Tag Archives: Coverage

Comcast Netflix

Comcast and Netflix reach streaming agreement

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Netflix is striking deals now to make sure its content will stream without interruption. It reached an agreement with Comcast for an undisclosed amount to directly connect to its network.

The New York Times had these details in the story by Noam Cohen:

Comcast, the country’s largest cable and broadband provider, has reached an “interconnection agreement” with Netflix to ensure that its videos would be streamed directly — and thus faster and more reliably — to Comcast’s customers, both companies announced Sunday.

The terms of the multiyear agreement, including whether Netflix was paying for its direct connection, were not disclosed, other than to say that the company “receives no preferential network treatment.”

The announcement confirmed reports that had trickled out late last week, already detecting a more direct Internet path of Netflix videos to Comcast customers. The agreement is expected to be fully put in effect in a matter of weeks.

That the technical details of how streaming videos arrive on a customer’s screen is the subject of corporate announcements and news media coverage speaks to the outsize importance of Netflix and Comcast in how movies and television are watched.

The Wall Street Journal story by Shalini Ramachandran pointed out that the agreement comes less than two weeks after Comcast agreed to buy Time Warner Cable creating the largest TV provider:

The deal comes just 10 days after Comcast agreed to buy Time Warner Cable Inc. The acquisition, if approved, would establish Comcast as by far the dominant provider of broadband in the U.S., serving 32 million households before any divestitures it might make. It also comes amid growing signs that congestion deep in the Internet is causing interruptions for customers trying to stream Netflix movies and TV shows.

People familiar with the situation said Netflix Chief Executive Reed Hastings didn’t want streaming speeds to deteriorate further and become a bigger problem for customers.

In a statement confirming the broad outlines of the deal, the companies on Sunday said the agreement would provide “Comcast’s U.S. broadband customers with a high-quality Netflix video experience for years to come.”

The debate has been heating up over who should bear the cost of upgrading the Internet’s pipes to carry the nation’s growing volume of online video: broadband providers like cable and phone companies, or content companies like Netflix, which make money by sending news or entertainment through those pipes.

While several big Web companies in recent years have started paying major U.S. broadband providers for direct connections to get faster and smoother access to their networks, Netflix has held out—until now.

Steven Musli wrote for CNet that many are concerned that the deal will damage net neutrality, which would prevent Internet providers from discriminating against traffic on their networks:

Under the so-called “paid peering” deal, Netflix will be allowed to connect directly to Comcast’s network instead of going through intermediaries, as it formerly did.

The companies have for years been locked in a dispute over the cost of delivering Netflix streams to its customers over Comcast’s broadband network. While Netflix wanted to connect to Comcast’s network for free, the cable giant sought compensation for the heavy traffic that Netflix users generate, arguing that it costs the company a lot to deliver Internet video.

In recent months, the dispute appeared to be heating up, with suggestions that Comcast customers were seeing their connections to Netflix degraded. Netflix released data last month that showed the average Netflix streaming speed decline 27 percent since October.

The deal is likely to presage similar agreements with other broadband carriers such as AT&T, Verizon, and Time Warner Cable, which have also refused Netflix’s request to connect to their servers without compensation.

Although the two companies say Netflix is not receiving preferential treatment, observers worry that the deal may deal a setback to Net neutrality, which aims to prevent broadband providers from blocking access or discriminating against Internet traffic traveling over their connections.

Timothy B. Lee wrote in The Washington Post that the deal signals the end of net neutrality:

In recent months, the nation’s largest residential Internet service providers have been demanding payment to deliver Netflix traffic to their own customers. On Sunday, the Wall Street Journal reported that Netflix has agreed to the demands of the nation’s largest broadband provider, Comcast. The change represents a fundamental shift in power in the Internet economy that threatens to undermine the competitive market structure that have served Internet users so well for the past two decades.

The deal will also transform the debate over network neutrality regulation. Officially, Comcast’s deal with Netflix is about interconnection, not traffic discrimination. But it’s hard to see a practical difference between this deal and the kind of tiered access that network neutrality advocates have long feared. Network neutrality advocates are going to have to go back to the drawing board.

One clear lesson, though, is that further industry consolidation can only make the situation worse. The more concentrated the broadband market becomes, the more leverage broadband providers like Comcast and Verizon will have over backbone providers like Cogent. That gives the FCC a good reason to be skeptical of Comcast’s proposed acquisition of its largest rival, Time Warner Cable. Blocking that transaction could save the agency larger headaches in the future.

While blocking the transaction is the best move in one man’s opinion, access to the Internet for companies of all sizes is an important issue. If companies with deep pockets are able to buy better access then it will be harder for competition to start-up and earn customers. And when competition suffers, it’s been proven, so do consumers.

Energy Future Holdings

Energy Future Holdings may file for bankruptcy

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Energy Future Holdings, formerly known as TXU, is likely to file for bankruptcy court protection. The company was part of one of the biggest leveraged buyouts in history, and the news will likely tarnish the idea of large deals.

The Wall Street Journal story by Emily Glazer and Mike Spector said the company was lining up loans after a deal with creditors fell through.

One of the biggest leveraged buyouts of an American company is preparing to file for bankruptcy protection, brought to its knees by heavy debt and a misguided bet on the direction of natural gas prices.

