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Tabloid Publisher Gets Backing of Creditors For New Bond Offering

Struggling tabloid publisher American Media Inc. may have found a lifeline.

In a deal that likely saves the company from having to seek bankruptcy protection, the Boca Raton, Fla., publisher of the National Enquirer and Star magazine has secured the backing of many of its creditors for a new bond offering to refinance $570 million in existing debt.

That's welcome news for a company struggling through a declining advertising market and burdened by more than $1 billion in debt. AMI previously had said that if it couldn't refinance at least $389.5 million in debt by Feb. 1, 2009, it would have to liquidate assets or seek protection from creditors.

"This transaction, if it's successful, will take the pressure off them," said John Page, a senior analyst at Moody's Investors Service. AMI's corporate family rating of Caa2, Moody's fourth-lowest rating, is currently under review for possible further downgrade. David Pecker, chairman and chief executive of AMI, said the bond offering "is the first step in revitalizing the capital structure of American Media." Under the terms of the bond offering, holders will be able to exchange existing debt for discounted notes that pay higher interest and warrants for up to a 20% stake in the company.

AMI set a Sept. 25 deadline for the offer, but already has agreements from 33% of holders of notes due in 2009 and the requisite 51% of holders of notes due in 2011. The new notes extend the due date to 2013.

The agreement caps a productive summer for AMI, which also publishes several health and fitness titles including Shape. Earlier this month the maligned Enquirer was validated when former senator and presidential candidate John Edwards admitted on national television to having an extramarital affair. The Enquirer had begun reporting the story nearly a year earlier but its scoop was largely dismissed by the mainstream media until Mr. Edwards's admission.

The Aug. 11 issue, which reported new allegations about Mr. Edwards's affair, sold 738,000 single copies, 11% above its weekly average of 667,000 copies for the first six months of the year, according to the Audit Bureau of Circulations.

Mr. Pecker said ad sales for the first half of 2008 -- which showed a decline in ad pages in the low single digits compared with a 7.4% decline industrywide, according to the Publishers Information Bureau -- show AMI is "pretty much holding our own in a challenging environment." However, there were signs of difficulty in the second quarter. Ad pages at the National Enquirer declined 14% in the quarter, while ad pages at Star were down 10%, according to the PIB.

In recent quarters AMI has been able to largely offset revenue declines by cutting administrative staff and production costs. AMI posted revenue of $119 million for the quarter ended June 30, a 2% decline from the year-earlier period.

AMI has two private-equity owners, Thomas H. Lee Partners and Evercore Partners. A source familiar with THL's thinking said the company believes the exchange offer gives AMI enough running room to continue improving its profitability.

By: Russell Adams
Wall Street Journal; August 28, 2008

CBS Corp. is launching a new version of its CNET.com Web site this week -- providing one of the first glimpses at how the New York media giant hopes to integrate CNET Networks, the suite of Web properties it purchased for $1.8 billion in June.

CBS is hoping the new face of CNET's flagship site -- which offers a revamped look, more online video, and an easier way for advertisers to customize their messages -- will help it turn back investor concerns that it overpaid for a troubled property. CBS also wants to prove it did more than simply buy its way into the top tier of U.S. Internet properties as part of its effort to shift away from slow-growth businesses like broadcast television. The purchase added tech-lifestyle site CNET and siblings including gamer hub GameSpot.com and fan site TV.com to CBS's existing Web outposts like CBSSports.com.

The combined powerhouse, dubbed CBS Interactive, has its work cut out for it. As people spend more time on other sites like social networks, CNET and CBS must make their own Web content more engaging. They must also find ways to cross-promote brands that encompass wide topic areas like fantasy football, gadget reviews and the evening news. Another challenge: discovering new ways to bundle advertising across TV and Web sites to draw premium rates as the Web remains flooded with cheap advertising space.

Leslie Moonves, CBS's chief executive, says he wants to boost what he estimates will be more than $600 million in Internet revenue for 2008 to $1 billion within three years. "It's going to become a bigger and bigger part of the CBS Corporation," he says, adding that he expects traffic to increase significantly. "Turning it into revenue, that will be our biggest task," he says.

The big question is what exactly CBS brings to the table. One answer, says Mr. Moonves, is cross-promotion. CNET personalities have been appearing on CBS's "The Early Show." CBS sports announcers are encouraging viewers to head to CNET.com. CBS-owned billboards are promoting the relaunch. And at the Democratic and Republican National conventions, "CBS Evening News" anchor Katie Couric is doing a nightly Web cast that includes questions posed by CNET.com users.

"CNET was starting to hit a ceiling in terms of their visibility and in terms of their usage, says Mr. Moonves, adding that exposure on CBS will give CNET "a shot in the arm in terms of exposing it to new people."

CNET attracted 15.3 million unique visitors in July, up 22% from July 2007, according to tracking firm comScore Inc.

In addition, CBS says it is already pushing advertisers from its flagship broadcast network to advertise on its online properties. Only two of CNET.com's top 10 advertisers in the first half of 2008 were among the top 10 on CBS, according to TNS Media Intelligence.

The new CNET.com includes a "brand showcase" feature, allowing advertisers to pay for pages where they can promote products with links to CNET reviews, a service for which CBS can charge higher rates, according to Joe Gillespie, who oversees CNET.com. Amanda Richman, who runs the digital practice for Publicis Groupe SA's Starcom MediaVest, says "there is a drive in the market for the scale and the efficiencies," that a combined CBS/CNET offers.

Founded in 1992, CNET was an early content leader on the Web, growing through a stable of sites centered on technology news and product reviews. But in recent years, competition from blogs and other sites caused U.S. readership on some key properties to decline.

The new CNET.com highlights another priority for CBS's online strategy: video. A large window that will soon play high-definition video within the homepage promotes the site's video content, including relevant clips from CBS broadcasts. Mr. Gillespie says video ads can sell for double normal ad rates on the site.

Whether CNET can help reinvent CBS, which still relies heavily on its slow-growth television and radio businesses, remains to be seen. "We are major content provider," says Mr. Moonves. "Now we have all these areas of content online, which clearly is the direction that distribution will be heading."

By: Sam Schechner and Jessica Vascellaro
Wall Street Journal; August 28, 2008

The Journal's editors recently took words out of context in order to reinforce their predictable slant on health care -- government involvement is bad, private sector is good. In doing so they confused the overall performance of Medicare with the Bush administration's commitment to dismantle it.

My remarks were not a slight on Medicare. They were directed at an ideologically consumed administration that has spent the past eight years attempting to privatize Medicare by ensuring that providers, taxpayers and senior citizens become increasingly frustrated with the program. The reason is simple: this administration does not want Medicare to continue as a successful government health program.

The Bush administration would prefer to eliminate Medicare as an entitlement. It would turn Medicare over to for-profit health insurance plans, which, to say the least, have done a lackluster job at insuring anyone under age 65, and would surely increase Medicare fraud and pharmaceutical fraud.

Every bureaucracy has its faults, but Medicare provides an incredible benefit to Americans: ensuring that everyone over 65 has access to quality health care. Even if we doubled spending on administrative costs to ensure greater efficiency, no private plan would come close in choice, quality or cost. Medicare remains the most popular and efficient plan for taxpayers and senior citizens, the Bush administration's efforts not withstanding.

Wall Street Journal; August 28, 2008

In Roanoke, Va., Carilion's Fees Exceed Those of Competitors; The $4,727 Colonoscopy

In 1989, the U.S. Department of Justice tried but failed to prevent a merger between nonprofit Carilion Health System and this former railroad town's other hospital. The merger, it warned in an unsuccessful antitrust lawsuit, would create a monopoly over medical care in the area.

Nearly two decades later, the cost of health care in the Roanoke Valley -- a region in southwestern Virginia with a population of 300,000 -- is soaring. Health-insurance rates in Roanoke have gone from being the lowest in the state to the highest.

That's partly a reflection of Carilion's prices. Carilion charges $4,727 for a colonoscopy, four to 10 times what a local endoscopy center charges for the procedure. Carilion bills $1,606 for a neck CT scan, compared with the $675 charged by a local imaging center.

Carilion's market clout is manifest in other ways. With eight hospitals, 11,000 employees and $1 billion in assets, the tax-exempt hospital system has become one of the dominant players in the Roanoke Valley's economy. Its dozens of subsidiaries include businesses ranging from athletic clubs to a venture-capital fund.

The power of nonprofit hospital systems like Carilion over their regional communities has increased in recent years as their incomes have surged. Critics charge this is creating untaxed local health-care monopolies that drive the costs of care higher for patients and businesses. Despite this negative attitude Michigan hospitals continue to offer great service and various payment options. Hospitals in Michigan do not follow the same philosophy those like Carilion does.

"It's a one-market town here in terms of health care," says Sam Lionberger, who owns a local construction firm. "Carilion has the leverage."

Carilion acknowledges its influence in the local community but says there is nothing untoward about it. The hospital says it doesn't have a monopoly over the Roanoke Valley health-care market because it faces robust competition from Lewis-Gale Medical Center, a hospital located in nearby Salem, Va., and owned by for-profit chain HCA Inc.

Carilion says it charges more for certain procedures because it has to subsidize operations such as an emergency department and treatment for the uninsured. Edward Murphy, Carilion's CEO, says the high cost of health care in Roanoke reflects the national increase in such costs, which he says is driven by overutilization of medical services. Carilion is converting to a clinic model, in which doctors are employees of the hospital system and work more closely together to coordinate care, in an effort to cut down on unnecessary tests and procedures, he says. "Fragmentation is the enemy of quality" and affordable care, Dr. Murphy says.

However, the clinic project has provoked a backlash from a group of local independent doctors, who say it is designed to stifle competition.

Originally set up to serve the poor, nonprofit hospitals account for the majority of U.S. hospitals. They are exempt from taxes and are supposed to channel income they generate back into operations, while providing benefits to their communities. But they have come under fire from patient advocates and members of Congress for stinting on charity care even as they amass large cash hoards, build new facilities and award big paychecks to their executives.

Fueled by large, untaxed investment gains, Carilion's profits have risen over the past five years, reaching $107 million last year. Over the same period, the total annual compensation of its chief executive, Dr. Murphy, nearly tripled to $2.07 million. His predecessor, Thomas Robertson, received a lump-sum pension from Carilion of $7.4 million in 2003, on top of more than $2 million in previous pension payouts.

Carilion says Dr. Murphy's compensation is in line with comparable health-care organizations and notes he doesn't receive car allowances, a spousal allowance or club memberships. It says Mr. Robertson's pension accrued over a 32-year career at Carilion.

Carilion estimates it receives about $50 million a year in tax exemptions. It dispensed $42 million in charity care in 2007 and $30 million in 2006.

After the 1989 merger, Carilion continued to operate Roanoke's two hospitals separately. It later consolidated the hospital boards and in 2006, transferred most of Roanoke Community Hospital's staff and services to a renovated and enlarged Roanoke Memorial Hospital.

The moves eliminated any hospital competition in Roanoke proper, enabling Carilion to raise its prices and contributing to a spike in health-insurance rates in the region, one of the least affluent parts of the state, according to local doctors and health-insurance brokers.

Alan Bayse, founder of a local benefits-consulting firm who has sold health insurance in the area for 30 years, says health-insurance rates in the Roanoke Valley used to be 20% lower than in Richmond, Virginia's capital, and the lowest in the state. Michigan health insurance rates are much more reasonable. Today, he says, they are the highest in the state and 25% higher than in Richmond, citing rate information from insurer Cigna Corp. Anthem, another health insurer, says its rates are 6% higher in Roanoke than in Richmond.

Mr. Lionberger, whose construction company has about 100 employees, says his health-care costs have risen 50% over the past three years, hampering his ability to compete with contractors from other parts of the state. "It's frustrating," he says.

While Carilion strengthened its power in the hospital market, Roanoke continued to be home to a community of independent doctors numbering in the hundreds.

Taking the Helm

In 2001, Dr. Murphy took the nonprofit hospital system's helm. Dr. Murphy, who has a medical degree from Harvard but doesn't practice medicine, says he was convinced that the cost and quality of care in Roanoke could be improved if doctors worked in a more centralized system. In June 2006, he announced a seven-year, $100 million plan to transform Carilion into a multispecialty clinic, like the Mayo Clinic.

Carilion began approaching private physician groups, offering to buy their practices and pay their salaries. Some accepted, but others balked. Some doctors who chose to remain independent say the number of patients referred to them by Carilion physicians plummeted. Carilion controls a large proportion of Roanoke's referrals because it employs a majority of doctors who make them, such as family practitioners, pediatricians and emergency physicians.

Joseph Alhadeff, an orthopedic surgeon who is a member of a private practice called Roanoke Orthopedic Center, says the number of joint replacements he performed dropped off sharply after he stopped getting such referrals from Carilion doctors, prompting him to plan to relocate to Pennsylvania. "I spent seven years building up a practice and watched it evaporate in six months," he says.

Carilion spokesman Eric Earnhart says the hospital system didn't engage "in any activity to reduce or divert" referrals from Dr. Alhadeff. Mr. Earnhart adds that Carilion continues to refer numerous cases to Roanoke Orthopedic Center.

Geoffrey Harter, an ear, nose and throat doctor at another Roanoke private practice, Jefferson Surgical Clinic, says Carilion-employed colleagues told him the hospital system asked them not to refer patients to doctors it didn't employ, calling such referrals "leakage." Keeping referrals within Carilion is lucrative for the hospital system because it ensures tests and procedures performed on patients take place at Carilion facilities.

Dr. Murphy says Carilion uses the term "leakage" in internal marketing discussions and that he would rather see its doctors refer patients to other Carilion doctors to optimize their care. But he says Carilion doesn't require its doctors to keep referrals in-house even though it would be legal to do so.

As tension between Carilion and Roanoke's independent doctors grew in 2006, a group of 200 doctors formed an organization called the Coalition for Responsible Healthcare to protest the Carilion Clinic plan. The group posted a petition on its Web site and put up billboards around Roanoke that read: "Carilion Clinic. Big Dream. Big Questions." The local newspaper, the Roanoke Times, covered the controversy in a series of articles written by its health-care reporter, Jeff Sturgeon.

A few months later, in March 2007, the Roanoke Times moved Mr. Sturgeon off the health-care beat after Carilion complained repeatedly about his coverage. Carilion says it communicated its displeasure to the paper's editors, but never asked that Mr. Sturgeon be reassigned. Carilion withdrew most of its advertising from the paper, but says it did that as part of a reallocation of its ad budget. "Any friction that exists between an organization like us and the media is entirely appropriate," Mr. Earnhart says.

Mr. Sturgeon, who now covers transportation, declined requests for comment. Carole Tarrant, the Roanoke Times's editor, said: "We're covering Carilion like we always have and always will, and have no plans to change how we cover Carilion." She declined to elaborate.

New Campus

A large part of the clinic conversion's costs have involved the construction of a new medical campus around Roanoke Memorial Hospital that began several years earlier.

The lead contractor building the site is Swedish construction giant Skanska. But one of the project's biggest beneficiaries has been J.M. Turner & Co., which is owned by Carilion board member Jay Turner. Carilion says it paid J.M. Turner a total of $14.9 million in direct contracting work from 2004 to 2007.

Dr. Murphy says Carilion's board authorized "arm's length work" with J.M. Turner, but adds that "a case could be made that we shouldn't award work to J.M. Turner to avoid the appearance of impropriety."

Carilion also paid Skanska, the lead contractor, a total of $120.8 million from 2003 to 2007. Some of that money flowed back to J.M. Turner as subcontracting work, according to Skanska and J.M. Turner. The companies and Carilion declined to say how much.

In an email, Mr. Turner said he recuses himself from all Carilion board decisions that involve his company. He added that his firm passed on much of the $14.9 million in direct contracting work it received from Carilion to other subcontractors.

Mr. Turner isn't the only Carilion board member with a financial stake in the new medical campus. Another board member, Warner Dalhouse, has invested in a hotel being built on the campus to accommodate patients and their families. HomeTown Bank, a local bank Mr. Dalhouse founded and of which he was until recently chairman, is financing the hotel's construction. Dr. Murphy and Mr. Turner sit on HomeTown Bank's board.

Carilion and Mr. Dalhouse say he didn't make his $130,000 investment in the hotel until after Carilion sold the parcel to Texas developers in early 2006. "I wasn't dealing with Carilion. I was dealing with the new owners of that land who had paid fair market value for it," Mr. Dalhouse says.

Carilion says its transformation into a multispecialty clinic will eventually lower local health-care costs. But many patients say they have yet to see relief from Carilion medical bills.

The Roanoke City General District Court devotes one morning a week to cases filed by Carilion. In its fiscal year ended Sept. 30, Carilion says it sued 9,888 patients, garnished the wages of 5,478 people and placed liens on 3,920 homes. Carilion says the people it takes to court have the means to pay their bills.

On a Thursday morning in June, a Carilion representative waited outside a courtroom to intercept the half-dozen patients who had responded to summonses to appear in court. She took them to a side room to work out payment plans. A judge later called out names of close to 100 patients who didn't show and, one-by-one, entered judgments against them.

One of the patients who came to court, a 32-year-old housewife named Christie Masellis, faced a $12,137.12 bill. She had gastric bypass surgery at a Carilion facility in 2005. After developing complications, she required two more surgeries. She says her insurer covered the first surgery but not the two follow-ups because it changed its coverage policy.

Mrs. Masellis has two children. Her husband, Mark, earns about $49,000 a year working for an auto-parts distributor. Mrs. Masellis says she inquired about qualifying for hospital financial assistance, but the Carilion representative told her she was no longer eligible for charity care because her account was past due. The representative agreed to put her account on hold until Sept. 30 but offered her no discount. The bill included $2,514.82 in interest charges Carilion added to the original debt of $9,622.30.

Carilion's Mr. Earnhart says Mrs. Masellis had already received more than $15,000 in charity-care discounts. The suit Carilion filed is "for the remainder of the bill," he says.

Mr. and Mrs. Masellis have begun the process of filing for personal bankruptcy. Mr. Masellis says the hospital bill was a big factor in the decision, though the couple has other debts, including a $68,000 mortgage.

When some patients don't pay their bills, Carilion places liens on their homes. Carilion says it doesn't track how many liens it has outstanding, but the close to 4,000 it filed in 2007 "is representative of a typical year," Mr. Earnhart says. Carilion doesn't foreclose on homes and only collects when properties are sold, he says.

Dr. Murphy says Carilion only sues patients and places liens on their homes if it believes they have the ability to pay. "If you're asking me if it's right in a right-and-wrong sense, it's not," he says. But Carilion can't be blamed for the country's "broken" health-care system, he says.

By: John Carreyrou
Wall Street Journal; August 28, 2008

The Tennessee Valley Authority asked federal regulators to renew construction permits for two unfinished nuclear reactors in northeast Alabama that it virtually abandoned twenty years ago.

A Nuclear Regulatory Commission spokesman says it is probably the first request of this type the commission has received and may take some time to review.

The TVA deferred construction on the Unit 1 and Unit 2 reactor at Bellefonte site near Scottsboro, Ala., in the 1980s. It asked the NRC to cancel the construction permits in 2006.

But the nation's largest public utility is looking at all options to meet future power needs and it now wants to study the feasibility of using Potable Water Tanks and finishing those reactors.

Wall Street Journal; August 28, 2008

Credit Woes, High Prices Drive Consumers to Find New Home for Old Rolex

The U.K.'s alternative-credit industry has struck gold -- literally.

Business is booming at the country's pawnbrokers as the effect of the credit crunch forces a small but increasing number of consumers to sell their gold. And with gold trading close to record prices, the number of outright sellers of the precious metal has risen, mirroring similar trends in the U.S.

"Banks have been stricter over the last several years and have tightened lending criteria, which has created more demand for alternative forms such as pawnbroking," said Des Milligan, chief executive of the U.K. National Pawnbrokers Association. "This has been completely exacerbated by the credit crunch."

Gold has risen some $200 a troy ounce from a year ago, when the credit crunch first erupted into the British psyche. It is hovering near $840 an ounce on the world spot market. At one point in March, it hit a peak of $1,032.50 an ounce.

The precious metal always has been a popular item for mens wedding rings and at pawnbrokers. Even a piece of broken jewelry that might have little value to its owner can be pledged to the pawnbroker, who pays the item's owner a fee over a set time period. The pawnbroker collects interest on the pledge if the consumer redeems the item.

Unredeemed items at the end of the contract term are generally sent to public auction for sale, or, if that isn't successful, the pawnbroker buys them back and sells them itself. More than 97% of U.K. pawnbroker pledges are gold and diamonds.

H&T Group, which is one of two publicly traded pawnbrokers in Britain along with Albemarle & Bond Holdings, has been in business since the late 19th century. H&T's first-half profit was up 38% to £3.1 million ($5.7 million) from a year earlier. The company said this has been driven by a simple message on the marketing side: "We buy gold."

Laurent Genthialon, H&T's director of finance, said the introduction of simpler buyback contracts has boosted its business. In addition, the advent of Web sites such as eBay has made it more acceptable for people to sell secondhand items, he said.

Pawnbrokers also are roping in a new type of customer -- small-business owners who are having trouble obtaining credit from retail banks and instead opt for pawnbroker payouts to secure financing.

"Expensive gold jewelry or Rolex watches are now being used to redeem at pawnbrokers, with business people able to borrow large amounts on the back of this, perhaps £30,000 to £40,000," said Mr. Milligan. But unlike the goods pawned by consumers, these items are almost always redeemed eventually, he said.

By: Andrea Hotter
Wall Street Journal; August 28, 2008

An otherwise dismal earnings season is about to get a happy ending.

Personal-computer maker Dell unveils fiscal-second-quarter results after Thursday's closing bell. Every shake of the Magic 8-Ball points to a good report for the company, the world's second-biggest PC maker by sales after Hewlett-Packard.

Research firm Gartner said Dell's PC sales rose nearly 22% in the calendar second quarter from a year earlier, outpacing industry growth of 16%. Retail sales in Dell's fiscal quarter, which started a month later, in May, got the full benefit of tax-rebate checks sent to consumers beginning that month. The dollar was still weak for most of the quarter, helping overseas revenue. Aggressive belt-tightening, including job cuts, likely helped margins.

After suffering a three-year slump, Dell's shares have jumped 41% since mid-April. Even as other corporate profits have ground to a halt, the tech sector generally has been a source of strength for investors, boosted by seemingly unquenchable overseas demand. While earnings in the S&P 500 slumped again in the second quarter, tech earnings rose nearly 15%.

The outlook might not be as encouraging, for Dell or for tech. The dollar has strengthened. The global economy is slowing, hitting one of tech's strongest areas for growth. In the U.S., retail sales -- an important growth source for Dell in particular -- could suffer if consumer spending weakens as expected. PC-sales growth has been largely driven by cheaper prices; if Dell can't keep costs in line, margins could suffer.

Businesses' tech spending seems to be holding up. But it has slowed in every downturn since World War II, and this time will likely be no different.

Dell's earnings report could be tech's last hurrah for a while.

By: Mark Gongloff
Wall Street Journal; August 28, 2008

Poor Credit Conditions, Steady Drip of Firings Suggest More Pain in Fall

The securities industry pays well, but employment is highly volatile. And autumn is typically the season of greatest sadness. Horrid credit conditions and this summer's steady drip of firings suggest the ax will fall with full force when Wall Street hobbles back to business after Labor Day.

Despite news ranging from layoffs, to hiring freezes, to bans on color copying, the official jobs figures don't yet show major stress. Employment in the industry actually rose 0.4% in the second quarter from the first, according to Department of Labor statistics. But this is cold comfort, as there is a lag between the announcements of layoffs and their appearance in government figures.

Moreover, the bloodletting appears to have grown heavier since the end of June. This is worrying. Employers typically don't cut many jobs in the summer. A study by human-resources firm Challenger, Gray & Christmas suggests firings over the past 15 years, on average, were 18% lower in the summer than in the spring.

Employers typically then pick up the pace in the fall as budgets for the following year come in tighter -- sackings ramp up 30% from the summer. It is only somewhat coincidental that fewer mouths mean bigger bonuses for those who remain.

How bad could it get? Many recruiters claim this may be the direst financial crisis in decades. And the longer the crunch lasts, the better the chances become that this crack could cause Wall Street even more pain than the big downturn of the early 1970s.

About 17% of securities industry workers lost their jobs from 1972 through 1974. In New York City, nearly one in four did. Smart bankers should start squirreling away those nuts before the cold snap hits.

Refinancing the Financiers

Debt refinancing is the next big challenge for the world's banks. After being mauled by subprime-mortgage-related losses and tortuous capital raisings, financial institutions must renew an increasing proportion of their own funding, and at a much greater cost.

This refinancing challenge is another legacy of the credit boom. When times were easy, in 2006, banks shortened the maturity and increased the volume of their floating-rate notes, which pay a fixed premium to the London interbank offer rate, or Libor, a benchmark meant to reflect the rates at which banks lend to one another.

That exuberance leaves $871 billion of long-term debt to refinance by the end of 2009, according to J.P. Morgan Chase.

If the rollovers came in May, it wouldn't have been so bad. Then the spread on credit default swaps for financial institutions on the Itraxx index had fallen to 0.54 percentage point from 1.3 points in March.

With economies stumbling and house prices still falling, the spread has climbed back above 0.9 point.

The refinancing schedule seems to be influencing the CDS spreads of individual banks. Take UniCredit. Over the past year, the Italian bank's spread has widened 113%, not too bad a performance in a dismal credit market.

But almost half of that widening has come in the past month, perhaps in recognition that it has to roll over $6 billion of floating-rate notes by Sept. 12.

In contrast, Barclays has no floating-rate notes to roll over before December. Its CDS spread has widened a modest 14% in the past month. Refinancing uncertainty may have contributed to wider spreads at the brokers -- up 60% in the past three months at both Merrill Lynch and Goldman Sachs Group (both suspect companies).

In a deleveraging financial world, rolling over debt no longer is necessarily a routine operation, even for solid institutions. But once the banks and brokers find the new money, they have to deal with the consequences.

The highly leveraged balance sheets of financial institutions multiply the effect of higher funding costs. All things being equal an added 0.3 point on interest rate paid translates into something like two points in lower return on equity.

Wall Street Journal; August 28, 2008

Franchisers are becoming increasingly creative in marketing themselves.

Some are giving hefty discounts to franchise employees who want to become owners. One is introducing a "lite" version of its concept designed for those seeking a part-time franchise to augment their income. Another is offering a rare money-back guarantee.

As franchises proliferate and competition for new franchisees intensifies, franchisers are using such innovative tactics to ensure their own longevity and success.

Employee Discounts

Dwyer Group encourages workers at its various repair and maintenance franchises to eventually buy their own franchise. For example, employees of some lawn care franchise can discounts off the initial cost of a franchise, which could save the new owner thousands of dollars.

The intention is to help its franchisees attract industrious employees and keep them longer, says Mike Bidwell, president of Waco, Texas-based Dwyer. "And if a person does move on to buy a franchise," he adds, "we get a better-quality franchisee, who has a higher probability of success." Mark Liston, director of sales recruiting for Valpak Direct Marketing Systems Inc., a direct-mail advertising franchiser, says that as competition for a shrinking work force intensified, executives at the Largo, Fla., company asked themselves: "What do we need to do to bring in fresh talent and create franchisees for the future?"

The answer: launch an "earn-and-learn" program that seeks to woo future entrepreneurs graduating from college.

Sales representatives who finish three years in the top performance quartile can qualify to receive the $50,000 initial cost of setting up a Valpak franchise. Alternatively, the company will contribute $10,000 -- either to help pay off a college loan, obtain an M.B.A. or make a down payment on another franchise of the recipient's choosing. Valpak does business with numerous franchisees. So the thinking is that a franchisee that the company has helped out could very well eventually become a client.

Money-Back Guarantee

To accelerate its expansion plans, and reduce the uncertainty of would-be franchisees about buying one of its car-painting shops, Maaco Enterprises Inc. recently introduced an extraordinary proposition: If after the first year a new franchisee hasn't achieved a certain sales level despite having operated a "first-class" business, the company will buy the franchise back. Certain conditions apply, including using sale proceeds first to pay off loans outstanding and any money due Maaco.

Company president David Lapps expects that in the current credit environment Maaco's guarantee will make banks weighing loans to prospective franchisees "much more comfortable with the investment, because it's somewhat underwritten."

Meantime, one franchiser, Homevestors of America, which buys, repairs and then rents or sells single-family homes, has come up with a version of its franchise aimed at part-timers.

Instead of the usual $50,000 fee for a traditional franchise, so-called associated franchisees will pay $12,000. And unlike full-time franchisees, part-timers won't have an annual quota of having to buy a certain number of properties per year. Instead, they will have to generate at least $6,000 in annual fees for the franchiser.

"One problem is money, another is time" in deterring many would-be franchisees, says Homevestors Chief Executive John Hayes when explaining why the firm, a unit of Franchise Brands LLC, Milford, Conn., created the mini franchise.

By: Richard Gibson
Wall Street Journal; August 26, 2008

The Sacramento Bee is offering voluntary buyouts to a majority of its full-time employees in the latest round of cost-cutting at the newspaper.

Publisher Cheryl Dell says buyouts are being offered to 55% of the paper's full-time employees and a smaller number of part-timers. The buyout offer includes about 200 of the 240 full time news and editorial-page employees.

Ms. Dell says ad revenue is down more than 22% this year at The McClatchy Co.'s papers in California and Florida.

Sacramento-based McClatchy, which announced a wage freeze almost two weeks ago, owns 30 daily newspapers nationwide.

The Modesto Bee offered all its full-time employees buyouts last week, and the Sacramento paper's move Monday comes on top of the elimination of 86 jobs there in June. The paper hinted more layoffs are possible.

Wall Street Journal; August 26, 2008

Abry Partners LLC agreed to buy the Canadian data-center company Q9 Networks Inc. for 361 million Canadian dollars ($345 million) as the private-equity firm moves to expand into the Internet-infrastructure market. Boston-based Abry, which specializes in media and communications, will pay C$17.05 for each share outstanding of Toronto-based Q9, a 31% premium to Friday's closing price on the Toronto Stock Exchange. Q9 provides outsourced data-center infrastructure and managed services for information-technology operations and data processing. Holders of 28% of Q9`s stock, including Chief Executive Osama Arafat and President Paul Sharpe, have agreed to back Abry`s bid. Q9`s fiscal second-quarter results came in below expectations, with some analysts placing the blame on spending to expand facilities. The deal contains a "go shop" provision that will allow Q9 to solicit other bids by Oct. 3.

Wall Street Journal; August 26, 2008

Advanced Micro Devices Inc. agreed to sell its digital-television business to Broadcom Corp. for $192.8 million as the chip maker moves to streamline itself as it battles Intel Corp. The deal, set to close by year's end, will bolster AMD's balance sheet and lower the amount of revenue the company needs to generate to break even, said President and Chief Executive Dirk Meyer. Broadcom said that combining AMD's digital-TV efforts with its own will allow the communication-chip maker to offer a complete line of products that covers the entire segment, from low to high end. The company has seen digital TV as a key growth area. Some 530 AMD employees will join Broadcom through the deal. Mr. Meyer became CEO of AMD last week with the challenge of returning the company to profitability after seven consecutive quarterly losses and transforming the way computers process graphics and information. The company's cost structure has been among the biggest worries for investors, causing AMD to burn through its cash.

Wall Street Journal; August 26, 2008

Many tech-industry watchers say online software will be the way most businesses prefer to buy software in the future. But to reach these customers, the upstarts that deliver software this way will have to adopt a sales strategy a lot like those of the traditional software companies they are trying to displace. That is because online software doesn’t just sell itself.

