(BN) Studios Manage DVD Death With Profits on Digital Rights

>> packaged payload, incl. deontic <<

Film premieres get all the attention in Hollywood while the cash cow for years has been selling those silver DVDs to a home video market far more predictable -- and profitable -- than the hit-or-miss theatrical release game. That's why it was widely thought the movie business would take it on the chin as disc ownership gave way to digital distribution of content, just as the music business has been decimated by the shift to MP3s.

Yet Hollywood is discovering there's life after the DVD. With Netflix Inc. (NFLX), Amazon.com Inc. (AMZN), and soon Verizon Communications Inc. (VZ) and Coinstar Inc. (CSTR)'s Redbox bidding for rights to stream movies on Kindles, iPads, and TVs, the studios are enjoying a boomlet that's taking the edge off declining disc sales and rentals, Bloomberg Businessweek reports in its Sept. 17 issue.

Studio-backed pay-TV channel Epix became the latest to strike gold earlier this month when it signed a multiyear agreement with Amazon to supply such films as "The Hunger Games" and "Marvel's The Avengers" for Amazon's Prime Instant Video service.

Epix, co-owned by Viacom Inc. (VIAB)'s Paramount Pictures, Metro- Goldwyn-Mayer Pictures, and Lions Gate Entertainment Corp. (LGF) ended its exclusive deal with Netflix and is expected to make as much as $80 million more a year selling the same content to the two streaming rivals and to a third venture financed by Verizon and Redbox, BTIG Research analyst Rich Greenfield says.

Old Model

Epix's journey illustrates how Hollywood's old model, in which movies slowly made their way from theaters to small-screen reruns, continues to evolve. These days digital outlets such as Netflix and Amazon vie with Time Warner Inc. (TWX)'s HBO and CBS Corp. (CBS)'s Showtime for movies at the so-called premium cable window, a lucrative stop that comes after films have run in theaters, been sold as DVDs and appeared on pay-per-view.

That's given Hollywood the chance to play the services against each other and replace some of the revenue lost with the drop in DVD sales and the decline of rental outlets such as Blockbuster.

The post-theatrical release market has grown from selling movies for late-night showings on three TV networks to providing content to over 200 cable, satellite, and Net services. Wary of following the music industry, which failed to see the threat of Net piracy and the downside of relying only on Apple Inc. (AAPL)'s iTunes for a la carte sales, Hollywood is looking for ways to embrace new business models without being tied to a single distribution outlet, says Mark Greenberg, chief executive officer of Epix.

'Reinventing Ourselves'

"We are all reinventing ourselves and going after different competition in different ways," he says.

As recently as the mid-2000s, a consumer might go to the theater, collect discs at $20 a pop and still pay to see "Steel Magnolias" again on HBO or other cable outlets that purchased exclusive rights to show the titles on TV months after they hit retail shelves.

Since Apple, Netflix, Google Inc. (GOOG) and others began serving up digital copies that give consumers access to flicks anywhere, anytime, fewer people are buying hard copies. Led by falling DVDs, home video sales have dropped 16 percent, to about $18 billion in 2011, since peaking at $21.8 billion in 2004. And pay-TV outlets are scrambling to find ways to retain viewers now that almost 90 percent of America's 115 million TV households have the capacity to access a broad catalog of films via the Web.

Streaming Service

In August, HBO got News Corp. (NWSA)'s Twentieth Century Fox to extend its agreement to sell newer movies exclusively to the premium channel. The deal, through 2022, lets the same Fox content be sold through online outlets like Apple and Amazon while it's on HBO, though not to subscription services like Hulu LLC, Jeff Cusson, a spokesman for the channel, says.

"HBO considers exclusivity valuable, whether it be our original programming or theatrical" releases, Cusson says.

For now, HBO can take solace in studies that show almost 75 percent of viewing households still haven't accessed content online. Still, it's only a matter of time. So Time Warner CEO Jeffrey Bewkes is pushing his cable channels to produce more original content, such as HBO's "Game of Thrones," and serve it up via the Web.

Premium channels also will try to strike deals to get studios' top films first, says Jim Gianopulos, co-chairman of Fox Filmed Entertainment.

"Eventually these services will differentiate themselves by the content they offer."

Strike Deals

Cable and streaming outfits have seen the price of movie content soar -- Netflix's costs to acquire content in 2012 will rise to more than $2 billion from about $800 million, predicts Wedbush Securities. So they're parsing the numbers more closely.

Armed with data about what its subscribers are watching, Netflix is taking a harder look at its content costs. Because Epix offers movies to Charter Communications Inc. (CHTR), Dish Network Corp. (DISH), and Verizon's FiOS service, and enforced a 90-day delay in Netflix showing those same titles, Netflix cut the amount it pays Epix in exchange for letting it strike deals with other online subscription services, says Ted Sarandos, the online service's chief content officer.

To give it additional negotiating leverage, Netflix is developing its own programming. Next year five shows, including Kevin Spacey's "House of Cards" and new episodes of the cult comedy "Arrested Development," will be exclusive to Netflix's 25 million U.S. subscribers.

Such moves are a shot across the studios' bow. Should Netflix, Amazon and other online subscription sites not see their customer rolls jump as a result of the expensive deals they've cut with the studios, they will focus less on movie acquisitions and more on developing original programming, says Clark Hallren, an independent financial entertainment adviser.

"It's temporary while people see if this money they're spending generates subscribers."

Just a thought. If we consider a patent to be an option (long-term call) on a particular innovation, then the government is the seller of the option at time 0; the inventor is the buyer at time 0, and the innovator is the buyer at time 1.

Given that only 1-2% of patents are commercially valuable and many of them fall apart in courts, does the government have an incentive to sell a lot of useless calls?

(BN) Huawei, ZTE Strain to Convince U.S. They Don’t Aid Spying

Chinese telephone-equipment makers Huawei Technologies Co. and ZTE Corp. (000063) aren't fully cooperating with a congressional probe into whether their U.S. expansions would increase the risk of cyber-attacks and spying through networks, lawmakers said.

"The companies refused to provide full and transparent answers to our questions, apparently because to turn over internal corporate documents would potentially violate China's state-secret laws," Representative Mike Rogers, chairman of the House Intelligence Committee, said at a hearing today where the companies stated their case for wider entry into the U.S. market.

"This alone gives us a reason to question their independence," he said.

Former U.S. national intelligence director Mike McConnell has called China "the most prolific" nation trying to steal U.S. intellectual property.

"Huawei and ZTE (763) provide a wealth of opportunities for Chinese intelligence agencies to insert malicious hardware or software implants into critical telecommunications components," Rogers said. The companies' equipment includes vulnerabilities that "appear to be there by design," he said.

The companies, which each sent an executive to testify, insisted they aren't under government control.

It would be "immensely foolish" for Huawei to risk involvement in espionage, Charles Ding, corporate senior vice president for Huawei, said in testimony. Ding said today was the first time a major Chinese corporation had testified before Congress.

Emphatic 'No'

It was "literally impossible" for Huawei to fully respond within a three-week deadline to a June 12 committee request for documents, and some requests were for sensitive information no company would voluntarily produce, Ding said.

"Would ZTE grant China's government access to ZTE telecom infrastructure equipment for a cyber attack?" Zhu Jinyun, the company's senior vice president for North America and Europe, said in testimony. "Let me answer emphatically: No!"

Hacking and illicit programming in China and Russia are jeopardizing an estimated $398 billion in U.S. research spending, according to a November report by the National Counterintelligence Executive, which is responsible for countering foreign spying on the U.S. government.

'Crucial Hearing'

"This is a crucial hearing for both companies," Stewart Baker, a partner at Steptoe & Johnson LLP and former official in the U.S. Homeland Security Department, said in an e-mail. "This is their chance to make their case. If they blow it, they won't get another chance for five years."

Closely held Huawei and ZTE, traded in Hong Kong, faced questions from the committee about whether they get funding from the Chinese government or have connections with Chinese government officials.

"If it seems you are carrying a heavy burden here today, you are, though it may be a bigger burden than you know," said Representative Adam Schiff, a California Democrat. "The bigger burden being, to show that you have independence from the Chinese government."

No Chinese company has been able to demonstrate that, Schiff said.

"We have been hindered by unsubstantiated, non-specific concerns that Huawei poses a security threat," Ding said in his testimony. Huawei is owned by its employees and the Chinese government "has no influence over Huawei's daily operations, investment decisions, profit distributions, or staffing," he said.

'No Backdoors'

"There are no backdoors in any of Huawei's equipment," Ding said in reply to a question from Rogers, who asked about reports of gear that tracks traffic and sends data to China. "Huawei would never do that," Ding said.

