By Paul Sloan

If the humans can’t conquer the chaotic digital music marketplace, let the machines try. At least that is part of the message in a Warner Music announcement Monday.

Warner CEO Edgar Bronfman Jr., long frustrated that the industry gave Apple (AAPL) chief Steve Jobs too much control over the pricing of digital music, has enlisted a small software company to help it figure out a varying pricing model that might eventually affect what we all pay for digital albums on sites like Amazon.com.

The company, Indianapolis-based Digonex, has developed a system that suggests prices for Internet goods based on a set of behavioral principles and economic and psychological theory. Digonex has built software products used by eBay buyers and sellers. Now it’s turning to music, which is a natural fit since Digonex began in 2000 as a music download service called MusicRebellion.com.

Digonex spokesman Chris Pohl said Warner (WMG) will send Digonex a range of data that Digonex will feed into its system, called DigitalOnlineExchange. Among the factors it will examine: The number of downloads a particular album receives; the genre of music, sales by similar artists and historical sales data about that artist. It will then come up with wholesale prices that will fluctuate depending on what the data tells it.

Warner, home to such acts as Matchbox Twenty and Lil Kim, can then decide whether this algorithmic method might be help get people to buy more music online and at prices that helps Warner’s bottom line.
Warner, which has seen its stock trade between $5 and $9 in the past few months, is set to report earnings on Thursday.

By Michal Lev-Ram

Just as one high-profile buyout bid is wrapping up, another may be beginning.

Deutsche Telekom AG (DT), the parent company of T-Mobile, is considering a bid to acquire Sprint Nextel (S), according to news reports Monday.

Shares of Sprint were up nearly 6% on the news, while Deutsche Telekom was down about 1.4%.

While Germany-based Deutsche Telekom has nearly 120 million customers worldwide, T-Mobile is the smallest of the top four mobile operators in the United States, with just 28.7 million subscribers. A combination with Sprint (which has about 54 million customers) would make T-Mobile the largest U.S. wireless carrier, ahead of rivals Verizon Wireless (VZ) and AT&T (T).

Last year, Deutsche Telekom said it would look at international acquisitions as part of a new growth strategy its CEO called “Focus, fix and grow.”

“We want to use our expertise to be able to grow in mobile communications, including the possibility of acquisitions, based on our strict business criteria,” Rene Obermann, the company’s chief executive, said in March 2007.

But while Sprint’s flagging share price, coupled with the benefits of its subscriber base and spectrum holdings, may make it an attractive target, some analysts say a buyout is unlikely to happen anytime soon.

Sprint has been struggling with customer service issues and managing the two networks it currently runs, and has also run into problems with the delayed launch of yet another next-generation network called WiMAX, now expected to roll out later this summer. All three of Sprint’s network technologies are different from T-Mobile’s GSM infrastructure, which means they’re compatible with different phones. Running all four could be a logistical nightmare for Deutsche Telekom.

Citigroup analyst Michael Rollins predicts that there’s a 25% chance of a Sprint acquisition — not just by Deutsche Telekom — in the next year.

“…The problems at Sprint are still deep-rooted and may deter a buyer in the near-term…” Rollins said Monday in a written report, adding that other potential obstacles to a deal going through include issues with regulatory approval and the difficulties of integrating Sprint and T-Mobile’s different networks.

A Deutsche Telekom spokesperson could not be immediately reached for comment. Sprint spokesperson Leigh Horner declined to comment on “speculation.”

Also on Monday, T-Mobile announced the New York City launch of its 3G network. It is the last of the top four carriers to roll out the technology, which provides customers with a higher-speed network well-suited for data services.

By Michal Lev-Ram

Apple’s iPhone may reign over the fledgling mobile music market in the United States, but in the rest of the world Nokia is No. 1 on the hit parade.

