Silicon Alley Insider is reporting that Comcast has bought newsletter service DailyCandy for an unconfirmed $125 million. The site caters to women interested in fashion, food, travel and other cosmopolitan topics.

Comcast apparently beat out Viacom with its willingness to pay $5 million more than Viacom’s offer of $120 million. Bob Pittman of Pilot Group Ventures, the holding company of DailyCandy, says the service was expected to hit $25 million in revenue this year with an EBITDA of over $10 million.

DailyCandy is understood to have been on the block for years, with speculation from just last month that it would sell for $75 million.

Starting this week, Comcast is running trials in three US local markets of a new method to manage traffic on its fiber broadband network. Comcast has recently come under fire for filtering and blocking P2P data on its network, causing both legal and illegal torrents to stop working or have their speeds reduced to a crawl. Comcast has responded to the criticism by publishing a new network management policy along with new tools to assist them in the task of managing bandwidth usage.

The new approach is protocol-agnostic and will apply to all traffic, rather than specifically targeting only P2P traffic. Comcast has set out to restrict usage to the very top percentile of users, rather than penalizing all users of a particular protocol. The approach will throttle both connection attempts and download speeds for the top consumers of bandwidth during times when the network is experiencing high load. The approach seems a lot fairer than targeting specific protocols, but it effectively results in a bandwidth cap for some Comcast users.

In an email to customers who belong to one of the three market areas about to enter the trial, Comcast claims that there should be no effect for the vast majority of users. Comcast cites a number of methods that are used to control or restrict network usage:

(i) identifying spam and preventing its delivery to customer e-mail accounts, (ii) detecting malicious Internet traffic and preventing the distribution of viruses or other harmful code or content, (iii) temporarily delaying peer-to-peer sessions (or sessions using other applications or protocols) that users of the Service may wish to establish during periods of high network congestion, (iv) limiting the number of peer-to-peer sessions users of the Service may establish, and (v) using other tools and techniques that Comcast may be required to implement in order to meet its goal of delivering the best possible broadband Internet experience to all of its customers.

Since the controls apply to the top percentile of users, it would ordinarily have an effect of gradually lowering what is considered ‘high’ usage, since it always applies to the top users regardless of what the actual usage is. Comcast says that they prevent this pattern from happening since restrictions are applied against the total network usage, so the top users should still expect maximum throughput at off-peak times. The reasons they are running the test is specifically to find out just how far this will reduce network load, and how effective it would be in dividing network capacity and access fairly across users. The company hasn’t specified what they consider ‘high’ network usage to be (eg. is it 40, 50, 60% of total network capacity) but they are likely to refine this process during the trial.

The Challenges Facing Comcast

There are many reasons why Comcast is attempting to reduce network usage, and why they attempted to block all P2P traffic. Comcast is facing stiff competition from DSL based providers, satellite television and downloaded content replacing Cable TV. With these pressures applied to the company, they must find ways to either increase revenues or cut costs in order to maintain growth. Comcast stock, as with other cable companies, has been volatile – with a 52-week low of $16 and a high of $30. While they have recorded strong revenue growth (25% between ‘06 and ‘07), net income remains flat as costs have increased.

The company has little room for growth in the US market, as currently 58% of households have some form of basic cable, and of those, approximately 70% utilize the cable connection for broadband.  Cable connectivity seems to have reached a saturation point, as has the broadband adoption component – and the major cable companies have divided up the market and each dominate their own area. The cost of an average cable TV subscription has increased 77% in the past 12 years, and subscribers are on average only utilizing 12% of available channels because of forced bundling. The other potential growth paths include providing telephony to existing customers; layering on other online services (such as the recently-acquired plaxo, and recently-launched Fancast); and bundling TV, Internet and voice (the triple play) to users to achieve higher margins.

The issue with web downloads cutting into the Cable TV business is particularly interesting, as the effect on Comcast is that not only do they see lower cable TV demand, but at the same time higher demand on their broadband network as users download more of that same content using online sources. On one hand they are losing lucrative cable subscription revenue, but then on the other also paying for the bandwidth customers are using to download legal and illegal alternatives. It is easy to see why their knee-jerk reaction was to attempt to prevent all their broadband users from accessing P2P services, as they were not only trying to lower costs but also preserve their television business.

With a reported 70% of net traffic consisting of P2P, the ability to have that traffic disappear from their network would have been a big boost to Comcast. The P2P blocking didn’t work out, and it remains to be seen just how the new network management plan will affect overall usage. During the trials the company will certainly be adjusting the network so that they can reduce as much P2P traffic as possible while affecting as small a number of users as possible, all the while being able to claim that they aren’t directly targeting P2P.