Energy Future Holdings Corp., previously called TXU Corp., is lining up loans to keep two subsidiaries operating during bankruptcy proceedings after months of talks have failed to produce an agreement with creditors on reworking its $40 billion-plus in debt, according to people familiar with the matter.

The two sides may yet reach a last-minute agreement, but prospects for a streamlined bankruptcy where creditors agree in advance on a restructuring plan have dimmed, the people said. The filing would likely result in a split of Energy Future’s two large operating subsidiaries, they said. A bankruptcy would be the 10th largest by assets in U.S. history.

The acquisition was part of the frenzied leveraged buyout boom where private-equity firms used massive amounts of debt to back a series of corporate takeovers including TXU, hotelier Hilton Worldwide Inc., office-building owner Equity Office Properties Trust and hospital operator HCA Holdings Inc.

James Osborne wrote for the Dallas Morning News that the company will likely fight to stay together despite its financial troubles:

CEO John Young has argued publicly against splitting up the company and its subsidiaries, Luminant, Oncor and TXU Energy. But he is facing creditors groups eager to extract as much value as they can from investments in some cases now worth pennies on the dollar.

The scenario under discussion would split Energy Future’s competitive arm, which controls generator Luminant and retailer TXU Energy, from its regulated arm, which controls transmission company Oncor.

Energy Future is in the process of setting up two $4 billion loans for each of the divisions to allow them to continue operating through bankruptcy separately.

But a source close to Energy Future cautioned that the company has no plans to cut a deal for the breakup before filing for Chapter 11. And once the case goes to court, the company will continue to lobby to keep its subsidiaries together.

The Reuters story by Nick Brown added this background about the creation of the company and how it got into so much debt:

Energy Future Holdings was created in October 2007 in a $45 billion buyout of Dallas-based TXU Corp, the biggest electricity generating and distribution company in Texas.

The buyout, led by KKR & Co (KKR.N), TPG Capital Management LP TPG.UL and the private equity arm of Goldman Sachs (GS.N), saddled the company with debt just as natural gas prices were about to plunge, making its coal-fired plants unprofitable.

Many industry experts believed the company would choose to skip a $270 million interest payment and file bankruptcy last November, but the company chose to make the payment, extending its runway for restructuring talks.

Its next day of reckoning may be fast approaching. Sometime this month or next, Energy Future expects to receive an opinion from auditors on whether it can survive as a going concern based upon its annual financial statements. It may have trouble convincing auditors to grant a positive opinion, given that it does not have enough cash to afford the $3.8 billion of bank debt that matures in October. Failure to secure such an opinion would trigger a default of EFH’s $20 billion of bank debt, meaning lenders could push the company into bankruptcy.

Maureen Farrell wrote a blog post for the Wall Street Journal that several banks could make even more money on the deal:

Three investment banks — Citigroup, Morgan Stanley and J.P. Morgan — could earn up to $300 million in fees, if they provide bankruptcy financing to Energy Future Holdings, the company formerly known as TXU.

If Energy Future Holdings files for bankruptcy, the three banks could earn another helping of sizable fees from the utility. Citi, Morgan Stanley and J.P. Morgan were among the consortium of banks that put together financing for the TXU buyout, the largest private-equity deal ever. KKR & Co., TPG and Goldman Sachs Group Inc. took TXU private in 2007 for $32 billion plus $13 billion in assumed debt.

Now, according to the WSJ’s Emily Glazer and Mike Spector, these three banks are talking to the company about providing debtor-in-possession financing, which allows a company to operate during bankruptcy proceedings. Bank of America, which was not an underwriter on the original deal, is also reportedly among the possible DIP lenders.

The high-profile bankruptcy will likely put a small tarnish of the notion of large deals, but leveraged buyouts on the scale of TXU aren’t the norm these days. What will remain to be seen is what this will mean for the funds holding TXU and its investors. It will also likely make many companies think twice about the debt loads they add to their deals.

facebook

Coverage of Facebook’s latest acquisition

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Facebook announced its biggest acquisition to date, purchasing Internet text service WhatsApp for $16 billion to $19 billion. The number depends on if you count the $3 billion in restricted stock options. Either way, it’s a vast sum of money.

Reed Albergotti, Douglas MacMillan and Evelyn M. Rusli wrote for the Wall Street Journal that the service is more popular than Twitter.

Facebook Inc. agreed to buy messaging company WhatsApp for $19 billion in cash and stock, a blockbuster transaction that dwarfs the already sky-high prices that other startups have been able to recently command.

The 55-employee company, which acts as a kind of replacement for text messaging, has seen its use more than double in the past nine months to 450 million monthly users. That makes its service more popular than Twitter Inc., the widely used microblogging service which has about 240 million users and is currently valued at about $30 billion.

 The transaction, which includes $3 billion in restricted stock units to be granted to WhatsApp’s founders and employees over four years, ranks as the largest-ever purchase of a company backed by venture capital.

Besides making its founders billionaires, the deal marks an enormous windfall for Sequoia Capital, the only venture firm that backed WhatsApp. Sequoia invested about $60 million for a stake valued at up to $3 billion in the deal, according to a person familiar with the matter.

The New York Times story by David Gelles, Brian X. Chen and Nick Bilton outlined how WhatsApp has been run and how they’ve opposed selling ads.

