I was a bit amused to hear Omaha Mayor Suttle unrolled the idea of a toilet paper tax, but I am not so sure he really thought this tissue through. At first glance, the tax of 10 cents per roll to pay for sewer projects seems like a fair user tax; but I think the politicians really should have contemplated this a little more. Is it really fair to women?

While certainly my heart goes out to politicians trying to balance spending all that money without the pesky things called taxes; but I don't think this idea is going to ... float. But I think it is important to give the politician partial credit for productivity; as I imagine they thought up this idea while in the john.

Analyst Upgrades

• Disney (DIS) to buy from hold at Wunderlich.
• Pike Electric (PIKE) to outperform from market perform at FBR Capital.
• Kindred Healthcare (KND) to overweight from equal weight at Barclays.
• UBS (UBS) to hold from sell at Canaccord.
• Avery Dennison (AVY) and Take-Two (TTWO) to buy from neutral at BofA/Merrill.
• Mercer (MERC) to outperform from market perform at Raymond James.

Microsoft (NASDAQ: MSFT) has engaged investment bank Morgan Stanley (NYSE: MS) to help it unload digital agency Razorfish. Publicis (OTC: PGPEF) is looking for targets in the online ad space and could be a possible bidder.

Razorfish has been valued at $600 million to $700 million, based on a top line of approximately $400 million for its last fiscal year and peer margins of 12% to 13%. The company boasts 2,000 employees and clients that include Audi, Nike (NYSE: NKE) and Kraft (NYSE: KFT). Microsoft bought the company as part of a $6 billion deal to acquire aQuantive. At the time, Razorfish was known as Avenue A Razorfish, as the result of a merger sealed in the wasteland known as the "dotcom bust."

Before the bell: Futures lower as oil rises, despite Alcoa earnings

Nearly two years after Google Inc. (NASDAQ: GOOG) bought YouTube for over $1.6 billion, it seems that it is not the cash cow Google had hoped it could become. Getting ad revenue from YouTube, The Wall Street Journal says, is not an easy task. Despite the site's popularity with surfers, it isn't popular with big corporate advertisers. World-wide revenue from YouTube ads is likely to total about $200 million for the full year, less than Google's expectation. Google has been trying to show it is not a one-trick pony, YouTube was critical in that.

According to The New York Post, "A blind trust run by Mayor Bloomberg is willing to pay between $4.5 billion and $5 billion to buy Merrill Lynch (NYSE: MER)'s 20 percent stake in Bloomberg LP."

If you missed it Tuesday, VMware (NYSE: VMW) sank over 24%, taking EMC Corp. (NYSE: EMC) shares down 11% with it. The drop is attributed to two main issues, "VMware's warning that revenue for the current year will fall short of expectations," and doubt "EMC would spin out the remainder of VMware's shares." But this morning, after the abrupt replacement of co-founder and CEO Diane Greene by former Microsoft Corp. official Paul Maritz, Wall Street still doesn't seem to be fully satisfied.

MOST NOTEWORTHY: Abercrombie & Fitch, ENGlobal Corp and Wausau Paper were today's noteworthy initiations:

• Morgan Keegan initiated Abercrombie & Fitch (NYSE:ANF) with a Market Perform citing lack of comp momentum and the outlook for consumer spending.
  
• Jesup & Lamont expects ENGlobal's (NASDAQ:ENG) earnings momentum to remain in place due to sustained demand for energy products. Shares were initiated with a Buy rating and $13.25 target.
  
• Soleil expects Wausau Paper (NASDAQ:WPP) shares to be driven by its value-added market focus, product innovation and improved mix. Shares were assumed with a Buy rating.

OTHER INITIATIONS:

• Citigroup assumed coverage of XM Satellite Radio (NASDAQ:XMSR) with a Hold rating from Buy, and a $12.25 target from $17. The firm also assumed Sirius Satellite (NASDAQ:SIRI) with a Buy rating and $8 target from $4.25.
  
• Morgan Stanley initiated MarkWest Energy (NYSE:MWE) with an Overweight rating.
  
• Soleil initiated Potash (NYSE:POT) with a Hold rating.

One of the world's largest ad agency holding companies, WPP, sees its 2008 results being stronger that last year. In the scheme of things, that would seem to make no sense. WPP is a global firm, so perhaps a great deal of this improvement will come from outside the US and Europe.

According to Reuters, "The group, whose agencies include JWT and Young & Rubicam, said it had not felt any impact from global financial crises but warned again that the `real world' could be affected in 2009." What happened to the 2008 global economic slowdown?

In many ways the comments echo those from News Corp (NYSE: NWS) and CBS (NYSE: CBS). Both have indicated that they are not seeing any meaningful impact of the economy on their advertising revenue. That could be a sign that any recession is coming in pockets of the economy, but is not hitting it across the board.

WPP may be right. While the airline, auto, retail, and financial sectors are cutting back, there is evidence that consumer goods, energy, and tech companies are still recording strong sales. That may mean that marketing dollars from these areas of the wider economy are fine.