Unlike traditional software, which businesses run on hardware they own and operate, workers access online software, also known as software as a service, through a Web browser. It works the same way as an email account from Google or an online photo-sharing service from Yahoo. There is nothing to install, so workers can start using online software without the aid of the tech department. That makes it easier for companies that sell online software to get into a business than their on-premises competitors.

Seizing on this, investors bought into online-software companies in a big way. During the first 10 months of 2007, shares of 15 online-software companies tracked by Thomas Weisel Partners increased in value 61%. Since then, however, these companies have lost about a third of their value.

Wall Street has realized that it isn’t enough to simply offer online software—you have to have a sales strategy that can make your offering a corporate standard. It is possible to get individuals, project teams or small businesses to buy online software through word-of-mouth marketing, but it is hard to make money from these groups—at least the kind of money necessary to become a billion-dollar company.

In order to get there, they can’t operate like an Internet start-up, letting their technology spread virally as end users hear about it. They need to sell to the same executives and information-technology professionals who made purchasing decisions before online software was an option. Businesses have a lot riding on the decision to use one product or another. And while having pockets of workers advocate for a particular piece of software is a plus, the execs who sign the big checks still want to see demos, vet the seller and do all the things they have always done when they buy software.

Many shipping software companies have learned this lesson. So they are investing heavily in sales and marketing. And no public software-as-a-service company has invested more as a percentage of revenue than SuccessFactors, which makes employee-performance-management software. In its most recent fiscal year, SuccessFactors spent 108% of its revenue on sales and marketing.

The reason: “You have to spend the money to get there,” SuccessFactors Chief Executive Lars Dalgaard tells the Business Technology Blog. While 108% may sound over-the-top, SuccessFactors, which anticipates revenue just over $100 million in 2008—and other companies like it—is trying to expand dramatically. Dalgaard recently hired one sales group that targets midsize businesses and another to target small businesses. As the company expands into Europe and Asia, he is also hiring teams that speak local languages.

Many of the software vendors that rose to the billion-dollar-revenue level a decade ago have either stalled or been acquired. And there is a void in the industry that software-as-a-service companies are racing to fill.

It is just going take a while. “It’s hard to get to buy from you,” says Dalgaard.

Ticketmaster said 6.8 million tickets to the Beijing Games were sold world-wide, the most ever for the Olympics.

The company, which last week officially was spun off from IAC/InterActiveCorp along with HSN home-shopping network, distributed tickets to the international Olympic committees and handled all domestic ticket sales. (News Corp.'s Dow Jones & Co., publisher of The Wall Street Journal, jointly owns a personal-finance Web site with IAC.)

Ticketmaster hopes to use its Olympics experience to boost its presence in China, where ticket brokering is still a fragmented and young industry, and online payment systems are relatively primitive compared with more-developed economies such as the U.S.

"This was the most complex, most high-profile event," Chief Executive Sean Moriarty said Monday. "We have been presented with some extraordinary challenges."

So far, Ticketmaster is present in six markets, and is looking to expand. The company has 6,500 outlets globally and about 35% of its revenue comes from outside the U.S.

China poses additional challenges. Apart from the lack of a widely used online-payment system, Chinese customers have different habits, such as the desire to receive tickets at the point where they pay. In other markets, customers are generally comfortable paying first and getting their tickets later.

In China, some companies employ couriers to hand-deliver tickets to customers. Mr. Moriarty said rolling out more digital tickets could alleviate that need.

Early Olympics sales rounds were beset with problems as the volume of interest exceeded expectations last year, causing the system to collapse under the heavy load.

By the May round of sales, Ticketmaster's Web site was able to handle its biggest single day -- 175 million page views, with 27 million in the first hour alone. "We are extremely pleased with the results," Mr. Moriarty said.

Even after domestic tickets were sold out, some foreign-passport holders were still able to purchase tickets locally through third-party ticket brokers. During the Games, observers noticed an unusually high number of empty seats in the stands, which some officials attributed to normal scheduling and others blamed on tickets doled out to sponsors.

By: Shai Oster
Wall Street Journal; August 26, 2008

Tennis Star Decides Updated Nike Garb Won't Show at Open

Hours before his first U.S. Open match Monday, Rafael Nadal decided that his game was more important than his wardrobe, telling his advisers and corporate sponsor Nike Inc. that he wasn't ready for an image makeover after all.

Over three days the exuberant Spanish star known as Rafa had practiced in new fashion apparel that included such radical adjustments as shirts with short sleeves and pants that stopped above the knee instead of a few inches below.

But Mr. Nadal ultimately decided that his first match at the final Grand Slam event of the year wasn't the right setting for his planned sartorial reinvention -- particularly after he had captured two Grand Slams, Olympic gold and the top spot in the world rankings in his old garb.

"Frankly, Nadal is on a roll," said Kilee Hughes, a spokesman for Beaverton, Ore.-based Nike, which designs Mr. Nadal's clothes. "We listen to the voice of the athlete."

Nike had unveiled Mr. Nadal's new look after months of careful planning that began with a trip by Nike's design team to the star's home in Majorca, Spain. The company put its new lightweight shirt through "numerous discussions and wear-testings" to ensure that it wouldn't hinder his performance, and it created shorts designed to "move with him -- from baseline to net -- without chafing or bunching up." It praised the final ensemble as a look that "balances his casual off-court personality with the technical precision and passion he brings to the game."

But perhaps no one is more resistant to change than an athlete on a winning streak. In a field in which some male athletes wear women's apparel, such as underwear, or forego shaving to preserve a winning streak, it isn't so surprising that Mr. Nadal decided not to make the change overnight, particularly on a stage as grand as the U.S. Open.

Nike's Ms. Hughes said Mr. Nadal's change of mind was "not a setback at all" for Nike but rather the byproduct of a "highly unusual" schedule. She said Mr. Nadal is still committed to switching to the new gear, perhaps at one of the smaller tournaments after the U.S. Open.

The Wall Street Journal reported Monday that after months of consultation with designers at Nike and his management team, Mr. Nadal had decided to shift his image. Now that he was the top player on the planet, Mr. Nadal was ready to bid farewell to the adolescent muscle T-shirts and Capri-style pants that had garnered nearly as much renown as his lightning strokes and adopt a more traditional tennis look.

"I am excited about evolving my on-court apparel with Nike to a polo and shorter-length short," Mr. Nadal said in a statement Monday afternoon. "For the U.S. Open, however, we collectively decided I would continue wearing the apparel I've been competing in all year. It's a decision we made based on the limited time I've had to practice in the new apparel between the Olympics and the U.S. Open."

So far, so good. Mr. Nadal won his opening match Monday in straight sets, sleevelessly.

By: Matthew Futterman
Wall Street Journal; August 26, 2008

The credit crunch has endured for more than a year, and the Wall Street investment banks still are trying to dig out from under the wreckage. Deal Journal combed through some analyst reports to get a sense of how they are doing.

First, the progress. The four big, publicly traded, stand-alone U.S. investment banks -- Goldman Sachs Group, Morgan Stanley, Merrill Lynch and Lehman Brothers Holdings -- have about $60 billion of leveraged-buyout-related loans still on their books, having cut their exposure 30% in the second quarter, according to Banc of America Securities analyst Michael Hecht.

As to where these four stand now, the leader in total gross corporate loans and commitments is Merrill, which has $94.7 billion of exposure, according to Mr. Hecht.

Then comes Morgan Stanley at $76.7 billion, Goldman at $73.9 billion and Lehman at $37.1 billion.

On a net-exposure basis, which includes the effects of hedging and other activities, Merrill is still the leader at $79.9 billion, followed by Morgan Stanley at $40 billion and Lehman at $29.49 billion, according to Mr. Hecht.

(Mr. Hecht says Goldman doesn't provide enough information for such a comparison).

Who still has the most leveraged loans? Goldman Sachs has the highest gross percentage of non-investment-grade loans in its loan book, at 49%, and Morgan Stanley has the smallest, at 23%. (Merrill is at 30% and Lehman at 24%.)

And the banks still have far to go: Citigroup analyst Prashant Bhatia estimates Goldman has $22 billion of leveraged loans left to sell, followed by Morgan Stanley with $12.7 billion, Lehman with $11.5 billion and Merrill with $7.5 billion.

By: Heidi Moore
Wall Street Journal; August 26, 2008

Biden Raps Hedge Funds, Millionaire Tax Breaks; Foreign Investors Get Pass

Democratic presidential nominee Barack Obama has picked Delaware Sen. Joe Biden to be his running mate. Mr. Biden's foreign-policy experience made him Mr. Obama's choice, according to news reports. But what of Mr. Biden's views on deal making and Wall Street? Here is a quick look.

Not a fan of hedge funds: In a Democratic debate on "This Week With George Stephanopoulos" last year, Mr. Biden blamed hedge funds and private-equity funds for the credit crunch: "We need more transparency, particularly with regard to hedge funds and private-equity funds. They are the ones that are causing this thing to go under. And there's no transparency, no accountability. We don't know how deep this problem is."

A stable capital-gains tax: Mr. Biden voted against cutting the 15% capital-gains tax rate in 2005 and 2006. He has said he believes raising taxes on dividends will raise $195 billion a year.

Caution over, but not rejection of, sovereign-wealth funds: Mr. Biden led Senate hearings in June on sovereign-wealth funds and urged caution when accepting investments from the investment arms of foreign countries, but credited such funds with helping bolster several U.S. banks. Mr. Biden said greater transparency would make sovereign-wealth funds appear no less a threat to U.S. national-security interests but that "punitive defensive regulation could be self-defeating, depriving us of potential benefits out of the fear of potential harm."

No tax breaks for anyone earning more than $1 million: Sorry, Wall Street. Those deal makers who are still employed will surely pay higher taxes if an Obama-Biden administration has its way. Mr. Biden has said he supports the elimination of tax cuts for anyone earning more than $1 million a year, which he says would raise $85 billion a year for the government.

By: Heidi Moore
Wall Street Journal; August 26, 2008

Credit Plan Gives Nation's Neediest the Funding for Medical Treatment -- and Tool for Charging It

Virender Kumar's leg was crushed when a truck hit the motorbike he was riding, and he was brought to a private hospital. The ward at Gaba Hospital is damp and cramped. Ceiling fans whir in the sweltering heat.

But things aren't as bad as they could have been for the 36-year-old shoe salesman. Because of a new Indian government initiative, Mr. Kumar carries a smart card that entitles him to 30,000 rupees, about $700, of hospital care. That can go a long way at the treatment prices set by the program. A day in intensive care, for instance, costs as much as $23.

"For poor people, it's great," says Mr. Kumar.

To qualify for the National Health Insurance Program, families must meet certain criteria and generally earn less than about $100 a year.

The smart card, which contains personal data and fingerprints for an entire family, costs participants less than $1 -- what could be a day's pay for a casual laborer. The fee is intended to make sure beneficiaries value the program and take time to understand it, and it creates an obligation on the part of the government to deliver. The card is good at any hospital, private or public, that has enrolled. While a universal healthcare program like this one would be great in the United States, many health insurance companies, like Priority health who provides Michigan health insurance, take care of their clients, and offer great benefits at affordable prices.

India has earmarked $1 billion for the rollout of the program by insurance companies in states across the country. The program isn't expected to fund itself -- it will be bankrolled by the government because the beneficiaries are so poor.

Many health-care programs have been introduced in India by New Delhi, state governments and nongovernmental organizations. But so far, none of those programs has taken root throughout the country.

The National Health Insurance Program is different, according to the Indian government, because of its use of technology; its business model, in which insurance companies and hospitals are given incentives to take part; and because the information on the smart cards is secure. The program enables a family that is below the poverty line to choose where its members would like to receive their benefits, and it helps migrant workers who travel with the card and also likely wouldn't have the money to cover the costs of treatment up front.

The plan presents a way for insurance companies to market themselves and develop brand awareness. A large, private general-insurance company in India, ICICI Lombard General Insurance Company Ltd., which is a joint venture of ICICI Bank Ltd. of India and Fairfax Financial Holdings Ltd. of Canada, is introducing the program in the northern states of Haryana, Rajasthan and Uttar Pradesh -- regions with a combined population of more than 240 million people, many of whom would qualify. ICICI Lombard says that though the business currently operates at a loss, it views the program as a way of engaging with rural customers. And as India's economy grows, these customers may become better off.

For private hospitals, the program can increase the number of patients and potentially widen the client base. By opening private facilities to more patients it should take some of the weight off overflowing government hospitals.

Those government hospitals, which already offer free treatment to such patients, can also apply to join the program. If they do, they are paid the same rates private hospitals would get.

Since its launch in April, about 1.5 million people have joined the plan. India's government said it would like to add 12 million families before next April -- about 60 million people -- and then continue at that rate for another four years.

Rural India has enjoyed few of the fruits of growth as India's economy has expanded by about 9% annually over the past four years. Providing some welfare to India's poorest -- 60% of the nation's 1.1 billion people eke out a meager living off the land -- has been a key focus of the ruling coalition, led by the Congress Party.

During the past four years, the government has rolled out a host of programs aimed at improving life for the poor, and the pace has accelerated as the government approaches the next general election, which must be held by next May.

The health-care plan has had plenty of teething trouble. In rural areas where there is no electricity, teams have to carry mobile generators to run their printers, scanners and other equipment. Dust gets into the printers and breaks them. In the summer heat, the tape that needs to be affixed to the smart cards gets stuck in the machines, which are imported and designed to operate in cooler conditions.

At a local school in the village of Balachaur, families lined up one warm, humid monsoon afternoon in August to register for the program.

It is not long before a problem arises.

Vidhya Devi, the wife of a farm worker with two daughters, says only her husband's name is on the card, making only him eligible for care.

Himanshu Roy, a manager with ICICI Lombard, explains that this problem occurs frequently because the state government has provided incomplete information. He says Mrs. Devi needs to write to the state, then present the complete information.

Another hurdle for the plan: It requires families to register in their home states, where they need to already have been recognized as sufficiently poor to qualify. That means some of those who are in need of hospital treatment but are far from home might not be able to tap into the funds.

And since it is limited to hospital care, the program doesn't address some of the factors that cause many illnesses in India, such as malnutrition.

Supporters say despite the program's shortcomings it provides a crucial lifeline for India's poorest who can barely afford food, let alone hospital treatment. For them, hospitalization typically means borrowing money from extended family members or paying extortionate interest rates to a moneylender.

"The moment they are hospitalized, they are dead, whether they die in the hospital, or when they come out of the hospital they are burdened with so much debt they will never recover," said Anil Swarup, director general of labor and welfare at the Ministry of Labor and Employment in New Delhi.

In Gaba Hospital in Jagadhri, where Virender Kumar sought treatment for his leg, B.S. Gaba, the hospital's director and owner, says more than 1,000 people have had their treatment paid for in the two months since the smart-card program was introduced there. "It's the best scheme India has, I think, and real welfare for the poor," he says.

By: Jackie Range
Wall Street Journal; August 26, 2008

I recently said that America "would become France" if a certain bill now in Congress -- which would virtually guarantee that every company becomes unionized -- ever became law. Deceptively named the Employee Free Choice Act, this bill would in most cases take away an employee's right to a secret ballot in a union election and give unions the option to have federal arbitrators set the wages, benefits, hours and all other terms and conditions of employment.

Countries other than France have suffered the consequences of bad labor laws. When I was CEO of Handy Dan, the precursor to Home Depot, I traveled to England in the 1970s to take a look at a chain of stores we were considering for acquisition. When I arrived in London, the airport workers, bus drivers and garbage collectors were all on strike. The major shareholder of the company asked me to interview three employees. He informed me afterward that he wanted me to hire them at Handy Dan "because the U.K. was finished." He explained that his tax rate was 75% and there were no incentives to grow.

When I asked what he and his company were doing about it, he told me that the media would attack the company if it got involved politically. I jumped all over him and the company's CEO for letting this happen without a fight. Needless to say, Handy Dan did not buy these stores. Fortunately for Britain and thanks to the courage of Margaret Thatcher, both tax rates and the power of labor unions were reduced in later years.

My advice today about the Employee Free Choice Act is the same as I gave in England: You better fight to stop this undemocratic bill: hire a labor lawyer and have current labor laws protected. I'm not the only one who thinks the proposed law violates long-established principles of democracy. In these pages, George McGovern, a former Democratic senator and a champion of organized labor, called this bill what it really is -- "a disturbing and undemocratic overreach not in the interest of either management or labor."

To my astonishment, most CEOs in America are unaware of this planned hostile takeover of their human resources. I am retired, so this is not business for me. It's strictly personal. I care deeply about the competitiveness of American companies and our system of free enterprise.

I know that labor-union contributions are the lifeblood of many in the House and Senate. But I just cannot understand how so many in Congress are willing to sell out America for political dollars. When the bill came up for a key vote in 2007, all Senate Democrats voted yes and only two Democrats in the House had the courage to vote no. While the bill passed the House, it failed in the Senate because the Democrats were unable to get the required 60 votes to stop a Republican filibuster.

If the Democrats have a good November, the measure could become law early next year. Bill co-sponsor Barack Obama has said: "We will pass the Employee Free Choice Act. It's not a matter of if, it's a matter of when. We may have to wait for the next president to sign it, but we will get this thing done."

Those who support the bill claim that it will "protect workers." This doesn't pass the straight-face test. Mr. McGovern saw through the false rhetoric of the bill's sponsors, saying that the measure "runs counter to ideals that were once at the core of the labor movement. Instead of providing a voice for the unheard, [it] risks silencing those who would speak."

It's time to stand up and fight. America's competitiveness, jobs and right to a secret ballot are at stake. CEOs, and employees who want to keep their jobs in America -- and those retirees like me who would not be where we are today but for our system of free enterprise -- must stop this anti-democratic legislation.

By: Bernie Marcus
Wall Street Journal; August 26, 2008

Supply Grew in July to a Record 11.2 Months of Inventory; That Is Trouble for Publicly Traded Sellers of New Homes

With each economic release related to the state of the housing market comes the hope that this one, finally, will prove that the residential real-estate market is on the way to recovery.

But disappointment has been the overriding influence for those trading home-building stocks, which have made several attempts to rebound from devastating losses over the past three years, only to resume the previous downtrend.

Sales of existing homes rose 3.1% in July, compared with the June rate of sales, but the National Association of Realtors also said that housing supply grew once again, to a record 11.2 months of supply on the market. That is trouble for publicly traded sellers of new homes, which have been aggressively reducing inventory in an attempt to get ahead of the housing recession.

The SPDR S&P Home Builders exchange-traded fund, which tracks a basket of builders, is down 2% on the year, having put together a strong recovery since mid-July, when it was down 23% on the year. That's a better performance than the Standard & Poor's 500-stock index, down 12% on the year, but this ETF fell 48% in 2007, and the underlying stocks are still trying to regain their footing.

Analysts at UBS are skeptical, saying they don't expect a recovery in housing until mid-2009, which could damp interest in furthering this rally. "Limited near-term positive catalysts will lead to continued volatility in the stocks over next 2-3 months," they wrote.

Monday's home-sales news wasn't greeted warmly by investors in builders; the SPDR S&P Home Builders fund fell 74 cents, or 3.9%, to $18.25. Len Blum, managing director at investment bank Westwood Capital, says housing isn't likely to turn around until the supply overhang is eliminated, mortgages are more readily available again, and it becomes cheaper to buy versus renting a home. The firm still expects a 10.8% decline in home prices when compared with July 2008 levels.

UBS says the builders that have concentrated on "proactively" reducing land positions are better-positioned for the recovery, whenever it happens. Those include Toll Brothers, Ryland Group and Centex. Shares of those stocks have been mixed on the year; Toll has gained a bit more than 14% on the year, Ryland is down 18%, and Centex is down nearly 39%.

By: David Gaffen
Wall Street Journal; August 26, 2008

Subprime-lending woes that have pained mortgage lenders and Wall Street banks are taking a toll in another arena -- academic institutions such as Corinthian Colleges.

Private student loans are being lended to students more hesitantly, but obtaining a private student loan in addition to federal funding is not impossible. As Corinthian reports fiscal fourth-quarter results Tuesday, Wall Street wants to hear how well the company is handling borrowing stresses among its students.

The company, which offers short-term diploma and degree programs at more than 100 post-secondary schools across the U.S. and Canada, says about 10% of its fiscal 2008 revenue came from private loans to subprime student borrowers. However, "the bigger picture," says Kevin Doherty, at Banc of America Securities, "is that about 75% of it students are subprime."

Corinthian is ramping up a program to lend internally to those students, and has said that between 2% and 3% of would-be borrowers likely won't be eligible for loans. But that means a large number will. So the company faces the prospect that the bad debt that student-loan lenders are trying to avoid "grows on Corinthian's balance sheet," says Mr. Doherty.

That, says Amy Junker, a Robert W. Baird analyst, would likely mean compressed profit margins at some point.

She notes that the stock is near a 52-week high, and sports a lofty P/E exceeding 50, on company statements earlier this year that margins will expand in 2009 and beyond. But if subprime problems persist, Corinthian could fail at achieving those projections, undermining its richly priced shares.

By: Jeff D. Opdyke
Wall Street Journal; August 26, 2008

Coach Inc. said its board authorized the buyback of up to $1 billion in common stock, or about 10% of its current market capitalization, by June 2010.

The New York-based maker of handbags and other accessories also announced it had just finished its previous $1 billion buyback, which began in November 2007. During that buyback, Coach acquired 31.8 million common shares at an average of $31.42, including 5.7 million shares at an average of $28.45 since it announced its fourth-quarter earnings last month.

Coach reported a 33% jump in fiscal fourth-quarter net income, driven by higher sales and a favorable tax settlement, but said it wasn't optimistic about the retail environment amid consumer malaise. It also predicted first-quarter and fiscal 2009 earnings below analysts' expectations.

Coach, hedging against potential softness in North America, is trying to take advantage of new wealth in emerging markets, particularly China. The company bought out its distributor in Hong Kong, Macau and China in late May and plans to open 50 new locations in the region over the next five years.

Wall Street Journal; August 26, 2008

Target Corp., as part of a class-action settlement with the National Federation of the Blind, agreed to pay $6 million in damages to plaintiffs in California unable to use its online site.

The settlement, announced Wednesday, also requires Target to implement internal guidelines to make its site more accessible to the blind by Feb. 28, 2009, with assistance from the NFB.

The retailer and federation have agreed to a three-year relationship during which the advocacy group will keep testing the site to make sure it is accessible to blind people who use technologies such as screen-reading software. NFB said it will certify the site through its own certification program once the improvements are completed.

Under the financial portion of the settlement, Target will place $6 million in an interest-bearing account from which members of the California settlement class can make claims.

The issue centers on the Americans With Disabilities Act, a 1990 law that requires retailers and other public places to make accommodations for people with disabilities. Target had argued that the law covered only physical spaces.

"We feel that it is a wake-up call to companies that have Web sites that are selling goods and services," said Christopher S. Danielsen, a spokesman at the NFB. "They need to pay attention to accessibility." He also pointed out that the benefits of attracting new users far outweigh the costs of making changes to the site.

Mr. Danielsen noted that when the suit was filed two years ago, Target's site was more difficult to navigate than other sites, such as Walmart.com. He noted that at the time, many links on Target's site were unintelligible to screen-reading software, which converts written words into speech. He added, however, that Target has made progress, and said the advocacy group looks forward to working with Target to make additional improvements.

Steve Eastman, president of Target.com, said that "as the company's online business has evolved, we have made significant enhancements in order to provide an accessible shopping experience." He added that the company will work with the NFB on refinements to the Web site.

Associated Press
Wall Street Journal; August 28, 2008

A growing number of tech companies are riding the rising flood of corporate email and electronic records by pitching software to sift them -- and meeting resistance from lawyers who want a piece of the action.

Lawsuits increasingly rely on electronic documents being produced early on, feeding demand for tools that help archive and retrieve those records, a process known as e-discovery work. Much of that work requires little brainpower or legal training, says Michael Lynch, chief executive of British software company Autonomy Corp., which last year acquired e-discovery company Zantaz for $375 million.

"The old-fashioned way of doing this was having a lot of lawyers doing a lot of simple things," he says. "You would literally have lawyers reading through things saying 'there was chicken for lunch.' You don't need lawyers to know it's a lunch menu."

Among those who have jumped into the field are Hewlett-Packard Co., Xerox Corp., International Business Machines Corp. and EMC Corp., some of whom have bought smaller companies specializing in the work. They say in-house teams using their tools can cut e-discovery costs by half.

But big law firms, facing the loss of lucrative client fees, are crying foul. They question how much of the discovery process can be automated and how much money the tools will really save. They also say companies could end up spending more to fix mistakes. "You need to have some kind of quality control," says Robert Brownstone, a partner with the Silicon Valley law firm Fenwick & West, which consults with companies on how to combine software with lawyer supervision.

One company saving some cash is Comcast Corp. When outside lawyers working for the cable company recently requested thousands of archived documents for a court case, Genny Garrett, who is in charge of managing Comcast's records, found them by doing a search from her desktop computer.

The lawyers "were surprised," she says, that "they didn't have to wander around a warehouse" looking for records, a task that once generated big legal fees.

Comcast uses software from Tower Software, which was acquired this year by H-P. It archives and classifies employee e-mails and other documents as they are created. The system also creates inventories of paper records, Ms. Garrett says, so she can locate and retrieve documents by using computer searches. She says the software has saved thousands of attorney hours over the past few years because Comcast gets about 400 legal-search requests annually, many related to claims that arise when technicians visit customers' homes.

The technology suppliers say their software can save time by automatically setting aside any documents that would be subject to attorney-client privilege. The systems use linguistic technology to scan for certain words, group messages by subject matter and weed out duplicates.

Such systems can be expensive, especially for a large company, says Marty Smith, a lawyer whose consulting firm Metajure advises companies on e-discovery. He says a large client will pay $1 million or more for systems to archive and search electronic records. But the savings from automating the discovery process quickly make up for the cost of such a system, he says.

H-P says using lawyers to search through 100 gigabytes of data would cost about $180,000. But since its software automatically culls irrelevant documents, attorneys in such a case would have to go through only a small portion of that data -- for a cost of about $25,000, it says.

Mark Cochran, an executive vice president and general counsel at software firm McAfee Inc., says his company bought a software system from Autonomy in late 2006. He says that the cost of the system -- which he pegged at "several million dollars" -- was recouped after a few big cases, in which hiring an outside firm for discovery would have cost more than $2 million for each case.

The e-discovery push has accelerated since 2006, when federal courts finalized rules that increased the amount of electronic information that must be produced under tight deadlines. Expecting fast growth in the sector, companies such as Xerox, Symantec Corp. and Iron Mountain Inc. bought smaller software makers to expand their offerings.

"We're trying to get away from the traditional hardware model and into more of a services business," says Chris O'Brien, a vice president of litigation services at Xerox, which in 2006 bought a company in the field called Amici. That same year, IBM bought content-management company Filenet. EMC, which specializes in data-storage systems, launched its own e-discovery product.

The attorneys counter that there are pitfalls to replacing them. Early this year, a federal judge required chip maker Qualcomm Inc. to pay rival Broadcom Corp. more than $8 million after it failed to uncover and share emails relevant to a case.

Mr. Brownstone, the Fenwick lawyer, also tells of one client who declined to have attorneys oversee an email archives search, thinking internal IT staff could do a cheaper automated search. The IT workers disposed of files that, legally, had to be retained, he says. They were recovered, but only after the company paid Fenwick lawyers extra to fix the problem.

Recently, tech companies and lawyers have taken steps to resolve their conflict. Some law firms that handle big business cases -- such as Fenwick and San Francisco's Howard, Rice, Nemerovski, Canady, Falk & Rabkin, among others -- now consult with clients on which e-discovery software to choose and how to use it. Mr. Brownstone says that his firm has a proprietary system that combines software with attorney supervision that can save clients more than 20% of what they normally would pay his firm for an e-discovery project.

At EMC, Andrew Cohen, an in-house lawyer and vice president, has been making sales pitches to law firms. He says that providing tech services to law firms should help EMC win over litigators. Jonathan Martin, who heads H-P's e-discovery marketing, says his employer is close to hiring a lawyer with years of e-discovery experience to reach out to law firms.

Meanwhile, corporate clients say they are happy to see tech vendors develop more legal expertise, because they think it will help outside lawyers come to terms with automation.

"That's ultimately where this business is going," says John Frantz, a vice president and associate general counsel at Verizon Communications Inc., which uses FTI Consulting Inc. for automated e-discovery work. "It costs so much money to have humans do the work."

By: Justin Scheck
Wall Street Journal; August 22, 2008

After years of pitched battle, a homeowner reaches détente with her grass.

This summer, all has been strangely quiet on my yard's southwestern front.

It's the site where, three years ago, I launched a campaign to convert my lawn to organic care. That meant substituting toxic or synthetic chemicals to combat weeds and foster growth with natural ingredients from plant, animal and mineral sources such as corn gluten meal, seaweed extract and worm waste. In the heat of battle, I tested some wild weapons -- a flamethrower to toast weeds known as plantains and a drill attachment called the Dandelion Terminator that rips out the hearts of those yellow intruders. When weeds fought back my neighbors mocked; more than once, I considered surrendering.

But now, a welcome détente has set in. My grass is holding its own and looks good enough that visitors offer compliments -- a first at my house. I accept, although a bit reluctantly, because the truth is, I've been an absentee lawn warrior this year. All I managed to do this season was to fertilize and toss down some corn gluten to inhibit weed growth. There are still some patches of surly plantains and crabgrass, but nothing that two hours of hand-weeding and some extra grass seed won't fix this fall. And no watering has been necessary -- we've had decent rainfall but organic lawns are also notably drought-resistant -- and I mow about two to three times a month. In short, my lawn regimen has become boring.

This is what the experts promised when I first started chronicling my foray in this newspaper. "Year three, that's your turning point," said Scott Meyer, editor of Organic Gardening magazine, back in 2006. Along the way, readers offered creative solutions to keep spirits high, from dousing weeds with boiling water to eating them.

Today, however, the industry is moving well beyond homespun remedies. By year's end, Home Depot says it will voluntarily stop selling traditional chemical pesticides and herbicides in all its Canadian stores, replacing them with green alternatives as more of that country's communities ban pesticides for residential cosmetic use. Here in the U.S., the retailer says the organic category continues to blossom, with "double-digit" sales increases in organic landscaping products. And industry leader Scotts Miracle-Gro, which already sells an Organic Choice lawn fertilizer, says it will launch a full U.S. line of natural lawn products as soon as next year, complete with weed and pest controls. The company already offers such products in Europe and Canada.

"The emerging technology is increasingly encouraging," says Jim King, Scotts's vice president of corporate affairs.

Just how well new products like Organic Choice work, and how much educational and marketing muscle the company puts behind them, will be critical to taking the organic lawn movement more mainstream. While interest has surged -- today, 12 million households say they use only all-natural products on their lawns and gardens, about double the number in 2004 -- that's still a small fraction of the 100 million U.S. households with yards or gardens, according to the National Gardening Association. Partly, people accustomed to quick fixes with traditional pesticides and fertilizers still don't understand how natural products work. When asked, a mere 14% of people said they felt knowledgeable about organic lawn care, according to a 2008 NGA study.

In fact, organic care is pretty simple: Get soil healthy and pH-balanced using compost and other amendments so it fosters grass growth; the grass then crowds out weeds and doesn't require chemicals. But some skeptical homeowners think going "organic" is the same as doing nothing. I wondered too, and so when I started my quest, I left a large test area of the lawn untouched. Today, it's almost all weeds and there's a noticeable line between where the organically treated lawn begins and ends.

