March 26, 2007 | posted by Michael Baxter in IABN | comments (0) |

Choice is a good thing, right? The business that deliberately limits the options available to customers will always lose out. Right?

In a way though, that is exactly what’s not been happening in the music business. We were forced to buy an album, even when we were actually only interested in a couple of tracks.

That’s all different now, of course. Thanks to the internet, we just download the songs we want to hear. That will mean happier customers, which should equate to happier suppliers.

Except that it doesn’t seem to be working like that.

In the US, during the last year, CD sales were down 20 percent, or so says Nielsen Soundscan. No surprise there, but, alas for the music bus, downloads are not making up for the loss.

Nielsen Soundscan defines ten downloads as the equivalent of an album and, based on that formulae, the CD’s loss is not the download’s gain - yet.

Michael McGuire of Gartner Research was talking to Agence France-Presse news agency about the research. He said: “It comes back to consumers being in complete control of their media experience,” and they are saying “While you may have put a lot of thought into the sequence of the album, I only like these three songs.”

Copyright #169;#169; 1996-2007 Find.co.uk Limited. All rights reserved

March 26, 2007 | posted by Michael Baxter in IABN | comments (0) |

If there is one stat that says it all it’s this one. In the US, Sweden and Finland six percent of GDP is spent on higher education, RD and information and communications technology. In the UK, it’s between two and three percent.

Our Gordon, of course, is always rattling the education and training sabre, but maybe it’s time to stop the rattle and introduce some shake and roll.

The Work Foundation put it nicely last week, saying: “What we need now is for the knowledge economy to move from being an unacknowledged guest at the table of economic policy-making to guest of honour.”

The Foundation has been talking to the Treasury, and has been making the case for what it calls ‘knowledge economy policy.’

Apparently, or so says the Foundation, “depending on the definitions used, the knowledge economy now accounts for between 40 and 50 percent of economic activity and employment in the UK. Almost all the net growth in jobs in the 10 years to 2005 in the UK came from the knowledge based sectors - business services, finance, communications, education and health. The UK already leads the world in the export of knowledge services (from consultancy to financial services).”

The foundation also says: “the traditional economic boundaries between manufacturing and services are breaking down; the concept of a knowledge economy applies equally to both. After the painful adjustment shocks of the 1980s and 1990s, Britain now has a more sophisticated industrial structure where making things and providing services are two interdependent aspects of economic activity, both depending on producing innovative, creative goods and services with a high value-added content.”

Ian Brinkley, the director of The Work Foundation’s knowledge economy programme, said: “Economic progress has always involved knowledge. What makes the 21st century distinct, though, is that never before have so many well-trained minds and such powerful computers come together. When firms and organisations successfully combine the two and transform the result into economic value, what you have is the knowledge economy.”

Copyright #169;#169; 1996-2007 Find.co.uk Limited. All rights reserved

March 26, 2007 | posted by Michael Baxter in IABN | comments (0) |

If you were to listen to some of the unions when they talk about private equity, you’d think they were describing the devil incarnate. They say it asset strips, lays off workers, and weakens the underlying strength of a business by increasing borrowing levels. The private equity boys say that, because they are able avoid the need for quarterly reporting, they can focus on the longer term, and by making the companies they buy into more efficient, and therefore more competitive, actually increase employment.

Who is right? According to The Work Foundation, both.

Apparently, when private equity buys into an existing management team, the result is more jobs and faster growth - eventually. The research found that in the year after the purchase, job losses often mount, but that within six years there are, on average, 36 percent more jobs in the firm than at the time of takeover.

But when they bring in a new management team, job losses are often the consequence, with employment mostly being 20% lower after six years.

Will Hutton, chief executive of the Work Foundation, said: “Private equity firms pride themselves on their ability to squeeze performance from the organisations they own, and they turn up the pressure on individuals in order to do so. When private equity backs an incumbent management team the result can be improved productivity and higher employment. But we are concerned that often, the price that is paid by workers is too high and that levels of trust between workers and managers suffer.”

Mr Hutton said: “There is now an urgent need to ensure private equity firms throw open their books to proper public scrutiny, that they pay appropriate levels of tax, and that the growth of private equity is not exposing the entire British economy to a risk of instability due to the levels of debt the industry takes on as it grows.”

