers included Hewlett-Packard (28 percent), Apple (19 percent), and Wal-Mart Stores (4 percent).

Gawker Media announced Tuesday that it has sold its Consumerist blog to Consumers Union, the publisher of Consumer Reports.

The blog, which is often an outlet for consumer complaints, will become a new division within the publisher. The current editorial staff is expected to remain, and there are no plans to change coverage, according to a report in The New York Times.

"We don't want to acquire the Consumerist and then squelch it in some way," Kevin McKean, vice president and editorial director of Consumers Union, told the newspaper.

Terms of the deal, which is expected to close Thursday, were not revealed.

Nick Denton, founder and president of Gawker Media, put the blog up for sale in November, on the same day he made public his decision to shut down Valleywag, the blog network's Silicon Valley gossip title. He also announced Tuesday his plans to sell the gossip site Defamer.

Denton, who also sold off three of its smallest blogs in April, said the softening online advertising market led to the decision to sell the blogs. On the same day he announced his intentions to sell the Consumerist blog, Denton published a detailed missive about his dire predictions for the online ad market.

"I think people have generally been too optimistic" about online ads, Denton told the Times on Tuesday.

Denton's handling of Gawker has been frugal, continually consolidating resources toward the blogs that were pulling in traffic and ad dollars. Early in October, Denton orchestrated a personnel shuffling that saw 14 percent of the company's editorial staff laid off but new hires made at some of the most successful titles like gadget blog Gizmodo and feminist chronicle Jezebel.

A federal judge has denied the Recording Industry Association of America's request for an appeal of an earlier decision to grant a retrial in its copyright infringement case against Jammie Thomas.

Earlier this year a jury found that the Minnesota woman had violated copyright laws by illegally sharing more than 1,700 songs. The jury ordered the woman, Jammie Thomas, 30, to pay $220,000 to six of the top music labels.

But a few weeks after the verdict was handed down, U.S. District Judge Michael Davis threw out the verdict on the grounds that he originally misguided the jury by indicating that simply the act of making a copyrighted song available for sharing amounts to infringement. A new trial has been rescheduled for March.

In an attempt to avoid another trial, the RIAA appealed the judge's decision to declare a mistrial. But now it looks like the RIAA's latest attempt to gain a conviction for copyright infringement has been thwarted.

This case has been closely watched because Thomas is the only individual charged with copyright infringement by the RIAA who has taken her case to trial. Since 2003, many of the 26,000 persons sued by the industry association have simply settled the cases out of court by agreeing to pay a few thousand dollars. But Thomas, who has been accused of sharing music via a peer-to-peer service, Kazaa, has always maintained her innocence.

On the surface, the importance of the outcome of the Thomas case is somewhat diminished since the RIAA announced a couple of weeks ago that it is taking a different strategy to combating the sharing of illegal copyrighted music.

Instead of suing individual users, the industry association plans to work with Internet service providers. Under this new arrangement, users that the RIAA suspects of illegally sharing music will be asked to stop their activity. If the activity persists after three warnings, ISPs will then cut off broadband service.

So far, the RIAA hasn't disclosed details about how the new process will work, which has made some consumer advocates wary.

Even though the RIAA has revised its strategy toward copyright infringers, the legal questions raised in the Thomas case are very important and remain relevant to how the RIAA plans to battle copyright infringement in the future.

The main legal question yet to be answered is how to determine whether copyright laws have been violated in the digital age.

Judge Davis threw out the verdict in the case because he argued that "actual" distribution of copyrighted music must be proven for the law to be violated. Therefore, the RIAA had to prove that users downloaded the music that Thomas was making available through the peer-to-peer service. Simply making the content available is not a violation of copyright, under this reasoning.

But the RIAA has said that proving that songs have been downloaded from services like Kazaa is nearly impossible. As a result, the RIAA has long argued that making digital music available for others to download illegally is an infringement on copyright.

Over the years, judges have disagreed on this reasoning, and as a result, they have written different opinions on this issue. As a result, it's very likely that the legal issue of what constitutes copyright infringement will eventually be decided by the Supreme Court. Regardless of how the case is decided in March, it's likely that the losing side will appeal. And after the case makes its way through the federal appellate courts, it will likely end up in the highest court of the land.

