Vivendi just launched (PDF) Watchever on Wednesday. The service offers access to “entire seasons of award-winning U.S. series, blockbusters and international art house films” for €8.99 (USD $11.99) per month. Among the “thousands” of available titles: AMC shows Mad Men and Breaking Bad, early seasons of HBO shows like The Sopranos and Sex and the City and films like Slumdog Millionaire and There Will Be Blood.

The Next Web, which first reported the news, thinks this “could be the start of a trend in which Apple cuts deals for regions where there is a strong localized offering that delivers content appealing to Apple TV owners there.”

Netflix is not available in Germany. The Amazon-owned Lovefilm, which offers both streaming and physical DVDs, is available in Germany but, like Amazon Instant Video in the U.S., it’s not available on Apple TV.

Elite, whose $49.99 annual subscription is now required from players who want the deepest multiplayer elements of the franchise’s Black Ops and Modern Warfare 3 titles, has clocked up 1.5 million paid members from seven million registers users, Vivendi reported Thursday.

This plus other digital channels like downloadable content, online distribution and mobile games now make up a third of Activision Blizzard revenue. Now it’s planning another Call Of Duty franchise follow-up in order to grow its Elite customer base.

It all illustrates how much of the value in video games is tipping to online networks and to game publishers, away from high street retailers. Electronic Arts (NSDQ: ERTS) and Nintendo are each withholding titles from Game Group stores whilst they renegotiate with the retailer, FT reports.

Elsewhere in Vivendi, Universal Music Group’s 2011 revenue fell by 4.6 percent because an 11.3 percent jump in digital sales could not make up for a 15.6 percent dip in physical-format revenue.

It plans to shave off another €50 million in costs after acquiring EMI Recorded Music, following €100 million in 2011 synergies. Now its priorities for EMI are to “invigorate A&R and sustain focus on emerging markets”.

Vivendi’s combined annual adjusted net income rose 9.4 percent to €2.95 billion on 0.5 percent higher revenue of €28.8 billion.

Release.

The fuss over Megaupload, a site that allowed users to swap movies and music, began last Thursday when US law enforcement unsealed an indictment charging the man named Dotcom and six other company executives of conspiracy to commit racketeering, money laundering and a host of other charges. Four of the men, including Dotcom, were arrested.

News of the indictment, which came a day after the collapse of proposed anti-piracy legislation, triggered a wave of retaliatory attacks by hacking group Anonymous that knocked a number of websites off-line including those of the Justice Department and the FBI.

Dotcom has since proclaimed his innocence and demanded authorities return tens of millions in seized assets.

The next phase in the proceedings will involve extradition proceedings for Dotcom. New Zealand has an extradition treaty with the United States and prosecutors there have said they are willing to hand over the man who reportedly has passports from Germany and Finland and is a resident of Hong Kong and New Zealand.

Over the weekend, a gush of colorful details emerged about the man whose public persona is a blend between Dr. Evil and an obese James Bond. Here are some recent reports about 38-year-old Dotcom who legally changed his name from Kim Schmitz:

– Authorities had to saw off the locks of a panic room where Dotcom was hiding clutching a sawed-off shotgun

– Dotcom has a penchant for guns, Playboy bunnies and illegal car races. In one race, he reportedly bet two female competitors a half million pounds if they won in exchange for a threesome if he won (via Fast Company)

– Police reportedly seized 18 luxury vehicles, including a Rolls Royce Phantom Drophead Coupe and a 1959 pink Cadillac (via Bloomberg)

While the criminal case against Dotcom unfolds, Megaupload continues to be enmeshed in a series of other strange legal proceedings. Recent developments in these include:

– On Friday, Megaupload withdrew a suit against Universal music for taking down a YouTube (NSDQ: GOOG) clip in which popular entertainers such as Kanye West and Alicia Keyes appeared to endorse the website. But the case is continuing against other anonymous defendants, and may be a tactic to use the discovery process to obtain documents from Googe which cut off Megaupload from its ad network two years ago. (via Hollywood Reporter)

– The media is speculating about the role of Swizz Beatz, an Atlanta rapper sometimes known as “Mr. Alicia Keyes” who was listed as the CEO of Megaupload but who has yet to be indicted. (via Time)

The issue is tied to a lawsuit in which the major music labels are suing streaming site Grooveshark for copyright infringement. The music companies say Grooveshark executives systematically encouraged the uploading of thousands of songs without permission.

As evidence, the music companies point to anonymous comments on Digital Music News such as: “We are assigned a predetermined amount of weekly uploads to the system and get a small bonus if we manage to go above that.”

Yesterday, Grooveshark’s lawyers responded by serving a subpoena on the site, demanding that it provide any information that would identify the anonymous commentator.

The site’s publisher, Paul Resnikoff, posted an impassioned letter this morning saying media shield laws protect him from having to reveal his “whistleblower” source.

