blog.pmarca.com

Looking to strike a blow against the proliferation of digital video recorders, the ABC network, its affiliated broadcast stations, and Cox Communications’ cable systems are establishing an on-demand video service that would allow viewers to watch ABC shows like “Lost†and “Desperate Housewives†any time they choose.

The catch: It uses a new technology that disables the viewers’ ability to fast-forward through commercials...

Several executives involved in the project, which ABC plans to offer to other cable systems around the country, said the move was an overt attempt to staunch the use of DVRs like TiVo, which viewers often use to avoid commercials. That activity is increasingly seen as threat to broadcast television, which depends on ad revenue to pay for programs.

“This does counter the DVR,†said Anne Sweeney, the president of the Disney-ABC television group. “You don’t need TiVo if you have fast-forward-disabled video on demand..."

Ray Cole, president of Citadel Communications, which owns three local ABC stations, who is also the chairman of the board of affiliated ABC stations, was even more direct about the goal of the new service.

“As network and affiliates, we both have an interest in slowing down the explosive growth of DVRs,†Mr. Cole said. “This is about combating DVRs. As we developed this at every stage, there was an agreement that however we put this together, disabling the fast-forward function was key.â€

Four large newspaper companies are joining forces to sell advertisements on the Internet, hoping that the combined heft of their Web sites will encourage large advertisers to spend more money.

Each of the four companies — the Tribune Company, the Gannett Company, the Hearst Corporation and The New York Times Company — is transferring a portion of its online ad space to quadrantONE, a new company that will be announced Friday.

The purpose of the joint venture, which will be based in Chicago and will hire 17 people [commitment!], is to let national advertisers place ads on local Web sites with a single phone call [phone call!].

The sites belong to papers like The Los Angeles Times (which is a Tribune property), The Des Moines Register (Gannett), The Houston Chronicle (Hearst) and The Boston Globe (The New York Times Company).

Some of the companies’ flagship sites, however, will not be included, because they are not considered local. These include the sites of USA Today, a Gannett paper, and of The New York Times and The International Herald Tribune, which are owned by the Times Company. [These are also known as the ones that actually have reasonable numbers of readers.]

Executives involved said the newspaper companies understand [by which they mean, "used to have a local monopoly but don't anymore"] the local market better than Google, Yahoo and Microsoft...

The companies were also all part of the New Century Network in the late 1990s...

[W]hen New Century Network was kicked off last April by nine [newspaper] giants teaming up to conquer electronic competition, even the launch party bombed...

In a ballroom at the Newspaper Association of America convention in Chicago, a thousand bottles of champagne emblazoned with ''New Century Network: The Collective Intelligence of America's Newspapers'' awaited the hordes expected to come to toast the watershed new-media joint venture. When fewer than 100 people showed up, Chief Executive Lee de Boer made an abbreviated speech before retreating...

The reception was the first public humiliation for New Century Network, but only one in a series of blunders that culminated in the company's abrupt shutdown on Mar. 10. Created in 1995 to unite newspapers against Microsoft Corp. and other competitors girding to woo electronically advertisers and readers, New Century Network came to embody everything that could go wrong when old-line newspapers converge with new media...

Started with $1 million each from Knight-Ridder, Tribune, Times Mirror, Advance Publications, Cox Enterprises, Gannett, Hearst, Washington Post, and New York Times, New Century seemed an entrepreneurial dream. The Internet had just opened to the world, creating vast new competition for readers--and for the advertisers that pump $40 billion into newspapers. But it also gave newspapers a chance to capture national accounts that favored the one-stop-shopping convenience of TV and national magazines...

[T]he [newspaper] companies had wildly diverging philosophies about how newspapers should make the electronic leap and what role the new venture should play. ''You had private companies and public companies and companies that were risk-averse and those that were risk-tolerant,'' says Harry Chandler, head of new media for Los Angeles Times. ''You had big-city papers and small chains. We shared a need. But it was frustrating trying to come together.''

While the wired world moved at warp speed, New Century spent 18 months hiring a permanent ceo and two years creating an electronic doorway to 140 newspapers... ''This [Internet] thing is really racing,'' says Al Sikes, the former Federal Communications Commissioner who is president of Hearst New Media. ''Organizations of a number of co-equals can't turn on a dime.''...

The partners ultimately invested more than $25 million in the virtual venture... The board decided... to pull the plug, coming to a remarkably quick agreement--for the first and final time...

