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The government's planned $700 billion bailout for the financial sector is likely to give the Federal Reserve an important oversight role and accelerate plans to change the way the Fed manages interest-rate policy.

Fed Chairman Ben Bernanke is expected to play a key role in implementing the $700 billion bailout.

Fed Chairman Ben Bernanke, who lobbied Congress for the rescue package, almost certainly will play a key role in its implementation. Early drafts of the law being considered Sunday would place the Fed chairman on an oversight board meant to monitor the new program, a role Mr. Bernanke effectively invited last week in testimony to Congress.

"I think it's very appropriate, indeed essential, for Congress to have very tough oversight over this program and that there be a set of principles under which the program operates and that there be close oversight," Mr. Bernanke said.

It's not uncommon for lawmakers to turn to the Fed for other government duties because of the Fed's reputation for nonpartisanship and technical skill. Former Fed chairman Alan Greenspan served on the oversight board of the Resolution Trust Corp., the 1990s program created to sell off assets of failed thrifts. And after Sept. 11, 2001, then-Fed Governor Edward Gramlich was named chairman of the Air Transportation Stabilization Board to oversee federal loan guarantees to airlines that suffered losses during the terrorist attacks. Fed Vice Chairman Donald Kohn later became the board's chairman.

Under the rescue plan, lawmakers also sought to give the Fed more flexibility in how it runs its operations. According to drafts circulating on Sunday, lawmakers would accelerate the date the Fed could begin paying interest on the reserves banks leave on deposit with the central bank, something it doesn't do now. Such a step would give the Fed more flexibility, by making it easier for the central bank to keep short-term interest rates at their targeted level.

Congress had planned to allow the Fed to begin paying interest on reserves in October 2011, but the draft of the rescue law permits that to happen next week instead.

Currently, the Fed manages interest rates through transactions with banks using its stockpile of Treasury securities holdings. In recent months, the Fed has put that stockpile to other uses -- including lending out those Treasury securities to Wall Street firms in need of reliable collateral to fund their operations. By paying interest on reserves banks leave with it, the Fed would be able to keep short-term interest rates where it wants them, and potentially widen its use of its balance sheet for other purposes.

Central bank officials return to work Monday with short-term bank funding markets still in deep distress, something that last week prompted the Federal Reserve Bank of New York to inject repeated rounds of cash into the global financial system, through arrangements with other central banks to send dollars oversees and through its own direct market operations.

The $700 billion rescue plan will help to alleviate pressure on the Fed in other ways. By helping banks to take bad assets off of their own balance sheets, it lowers the likelihood of the kind of market chaos that shocked officials in the past two weeks. Through its lending operations, the Fed has taken riskier assets on to its own balance sheet in recent months.

"This plan uses fiscal policy to help fix a balance sheet problem in America's financial system and provides a capital infusion for the system itself, which is something that the Fed really could not do," said Richard Berner, Morgan Stanley economist.

The continuing Fed role in the $700 billion bailout is also bound to keep Mr. Bernanke in the political spotlight. Throughout the crisis, Fed officials sought to let the Treasury and Congress handle cases that might involve the direct use of taxpayer funds. Even when the Fed had the lead role, such as dealing with potential financial-system disruptions from Bear Stearns's failure, the Fed deferred to Treasury Secretary Henry Paulson and consulted with lawmakers before acting.

But Treasury officials made sure to keep the Fed close at their side. When Treasury officials planned their initial response to Fannie Mae and Freddie Mac in July, seeking greater congressional authority over the two firms, Mr. Paulson included a provision giving the Fed a "consultative role" with another regulator in setting the two firms' capital requirements.

The Fed chairman joined Mr. Paulson at emergency meetings with President Bush and congressional leaders 10 days ago to urge quick action. Over the course of the following week, he participated in numerous conference calls and private meetings along with three long hearings.

The increasing inability of car buyers to find financing for new automobiles is adding to concerns hanging over a U.S. auto industry that has been blistered by high gasoline prices and a weak economy in 2008.
Auto makers will report September sales on Wednesday, and the pace of new-vehicle deliveries is expected to remain at a 15-year low. Research firm J.D. Power & Associates estimates that the seasonally adjusted rate of annual light-vehicle sales will dip to 12.6 million vehicles, compared with 16.2 million a year ago.
If the estimate holds, it would represent a decline of 26% compared with the same month in 2007. Such an outcome would shatter any notion that the auto industry has hit bottom following a dismal summer selling season, and turn up the spotlight on the cash concerns facing Detroit's Big Three.
The sluggishness has been largely pinned to an unwillingness of buyers to enter the new-car market at a time when gasoline prices are escalating and the economy is shaky. In recent months, however, domestic auto makers have mostly abandoned vehicle leasing, and lenders -- many of which are mired in red ink -- have significantly tightened terms.
"Decreased credit availability is constraining sales even at prime levels of credit quality," Goldman Sachs auto analyst Patrick Archambault said in a note to investors. This means that buyers are not only unwilling to buy, but they also are increasingly unable to buy.

By: John D. Stoll
The Wall Street Journal; September 30, 2008

Nokia Corp. is expected to unveil a high-profile touch-screen phone, known by gadget aficionados as the "Tube," at an event on Thursday, according to industry analysts.

In launching the device, the world's largest handset maker by shipments takes its stab at Apple Inc.'s iPhone, which set off a wave of copycat devices that attempted to emulate its sleek user interface. Nokia is the last of the major handset makers to put out a touch-screen cellphone.

"Nokia is under enormous pressure to deliver something that's good," said Carolina Milanesi, an analyst at Gartner Inc. "People have been waiting for this for over a year now."

The device, which will be called the Nokia 5800, emphasizes music first and is more of a multimedia player than a full-blown smart phone. Key to the device will be Nokia's Comes With Music software, which takes on Apple's iTunes store. A Nokia spokeswoman declined to comment.

With the Tube, Nokia will be entering a crowded field. Samsung Electronics Co. and LG Electronics Inc. have tried their hand with multiple touch-screen devices.

Motorola Inc. has its Ming product in China. Sony Ericsson plans to launch its Xperia X1, and Research In Motion Ltd. is working on a touch-screen BlackBerry.

By: Roger Cheng
The Wall Street Journal; September 30, 2008

The world of high-tech companies is home to larger-than-life personalities.

Entrepreneurial executives like Bill Gates, frequently the world's richest man, Steve Jobs, one of the few businessmen to become a cult hero, and Craig Newmark, a populist who refuses to maximize the value of his Craigslist, have all changed the world to one degree or another.

Leaders one year are sometimes goners the next, while other onetime heroes face indictment or exile. How well do you know the leaders of high tech?

1) What high-tech veteran left his operating role recently?

A. Bill Gates, chief software architect, Microsoft Corp.
B. Sam Palmisano, CEO, International Business Machines Corp.
C. Larry Ellison, CEO, Oracle Corp.
D. John Chambers, CEO, Cisco Systems Inc.

ANSWER: A. In June, Mr. Gates ended his daily operating role at the company he started, although he remains chairman of the board. He stepped down as chief executive in 2000, but he has remained prominent in helping shape the software giant's technical direction. The 52-year-old Mr. Gates plans to concentrate on his philanthropic endeavors.

2) What activist investor who has profited by taking big stakes in companies and pushing corporate change is struggling with some high-tech bets?

A. Warren Buffett
B. Carl Icahn
C. T. Boone Pickens
D. Henry Kravis

ANSWER: B. Mr. Icahn acquired stakes in Yahoo Inc. and Motorola Inc., among others, and has pushed for strategic change to boost the value of the companies. His 5% stake in Yahoo, acquired this year with the goal of forcing it to sell out to Microsoft, has resulted in his election to the board. But the stock price languishes below his cost of $25 a share. Mr. Icahn invested $2 billion in Motorola and joined its board earlier this year. It has agreed to split the company in two, a move he advocated. But Motorola stock remains well below his cost of up to $18.53 a share.

3) Craig Newmark, founder of Craigslist Inc., and Jim Buckmaster, its chief executive, were sued by which online company that is both a rival and a partial owner of the largely free online classified-ad service?

A. Google Inc.
B. eBay Inc.
C. Yahoo Inc.
D. Amazon.com Inc.

ANSWER: B. EBay acquired a minority stake in Craigslist in 2004. But in April, eBay said in a suit in Delaware's Court of Chancery that the Craigslist leaders have tried to dilute its stake. In a countersuit in California, Craigslist charged that eBay unfairly interfered with its business when eBay started a rival classified-ad service called Kijiji last year.

4) Pick the party affiliation of these high-tech luminaries who are supporting campaigns this year or plotting runs for 2010.

A. Carly Fiorina, ex-CEO, Hewlett-Packard Co.
B. Rob Glaser, CEO, RealNetworks Inc.
C. Mitch Kapor, founder, Lotus Development Corp.
D. Steve Poizner, ex-CEO, SnapTrack Inc.
E. John Thompson, CEO, Symantec Corp.
F. Meg Whitman, ex-CEO, eBay Inc.

ANSWER: A, D and F are Republicans. Ms. Fiorina has been advising Sen. John McCain in his presidential campaign. Ms. Whitman, a McCain fund-raiser, reportedly is considering running for governor of California in 2010. If she does, she's likely to face the state insurance commissioner, Mr. Poizner, who reportedly made nearly $1 billion when he sold SnapTrack, a company that developed GPS tracking technology, to Qualcomm Inc. in 2000. B, C and E are Democrats. Mr. Glaser posted an effusive video blog from a Barack Obama rally in February. Mr. Thompson hosted a Silicon Valley fund-raiser for Sen. Obama. Mr. Kapor has praised Sen. Obama's plans to appoint a chief technology officer for the government and reform the patent system.

5) What high-tech company CEO was briefly strengthened last month by an electoral miscount?

A. John Swainson, CA Inc.
B. Joe Tucci, EMC Corp.
C. Jerry Yang, Yahoo Inc.
D. Antonio Perez, Eastman Kodak Co.

ANSWER: C. Mr. Yang was initially reported to have received 85% of the votes cast at Yahoo's annual meeting in his bid for re-election to the company's board. But, after questioning by major institutional investors, Yahoo investigated and discovered that one investor's vote withholding support hadn't been tabulated because of a glitch by vote processor Broadridge Financial Solutions Inc. When the votes were recounted, it turned out Mr. Yang was re-elected with just 66% of the votes cast. The muted endorsement could serve as ammunition for critics who seek strategic changes at the Sunnyvale, Calif., company.

6) Which of these high-tech chief executives from The Wall Street Journal's 2007 "Women to Watch" list hasn't lost her leadership post?

A. Anne Mulcahy, Xerox Corp.
B. Meg Whitman, eBay Inc.
C. Patricia Russo, Alcatel-Lucent SA
D. Diane Greene, VMware Inc.
ANSWER: A. Ms. Mulcahy remains on the job. Ms. Whitman retired in March to pursue other interests. Ms. Russo was replaced as chief executive at the beginning of September. And Ms. Greene was ousted by the board in July, just before the company publicly announced slowing growth.

7) What Japanese consumer-electronics executive recently saw his company's market value vault to No. 4 on the Tokyo Stock Exchange?

A. Fujio Mitarai, Canon Inc.
B. Satoru Iwata, Nintendo Co.
C. Howard Stringer, Sony Corp.
D. Masayoshi Son, Softbank Corp.

ANSWER: B. At the end of July, Nintendo, benefiting from soaring sales of the Wii videogame console, was ranked No. 4, behind Toyota Motor Corp., Mitsubishi UFJ Financial Group Inc. and mobile-telecommunications provider NTT DoCoMo Inc., all of which have much larger annual revenue. Nintendo had climbed even higher in the past: It briefly hit No. 2 behind only Toyota last year. At the end of July, printer and camera maker Canon ranked sixth; Sony ranked 14th and Internet and cellphone company Softbank ranked 40th.

8) In what country is Jacob "Kobi" Alexander, former chief executive of Comverse Technology Inc., fighting extradition to the U.S. to face charges of backdating stock options?

A. Namibia
B. Bermuda
C. Jamaica
D. Moldova

ANSWER: A. Namibia, a small African nation that doesn't have an extradition treaty with the U.S., is where Mr. Alexander fled in 2006. He is living in a guarded, gated community alongside a golf course. In March, he hosted a party for his son's bar mitzvah, which was attended by more than 200 guests, including some from his son's school in New York, and an Israeli hip-hop artist with an 11-piece backup band.

9) Major companies that buy or build online units often find they come with challenges. Match the executive and his or her company's online subsidiary, all of which face business problems.

