RealNetworks spins off Rhapsody music service as solo act

RealNetworks on Tuesday said it will spin off its Rhapsody subscription music service as a separate, privately held company.

The move, expected to be completed by March 31, is the first of several being planned by Real's management in Seattle in order to more tightly focus its business, which currently encompasses music, games, video and mobile messaging.

Bob Kimball, who took over last month as acting chief executive when the company's founder Rob Glaser resigned, is expected to articulate the company's streamlined plans on Thursday during the company's fourth quarter earnings announcement.

As the cornerstone of Real's digital music venture, Rhapsody has been struggling to compete with a slate of digital music services, including Napster and Microsoft's Zune. 

Perhaps a bigger roadblock for Rhapsody ambitions, however, has been its inability to persuade consumers to pay $12.99 a month for unlimited access to millions of songs, as Times editorial writer Jon Healey pointed out when Rhapsody rolled out its iLike feature.

Rhapsody had 700,000 subscribers as of Sept. 30. RealNetworks owns 51% of the venture, and Viacom's MTV Networks owns 49%. After the spinoff, Real plans to reduce its stake to less than majority share.

-- Alex Pham

Three things I learned from the Leno - O'Brien debacle

Considering all the ink that's been spilled on NBC and Jay Leno over the past year, it just doesn't seem right to not offer some final thoughts as he prepares to wrap up his brief but tumultuous run in prime time.

Tonight is Jay Leno's last show in the 10 p.m. slot. But Bette Midler won't be singing goodbye to him. Instead he'll probably make some tired jokes about Demi Moore to his big final guest Ashton Kutcher.

You might think that there is little left to say about NBC's ill-fated decision to put Leno on prime time and then later move him back to late night, leading Conan O'Brien to quit. But there are still a few lessons to be had in all this. Every morning, I listen to Dan Patrick's radio program on my drive into work and at the end of each show he asks his sidekicks what they've learned. So I will take a page from Patrick and offer the three things I learned from NBC's Jay Leno - Conan O'Brien fiasco.

1. Affiliates still matter.

For the last decade or so, the broadcast networks have done all they can to lessen the power of their local television station affiliates. They've either eliminated or drastically cut the money they used to pay affiliates in return for being able to sell the majority of commercial time on the stations. The shows that affiliates used to get exclusively now show up online and elsewhere days, if not hours, after they air on their stations, which means the value of the programming to the local GM has been lessened. Networks are even demanding cuts of any money affiliates get from cable operators who pay to carry their signal. In other words, affiliates went from a vital cog in the network distribution model to an afterthought. NBC didn't really care whether the affiliates would suffer from having Jay Leno's smaller ratings in prime time vs. the dramas that used to be there.

But the numbers for Leno were so bad the affiliates were able to rise up and say, to borrow from Howard Beale, "I'm mad as hell and I'm not going to take it anymore." NBC could slap one or two wayward affiliates, but when a big chunk of its affiliate base started screaming enough, the network had to cave. Five years from now, that may no longer be the case. But for one brief shining moment, affiliates got to flex some muscle.

2. Sometimes planning ahead isn't such a hot idea.

NBC got into this whole mess because it didn't want to lose Conan O'Brien to a rival network. Worried he might go to Fox, NBC agreed in 2004 to make him the host of "The Tonight Show" come 2009. The only problem with that was Jay Leno was still in first place and showing no sign of slowing down. It'd be like the Lakers telling Kobe Bryant, "You're great, but in five years we're replacing you regardless of how you are holding up." Not to get all historical, but Dan Rather forced the hand of CBS into easing Walter Cronkite out because ABC was wooing him. CBS still hasn't really recovered from that messy transition. 

This isn't to say that businesses shouldn't plan ahead. But be prepared to switch those plans if the situation changes. NBC would've saved itself and its affiliates a lot of money and Leno and O'Brien a lot of grief if they had just paid O'Brien off instead of giving him "The Tonight Show." Maybe then O'Brien would've gone to Fox and succeeded on his terms.