The Grooveshark case began as a copyright cases but now a part of it turns on a tricky area of law at the intersection of media freedom and due process.

Media shield laws like the one Resnifkoff is claiming are a hot issue. Last month, a federal court awarded $2.5 million in libel damages to an investment bank after finding the defendant blogger didn’t meet the standard of “journalist” under Oregon law. (The ruling did not, as some reported, stand for the principle that bloggers are not journalists).

More broadly, the state laws in this area are a “patchwork” and “political quilt,” according to David Hudson Jr, a scholar at Vanderbilt’s First Amendment Center.

In the Grooveshark case, New York law will determine if the anonymous poster is a “source” whose identity can be protected. The law says that if the news is not confidential (as in this case), Digital Media News doesn’t have to divulge the source unless the Grooveshark executives can show the information is important to their defense and that it can’t be obtained elsewhere. For those who prefer legalese:

no professional journalist .. shall be adjudged in contempt .. [for] failing to disclose any unpublished news obtained or prepared by a journalist or newscaster in the course of gathering or obtaining news as provided in subdivision (b) of this section, or the source of any such news, where such news was not obtained or received in confidence, unless the party seeking such news has made a clear and specific showing that the news: (i) is highly material and relevant; (ii) is critical or necessary to the maintenance of a party’s claim, defense or proof of an issue material thereto; and (iii) is not obtainable from any alternative source.

This means that even if the commenter qualifies as a “source”, Grooveshark may still be able to override the privilege in order to prepare a defense. While the Constitutional right to face your accuser is a criminal law concept, its underlying principles apply to civil evidence as well.

There is also the question of whether the commenter is really a “whistleblower.”

Whistleblower laws are designed to protect civil servants from retaliation or to reward people who help the government enforce the law. They don’t offer blanket rights to remain anonymous.

Reuben Guttman, who heads a whistle-blowing practice at Grant & Eisenhofer in Washington, says that online tips and other issues related to free speech and the internet have yet to reach the Supreme Court. He adds, though, that would-be whistleblowers should tread carefully.

“You can’t just be a bomb thrower. You have to be judicious and thoughtful.”

Digital Media News claims that it disposes of all information associated with anonymous commenters within 48 hours. But even if the relevant information no longer exists, the court may still use the case to offer some guidance on the media shield issue.

Resnikoff has yet to say if he will challenge the subpoena in court.

The news comes a day after the proposed anti-piracy law called SOPA fell apart, and may be an effort by the White House to soothe frustrated Hollywood donors who have warned the bill’s failure could lead them to withhold election dollars. (This story is updated to describe retaliatory hacking attacks by Anonymous)

In a press release, the FBI announced federal prosecutors in Virginia are laying charges against Megaupload, its founder and a gallery of international conspirators located in New Zealand, Germany and other countries.

The government describes Megaupload as a massive criminal operation in which the main website acted as a conduit to other sites where pirated content — including books, movies and music — was easily available. The indictment says the alleged conspirators made money from selling premium membership and from ads on the site.

The FBI says the defendants made $175 million in illegal profits and cost copyright owners half a billion dollars. Although there is widespread piracy online, the source of the FBI’s figures is unclear as dollar amounts related to piracy are typically supplied by industry and can be unreliable.

In carrying out the arrests, the FBI worked with law enforcement agencies in at least eight other countries. The action also involved the seizure of servers in the US, Canada and Holland. The value of the seized servers and other others assets is allegedly worth $50 million.

The ringleader of the enterprise is a Hong Kong/New Zealand national with the unusual name of Kim Dotcom.

Megaupload has been a thorn in the side of the entertainment industry for years. Last month, it sued Universal for taking down a YouTube (NSDQ: GOOG) clip that showed celebrities like Kanye West appearing to endorse the site (it’s unclear if the endorsements were bona fide). The megaupload executives now face decades in jail for a variety of charges.

The FBI’s decision to announced the charges today, weeks after a grand jury indicted the defendants, may have political overtunes. The annoucement comes at a time when Hollywood is furious at Washington for backing away from proposed legislation called the Stop Online Privacy Act, and has threatened to withhold campaign donations. The law would have given content owners new powers to take down foreign websites.

Today’s enforcement action suggests that rights owners and the federal government already have extensive powers to target foreign websites. The prosecution is part of the Justice Department’s Task Force on Intellectual Property, a body that is coordinating enforcement efforts and has already removed zapped hundreds of websites for selling counterfeit products.

On Thursday afternoon, the Megaupload website was down.

Update: The online activist group Anonymous appears to have unleashed a series of retaliatory hacking attacks. Late on Thursday afternoon, the websites Justice Department’s and the Recording Industry of America appear to have been knocked off-line.

