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Living up to cultural stereotypes watch. Geoffrey A. Fowler and Juying Qin report in the Wall Street Journal on China's latest effort at industrial policy--in the magazine industry.
China has placed a moratorium on new foreign magazines on topics other than science and technology, dealing a blow to international media companies looking to tap the nation's booming advertising market.One casualty of the policy, adopted by China's top publishing regulator, is the Chinese edition of the rock and youth-culture magazine Rolling Stone. The magazine had published its first edition last month, but the General Administration of Press and Publications said it will forbid it from publishing again. The magazine falls in the restricted category, GAPP said, and its publishers never applied for the appropriate permission to publish.
China has imposed restrictions on investors before and then eased them or overlooked exceptions. But this rule is a big setback for publishers of lifestyle magazines, which had been one area in which foreign media could expand even as Beijing cracked down on television broadcasts.
This should be grist for at least four Tom Friedman columns.
Posted by dan at 09:41 AM
Joshua Chaffin reports ($ required) in the Financial Times on the results of a new study commissioned by television networks on the impact of DVRs on advertising.
A study commissioned by the four largest US television networks found that digital video recorders did not impair the effectiveness of their primetime advertising.The results run counter to the assumptions of many in the media industry about DVRs, which allow consumers to skip past commercials and watch television programmes when they please. For much of the past year, industry analysts and advertising executives have warned that the widespread adoption of such devices would undermine traditional television advertising.
However, the study, carried out by Millward Brown, a market research firm, concluded that homes with DVRs and those without recalled advertisements for cell phones, fast food restaurants, films and autos at similar rates.
"There's this urban myth that has been running around for years - unsupported by any studies - that nobody with a DVR watches commercials," said Alan Wurtzel, president of TV research and media development at NBC. "There's no difference."
The study was released just before next month's "up-front" market, in which the networks will preview their new schedules for advertisers. Although Nielsen Media Research, the ratings agency, began in December to measure programmes watched on DVRs, many advertising agencies have balked at paying for such viewers.
The networks, who are also facing increased competition for viewers and advertising dollars from cable television and the internet, are mounting a campaign to convince them otherwise. In November, they released a series of studies showing that DVRs led to increased audiences for their best programmes - such as Desperate Housewives and 24 - and that many viewers still paid attention to advertisements as they fast-forwarded through them.
Yeah, right.
Posted by dan at 09:35 AM
Matthew Cowley reports in the Wall Street Journal on the end of the Brady Bond era, and talks to the bonds' namesake, former Treasury Secretary Nicholas Brady.
Brazil and Venezuela recently unveiled plans to retire so-called Brady bonds, effectively marking the end of an era that saw $155 billion of this debt issued during a painful debt restructuring in the early 1990s and laid the groundwork for the emerging-market bonds asset class.By the time Brazil and Venezuela complete their buybacks this month, Brady bonds still in circulation will total just over $10 billion.
"We took a situation that was on the critical list and turned it around over a period of years so that these countries could finance on their own," Nicholas Brady, the former U.S. Treasury Secretary after whom the plan was named, told Dow Jones Newswires in a recent interview.
Latin America had borrowed from commercial banks through the 1970s and the 1980s, mainly to fuel industrialization. The debt crippled entire nations, while the banks themselves were struggling with the bad loans. Every time the countries reached a crisis, the solution had been to refinance, which eased the short-term pressure but often increased the overall debt load.
"The whole idea [of the Brady Plan] was to put an end to the cycle of restructuring and get these countries back to the marketplace," said Bill Rhodes, senior vice president at Citigroup Inc., who chaired bank advisory committees for the debt restructurings in Mexico, Brazil, Argentina, Uruguay and Peru. For many banks, "the idea was to securitize the bonds and get them off their balance sheet," he said.
Securitization may wind up being one of the most important first-world/third-world technology transfers.
Posted by dan at 09:33 AM
Hugo Chavez is going to get another big payday, thanks to tight refinery demand. John Biers and Jessica Resnick-Ault report in the Wall Street Journal.
Lyondell Chemical Co. and the U.S. arm of Venezuela's state-owned oil company said they plan to sell their jointly owned 268,000 barrel-per-day Houston refinery, in a time of high profitability for refineries and of rising tensions between the two countries.The sale -- which analysts said could fetch as much as $5 billion -- comes at a propitious time for the sector, which is enjoying high prices for gasoline, diesel and other fuels. The refinery in particular is set up to refine Venezuela's heavier, high-sulfur crude, which is cheaper than light, sweet crude.