A. Jeff Bewkes
B. Katharine Weymouth
C. Steve Ballmer
D. Les Moonves

1. Washingtonpost.com
2. MSN
3. AOL
4. CNET


ANSWERS: A-3. Mr. Bewkes, in his first year as CEO of Time Warner Inc., needs to straighten out or sell the AOL unit, which is losing subscribers rapidly. B-1. Ms. Weymouth, the new publisher of the Washington Post, is committed to eliminating the separation between the paper and online versions of the publication. C-2. Microsoft's CEO, having failed to acquire Yahoo, needs to figure out a strategy to help MSN compete with Google. D-4. Mr. Moonves, CEO of CBS Corp., has to boost revenue and profit growth at CNET to justify the $1.8 billion cash CBS paid for the technology-oriented online news service in an acquisition completed June 30.

By: William Bulkeley
Wall Street Journal; September 29, 2008

KB Home reported a sixth-straight quarterly net loss Friday, as its orders and deliveries continued to slump amid weak demand for new houses.
Orders fell 66% to 1,329 units in the home builder's fiscal third quarter. The company attributed the decline to the overall weak market and its own efforts to restrain development and hold the line on prices.
KB Home Chief Executive Jeffrey Mezger said the short-term outlook remains bleak for the housing market amid increasing foreclosures, historically high supplies and harder-to-get mortgages. He added that the difficult conditions have been "exacerbated by the recent, unprecedented turmoil in financial and credit markets." A great wy to heighten the value of your home is to use organic lawn care.
For the three months ended Aug. 31, the Los Angeles home builder posted a net loss of $144.7 million, or $1.87 a share. The company had a net loss of $35.6 million, or 46 cents a share, in the year-earlier period, when it booked a substantial gain on its sale of French assets. Revenue for the latest period dropped 56% to $681.6 million.
KB Home's new-home deliveries slid 51% to 2,788, while the average selling price declined 10% to $239,700. The cancellation rate, or unit cancellations divided by gross orders, was 51%, compared with 27% in the second quarter and 50% in the year-earlier period. The company said it is preparing to roll out a new "value-engineered product" with more-affordable standard features and a lower base selling price.
The credit crisis continues to hurt home builders, as potential buyers have trouble selling existing homes and securing financing.

By: Rachel Dodes
The Wall Street Journal; September 30, 2008

McClatchy Co. won concessions from banks that spared the newspaper company from a threat of default on its debt.

The publisher of the Sacramento Bee and Miami Herald said Friday its banks agreed to loosen restrictions on the company's level of debt compared to cash flow, and its ratio of interest payments to cash flow.

Analysts had said McClatchy needed to secure the changes by Sept. 30, or the company risked a technical default on its debt. A default notice could trigger a bankruptcy-court filing.

McClatchy said it believed "the impact of the current environment on our cash flows" made it necessary to amend its bank agreement. "There were no internal projections indicating we would be in default in the third quarter," a McClatchy spokeswoman said.

Like nearly all newspaper companies, McClatchy has suffered from a steep downturn in advertising revenue as the economy cools and as marketers continue to shift advertising to the Internet. McClatchy's pains are exacerbated by about $2.1 billion in debt, much of it tied to the company's purchase of publisher Knight Ridder Inc. in 2006.

Worries about possible bank defaults have helped crush the company's stock price, which has dropped 77% in the last year. McClatchy's credit rating is deep into junk territory.

The announcement about the amended credit agreement came after the close of regular market trading. McClatchy shares rose 5.9% to $4.50 at 4 p.m. on the New York Stock Exchange, with much of the rally in the last hour of trading.

The company continues faithfully to pay interest on its debt, though falling revenue means McClatchy has been tiptoeing near covenant limits on its bank debt. The covenants currently limit McClatchy's debt to five times its adjusted cash flow. The ratio was just under 4.5 times at the end of the second quarter. Under the new agreement, the ratio can now go as high as 6.25 through the fourth quarter.

By: Shira Ovide

The Wall Street Journal; September 30, 2008

As local breweries across the country were shutting their taps, Bill Leinenkugel reimagined his family's century-old brand as the latest thing in beer fashion: a craft brew.

Seeking to compete against national brands whose marketing and distribution budgets dwarfed his own, he diversified the northern Wisconsin favorite into a half-dozen specialty brews. When the decades-long trend of brewing-industry mergers came at last to Chippewa Falls in 1988, he agreed to an acquisition of the brewery by Miller Brewing Co. But his family still ran the business, and the company prospered while establishing a national identity apart from its owner.

"It became a model for how a large brewer would handle a small brewer that it took under its wing," says Paul Gatza, director of the Brewers Association in Boulder, Colo.

Founded in 1867 by Mr. Leinenkugel's great-grandfather, the brewery in the early days was meant to serve Chippewa Falls's large population of lumberjacks. Prohibition slashed the number of America's small breweries, but Leinenkugel's survived by bottling soda water and a not-so-popular near-beer called Leino.

When Bill Leinenkugel joined the family business as a salesman in the early 1950s, there were about 350 brewers left in the country. By 1980, that number had dropped to just 40.

After Milwaukee powerhouse Joseph Schlitz Brewing Co. introduced its budget Old Milwaukee brand in the early 1960s, Mr. Leinenkugel took marketing classes and positioned his beer as a classier, and more expensive, alternative.

"We were much higher than Old Milwaukee but lower than Schlitz and for a while we sold less beer but we made more money," he told Beer Business Daily in an interview in August.

Mr. Leinenkugel began courting college students in Madison with gimmicks such as logo T-shirts, then an uncommon strategy. He established the "Leinie Lodge," a tasting room at the brewery meant to attract tourists. He even dressed up his bottles with aluminum foil over the cap.

"The bartenders hated it because it got in the way," he said in the Beer Business Daily interview. "They cost a penny apiece and I got a dollar a case more for Leinenkugel's Limited" -- his early Oktoberfest-style brew.

Sales began to take off as Bill Leinenkugel secured a Chicago distributor and began producing light, bock and other specialty brews. After the company's sale to Miller, the Chicago Tribune asked: "Can a pure and innocent specialty beer from a small town in Wisconsin survive under ownership of the nation's second-largest brewer, a monolith that probably spills more each year than the little guy produces?"

The answer turned out to be yes. Miller, which is now part of global company SABMiller PLC, left Leinenkugel's pretty much on its own, as management passed to Mr. Leinenkugel's sons. The brewery remained in Chippewa Falls, although it is no longer the town's largest employer. With Miller's increased marketing and distribution muscle, bottles of Leinenkugel can now be found across the country. Production increased to 465,000 barrels in 2007 from 61,000 barrels in 1987.

Where ads once touted the water from "Big Eddy Springs," the focus now is more on the outdoor lifestyle of Wisconsin's North Woods. Leinenkugel's draft taps feature a model canoe.

While marching in the Chippewa Springs Memorial Day Parade, Mr. Leinenkugel fell ill and was diagnosed with a brain tumor. He eschewed treatment and continued sipping his product until days before his death in Chippewa Falls on Sept. 22 at age 87. He liked to say his two favorite brews were Leinenkugel's and free beer.

By: Stephen Miller

The Wall Street Journal; September 30, 2008

Salesforce.com Inc. of San Francisco was the top pick in this category. The company made its name selling software as a service -- applications that are used online instead of being installed in a corporate data center. Its winning entry takes this concept and applies it to a suite of tools that a company can use to build its own customized business applications that are developed and delivered over the Internet.

The suite, called Force.com, provides the building blocks for payroll, accounts-receivables and expense-reporting systems and other common applications, and it requires minimal programming skills. Introduced in 2007, Force.com has about 47,000 users.

Other companies are developing similar "cloud computing" services, in which companies access computing power as needed, the way they buy electricity, without the need to run their own servers and software. Along with Amazon.com Inc. and Google Inc., "Salesforce is one of the leaders in this trend," says Asheem Chandna, a partner at venture-capital firm Greylock Partners and one of the Innovation Awards judges. "It's certainly a key direction where computing is heading."

Wall Street Journal; September 29, 2008

Paul S. Otellini is Intel's fifth CEO in its 40-year history, and three of the other four -- Robert Noyce, Gordon Moore and Andrew Grove -- were among the most famous business leaders of the 20th century. Under their stewardship, Intel became the semiconductor industry's dominant player, and perhaps the most important American company of the 1980s. Now, after looking slow and confused for much of this decade, Intel, under Mr. Otellini's leadership, is again showing the competitive fire for which it was once famous.

Even today, Intel remains the ultimate keeper of "Moore's Law" -- the trend of exponential improvement in silicon-chip performance. Since the 1958 invention of the integrated circuit, the number of transistors that can be packed onto a chip's surface has doubled approximately every two years. Mr. Moore was the first to observe this. That's a lot of history to carry on your shoulders -- "all those legends," as Mr. Otellini, 57, describes his predecessors as we sit in corporate headquarters in Santa Clara, Calif. No matter which way Mr. Otellini moves he's inevitably compared with Noyce (the charismatic leader), Mr. Moore (the technical genius) or his mentor Mr. Grove (the ultimate corporate fighter). Noyce may be gone. Messrs. Moore and Grove, though less involved with Intel these days, are still around to comment and advise on the Silicon Valley company -- and its CEO's -- every step.

At Intel, success is the only option. The record of Mr. Otellini's immediate predecessor, Craig Barrett, is forever diminished by a gutsy and expensive, but ultimately failed, initiative to drive Intel -- via acquisitions -- into the communications business. That Mr. Barrett also courageously, in the face of the dot-com crash, ramped up Intel's investment in new capacity -- and thus set the stage for Intel's current growth burst -- is all but forgotten.

What is remembered is that in May 2005, when Mr. Otellini -- then executive vice president -- stepped up to the chief executive's chair, Intel was in a funk like never before. The company was coming off a decade that included an ultimately inconclusive antitrust investigation by the Federal Trade Commission, and the madness of the Internet bubble and its collapse.

Intel's long-dominant line of microprocessors was under assault at the high end from Advanced Micro Devices (AMD). In the fast-growing world of tiny-but-powerful chips for cell phones and other devices, Samsung, the South Korean giant, was declaring that it intended to supplant Intel at No. 1. For the first time, Intel, that most confident of corporations, looked confused and depressed.

It fell to the new CEO to swing the ax: a total of nearly 20,000 employees lost to lay-offs, attrition and the sale of business units. Managers (more than 1,000 of them) took the hit first. "It was miserable," recalls Mr. Otellini, who had worked with most of these managers for decades. "There were a lot of nights when I didn't sleep. I remember saying that this was not what I'd planned for my first year on the job."

Mr. Otellini is very rare among Silicon Valley leaders for having spent his career -- 34 years -- at one company. In fact, outside of a job as a sales clerk at "a shlocky men's clothing store" while in college, Intel is the only place he's ever worked.

What's more, in a business community filled with recent arrivals, Mr. Otellini is the rare example of a Bay Area native: He attended St. Ignatius high school in San Francisco, then the University of San Francisco, and later earned an MBA from Berkeley. Literally days after earning his degree, Mr. Otellini joined Intel.

That was in July 1974, when the semiconductor industry was suffering the worst recession in its history. The Friday before his arrival, Intel's stock had lost a third of its value, and the young Mr. Otellini arrived at Intel's headquarters just minutes after the company had laid-off nearly 10% of its employees. "My desk was still warm from the guy who had just vacated it," he recalls. "It was ugly."

"At the same time, I was impressed that Intel was keeping its commitment to the college kids it had already made offers to. It would have been much simpler to just tell us not to show up." Instead, just a few days later, he found himself at a brown-bag lunch with Robert Noyce and Gordon Moore.

Mr. Otellini didn't forget that commitment to employees in September 2006, when it was his turn to sign off on a major lay-off. "There were people inside the company advocating that we do one swift chop of 20% of the employees . . . I was adamantly against that -- I thought it was brain-dead. My God, you owe your people more than that. . . .

"So we systematically measured the performance of every part of the company to determine what was world class and what wasn't. Then, as analytically as possible, we made the cuts . . . and saved $3 billion in overall spending." He learned this process from Mr. Grove: "Ask why, and ask it again five more times, until all of the artifice is stripped away and you end up with the intellectually honest answer."

The layoffs behind him, Mr. Otellini immediately -- and controversially -- reinvested some of those savings into research and development. "Gordon Moore always said that 'you can't save your way out of downturn,'" says Mr. Otellini. Many industry analysts didn't agree with this move, but Mr. Otellini knew what Intel had waiting in the wings. "I knew that we had some great products that we'd been working on for five years, and that they'd be ready within a year. I also knew that when we came out of this downturn, this would be a very different industry -- and I wanted to be ready for it."