3. Don't confuse innovation with desperation. 

NBC Universal chief executive Jeff Zucker has repeatedly said he made the decision to put Leno on in prime time because it was a cheaper and less risky alternative to programming expensive dramas, many of which flop. However, when NBC Universal entertainment chief Jeff Gaspin was interviewed at an industry conference last month, he said Leno was given a prime-time slot to keep him from going to a competitor. We're guessing that Gaspin is being a little more candid about NBC's motivations.

Sometimes desperation does lead to innovation, but if NBC had not been in dire straits in prime time, it never would've offered Leno a slot. A couple of successful 10 p.m. dramas can make a lot more money long-term than Leno's show could. Networks do need to take risks to succeed. The move with Leno was worth trying but the execution was lacking. Who knows, maybe if he'd been on at 8 p.m. instead of 10 p.m., NBC would have a different story to tell.

In a few hours, Leno will make his final prime-time jokes and try to put the last five months behind him. In about three weeks, he'll be back on as host of "The Tonight Show" and we'll see if America is as glad to see him back in late night as he is to be there.

-- Joe Flint

Photo: Conan O'Brien and Jay Leno in happier times. Credit: Paul Drinkwater/Associated Press.

Disney's Iger hints (again) at speeding movie releases into the home

It's no secret that Walt Disney Co. boss Bob Iger wants to change the way entertainment is delivered into the home, reducing the traditional months-long lag between a film's arrival in theaters and its release on DVD.

Change may be coming sooner than conventional opinion holds, judging from Iger's remarks during Tuesday's call with Wall Street investors.

Iger told analysts that he had been in discussions with theater owners about release "windows" -- the sequential distribution of movies through the theatrical, DVD and TV chain -- pointing out to the exhibitors that maintaining a viable home entertainment business -- long the cash cow that has buttressed the studio -- is key to making the kinds of movies that will lure audiences to theaters. 

"A healthy business is good for [theater owners]," Iger said. "They want us investing in innovation, investing in higher-quality content. And so, mindful of what's going on in the home video side, we feel that it's time, on a case-by-case basis, movie-by-movie basis, to really take a look at how we're windowing the home video product into the marketplace."

Note that case-by-case, movie-by-movie basis.

Iger didn't say which films might be the first to break the traditional window patterns, but the chief executive is clearly priming the pump for a shake-up to come.

Analysts questioned Iger about another timing issue -- the decision to put the Miramax Films library up for sale, as the investors in the MGM catalog struggle to fetch its multibillion-dollar asking price. 

"We've determined that continuing to invest in new Miramax wasn't necessarily a core strategy of ours," Iger said, adding that Disney's only remaining commitment is in the production and distribution of films that are already in the production pipeline but haven't been released. "We believe that it is prudent for us to explore all our options."

Iger didn't offer many details about the timing of the sale, other than to say that Disney was looking to extract as much value as possible from the Miramax library.

-- Dawn C. Chmielewski

Photo: Disney CEO Bob Iger. Credit: Jae C. Hong / Associated Press

Revenue up marginally at Disney, but profit dips slightly

The Walt Disney Co., dragged down by restructuring costs, reported a modest drop in its fiscal first quarter profit.

The Burbank entertainment conglomerate reported net income of $844 million, or 44 cents per share, for the quarter ended Jan. 2, compared with earnings of $845 million, or 45 cents from the same period a year erlier. Revenue rose 1% to $9.7 billion. Excluding one-time items, earnings of 47 cents a share beat the 38-cent estimate of a consensus of analysts.

The company's flagship Media Networks group, which includes the ABC broadcast network and cable properties ESPN and Disney Channel, posted a 11% rise in operating income for the quarter to $724 million from $655 million a year earlier. Revenue rose to $4.2 billion from $3.9 billion. 

Analysts had been expecting modest first-quarter results for Disney's television group. However, worldwide growth of the Disney Channel and higher affiliate and advertising fees at ESPN helped drive a 5% gain in operating income for the cable networks, which rose to $544 million for the quarter, up from $517 million a year earlier. The broadcasting group, which includes the ABC network and television stations, posted a 30% jump in operating income to $180 million, up from $138 million a year earlier. The previous year's results included a bad debt charge associated with the bankruptcy of a buyer of Disney's syndicated programs.