Mr. Koum and Brian Acton, two former Yahoo executives, founded WhatsApp in 2009.

Unlike traditional business leaders, the two founders spent most of their time throughout the day keeping the service running smoothly. Mr. Acton focused on the servers, while Mr. Koum looked at the overall product and made sure it looked and acted the same consistently across different devices.

Mr. Koum and Mr. Acton have said they want to make messaging accessible to anyone, regardless of what phone they own, where they live or how much money they make. They have also been adamant about refusing to sell advertising — they say that ads detract from intimate conversations.

WhatsApp received about $10 million in funding two years after the company was founded. It quickly became profitable.

Facebook, meanwhile, has struggled to gain traction in messaging.

Mr. Zuckeberg tried to acquire SnapChat last year for a reported $3 billion, but SnapChat turned down the offer.

While Facebook Messenger, the company’s chat platform, is popular with users, recent attempts to create its own direct messaging service have failed.

The Financial Times story by Hannah Kuchler and Tim Bradshaw pointed out that one lone backer would made billions in the deal:

The company’s sole venture capital backer, Sequoia Capital, had a stake in the “high teens” before the acquisition, which will be worth about $2.5bn to $3bn. Sequoia, a Silicon Valley-based firm, said it had invested almost $60m in the company.

Facebook is assembling a suite of apps as it seeks to dominate social networking as users move to mobile devices. The company approached Snapchat, the ephemeral messaging app last year to propose a deal, according to two people familiar with the matter. In 2012, it bought Instagram, the photo sharing app, for more than $1bn.

The company is also separating the functions on its core site into several apps, most obviously creating Facebook Messenger, in what was seen as an attempt to enter the chat app market. Facebook said the messaging app would sit alongside WhatsApp.

The Reuters story by Gerry Shih and Sarah McBride pointed out the popularity of non-social networking sites:

Combining text messaging and social networking, messaging apps provide a quick way for smartphone users to trade everything from brief texts to flirtatious pictures to YouTube clips — bypassing the need to pay wireless carriers for messaging services.

And it helps Facebook tap teens who will eschew the mainstream social networks and prefer WhatsApp and rivals such as Line and WeChat, which have exploded in size as mobile messaging takes off.

“People are calling them ‘Facebook Nevers,’” said Jeremy Liew, a partner at Lightspeed and an early investor in Snapchat.

WhatsApp is adding about a million users per day, Facebook co-founder and Chief Executive Officer Mark Zuckerberg said on his page on Wednesday.

“WhatsApp will complement our existing chat and messaging services to provide new tools for our community,” he wrote on his Facebook page. “Since WhatsApp and (Facebook) Messenger serve such different and important users, we will continue investing in both.”

Smartphone-based messaging apps are now sweeping across North America, Asia and Europe.

“Communication is the one thing that you have to use daily, and it has a strong network effect,” said Jonathan Teo, an early investor in Snapchat, another red-hot messaging company that flirted year ago with a multibillion dollar acquisition offer from Facebook.

“Facebook is more about content and has not yet fully figured out communication.”

It may not have figured out communication, but it certainly isn’t afraid of paying for what it wants. Facebook needs to find a way to capture some of the growth in mobile and with younger people who might be cooling to the site and its ads. What will be interesting is if the purchase will pay or if it will become yet another expensive toy.

LIBOR

More Libor charges as case expands

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British authorities filed charges against three more people in the ever-widening Libor manipulation case. Manipulating the benchmark rate has been a global scandal involving several firms since July 2012.

David Enrich and Margot Patrick wrote in the Wall Street Journal about the expanding nature of the probe:

British prosecutors filed criminal charges against three former bank traders for alleged fraud, opening a new front in a global investigation into alleged rigging of benchmark interest rates, with more charges in the pipeline.

The U.K.’s Serious Fraud Office said Monday that it charged three former Barclays PLC traders with conspiracy to defraud for their alleged roles rigging the London interbank offered rate, or Libor. The agency, which opened its criminal investigation in July 2012, also is likely to file charges against three former ICAP PLC brokers for allegedly helping bank traders manipulate rates, according to people familiar with the case

The U.K.’s latest charges represent a broadening of the Libor investigation, which got under way in 2008. They serve as a reminder of the scandal’s scope and the pervasive nature of the alleged misconduct, even as the Libor investigation begins to be overshadowed by nascent criminal and civil examinations into potential manipulation of other financial benchmarks.

Monday’s charges bring to 13 the number of people criminally charged in the U.S. or U.K. investigations into Libor, a benchmark used to set interest rates on trillions of dollars of loans and other financial contracts.

Chad Bray named the three men in the second paragraph of his story for the New York Times:

The Serious Fraud Office said that Peter C. Johnson and Jonathan J. Mathew, both former rate submitters at Barclays, and Stylianos Contogoulas, a former trader, would face charges of conspiring to manipulate the London interbank offered rate, or Libor. The three are to appear in Westminster Magistrates’ Court, possibly this month.

Some of the world’s largest banks, including Barclays, Royal Bank of Scotland and UBS, have been caught up in the scandal and have agreed to pay billions of dollars to settle allegations with regulators in Britain, the United States and elsewhere.

Three people already faced criminal charges in Britain. Last December, Tom Hayes, a former derivatives trader at UBS and Citigroup, and Terry J. Farr and James A. Gilmour, former traders at the brokerage firm RP Martin, pleaded not guilty in London.