"A CEO's main job, because you have access to all of the information, is to see the need to change before anyone else does," Mr. Otellini explains. "I knew what products we had coming out, and I knew the results of our efficiency efforts, so I was optimistic. But as Andy once told me: 'You won't believe how long it takes for the change you've started to work its way all of the way through the rank and file.'

"As a result, I was upbeat, but nobody else was yet. So I made it my job to communicate, communicate, communicate the positive message. I did open forums, I did Webcasts, I told the employees to send me any question via email and I'd answer them. I wasn't trying to sell them on the idea -- when half of your 80,000 employees are engineers, if you try to put sales into it you're dead. You have to convince them, through reasoning and logic, the accuracy of your claims."

The last two years have seen the roll out of those new products, as well as the establishment of two important new alliances. At the high end of its product line, Intel introduced a new generation of its multi-core Xeon processors -- just in time to watch longtime competitor AMD stumble. Even more important, in a crucial move, Intel consolidated its position in the "tiny" processor market with the low-power/high performance Atom family, targeted at everything from handheld computers to mobile devices to cell phones.

Atom has proven to be a huge success, not least because it brings the venerable x86 architecture, the world's most popular microprocessor design, to the new wireless world. Mr. Otellini notes that the next billion consumers will enter the Internet economy using devices that merge the capabilities of smart phones and small laptops.

In late 2005, Mr. Otellini managed to pull off something none of his predecessors had been able to accomplish: a strategic partnership with Apple. Though that partnership was, and remains, mostly about the use of Intel processors in Apple Macs, that has still been enough to profitably tie Intel to the hottest consumer electronics company on the planet. Mr. Otellini confesses that he dreams of seeing Apple adopt Atom for the iPhone or iPod.

A second and more recent partnership, announced last month, is between Intel and Dreamworks Animation to develop 'InTru' 3D films. This had the added pleasure of running off AMD, the previous Dreamworks partner. Intel has also recently announced other collaborations, notably with Yahoo, to bring the Internet to television. In addition, Mr. Otellini recently has begun talking up once again that half-century old dream of the electronics industry: speech recognition.

Mr. Otellini has good reason to be confident. Old competitors like AMD seem to have lost their way, while new ones, such as Samsung -- now that Intel has embarked on a massive expansion in ChinaAsia -- are looking a lot less threatening. Intel once again sets the pace for the semiconductor industry, with annual sales of $40 billion, a market value of $110 billion and more than 83,000 employees. The company is still expected to grow 10% this year. Even Wi-Max, Intel's broadband wireless standard, will finally be launched this month in Baltimore. and the rest of

Gordon Moore famously claimed that no one can see more than five years ahead in tech. Where does Mr. Otellini see Intel in five years? He smiles and offers up a series of benchmarks and their corresponding grades. For a 'B', Intel needs to continue to dominate the huge (300 million units a year) business of processors for computers, "driving computing as far as we can over that time frame: faster, better, more integrated and cheaper."

For an A-, Intel needs to reach the same dominance in cell phones and other mobile devices. That means becoming not only the processor of choice in the world of wireless devices -- a goal that Intel is now a long ways from achieving -- but also driving everything from graphics to speech recognition to wireless broadband.

How about an A? "When everybody in the world carries around with them a couple devices that carry the latest, 2013 versions of our microprocessors in them. It's in your car, in your television -- in your iPod." He adds, laughing, "and if you're my age then, in your pacemaker."

But there's still a long way to go, with many obstructions that could pop up along the way. One unpredictable variable is government regulation. "The problem is that there used to be one set of rules out there -- U.S. antitrust laws were the de facto rules of the world. Now with globalization, we have different sets of rules for different regions, such as the EU, written around entirely different philosophies. It would sure make things easier if we decided on a single set of rules once again -- whatever they are. Then we'd know how to behave and we could plan better for the future."

There is one goal Mr. Otellini is adamant Intel will reach during the next five years: the continuation of Moore's Law. "I guarantee you that Moore's Law will not end on my watch," he says with a shudder. "Nobody in tech wants to be the guy who goes down in history for killing Moore's Law -- and it sure won't be me."

After all, that would be the one thing for which his famous predecessors would never forgive him.

After a recent string of bank failures, nervous savers are rushing to withdraw their deposits.

There have been 13 bank failures this year, including this week's Washington Mutual Inc. -- the largest bank failure in U.S. history. Another large bank, IndyMac, went broke in July. While that number is still well below the number of financial institutions that went bankrupt during the savings-and-loan crisis of the late 1980s and early 1990s, it has depositors on edge.

People walk past a Washington Mutual branch after it was seized by the FDIC.

The vast majority of depositors have less than $100,000 in their accounts and are protected by federal insurance no matter what happens to their banks. Still, there are steps large depositors can take to protect themselves, and things that any saver can do to minimize hassles in the coming months. Here is a primer on bank collapses:

What happens when a bank fails?

If another bank buys the bank, as was the case with J.P. Morgan Chase & Co. buying WaMu this week, then it is business as usual. Customers of the failed bank can continue to write checks and withdraw their money -- typically without any interruption in service.

If, however, no buyer steps in, then the Federal Deposit Insurance Corp. will start mailing out checks to customers for their insured deposits within 48 hours. Those with amounts over the FDIC's limits of $100,000 per person, per insured institution, will receive payments as the assets of the bank are sold. Some won't get all their money back.

How can I tell if my bank is on the verge of failing?

If you're comfortable with financial statements, take a look at the FDIC's Web site, which publishes detailed financial information reported by lenders at www.fdic.gov under "Bank Find." Similar data for credit unions are available at the National Credit Union Administration's site at www.ncua.gov.

Beyond that, there are various ratings services that grade the safety and soundness of financial institutions. Bankrate.com and BauerFinancial.com, for example, have five-star rating systems that grade financial institutions on their financial health. The more stars, the better.

Keep in mind that even if you have money in a bank with low ratings, your deposits should still be safe. "As long as you're within the FDIC insurance limits, there's absolutely nothing for you to worry about," says FDIC spokesman David Barr. "During our entire history, not a single person has ever lost a penny of insured money."

I have more than the $100,000 in my bank. How can I extend my FDIC insurance coverage?

Savers can boost coverage at one insured bank by opening deposit accounts in different ownership categories, such as retirement accounts (which are insured up to $250,000), joint accounts and revocable trusts. The FDIC on Friday posted new rules to make it easier for savers to get insurance coverage by using revocable-trust accounts. Previously, account owners could only add certain "qualified" beneficiaries, who were insured up to $100,000 each; the new rule allows depositors to name anyone as a beneficiary.

Big savers can also deposit their money with a bank that participates in the Certificate of Deposit Account Registry Service, or CDARS. The deposit-placement service disperses the funds in individual CDs under $100,000 in member banks. A single depositor can place up to $50 million and have it all covered.

Consumers can use the FDIC's EDIE the Estimator program at www.fdic.gov/edie to determine if their deposits are within coverage limits.

Will my deposits continue to earn interest if my bank is seized?

If the bank is bought, then it is up to the acquiring bank to determine whether it wants to maintain the current interest rates. If the interest rate is lowered, you may withdraw insured funds without penalties -- even if your money is locked up in a long-term certificate of deposit. If there's no buyer, the interest stops accruing on the date of the bank failure.

If you have brokered CDs, you may stop earning interest when the bank is seized by the government -- unless the deposits are bought by a new bank. Brokered CDs at WaMu, for example, will continue to earn interest because they're now part of J.P. Morgan. But deposits in brokered CDs at IndyMac Bank stopped earning interest when that bank failed.

Does the FDIC have enough money to cover insured deposits?

The FDIC has $45 billion in its coffers to cover insured deposits. If the cost of future bank failures exceeds that amount, then the FDIC can draw on other resources to protect depositors. Indeed, the FDIC is looking at raising the rates that it charges the banks it insures as a way to bring in additional funds. The FDIC can also draw on lines of credit with the Treasury Department -- something it last did in early 1991, although it paid back any borrowed funds with interest by mid-1993.

By: Jane Kim
Wall Street Journal; September 27, 2008

Cablevision Systems Corp. said Thursday it expects to renew the recently ended ticketing relationship between its MSG unit and Ticketmaster, but wouldn't rule out a deal with Live nation Inc. The prospect could shake up the business because Live Nation, the largest concert promoter in the world, has emerge as a threat in the ticking business, which Ticketmatster has dominated.

Palm Inc.'s quarterly net loss widened, as the company works to revitalize its line of smartphones amid stiff competition. For its first fiscal quarter ended Aug. 31, Palm posted a net loss of $39.5 million, or 30 cents a share, compared with a net loss of $841,000, or a penny a share, the year earlier. Revenue rose 1.7% to $366.9 million as the company's smartphone sales increased 49% to over one million units.

As Its Chip Business Struggles, Japanese Electronics Giant Plans to Trim Full-Year Earnings Forecast

Toshiba Corp., under pressure from its deteriorating chip business, aims to gain momentum from its LCD television sets.

Meanwhile, Toshiba plans to cut its earnings estimates for the current fiscal year ending in March, dragged down by the chip business, which posted an operating loss of 30.2 billion yen ($288.3 million) for the first quarter ended June. The company said it "is compiling its earnings outlook and will release details once they are finalized."

New Regza-branded LCD TVs are Toshiba's push for higher sales. Above, a display in Tokyo.

Toshiba aims to grab more than 10% of the global LCD TV market in the year ending March 2011, up from the 8% estimated for the current fiscal year. "We've got to grow in the world market outside Japan," said Yoshihide Fujii, senior vice president of in charge of Toshiba's digital media-network business. "We can't make money in Japan."

Toshiba expects most of the sales growth to come from Europe and the U.S. By the year ending March 2011, the company plans to sell four million LCD TV sets a year in Europe, three million in the U.S., three million in Asia and three million in Japan. Toshiba expects total annual sales of 13 million units to bring in 750 billion yen, up from the 480 billion yen for fiscal 2008.

Driving Toshiba's push for higher sales is a series of new Regza-branded models. For the year-end shopping season, it has lined up 20 models with some features such as an automatic picture adjustment.

Competition in the LCD TV market is intensifying as other electronics manufacturers target increased sales of products that are expected to see higher demand. Sony Corp. has stated its ambition to become the world's biggest LCD TV vendor by the fiscal year ending March 2011 by beating out South Korean electronics giant Samsung Electronics Co.

Toshiba shares fell 3.5% to 465 yen Thursday after hitting a three-year low in early trading. "Investors are concerned about how bad Toshiba's earnings will be," said Takeo Miyamoto, an analyst at Deutsche Securities Japan.

He said Toshiba shares have also been pressured by a bid by Samsung Electronics Co. to purchase U.S. flash memory-card maker SanDisk Corp., Toshiba's joint-venture partner. SanDisk's board Wednesday rejected Samsung's $5.85 billion cash offer.

But Mr. Miyamoto said he thinks Toshiba couldn't stand still. "Toshiba may take action because it won't let Samsung and SanDisk go together," he said. Toshiba declined to comment on whether it will bid for SanDisk.

By: Yuzo Yamaguchi
Wall Street Journal; September 19, 2008

Your story "Student Loans Caught in Dispute" (U.S. News, Sept. 17) overstates an issue between Sallie Mae and the Education Department. You correctly report that we protested the department's sole sourcing of a loan-servicing contract, a contract we would like at least the opportunity to bid. That protest is the first step in a process we will work through with the appropriate parties at the department and other federal agencies. We haven't even begun those discussions, yet your newspaper alleges a disagreement so consequential as to threaten loan delivery. In fact, this issue will have no impact on student-loan originations.

Entering this academic year students and families faced a crisis over the availability of alternative student loans. Congress and the Education Department acted promptly, passing and implementing the Ensuring Continued Access to Student Loans Act. Students are now ensured access to federal loans this year and likely through at least 2010. Indeed, in May, Sallie Mae committed to make federal loans to every student at every school as a direct result of the new law. That commitment is ongoing and is unrelated to this servicing contract dispute.

We intend to aggressively pursue the servicing contract at issue. We have earned the servicing business of our 10 million American student borrowers. We have committed to students, parents and schools to make and service loans for those students. We have met that commitment for 35 years and intend to continue to meet it.

We have been down this road before. In 2001, we asked the department to competitively bid the government's direct student-loan servicing contract. It bid that contract after a similar and successful protest. We lost that competition, but by the department's own reckoning at the time, the competitive process saved the taxpayers $1 billion.

Al Lord
Chief Executive Officer
Sallie Mae
Reston, Va.

Gap Inc. is expected to announce that it has signed a franchise agreement to open Gap "store within a stores" inside Mexican department-store chain Distribuidora Liverpool SA. Separately, Gap and Banana Republic stores will open in Egypt and Jordan over the next year.