Copyright #169;#169; 1996-2007 Find.co.uk Limited. All rights reserved

March 26, 2007 | posted by Michael Baxter in IABN | comments (0) |

The PlayStation 3 has arrived in Europe. But this time there are only limited reports of crazed buyers queuing up all night to be first. There are no reports - as of yet - of stampedes on the high street as the new wonder machines sees the light of the European day. There is, however, a long line up of press, taking it in turns to make swipes at the machine, as they draw unfavourable comparisons with the Nintendo Wii, and Microsoft Xbox 360.

Last night Oxford Street saw the unveiling of the new product, but not across the length and breadth of the UK’s premier shopping street. Unlike the launch of the Xbox 360 or when the previous PlayStation 2 was released, HMV, for example, did not open up at midnight for the fun.

While members of the UK press were quick to point out that this launch was distinctly low key, across the channel it was worse. The Champs Elysée was supposed to be bedecked with ardent games players, but of 1,000 units available, reportedly, only 300 were sold. And across Europe, in Germany and Holland, for example, numbers were reported to be in the hundreds, rather than the thousands we saw for other launches.
And the doubts don’t stop there.
According to research from NPD in the US, February saw the PlayStation 3 manage a poor third in the battle with Nintendo and Microsoft. Apparently, sales of the Nintendo Wii hit 335,000, the Xbox 360 228,000, but the PlayStation 3 managed just 127,000 units
The doubts continue to pile. Back in November, Atari founder Nolan Bushnell said he thought the Sony product would fail. Red Herring magazine reported him as saying: “I think Sony shot themselves in the foot … there is a high probability #91;they#93; will fail. The price point is probably unsustainable. For years and years Sony has been a very difficult company to deal with from a developer standpoint. They could get away with their arrogance and capriciousness because they had an installed base. They have also historically had horrible software tools. You compare that to the Xbox 360 with really great authoring tools #91;and#93; additional revenue streams from Xbox live … a first party developer would be an idiot to develop for Sony first and not the 360. People don’t buy hardware, they buy software.”
And finally, if you think all this is bad enough, wait until you hear about one sales trick Sony has come up with in the US. It’s been reported that the company has been bundling PlayStation 3 with Nintendo Wii as a way to draw in the punters.

Some say the price is just far too high. It will retail for over £400 in the UK, around double the price of the Xbox 360, which, in turn, is more expensive than the Wii. Some are drawing comparisons with 3DO - an apparent wonder games machines - that was launched in the mid ’90s, only to dive - and partly because the price was too high.

But don’t be too quick to write off Sony.

This is set to be a long game, and there are good reasons for the initial disappointing sales levels.

For one thing, sales are necessarily low because supply is short. This, in turn, is limiting software development.

The video games hardware producer faces a chicken and egg problem. You need software before people want to buy your hardware, but software companies are not keen to develop games if sales of the hardware are low.

On the other hand, it takes time to develop software and none of the games developers want to miss out on an opportunity, so they will produce software if they have confidence in a hardware product. The combination of launch delays and the fact everyone knew supply would be limited has necessarily restricted software development. But this could change very quickly.

It also seems likely the Sony product will soon fall in price, which will boost sales.

As for sales projections, Gartner reckons within two years the Sony product will be outselling its two main rivals. Meanwhile, in the US, NPD says that the new PlayStation is selling faster than the Xbox 360 did in the first few months after its launch.

But if there is a danger, it is this.

The history of the video games industry has shown that dedicated games machine sell in better quantities than products with pretensions to be more .

The Philips CDi product of the early ’90s didn’t hack it because it was presented as a consumer multi media product. 3DO tried to pack in too many features - moving beyond games - and failed.

The machine that’s selling like hit cakes at the moment is the Wii. There is nothing pretentious about this; it’s a games machine with an innovative controller, plain and simple.

When software developers learn to how to write games that take full advantages of the PlayStation 3’s power, the games will be truly outstanding, and sales will rise. But the race is against time. Can Sony establish their product before the next generation hits the streets? The company has several years, but right now, it’s by no means certain they can win this race.

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March 23, 2007 | posted by Michael Baxter in IABN | comments (0) |

Wow look at that#33; Manufacturing is back. At least that’s what the latest industrial trends survey from the CBI would seem to suggest.