Some big companies have had a surprise during their earnings conference calls this quarter...

At least seven times just the past three weeks, a mystery caller has cleverly insinuated himself into the normally well-manicured ritual of the quarterly calls...

"Congratulations on the solid numbers -- you always seem to come through in challenging times," he said to Leo Kiely, president and chief executive officer of Molson Coors Brewing Co., on Feb. 12, convincingly parroting the obsequious banter common to the calls. "Can you provide some more color as to what you are doing for your supply chain initiatives to reduce manufacturing costs per hectoliter, as you originally promised $150 million in synergy or savings to decrease working capital?"

...[M]any CEO's have had... trouble telling the difference. Most have gamely tried to answer the questions. Mr. Kiely and two other Molson executives stuck politely with the caller through three detailed follow-ups. Timothy Wolf, the company's global chief financial officer, closed by telling him, "We think we will have some more positive encouraging things to share with you next month in New York," according to a transcript of the call...

Executives at PepsiCo Inc., Dean Foods Co., Newell Rubbermaid Inc. and others have had similar experiences since around mid-January...

[A]nnoyed executives and analysts are wondering why someone would want to play a game with dry business calls that normally follow a tightly controlled formula -- unless the game is the whole point. They can't figure out how the caller is getting any benefit from so closely mimicking them. "If he was spoofing I would hope he'd be funnier," says Bill Schmitz, an analyst at Deutsche Bank Securities.

[Mr. Schmitz has perhaps not been listening to the usual questions on such calls all that carefully.]

"Our quarterly earnings calls are key opportunities to [sic] us to interact with the investment community and to explain our results," says a Newell Rubbermaid spokesman, David Doolittle. "Anyone who would come on the call and use some of that time unproductively is disruptive."

[Mr. Doolittle then threatened to spank the mystery caller with a Newell Rubbermaid spatula.]

The Chinese company participating in the planned buy-out of a US telecoms equipment maker has angrily rounded on US politicians who claim the deal could endanger US national security.

Xu Zhijun, chief marketing officer at Huawei Technologies, told the Financial Times that the concerns expressed by some US lawmakers were "bullshit".

Deutsche Bank Chief Executive Officer Josef Ackermann said rating downgrades for bond insurers [and the presumed resulting collapse in prices of bonds insured by those insurers] pose risks that could match the U.S. subprime market collapse.

"It could be a tsunami-like event comparable to subprime," Ackermann said in a Bloomberg Television interview in Frankfurt today.

Deutsche Bank, Germany's biggest bank, is "well positioned" on its risk from bond insurers, he said.

In just the last few weeks, The San Diego Union-Tribune eliminated more than 100 jobs, one-tenth of its work force. The Chicago Sun-Times began a major round of newsroom layoffs, then put itself up for sale, and publishers in Minneapolis and Philadelphia warned that tough economics could force cuts there.

Not long ago, news like that would have drawn much commentary and hand-wringing in the newspaper business, but in the last few months, reductions have become so routine that they barely make a ripple outside each paper’s hometown. Since mid-2007, major downsizing — often coupled with grim financial reports — has been imposed at The San Francisco Chronicle, The Seattle Times, The San Jose Mercury News, USA Today and many others.

The talk of newspapers’ demise is older than some of the reporters who write about it, but what is happening now is something new, something more serious than anyone has experienced in generations. Last year started badly and ended worse, with shrinking profits and tumbling stock prices, and 2008 is shaping up as more of the same, prompting louder talk about a dark turning point.

“I’m an optimist, but it is very hard to be positive about what’s going on,†said Brian P. Tierney, publisher of The Philadelphia Inquirer and The Philadelphia Daily News. “The next few years are transitional, and I think some papers aren’t going to make it.â€

Advertising, the source of more than 80 percent of newspaper revenue, traditionally rose and fell with the overall economy. But in the last 12 to 18 months, that link has been broken, and executives do not expect to be able to repair it completely anytime soon.

In 2007, combined print and online ad revenue fell about 7 percent. In the last six decades, only one other year — 2001, when there was a recession — had a steeper decline, according to the Newspaper Association of America. Adjusted for inflation, 2007 ad revenue was more than 20 percent below its peak in 2000.

Circulation revenue has declined steadily since 2003, and the number of copies sold has been slipping about 2 percent a year. Some of the largest papers — including The San Francisco Chronicle, The Boston Globe and The Los Angeles Times — have lost 30 to 40 percent of their circulation in just a few years.