Over the next few days, a picture of holiday sales will begin to materialize.

One of the first reports to surface doesn't sound incredibly painful until specific categories--like electronics--are broken out. And then the hurt becomes obvious.

MasterCard Advisors, a unit of the credit card giant, released on Friday its SpendingPulse analysis of national retail and service sales for the holiday-shopping season.

Overall retail sales year over year (excluding gasoline, which doesn't make a great holiday gift anyway) were down 2 percent in November and down 4 percent from December 1 to 24.

Overall, e-commerce fared relatively well from November 1 to December 24. It was down just 2.3 percent, reflecting the overall national trend. That seems to be in line with Amazon.com's positive report of its own sales.

The electronics and appliance category, however, showed a 26 percent decline over 2007. This category will become more interesting when sales figures for specific types of electronics become available.

So-called luxury sales, including jewelry, were down more than 34 percent year over year. Clothing sales were down about 20 percent.

Michael McNamara, a SpendingPulse vice president, didn't mince words. "A difficult economic environment combined with unfavorable weather during the last week of shopping made 2008 one of the most challenging holiday shopping seasons in decades," he said in a statement.

Here I am using my two unread newspapers as a thick place mat for my Christmas Eve Chinese lunch, and what should cross my desk: a new Pew study showing that the Internet has surpassed newspapers as Americans' main source for national and international news.

How appropriate--albeit a little sad for this ol' school journalist who still romanticizes about the days when you could truly stop the presses.

(Credit: Pew Research Center for the People & the Press)

Some 40 percent of those surveyed by Pew Research for the People & the Press say they get most of their international and national news from the Internet, up from 24 percent in September 2007. Internet coverage of the presidential campaign--much of it buoyed by social networks--was likely the reason for that recent growth.

(Credit: Pew Research Center for the People & the Press)

TV, however, continues to be cited most frequently as a main source for international and national news, according the study.

Other interesting findings of Pew's News Interest Index are the top news stories of 2008. The economy took the top spot, followed by rising gas prices and the debate over the Wall Street bailout.

Click here (PDF) for more details on the study.

A federal court in Northern California has awarded $33.15 million to Verizon Communications in what the company is calling the largest cybersquatting judgment ever.

Verizon, which announced the judgment Wednesday, had filed the case against OnlineNIC, a San Francisco-based Internet domain registration company. Verizon had claimed that OnlineNIC used Internet names--663 to be exact--that were chosen to be easily confused with legitimate Verizon names, according to Verizon.

It might be hard, however, for Verizon to actually collect on the judgment, which was a default ruling, or one entered against a defendant who fails to answer a summons. No one appeared in court on OnlineNIC's behalf or in its defense, Verizon said.

We weren't able to get through to OnlineNIC by phone (the line just rang and rang), and an e-mail request was not immediately answered. The company claims on its Web site that it's an ICANN-accredited registrar--but only through 2006. And the site offers a mailing address in Oakland, Calif., not San Francisco.

The award amount was calculated based on $50,000 per domain name, Verizon said.

"This case should send a clear message and serve to deter cybersquatters who continue to run businesses for the primary purpose of misleading consumers," Sarah Deutsch, Verizon vice president and associate general counsel said in a statement. "Verizon intends to continue to take all steps necessary to protect our brand and consumers from Internet frauds and abuses."

Verizon, which says it has won a string of similar cases, is part of a not-for-profit coalition founded last year that fights cybersquatting.

Here's a little statistical cheer for online retailers bracing themselves for what many have been predicting will be a dismal holiday sales season.

The latest online retail spending report released Tuesday by ComScore shows that consumers last weekend spent almost double what they spent on the corresponding weekend before Christmas last year. U.S. consumers online spent $677 million last weekend, December 20 and 21, compared to $341 million the weekend before Christmas in 2007, which was December 22 and 23.

It should be noted, however, that there are five fewer days this year between Thanksgiving and Christmas, making it harder to make perfect year-to-year comparisons. For example, the $677 million in sales last weekend--which was also the fourth weekend after Thanksgiving--is actually down 17 percent from last year's corresponding fourth weekend after Thanksgiving, December 15 and 16.