The balance between manufacturers who say their order book is up, versus those who say it is down was plus eight this month. That is a 12-year high.

A jubilant Ian McCafferty, the CBI’s chief economic adviser, said: “The revival in the fortunes of UK manufacturing shows no signs of abating yet, with domestic demand driving growth.”

So, does that mean we can all celebrate as, once again, the UK becomes a nation for making things?

Well, you have, no doubt, suspected a dark cloud lurking beyond this silver lining.

Mr McCafferty put it this way: “Better trading conditions mean more firms feel they can pass on price rises.”

Yes you have guessed it, prices are creeping up. Well that’s not quite accurate, they are creeping like an elephant sneaking up on you.

The CBI price expectations balance is now at a 12-year high too. It posted a score of plus 21, compared with zero last May.

Mr McCafferty tried to paint a glossy finish, when he concluded by saying: “Nevertheless, broader inflationary pressures remain firmly under control and the headline rate of consumer price inflation is forecast to come down rapidly over the coming months, in response to lower utility bills.”

He is of course right. The consumer price index is expected to fall, but the feedback from manufacturers, as is the case with retailers, is that prices are rising elsewhere. Maybe inflation is still lurking there waiting to strike if the Bank of England desists from its rate rising ways.

Copyright #169;#169; 1996-2007 Find.co.uk Limited. All rights reserved

March 23, 2007 | posted by Michael Baxter in IABN | comments (0) |

Of late, former head man at the Fed Alan Greenspan has been losing his veneer of infallibility. Many say that he is to blame for the present crisis engulfing the US, which has seen markets fall - although they have recovered somewhat in recent days - and the sub prime mortgage woes. Others say the US is immersed in a debt crisis in the making, and that Mr Greenspan is responsible for that.

It’s a little harsh. “Irrational exuberance Alan” was merely responding to the almost perfect storm of dot com crashes, financial scandals of Worldcom and Enron, and the appalling events of September 11 2001, and if he pressed the accelerator too hard - well that was an easy mistake to make.

After all, Japan did the opposite; its central bank was not expansionary enough, deflation followed, and proved to be a much hardier foe to fight than its alter ego. And it took years to make amends - if indeed it has made amends.

The problem of course is that you can’t reduce the rate of interest to below zero. That was the problem Japan was forced to behold, and that was the scenario Mr Greenspan wanted to avoid. He used to say it was better to have a little too much inflation than deflation.

But then yesterday, banking regulators were talking to the US Senate and the result was quite an admission.

But, it wasn’t interest rate policy that got the wrap, rather it was the way regulators policed the mortgage lenders.

Roger T Cole, a senior man at the Fed, admitted: “Given what we know now#133;we could have done more, sooner.”

But, the question is this: have authorities got the hint now, or are their heads still down there, under the sand, where other US authorities keep their thoughts on global warming?

Mr Cole said: “At this time we are not observing spill over effects from the problems in the sub prime market to the traditional mortgage portfolios or, more generally, to the safety and soundness of the banking system.” Others assured the senate that the overall market is strong.

And yet, Capitol Economics says: “We suspect that the surge in delinquencies and defaults in the sub prime mortgage sector will spread to more credit-worthy borrowers too, since they are also vulnerable to the powerful combination of rising loan rates and falling house prices. But even if there is no contagion to other types of loans, the sub prime meltdown is still a big blow to the financial sector because of its size.”

Whether the sub prime crisis leads to a US-wide house market crash does seem to depend on how interconnected the sub prime borrowers are with the rest of the US housing market.

In the UK, we have seen property market crises of the past start with the top. Prices in expensive homes start to fall, and send the ripples downwards.

But surely this process can work in reverse. Even (and we used the word even in an ironic sense) people with sub prime loans upgrade and move up the US property ladder. Starve the market of this, and then it seems inconceivable that fall out won’t follow.

The soft landing brigade might have temporarily won the debate over the UK property market, but in the US, where supply is not so limited, it is not the same tale. In the US, some point to the UK experience and say the land of the free will follow a similar pattern. And yet the weaves of the US market are quite different, space does not carry the same premium, and therefore the stitching that holds the market together is looser, and can unravel all the more easily.