The Houston refinery development comes amid continued anti-U.S. comments from Venezuelan President Hugo Chávez. Although Mr. Chávez has discussed selling Citgo Petroleum Corp., the refinery's co-owner and the U.S. arm of state-owned Petróleos de Venezuela SA, most energy insiders have been skeptical of a full-scale liquidation, pegging the sale of a couple of assets as a more likely scenario. Officials at PdVSA, as the Venezuelan company is known, declined to say whether the move is part of the greater strategy to diversify away from U.S. markets.
Lyondell and Citgo also said they settled a lawsuit between the two companies. Houston-based Lyondell had claimed that PdVSA violated a long-term crude-supply contract to the plant and had sought $90 million in damages.
Based on market conditions, refining assets are currently valued at $15,000 to $20,000 per barrel of capacity, said Bryan Caviness, an analyst at Fitch Ratings in Chicago.
Posted by dan at 09:31 AM
In the New York Times today, Landon Thomas, Jr., writes about speculation that Goldman, Sachs CEO Henry Paulson might go to Washington to become the next Treasury Secretary. My latest in Slate argues that neither Paulson nor any self-respecting big-shot Wall Street CEO would take that job today.
Posted by dan at 08:23 AM
Lots of great stuff in the current issue of Fortune (the Fortune 500 cover), including: Rik Kirkland on Wal-Mart's health clinics; Adam Lashinsky on the turnaround at Hewlett-Packard; Devin Leonard on CBS; and Julia Boorstin on the Gap. (The latter two aren't available for free on the web--yet.)
Posted by dan at 05:47 PM
Two bits of news testifying to Mexico's slow maturation.
Dennis Berman, Vanessa O'Connell and and John Lyons report in the Wall Street Journal on the possible sale of a large tequila company.
One of Mexico's largest tequila makers, Tequila Herradura SA, is sounding out potential buyers, say people familiar with the matter, and could be quarry for a giant spirits company hoping to push into the growing U.S. tequila business.Herradura has minimal distribution in the U.S. and remains virtually unknown here. But it has maintained a solid reputation in Mexico, where its premium Añejo and Reposado brands, as well as its lower-end Jimador brand, are a fixture in bars and restaurants.
People familiar with the Herradura sales process say that the company could attract $650 million to $750 million from buyers, a substantial price given the company has virtually no presence in the U.S. By comparison, Grey Goose vodka was selling 1.8 million cases a year when it was purchased by Bacardi Ltd. for $2 billion in 2004.
Tequila has been one of the fastest-growing categories of liquor in the U.S. In 2005, tequila sales volume rose 7.8% to about 9.1 million nine-liter cases, according to Impact Databank, which tracks alcohol sales.
And Andrew Ward reports ($ required) in the Financial Times on Home Depot's growth in Mexico.
Home Depot is accelerating its expansion outside the US with plans for nearly $400m of investment in Canada this year and more new stores in Mexico. . .Home Depot said it planned to open 18 stores in Canada this year, adding to the 138 it already owns. The investment appeared timed to strengthen the company's leadership of the Canadian market as Lowe's, its biggest US rival, prepares to enter the country next year.
Separately, Ricardo Saldivar, chief executive of Home Depot Mexico, told the FT that revenues from his business should top $1bn for the first time this year, up from $800m in 2005.
Mr Saldivar said the company planned to open several new stores in Mexico this year, on top of the 56 it already has, but declined to give a precise number.
He said the Mexican business was exceeding expectations and forecast continued "significant growth" over the next few years. "Theplateau is still a long way in the future," he added.
Home Depot is the largest DIY retailer in Mexico but commands only 7 per cent of the $15bn market, which is dominated by small, independent hardware stores. The company has been cautious about international expansion since the failure of a foray into South America in the late 1990s. But the success of its operations in Canada and Mexico suggests it is regaining confidence.
International revenues are becoming more important as the company's rate of domestic store openings slows after nearly three decades of explosive growth.
Canada and Mexico account for 9 per cent of the company's roughly 2000 stores and about 7 per cent of total revenues.Canadian sales were $4.7bn last year.
Posted by dan at 09:53 AM
My latest in Slate, on presidential approval ratings as a contrary indicator for stocks.
Posted by dan at 09:51 AM
Sometimes capital works in ways that diplomacy can't. Vincent Boland and Kerin Hope report ($ required) in the Financial Times on a new breakthrough in Greek-Turkish relations.