Perhaps the largest hurdle organic proponents face are long-held attitudes about what makes an attractive yard. In Harmony Sustainable Landscapes Inc. in Bothell, Wash., has offered three tiers of service for 10 years: "No Weeds," "Minimum Pesticides" and "Completely Organic." Today, about 60% of customers are still in the middle, wanting to decrease their environmental and health impact but still asking for a spot application of herbicides once a year. While corn gluten inhibits root development of weeds when they are germinating, there currently is no truly effective organic herbicide that can kill existing weeds but not the grass around it. "Weeds drive people crazy," says In Harmony co-owner Ladd Smith.

This perception has pitted neighbor against neighbor, with organic advocates likening pesticide use to second-hand smoke and the other side complaining about dandelion drift from the au naturals' lawns. Unlike Canada, all but nine U.S. states currently forbid local lawmakers from enacting residential pesticides bans because they would pre-empt looser state laws.

But that could change as homeowners become increasingly concerned about the health ramifications of the paint they spread, the countertops they install or the glue in the cabinets they hang. Earlier this year, a bill was introduced in California to restore local communities' rights to ban pesticides. And data from institutions such as the Mayo Clinic and the Harvard School of Public Health linking pesticides to Parkinson's and certain cancers in pets are further fueling the organic movement.

Paul Tukey, founder of SafeLawns.org, has been on the road since 2006 promoting organics. Five years ago, he says, he'd have been "chewed up and spit out." Now, 38 states later, he says audiences "greet me like a hero with answers.'"

And in a growing number of areas, large lawns are simply becoming passé. At In Harmony, an increasing number of clients are requesting lawns be substituted with indigenous plants and vegetable gardens. For my part, that's starting to seem like a more interesting and financially fruitful challenge -- at day's end, I'd be rewarded with something I can consume, as well as gawk at. Talk about impressing the dinner guests.

By: Gwendolyn Bounds
Wall Street Journal; August 23, 2008

Much hubbub has attended Damien Hirst's decision to sell his art directly via Sotheby's auction house in mid-September without going through his big-name gallerists, Larry Gagosian and Jay Joplin. Some have seen this direct-to-market ploy by the artist as more evidence of his titanic Duchampian originality, as if even the way he plans to sell his work is a radical new art form. According to the Web site Art Observed, Sotheby's spokesman Oliver Barker has offered his perspective that "Damien is totally fearless. He's not just an outstanding artist; he's a cultural phenomenon."

One might forgive Sotheby's its enthusiasm. The estimates for the total value of the coming London sale range from $100 million to $200 million. Unbelievers and obstinate refuseniks, however, view the entire episode as hype piled upon more hype around a ghoulish publicity-monger. The sale includes several more of Mr. Hirst's trademark pickled animal carcasses, such as a shark, a zebra and -- the centerpiece offering -- a cow with golden horns and hoofs (expected to fetch some $25 million).

Increasingly lost amid the noise is this question: What does it mean for the art market that a living artist bypasses dealers altogether and sells his wares directly at auction? There is some speculation that this might be a pivotal moment, like the end of the studio system in movies or the continuing decline of the record labels in the music business. Could the gallerist's traditional role as mediator between the contemporary artist and his market be passé?

Most insiders say that only at the topmost end of the market, where sales at auction are guaranteed by the artist's fame, could the middleman become an anachronism -- and that just a handful of artists, such as Damien Hirst and Jeff Koons, have the kind of fame it takes. Dealers still have a crucial role to play, the argument goes, in building the reputation of artists; in finding the right -- influential -- homes for artists' works; in persuading museums of artists' worth; in taking reviewers out to lunch. Furthermore, it is noted, the art biz differs from show biz in a fundamental way: Movies and music sell to a mass audience, while art sells singly to individuals.

That is where, for now, the debate seems to have stalled, at the consensus that nothing much will change. A comforting thought, perhaps, but one that falls apart at the slightest prodding. It's certainly comforting that the most imperiled are the top-end headhunters, like Mr. Gagosian, who encouraged the cult of celebrity to supplant content and aesthetics as the foremost value in art. But beyond that, one wonders how it will affect the role of galleries when ultimate success automatically carries a built-in penalty: If they create a big enough star, the star will have no need of them. At the very least, dealers and gallerists in contemporary art will face a solid ceiling beyond which they cannot maximize profit on the investment they made nurturing artists. They simply cannot compete with the global footprint of international auction houses, which offer artists instant access to world-wide markets.

In reality, the art biz is more like the movie or music biz than one might think. Mass markets, like mass media, affect the thinking of visual artists all too palpably these days, however uniquely each of their pieces may be made and sold.

As Russian, Chinese and Arab buyers enter the ultraspeculative end of the contemporary market, in which nobody knows why Hirst's dead cow is worth more than Koons's ceramic monkey, dealers will find themselves at a disadvantage to auction houses in other ways, too.

Because Sotheby's and Christie's appear to operate a species of global commodities exchange, with dates and prices instantly disclosed on the Internet, it all feels so much more transparent to, say, a new Chinese millionaire. In the first place, there will be a local office near him co-headed by a Chinese speaker who understands the millionaire's social sensitivities -- so much more pleasant than having to kow-tow to a self-important New York or London gallerist. It puts an end to a long era in which superior dealers could treat outsider clients with the snooty hauteur of a French waiter. Above all, though, the auction houses' relative transparency -- the fact that prices are set and transactions occur out in the open, for all to see -- will appeal to the international new money crowd that knows plenty about how money and markets work.

Dealers have always offered clients a higher degree of discretion than the public space of an auction ever can. That has traditionally been their great asset. But let's be candid: Nobody in Dubai or Shanghai wants a pickled cow to gaze at musingly in solitude for the sheer beauty of its hindquarters. When today's clients buy such wares, privacy is the last thing on their minds. They are buying into celebrity. As Thomas Hoving, the former director of the Metropolitan Museum, once said: "Social climbing and art have gone together since Alexander brought Lysippas to his court, and before."

As the market's top end begins to evaporate for them, contemporary dealers should reconsider the Duchamp-Warhol ethos of shock and celebrity that has come to dominate the art world. Perhaps it is time for dealers to start embracing what will save them: art valued on its merits without the hype.

By: Melik Kaylan
Wall Street Journal; August 23, 2008

In the early 1980s, my mother taught at an Oakland, Calif., community college. Her students ranged from blacks born in the rural South to Southeast Asian boat people. When I was myself away at school, she sent me a moving letter describing how much she loved the job. Whatever their backgrounds, she wrote, her students showed a hunger for education and for improving their lot in life. For the most part, she said, their writing got better, too.

The vision that captivated my mother and her students -- that education offers a chance not only for acquiring knowledge but for improving opportunity -- has long been central to the American dream. Yet it is a vision that has too often gone unrealized -- which is one reason that education reform has taken on such urgency in recent decades.

Since the release of "A Nation at Risk" 25 years ago, we have seen the introduction of top-down standards (including the No Child Behind Act), the spread of a bottom-up school-choice movement (including vouchers and charter schools), and the advent of entrepreneurial programs, like Teach for America, that combine a market-oriented approach with a focus on academic results.

Meanwhile, record numbers of students aspire to higher education, many with student loans, not least because the economic returns to a college degree are, despite a recent leveling off, indisputable. Thus all sorts of people are busy trying to make sure that more high-school grads get a shot not only at enrolling in college but at finishing it.

None of this much impresses Charles Murray. In "Real Education," he suggests that teachers, students and reformers are all suffering from a case of false consciousness. "The education system," he says, "is living a lie."

The problem with American education, according to Mr. Murray, is not what President Bush termed the "soft bigotry of low expectations" but rather the opposite: Far too many young people with inherent intellectual limitations are being pushed to advance academically when, Mr. Murray says, they are "just not smart enough" to improve much at all. It is "a triumph of hope over experience," he says, to believe that school reform can make meaningful improvements in the academic performance of below-average students. (He might have noted, but doesn't, that such students are disproportionately black and Hispanic.)

Thus students are being steered toward college when many should be directed toward jobs for which they are better suited. At the same time, Mr. Murray argues, we're giving short shrift to the academically gifted, who ought to be offered a rigorous education appropriate to their abilities rather than having their classroom experience dragged down by low-IQ underachievers.

Mr. Murray believes that Americans should forsake what he calls "unattainable egalitarian ideals of educational achievement" in favor of "attainable egalitarian ideals of personal dignity." For high-school students that would mean more realism about potentially lucrative vocational options.

Mr. Murray would also institute a series of CPA-like certification exams for which students could prepare in a variety of non-B.A.-granting postsecondary schools. Only true high-IQ achievers -- say, 10% or 20% of all students -- would go on to college, study the Great Books and learn virtue, too.

To be sure, Mr. Murray does see a place for a broad liberal education -- but only in elementary and middle school, where he would like teachers to use E.D. Hirsch's Core Knowledge curriculum.

What is one to make of all this? For one thing, it is dismayingly fatalistic. One can accept the idea that inherent academic abilities are unevenly distributed while also believing that many low-achieving kids -- and high-achieving kids, too, for that matter -- could learn a lot more than they are learning now. International tests show that students in many other nations bypass American kids in reading and math. Could such comparative results really be a function of higher raw intelligence overseas -- or are they more likely to reflect superior educational practices? It is telling that hard-headed education reformers like Eric Hanushek, Chester E. Finn and Jay Greene believe that we can do much more to boost the academic achievement of children upon whom Mr. Murray would essentially give up.

In Mr. Murray's deterministic vision of education, IQ scores matter considerably more than teaching or curriculum or effort -- variables that are within the control of individuals and not, as he would have it, mostly their DNA. He wants to make way for what is essentially an IQ-elite.

Let us hope that he has a fool-proof way of identifying this lucky group, beyond the universal IQ testing that he advocates. He does see his certification exams as egalitarian and notes in passing that otherwise nonelite students should be permitted to lobby for admission to advanced classes, so long as they accept the risk of flunking out. But one can't help thinking: Woe to those who get put in the wrong category.

While accusing education reformers of being wooly-headed romantics, then, Mr. Murray conjures up a romantic vision of his own. In his brave new world, the bell curve of abilities is cheerfully acknowledged; students and workers gladly accept their designated places in the pecking order; and happy, well-paid electricians and plumbers go about their business while their brainy brethren read Plato and prepare for the burdens of ruling the world. It is hard to believe that a dynamic, upwardly mobile society would emerge from such an arrangement, or "dignity" either.

The view outlined in "Real Education" seems far from the one that Mr. Murray put forward in "Losing Ground" (1984). In that influential book, a headlong assault on the welfare state, he called for an "infinitely forgiving" education system in which students can try over and over to succeed, even if only some will.

And indeed, there is something in the American creed that sees the classroom as exactly the place for such second chances, a place where the efforts of personal will (those of students, teachers and policymakers alike) can make a difference in what we learn and how we live.

Mr. Murray says that he is deeply concerned about the dangers of overestimating the abilities of students. To which one might reply: Aren't the dangers of underestimating their abilities vastly worse?

By: Ben Wildavsky
Wall Street Journal; August 22, 2008

Microsoft's new digital photo-sharing site spent most of its first day offline as its servers strained to handle a flood of traffic.

The site, called Photosynth, stitches together a set of related digital photos into a presentation that allows viewers to zoom and pan across the scene.

To create and view synths, you must download a free software application to your Windows PC.

Microsoft employees and partners, including National Geographic, had been tinkering with a private beta version of the technology. Microsoft was set to open Photosynth to the public late Wednesday, but on Thursday morning, the working site had already been replaced by a page that displayed an apology.

"The Photosynth site is a little overwhelmed just now" read a message on the site. By 7 p.m. ET, Microsoft said the site was partly working again; visitors could view 3D "synths" but not upload new ones, with that capability expected to be turned on "shortly."

During a preview of the final product on Tuesday, David Gedye, a group manager for Microsoft's Live Labs, said the team had been beating on the site to simulate the rush of new users expected after launch. But when asked, he sounded less than confident that the site could withstand the pressure. "We're very nervous," he said during an interview.

Microsoft expects people to create synths to archive collections or show off how they've decorated their homes or gardens.

National Geographic photographers have created synths around Machu Picchu, Stonehenge, Yosemite, the Taj Mahal and other locations.

A note at the National Geographic website Thursday afternoon said that "due to overwhelming interest in Photosynth, Microsoft is having some difficulty with its servers."

From staff and wire reports
USA Today; August 22, 2008

AT&T, taking aim at Best Buy's Geek Squad and other tech services, has launched a 50-state in-home support service for computers, TVs, broadband, wireless and more.

Prices start at just $69 — and you don't have to be an AT&T customer to use the service. Called "AT&T ConnecTech," the new service is not available to businesses.

The service, about nine months in development, grew out of a recognition that life for tech consumers is becoming increasingly complicated as new, even more sophisticated devices and services are introduced, says Carmen Nava, AT&T's senior vice president of consumer marketing operations.

"The home has become a very complex place," she says.

ConnecTech services run the gamut from hanging flat-screen TVs and installing wall-mounted speakers to setting up home computer networks. It also offers remote PC and phone support for digital products, including digital cameras and MP3 players.

Matt Davis, a research director at IDC, says AT&T's timing is good. "This wave of complexity is occurring" as new, converged services hit the market, he says. Many consumers, he says, "are not prepared to handle that." As a result, he says, AT&T "has got to take care of them."

AT&T's decision to offer the service in all 50 states will force the carrier to work with a vast network of outside contractors. Managing those relationships, while making sure customers get AT&T-quality support, could prove challenging, Davis says.

Still, Davis thinks ConnecTech is a smart move that could yield a bounty of payback in the form of consumer loyalty.

Profit is a motivator, but not as much as you might think, he says. The tech-support market currently generates several billion dollars a year in revenue: impressive, Davis says, but hardly a make-or-break number for AT&T, which rakes in about $120 billion annually.

"At its core, (ConnecTech) is a play to cement their relationship with customers and … up-sell" other products and services, Davis says.

Nava doesn't disagree. "Up until now, our (customer support) only went so far," she says.

As for the possibility of driving profits, Nava says that's a given. "Yes, we think we can make money. We wouldn't be doing it if we couldn't."

By Leslie Cauley
USA Today; August 22, 2008

Kohl's, Sears Build Brands As Children Clothe Their Avatars Online

Retailer Kohl's Corp. this month launched a new line of apparel, but the plaid skirts and printed T-shirts won't be sold in its 957 stores. Instead, it's trying something new in tween advertising, and selling them on Stardoll.com, a virtual community for teens and tweens where kids can fork over "Stardollars" -- purchased online at a nominal sum -- to buy apparel for their online characters.

With back-to-school sales off to a slow start, more old-line retailers and clothing labels are reaching out to kids online, enticing them to try virtual versions of their togs in hopes of making actual sales later. Kohl's first virtual line features pieces from its new Abbey Dawn collection, designed by singer Avril Lavigne. In its first 16 days, Kohl's Stardoll boutique logged some 2.2 million visits and sold 1.8 million items. Kohls.com lured 97,000 visitors who clicked through from the boutique site.

This month, casual-wear maker K-Swiss Inc. and lingerie and swimwear designer Eberjey rolled out virtual clothes on There.com. And in late July, retail pioneer Sears Holdings Corp. opened its first online boutique featuring back-to-school apparel and dorm-room furniture on teen site Zwinky.com. Sears said the boutiques logged 750,000 visitors and sold 850,000 virtual items during their first 16 days through mid-August.

These mainline retailers hope the virtual showrooms will be more effective than traditional teen advertising in hooking tweens and teens. Users of the sites already can spend virtual dollars on virtual clothes designed by the sites, or by early adopters such as American Apparel Inc. that went virtual two years ago. The sites are places to fashion digital personalities, called "avatars," that participants use to explore new styles, relationships and behaviors. Typically, these sites now offer a click through to buy the real products.

"When you look at an ad, it's pretty quick," said Jennifer Weiderman, vice president of global marketing for K-Swiss. "But when they're in this virtual world, this gets them to spend more time [viewing] your product. It's a little bit more sticky."

Ms. Weiderman said she is dialing back her spending on TV ads this year and expects to allocate 15% of her marketing budget to online initiatives, up from 5% last year. Sears and J.C. Penney Co., which last month made virtual versions of its teen and young-adult clothing available to users of Yahoo's instant messenger service, say they've increased online ad spending this year. Kohl's also said it is allocating more of its online ad dollars this year to targeting teens. None would detail the scale of the budget shift.

Details of the arrangements vary, but a retailer or brand typically pays a fee to have a virtual community host and develop its store and products. At There.com, the fee ranges from a few hundred dollars to a few thousand, depending on how elaborate the store is and how many items will be sold. The brand and the Web site sometimes split revenue from the virtual purchases. But since virtual clothes cost from under $1 to $5 -- brands regard this revenue as negligible.

"It's really a way to get shoppers to test-drive your product," said Carlos Mejia, chief financial officer of Eberjey, a maker of lingerie, swimwear and sleepwear. The brand, which largely sells to women ages 20 to 45, hopes to attract teenagers with its virtual line.

Penney decided this year to put back-to-school outfits on Yahoo after learning that, during a seven-week experiment last summer, 1.5 million avatars wore its clothing on Yahoo and 5 million Penney outfits were tried on. "It casts a very modern, current light on the brand with teens," says Mike Boylson, Penney's chief marketing officer. Before Penney's presence on Yahoo, "perhaps J.C. Penney wasn't on their radar before," he says.

Sears is marketing its virtual boutiques on billboards in the virtual world, and is hosting daily fashion shows on the site promoting its products through the end of August.

Not everyone is pleased. Patti Miller, vice president of Children Now, an Oakland, Calif.-based national children's advocacy group, expressed concern over marketing to youngsters via these virtual shops. The Federal Communications Commission in 1990 established rules governing the hourly amount of advertising directed at children. But the newer, Web-based virtual communities that have replaced TV viewing for some kids have no similar restrictions.

"Some of these younger kids, those younger than 8 and even kids up to 12, can't make the distinction between what's advertising and what's not," says Ms. Miller. She says children may not grasp that the virtual stores function as a brand advertisement.

Dave Bazant, Sears' marketing manager for online and emerging media, argues that children who frequent the virtual sites are savvy enough to know that the stores also function as a branding tool.

"It's fairly transparent -- kids are not very naïve these days," says Mr. Bazant. He notes that Sears is careful to not aggressively push its wares in these sites because teens and tweens are "turned off by direct advertising. We're not giving away our product for free. Most of these items, they have to purchase."

The online pitches are striking a chord with Jen Rediger's daughters, 13-year-old Tyler and 9-year-old Kenzie. In the first week that the Kohl's store opened on Stardoll, they spent about 70 Star Dollars, or $7, on virtual skirts and shoes. Ms. Rediger, 32, an interior designer who lives in Hoschton, Ga., says she doesn't mind her daughters being exposed to such marketing because "it's not worse than what they see on television."

Tyler has already asked her mom to take her to Kohl's to buy the real versions. "They look really cool on my doll," she says. "It's my style so I think I'll wear it a lot."

By: Cheryl Lu-Lien Tan
Wall Street Journal; August 19, 2008

Ask any ambitious, young female college student about her plans, and she'll likely say she's heading for law or medical school, a great job or perhaps her own business start-up.

What she probably won't say: She wants to get an M.B.A.

The typical M.B.A. track runs a collision course with many young women's plans to start a family. Working four to five years after undergraduate school before enrolling, as many schools offering a master's in business expect, is a bridge too far for many women. The alternative -- seeking an M.B.A. at a younger age -- means shouldering roughly $80,000 in M.B.A. expenses at a life stage when many are laden with student loans and aren't making much money. Also, women tend to be more wary of the risk of taking time out for an M.B.A., for fear of hitting a glass ceiling.

Because of these issues, female enrollment in full-time M.B.A. programs has remained mired for years at a dismal 30%, compared with about 49% in medical schools and 47% in law schools.

To break this pattern, graduate business schools are fielding mom advertising with new programs to attract women. They're launching part-time "morning M.B.A.s," bending the rigid M.B.A. track and recruiting students at younger ages. The new offerings aren't a good fit for everyone. But the changes are slowly brightening the work-life landscape for aspiring female business leaders.

At least three schools have started part-time "morning M.B.A.s" in the past year, to appeal to at-home mothers, self-employed people or others working odd schedules. (Most part-time M.B.A. programs have only evening or weekend classes.) More than half of the 83 part-time M.B.A. students taking morning classes at DePaul University's Kellstadt Graduate School, Chicago, are women. The schedule tends to suit multitaskers; Nancy Nguyen, 26 years old, says it enables her to juggle M.B.A. studies with an evening internship, a student-government post and home life with her boyfriend.

Are we anywhere close to closing the gender gap in M.B.A. education? Is a part-time or "morning M.B.A." likely to carry as much weight as traditional full-time M.B.A.? Share your opinion on WSJ.com's Front Lines.

The University of Toronto's Rotman School offers a 7-to-9 a.m. M.B.A. Student Wendy Zhang, 31, says it affords "a great opportunity" to juggle M.B.A. studies with time with her husband and four-year-old son and her job as a senior programmer.

Pepperdine University's Graziadio School tried a morning M.B.A. last year but put it on hold because of low enrollment. However, extending to seven years the time allowed to finish a part-time M.B.A. has helped to raise female enrollment to 44%, says John Mooney, associate dean.

Nationally, 37% of students in part-time flexible M.B.A. programs are women, says the Graduate Management Admission Council.

Such flexible programs may seem like just another Mommy Track, M.B.A.-style. But part-time M.B.A.s in general have shed their stigma, headhunters say. A part-time degree from a name-brand school confers as much résumé luster as a full-time M.B.A., provided that the courses, professors' qualifications and other traits are the same. A part-time M.B.A. falls short as a means of switching careers, however. Full-timers typically get better networking and access to recruiters for leadership-track jobs.

Among full-time programs, the University of Chicago's Graduate School of Business is jettisoning the "conveyor-belt model," says deputy dean Stacey Kole, making course work more flexible and allowing students to do the traditional summer internship at other times of the year.

Harvard Business School is snaring recruits earlier, when they are college juniors, to offer them a slot in its M.B.A. program three years later, after they graduate and work for a while. A large share of the 630 first-round applicants to the program, called 2 + 2, are women, says Andrea Kimmel, associate director, M.B.A. admissions. In interviews, she adds, one applicant cited her desire for "a quicker path to leadership" in business so it would be easier to start a family.

The University of Massachusetts, Amherst, Isenberg School has raised its female M.B.A. enrollment above 50%, partly by tapping another powerful incentive -- inspiring role models. Amherst stresses networking between students and female executives and faculty, a spokeswoman says. In one student survey, says Rob Franek, a Princeton Review vice president who has studied the program, students said they were "very inspired by other women" grads.

When she entered business school two years ago, software product manager Laura Mogilner assumed she would go back to the same field -- with a higher paycheck -- after graduating.

Two years later, most of her recently graduated M.B.A. classmates at Dartmouth's Tuck School of Business have a job, but Ms. Mogilner is interning at the Vermont Agency of Agriculture. She says she has discovered her passion: working in alternative energy. And despite holding more than $100,000 in student loans, Ms. Mogilner is willing to go out on a limb to get what she wants.

Across top-tier U.S. business schools, a small but growing number of students are skipping traditional winter on-campus recruitment and its seemingly surefire jobs. Instead, they are logging long hours conducting their own searches and networking furiously to get onto the career path they want, say career-services officials.

Their searches can stretch long past those of peers and be more costly. For some graduates, the pursuit comes when they realize they don't want the run-of-the-mill jobs in, say, finance or consulting that companies typically tout on campus. In other instances, students may want to restrict their job search to a particular location. And some industries, like venture capital and media and entertainment, are known for just-in-time hiring, leaving students with no option but to hunt later on their own.

Above all, they are undeterred by the uncertainty of a self-directed job search. Indeed, despite the economic slowdown affecting most industries, the job market for M.B.A. graduates -- particularly those from top schools -- has remained robust.

At Dartmouth, a few students have always opted out of on-campus recruitment, and that number is now at about 10%, says Paul Danos, who has been dean at Tuck for 13 years.

Some who go it alone enter an M.B.A. program with a career goal in mind -- and then decide to change direction. Before business school, Merav Benson, a 2008 graduate from Northwestern University's Kellogg School of Management, had worked in consulting with a focus on supply-chain issues in the food and beverage industry. At school, she decided to switch to working in the industry. While consulting interviews were plentiful on campus, the type of jobs that Ms. Benson wanted didn't make the roster. Instead, she signed up with industry associations, networked extensively and finally got a job at Kraft Foods in June.

A summer internship consulting on internal projects at Google refocused Grey Montgomery, a graduate of the University of Pennsylvania's Wharton School, on his goals. The 33-year-old, who had worked on the business side of his family's newspaper business, realized he cared most about the problems of the newspaper industry.

Mr. Montgomery launched his job hunt in September, when most of his almost 800-member class was already preparing for interviews. "The challenge at these companies is that they don't recruit from M.B.A. programs, and so you need to understand their needs and pitch yourself accordingly," he says. Reaching out to 10 companies, he heard back from five, got two offers and accepted a job with Gannett Digital in May.

Students like Mr. Montgomery are forcing business-school career-services offices to alter their strategies. Working individually with students, helping them understand their strengths and then zeroing in on a target job requires more time and effort than the one-size-fits-many approach that is more standard for career centers.

"It can prove challenging for us," notes Regina Resnick, assistant dean and managing director of the career-management center at Columbia Business School. Most regular recruitment is done by February; only then can her staff devote greater attention to one-on-one assistance, she says.

Columbia is also tapping into its vast alumni network to help students. It is launching the Columbia Coaching Program, which will involve 20 alumni advisers across industries advising students with complex job hunts.

Dartmouth's Career Development Office has created a job-search matrix to help students identify their skill set and match them with companies, alumni to network with and industry associations to join. Many schools, such as Ferris State University in Michigan, are launching similar efforts for self-directed job searchers. In addition to business degrees, Ferris State University offers education degrees, science degrees, and health degrees at the baccalaureate level. Ferris chooses to not offer any M.B.A. or similar programs, and instead offers assistance to graduates with their self-directed searches.

Students are often advised to have a backup plan and set a deadline on how long they are willing to wait to find a job. That can mean taking a step back and working on a low-paid project or at an internship to gain experience.

Ms. Mogilner took an internship to "show her commitment" to her new career path. At the agricultural agency, she is working on a business model to recycle agricultural plastics that can be used as a wood substitute. Her internship ends soon, and even though she doesn't have a job, she doesn't regret her go-it-alone approach. "If I had a job [from on-campus recruitment], I know two years down I'd be in the same boat," she says.

By: Samar Srivastava

CEO Defends Response On Dell, H-P Laptops As Issue Slowly Gets Solved

Nvidia Corp. often gets good reviews for its technology. But the way the chip maker and two computer manufacturers are handling a product defect hasn't pleased some critics, adding to a series of headaches for the Silicon Valley company.

The problem affects an undisclosed number of laptop computers, stopping them from booting up, causing display screens to go dark and other problems. Nvidia has traced it to packaging materials used on some chips that manage graphics and other functions, which can fail if they get too hot. The company disclosed the problem last month and is taking a $196 million reserve to cover computer makers' costs in addressing it.

Nvidia hasn't recalled the affected chips or identified which models have problems. Dell Inc. and Hewlett-Packard Co., the two customers that have so far announced plans for coping with the problem, said they won't repair affected laptops until they fail.

The PC makers instead recommend updating internal software -- known as BIOS, for basic input-output system -- to adjust the speed of a laptop's cooling fan. That change doesn't guarantee the systems won't fail but is expected to reduce the likelihood of failure. In the meantime, the companies have extended their warranties; Dell on Monday added 12 months to its standard warranty -- usually one year for consumers and small businesses -- to systems affected by the problem. H-P previously had promised to fix affected computers for 24 months.

But some consumers who posted complaints on Web message boards don't seem satisfied with the BIOS fix, knowing they own computers that could stop working. "I hope Dell realizes that people will not be happy until their graphics cards are replaced," wrote one customer on the computer maker's site. Added another: "I did not pay for a high-end logic bomb."

A flaw in an Intel Corp. Pentium microprocessor in 1994 provided some lessons to handling chip defects. After initially arguing that few people would be affected by a defect that related to esoteric mathematical problems, Intel encountered heavy complaints by users and computer makers and shifted to a no-questions-asked return policy on the chip, triggering a $475 million write-down.

But Jen-Hsun Huang, Nvidia's chief executive, said the situations are different. His company's problem -- which affects solder connections between a chip and the packaging used to connect it to a computer, and has now been corrected -- doesn't usually cause problems, he said. It can be affected by the choice of other components in a system, and how computer makers designed their products; different configurations of the same laptop could behave differently, he said.

"If every single chip was just flawed I would have to recall it," Mr. Huang said in an interview. But that isn't true in this case, he said, adding that the computer makers also have a say in what happens. "I can't recall our customers' products," he said.

Dell has handled the situation in quite a responsive manner. A Dell spokeswoman said the BIOS adjustment is a good response for most consumers, adding: "We are going to take care of our customers." The company is aware of the problem, and is working to provide solutions that will not waste money out of the company's or consumers' pockets. The chip issue has been taken care of, and in new or slightly used Dell laptops, the Nvidia chip functions propertly.

An H-P spokeswoman declined comment.

Nvidia, of Santa Clara, Calif., makes chips known as GPUs, for graphics processing units. The technical problem also affects products called chip sets that handle other chores in a system. Mr. Huang said the company had used standard packaging materials that haven't caused a problem in the past.

JoAnne Feeney, an analyst at FTN Midwest Securities Corp., said she is concerned Nvidia's $196 million reserve might not be sufficient.

Mr. Huang said that amount should be enough, and represents an extraordinary commitment to help users -- estimating each system repair would cost around $400 for chips that cost $15 to $20. "We feel terrible" about the problem, he said

Job-Loss Worries Pressure the Sector; Rent Rates Decline

For the past year, apartment buildings have been one of the few bright spots in the real-estate industry as people forced out of the home-buying market by foreclosures or the credit crunch have turned to renting.

But now the specter of job losses is beginning to spread the gloom into that sector as well. As would-be renters are doubling up in apartments or moving in with friends and families, rents and occupancy rates are beginning to fall in many cities. Some cities, however, have not been affected nearly as much. For instance, the rental markets for Philadelphia apartments and Minneapolis apartments remain strong.

"In many markets, our new prospects are beginning to resist the current and increasing levels of market rents we've enjoyed over the past quarter," David Neithercut, chief executive of Equity Residential, told investors during this month's earnings call. While the Chicago-based apartment owner, one of the largest in the U.S., reported an increase in funds from operations of 1.5% last quarter, it lowered its estimates for comparable-property revenue growth.

'Shadow Market' Competition

Investors have been buoyed by the thousands of Philadelphia apartment rentals that have entered the market in the past year, including buyers locked out of the for-sale housing market and those who defaulted on their mortgages. The one downside of the housing crisis for apartment owners has been the "shadow market," made up of unsold homes that owners have put on the rental market.

But that competition isn't nearly as big a problem as job-loss trends. "A lot of folks think it's the shadow market that's softening rents. It's really a jobs issue," says Richard Campo, chief executive of Camden Property Trust. The Houston-based REIT saw rents fall 1.4% last quarter from a year earlier in Phoenix. Arizona shed some 87,000 jobs in June and July. Meanwhile, rents are up in cities such as Houston, where job growth remains strong and where Camden saw 4% rent growth last quarter. Nationally, the apartment owner expects to see rental growth of 2.5% this year, compared with 4.1% growth in 2007 and 7.4% in 2006.

The biggest impact from job losses could be seen in cities such as Charlotte, N.C., and Atlanta, which haven't seen large shadow markets develop. "That group in the middle is starting to show signs of slowing," says Haendel St. Juste, an analyst at Green Street Advisors Inc. "When you look at the markets that are starting to slow, it's spreading beyond the markets that were burdened by housing."