Whether you see the glass half full or half empty, the statistics suggest "that many consumers opted for the cozier confines of online shopping rather than having to brave the severe cold and snowstorms affecting much of the northern half of the country," ComScore Chairman Gian Fulgoni said in a statement. He added that the compressed shopping season probably resulted in some consumers buying online later than they did last year.

Regardless, the report is further evidence that holiday sales aren't a total disaster and might even be holding their own, which is no small feat in the throes of a recession. U.S. online spending to date this holiday season (from November 1 to December 21) totals $24.71 billion, down 1 percent from the corresponding timeframe last year.

Considering we're in the throes of a recession, online holiday sales appear to be generally holding their own.

(Credit: ComScore)

Yesterday, New York Times columnist Thomas Friedman wrote a post suggesting that president-elect Obama needs to do more than throw money at ailing industries, but actually needs to "reboot" America by investing in infrastructure and education. In Newsweek, law professor and intellectual property thinker Lawrence Lessig argued for a more narrowly focused reboot of the FCC, which should be encouraging technical innovation but instead tends to favor big incumbents.

But what about the music industry? Yes, the big labels have earned a lot of scorn for their technophobia and suing their customers--a practice which finally ended last week--but music is a multibillion-dollar industry, responsible for employing hundreds of thousands of people, and in the midst of several years of steep sales declines. If we can bail out the U.S. auto industry, and spend at least a trillion dollars saving the global financial system and reinvesting in infrastructure, surely we could spare a dime for the music biz.

Serious economic thinkers might scoff at the comparisons--finance touches everybody, and our entire infrastructure has been designed around the automobile--but music's more than a lark or a luxury. It's a core part of the entertainment industry, which is one of the few areas in which the United States is still an exporter and world leader rather than an importer. Even The Economist has acknowledged the deep biological importance of music, leading off its annual double Christmas issue with an investigation of why we love music.

As with Friedman's proposal to save America, my proposal to save music would start at the bottom--it's not enough to give the big labels and radio stations a few hundred million dollars to stem their losses and encourage re-investment. Instead, we need to create a culture of music appreciation and nurture the talent that will lead to the next generation of musicians. Here's my dream list:

Music education and training. In the U.S. education system, music and art are the last classes to be funded and the first to face cuts. Yet, we always seem to be able to spend another few million on sports fields and equipment. The U.S. government should mandate funding for music education beginning in fourth grade, when most kids develop the attention span and coordination necessary to learn an instrument, all the way through high school. This will not only contribute to a strong base of musical performers, but the kids who lack the talent or drive to pursue music as a lifelong hobby will at least learn to appreciate the skill it takes for others to pursue it--just like youth sports creates lifelong sports fans. And professional musicians should be able to take classes in new areas--theory, audio production--without having to pay the entire tuition out of their own pockets.

Tax breaks. Bars, restaurants, and nightclubs under a certain capacity should be given tax incentives to hire musicians. (I'm not so sure about big promoters like Live Nation or stadium-type venues.) Same with radio stations that play a certain percentage of music from local or unsigned musicians. (Big corporate radio with its narrow audience-tested playlists has done far more to devalue music--and harm sales--than the Internet.) Cities should be encouraged to create music-nightlife zones with less-stringent noise restrictions and the appropriate level of police protection.

Stipends for musicians. As romantic as punk-squatters might seem, being a musician doesn't have to mean a life of poverty. Canada offers grants to non-classical musicians, including emerging artists with "self-training" (read: rock musicians). Yes, they must have shown a viable career for at least two years, but a one-year grant could be the perfect bridge between promising local band and national club tour. If we can give the U.S. auto industry $17 billion, surely we can spare a few hundred thousand a year to give promising musicians a chance to postpone their day jobs while they try and find a bigger audience.

Infrastructure. It doesn't have to be all about roads, bridges, and high-speed data networks. Cities with decrepit or nonexistent classical venues should be given federal dollars for construction. National Public Radio should receive increased federal budget--with a requirement to devote a certain number of hours a day to music, particularly types of music and artists who don't get played on commercial radio.

I'm sure you can think of other examples. My point: we've treated music as a luxury--almost as a joke--for too long. I'm not asking for a national Minister of Rock (although Jack Black might be good), but as long as we're opening the federal floodgates to revitalize the economy, why not invest in something that people naturally love and that does no harm to anybody?

Happy holidays.