Last year alone, Nokia (NOK) sold 147 million music-playing phones worldwide, while Apple’s (AAPL) sleek touchscreen has sold 5.7 million units so far this year. And although the iPhone is now the top-selling music phone in the U.S. market, it doesn’t even make the top five in Europe where three of Nokia’s music-playing handsets are best-sellers. Now the Finnish phonemaker plans to launch a new service later this year that will let people download as many songs as they want for a limited time.

Unlike the iPhone’s pay-per-track model, Nokia’s new “Comes With Music” plan will offer several handsets that include a year’s worth of unlimited music in the cost of the phone. Once the year is over, subscribers will be able to keep their existing tracks on their phone or PC, and Nokia says they’ll have several options of extending their “Comes With Music” membership without necessarily having to upgrade to a new device. The company is still mum on what those other options may be, though it’s likely customers will have to start paying a subscription fee to keep the unlimited downloads service.

“The track-by-track purchase methodology was cumbersome to people,” says Liz Schimel, head of Nokia’s music business. “Consumers were looking for a more seamless way to access a lot of content.”

Subscription-based, all-you-can-listen-to digital music models have been around for a while. Companies like U.K.-based Omnifone and Rhapsody offer similar services and for years rumors have circulated that Apple itself will launch a flat-rate, unlimited version of iTunes. But Nokia is the first mobile giant to turn away from the a-la-carte model of selling mobile music, and, unlike other existing subscription-based services, its will allow people to keep their tunes on their phone and PC even after their subscription expires.

Of course, while customers won’t have to worry about losing their music library, they also won’t be able to transfer their songs to a new device unless that new device is another “Comes With Music” Nokia phone.

The company plans to launch several compatible handsets, as current Nokia music phones won’t work with the upcoming service. It’s not clear how much built-in memory those new phones will have, but one of Nokia’s most popular multimedia phones on the market today is the N95, which, like the iPhone, comes in an 8-gigabyte version.

Lucky for the Finnish phonemaker, analysts say content providers are eager to experiment with new ways of getting their music onto cell phones.

“They [content providers] want to at least try to shift the center of gravity away from iTunes and Apple,” says Mark Donovan, a senior analyst with mobile research firm M:Metrics.

Two of the world’s largest music labels - Universal Music Group and Sony BMG - have already committed to “Comes with Music,” and the company expects more will sign on before the new service launches in the second half of this year.

Nokia won’t disclose the details of the new business model, or say how much the “Comes With Music” devices will cost. Some media reports have suggested the phonemaker is paying $35 to Universal alone for each handset it sells. With more labels expected to join the partnership, that could end up cutting into Nokia’s profit margins, though M:Metrics’ Donovan says he believes the company has figured out a model “that has legs.”

“The idea that they would pay Universal $35 a handset doesn’t smell good to me at all,” says Donovan. “But of course the devil will be in the details.”

Schimel, head of Nokia’s music business, says the company put a lot of energy into crafting a model that makes sense for everyone involved - the music labels, customers, carriers and Nokia itself. The result, she says, will be able to compete with lots of players on the marketplace, including Apple.

“The mobile industry as a whole has enormous potential in digital music but up until now it’s only been unlocked to a limited extent,” says Schimel, who would not disclose the specifics of the “Comes With Music” business model.

One thing Nokia has been clear about is that music and other services are an important part of its overall strategy. In 2006 the company acquired digital music player Loudeye, which enabled it to launch a pay-per-track mobile music store (similar to what’s currently available on the iPhone), now available in nine countries.

But it’s Nokia’s “Comes With Music” service that has the potential to disrupt the prevalent iTunes way of selling digital music - at least when it comes to mobile downloads.

Despite Apple’s dominance in MP3 player sales, Nokia’s got a global headstart when it comes to the mobile phone market. It’s got 40% of the global handset market and is especially strong in regions that have been quick to embrace mobile content, including China and Europe.