ZTE isn't state-owned or government-controlled, Zhu said in testimony today. According to the U.S.-China Economic and Security Review Commission, an independent body that advises Congress, government-affiliated entities appear to retain a majority share of ZTE's stock.

"We are concerned about the allegations that products from Huawei and ZTE are being subsidized by the Chinese government so these companies can offer bargain basement prices to unsuspecting consumers," said Representative C.A. "Dutch" Ruppersberger, of Maryland, the top Democrat on the panel.

"You have to tell your Chinese government to stop cyber- attacking our businesses," Ruppersberger said.

The committee has posed questions and hasn't received detailed answers from both companies, Ruppersberger said. The panel will issue a report within two to three weeks, he said.

Huawei Founder

Ren Zhengfei founded Huawei in 1987 after leaving the Chinese military, and built it into the world's largest maker of equipment for phone networks after Sweden's Ericsson AB.

Ren's military record and his selection to the 12th National Congress of the Communist Party of China in 1982 have been cited by U.S. lawmakers as reasons Huawei may pose a security threat. Ren hasn't maintained any ties with the military since his retirement and the government and military hold no stake in Huawei, according to the company.

Huawei had about $1.3 billion in U.S. revenue last year, up from $760 million in 2010, William Plummer, a U.S.-based spokesman for Huawei, said in an interview. About $1.2 billion of U.S. revenue came in sales of gear such as smartphones and tablets, Plummer said.

ZTE doesn't break out U.S. sales.

About 70 percent of Huawei's $32 billion in revenue comes from outside China, Ding said in his testimony.

Overseas Investment

On Sept. 11, Huawei said it plans to invest $2 billion in the U.K. as it almost doubles its workforce in the country. Huawei, which provides cloud- and business-computing services in addition to selling smartphones and tablets, last year won its first major wireless network order in the U.K.

"The U.K. is an open market, which welcomes overseas investment," Ren, the Huawei chief, said in the Sept. 11 statement. British Prime Minister David Cameron said the investment by Huawei shows "the U.K. is open for business," according to the statement.

In the U.S., Huawei has faced skepticism. In 2010, then- Commerce Secretary Gary Locke, now U.S. ambassador to China, said he called Sprint Nextel Corp. Chief Executive Officer Dan Hesse to express "deep concern" about Huawei's participation in bids for a network upgrade. Sprint awarded the contract worth as much as $5 billion to companies from France, Sweden and South Korea.

Huawei and Bain Capital Partners LLC dropped a bid to buy computer-equipment maker 3Com Corp. in 2008 after U.S. officials opposed the transaction. Last year, Huawei unwound the purchase of patents from a computer-services company, 3Leaf Systems Inc., after U.S. objections.

'National Interests'

Huawei has hired six lobbying firms in Washington and quadrupled lobbying spending, to $820,000 in the first six months of this year, according to U.S. Senate records.

In March, the Australian government announced Huawei was banned from bidding on a national broadband network, because of "national interests."

Huawei has struck agreements with U.S. companies including mobile providers Clearwire Corp. and Leap Wireless International Inc. and software-security company Symantec Corp., the security review commission said in a report last year. Huawei in November bought Symantec's share of the joint venture.

Huawei and ZTE in testimony said they favor independent audits of technology vendors' hardware and software as a way to ensure that devices and networks are secure.

(BN) First Solar Beats Chinese by Making Sun Power Predictable

First Solar Inc. (FSLR) Chief Executive Officer Jim Hughes is stepping up efforts to manage power plants that generate electricity from the sun, helping utilities use the technology in a way his rivals in China can't.

The biggest U.S. solar panel maker plans to build new projects from the Middle East to Australia and use proprietary systems that help power-purchasers manage the amount they buy from solar farms, Hughes said in his first interview since taking the CEO position in May.

The company's pitch to utilities is that it will help them predict uneven power flows from solar panels, giving grid operators the ability to integrate the facilities into their networks alongside those that burn fossil fuels. That's making First Solar less dependent on manufacturing, an industry dominated by Chinese companies led by Suntech Power Holdings Co. (STP)

"We're still far ahead of them," Hughes, 49, said at First Solar's headquarters in Tempe, Arizona. "We'll keep our distance and potentially expand it."

Hughes's comments are the most detailed explanation to date about First Solar's strategic shift from a panel maker toward a vertically integrated energy company that builds and operates power plants using its solar modules. The company granted access to its flagship Agua Caliente project in Arizona and facilities where it's working to perfect systems that monitor and route solar power to the grid.

Reliable Forecasts

Network operators are accustomed to reliable supplies from steady-burning coal and nuclear plants. First Solar says it's helping them adjust to the booming flow from intermittent, renewable generators. Making those flows predictable lets grid controllers order power from solar plants the way they do from facilities fired by coal or natural gas.

"They're the only one with the track record, expertise and balance sheet to make solar a solution for utilities instead of a problem," said Sanjay Shrestha, an analyst at Lazard Capital Markets in New York. "They get the true value of solar as a complement to coal and gas with a predictable supply that peaks with power demand."

First Solar built and manages more than 500 megawatts of solar farms in the U.S. and Canada, and will complete another 4,000 megawatts by 2015. It expects to generate $3.4 billion in revenue from its current project pipeline.

The company needs to sell additional projects to keep the pipeline filled beyond that, and Shrestha said its experience has given investors confidence the company will survive the glut that's caused more than a dozen bankruptcies in the past year.

International Targets

First Solar's expansion into developing projects for customers including Warren Buffett and NRG Energy Inc. (NRG) helped make it only profitable panel maker in the second quarter. And with about three years of experience, Hughes says his company is in the best position to offer utilities predictable, low-cost renewable power.

He's pursuing utility customers in Australia, India, Africa and the Middle East, where sunlight is plentiful and solar is still an emerging technology. The company expects to sign by 2016 contracts to build as much as 3,000 megawatts of new solar farms annually. Hughes is already purchasing land and investing in local supply-chain partners. The company is also financing initial construction costs, a move that accelerates the development process and makes projects easier to sell.

'Costly' Financing

"Development in these markets is very low," Hughes said. "We'll execute some projects on our balance sheet and then finance them later. We take the issue of costly construction finance off the table."

At an operations center in its headquarters, First Solar technicians monitor color-coded images of its power plants that display the output for each section of panels connected to an inverter. That helps them predict the next hour's production with 84 percent accuracy on average. With a mouse click, operators may view current and historic performance, and an automated work order is issued any time a section dips 4 percent below expectations.

That data lets the company warn grid operators hours in advance of anticipated changes in output. Technicians remotely reduce output when grid operators need less and "clip" output in specific sections to lengthen the life of inverters and other equipment when panels produce too much.

Fuel Arbitrage

By making an unreliable power source more predictable, First Solar lets utilities reduce the cost of electricity by taking solar power more often and scaling back consumption of fossil fuels, Hughes said.

"It's a simple fuel arbitrage," said the former executive at Accelergy Corp. and Enron Corp. "Consume less fuel during daylight and you save money."

Those capabilities will appeal to utilities and grid operators, which sometimes impose penalties for "imbalances" between forecasted power supplies and actual deliveries, said Steve Greenlee, a spokesman for the California Independent Grid Operator. "We are concerned about the dispatchability of wind and solar power and we're pleased to see any improvements in forecasting accuracy."

Hughes, a former executive at Accelergy Corp. and Enron Corp., was hired as CEO in May. He took over from Chairman Mike Ahearn, who stepped into the position on an interim basis after ousting Rob Gillette in October.

Expanding Abroad

He's already made moves to expand in other regions. First Solar opened an office in Bangkok last month and started a joint testing program with King Adbullah University in Saudi Arabia in June. The company formed development unit in India in May and hired a General Electric Co. (GE) executive, Sujoy Ghosh, to run it.

"First Solar commands a lot of respect and this is probably the best strategy for them to pursue in an increasingly competitive environment," Michael Liebreich, chief executive officer of Bloomberg New Energy Finance, said in a interview. "They can be the best at utility-scale solar and carve out a healthy niche for their thin-film panels."

Chinese competitors have caught on to First Solar's strategy and are building their own utility-scale projects. Trina Solar Ltd. (TSL) said last month it's shifting to downstream project development to boost sales of its panels and increase profit margins. It announced plans this week to separate its manufacturing and development operations.

"Downstream is going to be our major focus," Chief Financial Officer Terry Wang said on an Aug. 21 conference call with analysts and investors. "We're making money with a higher profit than the average manufacturing margin."

Difficult Job

The competition will make Hughes's job more difficult, said Rob Stone, an analyst at Cowen & Co. in Boston.

"Trina's aspiring project business means more competition for First Solar," Cowen said. "It's a mystery to me why First Solar has any particular advantage."