That led to disappointing second-quarter results at Mid-America Apartment Communities Inc., a Memphis, Tenn., REIT with 42,000 rental units. The company reduced its 2008 revenue forecast by 1% and saw year-over-year revenue growth for the second quarter fall to 2.6% from 3.8% last year. The results surprised some investors because Mid-America has long been considered to have one of the least-volatile portfolios. Analysts blamed the declines, in part, on a weakening economy across the Southeast.

Atlanta-based Post Properties Inc., meanwhile, announced that it canceled its planned 300-unit apartment building in Charlotte and delayed three Florida projects.

Cap-Rate Problems

For investors, concerns about falling rents and rising vacancy has resulted in a decline in prices for apartment buildings. The "capitalization rate," which measures the relationship between the price and cash flow of properties, dropped one-quarter of one percent from the second quarter of 2007 to second quarter of this year, according to Real Capital Analytics Inc., a real-estate research firm. The cap rates are now at levels last seen at the end of 2004, the firm says.

The decline in prices has led to a pickup in sales activity. Real Capital Analytics reported last month that sales in June were "well above" recent months' figures, with $5.5 billion already having closed or in contract in the third quarter compared with $8.7 billion in sales in the second quarter.

Apartment-building sales already were far outpacing deals involving other commercial property, such as office buildings and strip malls. The availability of credit from government-sponsored Fannie Mae and Freddie Mac has buoyed values and fueled new deals. Turbulence at the mortgage titans, which together with Ginnie Mae hold 35% of the mortgage debt on multifamily housing, riled apartment owners last month as investors worried about the fate of Fannie and Freddie. But those worries dissipated as the housing bill signed into law last month made the government's implied guarantee of Fannie and Freddie's $5.2 trillion in mortgage securities more explicit.

"There is seemingly no limitation to how much production we can sell to them," says Peter Donovan, who heads up CB Richard Ellis's multihousing group. "I think the market is maybe a little surprised by that."

Indeed, Fannie Mae announced last month that it would increase its commitment to buy loans on multifamily housing of up to $5 million to provide additional liquidity for rental housing. Fannie said it invested $20 billion in multifamily housing in the first half of the year. While that is down 25% from $27 billion in the first half of 2007, the number of total deals has fallen by 45%. Multifamily also remains a safe investment so far this year: Delinquencies on Fannie- and Freddie-backed multifamily loans in the first quarter were just .09% and .04%, respectively.

By: Nick Timiraos
Wall Street Journal; August 20, 2008

Official Leads Charge For Food, Drink Firms To Regulate Themselves In Kid's Marketing

Jon Leibowitz has no shortage of critics.

The Federal Trade Commission commissioner is at the center of the agency's scrutiny of marketing to children by food and beverage companies. He was particularly outspoken in a recent FTC study on the issue, urging marketers to do more to regulate themselves and saying that if they don't, the FTC could step in and do it for them.

That has made him something of a lightning rod for people on both sides of the issue. Groups such as the Campaign for a Commercial-Free Childhood say his call for more self-regulation is too passive, while food and beverage companies argue that Mr. Leibowitz is already trampling on their First Amendment right to advertise as they choose.

Even Mr. Leibowitz's daughters, ages 11 and 13 years old, think their dad may be overreaching. "They think that we're right to try to encourage companies to focus on marketing healthier foods, but they also believe they have the right to eat whatever they want," he says. One of their peeves is when he buys lower-calorie versions of their favorite sugary breakfast cereals.

Mr. Leibowitz, 50, who has taken a stand against what he sees as excessive advertising for soft drinks and fatty foods, says he is far from perfect when it comes to his own eating habits. He admits to a weakness for pizza, including a current pepperoni kick, and stops at fast-food restaurants when he is on the road.

An FTC commissioner since 2004, he has had a long career in public service, serving as chief counsel to various Senate subcommittees and as counsel to former Sen. Paul Simon (D., Ill.) and Sen. Herb Kohl (D., Wis.). As vice president for congressional affairs for the Motion Picture Association of America from 2000 to 2004, he became interested in product placement and promotional tie-ins between the movie and food and beverage businesses -- a practice he is now trying to rein in.

Below are some excerpts from a conversation with Mr. Leibowitz:

The Wall Street Journal: You have articulated a harder line on the issue of food and beverage marketing to children than your FTC colleagues. As long as you're outnumbered on the commission, do marketers need to take your comments seriously?

Jon Leibowitz: I don't think I'm outnumbered on the commission. We are a very collegial, consensus-driven commission, and we all voted in favor of this report. I think I might have been a little sharper in my criticism, and I certainly believe that if companies don't do the right thing, the failure of self-regulation may make the next Congress and the next president more inclined toward government regulation.

WSJ: The FTC is calling on food and beverage marketers to do more to regulate themselves. How do you envision this working, and are there any precedents in other industries for effective self-regulation?

Mr. Leibowitz: The answer is yes. For example, in the alcohol area, companies set voluntary standards about the percentage of people under 21 they will advertise to, and if there's a percentage over 30% [of people over the age of 21] they won't do advertising. In the entertainment industry, some of the studios and some of the videogame manufacturers and even the music industry have either stickered products or imposed some restrictions on themselves. We've been doing entertainment-industry marketing reports going back to 2000, and I think they've been very effective.

WSJ: There are countries that ban food and beverage marketing to kids altogether. If you had your way, what would companies like Kraft, Kellogg and Coke be able to do -- and not do -- when it comes to marketing to children?

Mr. Leibowitz: I'd like to think that the approach we're taking at the FTC is in some ways a middle ground. It's not the government-mandated advertising restrictions that some foreign nations have adopted. On the other hand, it's not the laissez-faire approach that some industries once supported. What we'd like to see companies doing is real self-regulation -- adopting meaningful, nutrition-based standards for marketing their products to children and applying those restrictions to all forms of marketing.

Another thing I'd like to see is the criteria that some companies use to determine what qualifies as a healthy dietary choice. If the standards are lax, and only a handful of TV shows and Internet sites are covered, then the self-regulatory efforts are not going to be terribly effective.

WSJ: The FTC report mentions soft-drink companies -- are they a big part of the marketing problem?

Mr. Leibowitz: On average, soft-drink companies spent $20 per American teenager in 2006; that's an awful lot of money for a particular product. The soft-drink companies have made a commitment in the context of the schools. If they could head down the road of making a similar commitment outside the context of the schools, that would be a step forward.

WSJ: The FTC has focused on food and beverage marketing in traditional media. How much of this advertising spending goes to nontraditional outlets, from online games to in-store ads?

Mr. Leibowitz: One of the surprises in the [recent FTC] report was the prevalence of integrated advertising campaigns. They're sophisticated, they're multi-platform, they're cross-promotional. It's very different than what you see on, say, "Mad Men," and it's a whole virtual ecosystem, so you can see an ad on TV, you buy the product, you go on the Internet, you enter a code, you collect points, you win a prize, the prize is a T-shirt, the T-shirt advertises the product. So we are seeing a fair amount of cross-promotional marketing. We only found $77 million in Internet advertising, but our guess is that it's very efficient advertising, because it's targeted.

WSJ: What are some of the characters, tie-ins, etc., that have been the most successful as vehicles of children's advertising?

Mr. Leibowitz: I think it's sort of self-evident the ones that are the most popular. I do know some of the companies like Viacom and Disney have put restrictions on what types of marketing their popular characters will do, and they'll only market, for example, healthy or healthier products. I think it's about the ubiquity of this character usage. We have a whole index in our report of character cross-licensing, this is just 2006, and there are dozens of movies and TV shows.

By: Ross Urken
Wall Street Journal; August 20, 2008

Among the conditions extracted by regulators before approving the Sirius XM satellite radio merger earlier this month was the company's promise to set aside a share of channels for minority programmers. Now we're finding out what these racial preferences mean in practice.

In a commitment letter last month, Sirius XM informed the Federal Communications Commission that while it agreed to reserve the channels, the company doesn't want to choose the actual programmers. No doubt Sirius XM realizes that this is one giant political headache, and that it's unlikely to be the final arbiter in any case. There will almost certainly be more applicants than available channels, and programmers who aren't chosen will inevitably turn to the courts and the FCC to complain. The government may as well pick the minority programmers directly.

FCC Chairman Kevin Martin is prepared to do just that. According to a report in Communications Daily, an electronic newsletter that covers the telecom industry, the FCC is developing procedures to determine what constitutes a "minority" programmer and which minorities are worthy of special treatment. These racial preferences and quotas are blatantly unconstitutional, and may not themselves survive judicial review. But Mr. Martin gets around that legal nicety by claiming the concessions are "voluntary."

We look forward to seeing who the FCC deems to be "minority" enough to qualify. Meanwhile, this spectacle of a Bush appointee playing racial landlord is one to keep in mind when Mr. Martin begins his oft-mentioned run for elected political office.

Wall Street Journal; August 19, 2008

Three weeks ago The Wall Street Journal kicked off a debate on how best to allocate scarce resources to solve the world's problems. Bjorn Lomborg offered a summary of the latest findings from his Copenhagen Consensus project, where he has enlisted some of the world's top economists to address the issue. Now we're offering views on the subject from top political and business leaders. How would you spend $10 billion of American resources (either directly or through regulation) over the next four years to help improve the state of the world?

*Here we will feature the drug exec's article:

Teach Them How to Fish

In contemplating ways to spend $10 billion to realize the greatest gain for humanity, the key questions obviously are "Where?" and "How?" But allow me to suggest that our goal should be to create programs that are sustainable and to leverage the investment of billions of dollars into billions more -- regardless of the issue addressed.

Here's where I believe we can accomplish the greatest good: fighting infectious diseases that ravage the developing countries and increasingly threaten the developed ones.

Infectious diseases are the world's second-leading cause of death. Just three diseases -- malaria, tuberculosis and HIV/AIDS -- together kill nearly six million people a year, mostly in developing countries. This is roughly equivalent to the population of metropolitan Chicago. And, if these diseases are not properly treated, resistant strains emerge that threaten everyone regardless of where we live.

Columbia University professor Jeffrey Sachs makes a compelling case that disease devastates not only individuals and families. Societies and economies also suffer in lost potential and costs of care. That's why each dollar spent to ensure that people are healthier and more productive can yield a 20-fold benefit. *It's also vastly important that health insurances, if offered and used, are used properly. Pharmaceutical fraud can cause all sorts of problems for the average consumer. Many consumers who find themselves victims of pharmaceutical fraud turn to pharmaceutical whistle blower lawyers to help them receive the proper care and aid they deserve.

So, if infectious diseases are the targets, how should we invest our $10 billion?

I recommend we follow the wisdom of the Chinese proverb: "Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime."

I would invest half of the $10 billion in comprehensive treatment programs that could be sustained by the countries with high incidence of the above diseases, and which have leaders committed to long-term solutions.

I'd begin by ensuring that effective existing medicines are made available to the countries at low cost. Fortunately, many infectious diseases can be effectively treated with generic drugs -- which can be complemented by the antiretroviral and other critical medicines pharmaceutical companies are providing at deeply discounted prices.

In addition, to reinforce the programs' sustainability, I would transfer to local companies the technology and know-how so they themselves can manufacture the medicines that are already off-patent.

Medicines are effective only if they are used properly, however. So we must also take a comprehensive public-health approach and train doctors, nurses and ultimately patients to ensure short-term compliance with treatment regimes and, more broadly, slow the spread of disease. We should leverage existing organizations -- like the International Federation of Red Cross and Red Crescent Societies -- for this purpose.

I know this approach can work because for the past five years Lilly and 14 partners on five continents have been using it to combat a growing and virulent form of tuberculosis -- multidrug-resistant TB.

The progress we're starting to see -- in treating patients, improving manufacturing standards, and supporting local economies -- tells me such an approach could be adapted for an array of infectious diseases and supported by the countries most affected.

However, because the bugs that cause these diseases continually evolve and new strains emerge, any long-term solution requires another critical component: ongoing research.

I would use the remaining half of the $10 billion to foster investment in research, and I'd leverage it as I would the treatment programs -- by working to make it sustainable.

The problem is that there are no market incentives for research in infectious diseases of the developing world.

I would take the lessons learned from President Bush's BioShield experiments (which aimed to create an artificial market to attract biotech and pharmaceutical companies to develop medicines to counter a biological attack), and offer a guaranteed sum for whoever gets to a research-based solution first. This should attract competing programs and generate added investment by those pursuing novel treatments and cures for infectious diseases.

I believe the benefits from these proposals would expand like ripples across a pond -- bringing new energy and insights to the stubborn diseases that threaten all of us, and providing health and hope to millions of the world's neediest citizens who desperately need help now.

By: Sidney Taurel
August 18, 2008

Congratulations to the Gang of 10. No, not that "bipartisan" group of U.S. Senators who recently garnered headlines with their misguided energy "compromise." We refer instead to 10 GOP Senators who are proving good policy is good politics by pushing for more drilling in the Arctic.

Those 10 Republicans recently sent a letter asking President Bush to issue an executive order to conduct an immediate, state-of-the-art seismic survey of oil-and-gas resources in the Arctic National Wildlife Refuge. The signers include Senators Pete Domenici (N.M.), Jim Inhofe (Okla.), Kay Bailey Hutchison and John Cornyn (Tex.), John Warner (Va.), David Vitter (La.), Mel Martinez (Fla.), Thad Cochran (Miss.) and Ted Stevens and Lisa Murkowksi (Alaska).

That corner of Alaska hasn't been surveyed since 1983, and in the intervening 25 years the industry has developed far more advanced technology to scope oil-and-gas reserves. A new survey could show that the area boasts far more oil than today's estimate of 10.4 billion barrels, a discovery that would bolster public sentiment for drilling. *Despite the support and possible need of new oil resources, many do not believe this is our best option. The Arctic National Wildlife Refuge and many other parts of Alaska have vast natural resources and attract all sorts of animals and people. Many Americans vacation in Alaska, or go on an Alaska cruise, as an alternative to the typical vacation.
All this is better than the approach recently announced by the other "Gang of 10." Five Republicans -- Lindsey Graham (S.C.), John Thune (S.D.), Bob Corker (Tenn.) and Saxby Chambliss and Johnny Isakson (Ga.) -- agreed to join five Democrats and endorse $84 billion in energy subsidies plus higher taxes in exchange for allowing more drilling in a portion of the Eastern Gulf and offshore of only four states.

Senator Chambliss told Rush Limbaugh last week that the deal was necessary to get 60 votes to overcome a Democratic filibuster. But this is the mentality that has undercut sound GOP positions in the past. Democrats are on the defensive over their opposition to new oil-and-gas supplies, which means the GOP has a legitimate shot at finally forcing a sound national drilling policy. Mr. Chambliss's shimmy gives political cover to liberals who want new drilling kept to a minimum.

Current law prohibits any "exploration leading to development of ANWR," but that prohibition is aimed at exploratory drilling. Seismic testing involves the equivalent of 3D photography and is environmentally benign, so Mr. Bush is well in his rights to issue the order. It's time to get serious about drilling, and a new survey is a useful first step.

Wall Street Journal; August 16, 2008

Organizers Stick to the Job of Hiding Companies That Aren't Official Sponsors

At the Olympic Games here, you drink Coca-Cola beverages, eat McDonald's food, ride in Volkswagen sedans and watch events on giant Panasonic video screens.

You also take ------- elevators, are protected by ------- fire alarms, cool down thanks to ------- air conditioners, and wash your hands under ------- faucets.

To ensure that only the companies that pay millions of dollars to be official Olympic sponsors enjoy the benefits of exposure in Olympic venues, organizers have covered the trademarks of nonsponsors with thousands of little swatches of tape.

In media centers, dormitories and arena bathrooms, pieces of tape cover logos of fire extinguishers, light switches, thermostats, bedroom night tables, soap dispensers and urinals. The Taiden Industrial translation headsets in a large conference room have had their logos covered, as have the American Standard faucets in the bathrooms nearby, and the ThyssenKrupp escalators down the hall.

Even the sign atop the InterContinental Beijing Beichen hotel, attached to the Main Press Center, has been obscured by an Olympic cloth wrap. InterContinental Hotels Group isn't an Olympic sponsor. Gary Rosen, a spokesman for Intercontinental, says the company doesn't mind complying with the brand restrictions because it had planned all along to formally open the hotel following completion of the Games.

The International Olympic Committee says that such "brand protection" is essential for the Games to raise the corporate money that keeps them going and growing. The Games get 40% of their revenue from sponsors, with the rest coming from broadcast rights, ticketing and licensing. Sponsors of China's Games, believed to be the most lucrative ever, have contributed some $1.5 billion in cash, goods and services, estimates sports-marketing group Octagon.

The IOC says the brand-protection practices here in Beijing are consistent with procedures at past Olympics. Actual enforcement of IOC sponsorship-protection rules falls mostly to whichever city is hosting the Games, however, and by some indications no host has taken that role more seriously than China. In many cases, even products that don't compete with anything made by official sponsors are having their logos covered.

"It's surprising they'd go to that extent," says Toshihiko Shibuya, a spokesman for Matsushita Electric Industrial, which makes Panasonic products. "We're happy that they've taken the effort to hide the names of products in our category," he says.

But he finds it "very bizarre" that even toilet fixtures would have brand names covered up.

Broadest rights to use the Olympics name and logo belong to a dozen so-called world-wide partners such as Coca-Cola, McDonald's, Visa and Samsung Electronics. Local backers, including Bank of China, Volkswagen and Adidas this year, get marketing rights in the host country.

In Beijing, sponsors are sometimes being protected even from other sponsors. Matsushita's Mr. Shibuya, for instance, says that in the Athletes' Village, "we're finding that even if they use Panasonic fridges or washing machines, our brand name is covered up because the local [sponsor] in those categories is Haier," the Chinese electronics maker. "It's a funny thing, but that's the policy," he says.

Naturally, curious minds tend to wonder what's under the tape. A few investigative journalists, bristling at all this control, have even removed pieces of tape.

Soon after a piece of tape is removed, however, a new one quickly appears -- thanks to Chinese workers charged with tape replacement. "We assign workers in [the Main Press Center] to check and replace tape that has been peeled off to make sure the tape still works every day," says a Chinese official in charge of that work at the MPC. The official, who would give only his surname, Yang, wouldn't say how many people are involved in that work.

In addition to all of the tape work, workers also must take into consideration lockout/tagout procedures and the placing of placards. If these safety precautions are not effectively followed, workers and consumers alike could be put in danger.

The IOC and the Beijing Olympic organizing committee, known as Bocog, "have developed a robust brand-protection program for the Beijing 2008 Olympic Games," says an IOC spokesman, "not only to protect the rights that our commercial partners have acquired, but also to continue the policy set out in the Olympic Charter" that limits the presence of brands in the competition venues. Also policed is so-called ambush marketing, in which nonsponsors seek to associate themselves with the Games, and athletes' uniforms, whose logos must be authorized and displayed in accordance with rules on size and placement.

Officials of Bocog aren't entirely inflexible. In the famous "Bird's Nest" National Stadium, for example, they left the logos on the TOTO Ltd. toilets, says Wu Kaifeng, an official in charge of sponsorship issues in the stadium. "We discussed it with the IOC, and they agreed not to cover these brands in the Bird's Nest with tape, which makes it more convenient for cleaning and makes the stadium look better," he says.

A 1990s design star is trying to rise again with a new collection

Eighteen years ago, designer Christian Francis Roth was on top of the designer fashion world. At age 21, he had won over critics and retailers like Neiman Marcus and Saks Fifth Avenue with his inventive pieces, such as a suit featuring a fried-egg motif and dresses with sleeves designed to look like giant crayons.

He was among the first designers to introduce grunge-inspired looks on high-end runways. The Metropolitan Museum of Art in New York obtained more than 20 of his pieces for its permanent collection, and in 1990, the year his first full line debuted, the Council of Fashion Designers of America gave him its prestigious Perry Ellis award for emerging talent.

"It was astonishing to see so much technical virtuosity in someone so young," says Harold Koda, chief curator for the Met's Costume Institute.

But while Mr. Roth's $2,000 dresses sold well, his company didn't generate profits. And his focus on design, rather than on running a business, proved to be his downfall. In 1995, he shuttered his high-end label and put out a lower-end line for two more years before finally giving up.

Now, after 11 years of toiling in obscurity as a designer for midtier brands such as Tommy Bahama and Nordstrom's private-label Caslon line, Mr. Roth is hoping to join the ranks of Isaac Mizrahi, Todd Oldham and others whose earlier businesses failed and have since managed a comeback. His new line, called Francis by Christian Francis Roth, is scheduled to be shown at fashion week in New York next month.

The line will be priced well below high-end labels like Versace and Chloe; jackets will cost $425 to $675, and dresses, $350 to $525. The clothing will be manufactured in China, which Mr. Roth sees as a way to produce well-crafted pieces at more affordable prices. And he has the financial backing of Peonie Ng, owner of Gold Palace Corp. Ltd., a Hong Kong company that made clothing for middle-market lines such as Bernardo, which is sold at Macy's and Bon Ton, and is trying to break into the high-end business. Mr. Roth and Ms. Ng, equal partners in the venture, also plan to launch a lower-priced line in China and Korea in the next few years. The decision to finance that, however, will hinge on how many retailers pick up the Francis line at Fashion Week.

Starting a designer apparel business now could be risky. The fashion industry has been hit hard by the economic downturn, as shoppers have scaled back on apparel spending. Retail sales of women's apparel are expected to decline this year, according to NPD Group, a Port Washington, N.Y., market-research firm.

And while many fashion insiders remember Mr. Roth, he's largely unknown to a new generation of shoppers. David Wolfe, creative director for Doneger Group, a retail consultancy based in New York, says retailers may be less likely to try unproven lines or only willing to place small orders. Still, Mr. Wolfe says that Mr. Roth could have the benefit of "being that oxymoron of 'proven newness' -- he's brand new, but we've heard of him before."

Mr. Roth acknowledges it's a difficult time to launch a new brand, but he believes he's better equipped to build a successful business now than he was in the 1990s. Before, he says, he thought mostly about his designs. Now he's also focused on addressing the needs of retailers, who want a range of pieces, not just a few, splashy items; his runway show will feature about 30 ensembles. "I think I am a better merchant now, now that I've worked for some of these bigger companies," he says.

Gold Palace, which employs 650 employees and has two factories, in Hong Kong and Shenzhen, China, had been looking to diversify and was seeking a designer to create a global fashion brand. Billy Chan, a spokesman for Gold Palace, says the company was taken with Mr. Roth -- they met while working together on Bernardo. "We were impressed by his designs, "Mr. Chan says. "He's very adaptable and he has a network in New York -- we felt his product would go on to have big sales."

But having a partner means not having total control. Mr. Roth and Mr. Chan have clashed over how the new line should be unveiled. Gold Palace believes a more modest showroom display is the way to go during fashion week. "At this early stage, I don't think we need a big show -- a small one that is very tidy and organized is better," says Mr. Chan. Mr. Roth argues that his clothes will best attract retailers' attention -- and orders -- if he presents them in a runway show. "I think we need to see the clothes on models," Mr. Roth says.

After months of back and forth on the issue, Mr. Chan has given Mr. Roth a budget of $10,000 to $20,000 for his show, both parties say. So instead of holding it in an official fashion week tent in New York's Bryant Park (a format that can cost more than $100,000), Mr. Roth plans to stage it in a church gymnasium next to his studio.

The 39-year-old designer's preoccupation with fashion began in New York City, where he grew up. As a boy, he found himself drawn to the city's stylish women, their clothing and the places they shopped. By age 14, he was putting on his Walkman and heading to Bergdorf Goodman, browsing the windows, wandering through the store and examining how garments were constructed. When he got home, he'd mock up covers of Vogue filled with images of what he'd seen.

In high school, Mr. Roth landed a summer job working for Koos van den Akker, and went to work for the Dutch-born designer full time when he was 17. In 1988, with a loan from his mentor, Mr. Roth struck out on his own: He designed seven jackets and showed them to buyers from Saks and other stores. That first year, Mr. Roth rang up $45,000 in wholesale sales. Within two years, he says, he was doing $250,000 in wholesale, a figure that would triple after his first fashion show in 1990. Women's Wear Daily dubbed him the "Doogie Howser of fashion."

At the height of his career, Mr. Roth was logging $2 million a year in wholesale sales -- a respectable figure for a small specialty-apparel business -- but still wasn't turning a profit. His label's high prices -- because of manufacturing only in the U.S. -- were a hindrance to his expansion. With labor costs for a jacket hovering around $300, Mr. Roth's retail prices were well over $1,000. His Hobo jackets, with cartoonish applique patches, retailed for $1,550. His "scribble" suit, with details that looked like they'd been sketched on with a giant pencil, went for $2,500.

"Small and special -- that's how people saw me," Mr. Roth recalls. "There was no room for growth." Now, he says, he incorporates what he believes merchants and shoppers want into his production process.

In July, for example, Mr. Roth did something he never did in the 1990s -- he invited retailers to preview his Spring 2009 sketches and offer feedback. After Neiman Marcus fashion director Ken Downing noted during his visit that he liked bright colors and sellable separates, Mr. Roth immediately began stitching together new samples of colorful silk chiffon blouses.

"If [the line] looks as great in person as it does in the [sketches] and his prices are competitive with similar lines, he'll do well," Mr. Downing says. "I'm anxious to see it."

Mr. Downing says he'll decide whether he'll carry the line at Neiman Marcus after he sees Mr. Roth's show at Fashion Week.

By: Cheryl Lu-Lien Tan
Wall Street Journal; August 16, 2008

Mortgage Default Had Left TV Icon Facing Foreclosure

Congress and the Bush administration so far have failed to end a foreclosure crisis that is ejecting hundreds of thousands of American families from their homes. Can Donald Trump save the day?

The real-estate developer is negotiating a deal that would allow television personality Ed McMahon to avert foreclosure and remain in his six-bedroom Beverly Hills, Calif., home.

Representatives of Messrs. Trump and McMahon confirmed the talks, reported by the Los Angeles Times. One new twist: The deal could involve Mr. Trump buying the first-lien mortgage on the house.

Trump: 'Doing My Best'

"Even a man who hadn't had such a great career shouldn't have this happen to them in their later years," Mr. Trump said in a statement released by his office. "I'm doing my best, but this is a very difficult situation."

Indeed, many people who haven't had great careers are in the same boat with the 85-year-old Mr. McMahon, the longtime sidekick to comedian Johnny Carson. Moody's Economy.com estimates that 1.65 million homes will be lost to foreclosures this year. Might Mr. Trump be able to help some of those other hardship cases?

"I really can't answer that for you," a spokeswoman for Mr. Trump said.

Mr. McMahon has been battling to avert foreclosure for months after defaulting on a $4.8 million mortgage from Countrywide Financial Corp. "We don't have a done deal yet" with Mr. Trump, says Howard Bragman, a spokesman for Mr. McMahon. But Mr. Bragman says he is "optimistic" that an agreement can be reached.

The deal is complicated because there are several lien holders and Mr. McMahon owes a total of about $7 million to Countrywide and the other creditors, according to people involved in the talks.

As of Friday, the home was listed by Hilton & Hyland for $4.6 million, down from an earlier asking price of more than $7 million.

Jory Burton, an agent for Sotheby's International Realty in Beverly Hills, says the home has been hard to sell partly because it is just off busy Mulholland Drive and near an area where photographers wait for shots of one of Mr. McMahon's neighbors, pop singer Britney Spears.

McMahon Working Again

Mr. McMahon has said he fell behind on payments after a neck injury interrupted his work making TV commercials. Mr. Bragman said Mr. McMahon has resumed that work and is recovering from neck surgery.

In an Aug. 12 letter to real-estate agents, Alex Davis of Hilton & Hyland said: "We have two weeks to find a new buyer" and avoid a foreclosure auction. Mr. Davis wrote that a "speculator" recently made a "lowball" offer of $4.6 million, only "to pull the plug in the 11th hour."

A spokeswoman for Countrywide, now owned by Bank of America Corp., said the mortgage lender is working with Mr. McMahon to try to resolve the situation.

By: Jamess Hagerty
Wall Street Journal; August 16, 2008

Abercrombie & Fitch Co. said its fiscal-second-quarter profit fell 4.2%, hurt by consumers cutting back on discretionary purchases, and the teen retailer gave a weaker-than-expected full-year outlook.

Abercrombie sales have been curtailed by a slowdown in mall traffic and by consumers who have curbed spending or turned to lower-cost rivals such as Aeropostale Inc., analysts said.

"The selling environment, particularly as we moved into the back-to-school selling period, was tough," Abercrombie Chief Executive Michael Jeffries said on a conference call Friday.

Net income in the quarter ended Aug. 2 fell to $77.8 million, or 87 cents a share, from $81.3 million, or 88 cents, a year earlier. The latest results included a penny-a-share charge related to the departure of Chief Financial Officer Michael Kramer to become CEO of apparel maker Kellwood Co.

Sales rose 5.1% to $845.8 million. Comparable-store sales, or sales at stores open at least one year, dropped 4%.

In 4 p.m. New York Stock Exchange composite trading Friday, Abercrombie's shares rose two cents to $52.59.

The New Albany, Ohio, company, which owns a couple women's designer apparel and women's discount apparel stores, forecast full-year profit of between $4.95 and $5 a share, with the low end of the outlook reflecting a 7% decline in same-store sales. That fell below analysts' average estimate of $5.36 a share.

The company, which has expanded into international markets such as London as U.S. growth slows, said it plans to open stores in Milan, Italy. "Given our results to date, we are absolutely convinced that international expansion will drive long-term, top-line and bottom-line growth while further enhancing our brands," Mr. Jeffries said.

Abercrombie plans capital spending this fiscal year of between $405 million and $410 million, mostly for store openings and remodels. It plans to increase gross square footage by about 9% to 10% this fiscal year.

By: Andria Cheng
Wall Street Journal; August 16, 2008

Mrs. Fields Famous Brands LLC, which serves up fresh-baked cookies and TCBY frozen yogurt at more than 1,200 franchises across the country, is planning to file for Chapter 11 bankruptcy protection, according to a regulatory filing.

The company was trying to negotiate a restructuring agreement with its senior noteholders, but warned in June that it might have to seek protection from creditors if it couldn't complete the deal out of court.

In the Securities and Exchange Commission filing, Mrs. Fields indicated it would file a prepackaged bankruptcy reorganization plan with the U.S. Bankruptcy Court in Wilmington, Del. Michael R. Ward, Mrs. Fields's interim co-chief executive, confirmed the company's plans Friday.

Under a prepackaged bankruptcy, Mrs. Fields would file for Chapter 11 protection having already developed a plan to repay its creditors and exit from bankruptcy. Mrs. Fields's restructuring plan calls for its noteholders to exchange their $195.7 million in notes for $90 million in cash, $50 million in new senior secured notes and 87.5% of the company's new common stock. The noteholders are expected to recover 86.5% on their claims.

The Mrs. Fields brand was born in 1977, when Debbi Fields opened up her first cookie shop in Palo Alto, Calif. The company turned to franchising in 1990 and has nearly 390 locations in the U.S. and 80 internationally, according to its Web site, plus hundreds of TCBY stores.

The company, however, has struggled with a heavy debt load and has racked up losses in recent months. Mrs. Fields posted a net loss of about $10.7 million for the quarter ended June 28.

By: Rachel Feintzeig
Wall Street Journal; August 16, 2008

A federal judge in Knoxville has declared a mistrial in a teenager's free speech lawsuit over a dress code that banned him from wearing Confederate flag clothing.

The jury deliberated about 13 hours but was unable to reach a unanimous verdict in the case of 18-year-old Tommy DeFoe.

Judge Tom Varlan dismissed the jury Friday.

DeFoe's Nashville lawyer said they would like a new trial.

DeFoe's lawsuit contends his rights were violated by an Anderson County schools dress policy that bars students from wearing clothing with the flag.