The first Gap store in the Mexican Liverpool stores, selling children's shoes, discount children's shoes and designer children's shoes. The stores are expected to open next spring. Liverpool previously had a wholesale agreement with Gap for about 10 years and sold limited Gap merchandise in Mexico. Under the new deal, more Gap merchandise will be sold in an undisclosed number of Liverpool stores.

Gap also plans to announce that it will introduce an undisclosed number of Gap and Banana Republic stores in Egypt and Jordan through a franchise agreement with Fawaz Alhokair Group, which recently opened Gap and Banana Republic stores in Saudi Arabia. The first Gap stores are expected to open in Egypt and Jordan later this year for the holiday season, while the first Banana Republic stores are expected to open in Jordan next spring and in Egypt next fall.

The expansion abroad comes as Gap is trying to better align the size of its U.S. stores with demand and expects net square footage to remain roughly flat for fiscal 2008.

"The only real growth in square footage beyond 2008 will be in our international and franchise markets," Gap Chief Executive Glenn Murphy said in a conference call with investors earlier this year. Stores within stores, in particular, he said, have a "great return" and "good sales per square foot."

Since Gap started focusing on expanding abroad through franchise agreements two years ago, more than 70 Gap franchise stores and nearly 30 Banana Republic franchise stores have opened. Friday's planned announcement brings the franchise program count to agreements in 21 countries. Under the franchise agreements, Gap sells its goods to the franchisees and partners invest their own money in stores and operations.

Gap announced in May that it will introduce its Gap and Banana Republic brands in Russia through a partnership with Fiba Holding AS, a Turkish holding company with interests in banking and retailing.

By: Jennifer Saranow
Wall Street Journal; September 19, 2008

The Cowboys Are Back, Thanks to the Owner Who Nearly Ruined Them

After Jerry Jones took over the Dallas Cowboys in 1989, he was, in his mind at least, the team's great savior. He was the one who was largely responsible for the Cowboys' rise from 1-15 creampuffs to three-time Super Bowl champions.

Author Jeff Pearlman talks about his book, "Boys Will Be Boys," a look into the glory days and party nights of the Dallas Cowboys dynasty during the 1990s. Video courtesy of Fox Sports.

He was the one who had fired the team's iconic but outdated coach, Tom Landry, and hired Jimmy Johnson. He was the point man on the 1989 blockbuster deal that sent Herschel Walker to the Minnesota Vikings in exchange for a bounty of players and draft picks, as well as the 1990 trade that netted Dallas three high picks from the Saints in exchange for Steve Walsh, a noodle-armed backup QB. "Without my input, those trades don't happen," Mr. Jones said. "It's that simple."

In April, 1992, Mr. Jones invited ESPN's cameras into his team's Valley Ranch war room, where he seemed to be an active participant in the team's decisions.

But to the outside world, Mr. Jones was often seen as an attention-obsessed executive who craved to be known as more than merely a signer of fat paychecks. He quickly earned the reputation around the NFL as a Grade-D talent evaluator -- especially after Mr. Johnson quit (or was fired, depending on who's talking) following the 1994 season and Jones took over as the team's general manager and lone decision maker.

His first-ever first round pick, in 1994: Shante Carver, a defensive end with Q-Tip-thick legs who lasted four forgettable years in Dallas. His second-ever first round pick, in 1997: David LaFleur, a tight end who also lasted four seasons. His track record over his first eight drafts: two stars (offensive linemen Larry Allen and Flozell Adams), a handful of passable mediocrities (Darren Studstill, Omar Stoutmire) and mostly piles upon piles of discards.

"Jerry went through some very hard times after Jimmy left," says Hubbard Alexander, an assistant coach with Dallas from 1989 through 1998. "I'm sure there were those who thought he had no clue about football. It was understandable, I suppose. But I'll tell you two things about Jerry Jones -- he's a smart man, and he'll study and study until he gets it right."

Indeed, following one of the darkest stretches in franchise history, during which the Cowboys went 55-73 between 1997-2004 and Mr. Jones was increasingly mocked as a wanna-be genius, Dallas's owner now seems to have it figured out. The Cowboys have a 33-17 record over the past four years and are 2-0 this season heading into Sunday's game at Green Bay. The team has drafted with renewed aplomb, landing a group of stars -- DeMarcus Ware, Marcus Spears and Marion Barber in 2005 and a potential Michael Strahan-esque quarterback chaser in defensive end Anthony Spencer in 2007.

This past April, they picked up two players, running back Felix Jones and tight end Martellus Bennett, with mesmerizing big-play potential. In a sense, Mr. Jones has returned to the team's early-'90s roots, when Jimmy Johnson focused less on plugging holes and more on finding the best possible playmakers. "The improvement is remarkable, because for a long time Jerry's drafts were absolutely terrible," says Darren Woodson, the former Cowboys safety and current ESPN analyst. "I think what's happened is that Jerry has opened up to other ideas and thought processes. Really, that started with Bill."

If there was a key moment in Mr. Jones's rise from laughingstock to laudable, it came in January, 2003 when he hired Bill Parcells as head coach. Unlike Mr. Johnson, who insisted on 100% control over all things football-related, Mr. Parcells was willing to confer with the owner; to sit down and discuss strategy; discuss scouting; discuss what he was looking for in a player. Though the two often butted heads, Mr. Jones was well aware of Mr. Parcells's knowledge. "What better teacher could Jerry have?" says Mr. Woodson.

Though Mr. Parcells's four-year tenure resulted in uneven on-field results, those who know Mr. Jones say he emerged with a new level of confidence and -- if this is possible -- swagger. It was Mr. Jones, after all, who took one of the great personnel risks of the last decade, signing free agent wide receiver Terrell Owens in 2006 to a three-year, $25 million contract after he had been released by the Eagles for multiple infractions. Immediately after the deal, Mr. Jones was again ridiculed throughout the league for having the temerity to add a player who spit in the face of discipline. Few, however, are mocking Mr. Jones today. Now in his third season with Dallas, Mr. Owens has regained his spot among the league's elite.

“Though history has hailed [Jimmy] Johnson (and, to a lesser extent, Jerry Jones) with pulling off the most lopsided trade in NFL history, 99 percent of the (dis)credit must go to [Mike] Lynn, a nice man, a good dresser and a lousy football executive.” Read an excerpt from "Boys Will Be Boys"

Last year Mr. Jones again defied convention on the free-agent market, inking an underwhelming Arizona Cardinals offensive lineman named Leonard Davis to a seven-year, $49.6 million contract. Rival executives laughed -- Mr. Davis laughed his way to the Pro Bowl. "Everyone -- absolutely everyone -- accused Jerry of overpaying Leonard Davis," says Gil Brandt, an NFL.com analyst and the Cowboys' vice president of player personnel from 1960-88. "Everyone -- absolutely everyone -- thought signing Terrell Owens was a horrible idea. But Jerry has a real feel for what he's doing as a GM. He listens to those around him with good judgment, and he combines that with listening to his gut. Clearly, it's paying off."

"I don't think my improvement is quite as dramatic as some people might say," says Mr. Jones. "But I have learned a great deal over the years. Most important, I know that the more time you spend looking at other teams' successful players, the better your evaluation skills become.

"Another thing I've come to believe in is the power of consistency. We've changed coaches over the years, but we have not changed our trainers or conditioning people. We want our players to work with the same few people over a span of years, so they have a path toward consistent development."

This offseason, after Dallas fell just short in the NFC title game, Mr. Jones took two of his biggest risks to date, signing a pair of players -- Adam "Pacman" Jones and Tank Johnson -- with myriad talents and myriad legal issues. So far this season, both players have shown glimpses of their otherworldly talents. "It might work, it might not work," says Mr. Brandt. "But it's hard to argue with Jerry's personnel results of late. I wouldn't follow the guy who bets against him."

By: Jeff Pearlman
Wall Street Journal; September 19, 2008

Microsoft, Others Say Online Banners Trump Search Ads

Display ads have fallen on hard times. The graphic ads that border a Web page are among the slowest-growing formats in the online-ad marketplace, and they are seen by many marketers as stodgy and ineffective.

But some ad-technology and Web-measurement companies are trying to engineer a comeback for display ads, offering data that they say show display advertising is more effective than marketers think. Microsoft is the latest company to make this declaration, with new evidence coming next week that it says proves display ads are actually better than searches at triggering consumers.

Microsoft is the latest company to make a case that online display ads are ripe for a comeback, claiming new data proves that they are more effective than search ads.

Companies like Microsoft have a financial interest in pushing online ad formats besides searches. Google has what would appear to be an insurmountable lead in the search business, the biggest online-ad medium. Meanwhile, Microsoft, Yahoo and Time Warner's AOL have invested billions of dollars in new display-advertising technology hoping to lure advertisers that have poured money into search ads.

Still, there is a burgeoning debate about whether display ads have been overlooked amid the euphoria over searches. "Obviously, Microsoft has a motive to shift dollars from search to display advertising because it is getting creamed in the search space," says Ben Winkler, a director of interactive media at the Martin Agency, a unit of Interpublic Group. "But this does help us get a much better picture of how our online advertising is working."

The debate revolves around what leads consumers to take actions on the Web: buying something, printing a coupon or visiting a Web site. Up to now, most advertisers judged the effectiveness of an ad campaign by what consumers did after they clicked on the ad. But some marketers say they are now using research not only from Microsoft, but also independent Web-measurement firms like comScore and Omniture, to figure out what happens before people click on ads -- even in situations where they don't end up actually clicking on the ads.

The major conclusion of this research: By the time consumers search for a product or service, they've often already made up their minds to buy it. And display ads are often an important factor in their reaching that conclusion.

Part of the reason display has fallen out of favor is that it's been hard to prove that the ads work. Skeptics point to low click-through rates -- a fraction of a percent, at best -- and scientists have coined the term "banner blindness" to refer to the way Web surfers ignore display ads.

Nielsen Online on Thursday reported a 6% year-over-year decrease in display advertising during the first half of 2008, including a 27% decline in spending by financial-services companies. Meanwhile, spending on so-called rich-media ads increased 60% overall in the first half of the year, and overall online ad spending -- including search-ad dollars -- increased 11% during the first half of the year, Nielsen says.

ComScore and Omniture work with dozens of marketers to find out which pages customers visit before landing on an advertiser's site. That research shows that the full impact of display advertising isn't always taken into account, says comScore analyst Andrew Lipsman.

Microsoft's research comes from the Atlas Institute, the research arm of its ad-serving unit Atlas, and was started more than two years ago before it was acquired by Microsoft. It has looked at the various components of a marketer's ad spending to see the relative effectiveness of each. (Microsoft sells both search and display ads, but the latter is a much bigger piece of its business.) Atlas's latest round of research was a month-long study of ad campaigns from 500 marketers appearing on 1,000 sites.

One limitation with the research, according to marketers, is that it only takes into account ads that run on Atlas, which is usually a subset of any marketer's total ad spending.

Earlier this year, Atlas conducted a study with Alltel Wireless that it says showed people who were exposed to both search and display ads were 56% more likely to purchase an Alltel phone or wireless plan than those who clicked only on a search term without any exposure to its display ads.

Some digital-ad executives say the new research won't change their trust in searches, but it may help them persuade more marketers to move from traditional advertising to online. "Search is still just as powerful. But things like display that looked really bad before aren't as bad. Now we can prove it," says Jennifer Zola, partner and director of strategy and insights at WPP Group's Mediaedge:cia.

Microsoft plans to use its research as a sales pitch to get more publishers and advertisers to use its ad technologies.

By: Emily Steel
Wall Street Journal; September 19, 2008

Google Inc. co-founder Larry Page urged the Federal Communications Commission Wednesday to give companies unlicensed access to vacant television channels before November's election.

Google and other technology giants like Microsoft Corp., Dell Inc. and Motorola Inc. want to use the vacant channels, sometimes called "white spaces," for high-speed wireless service that could be accessed by yet-to-be-built mobile devices and laptops. TV airwaves are very powerful and can penetrate walls and travel long distances.

Broadcasters, as well as wireless-microphone manufacturers whose products sometimes operate on the vacant channels, are concerned that these devices could cause interference with their signals.

"All the FCC needs to say is that we will allow people to use the spectrum in an unlicensed way if their devices don't interfere," Mr. Page said at a briefing in Washington sponsored by the Wireless Innovation Alliance, a coalition lobbying for access to the empty channels.

In addition to Google, Microsoft, Dell, and Motorola, the coalition includes consumer advocates, civil-rights groups and rural organizations who think opening up the channels could make the Internet more accessible in remote rural areas.

FCC engineers completed a series of field and lab tests this summer on prototype white-space devices to determine whether they could detect and avoid live TV channels and wireless microphones. The devices generally were able to detect the signals, although industry engineers on both sides said there were some hiccups. The FCC's engineers are now compiling the information to share with the agency's five commissioners.