Where the company does have an advantage is in managing power spikes and improving production forecasting, said Mark Bachman, an analyst at Boston-based Avian Securities. Those capabilities set it apart from Chinese rivals that are beginning to develop power plants now and lack the expertise to manage them with the same proficiency.

"This is a new piece of their long-term strategy," Bachman said. "They need to get the story out there and start showing some ability to build out their pipeline because time is running out. They need big commitments on big plants soon or the party will end."

(BN) U.S. Solar Industry Anticipates Utility Metering Backlash

The growing use of rooftop solar systems are spurring concern that U.S. utilities may decline to purchase power generated by the panels, according to the Solar Energy Industries Association.

Utilities are required to buy power generated by solar panels installed on consumers' homes under so-called net- metering policies, an arrangement that may become less viable as solar systems become more common, said Rhone Resch, chief executive officer of the Washington-based trade group.

California, the largest solar market, capped the amount of panels utilities are mandated to connect to their grids and other states are considering similar policies. Some utilities see the requirement to buy solar power from every rooftop system as a threat to their profitability, Resch said.

"Net metering works for us now, but we're going to see a backlash from utilities as solar penetration increases over the next few years," Resch said yesterday in an interview at the Solar Power International conference in Orlando, Florida.

California regulators capped the amount of rooftop solar that may be connected to the grid at 5 percent of a a utility's power needs, and is studying the long-term impact upon their profits. Other states may consider similar actions, said Tony Clifford, chief executive officer of Standard Solar Inc., a closely held developer based in Rockville, Maryland.

'Utility Pushback'

"I'm really concerned about a utility pushback on net- metering," Clifford said in an interview. "What we need is an honest assessment of the true costs and benefits of managing distributed generation and I don't think we've seen that yet."

Utilities are considering ways to offset the cost of buying solar, including Sempra Energy (SRE)'s San Diego Gas & Electric, which proposed a fee for residential solar customers, said Aaron Hall, president of the San Diego-based developer Borrego Solar Systems Inc. Regulars blocked the proposal in January.

"That would have made almost every installation lose money and prevent new projects from getting financing," Hall said.

Developers installed 98.2 megawatts of residential rooftop solar panels in the second quarter, according to SEIA.

(BN) NYC Health Panel Backs Bloomberg Ban on Super-Size Sodas

New York City will restrict sales of sugary soft drinks to no more than 16 ounces a cup in restaurants, movie theaters, stadiums and arenas after the Board of Health approved Mayor Michael Bloomberg's plan.

The 8-0 vote with one abstention today by the panel's members, who were appointed by the mayor and confirmed by the City Council, rejected arguments from Coca-Cola Co. (KO), PepsiCo Inc. (PEP) and restaurant companies whose coalition says the issue is about freedom to choose. The group's website says it has attracted more than 250,000 New Yorkers opposed to the plan.

"Members of New Yorkers for Beverage Choices are exploring all avenues to challenge the Board's ruling, including in court," the coalition said in a statement after the vote.

The rules are the latest of several Bloomberg nutrition initiatives during the past nine years, including a requirement that chain restaurants post calorie counts on menus. The health board and City Council banned artery-clogging trans-fats from restaurants and prepared foods, and the mayor blocked sugary soft drinks from vending machines in schools and city buildings.

"Obesity is one of America's most deadly problems, and sugary beverages are a leading cause of it," Bloomberg said Sept. 4 in Queens, where Weight Watchers International Inc. (WTW), which offers diet programs, endorsed his plan.

"Reasonable portion sizes won't prevent anyone from buying or drinking as much soda as they want, but it will help people keep from inadvertently taking in junk calories," he said.

Public Feedback

Today's vote followed three months of public feedback. The health department said it received 38,000 comments, with 32,000 in support and 6,000 opposed.

"To not act would be criminal," said board member Susan Klitzman, a professor and director of the Urban Public Health Program at Hunter College in Manhattan.

Restaurants, movie theaters and other outlets have six months to comply or face a $200 fine each time there's a violation, the health department said. The ban doesn't apply to convenience stores and groceries, which are regulated by New York state. The regulation does allow patrons to buy as many of the smaller drinks as they want and to get refills.

A ban is "on-the-margin bad" for Coca-Cola and PepsiCo, Thomas Mullarkey, a Chicago-based analyst at Morningstar Inc. (MORN), said in an interview before the vote. "But I don't think it's bad enough to move the needle on their stock prices."

Sales Fall

The American Beverage Association and the National Restaurant Association opposed the restrictions. Calories from sugary beverages as a percentage of Americans' diets are declining, both groups say. U.S. soft-drink sales have fallen for seven straight years, according to Beverage Digest.

"It will have a devastating effect on large businesses like beverage companies, but also mom-and-pops that rely on the profits of selling the drinks," said Eliot Hoff, a spokesman for New Yorkers for Beverage Choices.

The group says its members include Coca-Cola, PepsiCo, Dunkin' Brands Group Inc.'s (DNKN) Dunkin' Donuts stores and McDonald's Corp. (MCD) restaurants.

"We strongly encourage our guests to make choices that are right for them," Michelle King, a Dunkin' Brands spokeswoman, said in an e-mail today. "Forcing customers to purchase smaller beverages will also negatively impact small business owners like our franchisees, who are still dealing with a challenging economy."

Dunkaccino Impact

Dunkin' Donuts, which has 478 stores in the city, won't be able to sell certain beverages in sizes larger than 16 ounces, including hot chocolate, Dunkaccino coffees and some frozen drinks, she said. Store workers won't be permitted to add sweeteners to some beverages, she said.

McDonald's, which yesterday said it would begin posting calorie counts on menus at U.S. stores, sells drinks that meet customers' "nutritional needs and taste preferences," Heather Oldani, a McDonald's spokeswoman, said in an e-mail today. McDonald's has 245 locations in New York City, she said.

"We are very disappointed this proposal passed," she said. "Public health issues cannot be effectively addressed through a narrowly focused ban."

Soft-drink makers say their products make up 7 percent of the average American's diet, too little to be the cause of obesity. Weight gain can be slowed by paying attention to the amount of calories consumed and burned through exercise, the American Beverage Association has said. Soda makers have offered smaller packages, labeled products with clearer calorie counts and agreed to stop selling sugary drinks in most schools.

Won't Help

"We don't believe it will do anything to impact obesity," Hoff said. "This idea that people are not educated enough to make their own decisions is wrong."

More than 35 percent of U.S. adults and about 17 percent of youths -- or roughly 90 million people -- are considered obese, according to the U.S. Centers for Disease Control and Prevention.

The largest driver of increases in obesity and caloric consumption is sugary drinks, city Health Commissioner Thomas Farley has said.

He has cited studies saying Americans now consume 200 to 300 more calories daily than 30 years ago, and that men given 18 ounces of beverage, compared with 12 ounces, drank 26 percent more while women drank 10 percent more, with no decrease in food consumption and no difference in reported fullness or thirst.

Recent efforts to tax soft drinks have foundered in at least 30 states. Last year, the federal government rejected an attempt to bar purchases of sugared drinks with food stamps.

(BN) Time Inc.’s CEO Aims to Unify Print and Online Fiefdoms

Time Inc. Chief Executive Officer Laura Lang, hired last year to revive the struggling magazine publisher, is forging a plan to unify its long-sparring online and print fiefdoms.

Lang wants to give customers the ability to advertise across all 21 of Time Inc.'s magazines, both on the Web and in print, potentially reaching an audience of 127 million people in one fell swoop. That's a break from the previous strategy, where the company typically suggested doing marketing campaigns via specific brands -- say, the print edition of People or Time.

Time Inc., Time Warner Inc. (TWX)'s worst-performing division, is grappling with sluggish demand for advertising and a shift to the Internet, where ads command lower rates than traditional print campaigns. In the first half of this year, the publisher's ad sales dropped 6 percent to $855 million from a year earlier, while subscription revenue fell 7 percent to $581 million.

"We just need to be wherever people are -- sometimes you need print, sometimes digital," Lang, 56, said in an interview from her office in New York. "Advertisers I've met with have all said the same thing: 'I love your print product, but find a way to let me do it with other channels.'"

Previous efforts to boost online-advertising revenue were hampered by a print staff that didn't want to relinquish valuable contacts to a separate sales team, according to people familiar with the matter. Another complication: The websites of the magazines were once managed by AOL Inc. (AOL), which was spun off in 2009.

New Training

Many sales executives were schooled in traditional media and didn't have expertise selling digital ads. That's changing now, Lang said. "There's training put in place," she said.