Comcast is juggling a very fine balance here, being forced to reduce costs and preserve their core business while at the same time not wanting to drive users away to alternatives. They were the first cable company to target P2P, and they are now again the first cable company to develop a compromise solution through intelligent network management. There is almost no doubt that with whatever solution Comcast settles on, the other cable providers will undoubtedly follow suit. The effect this will have on web businesses and services is difficult to predict,  but hopefully Comcast will find the right balance.

A subset of the Gillmor Gang met via telephone this afternoon to debate the $150 – $170 million Comcast acquisition of Plaxo. Listen to Steve Gillmor, Dan Farber, Robert Scoble, Jason Calacanis and me talk about whether this was a smart move for Comcast, or a sucker’s purchase of a company no one in Silicon Valley would touch.

Listen here.

The rumors were accurate: Comcast will announce their acquisition of social contact list Plaxo today. Financial terms are not being disclosed, but the purchase price is between $150 and $170 million. Plaxo, which was founded in 2002, has raised just under $30 million in venture capital.

Plaxo has been the subject of considerable acquisition rumors lately, with both Google and Facebook named as potential suitors.

Plaxo says they will remain an independent organization in Silicon Valley. It will report into Comcast Interactive Media, which is a division of Comcast that develops and operates Internet businesses focused on entertainment, information and communication.

More from Plaxo’s CEO Ben Golub:

Plaxo and Comcast have been working together for the past year on a number of initiatives. Plaxo is providing the universal address book for Comcast’s SmartZone communications center (slated to launch later this year), and we are also now hosting all of the address book accounts for Comcast webmail users. Our partnership has already more than doubled the reach of the Plaxo network, bringing the total number of accounts to nearly 50 million.

Together, we intend to deliver on a vision of making “social media” a natural part of the lives of regular people, not just early-adopters. For example, you should be able to securely post family photos online in Pulse, and have them viewable by any of your family members, whether they are online, at work, on their mobile device, or in their living room watching TV. And you should be able to discover new shows to watch, based on what your friends and coworkers have recommended.

So, what about current Plaxo members? The services you know and enjoy from Plaxo will not only continue, but will continue to evolve and improve. In addition, both of our services benefit from “network effect,” which is to say that the more people who use them, the more useful they become.

On Monday I had an impromptu interview with Plaxo VP Marketing John McCrea and Chief Architect Joseph Smarr. They still had their poker faces on with regard to the acquisition:

This ends a long and sometimes troubled history for Plaxo, which was founded by Sean Parker, Minh Nguyen and two Stanford engineering students, Todd Masonis and Cameron Ring, in 2002. In 2006 the company finally abandoned it’s hated “viral” feature that tricked users into spamming their entire address book with Plaxo invitations.

More recently, however, Plaxo has been playing nice with the Internet. Last year they launched a popular service called Pulse, which pulls activity streams from other services into users’ Plaxo profiles. They were launch partners with Google Open Social, and announced support for DataPortability early this year. Even so, they still had the occasional misstep.

Update: The Gillmor Gang digests the news. Listen to the podcast here.

The more I learn about the $3.2 billion deal announced earlier this week to salvage Clearwire’s and Sprint’s WiMax businesses by merging them together, the more I am convinced that someone got snookered. And that someone was Google CEO Eric Schmidt. Maybe he just can’t say “No” to visionary billionaires like Clearwire chairman Craig McCaw. Or maybe McCaw got Intel CEO Paul Otellini to lean on his buddy Schmidt. Otellini himself pledged $1 billion of Intel’s money towards the venture because he has made a big bet at Intel on selling WiMax chips. He also happens to sit on Google’s board. I don’t know if any of the above happened or not.

What I do know is that Google came reluctantly to the table and that for a long time the deal was being blocked internally at Google for some very good reasons. The main reason is that WiMax as Clearwire is deploying it is not a very good replacement for mobile broadband services. It is, above all, a fixed wireless solution. What it replaces is wired broadband services to homes and offices delivered through cable and DSL. That is how Clearwire is selling it today.