The Twitter account for Anonymous this afternoon published a series of menacing messages such as “Let’s just say, for #SOPA supporters their #SOPAblackout is today.”

In the Veoh decision, a unanimous 9th Circuit Court of Appeals gave a ringing endorsement to the current copyright regime in which “safe harbors” protect internet companies from misdeeds by their users. Universal had argued that Veoh lost protection of its safe harbor because it didn’t do enough to stop unauthorized videos on the site.

The Veoh decision basically affirms existing law but it is significant because the lawsuit is part of a great game in which copyright owners are trying to chip away at safe harbors. The goal of the game is to use lawsuits and legislation to place more copyright enforcement duties onto sites like Veoh.

Copyright owners are unhappy with the current regime, created in 1998, which protects sites like Veoh as long as they remove copyrighted material when they receive notice about it. They complain the system has left them playing a whac-a-mole game as internet users upload more and more files. Internet companies respond that copyright owners are overstating the problem, especially as almost all of the “notice-and-takedown” work takes places through automated technology.

In the context of this debate, yesterday’s decision was a strategic setback for the content industry because the court strongly affirmed the current system:

Although Congress was aware that the services provided by companies like Veoh are capable of being misused to facilitate copyright infringement, it was loath to permit the specter of liability to chill innovation that could also serve substantial socially beneficial functions. Congress decided that “by limiting[service providers'] liability,” it would “ensure[ ] that the efficiency of the Internet will continue to improve and that the variety and quality of services on the Internet will continue to expand.”

The part of the decision that copyright lawyers will be looking at most closely involves the meaning of so-called “red flags” — situations where companies like Veoh should have known that users were violating copyright but did nothing to stop it. Universal, Viacom (NYSE: VIA) and other content owners are hoping to use the red flag rule to shred some of the safe harbor protections.

The 9th Circuit Court didn’t bite this time. Copyright aficionados can read for themselves in paragraph 14 of the decision (embedded below), but the long and the short of it is: “we hold that Veoh’s general knowledge that it hosted copyrightable material and that its services could be used for infringement is insufficient to constitute a red flag.”

The entertainment industry will be disappointed by the California court’s terse ruling but the game is not over yet. Red flags are also expected be a big part of the YouTube-Viacom decision expected any day now. In October, the 2nd Circuit Court of Appeals in New York took the unusual step of asking YouTube (NSDQ: GOOG) and Viacom to submit an additional filing after a hearing to explain red flags in more detail.

The Viacom-YouTube case is being watched closely in the mainstream press because it sheds light on the early days of the popular video service that Google bought in 2006. The case has also garnered headlines because of the sensationalist $1 billion figure that Viacom is claiming and because it involves other high-wattage players like the English Premier League.

The New York court is taking an unusually long time to issue its ruling, possibly because it’s been waiting to see what its sister court in California had to say.

If the 2nd Circuit decides to break from the 9th Circuit in its YouTube ruling, the stage could be set for Supreme Court review. The New York court is considered one of the intellectual giants among the country’s federal appeals courts while the California court is well-respected for its sophisticated rulings on technology issues.

As for Veoh, the video-sharing service declared bankruptcy in 2010, citing the exorbitant costs of defending itself in the Universal lawsuit which it has won at each stage. But the website is still operating after being obtained by a company backed by Jerusalem Venture Partners.

Veoh ruling by 9th Circuit

The lawsuit makes good on Megaload’s threat yesterday that it would go to court to stop a barrage of take-down notices that have forced YouTube and others to purge the popular video.

Fans of the sharing service are enraged that Universal is pulling the plug on the video even though the footage shows its artists, including Macy Gray and will.i.am, appearing to endorse Megaload. The video has for now disappeared from various websites but the Guardian reports that it includes clips like Gray singing “M-E-G-A. Upload to me today!”

The lawsuit also names a hundred “John Does” who are people responsible for removing the video that Megaload can’t yet identify. The company might have a problem, though, because one of the John Does ordering the video taken down appears to be will.i.am himself.

As the Hollywood Reporter notes, Megaupload may have pulled a fast one by obtaining the short clips from the celebrities without informing them about the nature of the video.

It will be interesting to see what a court thinks about this one. If Megaload has indeed cleared the rights for the clips, Universal will have a hard time justifying its use of copyright to pull down the videos. The celebrities, however, could claim the video is a false endorsement although Megaload claims in its suit that it obtained a release to use their images.

The Hong Kong based service is asking for an order as well as damages based on a law that lets people sue over false copyright claims.

Megaload claim against Universal and John Does

Half a billion is a lot to be considered “non-core”, and we still aren’t sure what it refers to. But Vivendi has now sold three percent of the shares of games maker Activision (NSDQ: ATVI) Blizzard for $427 (£269.31) million.