Lang -- a former advertising executive who led Digitas, a digital-ad agency owned by Publicis Groupe SA (PUB) -- is appealing to advertisers accustomed to the approach taken by Google Inc. (GOOG) and Yahoo! Inc. (YHOO) The Internet companies entice customers by promising to reach a certain set of users, regardless of what specific websites they're visiting. Likewise, Time Inc. wants advertisers to target demographics across their publications, rather than readers of individual magazines.

"We'll now be able to deliver audiences like anyone else, but we also have the best content," Lang said. "And very few can offer both."

Buying Content

The strategy also involves linking Time Inc.'s editorial efforts more closely to its advertising sales. A consumer-goods company selling beauty or health products, for example, will now be able take fashion layouts from one of Time Inc.'s magazines such as InStyle and publish them in a Facebook (FB) Inc. news feed. Or it could post parts of the layout to its Twitter Inc. followers -- essentially purchasing use of the content.

"Our clients have been clamoring for that kind of content flexibility," said George Janson, managing partner at WPP Plc (WPP)'s GroupM, which buys media space for advertisers. The popularity of Facebook and Twitter has created an incentive for advertisers to produce or purchase their own stories, something they often aren't equipped to handle.

Any Time Inc. content shared this way would be branded as coming from the magazines, such as InStyle, Lang said. Articles also won't be produced at the behest of advertisers, Lang said. Given the depth of Time Inc.'s editorial well, sales executives should be able to find articles or features relevant to any campaign, she said.

Tablet Readers

The company also plans to more aggressively market its tablet and smartphone readers to advertisers. While the publisher's mobile audience is relatively small -- about 17.1 million people a month -- Lang plans to bolster those numbers via partnerships with other services.

The company has struck a deal with Apple Inc. (AAPL) to sell into the iAd mobile network, according to documents obtained by Bloomberg News. Time Inc. declined to comment on the agreement.

Time Inc.'s stable of publications include some of the world's best-known magazines, such as Sports Illustrated, Fortune and Entertainment Weekly. Still, Time Inc.'s annual sales and profit growth have trailed those of the parent company's television and film operations since the AOL spinoff.

Bloomberg News and Bloomberg Businessweek compete with Time Inc.'s publications.

Time Inc. has historically functioned as a collection of feudal states, both in the editorial and sales departments. Sales managers would compete against ad executives from sister titles for the same account and power struggles between magazines were common, according to people with knowledge of the company's operations.

Griffin Ousted

Lang was hired by Time Warner CEO Jeff Bewkes last November to replace Jack Griffin, who had clashed with other executives. Griffin's "leadership style and approach didn't mesh with Time Inc. and Time Warner," Bewkes said in a memo when Griffin left.

Lang's collegial management style impressed Bewkes, who was in need of an executive who would bring a much-needed contrast to Griffin's tumultuous tenure, according to two executives with direct knowledge of the matter.

She also has a consumer-products background, having worked at Pfizer Inc., Bristol-Myers Squibb Co. and Quaker Oats Co. She graduated from Tufts University and has an MBA from the University of Pennsylvania's Wharton School of Business.

As part of Lang's extended listening tour when she first joined the company, she met with Chief Revenue Officer Paul Caine, a Time Inc. veteran. He outlined some of his ideas, which eventually became the basis for the company's new sales pitch.

"In the middle of our meeting I thought, 'We should stop talking right now and go out and just do all this,'" Lang said. "Paul really is the architect of this strategy."

Broader Impact

Despite the emphasis on online advertising, the strategy doesn't rely solely on the Internet to boost sales, Caine said.

"As the world's largest publisher, it's not about pivoting more digitally -- it's about enhancing our overall businesses," he said in an interview. "Print is still very critical."

Time Inc.'s new audience approach comes at the right time, said Page Thompson, CEO of Omnicom Media Group (OMC) North America, the media-services division of Omnicom Media Group. Making print advertising more flexible and tying it to the Web is key to helping it recover, he said.

"Print is starting to look more and more like digital, and that is the real savior to the print world," Thompson said in an interview.

Other major publishers such as Hearst Corp., which owns Cosmopolitan and Marie Claire magazines, also are seeking ways to squeeze more revenue from digital media. Hearst Magazines President David Carey has focused on increasing sales of tablet magazine subscriptions, which now count close to 700,000 across all its titles, he said in an interview.

E-Commerce Site

Carey has started to delve into e-commerce programs as well. The company recently unveiled ShopBazaar, a website that features apparel from the editorial pages of Harper's Bazaar magazine. The publisher forged a partnership with Saks Inc. to sell the merchandise.

"We're relaxing some of the long-held orthodoxies around content and commerce and what you can do," he said. "There are a lot of opportunities in digital."

At Time Inc., the company plans to capitalize on what many advertisers sees as its most valuable asset: its database of 65 million print subscribers. The publisher is combining its lists of online and offline readers to make it easier for advertisers to target consumers.

"That has been the missing link -- connecting the digital and offline databases," Omnicom's Thompson said.

Toyota Motor Corp. (7203), one of Time Inc.'s biggest advertisers, has signed on to test the new capabilities. The publisher's readers are valuable targets, said Dionne Colvin, national media marketing manager for Toyota's U.S. division.

"Time Inc.'s audience is sort of prequalified," Colvin said. "It's a great, robust database."

Johnson & Johnson (JNJ), the New Brunswick, New Jersey-based consumer health-care giant, also recently signed on to the effort, Lang said.

The Transistor: a Cinderella Story.

Transistor is arguably one of the greatest inventions of all time. Today, all computers, including mobile phones, use electronic chips that comprise billions of transistors. Nevertheless, when the transistor was invented it received very little attention from the general public. On July 1, 1948, The New York Times published a short note about the invention at the bottom of The News of Radio section, p.46. (see below).

I find it remarkable that this announcement of a great invention sits side by side with trivialities (on the left above). It makes you think that really important technology news never appear on page 1.


tags: invention, innovation, course, media, technology

(BN) Best Buy Moves 2,000 Loss-Prevention Workers to Sales

>> org innovation <<

Sept. 13 (Bloomberg) -- Best Buy Co., trying to reverse slumping store sales, is reassigning about 2,000 loss-prevention employees in its U.S. locations to focus on selling customers more merchandise.

Employees who greeted shoppers entering Best Buy's big-box stores and checked receipts when they left will join the ranks of the company's blue-shirted sales force, Kelly Groehler, a spokeswoman for the Richfield, Minnesota-based company, said yesterday. No workers are being fired, she said.

Chief Executive Officer Hubert Joly, who took over last week, is seeking to revive sales as customers defect to Amazon.com Inc. and Wal-Mart Stores Inc. Comparable-store sales at Best Buy, the world's largest consumer-electronics retailer, have advanced only once in the past nine quarters, hurting profitability.

"Negative comps and declining margins -- you don't need to be an expert in anything to know that these are not great things," Joly, 53, said in an interview Sept. 6. "There's a significant investment in training at the front line."

Best Buy operated 1,062 big-box stores in the U.S. as of Aug. 4.

Complaints by customers, as well Best Buy's attempt to increase interactions between managers and consumers, led to the workers' reassignment, Groehler said in a telephone interview.

"Customers told us they did not like having their receipts checked when they left the store," she said. "It puts more emphasis on assistant managers and the general manager of the store engaging with customers when they walk in."

The focus on loss prevention hasn't diminished, Groehler said, while declining to elaborate on those efforts.

Wal-Mart Greeters

Wal-Mart earlier this year moved greeters from the entrances of its stores to near the cash registers to direct shoppers to products or shorter checkout lines. The world's largest retailer also has been seeking to boost sales and profit margins.

(BN) Ludgate Targets Recycling, Water in $300 Million Resources Fund

>> CF bill gates' toilet project. <<

Sept. 13 (Bloomberg) -- Ludgate Investments Ltd., a London- based private equity investor, is seeking to raise as much as $300 million to finance waste-recycling and water-treatment businesses through a second resource-efficiency fund.

"The value proposition is resource scarcity and the fact that wastes have now become commodities, providing strong returns," Chief Executive Officer Gijs Voskamp said in an interview in London. "There is no other way than becoming more efficient with resources."

Private equity investors are looking to benefit from the conflicting challenges of rising demand for resources and environmental protection. The world's 7 billion people need to secure more water, more energy and more food, while curtailing the effect of greater consumption on their surroundings.

Ludgate plans to raise $200 million to $300 million tapping new and existing investors, Voskamp said. The company is studying a German water-management business and will look at biogas power generation and plastics recycling among its planned investments in the U.K. and elsewhere in Europe.