But to get Google (and Comcast and Time Warner Cable) to put up the cash, Clearwire had to promise it would build out a richer mobile broadband service as well. This is why Google invested—to bring the broadband Internet to mobile devices (some of them hopefully running the Android operating system). And it is why Comcast and Time Warner Cable invested. They don’t need a replacement for cable broadband to people’s homes. They need a wireless offering to fend off AT&T’s and Verizon’s incursion into their television market. (It’s all about who has the better bundle). Everyone is enthralled with this idea of WiMax as a disruptive wireless mobile broadband alternative. Even Neal Cavuto couldn’t stop waxing about the wonderful wireless future that this deal represents.

I wish that it were true. But here are a (more) few problems:

1. Clearwire and Sprint have not yet proven that WiMax is a viable business even for fixed wireless. Clearwire lost $727 million last year, nearly five times more than its total revenues. And it is projected to lose increasingly more over the next couple years during the expensive growth phase of its business. Moreover, the uptake of the service in the 50 or so cities where it is available has not been so great. That is because, unless you live in a rural area with no other broadband alternative, it is trying to solve a problem that doesn’t exist. At this point, most people in the U.S. can get broadband at their home just fine through cable or DSL.

2. WiMax hasn’t proven itself elsewhere either. Even in Korea, which has had WiMax for two years and is supposed to be a broadband paradise, consumers are not clamoring for WiMax. There are only about 150,000 WiMax subscribers in Korea, well below initial expectations.

3. Before you can turn Wimax into a mobile broadband service, you need mobile WiMax equipment. Cell phones, laptops, and other devices with WiMax chips in them are a long way away. Intel is ready to sell those chips, but device makers are not going to put them in their gadgets until enough consumers want them. And most consumers are going to wait for a WiMax network to show up that they can access both where they live and when they travel. So there’s a chicken and egg problem there.

4. Clearwire doesn’t know how to act like a mobile company. It doesn’t have a mobile business plan. It has a fixed wireless business plan. In order to make WiMax truly mobile, you need to build out a network dense enough to cover subscribers as they move from one place to another. That is simply not the case today, even in the markets where Clearwire operates.

5. Sprint is conflicted. To deal with roaming and coverage gaps, Clearwire would need to use Sprint’s 3G cellular network as a backup. That would require another chip in each device, which would make them more expensive than competing devices from AT&T or Verizon. Also, it would require Sprint opening up its 3G network to Clearwire and, by extension, Google. That’s not going to happen.

6. WiMax is not a global standard. Here in the U.S., WiMax is built on 2.5 GHz spectrum. Overseas, it is built on 3.5 GHz spectrum. That makes it harder for equipment manufacturers to achieve the scale they need to make money from WiMax devices and network equipment.

7. McCaw may be a visionary, but sometimes he doesn’t see so clearly. Yes, he built what is now AT&T Wireless and sold it for $11.5 billion. But after that he also was responsible for Teledesic and XO Communications—two massive failures that cost investors billions of dollars. Clearwire was about to join those latter two before Schmidt & Co. came to the rescue.

The deal to combine Sprint Nextel’s and Clearwire’s fledgling WiMax businesses that was rumored last March is finally expected to go through. Comcast and Intel are supposed to put in $1 billion each; Time Warner Cable, $550 million; Google, $500 million; and regional cable provider Bright House Networks, $100 million. The new company, which will be valued at $12 $14.5 billion, will be run by Clearwire and take its name.

As I said before, this is a disaster waiting to happen. Sprint and Clearwire need the deal to try to salvage the billions they’ve already sunk into their money-losing WiMax networks. But putting more cooks into the kitchen with different WiMax aspirations is not going to help. Google wants more wireless broadband alternatives for its planned mobile apps and advertising. Whereas the cable companies want a way to compete against mobile phone operators encroaching on their turf. As I wrote last March:

WiMax is a promising technology and these are early days. But even an extra $3 billion won’t be enough. Building out a nationwide WiMax network could cost as much as $8 billion to $12 billion. And there could be more technical hiccups.

I can see why Google might throw its hat into the ring here—anything to promote more broadband wireless networks. But Comcast and Time Warner Cable should stay away. The logic behind the investment seems to be that the cable companies could use the WiMax network to counter the moves by Verizon and AT&T into their turf (with TV service over phone lines). It is being suggested that the cable companies would be able to launch their own white-label mobile phone and high-speed Internet services over WiMax.

Here’s where that logic breaks down: Verizon and AT&T have a huge head start and customer lock-in when it comes to cell phone service. WiMax mobile phones would take decades to chip away at that even if they do offer faster data speeds. Today, Clearwire is only offering at-home phone service, not mobile. As for broadband Internet and home phone services, Comcast and Time Warner already compete effectively against the phone companies today with their alternative services over cable.