The move looks strange because Activision Blizzard, which was formed by Vivendi merging its Blizzard with Activision, is one of the Vivendi empire’s biggest growth engines with top-tier smash titles like Call Of Duty and World Of Warcraft, whereas the music business is in a long decline.

Bernstein analyst Claudio Aspesi (via FT): “The wisdom of selling about three percent in a business that is one of the key bastions of growth for the group to aid a transformational acquisition in a challenged business, such as recorded music, seems questionable.” Still, even after this sell-off, Vivendi still owns 60 percent of Activision Blizzard.

In a nine-month earnings update on Wednesday, Vivendi raised Activision Blizzard’s 2011 EBITDA outlook to €850 ($1150.22/£725.43) million. The group is rocketing because its main franchises are so popular and because they attract paying online customers (World Of Warcraft has over 11.5 million subscribers). Profit was up 38.6 percent from last year on 4.8 percent higher higher revenue.

Vivendi says Universal Music Group observed a “rebound” for the second straight quarter, with quarterly revenue up 36.3 percent from a year ago. “The 11.3 percent increase in (nine-month) digital recorded music sales and higher license income only partly offset a lower demand for physical products.”

Vivendi on Wednesday upped its 2011 net income forecast by €200 ($270.64/£170.69) million to €2.85 ($3.86/£2.43) billion, even after getting hit by a predicted €350 ($473.62/£298.71) million in new French taxes.

Release.

The news was reported by Bloomberg, citing an unnamed source. The development comes at the same time that Google is preparing to hold a music event tomorrow in Los Angeles, which we will be covering. It’s thought that Google will be revealing more about its music download store then.

A deal with Universal would be a huge boost for Google’s music effort, which has reportedly only signed up EMI so far. Sony (NYSE: SNE) Music and Warner Music have stayed away because of pricing and privacy concerns, according to the report.

Google may be revealing more of its music offerings tomorrow, but it won’t be its first moves into the space:

In May, the company launched a beta of what we currently know as Google Music, which is essentially a digital locker that lets users upload some 20,000 songs to listen to via a browser or Android device. In April, Google bought the Canadian startup PushLife for $25 million. PushLife has developed its own technology for mobile music purchasing, streaming and sharing services.

Tomorrow could see another advance in Google’s services combining these — and, with Universal’s blessing, hopefully with some content behind it to boot.

Universal is owned by the media conglomerate Vivendi (EPA: VIV) and is currently the world’s largest music company, accounting for 26 percent of all music sold. It represents artists that include Lady Gaga, pictured, and teenybopper heart throb Justin Bieber.

The reports of Universal’s purchase of EMI’s recording division have yet to be confirmed, but if it is true, that, when completed, will add another 9 percent of music sold worldwide to Universal’s control, according to Reuters.

Sony is reportedly buying the other half of EMI, its publishing division, for $2.2 billion. That means that EMI broken up is getting sold for about half of what Terra Firma paid when it bought EMI in 2007: £4.2 billion ($6.7 billion).

The remaining music publishing division will be sold to “a group spearheded by Sony (NYSE: SNE) Corp.’s music division” for $2.2 (£1.38) billion according to WSJ sources.

The difference between the total price and the 2007 price underscores the decline in music industry value.

After its sale to Terra Firma, an attempt to kickstart digital innovation inside EMI Group appeared to false-start. Google (NSDQ: GOOG) and Linden Labs executives Douglas Merrill and Cory Ondrejka, hired to lead that charge, ended up leaving after their digital unit was subsumed to be a function of the marketing department.

UMG’s global digital president Rob Wells is a big champion of unlimited-access services like Spotify and this week criticised as “irritating” how EMI’s Coldplay is withholding its latest album from streamers.

EMI Group’s recorded music division – home to Coldplay, Beastie Boys and Katie Perry – makes money by sales of music, the music publishing division by exploiting rights to compositions it owns by way of royalty fees. LA Times: “In a surprising move, Warner Music walked away from the auction after failing to agree to terms for taking over EMI’s pension liabilities.”

Citi took control of EMI Group after Terra Firma could not pay it back the money it used to finance the 2007 acquisition.

Vivendi (EPA: VIV) won’t get in to the problems Terra Firm did; it says it can finance the buy from existing credit lines. But it does disclose one major point as a cryptic, penultimate line in its announcement: “Vivendi and UMG will also sell 500 million euros worth of non-core UMG assets.” The assets are not specified.

Sony, however, is taking more than $1 (£0.63) billion from UBS for its buy, an LA Times source says. EMI Music is selling for 7x its own EBITBA.

With physical sales continuing to fall to the point of an imminent crossover in physical and digital music revenue, and with growth in a la carte digital downloads having slowed to a crawl, record labels are again keen to make money through music publishing licenses with services like Mog, Rdio, Rhapsody and Spotify, the latter of which labels actually own equity in.