Copyright #169;#169; 1996-2007 Find.co.uk Limited. All rights reserved

March 23, 2007 | posted by Michael Baxter in IABN | comments (0) |

Now what was that the critics say about private equity? That’s right, amongst its many failings that they list, they say it’s too secretive; because it’’ not open to public scrutiny they don’t trust it.

For its part, private equity says it doesn’t like quarterly reporting. It’s not keen on the way public companies are forced to focus on the short term, which is the price that comes with stock market listing.

But suddenly, all those arguments seem to have gone up the chimney in a puff of smoke.
Blackstone Group, one of the private equity firms looking at buying Sainsbury’s, is to raise $4bn by selling shares on the New York Stock Exchange.

You may wonder where it was exactly on the road to Damascus that Blackstone has this epiphany. But its SEC filing may shed some light.

“We intend to be a different kind of public company,” rattles on Blackstone. “We have built a leading global alternative asset management and financial advisory firm that has achieved success and substantial growth. While we believe that becoming a publicly traded company will provide us with many benefits, it is our intention to preserve the elements of our culture that have contributed to our success as a privately-owned firm.”

So what does that mean?

Much less focus on short term reporting, and the veil of secrecy will only be pulled back so far.

In terms of refusing to focus on the short term, Blackstone won’t be a first. Google, of course, is also different. It refuses to make projections and has gone to some effort to make itself rise above the short term vagaries of the market.

The similarities with Google continue when we discover how, like the search engine company, extraordinarily profitable Blackstone is.

Last year it made $2.27 billion, 71 percent up on 2005, with fees for money management coming in at $1.12 billion. Now prepare yourself for a staggering statistic. The company only has 770 employees, meaning that net income per employee was $2.95 million.

And bear this in mind. It was founded in 1985 by Peter Peterson and Stephen Schwarzman with $400,000.

With figures like that you can imagine there will be a stampede from investors wanting to jump on board. And since private equity has only been the domain of big league investors, this will mean that the little guy will at last be able to get a share of the action. (Although bear in mind these big league investors - pension funds, for example, are funded by the little guy.)
But - and this is where the similarities with Google start to diminish - this is not quite as straightforward as it seems.

In fairness, Blackstone is upfront about this lack of up-frontedness. The filing kicked off with the statement: “We intend to continue to follow the management approach that has served us well as a private firm of focusing on making the right decisions about purchasing and selling the right assets at the right time and at the right prices, without regard to how those decisions affect our financial results in any given quarter.”

For Blackstone, the business we all hear about, and know so little about, is to remain a partnership, with the tax advantages that this entails.

A management company is being floated, and investors will get units - meaning limited voting rights.

It’s been reported elsewhere, that investors will only reap benefits from management fees, not capital growth.

Private equity follows what’s become known as the two and twenty rule. This entails two percent management fees and twenty percent of the profits.

The Blackstone IPO will attempt to preserve this status. The litle guy, and the public scrutiny that comes with an IPO, will only get a peak.

Copyright #169;#169; 1996-2007 Find.co.uk Limited. All rights reserved

March 23, 2007 | posted by Michael Baxter in IABN | comments (0) |

We all know that many magazine and newspaper publishers are not having such a good time at the moment. Johnston Press and EMAP are classic examples of media empires that are seeing their traditional business model eroded by the myriad of rival electronic publications that rely solely on web sites, and are not, therefore, encumbered with the cost of print.

But what about the world of TV? We have often said that eventually there might well be a huge range of web sites published by the TV or film production companies that show all their products. This, in turn, leaves you questioning the future of traditional broadcasting. That’s why, moving forward, content is so important, hence the saying ‘content is king’.

But up to now, it’s just been talk; just a theory to postulate while the likes of Virgin Media and BSkyB argue over where competition stops and monopoly begins.

It’s also an argument that has implications for BT. Its BT Vision product enables a host of TV services to be available to its paying broadband customers, including the ability to download films and any programme shown on Freeview over the previous seven days.

And yet, cast your mind back to the beginning of the internet era: a time when our modems crackled and sang a song of noughts and ones as we were connected to the ether. Back then, many ISPs tried to distinguish themselves with their own unique content. But, with one notable exception, that business model soon went out the window, and even AOL eventually succumbed and joined the rest with open content.

It now looks as if the first stages of that battle are being replayed, but this time it’s video, and yesterday saw perhaps the biggest announcement yet.