Theme parks reported a 2% drop in operating income to $375 million, from $382 million in the first quarter last year. Revenue remained essentially flat at $2.7 billion. The domestic parks saw a boost in attendance, which benefited from a shift in the timing of the New Year's holiday from the fiscal second quarter into the first. However, attendance was off at Disneyland Paris.

The film studio staged a turnaround, reporting a 30% boost in operating income to $243 million, from $187 million a year earlier. Revenue was essentially flat at $1.9 billion. This reflected strong home entertainment sales of the best-picture nominated Disney/Pixar Animation film "Up" and the romantic comedy "The Proposal."

The Consumer Products group reported an 8% drop in operating income to $243 million, compared with $265 million a year earlier. Revenue fell 3% to $746 million, in part because of weaker sales of "High School Musical" and "Hannah Montana" merchandise.

The Interactive Media group saw a modest improvement, as it reported a loss of $10 million for the quarter compared with $45 million a year earlier. Sales decreased 29% to $221 million because of lower sales of video games and fewer titles released. Disney Online, however, saw subscription gains at its Club Penguin virtual world.

-- Dawn Chmielewski

Sony Pictures and Lions Gate in talks for 'Terminator' rights with private equity fund (updated)

The behind-the-scenes battle for rights to the "Terminator" franchise has gotten as cutthroat as the killer robots from the action movies.

Following a contentious auction last night in which private equity fund Pacificor won the right to make future "Terminator" films, Sony Pictures and Lions Gate Entertainment are now in talks with Pacificor to jointly take control of the property.

According to several people familiar with the process who asked for anonymity because the talks are private, the two studios joined together to bid for the rights last night against Pacificor. However, the private equity fund prevailed with an offer of $29.5 million. Pacificor also agreed to pay Halcyon Co., a production firm that owns the "Terminator" rights and filed for bankruptcy last August, an additional $5 million per movie for any sequels. [Update, 11:40 a.m.: A previous version of this post incorrectly said the bid was $5 million for up to three sequels.]

Pacificor's so-called "credit bid" would erase the disputed debt owed to it by Halcyon.

With no experience in the entertainment industry or ability to produce sequels itself, however, Pacificor is now engaged in discussions with Sony and Lions Gate to handle future "Terminator" films. The parties are still working out potential deal terms.

If those talks aren't concluded amicably, the people said, Sony and Lions Gate may file objections to the way the auction process was handled Wednesday at a bankruptcy court hearing, which is intended to approve the sale.

If the hearing goes smoothly, Pacificor may leave with its debt resolved and Sony and Lions Gate with the opportunity to make more "Terminator" films. Halcyon would be in a stronger position to emerge from Chapter 11 bankruptcy and return to the movie production business. If all doesn't go well, however, there's no telling when and with whom the Terminator will be back.

-- Ben Fritz

Related:

Sony Pictures bidding against Lions Gate for "Terminator" rights

Lions Gate's $15-million offer for "Terminator" is now the bid to beat

"Terminator Salvation" producers file for bankruptcy protection

"Terminator" producers sue investors, could lose franchise rights

On the way to 'Terminator Salvation,' legal sparks fly

Photo: Arnold Schwarzenegger in "Terminator 3: Rise of the Machines." Credit: Robert Zuckerman / Warner Bros. Pictures

The Morning Fix: No big sendoff for Jay Leno tonight! Figuring out Oscar votes. Jack Bauer to the big screen. Saints beat 'MASH'

After the coffee. Before remembering to set the DVR to record Jay Leno's last prime-time show.

Will he at least sing to Jay? Ashton Kutcher will be Jay Leno's last big guest on his final show tonight. Seems safe to say this isn't the way either NBC or Leno saw the talk-show host's prime-time efforts ending. Less than six months after the debut of the show that -- as Time Magazine said in a cover story -- could change the television business, it's already over. Heck, NBC even quietly moved up the last show date and has hardly been promoting the event. Unlike Conan O'Brien's last show, there probably won't be a surge in viewership tonight. More on Leno's final days in prime time from he Los Angeles Times' Greg Braxton and Variety. As for O'Brien, he and Fox are still in a (very) slow dance. The Wrap with what each side needs to expect for a deal to work.