Of course, providing a viable competitor to Apple’s iTunes means succeeding in the U.S. market as well. Currently, Nokia has just 7% market share in the United States, and its total North America sales accounted for only 2.6% of its overall, global revenues.

Nokia’s Schimel says although it won’t be one of the launch markets Nokia has every intention of eventually bringing its “Comes With Music” service to the United States.

But it’s possible Apple will be pressured into change its tune — and offering a subscription-based iTunes service — long before that happens.

By Scott Moritz

Comcast (CMCSA) has raised $2 billion through a bond sale as the company explores its wireless broadband options, among other things.

The Philadelphia cable giant was able to increase its planned debt offering of $1.5 billion to $2 billion on strong demand for the note, according to Bloomberg News. The news comes a day after the company posted solid first quarter earnings and said it was still planning to move ahead in wireless data.

On the earnings conference call with analysts, Comcast executives said they would take action to to preserve its credit rating.

“We are going to be very disciplined in our capital structures, and do things that make a lot of sense,” Comcast executives said Thursday.

As of March 31, Comcast’s total debt was $37.4 billion, according to a regulatory filing.

Some analysts says the financing move is a good sign that Comcast is getting closer to reaching some sort of agreement on a proposed WiMax joint venture between Sprint (S) and Clearwire (CLWR). Other players that have been involved in those discussions include Time Warner Cable (TWC), Intel (INTC) and Google (GOOG).

Comcast has a big role in the fate of a national WiMax network. If the joint venture fails to find enough funding or participants, the so-called 4G wireless technology faces falling behind the long term evolution or LTE technology that AT&T (T) and Verizon Wireless (VZ) have already committed to.

By Scott Moritz

AT&T’s (T) planned $200 subsidy on Apple’s (AAPL) iPhone could increase the sales of the new 3G model by 50%, according to one analyst.

Using a comparison to price cuts of Motorola’s (MOT) Razr — the 110-million-units-sold wonderphone from yesteryear — Bernstein analyst Toni Sacconaghi says its reasonable to expect that AT&T could more than double its iPhone sales, which currently account for half of all Apple’s iPhone numbers. He made the analysis after Fortune first reported the plan by the Apple’s exclusive iPhone partner to cut the price of the upcoming 3G version of the phone.

Sacconaghi sees a strong parallel in the scorching history of Motorola’s Razr phone. In 2005, Razr’s expensive ultrathin metal-clad design went from being the coveted phone of the moment to a pop culture sensation as the price fell.

“The Razr’s unit sales run-rate doubled when its price dropped from an initial $500 to $150, then doubled again when the price fell further to $100,” Sacconaghi wrote in an Apple research note Thursday.

“While offering the subsidy would cost AT&T $200 per iPhone user, we estimate the cost would be more than offset if the subsidy results in an increase in the iPhone subscriber base of around 100% - which appears to be a realistic assumption in light of the Razr’s experience,” he wrote.

Sacconaghi is an Apple analyst but he says he has not confirmed the price cut plan with Apple or AT&T.

Cell phone and smart phone subsidies are common throughout the U.S. and Europe. The iPhone was unusual in that it was sold at full price. Despite the hefty $400 price tag, Apple has sold 5.7 million iPhones, over half the way to its goal of 10 million for the year.

For AT&T, the phone is fantastic bait to reel in customers from rivals like Verizon Wireless (VZ), Sprint (S) and T-Mobile (DT), at a time when wireless growth is slowing. To date, AT&T says about 40% of iPhone customers are coming from other services. Not only does the iPhone lure customers, it brings in the type of customers that the industry cherishes: big spenders.

AT&T says it rakes in an average of $95 a month from each iPhone customer, nearly twice the average monthly bill of its conventional cell phone user. With faster 3G phones, it’s likely that iPhone fans will spend even more money time on the mobile Internet. AT&T has a revenue sharing agreement with Apple where it forks over as much as 25% of its iPhone customers’ monthly payments to the company.