FCC Chairman Kevin Martin, who favors giving companies unlicensed access to the vacant airwaves if there isn't interference, said on Tuesday that he wants the commission to act before the end of the year, but he hasn't committed to voting on the white-spaces proposal before the election.

Responding to Mr. Page's comments Wednesday, FCC spokesman Robert Kenny said, "We'd like to see the spectrum used more efficiently." Mr. Page wants the FCC to act quickly, because he fears agency decisions could get bogged down after the election or with the arrival of a new administration.

By: Fawn Johnson
Wall Street Journal; September 25, 2008

A lawsuit brought by a whistleblower attorney alleges the big medical-device maker gave surgeons a variety of incentives to use its products, including regular entertainment at a Memphis strip club, trips to Alaska and patent royalties on inventions they played no part in.

The previously undisclosed allegations involve Medtronic's spinal-devices unit, which has $3 billion in annual revenue. The unit's business relationships with doctors who use its spinal-repair implants are being investigated by Sen. Charles Grassley and have been the focus of lawsuits by other former employees.

Sen. Grassley has been looking into whether inducements for doctors, like those alleged in the lawyer's suit, have led to what surgeons say is widespread off-label use of Medtronic spine products.

The Food and Drug Administration has approved Medtronic's spinal devices to treat certain conditions, and doctors are free to use FDA-approved products as they see fit. But the FDA has warned that surgeons' use of a Medtronic bone graft in ways the agency hasn't approved has led to potentially life-threatening side effects in dozens of patients.

The former Medtronic lawyer's allegations are contained in a 2002 suit filed in U.S. District Court in Memphis against Minneapolis-based Medtronic and 10 doctors. The lawsuit and other filings in the case remain sealed, except for a heavily redacted copy of the complaint, which contains none of the doctors' names nor specifics of the allegations.

Medtronic has refused repeated requests from the Senate Finance Committee's staff for an unredacted version. Sen. Grassley, an Iowa Republican, is the panel's ranking minority member.

Even the identity of the plaintiff has been withheld. But, according to an unredacted copy of the lawsuit reviewed by The Wall Street Journal, she is Ami P. Kelley, a former senior legal counsel for the spine unit.

Medtronic declined to comment on the lawsuit's allegations. It said it has changed many business practices since the suit was filed, and is "committed to reform and transparency in the industry."

Ms. Kelley's lawsuit says kickbacks were "pervasive" and "the culture and way of doing business" at Medtronic. Sales staff, she said, "routinely took physicians" visiting the spine unit's Memphis headquarters to the Platinum Plus strip club, and picked up the tab for the dancers' services during "VIP visits." In 2007, Platinum Plus's owner pleaded guilty to charges related to dancers engaging in acts of prostitution, and the club has closed.

Ms. Kelley's lawsuit sought to recoup damages for the federal government, which prohibits companies from giving doctors inducements to use products covered by Medicare or Medicaid.

Her lawsuit and a separate one that also accused the spine unit of paying illegal kickbacks to doctors were the basis for a $40 million settlement deal between Medtronic and the government in 2006, according to the settlement document.

As part of its deal with the company, the government successfully moved to have the federal court dismiss the two lawsuits. But the other plaintiff, Jacqueline Kay Poteet, who formerly managed travel services for the Medtronic unit, has appealed the dismissal of her suit, arguing the settlement was too small. Under federal law, whistleblowers who recover money for the government can receive a share of that money.

Ms. Poteet's appeal puts the settlement deal at risk. Either Medtronic or the government could pull out of the settlement if the appeals court reverses the dismissal order.

It isn't clear what would happen to the Kelley lawsuit if the settlement agreement were voided. Neither the government, Ms. Kelley's attorneys nor Medtronic would comment on the matter.

Nor is it clear why the lawsuit remains under seal. Typically, such suits are unsealed when the government either declines to get involved in the matter or agrees to a settlement of the case.

Ms. Kelley, who now works at another company, alleges she was dismissed by Medtronic after challenging improper payments. She didn't return phone calls.

The Kelley lawsuit names several top spinal surgeons among the 10 doctor defendants and lists several others as receiving inducements. No finding of wrongdoing has been made against any of the doctors, and Medtronic denies that it engaged in any improper behavior.

The suit says surgeon Jeffrey Wang, now director of the University of California at Los Angeles's Comprehensive Spine Center, "liked to be taken" to Platinum Plus and emailed Medtronic sales official Brad Hancock saying he was "looking forward to going" to the club with him.

A UCLA spokeswoman said Dr. Wang, who isn't named as a defendant in the suit, "denies ever being entertained by Medtronic at the Platinum club" and doesn't recall sending any such email. If he did send it, she said, "it would have been done so in jest."

Attempts to contact Mr. Hancock, who is no longer at Medtronic, were unsuccessful.

Ms. Kelley's suit said Medtronic had consulting agreements with more than 100 surgeons that were "nothing more than a vehicle to pay the surgeons" to use Medtronic devices, instead of rivals' products. She alleged that the company paid patent royalties to doctors who didn't contribute novel ideas to products, created Web sites for them to market their practices, hired business consultants that helped doctors boost profits. She also said Medtronic offered twice-a-year seminars in Orlando and Las Vegas where doctors and hospital administrators received free management advice, and supplied physicians with office staff.

Among the surgeons named in the suit is Hallett Mathews, of Richmond, Va., Ms. Kelley said he was paid $450,000 a year under a consulting agreement. In quarterly reports filed with Medtronic, she said, Dr. Mathews would count his surgeries as time spent doing consulting work for Medtronic. The lawsuit also alleges Medtronic provided Dr. Mathews with a Medtronic credit card.

Last year, Dr. Mathews went to work for Medtronic, where he is vice president of medical and clinical affairs. A spokeswoman for the company said he couldn't comment on the allegations because the suit was sealed.

Medtronic says it overhauled its code of conduct in 2004 to include tougher guidelines on relations with physicians.

Ms. Kelley alleges Medtronic sent physicians on lavish trips under the guise of medical conferences, but where little work was done. Her complaint claims that on a five-day, all-expenses-paid trip to Alaska in 2001, which was billed as a "think tank," doctors were supposed to present case studies. But, according to the complaint, little discussion of the case studies took place. One doctor scheduled to give a talk stood before the group, "said he was sorry, but he had not prepared anything," and "drinking then commenced in place of discussion," Ms. Kelley said in the suit.

Medtronic picked up the cost of fishing guides and clothing for the doctors, the suit said. It said "women were also provided for the doctors," but didn't elaborate.

Maurice Smith, a neurosurgeon at the Semmes-Murphey Neurologic and Spine Institute in Memphis, organized the Alaska trip and joined the other doctors there, according to the lawsuit, which names him as a defendant. Ms. Kelley alleges Dr. Smith had a consulting contract that was prepaid for 10 years. She alleged that Dr. Smith provided few services to the company other than hosting the annual "think tank." He didn't return calls seeking comment.

When Medtronic discovered that neurosurgeon Patrick Johnson was in line for a promotion at a Los Angeles hospital, it arranged a helicopter skiing trip for him, and sent along former spine-unit president Michael DeMane and former regulatory chief Jon Serbousek, the lawsuit said. Dr. Johnson, now director of education at the Cedars-Sinai Institute for Spinal Disorders, wasn't named as a defendant in the suit. He didn't respond to requests for comment. Mr. Serbousek couldn't be reached. Mr. DeMane said, "As far as I know, Medtronic did not pay" for Dr. Johnson's trip.

At a Medtronic-sponsored "discussion group" in New Orleans, according to the complaint, the company paid $20,000 to $25,000 to get a group of doctors on a Mardi Gras parade float and another $15,000 to supply doctors with Mardi Gras beads.

Medtronic said it has changed its policies regarding trips like those described in the lawsuit, no longer conducts medical training in resort locations and has also prohibited the company's payment for the travel and expenses of doctors' spouses or guests.

By: David Armstrong
Wall Street Journal; September 25, 2008

Powerless FCC continues to accept under the table bribes; all public airwaves are for sale to the highest bidder....

...Kenneth J. Martin loves the coin!

Credit Crisis May Curb Financing for Bidders But Agency Wants the Rules in Place

Federal regulators are pushing ahead with plans to put two valuable chunks of airwaves up for sale, despite market turmoil that could make it difficult for potential bidders to raise necessary financing.

Today, the Federal Communications Commission is expected to release draft rules for the re-auction of airwaves that would be used to create networks that allow fire, police and other emergency services to communicate more effectively. The idea, pushed in the wake of the Sept. 11, 2001 terrorist attacks, faltered earlier this year when the first effort to sell airwaves attracted no winning bids. Potential bidders were concerned about onerous conditions required of the winner. This time, the FCC is considering relaxing some of those conditions, including cutting the minimum bid to $750 million from $1.3 billion.

Separately, the FCC is considering an auction of airwaves that would require the winner to offer free wireless Internet service to consumers.

The turmoil in the credit markets raises a potential dilemma for regulators, who want to hold the two auctions as early as next spring. Smaller companies and start-ups could have problems raising financing and bids would likely be lower. In the case of the public safety airwaves, that could provide an opportunity for larger carriers such as AT&T Inc. and Verizon Communications Inc. to expand their already robust airwaves holdings relatively cheaply.

"If you're looking at start-ups and new entrants to come in this space, boy, that seems like a tall order to me under current finance conditions," says Michael Powell, a former FCC Chairman and current adviser to private-equity firm Providence Equity Partners.

There are different ways to measure an auction's success. In the two coming sales, the goal seems less about raising money than meeting various public needs. FCC Chairman Kevin Martin is trying to engineer both auctions to fulfill the desire by public-safety groups and consumers for more wireless broadband services.

Earlier this year, the FCC raised almost $20 billion in an airwaves auction, but public-interest groups complained that Verizon and AT&T won most of the airwaves. Smaller telecom companies groused that the rules were written to benefit larger carriers instead of potential competitors.

That could happen again, analysts say, if only because larger carriers may be the only ones who can raise enough financing to bid.

This week, influential House Democrats complained that the FCC is rushing to set rules for the public airwaves auction. Mr. Martin proposed a three-week deadline for public comment, an aggressive timetable but one that would ensure final rules would be set while he is still chairman.

It's not clear when the other airwaves, which would require the winner to offer free wireless Internet to consumers, might go on the block. Mr. Martin has championed the idea. The most likely bidder, M2Z Networks Inc., a start-up backed by Kleiner Perkins Caufield & Byers partner John Doerr, is lobbying for the FCC to set rules before the end of the year.

FCC officials say they can set rules for the auctions and delay them until lending conditions improve.

Some wireless-industry analysts question whether six or eight months would have much of an impact, however, given the amount of time it can take a smaller company or start-up to arrange financing.

"We've just seen the most radical transformation of the credit market in the last 80 years. That doesn't smooth itself out and we go back to the glory days in six months," says Roger Entner, Nielsen IAG's senior vice president of communications research.

Even Mr. Martin's critics give him credit for trying to tackle the issue of creating an interoperable wireless network for local police and fire departments. Congress set aside a large chunk of airwaves for first responders during a post 9-11 effort to improve communications, but never provided the billions needed to build a new network.

The FCC is essentially trying to tempt a commercial provider into building a network for public safety in exchange for the use of those valuable airwaves to sell high-speed wireless Internet services to consumers.

Agreement on how to do that has been elusive, however, and the effort has only become more complicated. "It's more obvious by the hour that there's less consensus about what we should do," said Robert McDowell, a Republican FCC commissioner.

By: Amy Schatz
Wall Street Journal; September 25, 2008

New Leader Sought as Activist Investor Points to 'Missteps'

Unisys Corp., which is under attack by an activist investment firm, said Chief Executive Officer Joseph McGrath will step down by the end of the year as the company looks for a new leader.

The computer-services and hardware company said Mr. McGrath agreed with its board that "a change in leadership would best enable Unisys to move forward." The company said Mr. McGrath, 57 years old, wasn't available for comment.

MMI Investments LP, a New York investment firm that holds about 9.1% of Unisys stock, has been criticizing the company since last year for "the seemingly continuous stream of management, operational and financial missteps that have characterized recent performance." Earlier this year two MMI representatives were added to Unisys's board. The investment firm declined to comment on Mr. McGrath's planned departure.

Earlier this year, Unisys retained Goldman Sachs & Co. to investigate alternatives for maximizing shareholder value. Mr. McGrath said in July that he expected results of the investigation to be announced by the end of this year.