The company's first Ludgate Environmental Fund listed on London's Alternative Investment Market in 2007 and raised more than $100 million. The fund is more than 90 percent invested in companies including Rapid Action Packaging Ltd., whose clients include McDonald's Corp. and Starbucks Corp., and Tamar Energy Ltd., which produces energy from organic waste .

(BN) Imagination Technologies Falls on Royalty Squeeze: London Mover

>> commoditization of the Tool << 

Sept. 13 (Bloomberg) -- Imagination Technologies Group Plc, the Apple Inc. supplier partially owned by the iPhone maker, fell the most among major U.K. tech stocks after saying its royalty rate dropped as more people buy cheaper smartphones.

Imagination Tech declined 7.2 percent to 566 pence, the largest drop in more than four months and the biggest fall among the 26 stocks on the FTSE All-Share Tech Index.

"Strong unit volume growth has steadily extended to the lower end of the smartphone market," reducing the royalty rate, the company, based in Kings Langley near London, said today in a statement.

The designer of components including graphics processors soared to the highest price in 18 years in March after Goldman Sachs said royalties from designs used in Apple's iPad and other products would boost earnings. Apple unveiled a speedier iPhone yesterday that is poised to become the fastest-selling technology gadget in history.

There is "very little to get excited about" as the slipping royalty rate counters bullish arguments that the figure will increase, Eoin Lambe, an analyst at Liberum Capital, said today in a note. Lambe has recommended selling the stock since at least Jan. 17, 2011, according to data compiled by Bloomberg, and since then it advanced almost 50 percent through yesterday.

Volume Growth

Imagination Tech said today it is experiencing "strong growth in unit shipment volumes" for mobile phones, table computers, mobile gaming and other applications.

"A major opportunity here is to benefit from Apple's future product plans for the TV market," Nick James, an analyst at Numis Securities, said in a note to investors. The London- based analyst reduced his recommendation on the stock to hold from buy, saying the shares have had "a good run," and maintained a price target of 590 pence.

Chief Executive Officer Hossein Yassaie reiterated today that the company plans about 1 billion annual unit shipments by 2016.

"The licensing pipeline remains robust, although there is the usual uncertainty over the timing of deal closures," the company said. "Significant design wins" will soon reach production to "drive strong growth in royalty volumes and revenue."

(BN) Facebook Outperforming Google in Ad Revenue From Browsing

Sept. 13 (Bloomberg) -- Facebook Inc. is doing a better job than Google Inc. in getting Web surfers to click on advertising based on browsing history, according to partners using the social network's ad service that debuted in June.

Facebook Exchange, or FBX, generates as much as four times the return on ad dollars than other real-time bidding systems, said Triggit Inc., which makes software tools to help Facebook deliver the ads. Another partner, AdRoll, said advertisers used to getting $10 for every $1 they spend are making $16 for every dollar spent on FBX.

Attracting more advertisers is critical for Facebook, which has seen its stock drop 45 percent since selling shares to the public in May. That's partly because of concerns over the world's largest social network's ability to generate sales from users who are increasingly active on smartphones and tablets.

"As more advertisers start to see the results we've been seeing, they will be willing to spend more money on Facebook," Zach Coelius, chief executive officer of San Francisco-based Triggit, said in an interview.

Facebook introduced real-time bidding in June as it competes with Internet giants such as Google and Yahoo! Inc. for advertising dollars.

By tapping users' browsing habits to deliver ads from its website, Facebook is betting that it can lure advertisers away from Google's real-time bidding service. In real-time bidding, advertisers compete to deliver ads once a user's browsing history matches a marketer's profile. For example, users researching trips to Hawaii on travel websites may later see a promotion on Facebook for hotels on the islands.

Bidding War

Annie Ta, a spokeswoman for Menlo Park, California-based Facebook, declined to comment on the results its advertisers see using FBX. Rob Shilkin, a spokesman for Google, declined to comment.

An increasing portion of display advertising sales are driven by this real-time bidding. Of the $18.9 billion projected to be spent on online display ads in the U.S. in 2015, about $5.08 billion, or 27 percent, will come from real-time bidding, according to researcher IDC. This year, real-time bidding will represent about 16 percent of the $12.6 billion U.S. market for display ads, IDC said.

FBX could capture as much as a fifth of the market, and the business could generate as much as $1 billion in sales by next year, according to Brian Wieser, an analyst at Pivotal Research Group in New York.

The service may result in higher prices being paid for ads across Facebook, as more marketers see the value of real-time bidding, Coelius said.

"Right now, it's 25 cents to 50 cents" for every thousand users who view an ad on the social network, Coelius said. "We expect that to go to anywhere from $1 to $2.50 in relatively short order."

Facebook's technology partners for FBX include TellApart Inc., Turn Inc., Triggit, DataXu Inc., MediaMath Inc., AppNexus Inc., Trade Desk Inc. and AdRoll. Advertisers showing messages through FBX include Shutterfly Inc., GoPro camera maker Woodman Labs Inc., and HootSuite Media Inc.

(BN) Rugby Rights Promote Broadband Demand

>> distribution and packaged payload <<

Sept. 12 (Bloomberg) -- BT Group Plc surged to the highest price in four years after Credit Suisse said the U.K.'s largest fixed-line phone provider will benefit from accelerating broadband demand, and as it snatched rugby rights from a rival.

BT will gain more fiber business at the same time that the European Commission adapts a "more positive stance" on regulation, Credit Suisse said today in a note to investors. The bank raised its share-price forecast to 300 pence from 250 pence and reiterated an outperform recommendation.

The stock gained 3.8 percent to 235.2 pence, the highest price since May 2008. BT has advanced 51 percent in 12 months, valuing the London-based company at 18.5 billion pounds ($29.8 billion)

BT is adding sports rights to expand its TV business and sell more broadband connections. The company has accelerated its rollout of fiber broadband by one year to fend off faster Web offers from competitors such as Virgin Media Inc. and British Sky Broadcasting Group Plc.

BT said today it will pay as much as 152 million pounds ($245 million) to show major English Rugby matches, taking away the broadcasting rights from BSkyB and ESPN. The rights to live Aviva Premiership rugby matches are currently split between BSkyB, controlled by Rupert Murdoch's News Corp., and Walt Disney Co.'s ESPN channel.

BSkyB said it will show European competition matches, disputing BT's contention that it has those rights starting with the 2014 season. The European Rugby Cup will meet Sept. 18 to set competition rules, the organization said.

'Thrilling' Sports

BT, which earlier this year added some rights for English Premier League soccer matches, will exclusively show 69 Aviva Premiership Rugby matches each season for four years starting with the 2013-14 season, the company said today in a statement.

"BT is serious about sport and this deal means we will be offering the very best rugby action alongside some of the most thrilling football matches from the Premier League," said Marc Watson, chief executive officer of BT's Vision service.

The TV rights deal will boost rugby club broadcast revenue by 50 percent as the number of games shown changes, said Paul Morgan, a spokesman for the league.

BT added Premier League soccer rights for the seasons starting in 2013 and 2015, and will start a channel to carry the games. The soccer deal will cut earnings before interest, taxes, depreciation and amortization by 100 million pounds and cash flow by 200 million pounds in 2013 and 2014, the company has said. BT will pay 246 million pounds a season for rights to 38 live soccer games.

Competition Rights

The rugby deal also allows BT to show matches from the JP Morgan Asset Management Sevens Series for four years starting from the 2013-14 season and games of Aviva Premiership teams in any future European competitions for three years starting from the 2014-15 season, the company said.

Credit Suisse also said that the London-based telecommunications provider will become more efficient as employees retire.

"BT's U.K. wireline business remains the most inefficient in Europe," generating $243,000 a year per full-time worker, compared to a European average of $330,000, Credit Suisse said. BT will probably reduce its workforce by about 3,500 jobs a year, mainly through retirements, to bring it closer to the average, the bank said.

(BN) Amazon, Ben & Jerry’s, Costco: Intellectual Property

Sept. 13 (Bloomberg) -- Amazon.com Inc., the world's largest online retailer, persuaded a federal court in San Francisco to dismiss a suit brought by a patent owner from Menlo Park, California.

OIP Technologies Inc. sued the Seattle-based retailer March 12, claiming its patent 7,970,713 was infringed. The patent, which was issued in June 2011, covers a method and apparatus for automatic pricing in electronic commerce. Although the application was filed in 2000, it took 11 years for the patent to be issued by the U.S. Patent and Trademark Office.

According to court papers, Amazon was in discussions with OIP's predecessor in 2001 over acquisition of the company and the technology covered by the patent. OIP claims that instead of buying the company or taking a license to the technology, Amazon interviewed two of the company's engineers about the technology and offered each a job.