The remaining take for AT&T is between $70 and $75 a month per iPhone user totaling more than $1,700 over the life of the two-year contract, wrote Sacconaghi.

AT&T plans to lock the subsidized iPhones so they can’t be used on other companies’ networks. That leaves it open to debate whether Apple will sell unlocked, unsubsidized phones at its stores. Sacconaghi says people might pay a premium for an unlocked iPhone, untethered as it would be from the AT&T service. “We believe the availability of factory-unlocked iPhones would further stimulate overall iPhone sales, though price may remain a barrier to truly mass market adoption.”

The mass market however, is a double-edged blade as Razr observers will note. Razr’s ride to popular glory was followed by a plunge into ignominy as the price of the phone went to zero, a precursor to the downfall of the Motorola’s mobile phone business. But that is one Razr parallel Apple fans aren’t likely to make.

By Michael V. Copeland

Web chat platform Meebo has landed $25 million in a venture funding from a group of investors including Time Warner Investments (TWX) (Fortune is owned by Time Warner), JAFCO Ventures and KTB Ventures. Existing investors Sequoia Capital and Draper Fisher Jurvetson also re-upped in the Series C round, which puts a valuation on the year-old Mountain View, Calif-based startup at an estimated $200 million before the additional money.

Meebo joins Web 2.0 startups Slide and Ning in recently closing massive rounds of venture capital funding (Slide, which creates widgets, raised $50 million at a $550 million valuation. Ning, a platform for creating social networks, raised $60 million at a $500 million valuation).

Ning investor and co-founder Marc Andreessen has explained his company’s Series D round as a way “to make sure we have plenty of firepower to survive the oncoming nuclear winter.” Other bellwether social media startups including music discovery site Imeem, and widget factory RockYou, are also rumored to be on the fund-raising trail, looking for equally large war chests and valuations to go along with them. They are being watched very closely as proxies for the rest of the Web 2.0 ecosystem.

With M&A seemingly drying up, many Web 2.0 startups are scrambling for another round of venture capital money so they can survive — most won’t. In the last few months, VCs and other private equity players have become reluctant to pour more cash into all but the most wildly successful Web 2.0 companies.

Meebo, with 30 million unique users in March, fits that bill in terms of growth for its instant messaging service and chat rooms, but it has very little revenue. Instant messaging has not been a place that companies have found easy to monetize, but Meebo thinks it may have landed on the right formula.

The startup has been testing forms of advertising on its service, including buddy icons and wallpapers sponsored by brands like Puma and featuring television shows from CBS.

The idea is to create advertising in forms that people will want to pass around to their friends, whether that is movie trailers, quizzes or buddy icons, says Meebo CEO and co-founder Seth Sternberg.

“Social media is all about sharing, it’s our job now to go out to the market and show that the units of advertising we create produce clicks,” Sternberg says. “So far the units we have been testing have been performing fantastically, but the next step is to really blow it out. Our two fundamental goals are to continue to grow and work in earnest on monetization.”

Sternberg acknowledges that this round of funding will ensure Meebo gets through any rocky economic period. “We wanted this to be a round that would carry Meebo very far,” he says. “It’s possible that the markets are going to become weak, but it’s a great time to build a business when times are rough and I think it’s wise to put yourself in a position so you can get through them and grow.”

By Scott Moritz, writer

AT&T (T) is planning to put some extra shine on the even sleeker new Apple (AAPL) iPhone.

When the 3G iPhone is introduced this summer, AT&T, the exclusive U.S. iPhone sales partner with Apple, will cut the price by as much as $200, according to a person familiar with the strategy.

AT&T is preparing to subsidize $200 of the cost of a new iPhone, bringing the price down to $199 for customers who sign two-year contracts, the source says. Apple is expected to have two versions of the new iPhone, an 8-gigabyte-memory and a 16-gigabyte-memory model with price tags widely expected to be $399 and $499.

AT&T and Apple declined to comment.