Investigators Ask Whether Payments Misled Lenders

When home sales began to slow at the start of the downturn, home builders offered buyers incentives -- instead of reducing prices -- to stimulate demand. The incentives included cars, tuition and credit-card payments, and even cash.

Now, federal investigators are questioning whether some of those incentives misled lenders and caused them to write mortgages that were artificially inflated, contributing to today's home-price crash.

Using incentives to sell homes has long been a marketing tool for builders. When properly disclosed and structured, the practice is legal. But the Federal Bureau of Investigation is looking into allegations that home builders, brokers and appraisers defrauded lenders by not disclosing unusually large incentives to buyers, which could have added as much as $100,000 to the price of a home.

Housing analysts say incentive schemes prolonged the housing boom in hot markets like Las Vegas and, consequently, have made the downturn all the more severe.

The FBI wouldn't name individuals or companies under scrutiny, but confirmed that it is looking at cases where the disclosures of incentives "haven't made it all the way to the ultimate lender," says William Stern, financial crimes supervisor for the FBI in Palm Beach County, Fla., and the bureau's former national mortgage-fraud coordinator.

Interviews with real-estate agents, home buyers and former employees at home builders describe an industry where competitive pressures fueled unusually creative giveaways in a last-ditch attempt to prevent price cuts. Home builders hate to cut prices, not only because it reduces profit, but also because their customers who paid full price complain.

In the Las Vegas division of Dallas-based Centex Corp., the home builder paid off car loans, credit-card bills and mortgage payments on existing homes to entice new buyers on homes priced between $350,000 and $550,000. Those payments weren't always disclosed to lenders.

"You weren't buying a house. You were buying a package," says Dana Ellis, who worked as an escrow manager for Centex from 2004 to 2006. To qualify, Centex required the buyer to use the company's in-house mortgage unit to originate the loan, and the loan application included an incentive "addendum" that listed the incentives but wasn't always sent to the lender. "They weren't disclosing any of this. That was on separate paper that was pulled," she says.

In some states these incentives are not available. The state regulators are much more active and enforce laws that prevent home builders from offering buyers incentives that lead to mortgage and financial problems.

In reviewing the hot real estate markets nationwide, one state, North Carolina, is home to four of the top ten hottest real estate markets in the country.

North Carolina, unlike California and Las Vegas, Nevada, does not have "flipper" markets. Also North Carolina has a diverse employment base and many jobs are available is a wide range of industries.

The employment opportunities are vast in North Carolina and are fueling demand for homes and real estate throughout the entire state of North Carolina.

The relocation market in North Carolina, especially Raleigh Relocation opportunities increases demand and results in more consistent pricing levels.

North Carolina has a very strong network of real estate professionals that help homebuyers avoid costly mistakes that can lead to foreclosures and financial difficulties.

Let's examine some of North Carolina's hottest real estate and the proven professionals that help buyers and sellers make good decisions:

Raleigh Real Estate Agency: An exclusive buyers real estate agency that is based in Raleigh, North Carolina and dedicates themselves to representing you through the entire buying process.

Winston Salem Real Estate Agency: Another established real estate agency in the area. The Winston Salem Real Estate Agency provides custom profiles of homes for sale in Winston Salem, Greensboro, Kernersville, and the neighboring Piedmont Triad area of North Carolina.

Greenville Real Estate Agency: Part of Our Town Properties, the Greenville Real Estate Agency is will to help its clients by providing them with tips about buying local real estate, Greenville relocation, and how to handle Greenville real estate mortgages.

In many cases, an exclusive buyers agent could have helped homeowners in Nevada, California, Michigan, and Ohio avoid the many traps that national home builders such as: Centex and Beazer Homes often make available through deceptive marketing incentives.

Centex says that the program was confined to about 50 sales and was shut down in June 2006, about six months after it began. Centex averaged 63 home sales a month for the year beginning April 2006. "These incentives did not reflect standard corporate practice and, once discovered, the practice was immediately halted," Centex spokesman David Webster says. Centex says only one of the loans was government-backed, through the Veterans Administration home-loan program, and the builder has promised to stand behind all of those loans.

Elsewhere, developers offered "sweat equity," or payments for buyers to receive home improvements such as landscaping. "You're basically getting banks to give you a cash advance," says Chip Hickman, the general manager of Easy Street Realty in Las Vegas. He said such programs weren't heavily advertised and were offered by many area builders, although he declined to name them. "It was more sales agents in the model home saying, 'Look, tell me what you need and I got a lot of money to play with.' "

There aren't any strict limits on incentives, but they could run afoul of federal regulations if they cause the mortgage to increase by more than the cost of the incentive. "It's a phantom incentive to mask it in an excessive loan," says Brian Sullivan, a Department of Housing and Urban Development spokesman.

Stronger due diligence by banks might have caught some of these problems. Banks, however, say they relied on professional appraisal companies to insure property pricing. Mortgage-fraud experts say appraisers sometimes cooperated with builders because it was the only way to get business. Appraisers say that determining the value of new homes is more difficult because comparable sales figures are provided by builders.

In some cases, developers gave outsized commissions to real-estate agents who then gave that money back to the buyer. The average commission on a home sale nationally was 5.2% last year, up from 5% in 2005, according to a survey by Real Trends, an industry newsletter.

At the height of the real-estate boom, commissions in Las Vegas regularly reached double digits, real-estate agents say. Kurt DeWinter, a Henderson, Nev., agent, received a $70,000 commission on a $550,000 home from Beazer Homes USA Inc. two years ago. He says he gave half of that to the buyer.

"They didn't care what you did with the money as long as the buyer paid the price they wanted for the house," says Mr. DeWinter, who personally went into foreclosure in that same neighborhood on a $500,000 Beazer home. He says he received a $50,000 incentive from the builder, which he used for his down payment. Beazer didn't return calls seeking comment.

Some builders continue to make generous offers. Wagner Homes Inc., a local home builder, advertises in big capital letters at the top of a flyer "$130,000 commission any way you like it!" for homes in developments like "Dawn Day Fusion," a northwest Las Vegas subdivision that offers homes with Asian-inspired architectural flourishes. New homes listed there in mid-July for $530,000 even though similar model homes in that development sold for $400,000 two years ago.

"A fee that high has got to raise a bunch of flags," says Kenneth LoBene, HUD's Las Vegas field director, because builders typically reduce the price of the home rather than offer such large incentives and because homes in that subdivision have sold for as little as $240,000 in foreclosure auctions. Representatives of Wagner Homes didn't return calls seeking comment. Steve Hawks, a Las Vegas real-estate agent, points to offers like this as one that a commercial lender wouldn't back if properly disclosed. "You find me an institutional investor that's going to buy this loan," he says.

The biggest freshman class ever is off to start earning a college degree in a few weeks. But there's one big issue that many parents have yet to resolve: How much should they give their kids for spending money?

It can be mind-boggling to think that the collegian will require even more dough after you've paid thousands of dollars in tuition, room and board, purchased a new computer, and budgeted for books and transportation. How much can a teenager really need, other than necessities like toothpaste and shampoo?

A fair bit, it turns out. Toiletries, printer cartridges, dorm decor and school supplies can take a chunk, for starters. And while many campuses are teeming with dining options (including food courts) and cheap entertainment, students want to go out occasionally to see a movie, shop, go on a road trip or just take a break from the monotony of institutional food. "You don't want to be the kid who sits in the dorm room and does nothing," says Joe Richards, who will be a sophomore at Ferris State University in Big Rapids, Michigan this fall.

Even if your student has a generous financial-aid package, these costs most likely will be borne by one of you, since most packages require some combination of parent contributions, loans and student jobs. For parents, the challenge can be finding the right balance between being too frugal and too frivolous — providing, perhaps, enough money for your child to eat, but not quite enough to drink.

Because college is a great time to learn budgeting and other financial skills along with serious academic stuff, this is a good time to outline expectations and agree on limits. Here are some suggestions:

Start talking before money becomes an issue. If your child will be expected to earn some of her spending money, make clear how much is expected upfront, and consider a backup plan in case illness or exams require missing a week of work. Some Michigan colleges discourage freshmen from working during their first semester so they can adjust to the workload.

In addition, you'll want to discuss what the allowance is supposed to cover. Will you pay extra so your Southerner can buy winter clothes? Who pays for the shuttle to and from the airport or the gas for a trip home?

You'll also need to decide whether to put a semester's allowance in the checking account upfront, deposit money monthly, or add funds only as needed so your student can budget accordingly.

Estimate a budget. To start the "how much" conversation, look for the "cost to attend" chart on the school's Web site, often found in the financial-aid or admissions pages. There, you'll find the amount factored in for "personal expenses" in financial-aid packages. (These amounts are in addition to books, which most schools budget at roughly $500 per term.)

Depending on the school, those amounts may be generous or tight-fisted. Ferris State University budgets $1,000 for personal expenses, but calls that "a conservative estimate, which will require careful budgeting on your part." Surprisingly, New York University budgets only about $1,000 a year for expenses, despite its pricey New York City location. An NYU spokesman says the amount needed "is not less than that, and may be more."

By contrast, the University of Kansas, in the hopping town of Lawrence, estimates personal expenses at $2,272 a year. The University of California-Davis surveyed its students to come up with its estimate of $1,308.

Whether your student's budget falls within the typical estimate of $1,000 to $2,000 will depend on his eating habits and extracurricular activities — and your willingness to fund them.

At $200 or so a month, however, your child still won't be living large. Ms. Richards, the Emerson student, receives $100 a month from her parents and earns an additional $120 from a campus job, and watches her dollars carefully. When a group of her friends went to Cheesecake Factory to celebrate the end of last fall's semester, the bill came to $30 a person — a week's paycheck. "We were all in shock," she says.

Paper or plastic? Your student will need a checking account for basic needs and should have a credit card for emergencies. If you share your card, agree in advance what it can be used for and how you'll be alerted.

Sooner or later, your student should get a credit card in his name to establish a credit record, and getting a card may be easier as a student than later on. Students should be responsible for their own accounts, paying their own bills and learning the ins and outs of credit limits, minimum payments and due dates.

They may need some time to get the hang of it. Emily Roth, who will be a sophomore at Emory University in Atlanta, had trouble remembering the due date at first — until she got hit with a late fee. "I set up an email alert after that," she says.

Email alerts also can be set up to warn when the charges are near the card's credit limit and to let students know when their checking account balance is low. The student can also set up an automatic monthly payment from a checking account so that at least a minimum amount is paid each month, which helps to avoid late fees.

By: Karen Blumenthal
Wall Street Journal; August 17, 2008

Content On Demand Killing Cable Industry

Ad-spending growth on U.S. cable-television networks is likely to slow in the second half of the year and into 2009, media research firm SNL Kagan predicted Tuesday.

In recent weeks, several cable-network groups have reported double-digit ad-revenue growth in the first half of 2008, bucking the weakness in the rest of the ad market. In part, TV advertisers have been saving money by shifting dollars from broadcast to cable networks, which cost less. "But that can't go on forever," says Derek Baine, a senior analyst at SNL Kagan. "Cable networks are already seeing demand slow, and that trend will likely continue and get worse as broadcast networks roll out their fall season."

Kagan projects economic weakness will cut cable ad-revenue growth to 10.4% in 2008 and 4.7% in 2009. In 2007, cable networks saw ad revenue jump 10.5% to $19.4 billion, and total revenue, which includes subscriber fees, grew 12.6% to $37.9 billion, according to the report, which relies on interviews with cable executives and historical trends.

Over the next several years, Kagan projects that total cable-network revenue will grow at an annual rate of 8.9%, slower than the 12.6% compound annual growth in the past five years. While advertising will recover somewhat, the firm projects that subscriber fees, which represent a growing share of cable-network revenue, will grow only 9.5% a year in the next decade, compared with 16.1% annual growth in the past 10 years.

By: Same Schechner
Wall Street Journal; August 13, 2008

Condé Nast Title, Others Sport Leaner Fall Looks As Marketers Hold Back

Last year, the all-important September issues of fashion and beauty magazines such as Condé Nast's Vogue and Hearst's Cosmopolitan were thick enough to throw out the backs of mail carriers across the country. The champ, Vogue, weighed in at a hefty 4.9 pounds, thanks to 725 pages of glossy ads.

It is a different story this year. As September issues begin hitting the newsstands, two-thirds of the 16 top fashion and beauty magazines by number of ad pages are smaller than a year ago. W magazine, also published by Condé Nast Publications, a unit of Advance Publications, has 18% fewer advertising pages. Vogue has 674 pages of ads this year, down 7%, while Hearst's Cosmopolitan is six pages, or 3.2%, lighter.

Until recently, fashion and beauty magazines had been something of an oasis amid the steady stream of red ink being reported by print-media properties. Last year was a record year for many titles in the category, and a number of publications were still selling ad pages at that pace into the first quarter of 2008.

The magazines' core marketers in luxury goods, clothing, jewelry and beauty products have been slower than advertisers in other categories to shift spending to the Internet. At the same time, the magazines have a rich history of readers who flip pages as much to see ads for the latest fall fashions as to read the stories, a factor that help keeps advertisers loyal.

But now things are starting to get ugly for the beauty magazines. Ad pages for the top fashion and beauty titles were down about 8% in the second quarter, and publishers acknowledge the downturn largely has held or grown steeper since then.

While luxury advertisers mostly are hanging in, many middle-market clothing and cosmetics firms are paring back ad pages or pulling out completely as a cooling economy quiets their cash registers. Other categories that traditionally advertise in these publications, such as autos and liquor, are also bumpy. At prices that can climb to $120,000 for one full-page ad, every missing page hits the magazines hard.

Of course, the appeal of fashion and beauty magazines' September issues hasn't suddenly vanished. Those pages are still considered a must-buy for many advertisers wanting to pitch new car models, back-to-school shopping and fall fashions. And a number of tony brands are still ubiquitous.

"We have definitely the biggest fall budget we've ever had for advertising," says Alex Bolen, chief executive of Oscar de la Renta. Mr. Bolen says the designer increased its U.S. print media budget by 15% this year, including lavish spreads in the September issues of Hearst's Town & Country; Elle, which is part of Lagardère's Hachette Filipacchi Media U.S.; W; and Vogue. The ads featured items such as a $4,750 Goya handbag.

But in most cases, increased spending by advertisers such as Oscar de la Renta isn't covering the cuts by midtier marketers. Apparel retailer bebe stores took out four pages with In Style -- a magazine published by Time Warner's Time Inc. -- last September and none this September. Nordstrom's had a six-page spread in Elle last year to promote its "via C" clothing line but has nothing this year.

As with other segments of the magazine industry, advertisers are increasingly willing to yank ad spending at the last minute and are less inclined to make commitments far in advance. Most magazine executives aren't optimistic about a turnaround. "Everyone is facing 2009 cautiously," says Valerie Salembier, publisher of Hearst's Harper's Bazaar, which increased its September advertising take by 3%. "I'm nervous, and I think all magazine publishers in our field feel the same way, whether they admit it or not."

By: Shira Ovide
Wall Street Journal; August 11, 2008

Among the debates that tend to vex shoppers -- paper vs. plastic, plasma vs. LCD -- there's one standby: Credit or debit?

The decision isn't a trivial one. When you shop, how you pay for your purchase can determine how much protection you'll have should the merchandise prove defective, how quickly you'll get your money back and whether you'll be digging yourself out of debt years later.

Yet there's no one right answer for everyone. If you have the discipline to pay off your purchases on time each month, consider using your credit card, because you generally get more protection against faulty merchandise and fraud.

If, on the other hand, you tend to buy now and pay months later, you should stick to debit cards, cash or checks, because the money will come straight out of your bank account, sparing you interest charges. Just recognize that, even with debit cards, you could fall into debt if you're not careful. That's because banks are making it easier for you to overdraw and then charging you stiff fees for doing so.

If whatever you buy proves defective, credit cards allow you to dispute the charges. Some debit cards do, too. But with debit cards, the benefits will vary by issuer, and sometimes depend on whether you signed for the purchase or instead entered a PIN.

Meanwhile, if fraudsters strike, you often have stronger protection with credit cards than with debit cards. With credit cards, under federal law, you're liable for no more than $50 if fraud occurs, though most issuers don't hold you liable for even that much. With debit cards, your maximum exposure is $50 if you report it within 48 hours. Report it after 2 days, and you could be liable for up to $500. Take longer than 60 days, and you could be responsible for the entire amount of fraud.

Banks often provide more protection on debit card transactions than required.

By: Kathy Chu
Detroit Free Press; August 17, 2008

Ten years ago, the Russian debt default helped take down Long-Term Capital Management and skinned most every Wall Street investment bank that rushed to build an office in Moscow. It took until 2004 for Wall Street investment banks to dip their toes into the cold waters of the River Neva once more.

They have since immersed themselves. Russian M&A has boomed, to $115 billion of deals this year to date from $9.7 billion in all of 2002, according to data from Dealogic. In the go-go year of 2007, $195.67 trillion of deals involved Russian companies, according to Dealogic.

While overall investment-banking fees may have shrank 33% in Russia in the first half of this year from 2007, M&A fees in the country rose 18%.

Merrill Lynch & Co. in particular seemed to see its new bets on Russian deal making pay off. The securities firm is the top adviser in Russia, with 12 deals with a total announced value of $28.1 billion to its credit, according to Thomson Reuters.

By: Heidi Moore
Wall Street Journal; August 12, 2008

Foreign Companies Bought U.S. Firms Freely When Greenback Fell

Two pressure points on the market have eased up markedly in recent days. The price of crude oil is falling, while the dollar is strengthening.

Life, theoretically, should be good. But a strengthening dollar, should it continue, could cast a shadow on one of the few bright spots for Wall Street investment banks: international bids for U.S. companies. That is because the weak dollar emboldened many foreign acquirers to make offers they might have been sitting on for years.

Consider InBev NV's $52 billion bid for Anheuser-Busch Cos. -- and the Belgian brewer's jump to $70 a share from the initial per-share offer of $65. It was spurred partly by the falling value of the dollar. When the bid was made, the currency was at 62 cents to the euro, valuing the offer at about €43 a share. With the dollar now at 67 cents, the per-share price has increased to €46.97.

Many have bemoaned the sale of U.S. companies to foreign rivals. Still, for investors in U.S. companies, a takeover offer has been a quick way to realize value for their shares in a tough market, often after years of holding on.

It is possible that many potential foreign acquirers will rush to make bids for U.S. assets now. Offers are likely to be less generous than they would have seemed if the dollar were stuck in its downward spiral.

By: Heidi Moore
Wall Street Journal; August 12, 2008

China may be a land of crowds, but not at its Olympic Green.

Some major Olympic sponsors that invested millions of dollars to pitch their brands from elaborately constructed pavilions are fuming because access to the Green -- usually the main focal and gathering point of most Games -- has been strictly limited.

Citing security concerns, Beijing Olympics officials have turned away droves of spectators who are curious to see the Green with day passes. For the most part, the only people who have been allowed inside are those with hard-to-get tickets to the venues along the Green.

Sponsors like Lenovo, Samsung, Adidas and Coca-Cola, have set up elaborate corporate "experiences," complete with neon lights, giant-screen TVs and music acts.

But the crowds were sparse, even at 8 p.m. Tuesday, when the Games were in full swing. A small line of people stood outside the Coke exhibit, where dry ice and the sound of gurgling soda pop drifted out. Meanwhile, a giant restaurant erected by McDonald's at the end of the Green has been far from packed.

The Olympic Green is a massive space that is surrounded by Olympic venues including the National Stadium, known as the Bird's Nest, and is the site of swimming, gymnastics, archery and many other sports. As the organizers intended, it is big -- six times the size of the Green in Athens and three times the size of New York's Central Park.

Several high-profile sponsors were expecting 200,000 visitors a day and instead have seen just 20% of that, making it very difficult to justify costs that surpass $150 million, according to people close to the situation.

"It's too bad there aren't more people, it's a nice atmosphere," said Eugene Reimer, a Canadian who was swaying to a Beijing rock band playing at the Samsung pavilion. Sipping beer, he said, "I thought this would be more of a party."

At 32,528 square feet and 1,015 seats, the temporary McDonald's at the north end of the Olympic Green is the largest free-standing McDonald's in the world as measured by size and seating capacity. Last week, the company said it was expecting huge traffic because it is the only restaurant on the Olympic Green.

Johan Jervoe, McDonald's corporate vice president of global marketing, said Tuesday that "We are pleased with our restaurants here and our brand's positioning amidst the wide expanse of the Games and its spectators."

McDonald's spokeswoman Lisa Howard said the company hasn't asked Olympic officials to get more spectators to the Olympic Green. She declined to answer specific questions about the lack of spectators in that area.

Some sponsors like Samsung, which have outdoor events at night, say they have been satisfied with the crowds. And most expect that the crowds will pick up when track and field events begin Friday at the nearby National Stadium.

"Obviously, it would have been nice to see more numbers earlier," said Katja Schreiber, a spokeswoman for Adidas, a major Olympic sponsor with a pavilion on the Green. "But we are seeing a growing trend, which will continue once the track and field competition [begins] in the 91,000-seat Bird's Nest later this week."

Even so, frustrated sponsors have been pushing Olympics officials to remedy the situation, warning that it could result in sponsors being reluctant to pony up money again for the London Games.

Sun Weide, spokesman for the Beijing Olympic Committee, acknowledged the problem. "We are aware of this issue. We are already planning to invite more people to the Olympic Green. ... We definitely want more people and spectators." One problem is even basic information for spectators such as how to get a day pass to the Green or the course of the cycling road races have been difficult to come by.

In past Olympics like Athens and Sydney, the Olympics Green was a gathering place for thousands of people, filled with restaurants and live music. In Beijing, thousands of people stand behind fences outside the venues and the Green with no way to get inside. Legions of people who swap pins, a popular Olympics tradition that is usually a fixture on the Olympics Green, are camped outside the Media Center next to waiting taxi cabs in the summer heat.

Part of the problem is the size of Beijing's Olympic Green, which some sponsors say is simply too big to get around easily. And Beijing itself is also a giant city, with Olympics parties and events spread across such a large area that there is no one place where people are congregating.

Joanne Wheater, a Beijing resident who attended the Sydney Olympics, said Sydney's Olympic Green was much more compact. Pulling out a map of Beijing, she said, "The Forbidden City takes two hours to walk around, and that's just a little bit compared to here," she said, her finger stabbing at the much larger Olympic Green area.

Officials of the International Olympic Committee said that Beijing Olympic officials need to strike the right balance between security and access to the Olympic areas. Olympics organizers remain acutely concerned about security, particularly after the stabbing of an American connected to the U.S. Volleyball team over the weekend. The bomb that disrupted the 1996 Games went off in Atlanta's Centennial Olympic Park.

"Here in Beijing, there have been a few who have requested that more people be admitted into what are known as the 'Olympic common areas' and the organizing committee has been working to find appropriate means of doing this, which we welcome," said IOC spokeswoman Giselle Davies.

By: Rebecca Blumenstein and Mei Fong
Wall Street Journal; August 13, 2008

General Motors Corp., looking to trim its nearly $5 billion-a-year health-care tab, is cracking down on workers who are collecting medical benefits for which they aren't eligible.

The auto maker is giving its 67,000 hourly workers until Aug. 20 to voluntarily remove dependents who shouldn't be covered from their health policies. After that, employees must prove that covered family members are eligible.

If GM paid for Michigan health insurance it shouldn't have, workers may be forced to reimburse the company, a GM spokeswoman said. GM has audited its health-care rolls before, but the new effort is more extensive than in years past, she said.

"GM spends $4.6 billion on health care and we want to make sure our employees who are eligible for the best health care are receiving it," she said.

Michigan health insurance plan audits like the one GM is conducting are becoming increasingly common as employers look to offset soaring medical expenses, said Paul Fronstin, director of health research and educational programs for the Employee Benefit Research Institute in Washington, D.C.

Trimming ineligible dependents from health plans can reduce medical costs by 2% to 5%, according HRAdvance, a Dallas human-resources company that conducts audits for employers. It estimates 5% to 10% of dependents covered on health plans shouldn't be enrolled, including divorced spouses, grown children and boyfriends and girlfriends.

GM last year spent $1.3 billion on health-care benefits for active hourly and salaried workers.

By: Sharon Terlep
Wall Street Journal; August 13, 2008

Dell Inc. Tuesday released 10 new business laptop models, in a move aimed at defending one of the company's key markets.

The Round Rock, Texas, company lags rival Hewlett-Packard Co. in world-wide sales. Dell is No. 1 in the U.S. market, with a particularly strong position in sales to business users.

The computer giant's new portables include an ultralight model, long-running batteries and backlit keyboards for working in dark rooms. With exterior shells that come in blue, red and pink, they are a departure from a prior strategy that mainly churned out nondescript laptops for corporate customers.

"They're protecting their bread-and-butter market," Richard Shim, an analyst with IDC who covers PCs, said of the new products.

The smallest of Dell's new machines has a screen of just over 12 inches, and weighs about 2.2 pounds -- making it lighter than Apple's ultrathin MacBook Air.

The new laptops represent "a significant improvement" in design over the company's past efforts, said Jeff Clarke, a Dell senior vice president.

Dell also disclosed that it is working on a technology called Latitude On that is designed to let users quickly access e-mail, the Internet and certain other programs without fully booting up their computers. Dell wouldn't say how much customers will have to pay for the feature. Roger Kay, an analyst with Endpoint Technologies briefed on the new PCs, expects Dell to charge as much as $300 for the option.

New Latitude models include the midrange E5400, which starts at $839, and the E6400, which starts at $1,139. The ultralight E4200 will ship next month, Dell said; it didn't disclose pricing, but said the laptop will cost at least $1,300. If these new models are out of your price range, look into getting a used laptop.

Dell says its new models can achieve battery life of up to 19 hours, though that requires using a bigger-than-normal battery along with a "slice" -- a flat battery that attaches to the bottom of the unit, increasing its thickness by nearly a half inch.

IDC's Mr. Shim said integrating consumer features into business machines could make the laptops more attractive to users, but will have little influence on the decisions of the tech professionals who handle the purchasing of large numbers of PCs. For them, new security features offered by Dell will likely be more important, he said.

By: Justin Scheck
Wall Street Journal; August 13, 2008

The first part of Mark and Constance Eddy's home-ownership story is classic: In 1998, the newlyweds bought a starter home in a post-World War II subdivision in Prairie Village, Kan.
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The 900-square-foot, two-bedroom, one-bath house was dated, with 1950s metal cabinets and gold-flecked Formica counters in the kitchen, but cozy.

"It was all we needed," Mark Eddy said.

What really sold the couple on the home was the street. Prairie Lane is a winding street of tiny houses nestled close together under a canopy of large trees. The neighborhood is next to the Prairie Village Shops, which contains an urban mix of businesses -- gas station, hardware store, drugstore and diner, as well as upscale restaurants and boutiques.

"People live in their front yards. There's a mix of ages -- some neighbors are like grandparents to the children on the street. It really has a sense of community," Eddy said.

Seven years later, the couple had two small children and a third on the way. It was time to trade up. So the Eddys sold the house on Prairie Lane and bought a 1,900-square-foot ranch on a big lot in Leawood, Kan. They were living the American dream.

But in a 21st-Century twist to the tale, the Eddys were unhappy in the "better" neighborhood. The street was usually deserted and quiet, except for the distant hum of traffic on Interstate 435.

"We immediately missed the neighbors, and we missed walking to the shops," Mark Eddy said. Two years later, when the house next door to their first home came up for sale, the Eddys decided to buy it, tear it down and build a new house on Prairie Lane big enough for their family to grow into.

At 3,400 square feet, the Eddys' new home addition towers over its neighbors on Prairie Lane. The home is in compliance with city requirements for setback from the street, setbacks from the sides of the property, height and footprint on the lot. But shortly after groundbreaking, the Prairie Village Homes Association took the Eddys to court, claiming the proposed house design was in violation of deed restrictions that limited to homes to "1 1/2 " stories. The judge eventually ruled in favor of the Eddys.

Mark Eddy, co-owner of Gahagan-Eddy Building Co., says he talked with many neighbors on the street and showed them his house plans to try to gain their approval before moving ahead with the teardown. A majority of homeowners on his street signed a petition in favor of allowing the house.

Bill Chinnery on the homes association board of directors says he thinks the chocolate-brown exterior paint and two tall trees on the lot help the house blend into the neighborhood in summer. But in winter he thinks the house sticks out too much.

"I like the house, but it's too big for the neighborhood," Chinnery said.

Jessamine Guislain, who has lived on the street since 1965, disagrees.

"It's a beautiful house, and I enjoy looking at it," Guislain said. "I'm happy to see a family who loved Prairie Lane able to move back to it."

Guislain said allowing home teardowns and new home renovations on the street helps keep the community intact. "In my own experience with a house next door to me, every family who lived there, once they had their second child, moved."

Eddy says most of his neighbors have been supportive, but he acknowledges others think the house is too big. "I respectfully disagree. If a house is beautiful, I don't care if it's twice the size of the one next to it. It should only be a problem if it's ugly."

Prairie Village recently adopted an ordinance to notify homes associations of permit requests within their neighborhoods, says assistant city administrator Dennis Enslinger.

"Everybody has their own expectation of what the neighborhood is and what it should become, and the city is trying to balance those interests for everybody involved. But it is an ever-changing balance," Enslinger said.

Cydney Millstein, owner of Architectural & Historical Research LLC in Kansas City, says preserving historic neighborhoods is important, but it doesn't mean everything has to stay the same.

"If new designs are done tastefully with a tip of the hat to what was going on historically, that's OK. If it's bringing life back to a neighborhood that became kind of stale after a while, this is a good way to inject vitality back into the neighborhood."

By: Cindy Hoedel; McClatchy Newspapers
Detroit Free Press; August 17, 2008

Three longtime Burger King Holdings Inc. franchisees have filed suit against the parent company, alleging that forcing stores to have extended late-night and early-morning hours wastes money and puts the safety of employees and customers at risk. The franchisees, who together own 57 Burger King locations, filed the lawsuit in Miami-Dade Circuit Court. They allege that Burger King's actions violate their franchise agreements. Starting June 1, Burger King began to require that all stores stay open until at least 2 a.m. on Thursdays, Fridays, and Saturdays. According to the suit, the franchise agreement states that stores have to stay open until 11 p.m. The suit was previously reported by the Miami Herald.

Wall Street Journal; August 1, 2008

Cablevision Systems Corp. eased investor concerns by posting quarterly results that showed unexpected subscriber gains at its cable business. Investors also welcomed comments Thursday from Chief Executive James Dolan signaling that the company is weighing a shareholder payout.

Cablevision reported healthy gains in basic and digital video customers for the June quarter, despite fears about a foray into Cablevision's turf by Verizon Communications Inc. with its FiOS TV service. Cablevision, based in Bethpage, N.Y., also continued to add high-speed Internet and phone customers.

In 4 p.m. New York Stock Exchange composite trading, Cablevision shares were up 14%, or $3.03, to $24.28.

Cablevision shares have been pummeled over the last year amid worries about competition from Verizon. Also, investors have become increasingly disenchanted with the Dolans as Cablevision embarked on a spending spree after shareholders rejected the controlling family's offer to take the company private for $10.6 billion last year.

On a conference call Thursday for investors, Mr. Dolan said the company would look for ways to boost its stock price and be more vigilant about shareholder interests. Mr. Dolan said there was a gap between Cablevision's value and the value that the market placed on it.

"We are considering and actively exploring alternatives that may close this gap and want to assure investors we will listen to their thoughts," Mr. Dolan said. His family owns 23% of the company's shares while controlling 74% of its voting power through a class of supervoting shares. Cablevision declined to elaborate on his comment.

Mr. Dolan's comments would seem to "open the door to all options," including a one-time special dividend like the company paid in 2006, regular dividends, share repurchases, asset sales "or even another attempt to take the company private," said Craig Moffett, an analyst at Sanford C. Bernstein.