OIP said in its complaint that the software system Amazon uses through its website infringed the patent. It asked the court for money damages to compensate for what it said was unauthorized use of its technology, together with litigation costs and attorney fees.

In his Sept. 11 order, U.S. District Judge Edward M. Chen dismissed OIP's case. He said that the technology at issue wasn't patentable, under U.S. patent law, because it was "directed toward the abstract idea of price optimization, which is a fundamental economic principle" that belongs in the public domain.

The case is OIP Technologies Inc., v. Amazon.com Inc., 3:12-cv-01233-EMC, U.S. District Court, Northern District of California (San Francisco).

For more patent news, click here.

Trademark

Porn Producer Agrees to Stop Selling 'Ben & Cherry's' Films

The seller of adult films with titles and packages based on Ben & Jerry's Homemade Inc. flavors agreed to pull them from the market.

Rodax Distributors Inc., which does business as Caballero Video, agreed Nov. 11 to a court order barring it from selling its "Ben & Cherry's" series of 10 DVDs with titles including "Peanut Butter D-Cups" and "Boston Cream Thigh" while a trademark suit is under way.

The order requires Caballero to recall the DVDs and to destroy all products, labels and marketing materials that infringe on Ben & Jerry's trademarks.

Ben & Jerry's, a unit of London-based Unilever NV, sued Caballero in federal court in New York Sept. 5, claiming the DVDs and packaging violated its trademarks. The packaging featured images of naked men and women against backgrounds that copy the design of Ben & Jerry's ice cream containers such as grazing cows and fluffy white clouds, the company said in its complaint.

U.S. District Judge Lewis Kaplan issued a temporary restraining order against Caballero on Sept. 6.

The case is Ben & Jerry's Homemade Inc. v. Rodax Distributors Inc., 12-CV-6734, U.S. District Court, Southern District of New York (Manhattan).

Costco Sued by Stanley Furniture Over 'MyHaven' Trademark

Costco Wholesale Corp., the membership warehouse chain based in Issaquah, Washington, was sued for trademark infringement by a furniture manufacturer.

According to the complaint filed Sept. 10 in federal court in North Carolina, Stanley Furniture Co. accused Costco of selling furniture under a "My Haven" label. High Point, North Carolina-based Stanley says this infringes its "MyHaven" mark it has used since 2006.

Including in the complaint are photos Stanley says are of allegedly infringing packaging and furniture sold in Costco stores. The furniture company claims that the "My Haven" furniture sold at Costco has "virtually duplicated numerous non-functional features" of furniture Stanley created.

Customers are confused about the "source, sponsorship, approval or certification" of the "My Haven" items sold at Costco, Stanley claims, and are likely to assume falsely that the North Carolina company is the source.

Stanley said it has suffered harm from Costco's actions, and asked the court to bar further infringement, and for awards of triple the profits realized from the sale of the allegedly infringing merchandise. Additionally, the North Carolina company seeks money damages, litigation costs and attorney fees.

Costco didn't respond immediately to an e-mailed request for comment on the suit. The warehouse chain's supplier is co- defendant with Costco.

The case is Stanley Furniture Co. v. Whalen Furniture Manufacturing, 1:12-cv-01007-TRDS-JEP, U.S. District Court, Middle District of North Carolina.

Deccan Chronicle Puts Up Trademarks as Security in IDBI Loan

Deccan Chronicle Holdings Ltd., a newspaper publisher in Secunderabad, India, has mortgaged the trademarks of all four of its publications, the Times of India reported.

The trademarks as associated with the "Deccan Chronicle," "Asian Age," "Andhra Bhoomi" and the "Financial Chronicle," the newspaper reported.

The company entered into the loan agreement that uses the trademarks for security in March 2011, according to the Times of India.

The lender, Mumbai-based IDBI Bank Ltd. has the option of selling the trademarks, within 15 days of a default on a loan for which the marks are security, the newspaper reported.

Botswanans Dispute Ownership of Zebra Mark Used by Soccer Team

Botswana's Registrar of Companies held a hearing Sept. 10 in the dispute between the registered owner of the "Zebra" trademark and the country's national soccer team, that is nicknamed "the Zebras," the MmegiOnline Botswanan news website reported.

Tumisang Keitseng, the trademark owner, said she created the mark to market Botswana for tourism purposes, not to promote the team, according to MmegiOnline.

The team's logo was designed by Ludo Kemoeng, who said that while he permitted Keitseng to use the image on T-shirts and bandanas, it was created to create solidarity among supporters of the national team, MmegiOnline reported.

For more trademark news, click here.

For more copyright news, click here.

Trade Secrets/Industrial Espionage

Akorn Sued by Fera Over Drug Supply Agreement, Trade Secrets

Fera Pharmaceuticals LLC, a provider of anti-infective ophthalmic medicines, sued business partner Akorn Inc., seeking more than $100 million in damages for contract violations and misuse of trade secrets.

Fera alleges Akorn, of Lake Forest, Illinois, in 2009 agreed to make Fera products for seven years, "failed to perform its duties," and sought to acquire Locust Valley, New York-based Fera's trade secrets and make at least two products itself, according to papers filed yesterday in New York state Supreme Court.

"Akorn's violation of the Commercial Manufacturing Supply agreement caused Fera substantial economic harm," and Akorn should pay compensatory damages, Fera said in court papers.

Fera seeks a jury trial and unspecified punitive damages.

Akorn's chief financial officer, Tim Dick, didn't immediately return a voice-mail message seeking comment on the lawsuit.

The case is Fera Pharmaceuticals LLC v. Akorn Inc., 653184/2012, New York state Supreme Court, County of New York (Manhattan).

 

(BN) Neiman Marcus to Macy’s Trend Into China as Far as Web: Retail

As Neiman Marcus Group Inc. prepares to start selling its wares in China, the U.S. luxury retailer isn't opening stores. It's setting up shop on the Web.

Neiman Marcus, Macy's Inc. (M) and Milly, the women's clothier, are all tiptoeing into China -- striking partnerships with local Web entrepreneurs because opening stores there is expensive and complicated.

The moves coincide with slowing economic growth in China that has prompted shoppers there to pull back. Still, Neiman Marcus is making a long-term bet on the world's most populous consumer market, Chief Executive Officer Karen Katz said in an interview.

"We believe the Chinese economy, like every economy, is going to have ups and downs," Katz said. "We know that long- term the potential of the luxury consumer is tremendous. There is still quite a big opportunity there."

Even with the slowdown, online sales will triple to more than $360 billion by 2015, predicts Boston Consulting Group. The number of Internet users will grow to 700 million from 500 million, it said. China's luxury market will grow by as much as 22 percent this year, by far the fastest rate of any region, according to Bain & Co., also a consulting company.

The deals with local companies mean Macy's and Neiman Marcus can learn more about Chinese shoppers' buying habits before deciding whether and how to scale up. The strategy is also cost effective. Macy's is spending about $15 million on its China Web venture; by contrast it is lavishing $400 million on a renovation of its New York flagship store.

Spending Appetite

"It's a very clever way of dipping their toe in the water," said Robert Burke, whose namesake consulting firm is based in New York. "What's driving it is the sheer numbers. The number of consumers and their appetite to spend is going to be highly attractive to retailers and brands."

In its first international foray, Neiman Marcus, owned by Warburg Pincus LLC and TPG Capital, is developing a new namesake e-commerce website with a Hong Kong-based partner. Neiman Marcus plans to start the site in China with Glamour Sales Holding before the Chinese New Year in January, CEO Katz said. The Dallas-based retailer has invested $28 million in the closely held Chinese company.

Macy's, the second-largest U.S. department-store chain, will begin selling an assortment of its moderately priced I.N.C. apparel on www.omei.com next spring. It made a $15 million equity investment in the parent VIPStore Co.

Learn First

"International expansion is of long-term interest to us," Jim Sluzewski, a spokesman for Cincinnati-based Macy's, said in an e-mail. "But we want to learn as much as we can before making substantive decisions about the future."

Shangpin.com, a website that says it sells authorized, current-season international designer and contemporary goods at full price, debuted this month. Milly and Tracy Reese, whose fashions are worn by Michelle Obama, are among 80 brands selling their goods through the site, whose Mandarin name means "fashion" and "quality."

Sensing opportunity, private-equity firms are investing in Chinese e-commerce. Shangpin has attracted $60 million in capital from international investors including Walt Disney Co.- backed Steamboat Ventures. Warburg Pincus and KPCB China invested $120 million in fashion e-tailer www.xiu.com last year.

These Web-only ventures face several barriers. Brand recognition remains low in China, while shoppers prefer to see the actual products and are leery of receiving counterfeit goods, Burke said. They also are reluctant to spend large sums online, said Claire Chung, a vice president for global business development for Shangpin. The country's average online transaction size is the equivalent of $31, she said.