At $200, the iPhone would be within reach of a much wider consumer market and give AT&T a strong magnet to pull lucrative customers away from rivals like Verizon Wireless (VZ), Sprint (S) and T-Mobile (DT). The $200 rebate or subsidy would be limited to AT&T customers and not available through Apple’s stores. The new iPhone sold by AT&T will likely be locked or programmed so buyers can’t take the cheaper iPhone to another phone service.

Subsidies of $100 to $200 are common in the U.S. phone market, where people buy their phones from their carriers. Lowering the consumer cost of the phone to win two-year subscribers is considered a small investment with a quick payoff. The average monthly wireless bill is around $50, so a phone company can recoup the phone’s cost in a matter of months.

The average iPhone user however, runs up a $100 tab each month due to the higher priced data and calling plan. This would give AT&T an even quicker payback on its $200 outlay. But AT&T doesn’t get to keep all the money it collects from its iPhone users. Unlike most other phonemakers (but like BlackBerry maker Research in Motion (RIMM)) Apple has a revenue-sharing arrangement that requires telcos like AT&T to pay somewhere between 9% and 25% of the money collected each month from iPhone users.

The new iPhone is expected to be released on the one-year anniversary of the original iPhone debut June 27 or thereabouts. A few weeks prior to that launch, Apple is planning to stop supplies of the older model iPhone, according to the source. This will help clear out inventory and stir up demand for the new device. It will also attempt to avoid the public relations pratfall Apple made when it cut the price of the iPhone without warning last year. To soothe the ire among people who bought the iPhone just before the sudden markdown, Apple issued store credits.

A few details about the new iPhone have also been confirmed by the source. The new iPhone will be 2.5 mm thinner than the 11.7 mm original. The iPhone will also have a GPS chip for navigation and other location-based services.

By Scott Moritz, writer

Corning (GLW) is betting big that consumers around the world are about to develop a serious passion for high-priced television sets.

Buoyed by sustained demand for liquid crystal display, or LCD, televisions, Corning said Tuesday it will increase spending by about $400 million, or 44%, to boost LCD glass production this year. The glassmaking giant says it is also seeing strong demand for its scratch-resistant “Gorilla” LCD glass, which is used in touchscreen devices.

The news, announced shortly after Corning reported strong first-quarter results and raised targets for the second quarter, counters signs of a slowing U.S. economy and worries that a recession here would hamper global economic growth.

Corning’s strategy to zig while the rest of the market zags, isn’t new for the venerable tech pioneer. In early 2001, Corning predicted demand was still growing for its production of fiber-optic cables. Five months later, with the collapse of the Internet building boom in full swing, Corning reported an abrupt drop in businessand took a $4.8 billion writedown on its newly expanding fiber operations.

Corning, of course, thinks everything is different this time — and can point to several indicators showing strong LCD TV demand.

Inventory at its panel-making customers is low. “We don’t see any glass building up at the panel makers,” Corning executives said on the earnings conference call Tuesday. Corning supplies the flat glass that goes into the screen panels that are then supplied to TV makers. And Corning says TV sales are “ahead of what our expectations were.”

Healthy demand in stores is driving Corning’s decision to ramp up glass production. The production expansion plan is guided by “what we believe the end market will be,” CEO Wendall Weeks said on the call.

To back that up, Corning says LCD TVs comprise about 8% of the worldwide TV market. And with the rapid decline in conventional TVs made with cathode ray tubes, LCDs will presumably dominate the market.

Corning predicts households will soon have multiple LCD TVs, not just in living rooms and bedrooms but also kitchens and bathrooms. To illustrate this market opportunity, Flaws pointed to data indicating that China has a mere 1.1 TVs per home.

Once again, Corning is relying on rosy numbers to inform its bold decisions. Stay tuned to see if the company is right — this time.