National Bank of Greece's acquisition of a controlling stake in Finansbank, a medium-sized Turkish bank, could unleash a long-awaited wave of Greek investment in Turkey.Takis Arapoglou, NBG chairman, yesterday called the deal "a milestone" for Greece's biggest financial group, which led a drive by Greek companies in the 1990s to penetrate emerging markets in the Balkans.
State-controlled NBG's move into Turkey signals that Greek perceptions of political risk, a leftover from previously hostile relations between the Aegean neighbours, has now been discounted.
"The NBG deal opens the door for other Greek banks to move into Turkey. We can expect to see a dramatic increase in investment between Greece and Turkey," says George Athanassakis, head of research at Egnatia Securities in Athens.
In Istanbul, analysts said that a massive Greek investment in Turkey inevitably would have a political dimension and was bound to have an influence on bilateral relations.
Mahmut Kaya, head of research at Garanti Securities, says: "Given that Greek-Turkish relations are still extremely sensitive, this increases the significance of the investment."
NBG agreed to pay €2.3bn ($2.7bn) in cash for 46 per cent of Finansbank, and would make an offer for the remaining shares at the same price. The deal values Finansbank at €4.5bn, equivalent to 3.6 times book value.
The combined group would be the largest banking operation in southeast Europe with more than 1,000 branches in seven countries and assets of almost €70bn.
Posted by dan at 10:08 AM
Jesse Eisinger with a typically good column in the Wall Street Journal on tech companies' cash hoards.
Cash at the top tech companies amounted to 25% of assets at the end of last year, up from 12% in 1991, according Vadim Zlotnikov, the chief investment strategist for Sanford C. Bernstein & Co. That compares with a rise to 9% for the Standard & Poor's 500-stock index, from 7% a decade and a half ago."I think companies have been so focused on improving operations," says Toni Sacconaghi, a tech analyst also at Bernstein. "Quite frankly, they have been somewhat negligent about their burgeoning cash balances."
Big cash piles aren't good for investors because they lower the returns on the business. That cash is earning only 4% a year or so these days. If the executives can't find good investments, their shareholders can.
Why do the companies hoard so much cash? Critics say it is a management-protection device. "If the CEO can get away with it, why not have more cash rather than less?" says Ken Broad, a money manager for Delaware Investments.
The executives typically argue that tech is so volatile companies can't sustain competitive advantages over long periods of time. So they need to constantly reinvest huge amounts and keep cash around for the busts. There is some evidence that other sectors are getting ready to use their reserves to fund growth.
But tech companies have been pulling back on such investment. On average, during the 1990s, tech companies spent more than half their cash flow on capital expenditures, according to Mr. Zlotnikov. In the past two quarters, that spending has fallen to under a third. Tech companies spent over a third of their cash flow on acquisitions on average in that decade; in the past two quarters, they have spent just under a quarter.
Posted by dan at 09:58 AM
Two good pieces in today's New York Times on income inequality and falling wages. First, David Leonhardt's column on the death of Fordism--i.e. the once-revolutionary concept that companies should pay workers enough so that they can afford to buy the products they help make. Second, David Cay Johnston's piece on the impact of the dividend and capital gains tax cuts.
Posted by dan at 09:45 AM
Last month, I wrote in Slate about the trevails of tabloid company American Media. In the weeks since, American Media super-editor Bonnie Fuller has spent a good deal of time promoting her new book, The Joys of Much Too Much.
Speaking of much too much, American Media has much too much debt, and much too little profits. And so it is cutting back. Julie Bosman reports in today's New York Times:
The publishers of Celebrity Living and Elle Girl, two magazines in the increasingly crowded young adult and celebrity markets, announced yesterday that the magazines would close.American Media, which publishes Celebrity Living, will also close Shape en Español and the automobile magazine MPH, a company spokeswoman, Lisa Dallos, said yesterday.
The decision was first reported on the Web site of the trade publication Advertising Age.
The company is also moving the operations of its supermarket tabloid, The National Enquirer, back to its previous location in Boca Raton, Fla., after a move to New York last April.
David Pecker, the chief executive of American Media, said in a statement that "the magazine industry is in a very challenging time for both advertising and circulation."
A magazine executive briefed on the decision said that the company found New York too costly.
Gee, it's more expensive to house a business in Manhattan than in Boca Raton? Who knew?