NBC Universal and Fox, which is owned by Rupert Murdoch’s News Corp, are getting together to launch their own internet channel for showing their content. That means it will be showing programmes such as 24, House, and Heroes, and, since Mr Murdoch also owns Century Fox film studios, it also means no shortage of films either.

It’s been hailed as an attack on YouTube. You may recall the video sharing web site, which is owned by Google, is being sued by Viacom, the owner of MTV, for a cool $1bn at the moment over alleged breach of copyright.

And Google is not at all popular with many of the content producers, who see it as a company that has no respect for copyright. The company itself says its does its best to limit illegal videos, but that US legislation provides a safe harbour for providers who inadvertently host content in breach of copyright.

But we are not so sure that the NBC Fox venture will ultimately provide a challenge against YouTube, which is in essence a social site where users can share their own videos.

For our money the NBC Fox move represents a threat to the traditional TV business model.

And so who are these companies really taking on with this move? It seems to us that actually, Murdoch’s own TV broadcasters, such as BSkyB and the Universal network are themselves in danger.

Of course, Mr Murdoch is a clever man, and would never deliberately start ventures that will ultimately challenge his other enterprises. But, if he sees the internet as his pet, it’s an unruly pet at best - at worst, it’s a pet that cannot be controlled by the strongest of dog collars.

Maybe what we are seeing here is the release of something uncontrollable, and don’t be surprised, when the history books of this time are written, to discover that when Mr Murdoch releases his dogs of war they come back to bite him.

Copyright #169;#169; 1996-2007 Find.co.uk Limited. All rights reserved

March 22, 2007 | posted by Michael Baxter in IABN | comments (0) |

Prepare yourself for a shock. In the world of business and economics, the budget wasn’t the only thing that happened yesterday. Central bankers had a busy day too.

In the UK, the Bank of England released the minutes of its last interest rate meeting. And the shock news: none of the members voted to up rates, but one voted for a reduction.

And now, economists are busy factoring in the possibility that maybe the bank won’t be raising rates soon.

Meanwhile, in the US the Fed was busy doing nothing.

For it chose to keep rates on hold - no surprise there really.

In the US, commentators read much into the fact that the US central bank did not say “additional firming” in its statement.

Does this mean, rates will be falling soon?

There’s no doubt Uncle Sam could do with a rate drop, but then inflation is far from licked, and most think that, for the time being at least, it won’t dare.

In the past, many think the Fed panicked; slashing rates, creating pent up demand, as soon as things got tough?

Markets are down, the US housing market hits a crisis, but perhaps now is not the time to panic.

In fact yesterday US markets rose, with the Dow seeing its best day since the big sell off last month.

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March 22, 2007 | posted by Michael Baxter in IABN | comments (0) |

The parliamentary ombudsman Ann Abraham said the government was guilty of “maladministration”, when she looked into the plight of 125,000 pensioners who saw their pension savings disappear when the company they worked for went bust.

Then, more recently, Mr Justice Bean sort of agreed with her, when he ruled in favour of the four pensioners who took the government to court. He said that a worker could not have been expected to realise that: “If his employers went out of business just before he reached retirement age he might get no occupational pension at all, despite the contributions he had made from his earnings over many years, and despite the existence of people called ‘trustees’ who he thought were there to protect his interests.”

Of course, if your company failed after 2005, there’s the Pension Protection Fund, which guarantees 90 percent of your money.

But if the disaster happened earlier than this, then all you had was the Financial Assistance Scheme, which offered around 20 percent of the money lost - little more than a helping hand coated with slippery grease.

But with yesterday’s budget, it changed. The government is pumping another £6bn into the scheme, in the process quadrupling the money available, and taking the level of support to 80 percent of the amount lost.

But some have their doubts. Mike Smedley, partner in KPMG Pensions, said: “The Chancellor has not made clear how the extra £6bn cost will be funded or how he will balance the books. Does this mean that the Financial Assistance Scheme and the PPF will be combined? If so, solvent private sector pension schemes may have to share the cost of this, which will put additional unwelcome pressure on UK pension schemes. Schemes could see their PPF levies at least double if this is the case.
“This must also be bad news for the new pension buy-out providers, who are likely to see one of their main sources of business dry up.”

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