Unisys, based in Blue Bell, Pa. -- whose predecessor companies, Sperry Univac and Burroughs, hark back to the early era of computing -- performed well during the 1990s but failed to recover as other technology firms did after the dot-com bust earlier this decade. The company has faced declining sales for its proprietary computer systems as customers moved to standardized platforms.

Building on its existing computer-repair and consulting business, Unisys moved into the computer-services field with mixed results. Some of the biggest contracts it won, such as a check-processing deal in the U.K., turned into money losers that hurt results for years.

Mr. McGrath, a Xerox Corp. veteran who joined Unisys in 1999 and ran parts of its services organization, became chief executive in 2005, succeeding Lawrence Weinbach, the architect of the services strategy.

Unisys has had weak results since, with only three quarters of profitability amidst large restructuring charges and erosion in revenue. In 2007 it reported a loss of $79.1 million, including $66 million in restructuring charges, on revenue of $5.65 billion. Its first-half losses this year totaled $37.4 million.

By: William Bulkeley
Wall Street Journal; September 24, 2008

In a recent football matchup between the University of Minnesota and Ohio State, two other tough rivals are set to face each other: John McCain and Barack Obama.

The Gopher-Buckeye showdown is airing on Big Ten Network, where the two candidates are regular advertisers. With a main footprint that reaches seven political battleground states, Big Ten is one of several regional sports networks that have been attracting more political ads as the campaigns jockey to reach swing voters.

As the Boston Red Sox battle their baseball rivals at Fenway Park, presidential candidates John McCain and Barack Obama are battling each other in advertising on the New England Sports Network.

Fans of baseball's Philadelphia Phillies are seeing the Democratic and Republican nominees on Comcast SportsNet Philadelphia. On Fox Sports Florida, the Tampa Bay Rays' race to their first American League East pennant is being brought to you, in part, by Sens. Obama and McCain.

"It's a great concentration, a great way to buy men," says Brad Mont, president of political-ad-time buyer Media Ad Ventures Inc., which has placed ads for the McCain campaign. Although the ads on regional-sports networks rarely mention sports, they project "a local involvement, and some people will interpret that as supporting the team, which doesn't hurt," Mr. Mont says.

In the Big Ten, where home-team loyalty is practiced with cultlike fervor, that effect is multiplied by the electoral stakes. Since Sept. 1, Big Ten Network, which is available in 22 million homes within the Big Ten states, has been responsible for approximately 20% of the political ads Fox Sports Net says it has sold on more than a dozen regional sports networks.

"It's an attractive demographic -- in this case it's both a sports niche and a regional niche," says Charles Franklin, a professor of political science at the University of Wisconsin-Madison, and co-director of the new Big Ten Battleground Poll. Although the poll isn't directly connected with the network, its first batch of results was announced last week in a 90-minute program on the channel's air.

"It's a fortunate accident of political geography that so many of the eight states that happen to be in the Big Ten are competitive states in the election," Mr. Franklin says, adding "it's probably not that our football teams caused us to be competitive in politics." The seven states thought to be in contention are Ohio, Pennsylvania, Minnesota, Iowa, Michigan, Wisconsin, and Indiana; the exception is Sen. Obama's home state of Illinois.

The amounts the campaigns are spending on regional sports networks are still tiny when compared with the hundreds of millions of dollars being dedicated to TV advertising across the board. It's likely regional sports networks have pulled in well under $10 million in election ads, according to estimates from people familiar with their political sales.

Nevertheless, regional sports networks offer unusually ardent audiences. Their viewers usually watch live so they don't zap commercials. Most of them are men, a difficult demographic for any marketer to reach. And they may be swing voters, too. More viewers of Fox Sports Net, for instance, are "middle of the road" politically compared with most other cable networks, according to Mediamark Research & Intelligence.

"I've been doing this a long time, and this is the first time I've seen political spending really gravitate toward the regional sports network sector," says John McGuinness, senior vice president and general sales manager of the Mid-Atlantic Sports Network. Both campaigns have been buying ads during Washington Nationals and Baltimore Orioles games, Mr. McGuinness says, because his network's footprint includes the battleground state of Virginia.

Fox Sports Net, which owns 16 regional sports networks and handles national sales for 19 others, hasn't traditionally pursued political advertising, according to Kyle Sherman, who heads its ad sales. But this year, he specifically sought out political media buyers to offer multistate buys. The group even split its feed for Fox Sports Arizona to allow the campaigns to buy Arizona Diamondbacks ads that air only in New Mexico -- allowing both campaigns to sidestep Sen. McCain's home state of Arizona, which is solidly Republican.

Representatives of Sens. Obama and McCain declined to discuss the specifics of their ad strategies. "We are making sure voters see our ads in many creative ways and places," Obama campaign spokesman Nick Shapiro wrote in an email, saying they are only one part of a "voter outreach strategy" that includes online organizing and "neighbors talking to neighbors." McCain spokesman Tucker Bounds said, "We believe that our candidate's fanaticism for baseball, boxing, football, as a lifelong sports fan, positions us uniquely to court American voters that are also sports fans."

With baseball's regular season ending this weekend -- and baseball games heading to national TV -- some regional sports nets are looking to hockey and basketball to draw political dollars. Altitude Sports & Entertainment -- the network of Denver Nuggets and Colorado Avalanche owner Stan Kroenke -- is actively pursuing political ads now that Colorado is a battleground, says Tom Philand, head of sales and marketing: "We'd love to be able to tap into some of that spending."

By: Same Schechner
Wall Street Journal; September 24, 2008

High-Tech Research Helps Firm Build On Chemical Base

DuPont Co. named Ellen J. Kullman to be its new chief executive and president Tuesday, making her one of the few women to rise to the top of the chemical industry and putting her among the handful of women running the nation's biggest companies.

A 20-year DuPont veteran, Ms. Kullman, 52 years old, helped expand the company from a chemical producer into a high-tech research business that also ventures into areas like biofuels and solar technology. The switch has helped insulate DuPont from some of the pressures faced by basic chemical companies as prices for oil and natural gas have shot up and competition from producers in developing countries has increased.

Ellen Kullman backed DuPont's move into high-tech research.

Ms. Kullman, who was widely expected to become CEO, said she will continue the company's current strategy, which emphasizes developing useful products from scientific breakthroughs. "The science creates value," she said in an interview. "That's the exciting part."

Ms. Kullman will succeed Charles O. Holliday Jr., 60, who will continue as chairman, though she is expected to eventually take that title, too. She will become president and join the board Oct. 1, and she will take over as chief executive at the beginning of 2009, the company said.

One reason the board picked Ms. Kullman unanimously, Mr. Holliday said in an interview, is her ability to make the complex -- and sometimes obscure -- chemical business relevant and understandable to investors and customers.

In recent years Ms. Kullman has run most of DuPont's major business units. The company's first-half earnings grew 18% from a year earlier despite the slump in the automotive and housing industries, which are two of DuPont's major clients.

A native of Wilmington, Del., where DuPont was founded 206 years ago, Ms. Kullman said she has had a keen interest in science and "figuring out how things work" since she was a young girl. She received a mechanical engineering degree from Tufts University, where she is now a trustee, and a master's degree in management from Northwestern University. She is also a director of General Motors Corp.

In 1988, after working for General Electric Co., Ms. Kullman became a youth marketing manager in DuPont's medical imaging business, and then moved on to run the division that produces Kevlar, the material used in body armor.

Running DuPont will be an honor, she said. "I'm not sure being a woman adds or detracts from it. My managing style is unique to me, and I'm just really looking forward to continuing to drive our company's strategy."

By: Ana Campoy
Wall Street Journal; September 24, 2008

Social-networking site MySpace on Thursday will introduce new music features that let users listen to free streaming audio, purchase song downloads and make playlists, the products of a joint venture with major record labels.

The moves make MySpace the latest challenger to Apple Inc.'s dominance in online music distribution. The new features will be accessible on MySpace user profile pages as well as the MySpace Music page.

The four major music companies, EMI Group Ltd., Warner Music Group Corp., Vivendi SA's Universal Music Group and Sony BMG Music Entertainment, a joint venture of Sony Corp. and Bertelsmann AG, have licensed their catalogs to MySpace and are equity partners in the venture. MySpace will also license content from Orchard Enterprises NY Inc.'s Orchard, an independent music distributor.

It remains to be seen if the initiative will help MySpace, which was purchased by News Corp. for $580 million in 2005, in its efforts to wring more revenue from its 120 million site visitors world-wide and gain an edge on rival Facebook Inc. Free audio streams will be supported through advertisements and MySpace will take a cut of downloads through a partnership with Amazon.com Inc.

About 35 million MySpace users routinely visit pages that feature music. Besides selling ads and song downloads, MySpace also plans to eventually link up with partners to sell artist merchandise and tickets to concerts. All of this will benefit big and small artists, said Amit Kapur, MySpace's chief operating officer. "We're not only going to be their home on the Web," he said. "We're going to be the place they make a living."

MySpace faces some stiff competition. Apple's iTunes store has roughly 80% of the market for music downloads, according to the company. There are also several companies that already offer free streaming music, including Imeem Inc., a San Francisco company that has 100 million monthly users.

The four initial sponsors of the MySpace Music site are McDonald's Corp., Sony Pictures, State Farm Mutual Automobile Insurance Co. and Toyota Motor Corp.. In an effort to keep ad rates higher than they historically have been, MySpace is limiting the number of slots for ads on the music site. A potential challenge in the advertising strategy: It is unclear whether users will actually pay attention to visual ads while they're listening to songs, said Russ Crupnick, an entertainment-industry analyst for NPD Group.

The record companies will get a share of revenue generated through advertising and other sources. The music industry has struggled in the digital age, as single-track download sales have failed to grow quickly enough to offset a precipitous decline in CD sales. A guaranteed stream of income from big advertisers is viewed as a potential step in the right direction.

MySpace executives are still looking for a chief executive to run the music venture, whose group ownership makes the job as much a diplomatic mission as an executive role. The company also has been recently looking to raise about $100 million to $200 million in equity financing for the music operation, people familiar with the matter say.

By: Amol Sharma
Wall Street Journal; September 25, 2008

Luxury-Goods Retailer Reports a Doubling of Its Quarterly Loss And Warns the Wealthy Are Cutting Back

Upscale retailer Neiman Marcus Inc. offered a bleak outlook for the holidays and said its quarterly loss more than doubled from a year earlier, signaling a further downturn in the U.S. luxury-goods market.

Neiman, which posted a $35.7 million loss for its fiscal quarter ended Aug. 2, warned that the American luxury market is likely to be hit hard by the recent financial crisis as wealthy and upper-middle-class consumers change their attitudes toward spending.
[Neiman Marcus Sees Bleak Holiday] Najlah Feanny for The Wall Street Journal

A Neiman Marcus at New Jersey's Garden State Plaza Mall on Wednesday

James Skinner, Neiman's chief financial officer, said that news of the financial turmoil is ubiquitous and that is negatively affecting the mood of consumers, who otherwise can still afford expensive clothes, shoes and jewelry. "The best customers never lose the ability to spend," Mr. Skinner added. But "there's an emotional impact" because of the coverage.

Carol Brodie, a branding adviser from Fairfield, Conn., said she splurges every fall on high-end coats and shoes. But this year, though she is doing well financially, she didn't shop. "I don't feel comfortable going all out," she said.

In a conference call, Neiman Marcus Group Chief Executive Burt Tansky said that "we anticipate that the months ahead will be difficult," including the crucial holiday season. He noted that many of the company's customers are heavily invested in the stock market.

Neiman's results came after analysts last week began reducing their full-year earnings forecasts for Saks Inc., which generates more than 20% of its annual sales at its flagship store in New York. Shares of Saks hit a 52-week low Wednesday in intraday trading before closing at $9. "Obviously, it's a very difficult time in the U.S.," said Saks CEO Steve Sadove Wednesday at a fashion-industry event in Milan.

As recently as the summer, some key categories of the U.S. luxury market were showing surprising resilience, including high-end jewelry, Swiss watches and products from such European brands as Hermès and Louis Vuitton.

But many luxury retailers saw sales start to weaken as the summer wore on. Nordstrom Inc., for example, cut its outlook for the second half in mid-August. Saks reported a 5.9% decline in August same-store sales and a $32 million loss for its fiscal quarter ended Aug. 2. Tiffany & Co., which sells everything from $200 silver pendants to $1 million-plus diamond rings, said same-store sales in the U.S. declined 4% in the quarter ended July 31.

Then came last week's meltdown on Wall Street, which industry executives say could dry up any lingering demand in the U.S. for luxury goods, including the last pockets of strength.

At the fashion shows under way in Milan this week, many European luxury-goods executives didn't hide their concern that affluent consumers will quit buying designer clothes, handbags and shoes. Francois Henri Pinault, chief executive of PPR SA, which owns Gucci, Bottega Veneta and Balenciaga, said he doesn't expect the U.S. market to recover until mid-2009.