Educate Consumer

"We are going to have a lot of work to do to educate the consumer about Neiman Marcus," said Katz, 55. "What is important is this message of history, heritage and authenticity because they don't know our brand."

To that end, the Neiman Marcus site will work to be a kind of personal shopping guide.

Milly NY CEO Andy Oshrin said he had been reluctant to enter the Chinese market before he found the right partner in Shangpin. The e-commerce approach is a better alternative to building the Milly brand in China himself with expensive stores and marketing, he said. Online sales of Milly's colorful, print dresses already tend to outperform those in stores, he said.

"It was a way to enter China strategically," Oshrin said.

China has its own tastes and quirks. Shoppers prefer washable clothing because dry cleaning is less available, said Winnie Foon, a Shangpin vice president for global merchandising.

Mix Match

There is greater demand for medium sizes in the northern part of the country, and for small and extra-small in the south. Chinese women love dresses because they don't require the mixing and matching skills that separate skirts, blouses and slacks do. They traditionally have worn fine jewelry, and are just discovering how to wear fashion jewelry, Foon said.

Www.neimanmarcus.cn will offer full-price, current-season fashions specifically pitched to the Chinese luxury customer by a Shanghai-based chief merchant, Katz said. Because Chinese men are avid luxury consumers, Neiman Marcus's Chinese Web store will carry a larger assortment of men's merchandise than the U.S. site. Ditto for shoes and handbags.

While Chinese consumers have been interested in merchandise from well-known brands with logos, they're learning to be more sophisticated, more "in-the-know," Katz said.

"That shift really plays into where our strengths are," she said. "We are great editors of product."

Free Shipping

Shangpin, which is hiring stylists who can provide fashion advice on the phone, is offering free shipping within two days. In major locations, a courier will wait for the customer to try on the items and will take them back if they don't suit.

"We now have a new generation of Chinese women, of professional women," Foon said. They are "looking for clothes for the office, for the weekend."

Designer labels Jimmy Choo, Alexander McQueen and Brunello Cucinelli have signed on to the Neiman Marcus site. They'll ship their merchandise directly to a warehouse in Shanghai, which will then distribute it to the online customer, Katz said.

It will be difficult for Chinese e-commerce ventures to replicate the customer service that American online shoppers enjoy, including quick delivery to remote locations, and easy returns, said Michael Appel, a director at AlixPartners LLP, a consulting company in New York.

"There is the whole logistical issue," Appel said. "China is a very big place."

Still, the Web ventures may benefit from the cooling economy, Appel said. Shoppers who've developed a taste for luxury goods may be less likely to go on shopping sprees to foreign or Chinese cities and will shop online instead, he said.

(BN) Rich-Poor Gap Widens to Most Since 1967 as Income Falls

The income gap between rich and poor Americans grew to the widest in more than 40 years in 2011 as the poverty rate remained at almost a two-decade high.

The U.S. Census Bureau released figures today that showed median household income fell, underscoring a sputtering economic recovery and struggling middle-class that are at the center of the presidential campaign.

The proportion of people living in poverty was 15 percent in 2011, little changed from 15.1 percent in 2010, while median household income dropped 1.5 percent. The 46.2 million people living in poverty remained at the highest level in the 53 years since the Census Bureau has been collecting that statistic.

"The gains from economic growth in 2011 were quite unevenly shared as household income fell in the middle and rose at the top," Robert Greenstein, president of the Center on Budget and Policy Priorities in Washington, said on a conference call with reporters.

Average incomes fell for the bottom 80 percent of earners and rose for the top 20 percent, highlighting the need for "those at the top to share," as the nation looks to reduce its budget deficit, Greenstein said.

The top 1 percent of households experienced about a 6 percent increase in income, said David Johnson, chief of the social, economic and housing division at the Census Bureau.

Election Focus

Americans' economic struggles are the focus of November's presidential election. Republican nominee Mitt Romney argues that people are worse off because of President Barack Obama's economic policies. Obama counters that Romney would push plans benefitting the wealthiest at the expense of the middle-class and those striving to get out of poverty.

"The recession is going to have long-term effects on the poverty rate, which our projections suggest is going to hang high for many years to come," said Isabel Sawhill, a senior fellow at the Brookings Institution in Washington who studies poverty issues.

Brookings had projected the 2011 poverty rate would rise to 15.5 percent, and the static number may be a result of unemployment benefits keeping thousands out of poverty, Sawhill said.

The data also show the number of Americans who lack health insurance declined to 15.7 percent from 16.3 percent, as many under the age of 26 took advantage of a provision in Obama's 2010 health-care overhaul that allowed them to be covered under their parents' plans.

Income Down

About 540,000 more young people were insured in 2011, the Census Bureau said. Nationwide, about 48.6 million people were uninsured last year, compared with 49.9 million a year earlier.

While the ranks of Americans in poverty were little changed in 2011, median household income last year was $50,054, down from an inflation-adjusted $50,831 in 2010. In 2011, median household income, adjusted for inflation, was 8.1 percent less than in 2007, the year before the recession began.

The weighted-average poverty threshold for a family of four in 2011 was about $23,000, according to the census.

"Even though the recovery has been slow, the economy has been expanding," said Melissa Boteach, who coordinates an effort to cut U.S. poverty in half in 10 years at the Center for American Progress, a Washington-based research group with ties to the Obama administration. "The gains from the economic growth have not reached working families struggling at the bottom."

In a blog post, White House spokeswoman Amy Brundage said the report shows that while progress has been made since the recession, "too many families are still struggling."

Persistent Unemployment

U.S. unemployment, which hovered at or above 9 percent for most of 2011, has exceeded 8 percent since February 2009, the longest stretch in monthly records going back to 1948. The increase in hardship comes as state and federal governments are cutting spending to close budget deficits.

The income figures declined as the U.S. economy expanded 1.8 percent in 2011, down from 2.4 percent in 2010. Growth has averaged a 1.9 percent annual rate through the first six months of this year.

The Census Bureau also reported that a measure of the gap between rich and poor households rose. A figure of zero means all income is evenly distributed while a 1 represents complete concentration. The measurement, known as the Gini index, rose to .463 from .456. The figure has risen steadily from its 1968 low of .351.

Poverty Rate

The persistent poverty rates pose a threat to the nation's long-term economic competitiveness as more and more children are growing up in poor households, Boteach said. Down the road, that leads to higher health-care costs, lower educational levels and reduced worker productivity.

"We're really shooting ourselves in the foot if we don't tackle early childhood poverty," Boteach said.

The government reported earlier this month that food-stamp use reached a record 46.7 million people in June. Participation was up 0.4 percent from May and 3.3 percent higher than a year earlier. It has remained greater than 46 million all year.

Contributing to the rising poverty rates are government job cuts at the local, state and federal levels, with about 386,000 such positions eliminated in 2011, Boteach said.

State and local governments have run out of funds from the 2009 stimulus package that helped balance their budgets and are now having to cut jobs, said Sheldon Danziger, director of the University of Michigan's Gerald R. Ford School of Public Policy's National Poverty Center.

"Modest" gains in private-sector job growth in 2011 were largely offset by cuts in government jobs and a drop in unemployment benefits, Greenstein said.

(BN) Fish Oil Pills Don’t Fix Heart Ills in 24-Year Data Review

Looks like a fish oil pill a day won't keep the doctor away.

Scientists who reviewed data from about 68,000 patients gathered in 20 trials over the past 24 years found that men and women taking fish oil supplements didn't lower their risk for a bevy of ills including heart attacks, strokes and death.

Diverging recommendations about the benefits of fish-oil supplements, which contain omega-3 polyunsaturated fatty acids, can "cause confusion in everyday clinical practice about whether to use these agents for cardiovascular protection," Moses Elisaf and his colleagues from the University of Ioannina in Greece wrote in the study.

The scientists concluded that the use of fish-oil pills is unnecessary to ward off heart disease, a finding that contradicts other studies that said the supplements were beneficial.

The paper, published in the Journal of the American Medical Association yesterday, belongs to a form of research known as a meta-analysis, which evaluates data from previous investigations without doing new clinical work.

The patients involved were largely of European descent and took an average of 1.5 grams (0.05 ounces) of omega-3 supplements a day for a median of two years.

Walnuts and Flaxseed

The American Heart Association recommends eating fish at least twice a week. It advises patients with chronic heart disease to consume one gram of omega-3 fatty acids a day, preferably through their diets. Some patients may need to take fish oil supplements to reach that threshold in consultation with their physicians, according to the AHA.

Studies including an Italian one dubbed GISSI have found fish oils to be beneficial.