Corning: TV sales over time

Thanks to Grand Theft Auto, PS3 and Xbox 360 are shifting into overdrive to sell more gaming machines. Courtesy of Take-Two

By Yi-Wyn Yen

Wall Street analysts predicts Grand Theft Auto IV will easily break video game sales records this week. But one question remains: Will fans buy the game for Sony’s PlayStation 3 or Microsoft’s Xbox 360?

Both Sony (SNE) and Microsoft (MSFT) are in a heated race to win over undecided gamers who must buy one of the two consoles to play the biggest game to be released this year. The popular franchise, from Take-Two Interactive (TTWO), is expected to surpass first-week sales of $400 million, which would top Halo 3’s record of $300 million, according to Evan Wilson, an analyst with Pacific Crest Securities. “Grand Theft Auto is clearly going to be a blockbuster game,” Wilson says.

GTA IV launches Tuesday, which should result in a big boost in monthly console sales for Sony and Microsoft. Both are a distant second to market leader Nintendo with its family-friendly Wii. Nintendo, which does not offer GTA IV, sold 721,00 Wiis in the United States in March, according to market research firm NPD. The Wii sold more than the PS3 — 257,000 units — and the Xbox — 262,000 console — combined. Analysts anticipate first-week sales of about six million copies for GTA IV, which retails for $60 or $90 for a special edition.

“It’s interesting that both Sony and Microsoft are spending a lot of money to align the game with their console,” says Sam Kennedy, the editorial director for gaming publication, 1 Up Network.

Neither Microsoft nor Sony will disclose how much they have spent to promote the game, though both were quick to promote their gaming machines as the best option for GTA IV fans. The Xbox 360, with a 20 gigabyte hard drive retails for $350 while the PS3, which features Blu-ray and twice the hard drive capacity, retails for $399.

“Grand Theft Auto is a premier brand that was really established on the PlayStation platform,” says Peter Dille, senior vice president for Sony’s PlayStation Network. “Guys who love the game grew up on PlayStation. We think that they’ll vote with their wallets for the PS3.”

The GTA franchise has sold more than 65 million copies worldwide in the last 11 years. Of the previous installments, only one was made available for the Xbox platform while all the games were playable on Playstations.

A Microsoft representative says gamers will side with the Xbox because Rockstar Games, the Take-Two game studio that developed GTA IV, is making exclusive add-ons for the console.

Rockstar will release two additional game plays for those who can’t get enough of the drug trade adventures of GTA hero Niko Bellic. The first will be made availabe this fall for the Xbox. “We absolutely believe having exclusive content will boost sales,” says Xbox spokesman David Dennis. “The Grand Theft Auto franchise may have been home to the PS2, but we believe PlayStation owners will stand up and upgrade to the Xbox for [GTA IV].”

Dennis says major retailers in Europe have informed Microsoft’s sales team that GTA pre-orders favored the Xbox over PS3 by 2 to 1. He argues that this is a “strong indication” that more gamers will purchase the Xbox for the month of April.

Other Xbox perks, like Xbox Live and online rewards for top gamers, will attract console converts, he contends. “The PS2 and PS3 has an online network that’s in the low single digits. Make sure you put that number next to ours,” Dennis says. PlayStation’s online network has 3.7 million users, and Xbox Live has more than 10 million.

PlayStation’s Dille was just as quick to diss the Xbox. “Microsoft had its moment with Halo, and that moment has past,” he says. “Sure they’re touting Grand Theft Auto, but you can play it on our platform too. You want to talk about exclusive content? Sony has a very deep lineup of exclusive games like Metal Gear Solid and Grand Turismo that has the industry buzzing. The PS3 has a more exciting story going on this year.”

The two rivals can continue to throw pot shots at each other until May 15, when NPD will name a console leader for April sales in the U.S. Consumers should be happy either way. GTA IV has received fierce reviews in the gaming community. “It’s quite an amazing experience,” Kennedy says. “I can’t imagine any game being bigger this year.”