WPP has to be getting the revenue growth from somewhere. Perhaps its results are a sign that concerns about a recession are a bit overblown.

Douglas A. McIntyre is an editor at 247wallst.com

Dell (NASDAQ: DELL) is set to trust most of its advertising and marketing to WPP, the big ad agency conglomerate based in the UK. The move is a blow to Interpublic (NYSE: IPG), which had been working to get the account.

The relationship between the PC company and ad agency will be set up as a partnership. The Wall Street Journal writes, "Sir Martin Sorrell, chief executive of WPP, said it would take WPP and Dell roughly three to six months to build the new firm, which will start with about 1,000 employees. Dell management around the world will have to give up local ad ties."

But, the manner in which the deal was cut says a lot about what is wrong with Dell. Picking the new agency took almost three quarters. And it will take almost another quarter to set it up. That means that the PC company's marketing plans will have been in flux for almost a year. With all of Dell's problems, the company can hardly afford to spread significant decisions over such a long period.

It is good that Dell has finally made a decision, but it is very bad that it does not have processes in place to speed getting to the finish line on such critical problems.

Douglas A. McIntyre is an editor at 247wallst.com

Recent mergers between traditional and online advertising firms suggest a deep flaw in the advertising business -- a flaw exposed by Google Inc. (NASDAQ: GOOG)'s evidently unstoppable technology edge. How so? While traditional advertisers deliver open-loop systems, Google delivers a closed-loop solution.

The reason that online advertising is growing is because it offers a closed-loop solution -- a notion that I first described in Net Profit. By contrast, TV and newspaper advertising is an open-loop system -- one in which a company pays to reach a viewer without getting any specific feedback on whether the advertising money leads to increased sales.

By contrast, a closed-loop solution measures the specific response to the advertising dollar -- tracking whether a user clicks on an ad and whether that clicking leads to an online purchase. I call it a solution because it lets the advertiser measure the extent to which advertising expense leads to increased sales. The closed-loop solution's ability to measure return on advertising is an enormous breakthrough for advertisers.

As everybody knows, Google's algorithm for linking tiny text advertising to Internet search has boosted the online advertising business. According to the Wall Street Journal [subscription required], those search-related ads now account for 40% of the $20 billion U.S. internet ad market. And internet-ad sales overall have nearly tripled in the past five years -- to 7% of the $286 billion overall U.S. ad market -- up from 3% in 2002.

Moreover, Google's success is coming out of the hide of TV and newspaper advertisers. For example, in 2006 General Motors Corp. (NYSE: GM) cut its TV ad spending 15% to $1.38 billion and reduced its newspaper advertising 60% to $232.1 million. Meanwhile, GM's online spending rose 16% to $130 million.

MAJOR PAPERS:

• The Wall Street Journal (subscription required) reported that Kraft Foods Inc (NYSE: KFT), looking to make foreign acquisitions, is giving its international managers more power to engineer deals. Kraft is most interested in acquisitions in Russia, Ukraine, Brazil and Mexico, according to a person familiar with the matter.
• According to Barron's Online's (subscription required) "Weekday Trader" column, Corn Products International Inc's (NYSE: CPO) recent 17% drop could be a buying opportunity.
• According to the Financial Times (subscription required), Bertelsmann has joined forces with private equity partners to consider a bid for textbook publisher Thomson Corporation (NYSE: TOC). The asking price is about $5B.

OTHER PAPERS:

• Several private equity firms, including Kohlberg Kravis Roberts, Bain Capital and Texas Pacific Group, have shown a strong interest in acquiring the beverage arm of Cadbury Schweppes ADS (NYSE: CSG) reported the U.K. Times.
• The New York Post reported that WPP Group plc ADS (NASDAQ: WPPGY) has Hollywood ambitions, taking a 6.8% stake in Media Rights Capital, partly owned by talent agency Endeavor.
• Investor's Business Daily's "New America" column mentioned shoe maker Sketchers USA Inc (NYSE: SKX) positively, noting that the company's presence has increased significantly in stores like Foot Locker Inc (NYSE: FL) and Finish Line Inc (NASDAQ: FINL).

If Google, Inc. (NASDAQ:GOOG) has its way, its program for buying newspaper ads and radio time will automate a process that is now being handled by ad agencies. The process is fairly labor intensive. At least for now.

As Google moves into the offline ad buying business, it is being followed by eBay, Inc. (NASDAQ:EBAY) and Yahoo!, Inc. (NASDAQ:YHOO). EBay has set up a TV buying service and Yahoo! recently announced an online ad deal with 176 newspapers.

All of this could make life for public ad agency giants like Interpublic Group of Companies, Inc. (NYSE:IPG), Omnicom Group, Inc. (NYSE:OMC) and WPP Group ADS (NASDAQ:WPPGY) a little tough. Selling advertising through online auction systems takes away a key ad agency function -- selected ad buying media for large marketing clients.

Some large advertisers are already jumping over the fence.