"There will always be rich people, but it's the mindset" that drives their spending, Mr. Pinault said. He is particularly concerned about whether Asian consumers, a key market for the sector, will continue buying given the financial turmoil.

The financial crisis, coming only a month before many retailers put up their holiday-gift displays, couldn't come at a worse time. Neiman Marcus, for example, will unveil its annual holiday catalog Oct. 7. While most retailers were already expecting sales to slow and were keeping inventories lean, they are now bracing for an even tougher season.

Neiman, which is owned by private-equity funds TPG and Warburg Pincus, posted revenue of $4.6 billion in the fiscal year ended Aug. 2, up from $4.4 billion the previous year. But heavier discounting and free shipping eroded gross margins by 1.1 percentage points, the company said, and sales at stores open at least a year fell 1.4%. Results were helped by a 53-week fiscal year, which tacked on an additional $50 million of revenue.

Mr. Tansky said that high-end jewelry, in particular the most expensive pieces, as well as handbags, shoes and fragrances performed well in the quarter. Lower-priced items aimed at the "aspirational" or "occasional" shopper didn't sell as well. He also said the company's most loyal customers "haven't traded down."

Retailers that are heavily reliant on the New York City market will probably experience significant sales declines in coming months, analysts say, citing both the financial crisis and a likely dropoff in foreign tourists as the crisis spreads abroad.

"Saks and Tiffany are at the center of Wall Street's woes," because their businesses are so reliant on both New Yorkers and foreign tourists, said Goldman Sachs analyst Adrianne Shapira in an interview.

Tiffany's New York flagship accounts for 10% of the company's sales, Ms. Shapira said. On Friday, she reduced her 2008 earnings estimate for Saks three cents to 16 cents a share and cut Tiffany's guidance by a penny, to 31 cents a share.

Neiman's New York City outpost Bergdorf Goodman, which accounted for 12.6% of revenue in 2008, could also be hit hard.

By: Rachel Dodes
Wall Street Journal; September 25, 2008

Chrysler LLC's majority owner has approached Daimler AG about taking over the German auto maker's remaining stake in Chrysler. The move is aimed at clearing the way for the U.S. firm to seek closer alliances with other car companies, say people familiar with the matter.

Daimler on Wednesday confirmed it is in talks with private-equity firm Cerberus Capital Management LP, signaling that the final unwinding of one of the business world's most celebrated mergers may be near. Daimler bought Chrysler in 1998 in a $36 billion "merger of equals" that sparked a flurry of automotive tie-ups, many of which proved unsuccessful.

Cerberus acquired 80.1% of Chrysler a year ago. Daimler's remaining 19.9% stake has emerged as a stumbling block for auto makers that could be interested in forming a global alliance with Chrysler, the people familiar with the matter said.

Any alliance would require Chrysler and a partner to exchange confidential information, such as product plans and sales projections, these people said. As a Chrysler shareholder, Daimler would have access to that information, a turnoff for potential partners, they said.

Cerberus may not have to pay Daimler for the stake. Cerberus took control of Chrysler in August 2007 in a complicated transaction in which Daimler essentially gave Chrysler to Cerberus. Cerberus agreed to invest $5 billion in Chrysler's auto operations and $1 billion in its finance arms.

Since then, Chrysler has continued to lose money and Daimler's earnings have been hurt by its share of Chrysler's losses. On Tuesday, Chrysler executives told dealers that the company had lost $400 million so far this year as sales have slid 24% in the first eight months. Daimler has written down most of the value of its Chrysler stake. In July, it valued it at €171 million (about $251 million), down from €1.4 billion a year ago.

It is unclear whether Chrysler has any potential partners prepared to engage in talks. Chrysler and Japan's Nissan Motor Co. have signed deals that call for Chrysler to assemble pickup trucks for Nissan and Nissan to make small cars for Chrysler. Those agreements led to speculation that the two could discuss a deeper partnership involving cross-shareholdings.

Nissan already has such an alliance with France's Renault SA, and Carlos Ghosn, who serves as chief executive of both of those companies and has said he is interested in adding a North American partner. In an interview this summer, Mr. Ghosn said Nissan hasn't had talks with Chrysler about expanding their relationship.

Chrysler confirmed the talks between Cerberus and Daimler but declined to further comment. News of the talks was reported by Manager Magazin, a German business publication.

The merger 10 years ago of what then was Daimler-Benz AG and Chrysler Corp. prompted other auto-industry deals, including General Motors Corp. linking with Fiat SpA, and Ford Motor Co. buying Jaguar and Land Rover -- alliances that were later unwound.

By: Edward Taylor and Neal Boudette
Wall Street Journal; September 25, 2008

Cisco Systems Inc., aiming to further its push into the online conferencing market, said it will acquire instant-messaging start-up Jabber Inc. for an undisclosed amount.

The San Jose, Calif., computer networking company is betting that business users will want the tools it is acquiring to work on, share and store files in a virtual "work room," where they can collaborate on projects and communicate over the Internet.

Cisco believes such tools, dubbed the "collaboration" market, can be a $34 billion industry. Other players in the market are Microsoft Corp. and International Business Machines Corp.

"Make no mistake, we are playing to win in the [collaboration space]," said John Chambers, Cisco's chief executive and chairman during the company's analyst day Tuesday.

Jabber adds instant-messaging and other communications technology to Cisco's fold. The Denver company's instant-messaging service operates on a range of devices, including mobile handsets and desktop computers.

Jabber's founders created technology used by Google Inc.'s Googletalk and Apple Inc.'s iChat instant-messaging applications.

By: Bobby White
Wall Street Journal; September 20, 2008

Comcast Corp., the country's largest cable operator by subscribers, formally submitted plans to the Federal Communications Commission late Friday detailing how the company plans to manage its broadband network.

Rather than target specific types of bandwidth-intensive applications like peer-to-peer file sharing, the company will instead slow Internet speeds for its heaviest users at peak times when its network is congested. Comcast will do this by creating a second stream of traffic for recent heavy users that will have a lower priority when compared to its other customers.

The so-called protocol-agnostic approach is intended to comply with the FCC's network neutrality principles, which restrict Internet service providers like cable and VOIP phone companies from degrading traffic from particular companies. On Aug. 20, the FCC had given Comcast -- the country's second-largest provider of broadband connections after AT&T Inc. -- 30 days to outline its new management policies.

Comcast's filing comes after the company tested the new approach which includes colocation for three months in five cities to study its impact. The company plans to put the policy in effect over its entire footprint by the end of the year. Comcast says no customer complaints were lodged about the new method in its trial markets and less than 1% of customers were affected on a typical day.

Comcast's move may set a precedent for how other carriers manage the rapidly growing traffic on their own networks. Internet traffic is doubling every two years, and other big carriers like AT&T Inc. and Time Warner Inc.'s cable unit have also indicated that they will need to take steps to marshal the limited capacity on their networks.

Comcast's network-management techniques became a lightning rod for controversy last year after the company admitted it was throttling traffic from BitTorrent Inc., a popular file-sharing application.

By: Vishesh Kumar
Wall Street Journal; September 20, 2008

Contest With $1 Million Prize for Consumers' Commercials Goes After Pregame Buzz and Anheuser-Busch's Top Ranking

When it comes to pumping out Super Bowl ads that score well with viewers, Anheuser-Busch is widely acknowledged to be the master. This year, PepsiCo has a new tactic to steal some of the brewer's limelight with new youth marketing techniques.

The snack-and-beverage company is offering $1 million to anyone who can create a Super Bowl commercial for its Doritos tortilla chip brand that trumps all other ads in viewer rankings during the gridiron matchup. It's part of an effort to raise the stakes on a contest the company ran two years ago.

PepsiCo is offering $1 million to anyone who can produce a Doritos ad good enough to top a viewer poll at the Super Bowl.

PepsiCo would, of course, love to win top honors, as measured by USA Today's Super Bowl Ad Meter, one of the more popular Super Bowl ad polls. But the company also has another motive with its contest. By dangling a $1 million prize, it hopes to dominate the months of pregame buzz, which many public-relations and ad executives say is far more valuable than winning the myriad Super Bowl ad polls.

This has become a critical way to help offset the high costs of youth marketing during the Super Bowl. Ad time for this season's game is selling for about $3 million for 30 seconds, up about 10% from last season.

Nationwide Mutual Insurance, for example, generated 3,584 news stories about its Super Bowl ad in 2007, which starred Kevin Federline, Britney Spears's ex-husband, working in a fast-food chain. The company estimates its push generated $23.3 million in free publicity. (Public-relations firms calculate these figures by assigning dollar values to every single media mention, whether it's a story in the Chicago Tribune or a piece on a local NBC affiliate.)

To top the polls, PepsiCo's consumer-generated ad would have to outperform the King of Beers, which has won the top spot for the past 10 years in a row, thanks in part to a highly detailed pregame ritual. Its formula involves multiple ad shoots and pregame focus groups around the country to measure viewers' minute-by-minute reactions to its spots.

"We're always impressed with the array of creative the Super Bowl brings, and we'll watch the game like we always do toasting with some of our fine beers and enjoying the show," says Bob Lachky, chief creative officer at Anheuser-Busch.

Doritos' marketers are trying to revive the excitement they created at the Super Bowl two seasons ago with a contest inviting consumers to submit their own 30-second ads for the famous triangular chip. It marked the first time marketers used consumer-generated ads at the big game, putting PepsiCo on the cutting edge of a new trend that shook up Madison Avenue by proving some ordinary folks, too, can create ads that can measure up to what highly paid creative executives produce.

The contest generated $36 million in free publicity for Doritos before and after the game, a Doritos executive told a conference in March 2007. Two spots, chosen from five finalists in an online consumer poll, aired during the game.

One ad, showing a love-struck driver crashing, crunching his face and bag of Doritos into a steering wheel at the sight of a pretty Doritos fan, scored 7.95 out of a possible 10 points in the poll and came in fourth behind three Anheuser ads.

The other, showing a supermarket cashier flirting with a Doritos-loving customer as she rang up bags of chips, scored 6.18.

Doritos didn't have as much luck with its contest for last season's Super Bowl. PepsiCo asked people to submit original music for a chance to have their tune aired during the game. But its winning video ended up lowest-ranked on the USA Today poll, scoring a 4.5.

The bigger winner: Budweiser with a spot featuring a Dalmatian training a Clydesdale to make the beer wagon team. The spot scored 8.73.

Doritos made a save by also showing another finalist ad from the previous year's hit contest; it scored 7.95, coming in fourth in the poll.

Now, Doritos' marketers face the challenge of finding an ad that will stand out at a time when consumer-generated advertising is no longer a hot trend.

"The newness that made it special in 2007 is gone -- now it's just another ad," says Dave Balter, chief executive of BzzAgent, a word-of-mouth media company based in Boston. "They are trying to manufacture buzz."

Ann Mukherjee, vice president of marketing for PepsiCo's Frito-Lay snack unit, says the company decided to offer the $1 million prize as an appropriate way to raise the stakes.

"Who knows?" she said when asked if she believes a consumer can beat out Anheuser-Busch. Doritos fans have shown themselves to be "amazing, talented individuals. The important thing is we're giving them the opportunity."

Even if none of five finalists topples Bud, each will still receive $25,000 and a trip to the Super Bowl.

The ad that wins the most votes in an online poll will be aired during the game. Voting will occur in January.

By: Betsy McKay and Suzanne Vranica
Wall Street Journal; September 24, 2008

Eli Lilly & Co. says it will begin disclosing how much money it paid individual doctors nationally for advice, speeches and other services.

The drug company's move, believed to be an industry first, comes as members of Congress push a disclosure bill in an effort to prevent such payments from improperly influencing medical decisions and to prevent pharmaceutical fraud .

Beginning next year, Eli Lilly will disclose payments of more than $500 to doctors for their roles as advisers and for speaking at educational seminars. In later years, the company will expand the types of payments disclosed to include such things as travel, entertainment and gifts.

Some have voiced concerns that doctors are influenced by these payments in their treatment decisions and that this in turn can drive up medical bills. Although many physicians believe free lunches or trips have no effect on their medical judgment, research has shown these types of payments can affect how people act.

"The ethical handwriting is on the wall. Disclosure is coming. States are pushing for it, and once a few states do, it's hard to imagine the federal government won't line up behind," said Arthur Caplan, director of the Center for Bioethics at the University of Pennsylvania in Philadelphia.

Eli Lilly was also early in the industry on publicly reporting its educational grants for medical conferences. John Lechleiter, president and chief executive of the company, said that made good business sense for the drug industry.