I hope that I’m wrong and that this new consortium will bring cheap WiMax to us all. Because the technology is very promising. Unfortunately, the business is not.

Whenever cable companies feel threatened, they form a joint venture. The latest is called Project Canoe, an effort by all six major cable companies in the U.S. to deliver targeted TV ads to viewers through their set-top boxes. The NYT reports:

Collectively, the cable companies will initially put about $150 million behind the effort in order to build a national service that can sell targeted advertising across all six cable systems.

The cable companies may control the set-top boxes, but they only collectively control about $5 billion of the $70 billion spent each year on TV ads. Most of those are local spots. With better ad targeting through Project Canoe the cable companies hope to triple their take to $15 billion. But that may be wishful thinking.

Of course, all of this is a reaction to Google, which already is testing its own TV ads on EchoStar’s Dish Network (no satellite companies are part of Project Canoe). Just last week, some Google TV Ad beta testers were able to start buying TV ads through AdWords as part of their regular advertising campaigns. In other words, they can buy search ads on Google, contextual online ads across the Web, and TV ads on Dish all through the same Google interface.

Through its partnership with EchoStar, Google’s software is on millions of set-top boxes, anonymously monitoring everything viewers do while watching TV. Advertisers in the beta can bid on ad slots by geography, demographics, day, time, and network. Google gives them data on how many people saw their TV commercials, how long they watched the ads, and at what point they lost most of their viewers. These are similar to the same sort of detailed reports advertisers can get on the Web. As I suggested last November:

Any new video ad unit that starts to gain traction on the Web could be ported over to regular TVs—clickable overlays, contextual video ads, unobtrusive sponsorship icons. Why not even let viewers program their own ads with a laundry list of categories and companies to choose from? They might actually watch them.

When it comes to advertising, Google is not shy about stating its ambitions. “We are confident we are going to revive the television advertising industry,” says [Google TV's Vincent] Dureau, “by bringing new advertising to it.” Already, Google is trying to make TV ads more relevant, easier to target, and cheaper to deploy. As a result, Google thinks it can attract more ad dollars from smaller businesses that may not have been advertising on TV before.

The fact that the cable companies are creating their own advertising tracking software does not bode well for Google’s TV ad project ever making it beyond satellite-TV networks. Why should they hand over to Google a cut of their ad revenues? But giving Google the high hat will just make it more likely that Google will go ahead with its own secret set-top box project. An Android-like open-source set-top box could end up being a lot more disruptive to the cable companies’ business than simply letting Google in the front door.

AdWords already has a strong presence among the very same small- and medium-sized businesses the cable companies are going after. The big opportunity here is bringing more local ads to TV because one of the most effective ways to target TV ads is (still) by geography. Just ask Spot Runner, which already lets small, local businesses buy TV ads over the Web and is planning on combining that with online ad buys as well.

The cable companies have an advantage in that they own the set-top boxes required to make ad targeting work on TVs. They are now paddling fast to catch up. But there are also some mighty currents working against them. This is not just about putting software on set-top boxes, it is about creating the right software that can make TV ads more relevant. Who is more likely to do that: Google or a multi-headed joint venture? Then the cable companies will have to create their own ad network as well, which will compete with the TV networks their business relies on. They’d better put that canoe in the water and start paddling fast.

(Photo via Jeff Kubina).

Plaxo finally got bought, say valley whispers, and blog after blog have speculated incorrectly about who the buyer might be (first Facebook, then Google). Finally, someone may have gotten it right – Valleywag is saying that Comcast is the buyer, for $175m. That makes sense based on what we heard earlier today, too: that one of the cable players bought them, for something just under the $200 million previously rumored. Comcast is the most active buyer in the bunch. In fact, they’re getting a bit of a reputation as the guys who’ll look at any deal, and don’t quibble much on price. If no one else will take you, there’s always Comcast.

To be fair, some of my disdain for Comcast exists solely because they supply my cable and Internet at home, and really really suck at it. I believe I’ve spoken to every customer service rep they employ.

Plaxo did around $5 million in 2006 revenue, doubling that to $10-$12 million in 2007. 2008 projections are $20-$25 million. The company has 1.8 million worldwide visitors per month (Comscore).

Comcast launched Fancast at CES today. The site, which we first mentioned in April, serves as both a media guide for TV shows and movies, as well as a destination to watch full length and preview clips of professional content.