Humans can't make omega-3 fatty acids from scratch, but need them for healthy brain function as well as growth and development. These acids can be found in fish as well as in foods such as walnuts and flaxseed.

The JAMA study is misleading because the analysis included people who had suffered heart attacks or strokes, and failed to account for the effect of cardiovascular drugs that the subjects had taken, according to GOED, a Salt Lake City, Utah-based industry group representing companies that make and market omega-3 fatty acids. Members include BASF SE (BAS), Croda International Plc (CRDA) and Omega Protein Corp. (OME)

"The totality of the scientific evidence justifies the use of omega-3s for both people with diagnosed cardiovascular disease and those trying to prevent cardiovascular disease," Adam Ismail, GOED's executive director, said in a statement.

The study's authors reported that they had no financial conflicts of interest.

(BN) Google’s YouTube Blocks Film Behind Protests in Libya

Google Inc. (GOOG)'s YouTube video-sharing service is blocking access in Egypt and Libya to a film about the Prophet Muhammad that is viewed as blasphemous by Muslims, that sparked protests and an attack responsible for the deaths of four Americans.

"This video -- which is widely available on the Web -- is clearly within our guidelines and so will stay on YouTube," Mountain View, California-based Google said in an e-mailed statement. "However, given the very difficult situation in Libya and Egypt, we have temporarily restricted access in both countries."

A 14-minute clip of the disputed film, "The Innocence of Islam," aired on YouTube, shows a fictional attack by Muslims on a Christian family followed by an account of the origins of Islam depicting Muhammad as a womanizer. The video spurred an attack that killed U.S. Ambassador to Libya Chris Stevens and three other Americans.

(BN) Debate On What Makes Teachers Good Drives Chicago Strike

The first Chicago teacher strike in 25 years has both sides saying the fight is about assuring that classrooms are led by good educators. They just disagree over how that should be done.

Teacher evaluations, based partly on student test scores, have emerged as a major obstacle to reopening schools for more than 350,000 students in the third-largest U.S. city. The leader of the Chicago Teachers Union, Karen Lewis, told reporters last night that "we are still miles apart" on the question of measuring teacher performance.

How that hurdle is cleared may determine the direction of public-school restructuring efforts across the country.

"This may be the last stop, the last gas station on the highway," said Robert Bruno, a professor of labor and employment relations at the University of Illinois at Urbana- Champaign. "Once we get past this, this may be the model of school reform for the next generation."

Union members have good reason not to focus on pay. They're sensitive to public sentiment at a time when unemployment has remained above 8 percent nationwide since February 2009, the longest stretch in monthly records going back to 1948. Chicago's schools also face a budget deficit that may reach $1 billion next year.

"It's not about the money, we understand the budget crisis," said Susan Hickey, a school social worker and member of the teacher's union bargaining team. "The evaluation system they are setting up right now means 6,000 teachers will be fired in the near future."

Student Performance

As union and school district negotiators returned to talks today, the Boston Teachers Union and that city's School Department reached a tentative agreement after 27 months of negotiations, according to the Boston Globe. Part of the accord allows the evaluation of teachers based on student test scores.

The Chicago Teachers Union, with 30,000 members, says its district's proposed evaluation procedure puts too much emphasis on test scores. At least 25 percent of a teacher's rating during the contract's first two years would be based on pupils' academic performance and would rise to 30 percent in the third.

Unlike previous teacher strikes that were tied primarily to salary issues, the walkout that began Sept. 10 is viewed by the union as a pivotal point in the two-decade national effort to weed out ineffective teachers by weakening job rules.

Soul Struggle

"This is far more than a labor struggle," a fist-waving Randi Weingarten of the American Federation of Teachers, the union president, said yesterday at a news conference in front of the Chicago Board of Education building. "This is a struggle for the heart and the soul of public education for the kids of Chicago."

The strike also is an extension of battles in other big cities where mayors control the schools, said Jeffrey Henig, a professor of politics and education at Columbia University's Teachers College in New York.

In Washington, Michelle Rhee, the schools chancellor who fired more than 200 teachers over performance, resigned in 2010 after her boss, Mayor Adrian Fenty, lost a re-election bid in which Rhee's policies became a central issue.

In New York City, the teachers union went to court to stop Mayor Michael Bloomberg's administration from releasing earlier this year the names of educators and their performance ratings. (The mayor is the founder and majority owner of Bloomberg News parent Bloomberg LP.)

'Outright War'

At the same time, Chicago teachers watched the recent battle in Wisconsin that curbed public employees' bargaining rights and concluded that it was time to risk a strike, even if it undermined their support among families of school-age children, Henig said.

"There are folks that feel they are being driven to the brink -- that they are in an outright war for survival," he said. "It's a desperate move. If they win, then we might see this repeating."

Paul Vallas, the former chief executive officer of Chicago Public Schools who went on to lead districts in Philadelphia, New Orleans and, currently, Bridgeport, Connecticut, said the strike reflects education debates that have become "increasingly polarized."

"In some ways it's turned into kind of a street fight," Vallas said. "And, quite frankly, teachers feel like they are being demagogued and in some cases victimized or scapegoated."

'Raising Standards'

Chicago Mayor Rahm Emanuel, who controls the school system, rejected charges that evaluating teachers is designed to eliminate their jobs. He repeated yesterday that the walkout is a strike "of choice."

"It's not about getting rid of people, it's about raising standards, raising the quality in the schools," Emanuel said at a news conference at Marquette School on the city's south side.

Unions are publicly stressing their opposition to evaluation policies to obtain their true goal -- bigger raises and job protection -- said Michael J. Petrilli, executive vice president of the Thomas B. Fordham Institute, a Washington education policy group that advocates freeing schools "held hostage by adult interest groups."

"The unions see the bad PR they're getting about looking greedy," Petrilli said. "Let's be honest. It's still about the money."

Personality clashes between unions and strong-willed leaders -- such as Emanuel in Chicago and Rhee in Washington -- further aggravate the negotiations, Petrilli said.

Rare Strikes

In the 1960s and early 1970s, teacher strikes were more commonplace as unions sought to establish workplace protections and bargaining rights. In 1968, a strike over due process in the firing of teachers in New York City shut down the system for about two months.

Since then, strikes have become rare, and the public less sympathetic to their often disruptive effects, said Maria Ferguson, executive director of the Center on Education Policy at George Washington University.

"People don't see unions the same way they did back then, as the little guy, as Don Quixote tilting at windmills," Ferguson said. "Now, unions are so big they are often viewed as part of the problem."

Popular movies, including the 2010 documentary "Waiting for Superman," have portrayed organized labor as a barrier to improving education. That narrative will get fresh attention beginning Sept. 28 with the premiere of a new feature film, "Won't Back Down," in which Maggie Gyllenhaal plays a mother fighting against intransigent unions to help her daughter.

Shuttering Schools

The confrontation between Chicago is the third-largest by public-sector workers since 1993, when the Bureau of Labor Statistics began keeping records. About 47,000 employees of Los Angeles County went on strike in 2000, while 35,000 New York transit workers walked out in 2005, department data show.

Emanuel is considering closing 80 to 120 underperforming schools, according to a report today in the Chicago Tribune. Sarah Hamilton, spokeswoman for the mayor, told the newspaper the report is "completely untrue."

Vallas, who was the Chicago schools CEO from 1995 to 2001, said school closures will be unavoidable regardless of how the strike is settled. Neither the school system nor the teachers will be able to afford the terms, he said.

"This is a district that has exhausted its reserves," he said. "The settlement itself is going to create pressure to cut even more, ultimately impacting more teachers, impacting more schools. It's inevitable. It's like a death spiral."

Innovation: Silicon Valley vs Wall Street

In preparation for The Greatest Innovations of Silicon Valley (BUS 117), I read a lot of papers about innovation and growth. Here's a good sentence from Bresnahan and Trajtenberg NBER/Journal of Econometrics (1995) paper "General Purpose Technology: 'Engines of Growth?'"

Economists have known for a long time that technical change is the single most important force driving the secular process of growth (Abramovitz, 1956; Solow, 1957).

From a purely financial (risk) perspective, Silicon Valley is an engine of growth because it is really good at developing uncorrelated assets using new technologies. That is, while everybody is happy with proven technologies, the creative crowd in the valley is willing to bet on something totally new. As the result — and in accordance with both the financial and economic growth theories — Silicon Valley innovations stimulate growth and at the same time reduces overall financial risks.

By contrast, Wall Street innovations create a trade-off between growth and risks. Therefore, when the Wall Street creates a lot of innovation the financial system becomes prone to disasters (or as Nassim Taleb calls them "Black Swans").

tags: innovation, theory, technology, silicon valley, course, stanford