Monthly ArchiveJanuary 2007



Technology 31 Jan 2007 06:00 am

Waiting on that Vista Upgrade

Microsoft Windows Vista logo

I heard a rumor that some wizbang, new computer operating system was thrust upon the world. To celebrate Microsoft (MSFT) Windows Vista I reformatted my Dell notebook and reinstalled Windows XP.

Why didn’t I run out to a store Monday night to grab a copy at midnight? First, I’m pretty sure my desktop with only 512 MB of RAM would need an upgrade, and I know Vista would laugh at my Celeron-powered notebook with its measly 256 MB of RAM. (Hey, as weblogging and web surfing machines they both do just fine.) Second, when you upgrade an operating system you have to hope all the stuff connected to your machine will work properly with the new OS. I find it less frustrating to buy a new OS pre-loaded on a new machine. I let the computer makers mess around with initial hardware and software compatibilities. Third and most important, I want to let the geeks who get the (good) shakes when they play with the latest tech bang it around to see where the weaknesses are and what works with it. With Microsoft already planning on a service pack for Vista when I get a new computer later in the year quite a few of Vista’s bugs will have been squashed.

Real Estate 30 Jan 2007 08:56 pm

Housing Inequality

Mansion

Inequality today is a pejorative. It’s discouraged even when there’s no explanation for why it’s bad. Bill Gates will probably grow his wealth much faster than me with the release of Windows Vista. His bigger wallet doesn’t harm me. BusinessWeek.com has a story on the most unequal real estate markets in the U.S. The winner is Miami where the top 1% of homes are are 6.5 times the price of the median home. The narrowest span is San Jose, CA, the heart of Silicon Valley. But there even an ordinary home costs a fortune. So what does this tell us? One possibility is places with greater home price inequality get that way because people from a wide range of income levels seek housing there. It could be a diversity effect.

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Food 30 Jan 2007 07:32 am

McDonald’s Making Fries Trans Fat Free

Supersize me

Trans fats are on the path of oblivion at McDonald’s (MCD). Their trans fat-free replacement oil formula is set for New York City with its July 1 ban, but due to supply issues we’re not sure when the rest of the U.S. will enjoy trans fat free fries. McDonald’s has to be careful with their franchise spuds. Even perception alters behavior:

In 2002, McDonald’s was the first of the major fast-food chains to announce plans to remove trans fats from its oil. But the company recanted several months later. Executives were primarily concerned that people might not like the change in taste. In fact, when McDonald’s said it was simply thinking about the change — but well before the change was actually made — some consumers began complaining to the company that they didn’t like the change in the taste, Knapp says.

McDonald’s and other fast food chains moved to trans fats after critics complained about the high levels of saturated fats in their foods. One only wonders what critics will say about the golden arches in a few years.

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Automobiles 26 Jan 2007 08:44 am

Ford Posts Record Annual Loss

Crashed Ford

Ford (F) lost money with a style never seen in the company’s history. Henry Ford must be exasperated in the afterlife. They reported losing $12.7 billion in 2006. My first question: Where did it all go? My second question: How do you lose that much money? That answer is easy. When your profits rely on gas guzzling cars and trucks when gas prices shoot up along with high labor costs and a floundering premium car brand group you too can lose that much money.

CEO Alan Mulally hopes the car company will see a profit finally by 2009. He’s closing down plants and paying off workers to cut costs. More importantly Ford needs to make cars people want to drive. The Edge is a good start, and getting a Mini Cooper-like Fiesta here would work. Now, they have to get their act together on hybrids. Oil prices may have gone down recently but India and China crave energy. That strategic economic situation means future oil increases. Don’t think Toyota and Honda aren’t planning for that.

[Crash pic via cielo on Flickr.]

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Airlines 26 Jan 2007 04:50 am

AirTran Trying to Get Midwest for Cheap

Midwest Airlines logo

As reported Midwest Airlines’ (MEH) board of directors told shareholders to not give into AirTran’s (AAI) latest offer of $13.25/share. With the recent fall in AirTran’s stock Robert W. Baird & Co. put the price of the deal at $12.95/share.

With earnings of $0.29/share for 2006 that gives Midwest a price/earnings (P/E) ratio of 43. That’s quite high for an airline, but not as high as AirTran’s P/E of 83. It’s not unreasonable to see Midwest garner a P/E of 15-20. In their conference call presentation Midwest predicted 2007 earnings per share would be $1.70/share, a 93% increase from 2006. Based on management’s expected 2007 earnings Midwest’s stock could get into the 20s-30s. Yet AirTran only wants to pay $13.25/share. Midwest CEO Timothy Hoeksema doesn’t blame AirTran for trying saying, “It’s no wonder AirTran thinks we’re a good company to try to buy. We think we’re a great company for our shareholders to own.”

The big “if” is Midwest meeting its lofty expectations. It depends on the price of oil and the airline increasing passengers by 15%. Robert W. Baird & Co. is skeptical. They want more details on how the company will increase earnings. Regional flights between Milwaukee and Duluth, MN won’t do the trick.

Suppose Midwest doesn’t earn $1.70/share in 2007 but only the $0.89/share analysts expect. That would put the stock’s value at $13-17 range still better than the offer from AirTran. If AirTran wants Midwest they’ll have to up the ante which will be difficult with a falling stock price.

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Airlines 25 Jan 2007 07:46 am

Midwest Board Rejects AirTran Bid

Airplane

Midwest Airlines’ board unanimously rejected AirTran’s $345 million bid for the company. The airline also reported a third consecutive quarterly profit strengthening their position that being independent is the way to go.