The trial of Mr. Hayes, the first person to be charged criminally in Britain in the scandal last year, is expected to begin next year. He also faces criminal charges in the United States.

British prosecutors have said they have identified 22 people as potential co-conspirators. On Monday, the antifraud office said its investigation was continuing and it was collaborating with Britain’s Financial Conduct Authority and the United States Department of Justice, which are conducting investigations.

The Financial Times story by Caroline Binham added some background on the U.S. side of the investigation:

The US Department of Justice has also taken an interest in at least one of the individuals. The Financial Times previously reported that Mr Mathew had signed a non-prosecution agreement with DoJ in 2012 before Barclays paid £290m to settle allegations that it attempted to manipulate Libor.

The DoJ was made aware of the SFO’s intention to charge the three Barclays defendants, according to people familiar with the situation. The DoJ’s own investigation into Barclays’ individuals and the rigging of dollar-denominated Libor is continuing, those people said.

Barclays declined to comment, as did lawyers for Mr Mathew. A lawyer for Mr Contogoulas said that his client intended to fight the charges. Lawyers for Mr Johnson could not immediately be reached.

The SFO has previously charged three men as part of its parallel probe into the rigging of yen Libor. Tom Hayes, a former UBS and Citigroup trader, denies the charges and is due to face a jury in January 2015, while two RP Martin brokers are scheduled to stand trial later in 2015.

Bloomberg’s Lindsay Fortado added this background about the fines and charges that have been levied so far:

The U.S. has charged eight people, including Hayes. Former Rabobank traders, another former UBS trader, and three former ICAP brokers have also been accused by the Justice Department. None are in U.S. custody.

Firms including Barclays and UBS have been fined a total of about $6 billion for manipulating benchmark interest rates. The U.S. and U.K. are running parallel criminal probes.

The SFO sought an extra 19 million pounds from the British government last month to pay for “blockbuster” cases including the probe into benchmark manipulation. Its 2013-2014 budget has plunged to 32 million pounds from 52 million pounds in 2008. The prosecutor previously received 3.5 million pounds in 2012 to help fund its Libor probe.

David Green, the SFO’s director, said last year the agency had doubled the number of people working on the investigation to 60 and that they were focusing on British nationals at British banks.

This story is one that has repercussions for nearly everyone involved in the global financial markets. It’s resulted in fundamental changes to the way the rate is set and also ousted Robert Diamond, former head of Barclays. As regulators begin unraveling this mess, there will be more charged. It will be interesting to see how far up it goes.

UAW

Union defeated In The South

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It looks like workers in Tennessee have decided that unionizing still isn’t for them. The United Automobile Workers attempt to organize a Volkswagen plant in Chattanooga failed, something most of the media dubbed a sweeping defeat for organizing the entire South.

Here’s the story from Reuters by Bernie Woodall:

In a stinging defeat that could accelerate the decades-long decline of the United Auto Workers, Volkswagen AG workers voted against union representation at a Chattanooga, Tennessee plant, which had been seen as organized labor’s best chance to expand in the U.S. South.

The loss, 712 to 626, capped a sprint finish to a long race and was particularly surprising for UAW supporters, because Volkswagen had allowed the union access to the factory and officially stayed neutral on the vote, while other manufacturers have been hostile to organized labor.

UAW spent more than two years organizing and then called a snap election in an agreement with VW. German union IG Metall worked with the UAW to pressure VW to open its doors to organizers, but anti-union forces dropped a bombshell after the first of three days of voting.

Steven Greenhouse wrote for the New York Times that the move will “derail” UAW president Bob King’s plan to unionize the South:

This will slow and perhaps derail Mr. King’s ambitious plans to unionize other plants in the South. For months, U.A.W. organizers have been contacting workers at the Mercedes-Benz plant in Vance, Ala., with the hope that it might soon follow VW into the union fold.

In a news conference, Mr. King conveyed anger and bafflement at the results. He and his union thought they would win partly because Volkswagen, unlike most American companies, vowed to remain neutral and not oppose unionization.

Mr. King blamed Republican lawmakers for the loss. They made numerous anti-union arguments — and a few threats — to discourage workers from unionizing. Gov. Bill Haslam, a Republican, contended that auto parts suppliers would not come to the Chattanooga area if that meant being located near a unionized VW plant. Senator Bob Corker, a former mayor of Chattanooga, said VW executives had told him the plant would add a second production line, making sport utility vehicles, if workers rejected the U.A.W. Mr. Corker and some outside conservative groups told workers that the U.A.W. had contributed to the struggles of Detroit’s automakers and would make VW less competitive — a view echoed by some workers.

 Adding to the anti-union pressure, Bo Watson, a state senator who represents a Chattanooga suburb, said the Republican-controlled Legislature was unlikely to approve further subsidies to Volkswagen if the plant unionized. Some workers feared that his threat would cause Chattanooga to lose the planned S.U.V. line to a VW plant in Mexico.

The Wall Street Journal story by Melanie Trottman and Kris Maher added this context about the decline of unions and their waning influence:

Last year, unions represented 11.3% of U.S. workers, flat with 2012 but down from about 20% in 1983. The private-sector membership rate was just 6.7%, compared with 35.3% in the public sector. Even union officials concede private-sector workplaces have been the most difficult to penetrate in recent decades.