The long-term shift of advertising to the Internet — especially classified ads for things like jobs, cars and houses — accelerated last year. The real estate downturn hit the newspaper business hard, especially in California and Florida, where real estate ads fell more than 20 percent at some newspapers...

Critics of the industry — including many executives within it [and the occasional blogger] — say that newspapers have done a poor job adapting to the Internet and working creatively and aggressively to sell ads.

Mr. Tierney agrees, “but you could change that and still be sliding,†he said. “When everyone’s taking on water, you can’t expect to stay dry — only less wet.â€

That is in sharp contrast to his tone in 2006, when he led a group of investors who paid $515 million for the two Philadelphia papers. Back then, Mr. Tierney dismissed the industry’s gloomy talk, expressing confidence that it could win back paying readers and advertisers...

Falling stock prices made newspapers look like tempting targets to some buyers in 2006 and early 2007, but even then, the prices of the transactions that did take place were seen as inflated, and there was little interest from other potential bidders. McClatchy bought the Knight Ridder chain, and the News Corporation bought Dow Jones & Company, publisher of The Wall Street Journal. Many papers were sold in smaller deals, including the Philadelphia dailies, The San Jose Mercury News and The Star Tribune of Minneapolis.

Share prices have continued to fall since then, and analysts think they will go lower still. But since last spring, the supply of buyers seems to have dried up...

Société Générale says it lost 4.9 billion Euros ($7.17 billion) at the hands of 31-year-old trader Jérôme Kerviel. Now, the embattled French bank could face another financial hit -- this time from the tax man.

As they pore over the trades, financial books and mobile-phone records of Mr. Kerviel, Société Générale officials have discovered that the trader booked a real gain for the bank of €1.4 billion by the end of last year...

That profit now "is subject to corporate tax," according to one person close to the bank. "We will argue against it, but fiscal authorities will want their share," this person said...

When it announced the world's biggest trading loss on Jan. 24, Société Générale said that Mr. Kerviel for several months had engaged in risky and fraudulent trading that at one point had left the bank exposed by 50 billion Euros. The bank at that time said that Mr. Kerviel's trading positions had fluctuated and that as of late last year, his portfolio showed a "virtual" gain of 1.4 billion Euros.

The bank said it hadn't noticed the gain because the trader had hidden it by creating a set of fake positions that generated a 1.4 billion Euros loss.

Now, however, officials have discovered that as of the end of last year, Mr. Kerviel had unwound almost all of his trading positions -- and in fact had locked in a real gain of 1.4 billion Euros for the bank...

In April [2007], [buyout mogul Henry Kravis] stood in a ballroom of the Waldorf-Astoria hotel in New York, telling [people] that the private equity industry he had helped invent was hotter than ever.

"We're in, right now, the golden age," Kravis, 63, told a gathering of prominent... executives.

In May, Kravis was in Halifax, Nova Scotia, saying, again, that the takeover arena had never looked better.

"The private equity world is in its golden era right now," Kravis told a conference of bankers and investors. "The stars are aligned."

A new problem is rippling through credit markets: Many of the corporate loans used to finance giant buyouts in the past few years are reeling in secondary market trading...

The loans of First Data Corp., which was taken private in September by Kohlberg Kravis Roberts & Co. for about $28 billion, were sold into the market this past fall at a 4% discount to their par value; they now trade in the market at a steep 11.5% discount to par value...

Loans of Freescale Semiconductor Inc., taken private by a consortium of private-equity firms in December 2006 for about $28 billion, are trading at a 15.5% discount to their original value; Tribune Co., which was taken private in April by investor Sam Zell for $8.2 billion, issued loans now trading a 26% discount...

The loans are known by investors as "leveraged loans," used by companies often with low credit ratings to raise money, often for buyouts...

Double-digit declines in the market value of these loans are very unusual, and a big problem for many banks, which sit on a pipeline of $152 billion in loans that they have promised to make but have yet to sell to investors.

With the prices of existing loans tumbling, investors have little incentive to buy new loans unless they are sold at steep discounts, something banks are reluctant to do...

The crisis started last summer, when investors turned up their noses at billions of dollars in buyout debt, just after many buyout firms and their bankers made commitments to history-making megadeals. Many investors say January was the worst performance for this market since those summer months...