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Advertising & Food 24 Jan 2007 07:44 am

Man Law: Your Ads Go Away if the Beer Can’t Sell

Eddie Griffin in Man Law commercial
Beer commercials have been a staple at burning funny, memorable moments into your tiny, little skulls. At work today if you mention rubber floors many will tell you how funny they think those Bud Light ads are. With the Man Law series of ads it Miller Lite came upon something as hooky as their “Great Taste, Less Filling” ads in the 70s and 80s. It didn’t hurt to have the ads loaded with entertainers, football players, bull riders, and pro wrestlers. But ads are all about selling the product. The Man Law ads made for some laughs, but it didn’t seal the deal for Miller Lite:

However, Miller Lite’s sales were uneven during the campaign, which also featured radio spots.

The company reported last week that Miller Lite’s sales grew 1.5% during the quarter that ended Dec. 31, compared with the same period one year earlier. That came after an unspecified “low single-digit decline” during the six months ending Sept. 30, a period that coincided with much of the “Man Laws” campaign.

For the full year, Miller Lite’s sales dropped an estimated 0.5% in 2006, according to Beer Marketer’s Insights.

Miller Lite is now running ads focusing on the awards its beer has won and mocking competitiors who “add” “GHT” to their reduced-calorie brews. Miller CEO Tom Long told Beer Business Daily, “It’s a great campaign, but the environment has changed a lot since we originally set out with it. We feel like it’s time to start putting some more focus back on the reasons why Miller Lite is simply a better beer than other competitive light beers.”

The Men of the Square Table might make a return, but judging by the lack of a sales boost why bother?

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Retail 23 Jan 2007 07:46 am

Pressler Leaves as Gap CEO

Gap logo

Someone’s happy. Paul Pressler, CEO of The Gap (GPS), agreed to leave the company after four years of same-store sales declines and no spark from the mall monster. The company praised Pressler for his work that “strengthened its balance sheet, greatly enhanced its on-line presence across the brand portfolio and improved its standing as a global corporate citizen.” It’s the sales that forced him to leave. Don’t feel sorry for Pressler. The Gap will pay him $14 million in total compensation in the next two years.

Robert Fisher, chairman of the board, will become interim leader while the company finds a CEO “who has deep retailing and merchandising experience ideally in apparel, understands the creative process and can effectively execute strategies in large, complex environments while maintaining strong financial discipline.” Ex-amusement park executives for that clothes seller.

The talk can really continue on whether the company should spin off its Old Navy and Banana Republic brands.

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Media 22 Jan 2007 07:39 am

Veoh and United Talent Agency Partners to Find Next Hollywood Star

United Talent Agency logo

Michael Eisner, former Disney CEO, has forged a deal between video-sharing website Veoh and United Talent Agency. No, it’s not a Hollywood company realizing their future is internet distribution–monetizing it is a whole different matter–but a open call through amateur video uploads:

Dimitry Shapiro, chief executive of Veoh, said the deal with UTA would become “the new gateway for talent discovery in Hollywood”, adding the channel would bring the “newest and brightest creative minds to the new, more flexible medium of internet TV”.

Brent Weinstein, the head of digital media at UTA, said the partnership would “create a structured, standardised and legally sound mechanism for aggregating and reviewing unsolicited submissions in a peer-to-peer video environment that can support the high resolution, television-quality content that many aspiring artists produce”.

In an unusual move, UTA has bucked the industry trend of discouraging unsolicited material from aspirant actors, writers and directors and instead has actively encouraged people to submit material to the site. The group recently formed a broadband division and has already received thousands of submissions.

This isn’t Google figuring out a business model for YouTube. It’s an agency wading through user-generated content instead of unsolicited videotapes. Biz of Showbiz notes this isn’t even new. UTA’s competitor “Creative Artists Agency has had a deal in place since last year with another online video service Revver.”

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Media & Private Equity 20 Jan 2007 06:30 pm

Publisher Pearson Reported to be Private Equity Target

Pearson logoFinancial Times logo

Billions pouring into private equity’s coffers gives the beast an insatiable appetite. For any non-Web 2.0 business financial salvation is hoping someone like Texas Pacific or Blackstone buys them. A rumor in the publishing world is the U.K.’s Pearson is on the selling block:

Shares in Pearson jumped more than 4 percent on Wednesday to their highest price since mid-2002 in hefty volume amid speculation over a private-equity buyout for the world’s largest educational publisher.

Details of a report in the weekly The Business magazine, due to be published on Thursday but noted by traders during the afternoon, singled out private-equity firm Kohlberg Kravis Roberts & Co. as a possible bidder.

A source familiar with the matter told Reuters, however, that KKR currently had no plans to bid for Pearson. The private-equity firm declined to comment.

KKR has “no plans” but all that means is their preliminary work isn’t finished.

The Business reports taking Pearson public would mean the sale of The Financial Times which could fetch just under $1 billion. News Corp., The New York Times, and Dow Jones could bite. The story notes analysts say Pearson’s academic publishing is its core which could mean it’s trade house Penguin could also be sold.

Last year The Economist (partly owned by Pearson) explained why private equity firms love media companies more than public markets:

Private-equity firms like media companies better than public markets do. Public markets love a growth story. Private equity appreciates cash flow. Radio and television stations and even newspapers throw off loads of cash, which private-equity firms can borrow against, using this leverage to repay their equity fast. That is true even of businesses whose cash flow is in long-term decline, such as newspapers, as long as the rate of decline is relatively predictable. The biggest risk in many of the current batch of deals is that the private-equity firms discover the cash-flow models to be less predictable than they thought, says Colin Blaydon of Tuck Business School’s Centre for the Study of Private Equity and Entrepreneurship.

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