More recently, unions’ political clout and financial coffers have suffered as they’ve fought bruising battles with lawmakers in cash-strapped states. Unions have marked some victories, but there have been losses in states that have laid off public-sector union members, curbed collective-bargaining rights and adopted right-to-work laws that allow employees to opt out of union membership and dues.

Amid membership declines at industrial unions like the UAW, the AFL-CIO has begun to partner with outside nonprofit groups and has tried to organize more low-wage service workers. The federation also announced a plan last year to start focusing more on Southern organizing and politics, particularly in Texas, which last year had one-fourth as many union members as New York state despite having 2.7 million more wage and salaried employees, according to Labor Department statistics.

The UAW launched its own southern strategy in recent years to organize foreign-owned auto makers throughout the traditionally antiunion region. But after this week’s Volkswagen vote, the prospect for gaining members at the UAW, and perhaps more broadly, looks bleaker now. This latest loss is also spurring debate over who is to blame for union defeats: the unions themselves or outside political forces that don’t want organized labor in their backyards. In Tennessee, politicians and out-of-state organizations mobilized against the Volkswagen vote.

Much of the coverage of the vote centered around the notion of unions continuing to lose in the south and that Republicans were being singled out by union leaders as the cause. The Los Angeles Times reported in a story by Paresh Dave that the UAW may try to appeal the vote.

Whether they do or not, it’s clear that unions still have a long way to go in areas where they’re not traditionally embraced. Many in the South are concerned about losing much-needed jobs if unions are allowed into manufacturing plants. While it might seem like a win on the surface, many workers are reluctant to change anything that might jeopardize their paychecks. And that’s a powerful lobby for the UAW to overcome.

Pension Peril

Public TV station to return grant that funded pension coverage

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WNET, the New York City public television broadcaster, said Friday that it will return a $3.5 million grant it received to sponsor an ambitious project on public pensions amid charges that it solicited inappropriate underwriting for the series, reports Elizabeth Jenson of the New York Times.

Jensen writes, “In the absence of the funding from the Laura and John Arnold Foundation, the project, called ‘Pension Peril,’ will go on hiatus, although WNET will continue to report on the topic. The series, which began in September and was announced in mid-December, was examining the economic sustainability of public pensions.

“Earlier, following a critical report on Wednesday by David Sirota on the website PandoDaily, WNET officials said they were comfortable with the foundation’s funding. Mr. Sirota sharply criticized WNET for accepting the Arnold Foundation money because John Arnold, a former hedge fund manager, has financially backed efforts to convince municipalities to cut public employee pension benefits.

“On its website, the foundation says that for three years it ‘has encouraged governments to face the true magnitude of their pension problems and to develop structural reforms that are comprehensive, sustainable, and fair.’

“In a joint statement from PBS and WNET, PBS said it stands by WNET’s reporting in the series but ‘in order to eliminate any perception on the part of the public, our viewers, and donors that the foundation’s interests influenced the editorial integrity of the reporting for this program,’ WNET will return the gift.”

Read more here.

Six covers

Bloomberg Businessweek’s six-cover story

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This week’s edition of Bloomberg Businessweek rolled out with six different covers each featuring a low-paid worker in a story about raising the minimum wage.

Peter Coy wrote the story:

Raising the minimum wage is certain to be a wedge issue for Democrats in the midterm elections because it’s the rare redistributive measure that enjoys broad popular support. A Washington Post-ABC News poll in December found that two-thirds of Americans support a minimum wage increase. But to opponents, it smacks of Big Government heavy-handedness. That explains why politicians on both sides are loudly reminding their constituents of their ideologies. The back and forth, however, fails to address the real issues: What’s the right minimum wage? And what’s the fairest way for the world’s largest economy—historically a beacon of social mobility—to arrive at it?

The first question is a bit easier to answer. The original minimum wage, 25¢ an hour, was born in 1938 under similar conditions of economic hardship and class resentment. Labor Secretary Frances Perkins and President Franklin Roosevelt had fought for it for five years. The night before signing the Fair Labor Standards Act, in a radio fireside chat, Roosevelt said, “Do not let any calamity-howling executive with an income of $1,000 a day … tell you … that a wage of $11 a week is going to have a disastrous effect on all American industry.”

Coy goes on to talk about the argument against government setting pricing standards and why some free-market advocates dislike the interference. He then examines research debunking the notion that raising wages contributes to higher unemployment.

The Card-Krueger study touched off an econometric arms race as labor economists on opposite sides of the argument topped one another with increasingly sophisticated analyses. The net result has been to soften the economics profession’s traditional skepticism about minimum wages. If there are negative effects on total employment, the most recent studies show, they appear to be small. Higher wages reduce turnover by increasing job satisfaction, so at any given moment there are fewer unfilled openings. Within reasonable ranges of a minimum wage, the churn-reducing effect seems to offset whatever staff reductions occur because of higher labor costs. Also, some businesses manage to pass along the costs to customers without harming sales.

Writing for the Huffington Post, Jillian Berman’s headline said the story makes “a terrific argument for raising the minimum wage”:

The magazine made six covers featuring low-wage workers. Each person is seen holding up an answer to one of the following questions: “What is your biggest financial fear?” “What do you think you should earn?” and “What do you do?”