Super numbers. New Orleans Saints quarterback Drew Brees wasn't the only one with something to smile about Monday. CBS' coverage of the Super Bowl drew 106.5 million viewers, breaking an almost 30-year-old mark set by the finale of "MASH" for most-watched TV event in the U.S. ever. Yes, there were a lot fewer eyeballs in 1983 when "MASH" went off the air, but today there's also a lot more competition. "MASH" star Alan Alda said he was happy for the Saints although he did wonder about how Nielsen measures viewing (as do we all, Alan). More on the numbers, the history and the help the game got from social media from the Los Angeles Times and New York Times.

Ryan's rewards. The surprise success of "Dear John" is a big notch in the belt of Relativity Media and its boss, Ryan Kavanaugh. "Dear John" was one of the films that Relativity was making on its own rather than just financing. Business Week, which says a lot of Hollywood grits its teeth when talking about Kavanaugh, looks at his business plan.

Forget Florida, this is really complicated. We won't know until after the Oscars if the Supreme Court will have to weigh in, but the voting procedure may be just that complex. The New Yorker looks at how the academy will be figuring out what gets best picture this year. Only for those who like to see sausage get made.

Viacom wants some fuel. Viacom is in talks to buy News Corp.'s action-sports cable channel, per Sports Business Journal. The channel, which is only in about 30 million homes, would fetch something in the low- to mid-six figures. News Corp. has indicated it wants to ease out of the niche cable channel business.

Jack Bauer to the big screen? Variety reports that 20th Century Fox's film and TV units are teaming up on a "24" movie that would send Keifer Sutherland to Europe on a mission. Screenwriter Billy Ray, whose previous credits include one of the best movies about journalism ever ("Shattered Glass") and one of the, uh, not-so-best, "State of Play," is on board to write the movie version. 

Hope this goes better than the first one. Tim Robbins is joining the cast of "The Green Lantern." According to the Hollywood Reporter, Robbins will play the senator father of the movie's bad guy, played by Peter Sarsgaard. The article notes that the last movie Robbins was in that was based on a comic book was "Howard the Duck." 

Inside the Los Angeles Times: MTV makes it official and drops the words "music television" from its logo. Hugh Laurie wants some "Oranges." 

-- Joe Flint

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Alan Alda tips hat - albeit reluctantly - to Saints for breaking `MASH' ratings record

Alan Alda isn't too angry about the New Orleans Saints' Super Bowl victory over the Indianapolis Colts getting a bigger audience than the series finale of his hit CBS sitcom "MASH," but his statement about it doesn't seem like he's jumping for joy either.

"If they broke our record, I'm happy for New Orleans and I hope it gives even more to cheer about to a city I love," Alda said. CBS's coverage of the Super Bowl averaged 106.5 million viewers, just beating the 106 million that the 1983 series finale to "MASH" averaged. In those days, there were only three networks and 83.3 million homes. Now there are hundreds of channels, the Internet and 115 million television homes.

Alda, who played Hawkeye Pierce during the show's 11-year run, wonders how accurate the numbers really are. "I know it sounds evil to mention, but how does Nielsen know how many actual people were watching either broadcast?" he asked. We often wonder the same thing.

Wayne Rogers, who played Trapper John for three seasons on "MASH," said while the Super Bowl numbers were big, "MASH" is a better financial bet.

"That Super Bowl is never going to earn what "MASH" earned that's for sure, because there's no reruns for that Super Bowl," Rogers told Fox Business Network.

-- Joe Flint

Photo: "MASH." Credit: Fox.

Saints' Super Bowl win nips 'MASH' finale for most-watched show ever

Move over Hawkeye Pierce, looks like Drew Brees and the New Orleans Saints just took your ratings crown along with the Super Bowl title.

A record 106.5 million people watched the Saints write a storybook ending to their dream season by beating the Indianapolis Colts 31-17 in Super Bowl XLIV on CBS, according to Nielsen.