Cablevision reported net income of $98.3 million, or 33 cents a share, for the second quarter, down from $317.4 million, or $1.08 a share, a year earlier. The year-ago figure was boosted by the company's sale of its stake in a regional sports network. Revenue rose 9.2% to $1.71 billion.

By: Nat Worden and Vishesh Kumar
Wall Street Journal; August 1, 2008

Sharply Lower Results From Television, Radio Push Earnings Lower

CBS Corp. reported lackluster second-quarter earnings, as sharply lower results from television and radio were offset by a one-time gain from the sale of the company's stake in the Sundance Channel.

Facing a weakening advertising market, CBS lowered full-year expectations for its operating profit and now anticipates flat performance, compared with earlier forecasts of 3% to 5% growth.

The broadcaster's net income for the quarter rose 1% to $408.4 million, or 61 cents a share, from $404 million, or 55 cents a share, a year earlier. The Sundance Channel sale yielded a profit of $127.2 million before taxes. Excluding the gain, restructuring charges and stock-based compensation expense, CBS said net fell 15% to $355.3 million from a year earlier. Revenue rose to $3.39 billion from $3.37 billion a year earlier.

In a conference call with investors, Chief Executive Leslie Moonves said CBS has been "challenged by the economic conditions affecting many industries, particularly local businesses," hurting ad sales. About two-thirds of CBS's revenue comes from advertising.

Even outdoor advertising, a smaller division in the company but in recent years a strongly performing one, saw operating profits fall 20% because of higher billboard and transit costs and the loss of major municipal contracts in Toronto and San Francisco.

CBS stock, which has fallen 38% this year, fell 52 cents, or 3%, to $16.36 at 4 p.m. in New York Stock Exchange composite trading.

Mr. Moonves noted that CBS in recent months has taken steps, such as its recent $1.8 billion purchase of the CNET Networks Web concern, to "shift our asset mix out of slow-growth businesses." In a further step, he said, CBS plans to sell 50 midsize radio stations, freeing up cash to fund share buybacks. CBS has sold a number of radio stations in smaller markets in recent years. The company now operates 140 stations, down from around 180 in 2006 when the sales began.

Radio has been one of CBS's biggest trouble spots, reflecting a years-long stagnation in the radio ad market. In the latest quarter, operating profit from CBS Radio fell 16% on 10% lower revenue.

Television, which includes the CBS network and station group, posted 12% lower operating income on 2% higher revenue. But the revenue growth was due to higher syndication sales on series like "CSI," whereas ad revenue fell 6%. The CBS network fell to second-place last season after five years as the most-watched network, fueling concerns that it has failed to develop new hits to supplement its aging crime-procedural shows.

By: Rebecca Dana
Wall Street Journal; August 1, 2008

Traffic and weather are the only exclusive content left for local TV stations

Tribune Co. is slashing staff and space at newspapers across the country. But in another old-media business -- local television news -- it's moving in the opposite direction.

Nearly half of Tribune's 23 broadcast stations are expanding or launching local news operations, many of them hiring staff as a result. The biggest investment is in KSWB-TV in San Diego, which has hired a staff of nearly 50 to produce the station's first in-house news broadcasts in nearly three years.

KSWB abandoned its original newscast in 2005 to save money. The new programs, which debut Friday, will be radically different from the old, with a format that borrows from conventions of cable television and incorporates interactive elements of the Web. Morning anchor Arthel Neville will wander an open set, chatting with reporters, as well as with "Jack the Cop," a former sergeant for the San Diego County Sheriff's Department. Some correspondents could join via Web cam. If the format works well, the company could import elements to other parts of its empire.

"It's practically like there's a government regulation that regulates how a TV station sounds," says Lee Abrams, Tribune's chief innovation officer. He notes that some of local-news conventions are fodder for parody, from "The Simpsons" to the 2004 movie "Anchorman: The Legend of Ron Burgundy," which stars Will Ferrell as a pompous 1970s news anchor -- and is set in San Diego. "It's out of date and ready for reinvention," he says.

Mr. Abrams is part of a new management team hired by real-estate mogul Sam Zell, who led an $8.2 billion buyout of Tribune in December. The new team has been aggressive in cutting costs on the newspaper side of the business, where ad revenue has plunged since the deal amid an industrywide slump.

The tough economy and a shift of young viewers to the Internet are also hurting ad sales in the TV industry. Several owners of major station groups, including Belo Corp., CBS Corp., General Electric Co.'s NBC Universal, and Walt Disney Co., have in recent weeks reported continuing softness in local advertising, and some groups have laid off staff in recent months.

But Tribune's management team, many of whom cut their teeth in broadcasting, are optimistic about growth prospects for television. Local news has long been a signature program for TV stations otherwise dependent on syndicated talk shows and sitcom reruns. Homegrown newscasts also draw a disproportionate number of local advertisers.

"News is the one area that they can control both in terms of focus and more importantly in terms of the economics," says Bill Carroll, a programming consultant for Clear Channel Communications Inc.'s Katz Media Group, an ad-sales and marketing firm. News programs brought in $4.7 billion in ad spending on U.S. local stations in 2007, up 10% compared with 2003, while advertising on non-news programming was flat, according to TNS Media Intelligence.

Some station groups, such as Hearst-Argyle Television Inc. and LIN TV Corp., have been increasing their local newscasts in recent years, pushing into the newly popular area of weekend morning shows. But few if any are expanding on the scale of Tribune. Its TV station group is adding more than 90 people nationwide to its news departments by January, an increase of about 10%, according to Steve Charlier, who is in charge of news for Tribune and Local TV LLC, a station group owned by Oak Hill Capital Partners that shares resources with Tribune.

TV news reinventions aren't new. But introducing an updated format of a newscast can be risky, as CBS News learned when it revamped its Evening News by hiring Katie Couric -- only to see ratings slide sharply. There's a chance that KSWB's newscast -- which features a 900-square-foot "mega map" of San Diego spread out in a backlot behind the studio -- might not resonate in a relatively small market that already has five English-language TV news operations.

Station executives acknowledge it is a risk. "But I think it would be a much bigger risk to invest all this money, talent and people and do the same thing as everyone else," says Ray Schonbak, the station's general manager, who now oversees Tribune's other local affiliates of Fox Broadcasting.

Helping spark the decision to relaunch original news programming was the station's affiliation switch from the ailing CW network to Fox, which, like The Wall Street Journal, is owned by News Corp. Tribune expects Fox programming to boost the station's ratings.

"We're confident that we'll see the money back," says Ed Wilson, president of Tribune Broadcasting, of the company's news investment. "They key thing is to be local."

By: Sam Schechner
Wall Street Journal; August 1, 2008

General Motors Corp. Chief Executive Rick Wagoner dismissed the notion that the auto maker may soon file for bankruptcy, and he also said the company has no plans to sell or shutter more of its brands.

"Under any scenario we can imagine, our financial position, or cash position, will remain robust through the rest of this year," Mr. Wagoner said Thursday while in Dallas to speak to a business organization. He said the company has plenty of options to shore up its finances beyond 2008, although he declined to outline them.

The comments failed to boost investor sentiment as GM shares fell 6.2% to $9.69 in 4 p.m. New York Stock Exchange composite trading Thursday. The stock has been trading at its lowest levels in more than 50 years as concerns mount about the company's financial position amid a steep decline in U.S. sales.

GM and other U.S. auto makers are reeling as the slow U.S. economy depresses sales and as high gasoline prices push many would-be buyers to small, more-fuel-efficient vehicles and away from the higher-margin SUVs and trucks. Through June, for instance, GM's U.S. sales slipped 16%, more than offsetting strength in overseas markets.

GM has about $24 billion in cash but is burning an estimated $3 billion a quarter, prompting talk that it will need a significant cash influx to get to 2010.

"We have no thought of [bankruptcy] whatsoever," Mr. Wagoner said in response to an audience question during the Dallas event.

But he noted the widespread discussion of such a possibility could itself hurt sales, because consumers may balk at buying a vehicle from a company they think could go under. "The rumors of it don't help anything and are completely inaccurate," Mr. Wagoner said.

Meanwhile, Mr. Wagoner said GM has no plans to further reduce its number of brands. The company recently put its iconic Hummer division up for sale.

GM sells vehicles under eight different brands, but most -- including Buick, Saturn and Saab -- struggle to attract buyers.

Mr. Wagoner said GM has plenty of initiatives under way to develop more fuel-efficient vehicles, such as the Chevrolet Volt, a plug-in hybrid he said should be in showrooms by the end of 2010.

By: Bob Sechler
Wall Street Journal; July 11, 2008

Absorbing High-Tech Rohm & Haas to Require Changes in Company's More Stolid Culture

Dow Chemical Co.'s chief executive, Andrew Liveris, Thursday was exactly where he likes to be: in the limelight, announcing a multibillion-dollar deal and talking up his grand plan to turn his staid company into a hot-shot high-tech innovation machine.

How realistic this is remains to be seen. Today, Dow Chemical still makes three-quarters of its revenue in commodity-like products, spinning hydrocarbons into plastics and chemicals with little glamour and long names. And the company faces a huge challenge from the soaring costs of natural gas and oil, which are the building blocks of many of its products.

But Dow's $15.3 billion deal to acquire Rohm & Haas Co., which produces higher-margin specialty chemicals, is a step down the path Mr. Liveris has been promising since he became chief executive officer in late 2004.

A self-described "chemistry nerd," Mr. Liveris sees a day when Dow scientists will create must-have products craved by customers around the world, just as it did back in the 1960s, he says. Those products included Handi-Wrap and Ziploc bags. "You'll buy them because they have value to you and you'll pay the price," he says.

There have already been some bumps along the way for Mr. Liveris, 54 years old, a voluble Australian with a hard-charging style. He has spent his whole career at Dow, mostly in Asia.

Last year, after he had spent weeks denying rumors out of London that Dow was on the block, he discovered that two Dow executives were trying to sell the company out from under him. Their plan was to break up Dow, splitting the commodity and specialty businesses.

He fired them; they sued. Although Mr. Liveris ultimately prevailed, both at the company and in the courts, the incident raised questions about his strategy.

Dow is one of the few companies that covers the chemical waterfront, moving into specialized products while staying in the basics business, where it faces accelerating competition from the energy-rich Middle East.

Dow's response has been to try to unload some of those basic businesses into joint ventures. Before the end of the year, the company hopes to close on a deal to sell a 50% stake in several plants to Kuwait Petroleum Corp. for $9.5 billion. (Mr. Liveris describes the day he announced that deal, on live television, as his best at Dow -- until Thursday, when he says he got a standing ovation from Dow employees.)

That Kuwaiti cash has been burning a figurative hole in Mr. Liveris's pockets, and Wall Street has been speculating for months that Dow would buy a rival and complaining when it didn't.

Thursday's deal takes care of that issue, though it raises other concerns. Dow's last major acquisition, of Union Carbide in 2001, proved hard to digest and ended up pushing the company more heavily into the commodities business it is now trying to play down.

This time around, Dow will have to absorb its new holdings while at the same time trying to foster a new spirit of innovation in what has been, in recent years, a more stolid corporate culture.

Coaxing a high-tech butterfly from a commodity-chemical cocoon is far from easy, experts and competitors say. "It's going to be death-defying, may be enormously frustrating -- and may fail," says Howard M. Anderson, a professor at the Sloan School of Management at Massachusetts Institute of Technology.

Dow also has had its share of pollution problems, and the Union Carbide deal linked it with the deadly 1984 chemical leak in Bhopal, India -- which remains an environmental, political and humanitarian issue to this day.

Mr. Liveris complains that, in general, Dow has been judged unfairly, and he has gone on the offensive. Since becoming CEO, he has been unusually outspoken, pressuring Washington about the need for new energy and industrial policies, announcing sweeping price increases, and generally trying to revamp Dow's public image.

"I admire Andrew's willingness to step up and talk about issues that are important," says Barbara Hackman Franklin, a longtime Dow director.

Despite his best efforts, Mr. Liveris is little-known to Americans. Back in Australia, however, he has a higher profile, and in early 2007 he was rumored to be angling to head that nation's biggest company, BHP Billiton.

Was that true? "Capital N, capital O, exclamation point, exclamation point," Mr. Liveris says. "I really am very committed to changing this company to relive its glory years."

By: Leslie Eaton and Ana Campoy
Wall Street Journal; July 11, 2008

Wal-Mart Stores Inc. has started selling Martha Stewart-branded craft products, as Martha Stewart Living Omnimedia Inc. leans more heavily on its licensed-products business.

In recent weeks, the majority of Wal-Mart Stores in the U.S. and Canada have started stocking Martha Stewart-branded scrapbooks, jewelry-making kits and other craft products, the media and merchandising company said Wednesday.

Martha Stewart Living collects a high-single-digit percentage of the wholesale price from the nearly 400-product line, according to a person familiar with the deal.

Shares of Martha Stewart Living fell 19 cents, or 2.7%, to $6.80 in 4 p.m. New York Stock Exchange composite trading Wednesday.

The Wal-Mart deal isn't expected to give much of a financial lift to the company's earnings right away. But Martha Stewart Living is under pressure to sign new merchandising deals, which carry higher profit margins than the company's media businesses.

What is more, the company needs to help fill the gap from a shrinking licensing arrangement with Sears Holdings Corp.'s Kmart stores.

For a decade, Kmart has sold a line of towels, cookware and other Martha Stewart products, helping generate one-fifth of Martha Stewart Living's revenue last year.

Investors worry the New York company won't be able to make up the lost revenue as the guaranteed royalty payments fall from $65 million this year to an estimated $20 million next year. The Kmart contract is to expire in January 2010.

Under retail-industry veteran Robin Marino, who heads Martha Stewart Living's merchandising business and was recently named co-chief executive, the company has ramped up a range of new licensing arrangements over the past few years. These include a collection of housewares and holiday decorations at Macy's Inc., a line of plants and gifts sold by 1-800-Flowers.com Inc. and frozen foods sold at Costco Wholesale Corp. stores. The company already sells crafts at arts-and-crafts chain Michaels Stores Inc. and at other retailers.

By: Shira Ovide
Wall Street Journal; July 10, 2008

In 2005, radio-giant Clear Channel Communications Inc. learned that a writer named Alec Foege was planning a book about it. The book's working title, "The Monster That Ate Mass Media," suggested something less than a puff piece was in the works.

Clear Channel mounted a counteroffensive, lining up its own writer to tell the Clear Channel story its way.

As a result, dueling books about Clear Channel have recently hit the shelves. Mr. Foege's book -- now titled "Right of the Dial: The Rise of Clear Channel and the Fall of Commercial Radio" -- chronicles the company's role in the consolidation of the radio industry.

It competes with "Clear Vision: The Story of Clear Channel Communications," by Reed Bunzel, former editor of the trade magazine Radio Ink. Mr. Bunzel says Clear Channel paid him to do the book but declines to say how much. Another journalist says he was offered more than $100,000 to take on the project. The book doesn't disclose Mr. Bunzel's financial relationship with Clear Channel, but careful readers may notice that the company holds the copyright to the book.

Self-published corporate histories aren't unusual. But Peter Hawes, editorial director of Greenwich Publishing, a publisher specializing in corporate histories, says he has "never seen a situation in which a company has said, 'Hey, there's another book coming out. We don't think we're going to like it. Let's get our own book out.' " He also says he doesn't disapprove of the strategy as long as the company includes its missteps alongside its accomplishments.

Lisa Dollinger, Clear Channel's communications director, spearheaded the book project. She calls it an "evenhanded look at Clear Channel" that "was written from an independent point of view by a journalist with decades of experience in radio."

Clear Channel's move to recruit Mr. Bunzel dates back to 2004, when the company was preparing to fend off other rumored Clear Channel books. While those books never materialized, the false alarms meant the company was ready when it heard about Mr. Foege's work.

Eric Rhoads, publisher of Radio Ink and Mr. Bunzel's former boss, says he discussed the project with Ms. Dollinger. "She said that there was another book coming out about Clear Channel," recalls Mr. Rhoads. "She said she was afraid the story would not be told accurately, and she wanted to make sure it was told accurately."

After learning of Ms. Dollinger's search for an author, Mr. Bunzel took her a proposal, and they signed a deal in late 2005. He was given a year to deliver the book and, according to Ms. Dollinger, "unfettered access to Clear Channel executives and managers." It was up to Clear Channel to find a publisher.

Meanwhile, the company had been denying Mr. Foege access to its executives. "Several aspects of the project, not least the book's working title, 'The Monster that Ate Mass Media,' raise concerns for us with regard to substance, objectivity and accuracy," wrote Ms. Dollinger in a July 2005 email to Jonathan Galassi, president and publisher of Farrar, Strauss & Giroux, Mr. Foege's publishing house. "We will be letting Mr. Foege know that we will not be granting him access to company executives."

Mr. Foege says he was startled to learn, sometime in 2006, that another writer was mining his territory. He asked his agent to look into it but couldn't get much information. Eventually, Mr. Foege found an entry on Amazon that shed some light on his rival.

"He clearly was a radio guy," he says, adding that he thought, "Maybe it's the book for radio insiders." He traveled to San Antonio, the company's headquarters, but couldn't get as much as a return phone call from current employees. At a New York radio-industry dinner, he introduced himself to Chief Executive Mark Mays, who excused himself quickly.

Meanwhile, Mr. Bunzel was setting up interviews and flying down to San Antonio to meet with the Mays family and top company executives. "I was aware of the [other] book, sort of like parallel worlds, but like parallel worlds, I didn't want to go there," says Mr. Bunzel.

Ms. Dollinger arranged for Texas-based Bright Sky Press to publish Mr. Bunzel's book. Ruina Judd, Bright Sky's publisher, declines to discuss the business details between Clear Channel and Bright Sky.

Mr. Bunzel turned in his manuscript to Ms. Dollinger in late 2006. She had few suggestions, he says, other than getting rid of repetitive sections and other minor tweaks. An editor at Bright Sky didn't make major changes either, Mr. Bunzel says.

Mr. Foege's book, published in April, takes the company to task for some issues, such as what he characterizes as bullying musicians into playing at Clear Channel amphitheaters. He quotes former board member Karl Eller castigating the arrogance of Mark Mays and Chief Financial Officer Randall Mays. And he offers some juicy anecdotes, including one about company founder Lowry Mays being airlifted from an anniversary cruise to rescue a foundering deal.

Mr. Bunzel's book, "Clear Vision: The Story of Clear Channel Communications," includes some criticism of the company, such as a passage calling Clear Channel "almost oblivious to the mounting criticism that was bombarding it from all directions." But the unpleasant parts are leavened with plenty of praise, much of it in the form of long quotes from current executives. And many of the anecdotes revolve around the Mays family. The Mays, for example, had their children pick out their bedroom furniture at garage sales, and do grunt work for Clear Channel like construction over the summer.

By: Sarah McBride
Wall Street Journal; July 10, 2008

U.S. Web sites are waking up to a sobering reality: A huge share of their traffic now comes from overseas, but they are struggling to make money from it. Now, Internet companies big and small are scrambling their business models to try to cash in on foreign markets they have largely ignored.

The internationalization of online traffic in the U.S. has accelerated at a pace that has surprised even some people in the Internet business. Many U.S. sites now draw more than half of their audiences from international visitors but generate only about 5% of their revenue from that traffic, according to recently compiled figures by Internet tracking firm comScore Inc. and industry analysts.

For example, Web sites published by Condé Nast, such as GQ.com and Style.com, derive 55% of their traffic from overseas, while Facebook's international audience accounts for 73% of its 124 million monthly visitors.

Most of these sites started drawing foreign visitors without any effort on their part. The changing demographics of their users owed in part to the rapid increase in broadband Internet penetration in countries such as Russia, Brazil, India and China in recent years.

U.S. Web content is proving popular with those new Web users, just as American TV and movies have been in those and other countries. Also, technology investments by U.S. Web sites have helped them appear prominently in search results for Web surfers world-wide.

This trend has huge financial implications for big U.S. publishers. Many sites have paid little attention to foreign traffic because it was so small and because, in some cases, marketers in those countries weren't yet buying online ads. As a result, international visitors to U.S. sites still often see ads that are completely irrelevant to them.

A recent visit to CNET.com from Australia, for example, showed an ad for Verizon Communications Inc.'s FiOS TV service, which is available only in select U.S. cities. U.S. marketers know they aren't reaching their intended audience with those ads, so they normally don't pay Web publishers for them.

"Web sites are neglecting a massive opportunity," comScore analyst Andrew Lipsman said.

Now, some sites are moving aggressively to build their international sales operations. Closely held Glam Media, whose properties include fashion and celebrity gossip site Glam.com, recently acquired London digital marketing firm Monetise Ltd., jump-starting its strategy to add several dozen salespeople in countries that include Germany, Japan, India and China. Half of Glam's 77.4 million visitors come from abroad, but only 5% of its revenue is from non-U.S. advertisers.

"We really have a global media company, but we were running it locally," said Samir Arora, chairman and chief executive of Glam, which by visitors is the largest U.S. Web property aimed at women.

Other Web sites are outsourcing ad sales to companies with on-the-ground sales teams. This includes Adconion Media Group, a London firm that sells ads for sites such as the Drudge Report and Sony Corp.'s video site Crackle from 12 international offices. Meanwhile, niche players are cropping up to focus on individual countries, such as Komli Media, a start-up based in Mumbai, India, that sells ads for 250 U.S. Web sites, including CNET Networks Inc.

But selling Internet ads to local advertisers in overseas markets can be a tough feat. While most sites are technologically capable of targeting ads to visitors from different countries, online marketing is still a nascent phenomenon in many places. Amar Goel, who left Microsoft Corp.'s online ad sales group to start Komli, said many Indian brands still view the Internet as an afterthought, partly because there is still such fast growth in traditional media such as newspapers and television.

Mr. Goel said he had tried to pitch the chief executive officer of a large consumer packaged-goods company at a recent conference. "When he heard I was with an Internet marketing company, his eyes just glazed over," Mr. Goel said. "He doesn't yet believe the Internet can significantly impact his brand." Mr. Goel said he has made some headway with companies such as Naukri.com, India's largest job-search site, and MakeMyTrip, a large travel site, as well as multinational banks and software companies with operations in India.

Traditional U.S. media companies such as ESPN, Forbes and CNN have a head start because they already publish and broadcast overseas and have sales teams in place. But even those companies still have to coach local marketers to spur more online ad buying. ESPN, for instance, says it has been showing marketers in Latin America how sports fans are using the Web.

While overall non-U.S. Internet ad spending jumped to $25.1 billion in 2007 from $4.5 billion in 2003, according to Publicis Groupe's ZenithOptimedia, developing markets still aren't providing a huge share. In India, for example, online ad spending will only be about $111 million this year. In Brazil, it will be $453 million, ZenithOptimedia predicts. In comparison, U.S. online ad spending is expected to reach $19.8 billion this year, up 23% from $16.1 billion in 2007.

"It's taken the U.S. Internet 13 years to get to where it is now, these other places are still in years zero through two," said Ross Sandler, an Internet analyst at RBC Capital Markets.

MySpace is trying ramp up its sales teams outside the U.S. and hopes to eventually generate 50% of its revenue from abroad. The company recently announced a campaign by Cartier for its "Love by Cartier" collection, in which the French luxury jeweler is launching MySpace profile pages targeted at users in eight European and Asian countries.

By: Emily Steel and Amol Sharma
Wall Street Journal; July 10, 2008

Tween Brands Inc., responding to slumping sales at its Limited Too stores, said it will convert about 560 of them to its lower-priced Justice brand and close 26 others.

The strategy shift by the New Albany, Ohio, retailer, which sells apparel aimed at 7- to 14-year-old girls, comes as the economic slowdown is causing preteens and teens, along with older consumers, to trade down to lower-priced goods. The Justice brand is priced an average of 20% to 25% less than the more fashion-conscious Limited Too brand.

Mother and daughter back-to-school shoppers at the Limited Too store at the Shops at Mission Viejo, Calif., on Saturday. The division aims at fashion-conscious preteens.

The retailer also reported a loss of $6.7 million, or 27 cents a share, for its fiscal second quarter ended Aug. 2. Sales at stores open at least a year declined 8% in the period, with both chains doing worse than expected. Justice's same-store sales were up 3%.

Analysts were surprised by the announcement, which came after the close of trading Tuesday, and said it could signal a highly promotional back-to-school and holiday season. That Tween Brands is restructuring around a chain that delivered only a 3% same-store sales gain in the latest quarter is "another ominous sign" that this will be one of the worst back-to-school seasons in years, said Brian Tunick, an analyst at J.P. Morgan Chase & Co. In after-hours trading, Tween Brands stock was at $12.36, off $2.52, or 17%.

In an interview, Tween Brands Chief Executive Mike Rayden said he believes shoppers will continue to look for value, even if the economy picks up. "They have changed their psyche," he said.

Tween Brands said it will take a charge of $18 million, or 45 cents a share, in the second half of its fiscal year to cover costs related to the conversion, including severance and store closings. After the charge, Tween Brands said it expects second-half earnings per share in the range of 35 cents to 65 cents, based on a 6% to 9% decline in comparable-store sales, among other estimates.

Tween Brands added that it expects the conversion to result in annual after-tax savings of $20 million to $25 million, including about $15 million from reduced head count and about $9 million in reduced marketing and store expenses. As part of the conversion, Tween Brands has eliminated 148 positions.

The conversion, which is expected to be completed by the end of the company's fiscal first quarter in May, will expand the Justice brand's reach into malls. By the end of the conversion, the Justice chain is expected to have more than 900 stores.

However, Tween Brands will monitor the performance of 90 stores that were formerly Limited Too locations for "possible off-mall relocation." Limited Too products will continue to be carried in 175 to 200 Justice stores, where they will make up about 15% to 20% of the assortment, and online.

In recent quarters, the 310-store Justice chain has posted double-digit increases in same-store sales. In a limited number of prior conversions, the new Justice stores had "equal or more volume, and in a few cases, significantly more" volume than the old Limited Too stores, the company said.

Tween Brands lately has had trouble meeting its profit guidance. In recent months, the company's chief financial officer and the president of the Limited Too chain have both resigned and the company has eliminated the post of chief operating officer.

By: Jennifer Saranow
Wall Street Journal; August 13, 2008

Cost-Control Effort Helps Boost Shares; Weak Sales Likely

J.C. Penney Co. said second-quarter profit fell 36%, but the retailer's shares moved higher on cost controls and inventory management.

Penney also gave a third-quarter earnings forecast that missed analysts' estimates as it expects back-to-school sales to be weaker than last year and to occur later.

Even so, the Plano, Texas, retailer's shares rose Friday. In 4 p.m. composite trading on the New York Stock Exchange, they rose $3.11, or 8.4%, to $39.94.

Net income fell to $117 million, or 52 cents a share, in the three months ended Aug. 2, from $182 million, or 81 cents, a year earlier. The company said last week that sales dropped 2.5% to $4.28 billion in the quarter.

Penney said it expected per-share profit to be 70 cents to 75 cents a share for the third quarter, with sales forecast to decline at a rate in the low-single digits. It said it wasn't providing a full-year outlook because of economic uncertainty. Analysts' consensus profit estimates were 50 cents and 76 cents a share for the second and third quarters, respectively, according to Thomson Reuters.

Chief Executive Mike Ullman said he is keeping inventory lean and managing expenses to lessen the impact of declining sales, a strategy being repeated across the industry as consumer spending slows.

Penney "is effectively managing its inventory position," said Morgan Stanley analyst Michelle Clark. "We continue to believe the retailer will drive inventory reductions for the balance of this year, and we expect reduced merchandise margin pressure."

Mr. Ullman also said he has launched the company's biggest back-to-school product-unveiling with brands such as Decree, Dorm Life and Fabulosity, a collection designed by Kimora Lee Simmons.

"As we look into the second half of the year and into 2009, we expect the environment to remain difficult as we are seeing now," Mr. Ullman said on a conference call. He said the company's expected slower back-to-school results were factored into its third-quarter forecast.

Analysts said retailers' back-to-school sales overall have gotten off to a slow start. Teen retailer Abercrombie & Fitch Co. lowered its full-year profit forecast Friday.

These slow back-to-school results are a result of J.C. Penney's lack of electronics inventory. The stores do not sell laptops, electronics, or back to school computers, which in turn has hurt the company. If these items were to be sold in addition to back to school apparel, it could help level the company's sales and slow their decline.

Paperwork Swells, As Do Lawyer Fees, Since 2005 Overhaul

Individuals who have filed for bankruptcy protection since Congress overhauled U.S. bankruptcy laws in 2005 have faced a more expensive process as attorneys' fees have risen by roughly half, according to a government report.

In a report issued Monday, the U.S. Government Accountability Office said attorneys' fees for individuals who file for Chapter 7 bankruptcy-court protection increased by 51% since the Bankruptcy Abuse Prevention and Consumer Protection Act took effect in October 2005.

The report attributes the increase to the heavier load of legal work that is necessary to meet the law's requirements, which experts say has created a significant hurdle for financially strapped individuals.

"We've imposed enormous costs on the system which, among other things, have been a real barrier to people filing for bankruptcy because it's so expensive," said Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys.

According to the report, the average lawyer's fee for a Chapter 7 bankruptcy case -- in which an individual's assets are liquidated and debts are discharged -- climbed to $1,078 in February and March of 2007, compared with $712 for the same period in 2005.

For Chapter 13 bankruptcies, which allow individuals to develop creditor-repayment plans, the median attorney's fee rose to $3,000 in February 2008 from $2,000 just before the law was passed.

Not only do individuals face higher attorneys' fees, but the accountability office also said that the fees to file for bankruptcy rose by $90, to $299, for Chapter 7 filers and by $80, to $274, for Chapter 13 filers.

To ask people considering bankruptcy to shell out an extra several hundred dollars may be too high a burden, experts say.

"That's a significant amount of money for the average American family, let alone a family on the verge of bankruptcy," said University of Illinois law professor Robert Lawless. "It's very possible to be too poor to be in bankruptcy because you can't afford the filing."

Experts say one factor contributing to the increased costs for individuals is the centerpiece of the 2005 bankruptcy amendments: the means test. Individuals must file extra paperwork to show that, based on their income, they're eligible to file for Chapter 7 bankruptcy and have their debts discharged.

The means test requires individuals to submit pay stubs, tax records and other documents, Mr. Sommer said.

The report shows that the means-test requirement has also been costly for the government. The GAO said $42.5 million of the $72.4 million it cost the Department of Justice's U.S. Trustee Program to carry out its overhaul of the Bankruptcy Code was spent implementing the means test. The department hired 127 people to review Chapter 7 filings. According to federal court data, there were about 500,000 such filings in 2007.

By: Jacqueline Palank
Wall Street Journal; July 31, 2008

Savvy Marketing Is Seen Making Tourist Favorite a Hot Trend in West

A Soviet-trained female brewmaster is trying to turn an obscure Laotian lager into the world's next great cult beer, largely by tapping into the buzz about the brew being carried home by visitors to this small communist country.

The 49-year-old Sivilay Lasachack, who seldom drinks beer, preferring sweet tea instead, thinks her Czech-inspired Beerlao has what it takes to follow in the footsteps of Mexico's Corona Extra.

To some, the idea that a Laotian beer might one day be the toast of a cosmopolitan cabal of beer drinkers might not seem very promising. Laos has no brewing tradition to speak of and little international business.

The nation of six million people is nestled between China, Vietnam and Thailand. It has become a trendy destination for backpackers and adventure tourists, in part because of its slow pace and relative lack of exposure to the West.

But Ms. Sivilay, chief brewmaster at Lao Brewery Co. is counting on savvy marketing to overcome the beer's relatively unimpressive pedigree, in a bid to emulate Corona's rise to global stardom.