“I’m a cashier. I make people smile,” one sign reads. “I worry that the more time I spend working, the less time I have raising my children,” another one states.

The story accompanying the cover delves into how different stake-holders make the economic case for raising the minimum wage or keeping it the same (the federal minimum wage is a measly $7.25). Democratic lawmakers have proposed raising the minimum wage to $10.10 an hour (with President Obama’s backing), but the provision is stalled in Congress.

The affects of a minimum wage increase on the economy is one of the most hotly debated issues in economic research. Conservatives argue that a boost in the minimum wage would actually be worse for workers because it would make businesses more hesitant to hire. Six hundred economists, including seven nobel laureates, signed a letter last month backing a $10.10 minimum wage. The letter states that the “weight of evidence” shows that “increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”

The timing of the story coincides with President Obama signing an executive order to raise the rate, Elena Schneider reported in the New York Times:

President Obama signed an executive order on Wednesday to raise the minimum wage to $10.10 an hour from $7.25 an hour for federal contract workers starting in 2015, a promise he made in his State of the Union address last month.

“We are a nation that believes in rewarding honest work with honest wages,” Mr. Obama said Wednesday in a letter announcing the move. “And America deserves a raise.”

As Coy points out, the debate is one of economics, and also politics and elections. There are many sides and special interests that get factored into the discussion and decisions, but people need to make more money to survive. And that’s what the president is saying by issuing his executive order. The Bloomberg Businessweek piece is a comprehensive look at the politics and debate over the minimum wage and worth the read.

Android

Android bests Apple

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While it might seem that everyone you know has an iPhone, the rest of the world is using Android. News today that Google’s operating system captured 79 percent of the smartphone market in 2013 wasn’t exactly welcome for Apple.

Here are some of the details from MarketWatch’s Benjamin Pimentel:

Smartphones using Google Inc.’s Android operating system remained No. 1 last year, with 79% of the more than 1 billion devices sold in 2013, up from 69% in the year-earlier period, IDC said. Apple’s iOS was at No. 2 with 15%, which is down from 19% in 2012. Microsoft’s Windows Phone was at No. 3 with 3%, followed by BlackBerry with 2%.

It was the first time that smartphone shipments surpassed 1 billion, although IDC also noted that “the era of double-digit annual growth has only a few years remaining.”

The industry group also highlighted an important trend that could be critical for Apple, the growth of the market for cheaper smartphones.

IDC analyst Ryan Reith said sub-$200 smartphones made up 43% of the total market in 2013, up from 31% in 2012 and 21% in 2011. That segment of the market is expected to reach about 54% in 2017, he added.

“It’s practically all Android,” he told MarketWatch. “The low end of the market is going to continue to grow.”

PCWorld’s story by Martyn Williams led with the shipment numbers and said that growth is likely to continue:

The figure, which represents a new smartphone for roughly one out of every seven people on the planet, is all the more impressive when it’s compared to the year before. In 2012, total shipments were 725 million phones, so last year saw an additional 275 million smartphones sold—a jump of 39 percent over 2012.

“I think there is still some energy to be had,” said Ramon Llamas, one of the IDC analysts who worked on the report. “Last year we saw pretty similar growth. It bodes well for the market.”

IDC estimated that 79 percent of smartphones shipped in 2013—just under four out of every five—were running Android.

In the global market, second-ranked Apple iOS isn’t even close. Apple devices accounted for just over 15 percent of shipments at 153 million, an increase of 13 percent on the previous year.

However, the Apple number compared to Android isn’t perhaps as bad as it seems. The company managed that market share from a handful of phones that are generally the most expensive on sale in any market.

Even Nokia, which is being acquired by Microsoft, is getting into the Android game, according to a Bloomberg story by Adam Ewing:

Nokia Oyj (NOK1V), whose mobile-phone business is set to become part of Microsoft (MSFT) Corp., plans to introduce handsets that run on the Android operating system made by the software maker’s rival Google (GOOG) Inc., according to people familiar with the matter.

The Finnish manufacturer is preparing to present more than one lower-end Android smartphones this month to tap into growth in countries such as India, said one of the people, asking not to be named because the devices haven’t been made public. The phones, which will have access to a Nokia application store rather than that of Google’s, are set to be announced at the Mobile World Congress in Barcelona, which starts Feb. 24.

Nokia has struggled to win back users from Android devices and Apple Inc.’s iPhone with its Lumia smartphones running Microsoft’s Windows software. Cheaper Android devices from manufacturers such as Samsung Electronics Co. (005930) have gained customers at Nokia’s expense in regions such as Asia.

Doug Dawson, a spokesman for Espoo, Finland-based Nokia, declined to comment on the company’s Android plan.

The move means Microsoft is set to own a business that makes phones using software from one of its fiercest competitors. Redmond, Washington-based Microsoft, the world’s largest software maker, is aiming to complete its purchase of Nokia’s handset unit this quarter.