That's not only the biggest audience to date for the Super Bowl, but the biggest audience for a televised event in the U.S. ever -- barely knocking off the finale of CBS' "MASH," which averaged almost 106 million viewers when it ran in 1983.

Of course, the television landscape has changed dramatically here over the last 30 years. When the "MASH" finale ran in 1983, there were 83.3 million television homes; now there are almost 115 million television homes. One can spin that beating the record set by "MASH" was inevitable.

Though there may be more eyeballs available now than there were 27 years ago, there are also a lot more options for viewers, making the Super Bowl number more impressive. "MASH" played in the glory days of three broadcast networks. Now, people also have hundreds of cable channels and the Internet as entertainment options.

There was some concern that power outages caused by heavy snow in the mid-Atlantic region may have hampered viewing. Instead, it looks like the cold and snow helped, keeping people inside and in front of their televisions on Sunday night. It was a similar story in 1982 when a snowstorm and Arctic blast hit that region and CBS' coverage of the game between the San Francisco 49ers and Cincinnati Bengals scored a then-record 85.2 million viewers. 

When it comes to big-event programming, it is becoming clear that the Internet is more friend than foe to television ratings. The growth of social media creates a national water cooler for viewers to share thoughts and trade quips about what they're watching. Someone watching the game alone can now feel like they are watching it at a party without having to worry about cleaning up dishes later. Twitter was overloaded a few times during the game, with people tweeting about advertisements -- particularly the spot featuring David Letterman, Jay Leno and Oprah Winfrey -- as well as about the game and The Who's halftime performance.

The big number provided a strong lead-in for CBS' new reality show "Undercover Boss," which premiered after the game and drew 38.6 million viewers. That is also a record for a new show's premiere after the Super Bowl. CBS took a gamble by launching a brand new show after the Super Bowl. The network ran a very tight post-game show so that "Undercover Boss" started at 10:13 p.m. EST. Sometimes the game and post-game show run so long that it's not unusual for the entertainment programming scheduled after the game to start after 10:30 p.m. in the East, which usually means lower ratings as fatigued viewers drift away.

In recent years, networks have tended to use the post-Super Bowl time slot for a special episode of an established show, as was the case last year with NBC and "The Office." The last time a network premiered a new show was in 1999, when Fox ran "Family Guy" after the match between the Denver Broncos and Atlanta Falcons.

For history buffs, last year's down-to-the-wire Super Bowl match between the Pittsburgh Steelers and Arizona Cardinals on NBC averaged 98.7 million viewers. This is the fifth year in a row that the Super Bowl has averaged more than 90 million viewers, making it the new norm for success. Prior to the February 2006 match between Pittsburgh and Seattle, the previous seven Super Bowls had fewer than 90 million viewers.

Ad rates for Sunday's match were between the range of $2.5 million and $2.7 million although some advertisers may have paid as much as $3 million to get into the game. Look for News Corp.'s Fox, which has the game next year, to use this year's huge ratings to try to push the cost per 30-second spot well over the $3-million mark.

If it seemed like you had more time to run to the kitchen or bathroom during the game, that's because you did. According to industry consulting firm Kantar Media, the telecast had 47 minutes and 50 seconds of commercials, a new record. If only a few had been as clever as the spot with Letterman, Leno and Winfrey.

-- Joe Flint

Photo: New Orleans quarterback Drew Brees enjoys the moment after the Saints' victory. Credit: Ezra Shaw / Getty Images

The Morning Fix: Dave, Jay and Oprah steal advertisers' thunder! Kadafi on Line 2. History at Lifetime. 'The View' goes wonky

After the coffee. Before finding out if Abe Vigoda is available for pilot season.

Maybe they can all get along. Never mind Tim Tebow and his mom or those Bud Light ads, the hottest commercial in the Super Bowl was CBS' own promotion for David Letterman that featured Oprah Winfrey and archrival Jay Leno. The ad, shot last week at Letterman's New York theater, will probably end up doing more to boost Leno, whose image has taken a beating since NBC decided to bring him back to late night and say goodbye to Conan O'Brien, than Letterman. That Letterman would do an ad with Leno seems to soften all the harsh criticism that the CBS host threw Leno's way over the last several weeks. More on how the spot was made from the Los Angeles Times and an overview of all the spots from the New York Times' Stuart Elliot. 