Posted by dan at 09:37 AM
This survey published by the Employee Benefit Research Institute is scary. Money quote:
Many workers are counting on employer-provided benefits in retirement that are increasingly unavailable. Only 40 percent of workers indicate they or their spouse currently have a defined benefit plan, yet 61 percent say they are expecting to receive income from such a plan in retirement. Likewise, workers are as likely to expect (37 percent) as retirees are to receive (40 percent) retiree health insurance through an employer, despite the fact that the number of employers offering this benefit is declining.
Posted by dan at 09:27 AM
The Economist may be changing editors. But if this week's issue is any guide, the magazine is in need of some new Washington talent. Why? Just check out a few of the truly silly items in this week's issue.
The Lexington columnist writes:
"If the Democrats retake either the Senate or the House this autumn, Mr. Bush will probably become the second president in a decade to be subject to impeachment proceedings."
Well, while the Brits may not have a formal written constitution, the U.S. does. And it stipulates that the impeachment proceedings must be initiated by the House of Representatives. So if control of the Senate changes hands and the House remains in Republican control, the probability of impeachment proceedings starting is zero.
Next, there's this unintentional bit of hilarity from a piece on Josh Bolten's appointment as chief of staff.
"Kevin Hassett, an analyst at the American Enterprise Institute, a conservative think-tank, argues that Mr. Bolten's appointment could mean the adminiistration is planning to grapple with America's toughest economic problems, such as reforming its fairly-soon-to-be bankrupt entitlement programmes (Medicare, Medicaid and Social Security)."
Now, as deputy chief of staff at the White House and director at OMB, Bolten has been present in the room when every decision on fiscal policy was made--the reckless tactics, the reckless spending, the creation of the Medicare drug program, the absurd Social Security reform proposals, and so on. Brad DeLong has rightly dubbed the Bush administration fiscal policy as a "clown show." I think it's clear who the Bozo of the bunch. But Bolten has been putting on the red noses, frizzy wigs, and oversized shoes with the rest of them. Kevin Hassett may earnestly believe in what he says. (He also may earnestly believe that the Dow would be fairly valued at 36,000 today). But it doesn't mean a reporter should (a) credit it; and (b) end the piece with it.
Posted by dan at 09:15 AM
From the Economist's obituary of Caspar Weinberger:
"When the United States invaded Iraq in 2003, it sent one serviceman for roughly every 100 Iraqis. Twenty years earlier, when it had invaded Grenada, it sent one for every 15 inhabitants of that bemused little island."
Posted by dan at 09:14 AM
Larry Kudlow, writing in the National Review, speaks sense about immigration.
You can build a fence, but desperate Mexicans in search of economic opportunity will climb over it or tunnel under it. This is the reality. And by the way, our H-1B visa program for skilled workers, now at only 65,000, should be unlimited. We need all the scientists and engineers we can get.Once these immigrants get here they work hard. According to the U.S. Bureau of Labor Statistics, Hispanic unemployment is only 5.5 percent, compared to 4.8 percent overall.
As for the claim that illegal workers don’t pay taxes, Princeton professor Douglas Massey estimates that roughly two-thirds of undocumented immigrants pay the FICA payroll tax. Overall, illegals have fed $7 billion to Social Security and $1.5 billion to Medicare. They are contributing to our wealth, not reducing it.
And what do they take from the system? According to Forbes magazine, only 10 percent of illegal Mexicans have sent a child to an American public school and just 5 percent have received food stamps or unemployment benefits. A U-Cal Davis study also shows that more immigrant workers leads to more economic growth. This is standard economics. Multiply an enlarged workforce times existing productivity and you get more economic growth.
But for some reason, immigration opponents can’t make this connection. They are blinded by fear-mongering, defeatism, and pessimism.
Colorado congressman Tom Tancredo calls illegal immigration “a scourge that threatens the very future of our nation.” Huh? That’s xenophobic nonsense.
Posted by dan at 08:21 AM
That's the alien world from which Fred Barnes occasionally files reports on goings on in Washington. In his latest, in the Weekly Standard, he offers advice to President Bush on how to "quash the Democratic talking point that he and his administration are incompetent." What's next? Advice to NASA scientists on how to quash the Democratic talking point that the earth rotates on its own axis?
And then there's this historical gem: "Start with Franklin Roosevelt. He saw a Republican resurgence in 1938, struggled to win reelection in 1940, and was rejuvenated only by World War II."
Struggled to win reelection in 1940? Um, not really. He won 55 percent of the popular vote, and a whopping 449 of 531 electoral votes. In fact, he did better at the polls in 1940 than he did in 1944.
Posted by dan at 08:15 AM
My latest in the New York Times, on corporate profits and wages.
Posted by dan at 03:10 PM