But as Tom Warren points out in a story for The Verge, this might not be so shocking since Microsoft may be considering allowing Android apps on Windows phones:

Of Microsoft’s many challenges in mobile, none loom larger than the app deficit: it only takes a popular new title like Flappy Bird to highlight what the company is missing out on. Windows 8 apps are also few and far between, and Microsoft is stuck in a position where it’s struggling to generate developer interest in its latest style of apps across phones and tablets. Some argue Microsoft should dump Windows Phone and create its own “forked” version of Android — not unlike what Amazon has done with its Kindle Fire tablets — while others claim that’s an unreasonably difficult task. With a new, mobile- and cloud-focused CEO in placeNokia’s decision to build an Android phone, and rumors of Android apps coming to Windows, could we finally see Microsoft experimenting with Google’s forbidden fruit?

Sources familiar with Microsoft’s plans tell The Verge that the company is seriously considering allowing Android apps to run on both Windows and Windows Phone. While planning is ongoing and it’s still early, we’re told that some inside Microsoft favor the idea of simply enabling Android apps inside its Windows and Windows Phone Stores, while others believe it could lead to the death of the Windows platform altogether. The mixed (and strong) feelings internally highlight that Microsoft will need to be careful with any radical move.

What’s clear from all of this is that Android is the true king of the smartphone market, something app developers need to continue to pay attention to as they make new games and ways to make life a little easier. It’s also something for large, multi-national firms to consider as they develop and work on their apps. As more people enter the content game, those who have the best means of deliver will win the battle for people’s attention.

Debt ceiling

No debt ceiling fight!

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In one of the sanest moves in recent Congressional history, the U.S. House passed a bill to raise the nation’s borrowing limit without any stipulations attached. It’s big news considering the recent history of Congress holding the limit and investors hostage as it debates whether to pay bills its already incurred.

The Washington Post had this story by Paul Kane, Robert Costa and Ed O’Keefe:

The House passed a yearlong suspension of the Treasury’s debt limit Tuesday in a vote that left Republicans once again ceding control to Democrats, following a collapse in support for an earlier proposal advanced by GOP leaders.

In a narrow vote, 221-201, 28 Republicans voted with 193 Democrats to approve a “clean” extension of the federal government’s borrowing authority — one without strings attached — sending the legislation to the Senate for a possible final vote later this week. Two Democrats and 199 Republicans voted no.

The vote came two weeks before the Feb. 27 debt-limit deadline set by Treasury Secretary Jack Lew, and once again underscored the House leadership’s inability to corral Republicans behind a debt-ceiling plan. “The natural reluctance is obvious,” said Rep. Peter Roskam (R-Ill.), the chief deputy whip.

Conservative advocacy groups reacted negatively to Boehner’s plan to bring the clean bill to a vote, with spokesmen for Heritage Action for America and the Club for Growth urging members to vote “no” and including the vote on their scorecards, which serve as guides for their supporters. “When we heard that House leadership was scheduling a clean debt-ceiling increase, we thought it was a joke,” said Barney Keller, a Club for Growth adviser. “But it’s not. Something is very wrong with House leadership, or with the Republican Party.”

The New York Times story by Ashley Parker and Jonathan Weisman pointed out that the move signaled more dissent within the Republican ranks:

Mr. Boehner stunned House Republicans Tuesday morning when he ditched a package that would have tied the debt ceiling increase to a repeal of cuts to military retirement pensions that had been approved in December and announced he would put a “clean” debt ceiling increase up for a vote.

Enough Republicans had balked at that package when it was presented Monday night to convince the speaker he had no choice but to turn to the Democratic minority. It was another startling display of Republican disunity, fueled by the political ambitions of members seeking higher office and personal animus that burst into the open.

For Mr. Boehner it was a potentially momentous decision. Anger among the nation’s most ardent conservatives at the House leadership may be at an apogee. The Tea Party Patriots, FreedomWorks, and conservative activists on the website RedState.com are all circulating petitions to end Mr. Boehner’s speakership.

And it was Mr. Boehner who raised such high expectations around the debt limit. In 2011, he established what has become known as the “Boehner Rule”: any debt ceiling increase was supposed to be offset by an equivalent spending cut.

Kristina Peterson and Janet Hook wrote in the Wall Street Journal that Democrats celebrated the move:

Democrats welcomed the news that Republicans had withdrawn their policy demands on the debt ceiling as an example of how their party’s coordinated stance has lent them leverage over a divided GOP caucus.

“Democratic unity around responsible government and honoring our national debt has helped force the Republicans to be responsible on this issue,” said Rep. Jared Polis (D., Colo.).

Democrats propelled the bill through the chamber, with 193 Democrats and 28 Republicans voting for the debt-ceiling suspension. The measure was opposed by two Democrats and 199 Republicans.

Susan Davis had this background about the debt ceiling debate in USA Today:

However, after the partial government shutdown last October — which left the GOP politically bruised— Boehner and other GOP leaders pledged that Congress would not allow a debt default. Without any internal GOP consensus on how to proceed on the latest debt ceiling increase, Boehner had few options but to allow an up-or-down vote.

During Boehner’s tenure as speaker, congressional Republicans have waged battles over the debt limit under an informal rule advocated by the Ohio Republican that any increase in the debt limit should be met by equal or greater spending cuts or other savings. Tuesday’s vote abandoned that standard. “I am disappointed to say the least,” Boehner said.

Outside conservative and Tea Party groups — long at odds with the party establishment — ratcheted up their rhetoric opposing Boehner. The Senate Conservatives Fund circulated an online petition calling for Boehner to be replaced, while Tea Party Patriots co-founder Jenny Beth Martin said, “It is time for him to go.” Neither Boehner nor his office has responded to the opposition groups.