Fancast partnered with Hulu to offer content from NBC and Fox, in addition to content from CBS, MTV, and BET. If Fancast doesn’t stream the full-length content you are looking for, it will help you look for that content on television, on DVD, in theaters, or even elsewhere on the web (iTunes, Amazon, Blockbuster, or Netflix). While this will be helpful for people who genuinely want to access content in different formats, the TV guide type features are a stopgap for many of us who would like to see everything streamed online.

Other aspects of Fancast make it much like IMDB; you can check out information about casts and crews, review information about past episodes, and look at related photos. Users are also promised the ability to control their DVR online so they can schedule recordings of shows when they are away from home. Furthermore, the service will recommend shows coming up on television that it thinks you might like to see.

According to NewTeeVee, Fancast is part of Comcast’s “Project Infinity” initiative and should in time find itself integrated with set top boxes. Comcast has partnered with TiVo and is negotiating with Time Warner and Cox.

The deadline to apply to participate in the FCC’s upcoming auction of wireless 700 MHz spectrum passed on Monday. And we still don’t know exactly who the bidders will be. But we have a pretty good idea.

Google is in. So is AT&T, Frontline Wireless, and Craig McCaw’s Clearwire. Comcast and Time Warner are out. But Cox Communications is in.

Verizon Wireless isn’t saying either way, but everyone expects it to bid. Sprint Nextel is sitting this one out, as is Microsoft. And T-Mobile isn’t expected to play a big role.

At least initially, there seems to be two major camps. Google and Frontline on one side, looking for an opening in the entrenched wireless industry. And AT&T and Verizon on the other, trying to keep the technology pirates from climbing aboard their ships. And Craig McCaw as always, is the wild card.

As for other possible bidders, you can never count out Qualcomm, or the handset manufacturers like Nokia or Sony Ericsoon, who might like to bypass the carriers for once. Smaller wireless companies like Alltel or Leap Wireless could bid on a regional basis.

I would not be surprised if at some point Google and Frontline combine forces. Any auction strategists or game theorists out there have any advice for how they can improve their chances of winning? Please enlighten us in comments.

(Photo by Steve Jurvetson)

Californian Jon Hart has filed a lawsuit against Comcast arguing that its throttling of BitTorrent violates federal computer fraud laws, user contracts and anti-fraudulent advertising statutes.

According to Wired, Hart argues that Comcast’s “Download at Crazy Fast Speeds” promise is false and misleading as Comcast interferes with BitTorrent downloads, delivering in some cases no downloads at all. Hart is seeking to certify the suit as a class action and wants Comcast to pay damages to himself and all other California based Comcast subscribers.

Comcast has consistently denied that it is blocking BitTorrent traffic, despite numerous independent tests proving that this is the case.

Wired has a copy of the suit here (pdf)

An unconfirmed report has BuddyTV being acquired by Comcast. We’ve got requests for confirmation in with BuddyTV and are waiting for a response.

Seattle based BuddyTV is a television focused content network with a team of dedicated entertainment writers producing content that is complemented by users. The company took $2.8 million from Gemstar-TV Guide in July. Comcast previously acquired Fandango, an online movie ticket selling company that also ran a entertainment guide called Fancast.

If confirmed, it’s an interesting buy that fits more in the blogging acquisition space, placing the deal alongside the acquisitions of Weblogs Inc and more recently TreeHugger. Certainly BuddyTV’s mix of paid writers/ bloggers and user contributions highlights the value of content in a market where service/ product acquisitions usually get most of the press.

More if and when we are able to confirm the deal.

(via PC)

Come Monday morning Comcast is going to wake to a big public relations nightmare, one that although directed at Comcast’s Digital Voice service may well throw the spotlight on VOIP providers supporting the E911 service.

The publisher of It Can Happen To You writes that 911 on Comcast Digital Voice failed when he tried to use it to contact emergency services after his son started having a seizure. Several attempts were made and each one failed to connect. He was then forced to use his cell phone to contact 911, losing even more time by having to then explain his location to the operator.

Despite numerous attempts to contact some one in authority at Comcast to complain and highlight the issue, the writer failed.

The story is already huge on Digg, and is bound to get further airplay Monday.

The failure of 911 to work on a closed system such as Comcast Digital Voice raises questions about the effectiveness of all non-traditional users of the E911 system, VOIP providers included. We know that 911 calls work on a regular land line, but with a history of issues in the past, and now this story, consumers may well feel hesitant in subscribing to VOIP and similar systems in the future. After all, who in the United States doesn’t want 911 on hand in an emergency?