That rise began in the 1970s when Corona's brewer, Group Modelo SA, noticed that lots of empty bottles of the beer weren't being returned to distributors for redemption. The reason: After partying the weekends away at Mexican beach resorts, American surfers and college students were taking cases of the beer home with them. In response, Modelo started marketing Corona in a low-key, unconventional way, linking it to memories of sunshine and the beach.

Ms. Sivilay says she concluded Beerlao might find a similar niche after she and her colleagues heard that backpackers who had visited Laos were trying to find the beer when they got back home. "It was just after Laos began opening up to tourism and business in the 1990s," Ms. Sivilay recalls as she strides down the gantries crisscrossing her shiny, modern brewery.

"A lot of visitors were going home and asking bars and supermarkets for Beerlao, and then local beer distributors began contacting us. That's when we knew we might have an international brand," she adds.

Taking in the sunset over the Mekong River while knocking back an ice-cold beer has become a must for visitors to Laos. Along a half-mile stretch of the river in Vientiane, the capital, hundreds of stalls and bamboo-frame restaurants have sprung up to cater to thirsty tourists, providing a unique Asian twist on the German beer hall.

"There's nothing like kicking back with a Beerlao," says Brian Walters, a 23-year-old visitor from Charlotte, N.C., while his companion, 24-year-old Lindsay Stapleton from Denver, waves off a woman trying to sell them some fried grasshoppers to accompany their drinks.

Ms. Sivilay and the rest of Beerlao's management team are trying to amplify a similar buzz overseas. They appear to be making some progress. Carlsberg AS of Denmark recently doubled its stake in the brewer to 50% and is prepared to put its global distribution chain at Beerlao's service, company officials say.

But Lao Brewery doesn't want to come on too strong. Its marketing manager, 47-year-old Bounkanh Kounlabouth, fears that promoting Beerlao too aggressively will scare off its grass-roots following. Instead, he would rather follow Corona's example of becoming an "accidental" brand. "We don't want to undermine Beerlao's word-of-mouth appeal, so for us it is better to let it grow naturally."

Mr. Bounkanh spends much of his time trying to engineer such an "accident." Because he is relying on foreign tourists to spread the word about Beerlao, he is promoting the brand heavily in Laos. "We won't let the competition get a foothold," Mr. Bounkanh says.

The next step: Bringing Beerlao to the rest of the world. The beer is already sold in several major markets, including Britain, Australia, Japan and the U.S.

"We were a bit skeptical at first," says James Morgan, a director at British distributor Milestone Point Ltd. "But it's one of the few brands where the customer seeks it out rather than the other way round."

Beerlao is winning fans in the U.S., too. Paul Sher, general manager at one of the beer's U.S. distributors, H.C. Foods Co. Ltd. in Commerce, Calif., says Beerlao is picking up some momentum at supermarkets and other outlets.

Beerlao's rise has followed an unusual path. Most Laotians aren't big beer drinkers. In fact, Lao Brewery was founded by French and Lao businessmen in 1971 mostly to slake the thirst of French colonists.

After the Vietnam War, Laos's new communist rulers sent the country's best and brightest for training in physics, medicine and other disciplines in communist states in Eastern Europe. Ms Sivilay was assigned to study brewing and spent six years in what was then Czechoslovakia learning from Prague's master brewers.

Ms. Sivilay's big break came shortly after she returned to Vientiane to work at Lao Brewery, with the collapse of the Soviet Union. With the financial lifeline to the brewery's Soviet sponsor cut, its managers turned to her to keep the brewery going.

Her first move was to introduce rice to replace some of the imported grains which the brewery could no longer afford. Mixing the mash by hand, she also began recycling yeast-a trick she learned in Prague-and brought Beerlao much closer to a classic European pilsner. Sales figures are hard to come by in Laos's state-run economy, but Lao Brewery currently produces 200 million liters of beer a year, and it is the country's biggest taxpayer.

Ms. Sivilay says these days she rarely needs to taste a beer to see if it is any good. "I smell it and see how the head settles in the glass to judge whether it's a good beer," she says. "The tourists seem to like it though."

As do some international beer judges. Ms. Sivilay's brew has won a string of prizes, including honors at international beer competitions in Moscow and Prague, and she hopes Beerlao will one day put her tiny country on the map.

"The judges often say 'We love your beer, but where is your country?' We hope to change that," she says.

By: James Hookway
Wall Street Journal; July 30, 2008

Bennigan's, Steak and Ale To Liquidate as Glutted Restaurant Industry Shakes Out


After filing for Chapter 7 bankruptcy, the parent company of national chains Bennigan's and Steak and Ale on Tuesday shut hundreds of restaurants, putting thousands of employees out of work.

The move by privately held Plano, Texas-based Metromedia Restaurant Group knocks down two sit-down chains that have been part of the country's casual-dining landscape for decades.

About 200 restaurants were closed immediately, including all of the remaining 50 or so Steak and Ales. The filing eliminates full and part-time jobs for more than 9,200 employees, many of those in Texas, Florida and Illinois, three people familiar with the matter said.

Another 138 franchisee-owned Bennigan's sites aren't part of the filing and intend to remain open. They face a more uncertain future, however, given they'll no longer have the full support of parent company Metromedia Restaurant Group, a unit of billionaire John Kluge's Metromedia empire.

A company spokeswoman, Leah Templeton, declined to answer specific questions about the closings and the filing. In an email, she said that stores operated by franchisees are not named as debtors in the filings, and that future decisions regarding the affairs of the debtor companies will be determined and administered by a bankruptcy trustee.

In addition to Bennigan's and Steak and Ale, the filing includes a handful of Tavern restaurants, an experimental concept at Metromedia. It doesn't include the company's Ponderosa and Bonanza restaurants, which operate under Metromedia Steakhouses Co., she said.

The filing marked one of the largest Chapter 7 bankruptcies of a restaurant chain in recent history, according to restaurant consultancy Technomic, and is the most extreme sign yet of how midprice, sit-down restaurants are undergoing one of their worst periods in decades. Challenger, Gray & Christmas says the resulting layoffs constitute the sixth-largest mass job cut of the year.

High ingredient and labor costs are eating into profits, and several years of rapid expansion by bar and grill chains has left a glut of locations in the market. Pressures such as high gasoline prices and dwindling home values have prompted consumers to eat out less often or switch to cheaper fast-food meals.

Restaurant pioneer Norman Brinker founded Steak and Ale in 1966 in Dallas. The chain, with its dimly lit dining rooms, has billed itself as offering an upscale steak experience at lower prices. It was seen as a model for the casual-dining steakhouse chain, and many executives there went on to run other large chains.

Bennigan's, founded in Atlanta in 1976, expanded rapidly across the country in the 1990s, opening hundreds of its pub-themed restaurants to entice diners with over-size sandwich platters and happy hours. Irish-themed Bennigan's is known for fried Monte Cristo sandwiches, walls cluttered with antique photos and slightly lower prices than its rivals, like three-course meals for $10.99.

The venerable chains weren't able to survive in part because their menus and atmosphere failed to set them apart from the pack, said Ron Paul, president of restaurant consultancy Technomic.

"There's just too many stores in this category," said Mr. Paul, whose firm has done work for Metromedia. "Most of these places aren't even that full on a Saturday night." Chains have already started slowing their expansion and shutting locations, and Mr. Paul expects that will accelerate.

Other large national chains that have filed for bankruptcy this year include Vicorp Restaurants Inc.'s Bakers Square and Village Inn and Buffets Inc.'s Old Country Buffet. Those chains, however, are trying to restructure and eventually emerge from bankruptcy, while Bennigan's and Steak and Ale are planning to liquidate.

Metromedia Restaurant Group earlier this year violated terms of a lending agreement with GE Capital Solutions. It had been in negotiations with lenders since last year to stave off the filing, while closing about 75 stores and looking for a buyer, said two people involved in the matter.

Metromedia's largest lenders are GE and the Bank of New York, which also own most of the chains' real estate. Over the past year, the parent company has had to contribute about $100 million to meet payroll and some debt obligations, these people said.

Late Monday, managers at Bennigan's and Steak and Ale were called or emailed and told not to open restaurants the next day, according to two people familiar with the matter. Employees were told there wouldn't be enough money to pay them for the rest of the week, these people said.

The abrupt shutdown took employees and customers by surprise. At a closed Bennigan's in downtown Chicago on Tuesday, tables were still stacked with rolls of silverware, ketchup and menus, and the neon signs remained lit. Posted on the doors, however, were paper signs that read: "Sorry we are closed."

A hostess at that location, who declined to give her name, said she worked until midnight on Monday and was given no indication the store was in trouble. "I was kind of shocked," she said.

A growing number of struggling companies are opting to liquidate rather than try to restructure in bankruptcy. Bankruptcy lawyers say many are caught between a slowing economy, a lack of bankruptcy financing and loose, covenant-lite bank agreements that allowed their financial situations to worsen before creditors could intervene.

By: Jeffrey McCracken and Janet Adamy
Wall Street Journal; July 30, 2008

Cable-TV giant Comcast Corp. calmed concerns about competition from phone companies by reporting strong sales of its video-phone-Internet packages and higher second-quarter profits.

While competition from phone and satellite-TV companies caused a slight dip in Comcast's video customers, the company posted healthy subscriber gains in both phone and Internet services, albeit at a slightly lower pace than the year-earlier period. Comcast's results contrasted with the latest reports by AT&T Inc. and Verizon Communications Inc., which both posted accelerating landline-phone losses and weak sales of Internet services.

The results suggest that Comcast, the biggest U.S. cable operator by subscribers, saw limited impact from the economic slowdown. The one area clearly affected was ad sales, a business Comcast has been trying to build up but which saw a slight dip in revenue in the quarter.

For the quarter ended on June 30, Comcast reported net income of $632 million, or 21 cents a share, up from $588 million, or 19 cents a share, for the same period last year. Revenue rose 11% to $8.55 billion.

Shares of Comcast traded up 4.6% to $20.07 Wednesday in 4 p.m. Nasdaq Stock Market composite trading, and other major cable operators like Time Warner Cable Inc. and Cablevision Systems Corp. also saw their shares rise. Cable stocks plunged last year amid investor worries about gains being made by phone companies in video.

Comcast's performance affirmed the bullish view on the cable industry held by some analysts. "Comcast's solid results -- particularly in the wake of such weak wireline results from the telcos -- reinforce our long-held view that the battle on the ground is cable's to lose," wrote Craig Moffett, an analyst at Sanford C. Bernstein in a report.

Most of Wall Street's focus was on what the results suggested about how cable companies are increasing their market share as the high-speed Internet market is maturing. While Comcast reported an 18% dip in the number of new broadband customers in the quarter, its 278,000 new customers dwarfed the total number of new broadband customers added by AT&T and Verizon in the same period.

"Cable is taking share, and it is taking it in gulps," Mr. Moffett wrote.

Comcast's gains suggest that phone companies, whose Internet services offer mostly slower speeds than cable, are at a disadvantage as consumers turn to bandwidth-heavy Web applications. In a conference call for investors, Comcast Chief Executive Brian Roberts said the increased demand for online video viewing was helping drive sales of cable modems.

"Video over the Internet is cable's friend," Mr. Roberts said. The shift is meaningful because broadband service is more profitable than video or phone service for both cable and phone companies, estimates Mr. Moffett.

Philadelphia-based Comcast also added 555,000 voice customers during the quarter, 20% fewer than a year ago but still a healthy growth rate, analysts said. Most of these customers are coming from phone companies.

In video, where Verizon and AT&T are taking customers from Comcast, the cable company lost 138,000 "basic cable" customers but added 320,000 customers with high-end "digital" service.

Comcast, which was under pressure from some investors last year to rein in its capital spending, showed that it got the message. Capital expenditures dropped 20% from a year ago to $1.3 billion. That helped the company to triple its free cash flow -- a closely watched metric for the cable sector -- to $1.2 billion.

By: Vishesh Kumar
Wall Street Journal; July 31, 2008

Ex-Entrepreneur Hired To Assist in Setup; Brand-Name Advantage


Google Inc. is working on plans to start a venture-capital arm, according to several people briefed on the discussions.

The group will be led by David Drummond, Google's senior vice president of corporate development and chief legal officer, according to two of these people. Google has hired William Maris, a 33-year-old former entrepreneur who has worked as an investor, to help set up the venture. How the group will be structured and what sort of investments it is likely to target remain unclear.

Google executives previously have bandied about the idea of launching a venture-capital unit, and the plans could still fall through. Mr. Maris couldn't be reached for comment.

The move would make Google the latest technology giant to take on a more-formal role in seeding start-ups. Intel Corp. has had a large venture-capital arm for years, as have Motorola Inc., Comcast Corp. and many others. In the consumer-Internet area, Walt Disney Co.'s Steamboat Ventures has invested in a number of Web start-ups. So has Amazon.com Inc., which has funded a number of young companies without structuring a formal fund.

Their track records have been mixed. Corporate venture-capital arms have been hampered by challenges that traditional venture-capital businesses don't face. Venture capitalists invest in private start-ups at an early stage, usually in hopes of a big payout if the company is sold or if its stock goes public.

Many start-ups fear that taking corporate money limits their options and comes with strings that could turn away other potential investors -- such as a right to buy the company at a later date. Some funds with less competitive compensation have struggled to retain managers, and corporate venture funds often don't allow senior employees to invest personal money in their funds, while other venture funds typically do.

Corporate venture capitalists' share of overall venture-capital dollars invested in U.S. companies fell to 7% in the first half of 2008 from 8.4% in 2007, according to PricewaterhouseCoopers and the National Venture Capital Association. Corporate venture capitalists were involved in roughly 20% of the venture-capital deals signed during the first half of 2008, compared with 21% in 2007.

With an abundance of venture-capital money available today, Google will have to convince entrepreneurs that it has something to offer that other investors don't. It has several advantages, including a brand admired by start-ups and the ability to offer sizable technical resources.

The Mountain View, Calif., Web giant has long preferred to buy companies rather than invest in them, and has plenty of cash to keep doing so. But it has invested millions of dollars in companies ranging from Current Communications, which offers broadband Internet over power lines, to Meraki, a wireless-Internet-equipment manufacturer. The company said last year that it intends to invest hundreds of millions of dollars in renewable-energy projects in conjunction with its philanthropic arm, Google.org. Google also has launched a number of informal funding programs, including contests for software developers.

The new venture could help formalize those efforts and could help Google expand the footprint of some of its online-software products geared at small businesses. Other corporate venture funds have made investments as a way to gain experience in new product areas and markets.


By: Jessica Vascellaro
Wall Street Journal; July 31, 2008

Barry Diller's IAC/InterActiveCorp, which is set to split into five companies, posted a second-quarter loss because of charges for two of its struggling businesses.

The report likely is the last before IAC completes its plan to spin off four businesses into new public companies -- Ticketmaster, home-shopping network HSN, online-mortgage broker LendingTree and time-share company Interval International -- in a bid to slim down the sprawling conglomerate and boost its sagging stock price. The breakup is expected to be effective within weeks, although IAC said it couldn't pin down the precise date.

Revenue for businesses to stay at IAC, including the Ask.com search engine and dating site Match.com, posted an 11% increase in revenue, helped by a new search-advertising deal with Google Inc.

Mr. Diller on Wednesday sought to tackle a burning question for investors: what the slimmed-down IAC will do with about $1.3 billion in dividend payments it will receive from its businesses being spun off. Acquisitions are "hopefully going to be numerous" in the new IAC, he said, adding that the company is likely to keep deals below $100 million each. Mr. Diller said the company will return cash to shareholders if it doesn't find suitable deals.

The businesses to be spun off had mixed results in the second quarter. Ticketmaster and Interval increased revenue by 30% and 20%, respectively, though profit growth wasn't as strong. HSN continued its slow recovery with a 2% increase in revenue but was weighed down by its catalog business, including Frontgate and Garnet Hill, which IAC has said is being hurt by a cooling economy.

IAC took charges of about $466 million to write down the value of the HSN catalogs and Tree.com, the new name for online mortgage unit LendingTree, which continued to post operating losses in the second quarter. The charges pushed IAC to a quarterly loss of $422 million, or $1.51 a share, from a year-earlier profit of $94.6 million, or 31 cents a share. Plans for the charges had been previously disclosed.

IAC shares fell 28 cents, or 1.6%, to $17.67 in 4 p.m. Nasdaq Stock Market composite trading.

IAC and News Corp.'s Dow Jones & Co., publisher of The Wall Street Journal, jointly own a personal-finance Web site.

By: Shira Ovide
Wall Street Journal; July 31, 2008

Sales Efforts Increase, But 'Smaller Dollars' Prove Hard to Chase

In an effort to make up for their plunging print-ad revenues, newspaper companies have been scrambling to train their sales teams in the intricacies of selling online ads to local marketers.

But in many cases they aren't selling a lot of ads and at least some of the new ads they are managing to sell are cannibalizing their print-ad revenues, industry analysts say.

Over the past two years, the number of local salespeople peddling online ads for newspapers has ballooned to 15,500 from 5,900, according to estimates from media-research firm Borrell Associates. Traditional media companies have believed strongly that they have an edge over Internet companies because they are based in the communities they serve.

But whatever edge may have existed appears to have evaporated. Newspapers now control only 27.4% of the local online ad market, down from a 35.9% share in 2006, according to Borrell.

There are several reasons why newspapers so far have failed to crack this market. Because online ads are far less expensive than print ads and thus offer lower commissions, it's difficult to get salespeople to focus on selling the digital products.

Also, the types of ads that newspaper companies are selling -- typically banner ads -- don't correspond with the needs of a local merchant. And much of the potential local online ad revenue growth comes from small and medium-size local businesses, a market segment that newspaper companies have typically ignored.

It's not that spending on local ads isn't growing -- that market expanded at a 57.2% clip last year. The big winners so far are Internet companies like Google and Local.com, which collectively control 53.3% of the local online ad market, up from 25% in 2006. And they've done that with only 1,400 ad-sales reps. They specialize in selling ads that target consumers searching the Web for a particular product or service, whether it's a plumber or a neighborhood pizzeria.

Some publishers say rising competition from everyone from Google to local bloggers has made it tough to offset newspapers' sliding share of local online ad revenue. "At the moment we're just trying to retard it as much as we can," says Dan Shorter, president of digital media for the Minneapolis Star Tribune.

The cannibalization of print ad revenues is also a problem. One common scenario is that a trusty local print advertiser -- a car dealership, say -- that used to spend $20,000 a year on advertising might now spend a quarter of that with the newspaper online and nothing in the print product. Thus, the newspaper company is now selling more digital ads, but the new sale is taking away from its bottom line.

Companies like E.W. Scripps, A.H. Belo and Lee Enterprises generally have three broad streams of ad revenue -- local, classified and national. Classifieds typically represent 60% to 70% of papers' online revenue, but Craigslist, among others, is fast gobbling up that business. The pool of national ads, meanwhile, has been a promising area for newspapers, but even there, growth is slowing. That's why papers are focusing relentlessly on local online ads. A lot of newspaper companies have teamed up with Internet players like Yahoo on a variety of cross-selling and ad-technology initiatives to get more local ads.

Small- to medium-size businesses are a prime target for newspapers because their limited ad budgets price them out of the daily print paper. Newspapers aren't the only traditional media businesses trying to reach this crowd: Yellow pages-style directories, which for years have sold listings to small businesses, are also eyeing this opportunity.

But as newspaper companies have discovered, smaller and less sophisticated advertisers require more hand-holding -- and bring in fewer ad dollars -- than a traditional local advertiser. The independently held Bakersfield Californian recently started offering free seminars to teach local small companies how to set up free business listings on Google and Yahoo, and on an online directory hosted on the paper's Web site. These smaller businesses for the most part have annual advertising budgets of $10,000 or less a year, which would be eaten up by buying just two full-page ads in the paper.

"It's a very long sales process for smaller dollars," says Mary Lou Fulton, vice president of audience development for the Bakersfield Californian, which now has a handful of digital-only ad-sales reps.

Most newspaper companies don't break out local from nonlocal ad revenue. But in the last week, Scripps, Belo and Lee reported declines in online ad revenue for the second quarter. Those figures includes both ads sold separately and as part of a bundle with a print ad.

Some papers, like the Scripps chain, are starting to give sales people more motivation to sell online ads. At Scripps's Corpus Christi Caller-Times paper in Texas, for example, the online audience is about a third of the size of the print circulation. As a result, the paper is in the process of tying a third of the salespeople's commissions to their sales of online ads. The digital goals will increase sharply each year, forcing the sales teams to sell more digital ads to continue to maintain their monthly commissions.

"Unless you take practices that have been in place for 50 years and shake the dust off the rugs, you're not going to move the needle," says Mark Contreras, senior vice president of Scripps newspaper division.

By: Emily Steel and Shira Ovide
Wall Street Journal; July 31, 2008

It has been a tough season for optimistic investors the world over. But an eagerly awaited decision from Turkey's highest court on Wednesday shows that it can pay to hope for the best.

The nation's Constitutional Court decided not to ban the nation's ruling party, the AKP, for allegedly violating the sacrosanct secularist principles of the Turkish republic. The accusations were vague, but the political motivation was clear. The AKP, which won 47% of the popular vote in the last election, was considered too Islamic -- and too powerful -- for the old establishment's taste.

Less clear, but alarming, was what might happen if the government of Prime Minister Recep Tayyip Erdogan actually were banned. Some observers feared capital flight, political chaos, even military strife. Any new government would be in an even weaker position to deal with Turkey's 11% inflation and huge deficit in the current account, a measure of total exports against imports.

Even for the AKP's detractors, the long-term costs would have been huge. The AKP's support base -- the growing middle class, the still-substantial rural population and the large Kurdish minority -- would almost certainly have regrouped and returned to power with a stronger popular mandate. In the event, the token financial sanctions imposed by the court on the AKP look like an appropriate response to the scant evidence.

Investors in Turkey's financial markets have been jittery, but many seem to have decided weeks ago that the court wouldn't ban the AKP. Istanbul's stock-exchange index is up 24% since the beginning of July. The Turkish lira has strengthened to a three-month high against the dollar.

The struggle between secularists and modernizers isn't over, but the court's decision suggests market-friendly forces have the upper hand. The result should please the State Department, which approves of Turkish democracy as a model for the Middle East. For investors, the good news is that the country looks readier than ever to modernize its economy.

Investors Question How Much Risk Was Offloaded

Investors are questioning just how much risk Merrill Lynch really offloaded with its sale of $30 billion of toxic mortgage securities.

Their immediate worry is that Merrill could still be hit with losses if these collateralized debt obligations continue to plunge in value. That is because Merrill financed 75% of the $6.7 billion that Lone Star paid for these complex debt products.

Lone Star's portion of the sale price gives Merrill a $1.6 billion buffer against further losses. But the financial crisis has shown that even such a seemingly large amount can disappear quickly.

And investors don't have much to go on. Merrill provided scant detail about the terms of the financing it offered to Lone Star. It also hasn't said how it financed its $4.45 billion sale last month of a 20% stake in Bloomberg LP. Merrill is now in a quiet period while it finalizes an $8.5 billion offering of new stock.
[Chart]

Granted, the amounts involved are small -- the financing for the Lone Star deal as well as that provided for the Bloomberg stake is less than $10 billion. That is a drop compared with Merrill's nearly $1 trillion balance sheet.

But Merrill needs to fill the information vacuum fast.

It is possible that Merrill arranged the financing so that its downside risk is limited. Earlier this year, for example, Citigroup sold off a portion of its beaten-down leveraged loans. As part of the financing, the bank used a derivative called a total return swap to protect against further falls in the debt's value.

But such protection can carry hidden costs and can be viewed by some as balance-sheet sleight of hand. Any such move by Merrill also could serve as another example of how more of investment banks' balance sheets are getting tied up in illiquid holdings.

If that is the case, it adds weight to arguments that formerly nimble investment banks like Merrill can no longer afford the risk of using high levels of borrowed money, or leverage. Worries about the investment banks' leverage levels have grown since they got access to the Federal Reserve's discount window.

To ease concerns, Merrill needs to detail whether the financings were straightforward loans, or, if there were bells and whistles, just how they work and how it will account for the various pieces.

The firm also needs to show whether it will be using market values to assess risks that it still may hold. That would require it to consider what others in the market would pay for the financings, potentially making the values more volatile.

This could increase the chance that the firm will see some additional losses. But it also forces the firm to take a more realistic view of the value of the holdings.

Merrill should make clear which of its various units arranged the financing. If it was done through a banking unit, this could affect how Merrill values its exposure to the Lone Star financing and how it views gains from the Bloomberg deal.

In normal times, questions about such small amounts of financing would seem picayune. Today, with markets roiled and with Merrill forced to repeatedly raise new capital, every risk needs to be clearly explained.

ArcelorMittal Should Turn Its Focus to Debt

The willingness of ArcelorMittal's customers to pay high prices for its steel is almost as impressive as the amounts of metal they are buying from the Luxembourg-based company.

The company shipped 3.9 million tons to Africa, Asia and former Soviet-bloc countries in the second quarter -- about the same as in the previous quarter. But it made an extra billion dollars on those deliveries.

That is testament to the efficiency of ArcelorMittal's expanding business. All global steelmakers have faced high iron-ore prices, up at least 60% in the past year. Coal prices have gone up more. But ArcelorMittal owns ore and coal mines near its plants. This has translated into high operating margins in emerging markets, up at 32% from 19% quarter-on-quarter.

Much has been achieved by quick integration of acquisitions and using the free cash flow to buy more assets, without ignoring the needs of investors.

But ArcelorMittal's debt should now be the focus. While it generated free operating cash flow of $2.9 billion at June 30, net debt rose to nearly $30.7 billion from $27.4 billion.

That isn't alarming, but neither is it comforting as growth is expected to flag in a post-Olympics China and a slowdown looms in emerging markets.

Before ArcelorMittal makes any more acquisitions, it should pay down more debt.

By: David Reilly
Wall Street Journal; July 31, 2008

Vonage Holdings Corp. will name a new chief executive as early as next week, people familiar with the matter said, as the Internet-phone provider neared completion of a refinancing deal critical to keeping the company afloat.

Vonage said Thursday that it had entered into a commitment letter with hedge fund Silver Point Finance LLC for as much as $215 million in financing. Vonage, based in Holmdel, N.J., said it will use the net proceeds plus its own cash to repurchase the remainder of its $253 million in convertible notes. Vonage had until Dec. 16 to raise money to buy back the notes. Uncertainty about its ability to do so had prompted its auditors earlier this year to question its ability to stay in business.

"This is a really good step forward," said Jeffrey Citron, Vonage's chairman and interim chief executive. Although the deal is still subject to some terms, including other lenders providing $60 million of the debt financing as part of the Silver Point package, he said, "We feel comfortable that we'll get this transaction done."

Mr. Citron, 37 years old, founded Vonage and ran the company until early 2006. In April 2007, he stepped back in as CEO to steer the company through a flurry of patent lawsuits and bankruptcy worries. By January, Vonage had settled patent-related litigation with Nortel Networks Corp., AT&T Inc., Sprint Nextel Corp. and Verizon Communications Inc.

Now that the legal and debt hurdles are nearly resolved, Mr. Citron plans to let someone else manage Vonage's day-to-day operations, though he will remain involved with the company. Vonage declined to provide details on its succession plans.

Questions remain about Vonage's long-term prospects. The company faces intensifying competition from cable operators, which sell telephone service bundled with TV and Internet services. Even wireless carriers pose competition, as some people are disconnecting their land-line phones in favor of having a cellphone only. Vonage ended its first quarter with 2.6 million subscribers.

"The environment's certainly not getting any easier on them," said Rich Greenfield, an analyst at Pali Capital.

By: Andrew Lavallee
Wall Street Journal; July 25, 2008

Ballmer Plans to Bulk Up Technology, Marketing And Pursue Acquisitions


Microsoft Corp. Chief Executive Steve Ballmer tried to put a good face on the software maker's failed attempt to buy Yahoo Inc. and pressed the case for Microsoft's continued investment in online services -- particularly Internet search.

Microsoft also said it reached an agreement with Facebook Inc. to link its Internet-search service with the social-networking Web site. The agreement is an extension of an existing relationship between the two companies.

Mr. Ballmer's comments came at Microsoft's annual meeting with analysts at its headquarters in Redmond, Wash. He and other executives devoted much of the meeting to addressing investor concerns about Microsoft's Internet business. Central to his strategy, Mr. Ballmer said, will be boosting spending on online-related technologies and marketing, and on buying other companies.

"We're going to have to ante up in a significant way to even be in this game," Mr. Ballmer said.

Microsoft spent most of this year trying to strike a deal with Yahoo -- first trying to buy the whole company and then trying to buy its Internet-search business -- but that quest ended when Yahoo rejected Microsoft's offers. On Wednesday, Microsoft said Kevin Johnson, the executive in charge of the division that houses its online business, will leave Microsoft and that it will reorganize the division.

Mr. Ballmer Thursday said that Microsoft didn't want to buy Yahoo "at the wrong price" and noted that the inability to reach an agreement in the spring made it impossible to start a regulatory review of any deal before a new U.S. president took office. He also said that buying Yahoo would have created "huge integration overhead" to merge the two companies.

Without Yahoo, he said, Microsoft will have more flexibility to try to attack Google Inc. with new technologies and acquisitions in Internet search. "I'm not going to say it's not a big bet. It is. I'm not going to say it's not risky. It is," he said.

Investing in search is important, he said, because it is a foundation for creating other consumer Internet services.

"Search is one of the starting points on the Internet," Mr. Ballmer said. "It's the best place to distribute new Internet services to the consumer."

Under the relationship with Facebook, U.S. users of the site will be able to search the Internet using Microsoft's search service, called Live Search.

The partnership gives Microsoft the exclusive right to offer Web search and search ads to U.S. Facebook users. The software company already is the exclusive third-party provider of traditional banner advertising on Facebook in the U.S. and internationally, and last year bought a 1.6% stake in the start-up for $240 million.

The search service will start on Facebook this fall, Microsoft Senior Vice President Satya Nadella said. Financial terms weren't disclosed. It comes as the two companies had been discussing the impact of a Facebook redesign that shifted where Facebook displayed Microsoft-sold banner ads on the site.

It is unclear how much the agreement could help Microsoft boost its share of the search market, in which it is a distant third to leader Google and No. 2 Yahoo. Google has an exclusive deal to power search and search advertising on MySpace.com. Analysts have estimated that Google is losing money on the $900 million three-year deal, which expires in 2010 -- although both sides say they are pleased with the partnership.

In a separate announcement, Microsoft said it will buy DATAllegro Inc., a Silicon Valley start-up that combines software for managing what the industry calls data warehouses with computing hardware. Financial terms weren't disclosed.

By: Robert Guth and Jessica Vascellaro
Wall Street Journal; July 25, 2008

Free Sites Have Professional Look, Cryptic Permissions

Email invitations to view friends' photos on a site like Shutterfly, Snapfish or Kodak Gallery can often be as much a hassle as a pleasure. Some services require tedious steps to open an album. Others ask for forgotten passwords. And even those albums that are easy to open could be hard to get back to at another time if you can't find the original email invitation. There has to be a better way.

Now Shutterfly, a leading online photo service, has integrated simple photo sharing into personalized Web sites, which serve as a more permanent and collaborative place to communicate. This new offering is appropriately called Shutterfly Share (www.shutterfly.com/learn/newshare.jsp), and the sites are free of charge and without advertisements, for now.

Shutterfly created this souped-up arm of its company early this year after acquiring Nexo Systems Inc., a company that makes straightforward, clutter-free sharing sites. Shutterfly Share caters to groups, like families and softball teams, as well as to friends, who use the sites as home bases where photos and news can be posted.