The speaker instead said the burden should be on Democrats to pass the debt limit hike because President Obama has refused to engage with the GOP over how to reduce the deficit. “(President Obama) is the one driving up the debt. Then the question (Republicans) are asking is, ‘Well, why should I deal with his debt limit?’ And so the fact is we’ll let the Democrats put the votes up,” he said.

While it might have surprised some political watchers that Boehner would back down from his previous stance, investors are likely to be happy about the news. At least the nation’s debt rating is secure for the next year, until after the 2014 elections.

forbes-billionaires

Covering the sale of a business magazine

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Bidders have been circling Forbes as the iconic business brand put itself up for sale. The value is now in the name since the company has been losing money.

Bloomberg had this story about potential bidders by Stefania Bianchi, George Smith Alexander and Zijing Wu:

Forbes Media LLC is drawing interest from acquirers including China’s Fosun International Ltd. (656) and Singapore’s Spice Global Investments Pvt, with final offers for the magazine publisher due today, people with knowledge of the matter said.

Germany’s Axel Springer SE, which publishes the Russian edition of Forbes magazine, is also interested in the business, two people said, asking not to be named discussing private information. Forbes, which is working with Deutsche Bank AG on the sale, is seeking as much as $400 million, people with knowledge of the matter said in November.

The sale of Forbes, famous for tracking the wealth of billionaires across the globe, follows years of dwindling profits as the rise of digital media ate into advertising at the magazine. During the sale process, Forbes executives have emphasized the brand as a masthead for events and conferences as well as real-estate developments, a way of extending beyond its roots in traditional media, two people said.

“Forbes used to just be a magazine, now it’s a worldwide business brand,” Ken Doctor, a media analyst with Outsell Inc., said in an interview. “How many people in their twenties and thirties are in emerging business markets — Asia, Africa, Latin America? That’s my sense of the great growth potential of the Forbes brand.”

Spice Global, whose businesses range from finance to health care and entertainment, is currently seeking partners from the Middle East, the U.S. and Singapore as it prepares its bid for Forbes, said two of the people. The company will keep a majority stake in Forbes even if it bids with a partner and may offer the Forbes family the opportunity to buy back shares in the company, one of the people said.

William Boston had this story in the Wall Street Journal about a potential bid for Forbes:

European newspaper publisher Axel Springer SE is bidding for Forbes magazine and wants a foothold in the U.S. digital-publishing market, but Chief Executive Mathias Döpfner is hesitating at the price of online assets.

Springer needs acquisitions to continue expanding its digital business but rarely pays a premium, Mr. Döpfner said in an interview. He described Springer’s approach as buying new-economy assets for old-economy prices.

“We are disciplined when it comes to price,” said Mr. Döpfner, who declined to discuss Forbes. “We will definitely not go hunting trophies in the U.S. seeking prestige.” He listed three criteria for pursuing targets: “a reasonable price, if we can become a market leader and if it fits with our core competencies.”

The company’s digital overhaul has accelerated over the past two years. It has reoriented its business and made more than two dozen acquisitions, mostly of small online companies. Mr. Döpfner described his strategy as getting back to the roots of the newspaper business: hard-hitting online news, financed by digital subscriptions, online advertising and digital classifieds.

Springer’s revenue from digital media rose to €1.1 billion in 2012 from €24 million in 2006. Operating profit on digital businesses rose to €243 million from €1 million during the same period. Digital businesses account for nearly 60% of Springer’s operating profit today, up from just 4% in 2008.

Springer is vying with several bidders, including two from Asia to buy Forbes Media LLC, people familiar with the situation said. The deadline for final bids was Monday evening in New York. The Forbes family wants to retain a minority stake and management control, according to a document reviewed by The Wall Street Journal. The family is seeking as much as $400 million for the company, a person familiar with the talks said. Forbes declined to comment.

Springer’s bid could be a good one for the Forbes brand. The Journal reported that Dopfner was one of the first to put content behind a paywall:

Mr. Döpfner also started charging subscriptions for the digital versions of the Bild Zeitung and Die Welt, becoming the first major German publisher to put online versions of flagship publications behind paywalls. Bild is Germany’s largest online news portal, reaching around 14 million unique users daily. Within six months, the company had more than 152,000 paying subscribers to Bild.de.

Mr. Döpfner’s moves have sparked criticism that he was abandoning journalism and selling the company DNA. He calls the claims “an insult to every journalist.”

Mr. Döpfner said content once again will be king. “That’s why it is interesting now to invest in content businesses that are still undervalued.” He described last year’s purchase of the Washington Post by Amazon.com Inc. AMZN -0.06% CEO Jeff Bezos as a watershed event that drew the battle lines between the traditional publishing industry and technology companies such as Amazon, Google Inc. GOOG -0.38% and Apple Inc. AAPL +1.79%

“The question is whether traditional content companies will win the game because they have learned how to use technology or whether the technology companies win because they learn how to create content,” Mr. Döpfner said. “That is the great game today.”

Forbes has tried a lot of experiments with contributor content and other native advertising. None of it has helped boost revenue, and some would argue it’s diluted the brand. It will be interesting to see the price and how the rest of the industry values the name.