'Dear John' sends 'Avatar' a letter. We saw this coming. A weekend with guys obsessing over the Super Bowl, light attendance and a tearjerker movie premiere  spelled the end of James Cameron's "Avatar" at the top of the box office. "Dear John" took in $32.4 million, cruising to the top spot, while "Avatar" made $23.6 million. John Travolta's "From Paris With Love" made $8.1 million. More box office analysis from the Los Angeles Times and Hollywood Reporter.

Kadafi on Line 2 for you, sir. Saadi Kadafi, son of Libya's Moammar Kadafi, wants to be a player. According to the Financial Times, he has financed his first film, starring Adrien Brody and Forest Whitaker. The name of the movie is "The Experiment," and the name of the company he's backing is called Natural Selection. Sometimes, when one's mind is racing with witty cracks, it's best just to play it straight.

Drama of a Lifetime. Andrea Wong exited her position as CEO of Lifetime Networks on Friday. The move came as little surprise as Wong's role had been greatly reduced in the wake of the channel's merger into Arts & Entertainment. Ratings have been off, and the deal to swipe "Project Runway" from Bravo did not pay off financially. Although Wong has worked closely with Disney's Bob Iger and Anne Sweeney (Disney owns a chunk of Lifetime), no lifeline appears to be coming for Wong. Her likely replacement is Nancy Dubuc, currently president of the History Channel. More on Lifetime from Variety and the Wrap. If you want to know more about Dubuc, here's a profile on her and what she's done at History from our own Matea Gold from just a few weeks ago.

Lions Gate eying Miramax? Although it is often mentioned as a bidder for MGM, Lions Gate is also kicking the tires of Disney's Miramax, according to the New York Post. That deal might be easier for small Lions Gate to digest compared with MGM. 

More commercials coming to the Web. You knew those days of one or two spots while watching a TV show on Hulu weren't going to last. With more shows ending up online and more advertisers and networks wanting to count all their viewers, not just the ones watching on TV, that means the commercial loads on the Internet will be bigger. The bad news from Advertising Age.

Olympic torch flickering? With the Winter Olympics just a week away and NBC already confirming it expects to lose $250 million, the usual debate about the value of big sporting events is going full blast. Broadcasting & Cable weighs in with an analysis of the pros and cons to the games. Don't worry, this won't be the last story on the subject over the next few weeks. 

Inside the Los Angeles Times: ABC's "The View" is becoming more political, and so far it's not hurting the show.

-- Joe Flint

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Leno and Letterman have some fun with a little help from Oprah in Super Bowl spot.

Jay Leno's rehabilitation tour continued in full force on Super Bowl Sunday when he appeared in a commercial with archrival David Letterman and queen of talk Oprah Winfrey during CBS' coverage of the game.

The spot, shot last week, is a sign of at least a minor peace treaty between Leno and Letterman. It is also similar to a spot that Letterman did with Winfrey a few years ago when CBS broadcast the Super Bowl match between the Indianapolis Colts and the Chicago Bears (with Winfrey rooting for the Bears and Letterman for the Colts). 

In this ad, Letterman, Winfrey and Leno are on a couch watching the game and Letterman gripes that this is the worst "Super Bowl party ever." Winfrey warns him to be nice while Leno says, "He's just saying that because I'm here." Letterman then imitates Leno high-pitched voice. (For more dirt on how the three pulled it off see our sister site Showtracker.)

While the ad is promoting Letterman, it certainly won't hurt Leno, who will be back on at 11:35 p.m. going as host of NBC's "The Tonight Show" after the network's coverage of the Olympics ends.

Leno has already been on Winfrey's daytime talk show to do a little image work. When NBC decided to bring Leno back to late night after his prime-time show failed, which led to Conan O'Brien to quit as host of "The Tonight Show," Leno was attacked by Letterman and others for helping NBC push O'Brien under the bus. 

-- Joe Flint