Overall, this site-creating program does a nice job with minimal work on the user's behalf, though it currently lacks a few useful features and its security-related member permissions when setting up the site can be a bit confusing.

One of Shutterfly Share's best features is its emphasis on photos, particularly the ability to quickly see multiple images simultaneously on the site's home page. Various other categories of information dot the page, like links to favorite sites, calendars or team rosters. But Shutterfly Share is still in its beta (testing) phase, and leaves room for improvements, some of which will be made upon its official release planned for Aug. 12. For example, a few features stuttered or didn't work the first time around. One photo that I added to the top of my page froze when I tried to open it for editing, and embedded video links wouldn't play during one test.

But some Shutterfly Share faults won't be fixed by the launch. It doesn't yet have the ability to upload personal videos; instead, users can only add links to videos already available on a public site like YouTube. Nor does Shutterfly Share have a way to show you when other people last signed on, a feature groups who share Web sites tend to like. The company hopes to fix these two issues by early next year.

I created a site on Shutterfly Share called "middleground" for the purpose of staying connected with a handful of friends in various cities around the country. Our site let us digitally catch up by sharing photos, gossip and general news about one another's lives. I even added news feeds from my favorite sites at the bottom of the page.

Shutterfly obviously wants users to be able to quickly start a site, condensing this process to just a couple brief steps (the process is made faster if you're already a Shutterfly member). I chose a category and style for my site; categories included Family, Photo Journal and Baby while styles ranged from yellow lattice to artistic black backgrounds.

Privacy is a priority, for good reason, and I protected my site with a password. But I mistakenly assigned each friend with limited permissions as "Contributors" instead of "Editors." It turns out that Contributors can view, comment, add and edit their own content, but not that of others; the Editors can do so. After my grumbling friends alerted me to my error, we were in business. Still, too many security options can be confusing during setup.

Shutterfly Share tries to make posting photos to the site as easy as possible by offering various ways to do so -- even by simply emailing attached photos to a special address, which could be helpful for relatives intimidated by the process of uploading photos. But every person who adds photos to the site, whether via upload or email, may do so only if he or she is a member of Shutterfly. Though many people already have Shutterfly accounts, this could deter some who just want to add photos without becoming a member of the service. Shutterfly says it will allow non-members to post to the site by early next year.

People who aren't Shutterfly members but are invited to be members of a Shutterfly Share site (by the site's owner) can post anything other than photos, including comments, calendar entries and polls.

Shutterfly Share organizes recent images on the site's home page using one of seven display patterns, including a really great-looking Film Strip view and Compact view; the former shows a horizontally moving ribbon of photos flowing across the screen while the latter condenses multiple photos into thumbnails so many can be displayed at once.

Up to three large, artistically arranged photos can be shown at the top of each site; I added two shots of my friends (both members of the site) and another of the Washington Monument at sunset. This gave it a personalized and professional feel.

I missed having the ability to post my own videos, but searched for clips on YouTube, Google and Yahoo using a built-in tool that easily adds videos to the site. I posted a scene from the television series "Mad Men," along with a "Saturday Night Live" skit; thumbnails representing each showed up on the site. I added a calendar on which I noted my birthday, to alert any forgetful friends, and in a Favorite Links section, I added a list of URLs that I like. Every item on the site can be dragged around and rearranged.

Daily emails update members on site activity, such as newly posted photos and comments, so as to keep each member in the loop on site happenings.

When Shutterfly Share is officially released, it will build contextual advertisements into the sites. But early next year, the company plans to offer a premium subscription version of Shutterfly Share that would remove all ads and allow access to special features.

The launch version of Shutterfly Share will also give users the ability to view and digitally page through coffee-table photo books that people have assembled using their digital photos. If you like someone else's book, you can (with permission) order a copy for yourself.

Shutterfly Share is a step in the right direction for people who want photo sharing to be more long-term and user-friendly than email invitations. And Web sites built with Shutterfly Share deceivingly look like they took a long time to create. When Shutterfly cleans up its permissions and makes posting via email easier, this program will be even better.

By: Katherine Boehret
Wall Street Journal; July 30, 2008

Educate and They Will Come; The Promise Spurs Growth in Kalamazoo

More than a year ago, Kaiser Aluminum Corp. was looking for a spot to build an $80 million office-and-research center that would employ 150 workers.

After considering cities in three different states, the maker of aluminum products settled on Kalamazoo, Mich., a once-prosperous manufacturing city that had lost thousands of jobs in the last decade or so.

One of the draws: The Kalamazoo Promise, a program that provides at least partial college tuition to all graduating seniors who spent their high-school years in the city's public schools.

Just as Kaiser was gearing up its search, a group of wealthy philanthropists who have remained anonymous unveiled the Promise as a gift to the city. The lure of the program as a benefit for Kaiser employees, and its potential to produce a highly educated work force, proved a big attraction, says Martin Carter, vice president and general manager of common alloy products at Foothill Ranch, Calif.-based Kaiser.

"We are building a sophisticated facility with new technology, and we want well-educated people who will work with us and want to live in Kalamazoo," Mr. Carter says. "Some of the other sites gave a lot of talk about future education plans, but in the case of Kalamazoo, they already had a commitment to developing a well-educated community." Kaiser says its Kalamazoo center will be fully operational in the first quarter of 2009.

Introduced in November 2005, the Promise was designed to stimulate Kalamazoo's economy and lure both business and people back to the city. It covers 65% of tuition costs at public colleges and universities in Michigan for students who spend at least their high school years in the Kalamazoo Public School district. Students who go all the way from kindergarten through 12th grade get a free ride. Bills are paid by the program directly to the college and can be used for any degree program, such as a nursing degree or a pharmacy degree. Roughly 1,200 students have taken advantage of the program so far.

Signs of Rebirth

"What we had here was a traditional inner city that was dying," says Ron Kitchens, chief executive of Southwest Michigan First, a regional economic-development organization. "We had the traditional institutions like hospitals, schools and museums, but the population was leaving and those that remained were paying more taxes."

Kalamazoo sits in western Michigan, a state that led the nation last year in unemployment as auto companies cut jobs amid slumping sales. Michigan's unemployment rate was 7.2%, compared with the national average of 4.6%. The Kalamazoo area has been hard hit by job cuts at one of its largest employers, drug maker Pfizer Inc. Since July 2005, the company has eliminated 2,000 high-paying research jobs, reducing its staff in the area to less than 3,000.

Over the past 18 months, however, Kalamazoo has shown some signs of a rebirth. Four-hundred families from 88 Michigan communities, 32 states and nine foreign countries have moved into the Kalamazoo school district, boosting school enrollment 12% to 11,530 this year from 10,337 in 2005. Graduation rates have risen, too, jumping 21% to 567 students in 2007 from 467 students in 2005. (The district reports 485 graduates so far for 2008, but the finally tally won't be known until summer school is over.)

Other companies besides Kaiser have unveiled plans to create jobs in Kalamazoo, with some saying the Promise played a role in their decision. Among them is MPI Research, a privately held preclinical drug-testing company in Mattawan, Mich., which in April announced plans to create 3,300 jobs in southwestern Michigan -- including 400 in downtown Kalamazoo -- over the next five years as it moves into laboratory and office space once housing Pfizer.
Andy Levine, president of Development Counsellors International, discusses which states have the best -- and worst -- business climates.

Fabri-Kal Corp., a Kalamazoo producer of custom and food-service plastic products, is expected to create 160 jobs by expanding and relocating its current manufacturing operations to a vacant Mead Paper facility located southeast of downtown Kalamazoo. Other expansions or new business openings include W. Soule & Co., a stainless-steel fabrication business employing 25 people; Tourney Consulting Group, a concrete testing lab employing 12 people; and Polymer Solutions Inc., a plastics recycling company with 50 workers.

"We are experiencing job growth and families are moving back and stabilizing the area," Mr. Kitchens says.

The Promise also has turned the Kalamazoo School District into a hot spot for real estate.

Home builder Greg DeHaan, co-owner of Allen Edwin Homes, hadn't built a home in the Kalamazoo School District in the 12 years before the Promise was announced. Now, home sales in the district account for 20% of Allen Edwin's overall business, with the company building and selling 87 homes last year, compared with 47 the year before. The average home price is $130,000 to $140,000.

"The Promise has just given us this renewed sense of optimism," says Mr. DeHaan, who grew up in Kalamazoo.

It also has brought educated people into Kalamazoo, sometimes from across the country.

Efeosa Idemudia was working as a personal banker at a J.P. Morgan Chase & Co. bank branch in New York and was preparing to buy an $800,000 home in Brooklyn when he saw an evening newscast about the Promise.

Not sure he could believe the report, he used his TiVo digital video recorder to review the broadcast, spotted a telephone number on a real-estate sign and was out looking for homes in Kalamazoo a few weeks later. "I told my wife we are out of here," Mr. Idemudia says.

He now lives in the Kalamazoo School District, which means the college tuition for his 7-year-old son, 3-year-old daughter and 1-year-old son will be covered when they graduate from high school.

"When I went to college I had to work a full-time job and go to school," says Mr. Idemudia, who is now a Kalamazoo-based consultant with Pre-Paid Legal Services Inc., a network of independent law firms providing services at low costs. "I want my kids to focus on their education so they can do a whole lot better than I did."

Copying the Formula

While the developments bode well for Kalamazoo, it is too early to tell if the Promise will have a major, long-term impact on the area's economy, says Michelle Miller-Adams, a Grand Valley State University assistant professor and visiting scholar at the not-for-profit W.E. Upjohn Institute for Employment Research in Kalamazoo.

For that to happen, other big companies with high-paying jobs will have to follow Kaiser's path, says Ms. Miller-Adams, who is writing a book about the Promise.

"I wish I could say the economy is turned around but I can't say that yet," she says. "Economic changes take the longest to materialize."

Still, a growing number of groups throughout the country are betting Kalamazoo has the right formula. Inspired by Kalamazoo, Murphy Oil Corp. announced in January 2007 that it would put up $5 million a year for the next 10 years to provide college scholarships to public high-school graduates in El Dorado, Ark., where the company is based.

Students who participate in the "El Dorado Promise" can use the scholarship at any Arkansas or out-of-state college. Scholarships are capped at $6,010 and funds are paid directly to the institutions. After a 20-year decline, enrollment rose 3% in the El Dorado school district for the 2007-2008 year.

Groups in Peoria, Ill., Denver, and Pittsburgh are trying to craft similar programs. Last month, the Upjohn Institute sponsored a meeting in Kalamazoo that brought together 200 people representing 75 communities that have established or are interested in establishing programs similar to the Promise.

"I get about 40 to 50 calls a month asking about the Promise," Mr. Kitchens says. "Right now there are about 24 different communities that have similar programs."

The increased focus on education also has spilled over into surrounding communities such as Portage, which passed a $119 million bond last year, its largest ever, to build and remodel schools. Portage, which has about 9,000 students in its school district, is located about 10 miles south of Kalamazoo.

The money will be used to build two new elementary schools, one high school and remodel a second high school. In the early 1990s, the district tried to pass a $50 million bond, which at that time was the largest ever to be proposed. It failed.

"We may have not talked about the Promise to get the bond passed, but it was the elephant in the room," says Tom Vance, community-relations manager for the Portage Public School District.

Growing pains have accompanied the influx of people into Kalamazoo, forcing organizations and volunteers to stretch their already limited resources and time, Ms. Miller-Adams says.

"The Promise is generous in that it pays for tuition, but some families need help to buy college materials such as textbooks," she says. "There is also no new money to deal with the increase in [school] enrollment, and volunteers also have been needed to run meetings that teach students how to prepare for college."

As the community grapples with these issues and the initial wave of enthusiasm subsides, Mr. Kitchens says community leaders have a new goal -- keeping the educated in Kalamazoo. Among other things, Southwest Michigan First started a program offering internships at local companies.

"We have 40,000 college students right now. If we can keep them here, companies and entrepreneurs will build around them, and then we can become a community of promise," Mr. Kitchens says.

By: Jeff Bennett
Wall Street Journal; July 28, 2008; Page R1

Lawmakers Pressure Lenders to Pitch In To Curb Foreclosures

The housing rescue bill passed by the Senate Saturday hasn't been signed into law, but top Democrats already are putting pressure on regulators and bankers to make sure a major program to prevent foreclosures doesn't fall flat.

For struggling U.S. homeowners, the success or failure of the program -- which would let roughly 400,000 owners refinance into affordable, government-backed loans -- depends largely on bankers' willingness to take a partial loss on the loans and to reduce the amount of money borrowers owe.

Bankers say they will do it, but it isn't clear how many loans they might be willing to restructure.

"I absolutely do believe that there will be more principal reductions," Michael Gross, Bank of America Corp.'s managing director for loss mitigation, mortgage, home-equity and insurance services, told a congressional panel Friday.

If successful, the program could put a dent in the rising foreclosure figures as interest rates on adjustable-rate loans continue to increase while house prices in many areas slip. RealtyTrac Inc. reported last week that 739,714 homeowners received foreclosure warnings and other related notices in the second quarter.

Experts say the program's eventual participation could rise dramatically if home prices continue to drop -- which could put more pressure on lenders to offer borrowers more assistance. Lawmakers are already pressing regulators and lenders to prepare now so the program can begin without delay when it goes into effect Oct. 1.

The Senate approved the bill 72-13 after the House of Representatives passed it Wednesday in a 272-152 vote. Minutes after the Senate vote, Senate Banking Committee Chairman Christopher Dodd (D., Conn.) called for a prompt meeting with the Federal Reserve, the Department of Housing and Urban Development, and other regulators to determine the quickest way to get the program up and running.

House Financial Services Committee Chairman Barney Frank (D., Mass.) on Friday asked lenders to hold off on foreclosures until Oct. 1 if it is possible the borrower would qualify for the government program. He threatened legislation if loan servicers and investors don't work together to help prevent foreclosures.

Taking a loss on a loan by writing down the principal owed is one of the least desirable options for loan servicers. They typically prefer to lower the interest rate or extend the life of the loan -- from 30 years, for example, to 40 years, and also offer a home warranty.

"The real problem is going to be, just like with every program out there, are the banks going to take this seriously?" said Rebecca Case-Grammatico, a staff attorney at the Empire Justice Center in Rochester, N.Y., who advises clients facing foreclosure. "And if they don't, we're in the same position we've been in all along."

Whether banks embrace the program could mean the difference between foreclosure and homeownership for people like Kimberly Cox, 37 years old. Ms. Cox refinanced the $254,000 mortgage on her New Boston, Mich. house three years ago into a mortgage that had a flat interest rate for the first two years and then switched to an adjustable rate. When rates reset a year ago, her monthly payments jumped from $2,100 to $2,800, far more than she and her husband could afford.

The program will be run by the Federal Housing Administration, a division of HUD, and will insure up to $300 billion in refinanced 30-year, fixed-rate loans. The mortgages can't be for more than 90% of a home's newly appraised value. For mortgages that exceed the value of the home, the lender would have to voluntarily write down the principal to the qualifying level. If the home goes up in value, the borrower must share newly created equity with the FHA.

The program will begin Oct. 1 and end Sept. 30, 2011. Borrowers won't be able to qualify if they have intentionally defaulted on their loans or if they had a debt-to-income ratio of less than 31% as of March 1.

Karen Yule, a retired schoolteacher and counselor in Denver, hopes the program could help her save her two-story townhouse from foreclosure. She consolidated two mortgages on the home into one loan through a refinancing several years ago.

Her new adjustable-rate loan gave her multiple options each month, and she typically paid the lowest amount. Recently, her loan servicer told her she could no longer pay the lower amount she had been paying -- $1,200 -- and her payments doubled to $2,400, well above what she was able to pay. She has tried to move into a more affordable loan, but there is a hefty prepayment penalty if she moves out of her current loan before next year.

By: Damian Paletta
Wall Street Journal; July 28, 2008

Yahoo Inc. and Microsoft Corp. executives took their battle on the road Tuesday, trading barbs at two congressional hearings on the proposed advertising pact between Yahoo and Google Inc. in front of lawmakers who questioned the wisdom of the deal.

Microsoft General Counsel Brad Smith told a Senate panel that Yahoo Chief Executive Jerry Yang had said to Microsoft executives at a June 8 meeting at the San Jose, Calif., airport that a Yahoo-Google alliance would effectively dominate the Internet search business. Microsoft has opposed the proposed Yahoo-Google deal on grounds that it would be anticompetitive.

In sworn testimony, Mr. Smith recounted that Mr. Yang said at the time, "The market today is basically a bipolar market. On one pole there's Google, and on the other pole there are Yahoo and Microsoft both competing with Google. If we do this deal with Google, Yahoo will be part of Google's pole and Microsoft ... wouldn't be strong enough to remain a pole of its own."

Michael Callahan, Yahoo's general counsel, testified that he was at the same meeting and disagreed with Mr. Smith's version of events. Mr. Callahan said he didn't recall Mr. Yang making those comments.

The public clash between Microsoft and Yahoo executives provoked expressions of concern from some lawmakers, although there is relatively little Congress can do to stop the deal. An inquiry started by the Justice Department last month is more of a concern to the companies.

The companies agreed to hold off on completing the pact for as long as three and a half months during the investigation, which has included more than a dozen subpoenas to Google, Yahoo, their competitors and online advertisers.

In tandem with the federal inquiry, as many as a dozen state attorneys general are now scrutinizing the pact. Ongoing tension and bitterness between Microsoft and Yahoo -- heightened over the weekend when Microsoft's latest offer to buy Yahoo's search business was rejected -- spilled into the hearings Tuesday, foreshadowing the likely fight over the antitrust review.

In June, Yahoo and Google entered into a nonexclusive advertising pact that would let Yahoo run some search advertisements sold by Google and to get a share of the revenue from those ads.

At the time, Yahoo executives described the agreement as a way to generate additional operating income without giving up its search business. While its U.S. search advertising business continues to lose share to Google's, Yahoo believes it would be a less attractive partner for online advertisers without it. It was widely seen as an effort by Yahoo to resist Microsoft's overtures to acquire some or all of the company.

The deal has raised questions by federal and state regulators, who are looking into whether the deal could result in higher prices for businesses and fewer choices for consumers. Google has a roughly 60% share of U.S. Web searches, while Yahoo has a share of about 20%, according to comScore Inc.

Yahoo and Google lawyers argued at the hearings that the advertising pact would not curb competition between the two in the search-advertising market. The companies also rejected Microsoft's contention that the combination would result in an informal "price floor" and higher prices for advertisers.

"Yahoo is here to stay, and we intend to compete on multiple platforms for years to come," Yahoo's Mr. Callahan said.

Google's chief legal officer, David Drummond, argued the goal of the agreement was not to increase prices. "We're not looking to sell ads for higher prices. We're looking to sell more ads," he said.

But one of Yahoo's longtime partners -- AT&T Inc. -- said the deal was a bad idea and would result in higher prices for advertisers.

"We do believe that prices will increase, and we do believe that Yahoo will weaken," said Matthew Crowley, chief marketing officer of Yellowpages.com, an AT&T subsidiary. "Google is the dominant player in search today. Doing this kind of deal now weakens Yahoo's ability to compete," he said.

By: Amy Schatz and Jessica Vascellaro
Wall Street Journal; July 16, 2008

For months, bankruptcy lawyers in the U.S. have sounded a little like Marvin the Martian, the manic Looney Tunes character who ran around with his ray gun asking, "Where's the kaboom?"

While 2008 has seen its fair share of bankruptcy filings, including Linens 'n Things Inc., Aloha Airgroup Inc., Sharper Image Corp. and, just last week, retailer Steve & Barry's LLC, the trend hasn't been earth-shattering. That is bad news for law firms that boosted employment in anticipation of lots of bad news for everyone else.

"We're just not seeing the flood that everyone's been expecting," said Stephen Selbst, a bankruptcy lawyer at Herrick, Feinstein LLP.

Law firms' bankruptcy departments are busier than they have been in several years. Last month, 4,992 businesses entered bankruptcy-court protection, up from 3,408 in June 2007, according to Automated Access to Court Electronic Records, or AACER, a bankruptcy-data and management company.

Still, the increase isn't of the type that many anticipated -- a rush of Chapter 11 filings, one or two of which can keep a department humming for months, if not years. Lynn LoPucki, a bankruptcy-law expert at the University of California, Los Angeles, said the AACER statistics don't account for size. According to his own Bankruptcy Research Database, 2008 is on pace to finish with about 26 Chapter 11 filings by companies valued at $250 million or more, twice the 13 filed in 2007 but fewer than a third of the 97 filed in 2001, during the last economic slump. "This is not a boom," he said.

The missing spike is no small matter for big law firms that feed off of corporate bankruptcies during down markets. Bankruptcy practices are typically regarded as countercyclical, meaning they are hot when other practices are cool. So, in recent months, many firms have added lawyers to their U.S. bankruptcy practices, hoping they would serve as a hedge against practices, such as mergers and acquisitions and structured finance, that have slowed in the wake of the subprime-mortgage crisis and ensuing credit crunch.

"It's a bet, whether or not to gear up," said Dan DiPietro, the client head of the law-firm group at Citi Private Bank. "For a lot of firms, it's not paying off at the moment. But most are still hopeful that it will."

Over the past year or so, Quarles & Brady LLP, which is based in the Midwest, has added several experienced restructuring lawyers to its offices in anticipation of increased work. "The worst-case scenario is to have to say to a client, 'We don't have the capacity to take this on,' " said John Dawson, a Phoenix-based restructuring lawyer at the firm. "So we'll err on the side of having a little excess capacity, even if that may not fit the Harvard B-school model." But excess capacity comes at a cost, which often is pulled straight from the partnership's pockets.

Will the market ultimately prove the Dawsons of the world to be prescient? Some think so, predicting that the Chapter 11 floodgates will open any second. Up until about this time last year, these folks said, the major investment banks were practically handing out money on request. Many companies secured "covenant-lite" financing -- loans with fewer or less-stringent financial benchmarks that had to be met over the course of the loan. As a result, "troubled companies were able to finance their way out of trouble," said Herrick, Feinstein's Mr. Selbst.

But for many companies, these loans will soon start to expire. And when they do, new lenders may be hard to come by. "Instead of loans getting rolled over at slightly higher interest rates, lenders are just saying, 'No, we're not going to do this,' " said Greg Milmoe, co-head of the restructuring practice at Skadden, Arps, Slate, Meagher & Flom LLP. "That's what's going to trip up a lot of [companies] into full-fledged restructurings."

Even so, a boom could be tempered by several factors, including a 2005 change to the bankruptcy laws. According to Marshall Huebner, co-head of the restructuring practice at Davis Polk & Wardwell, in 2005, "Congress made Chapter 11 a much less hospitable place" for corporations when it passed the Bankruptcy Abuse Prevention and Consumer Protection Act. The law added new financial burdens on corporate debtors and restricted their ability to get rid of unwanted leases and retain and compensate some personnel. As a result, adds Mr. Huebner, "Chapter 11 has gotten harder, uglier and more expensive."

And Chapter 11 typically requires big injections of cash both at the outset, called debtor-in-possession financing, and at the end, called exit financing. Lawyers said the tightening in the credit markets has left such packages hard to come by. "The usual sources just aren't lending," said Richard Cieri of Kirkland & Ellis LLP. Steve & Barry's -- the cheap but chic retailer -- failed to get debtor-in-possession financing and is aiming to either sell itself or to liquidate.

A relative dearth of Chapter 11 filings won't necessarily leave bankruptcy lawyers without anything to do. But it will likely change the nature of their work. Expect to see troubled companies -- and their lawyers -- working harder to reach out-of-court agreements with their existing creditors. And watch for shorter Chapter 11 cases as existing lenders push for Steve & Barry's-type liquidations and fire sales, rather than lengthy restructurings.

What does it all mean for the lawyers? "It depends on the firm's business plan," said Jack Williams, who teaches bankruptcy law at Georgia State University College of Law in Atlanta. Mr. Williams predicts that firms that can juggle a lot of short-term engagements are going to do well. "But those who stick with a more traditional approach," like relying on one or two cases that drag on for years, might struggle. "That business plan just isn't going to square with what's going on."

By: Ashby Jones
July 16, 2008; Page B5

Troubled Media Pioneer Mel Karmazin

Troubled Countrywide Mortage Banking CEO Anthony Mozillo

Malhotra Could Get Jail Time for Stealing IBM Trade Secrets

A former Hewlett-Packard Co. vice president pleaded guilty Friday to stealing trade secrets by passing a confidential email from his previous employer, International Business Machines Corp., to senior H-P executives, the Justice Department said.

Atul Malhotra, 42 years old, faces a maximum of 10 years in prison, a $250,000 fine and three years of supervised release. A spokesman for the U.S. Attorney's office in San Francisco declined to say what penalties prosecutors would seek. A sentencing hearing is set for Oct. 29.

John Vandevelde, Mr. Malhotra's attorney, called his client "an honorable man with an impeccable record" who "made one mistake in transitioning from one high-tech job to another." Mr. Malhotra "has admitted that error and entered into an agreement that will resolve this matter," the attorney said in an email. Mr. Vandevelde said that "the court will be able to consider probation in this matter," rather than jail time.

Mr. Malhotra was a director of sales and business development at IBM in March 2006 when he requested pricing information about IBM services, prosecutors say. Two months later, he became a vice president of H-P's printing division.

That July, prosecutors allege, Mr. Malhotra sent an email to an H-P senior vice president with the subject "for your eyes only." A file with the confidential information was attached. Two days later, Mr. Malhotra sent a similar email to another H-P vice president.

An H-P spokeswoman said that in response to the emails, the company "conducted an internal investigation, terminated Malhotra's employment from H-P and reported the activity to appropriate enforcement agencies and to IBM."

By: Justin Scheck and Lauren Polluck
Wall Street Journal; July 14, 2008

A recent criminal case involving wealthy donors, religious groups and secret kickbacks of donations provides an object lesson in how not to give to charity.

The government contends that two men solicited millions of dollars in contributions to charitable organizations by promising to secretly refund large portions of those gifts -- typically 80% to 95% -- to donors, who would then deduct the full amount of their original gifts on their tax returns. One of those men and another individual recently pleaded guilty to participating, and others accused of wrongdoing are scheduled to face trial later this year. The government is targeting more than 100 donors as part of its continuing investigation, says Daniel O'Brien, an assistant U.S. attorney in Los Angeles.

While most contributors play by the rules, law-enforcement officials say some don't -- and are robbing the U.S. Treasury Department of large amounts of revenue. Sometimes the abuse appears to be intentional, resulting in criminal charges. In other cases, donors may be led astray by professional tax preparers, or they may inadvertently run afoul of complex tax-law provisions.

Whatever the case, the Internal Revenue Service has been turning up the heat in recent years on what officials consider to be abuses ranging from fabricating deductions to making improper noncash gift valuations.

According to the latest IRS data, more than 41.4 million individual income-tax returns claimed charitable donations for 2006. Their donations totaled a record $173.02 billion, up 0.6% from the prior year.

Here are a few areas IRS and Justice Department officials have been focusing on and advice from lawyers and accountants on how to avoid trouble:
• Kickbacks. Consider the case of the two men who pleaded guilty recently to criminal misconduct involving donations to a variety of charitable groups operating under the umbrella of Spinka, a religious group within orthodox Judaism. One was Joseph Roth, a Tel Aviv-based banker, according to the U.S. Attorney's office for the central district of California. The other was Rabbi Moshe E. Zigelman of Brooklyn, N.Y., who "pled guilty because he accepts full responsibility for his actions and seeks to atone for any harm he caused," says Michael J. Proctor, a lawyer at Caldwell Leslie & Proctor in Los Angeles.


They were among eight individuals and five charitable entities indicted in the Spinka case late last year. The government accused Rabbi Naftali Tzi Weisz and Rabbi Zigelman, formerly an assistant to Rabbi Weisz, of soliciting donations to Spinka-related groups by promising to secretly refund up to 95% of the "contributions." Rabbi Weisz pleaded not guilty, says Brian Hennigan, a lawyer with Irell & Manella in Los Angeles.

In some cases, contributors got cash payments through an "underground money transfer network" involving various parties, some of whom operated businesses in and around the Los Angeles jewelry district, the U.S. Attorney's office said. Among other things, Mr. Roth admitted to facilitating tax evasion by setting up secret bank accounts in Israel involving the use of bogus trusts, according to a U.S. Attorney's office statement.

• Professional preparers. Government officials have been cracking down on professional preparers who manufacture phony charitable deductions. Earlier this year, for example, a Washington, D.C., preparer pleaded guilty to conspiring to prepare false returns that included overstated charitable gifts and other items, according to the Justice Department. The man faces up to five years' incarceration and a $250,000 fine.


The department also is seeking court injunctions to put some preparers out of business. Recently, a federal court permanently barred a Texas woman from preparing federal income-tax returns for others. The government said the woman had prepared returns that included false deductions for charitable gifts, among other things.

How can you avoid picking a crooked preparer? There's no bulletproof method, but here are a few tips: Beware of anyone who bases his or her fee on the size of your refund, or who promises a bigger refund than anyone else, or who prepares your return but refuses to sign it. Also, never, ever, sign a blank return.

• Disguised payments and overvaluations. The IRS says it's concerned by an upturn in the number of cases in which taxpayers have tried to disguise tuition payments as tax-deductible contributions to charitable or religious organizations. Asked for more detail, an IRS spokesman said Tuesday the agency is "aware that some taxpayers improperly claim charitable contribution deductions for payments that are earmarked for the benefit of individuals." The IRS "continues to examine whether payments to tax-exempt schools benefit individuals." In addition, the IRS "has noticed that some taxpayers are trying to claim deductions for payments to other types of tax-exempt or government-sponsored organizations but earmarked for the benefit of individuals." The IRS "reminds taxpayers that payments to charitable organizations but earmarked for the benefit of individuals are not deductible."


IRS officials say valuation problems typically are greatest with noncash charitable gifts, such as a stake in a closely held family business, for which there isn't any easily accessible public market. Officials have said overvaluations may arise from errors by taxpayers or even appraisers, deliberate abuse or overly aggressive positions.

• Valuing noncash donations. Valuing used clothing or household items can be tricky. If you make such gifts, consider buying tax software-preparation software, such as Intuit Inc.'s TurboTax, which includes a feature with estimates of thousands of commonly donated items. Keep a list of what you donate, take photos of especially valuable items, and be sure to get a professional appraisal when required. You can't deduct clothing or most household items unless they're in "good used condition or better," the IRS says. What does that mean? The government hasn't yet defined it.


Donating stocks and other investments that have risen in value over the years can be a great idea since you generally get a deduction for the current market value and don't owe tax on the gain, says John M. Olivieri, a tax partner at White & Case LLP in New York. But don't make the mistake of donating investments that have declined in value, he says. Instead, consider selling losers and using those losses to reduce your taxes. Then give the proceeds to your favorite charity.

An IRS ruling could spark creation of more private trust companies.

A small number of very wealthy people have created private trust companies in recent years, in part to give them greater control over how family trust assets are managed. A proposed IRS revenue ruling, issued late last week, "provides a roadmap" for creating a private trust company "without falling into various tax traps," says Mr. Olivieri of White & Case. "Once the ruling is issued in final form, it will not be necessary for each individual family to apply for its own private letter ruling" from the IRS "in order to be sure of the tax consequences of having their family trusts managed by a company controlled by the family," Mr. Olivieri says.

The ruling, if finally adopted, "eliminates virtually every uncertainty now existing" as to whether a private trust company "has any per se negative implications for the exposure of family members to tax risk," says John P.C. Duncan, a lawyer at Duncan Associates in Chicago.

Fred Nathan, a lawyer at Kelley Drye & Warren in New York, says that once the ruling has been finalized, "it will undoubtedly increase the use of private trust companies by very wealthy families."

By: Tom Herman
Wall Street Journal; July 16, 2008