The saga of Harrah's Entertainment Inc.'s loan sale is a sign of the distress in the market. Credit Suisse broke from a group of banks lined up to sell $7.25 billion in loans tied to Harrah's buyout. It offloaded its commitment of about $1 billion through derivatives transactions in December, says a person briefed on the transaction. The move sent other banks scrambling to sell some of their own Harrah's loan commitments in January...

Last week a Lehman Brothers-led group abandoned its three-week effort to sell CDW Corp.'s $2.2 billion loan to buyers. The deal failed to generate interest even though they were offering to sell the loans in the low 90s. In October, Madison Dearborn Partners LLC and Providence Equity Partners acquired CDW, one of the country's largest technology-equipment resellers, for $7.3 billion.

Leading the way [in terrible end-of-year news from the newspaper industry] was The New York Times Company, where total [quarterly] revenues fell 1.7% to $865.8 million, due mostly to a 4.1% drop in ad revenues... Advertising revenues at the news media group in particular fell 5.6%.

[F]ourth-quarter revenue totaled $865.8 million, down 7.1% from $931.5 million a year earlier. The decline included a 9.1% drop in advertising revenue and a 4% fall in circulation revenue... [T]he company had an extra week in the final quarter of 2006, which boosted the year-earlier quarter's revenue by $50.8 million and its pretax income by $14.3 million.

Separately, the [New York Times] reported that December ad revenue dropped 25.2%. Excluding an additional week in December 2006, ad revenue declined 12% for the month.

...[W]eakness across several national [advertising] categories including health care, books, technology products and transportation hampered results in the month. Classified ads, the traditional lifeblood of newspapers, saw steep declines in help-wanted, real estate and automotive sales. [Craig, you bad bad boy...]

"To date in January, the percentage decline in advertising revenue is trending similar to that of December..." said Janet Robinson, chief executive of New York Times...

The [New York Times-owned] Boston Globe will soon announce cutbacks at the newspaper, including hundreds of layoffs, and an increase in the per copy price of the paper to 75 cents as of Feb. 1...

The Globe saw a nearly 7 percent decrease — from 386,417 to 360,695 — in its daily circulation between Sept. 2006 and Sept. 2007, according to numbers released in November by the Audit Bureau of Circulations. That report showed the paper’s Sunday circulation down about 6.5 percent...

At the New England Media Group, which includes the Boston Globe, ad revenue fell nearly 16%. Circulation revenue fell 7%.

The company's regional-media group, including papers in medium-sized markets such as Wilmington, N.C., and Santa Rosa, Calif., saw ad revenue decline almost 17%, while circulation fell 7.4%.

A hedge fund manager who acquired a stake in the New York Times Company and is pushing to gain seats on its board sent a letter to the company on Sunday in which he criticised directors as "ineffective" and called for it to shed more non-core assets.

Scott Galloway, founder of Firebrand Capital, who sent the letter, has joined with another hedge fund, Harbinger, to try to put forward their own nominees for the four independent seats on the media company's 13-member board at its meeting in April. The funds have amassed a combined 4.9 per cent stake in Times' shares.

Federal criminal prosecutors in New York are investigating whether UBS AG misled investors by booking inflated prices of mortgage bonds it held despite knowledge that the valuations had dropped...

The SEC, deepening its own set of investigations into whether Wall Street firms improperly mispriced mortgage securities, recently upgraded probes of UBS and Merrill Lynch & Co. into formal investigations, people familiar with the matter say. This step, which requires approval of the full commission, gives the SEC broad subpoena power, or the authority to require firms and individuals to produce information...

The investigations could raise the stakes for Wall Street in the multiple probes examining whether financial firms deliberately misvalued, or "mismarked," massive holdings of mortgage securities. Most of the current investigations into mortgage matters involve civil authorities; the U.S. attorney launches criminal investigations and has a history of prosecuting Wall Street-related matters. Last summer, federal criminal prosecutors began investigating the collapse of two internal hedge funds at Wall Street firm Bear Stearns Cos...

To bring fraud charges, "prosecutors need proof to convince a jury beyond a reasonable doubt that the banks made materially misleading statements about securities, and proof that they did it with the intent to deceive," says Christopher J. Clark, a New York white-collar lawyer and former assistant U.S. attorney in Manhattan in the securities and commodities fraud unit. [Now what possible motive could anyone have had to do that?]

...In its investigations, the SEC also is delving into whether Wall Street firms placed higher values on securities they own than those they placed in customer holdings...