"We've learned that letting people see for themselves what we're doing is a good way to restore trust," Dr. Lechleiter said.

In the past two years, lawmakers from both chambers of Congress have introduced bills that would require drug and medical-device manufacturers to disclose any payments to doctors exceeding $25, but the industry chafed at the strict reporting threshold. Eli Lilly had announced earlier that it intended to comply with key aspects of the legislation once some lawmakers in the Senate agreed to a higher reporting threshold of $500.

Scores of trade groups representing doctors, such as the American Medical Association, voiced their support for the legislation once it included the higher, $500 threshold. In a letter to lawmakers, the groups said the disclosures would "enhance the medical profession's ability to provide oversight and strengthen our ability to serve as stewards of medicine."

Eli Lilly's disclosure of payments to doctors will begin in the second half of 2009, and will cover payments made in the first half of the year. The company doesn't plan to report payments from 2008 or earlier, noting that the legislation before Congress also did not contemplate such a look back. Gradually, the company plans to expand its registry to incorporate all payments that the Physician Payment Sunshine Act would require be made public.

Wall Street Journal; September 24, 2008

A Simple Gadget Lets Users 'Peek' at Their Messages

Are you a member of the "I-check-my-email-constantly-even-when-I-know-no-one-has-emailed-me" club? If so, your mobile email device is never far and you've found yourself wondering how other people can leave unread emails sitting in their inboxes all day. On the other hand, those seemingly unplugged people are likely puzzled by BlackBerry addicts, wondering what could possibly be so urgent that they need to know about it the second it happens.

This week, I tested Peek, a device that might bridge the gap between these two camps. It's made for those who don't intend to become consumed with mobile email, and don't need a combination phone, Internet, digital camera and email gadget. Yet from time to time, these people wish they had a better way to check emails without going home and turning on their computers.

Since I fit the constantly-checking-email description, I enlisted the help of someone who falls squarely into the category that Peek is targeting: my mother. Mom is constantly on the go, working on one project or another, and she doesn't have time to consistently check her email. On more than one occasion, I've had to call her to talk about emails I sent that she didn't yet read.

Stylish and Simple

Peek is a stylishly thin device that, to a mobile email novice, could pass for a BlackBerry. It receives and sends email, period. Peek doesn't have a Web browser, phone or built-in digital camera. It's sold for $100 at Target and GetPeek.com, and costs $20 monthly for contract-free service. Most email accounts work with this gadget, including Hotmail, Yahoo, Gmail and AOL, and up to three accounts can be set to work on each device.

Peek Inc., a New York company that was started by former Virgin Mobile USA employees, mailed a Peek to my mom in Pennsylvania, and she has been using it for about a week with positive results.

I, too, tested a Peek, but I was more interested in my mom's feedback since, prior to this test, she hadn't used a mobile email device and I use two different ones -- regularly. Overall, I'd suggest waiting until November to buy a Peek due to a handful of improvements that the company plans to add by then.

Winning Over a Novice

My mom got the hang of Peek almost instantly and found it both helpful and relatively easy to use. She liked its full keyboard and the way most of its keys lit up and were familiarly placed like those on a computer keyboard -- a feature I take for granted on my BlackBerry. Its price and stylish, thin look appealed to her, too. She tested an Aqua Blue Peek -- though the device also comes in Black Cherry and Charcoal Gray. I knew Mom was catching on when she casually sent a message from her Peek late one night using the subject line, "What's Up?"

My mom suggested a few improvements, and I agreed with all of them. The Peek can vibrate, chime and glow blue when new emails are received, but none of these indicators are particularly noticeable. For example, the chime sounds only once and neither my mom nor I could always hear it -- even at its loudest setting -- especially if it was in a purse. A blue indicator light on the Peek glows once every 10 seconds for 10 minutes after an email is received, but goes idle after that.

The font used on the Peek's screen could stand to be a little bigger. My mom found words typed in all capital letters were easier and faster to read than the regular font, but she thought most people wouldn't have too much trouble while using their glasses.

Peek Inc. says that by November, it will have added a louder chime, a constantly blinking indicator light and a larger font to the device. Also in November, people who purchase 12 months of service at once will get an extra month free.

Compared with my BlackBerry Curve, the Peek was thinner but I found its buttons and side scroll wheel a bit stiff. And Mom and I both found that the oft-used Space bar key was too tough to press down.

One Inbox, Three Accounts

The Peek's straightforward system uses one inbox view (in which up to three email accounts are combined), one menu and a side scroll wheel for selecting commands. And though my mom didn't seem to mind, the device's overall navigation system came off as a bit clumsy to me. For example, rather than selecting an email to read it, I had to select an email, and then choose "Open Email" from a menu list. On most other devices, this can be done with one step.

But some BlackBerry tricks are built into the Peek, such as touching "T" to automatically go to the top of an email or inbox; "B" to go to the bottom; or "N" to move to the next email without navigating back to the inbox list. Likewise, the space bar serves as a built-in Page Down button. And holding a letter down will capitalize it.

Photo attachments can be easily opened on the Peek, though attached documents from programs like Word and Excel won't open up.

Synching Contacts

A simple step lets users synchronize their email account's contact list with the Peek. My mom did this with an AOL account, and I did it with Hotmail, Gmail and .Mac accounts. Peek devices automatically check for email every two to five minutes, or if users can't wait two minutes, they can initiate a Send/Receive manually and see an up-to-date queue of emails.

Peeks each have eight megabytes of usable memory, which can hold about 5,000 emails. Once a device reaches capacity, an on-screen prompt asks permission to delete the 500 oldest emails. Peek Inc. says a full battery charge will last about five days if a device handles around 10 to 15 emails a day; power users who send and receive 200 to 300 emails a day will get about two days of use from a full charge.

When asked, my mom concluded that she would probably buy a Peek, but said she still wasn't sure that she had an urgent need to see email all that often. She also noted that Peek could become a Pandora's box of sorts for people who, as they use it more often, might want to get more out of it -- such as Google searches or other Web browsing.

Peek serves a purpose: It gives those who don't belong to the "I-check-my-email-constantly" club a way to "peek" in on their emails and not feel so unplugged from friends and family. That alone, is reason enough to buy my mom one of these devices.

By: Katherine Boehret
Wall Street Journal; September 24, 2008

As Regulator Considers Options, Some Analysts Warn of Talent Drain

As the financial crisis unleashes a debate about bankers' compensation, the idea of limiting bonuses has taken an added twist in London: Will it hurt the U.K. capital's competitiveness as a place to do business?

Some regulatory consultants say the U.K.'s Financial Services Authority risks harming the country's financial-services industry if it restricts the way banks structure bonus packages.

Some warn that banks could leave London if bonus limits hurt their ability to attract talent. Any compensation limits would need to be global "because of the competitive power of the market," said Neville Bramwell, a partner at consultancy firm Deloitte & Touche LLP. "If people are subject to a salary cap at institution A, they will leave and join the institution that is not subject to that cap."

An actor in a bowler hat is silhouetted in front of the Bank of England during the filming of a television program.

Government officials turned up the heat on the issue at the Labour Party's annual conference this week by declaring that the culture of huge bank bonuses needs to be addressed. They blamed excessive bonuses, in part, for promoting the risky behavior that helped contribute to the global financial crisis. "Bonuses should encourage good long-term decisions, not short-term reckless ones," Treasury chief Alistair Darling said at the Labour Party conference in Manchester.

While the FSA has said it doesn't want to regulate pay, it does plan to look at whether compensation plans take into account long-term risks for financial firms.

"We are clear this is a global issue rather than a U.K. issue," said FSA spokeswoman Heidi Ashley. "We want to ensure that U.K. views on remuneration are properly represented in international discussions."

In the U.S., Congress is debating tying compensation limits to the $700 billion plan to rescue troubled financial firms. U.S. Treasury Secretary Henry Paulson has argued that pay limits shouldn't be part of this plan because they could discourage firms from participating.

The U.K. has been held up as a model for compensation watchdogs who note that many companies give shareholders the ability to vote on compensation plans for senior executives at annual meetings.

In Switzerland, shareholder activist Ethos, which directly and indirectly controls funds valued at about 1.4 billion Swiss francs ($1.3 billion), called Tuesday for large Swiss companies to give shareholders a say on executive compensation. Ethos said the current financial-market crisis necessitates increased transparency and a bigger say for shareholders.

"The obvious driver of the subprime crisis...is simply greed," said Stephane Gregoire, product management director at FRSGlobal, a regulatory consultancy. "A risk-based bonus policy must be driven by the regulators."

By: Adam Bradbery
Wall Street Journal; September 24, 2008

Before we fund the $700 billion bailout...

Questions on Reliability of Interest Rate Rise Amid Central Banks' Liquidity Push

The accuracy of a widely used interest rate, seen as critical to judging the health of the financial markets at a precarious time, is coming under question for the second time this year.

Doubts about the London interbank offered rate, or Libor, center on whether banks are understating what it costs them to borrow dollars in stressed financial markets. Libor's reliability became an issue again this week when banks paid higher interest rates to borrow using collateral than they did for unsecured loans.

Those questions come as central banks inject liquidity into the market to restore the confidence of banks that have been reluctant to lend to one another. Other lending markets, including commercial paper, which are short-term IOUs issued by companies, have also struggled, potentially causing a credit crunch to spread throughout the economy.

Libor is supposed to reflect average bank-borrowing costs. Overseen by the British Bankers' Association in London, the rate serves as a benchmark for the borrowing costs of homeowners and companies. During the credit crisis, it has provided a gauge for whether banks trust one another enough to lend money. Last week, Libor rates surged in a sign that banks were having trouble borrowing money amid the problems at American International Group Inc. and Lehman Brothers Holdings Inc.

Concerns about Libor's accuracy emerged out of the rates being paid in another market used by banks to get cash. The Federal Reserve's term auction facility, one of numerous efforts the Fed has been using to fight the credit crunch, allows banks to borrow, but they must put up collateral.

Because of that, banks should be able to pay a lower interest rate than they do when they borrow from each other because those loans are unsecured. It is the same reason why rates for a mortgage, which is secured by a house, are lower than those for credit cards, where the borrower doesn't put up any collateral. In other words, the rate for the Fed auction should be lower than Libor.

But on Monday, the rate for the 28-day Fed facility was 3.75%, which was much higher than Libor. On Monday, the one-month dollar Libor rate was 3.19% while Tuesday's rate was 3.21%.

The Fed facility should be lower, said Scott Peng, a Citigroup Inc. U.S. rate strategist. The "market needs some accurate transaction-based measure of interbank lending."

Earlier this year, Libor appeared to be sending false signals. Banks complained to the BBA that rival banks might not be reporting their true borrowing costs because they didn't want to admit that others were treating them as if they had troubles. That led to a BBA review and the pledge that the rates banks contribute would be better policed. Every morning, 16 banks submit borrowing rates in a process that produces Libor rates at lunchtime in London.

Lesley McLeod, a BBA spokeswoman, said the BBA stands by the Libor. "Libor is accurate," she said. "It is constantly monitored and currently reflects the extreme market volatility present in these unprecedented circumstances."

By: Carrick Mollenkamp
Wall Street Journal; September 24, 2008

Professional hockey, long overshadowed on television by the likes of the National Football League, is making an aggressive push online, introducing a service that allows subscribers to watch nearly every game live on its Web site.

The National Hockey League sees the new service, called GameCenter Live, as a way to serve its young, tech-savvy fans, many of whom don't live in the hometown of their favorite hockey team, and can't catch its games on television.

The NHL's GameCenter Live will allow users to watch up to four games at once or one game from several different camera angles.

Furthermore, the league says its TV revenues are so much smaller than those of giants like the NFL that it has the freedom to experiment with online video without the risk of angering its television partners. The NHL's national broadcasts in the U.S. are carried on the relatively little-known cable channel Versus; fewer than a dozen hockey games a season are televised on NBC Universal's NBC network.

"We're not encumbered by big national rights," says John Collins, the NHL's chief operating officer. Aggressive moves in digital, he says, are "essential to our success. We have a lot of active avid fans that are looking for very specific information."

Still, the NHL won't be flooding the zone with free games. The league plans to charge online subscribers a relatively steep $169 a season year for the streaming-video service.

League executives say they can justify that price because of the large number of out-of-town fans who follow its teams and are desperate for the chance to watch their favorites play.

Even so, Major League Baseball, whose fans are also known for fierce team loyalty, has been streaming most of its games online for several years -- and now charges about $120, for more games.

Last season, the National Basketball Association showed games on nba.com as part of its $179 NBA League Pass subscription for digital cable and satellite-TV customers.

The NFL has been more conservative in its approach to the Web, partly because of the huge size of its TV contracts. This season, for the first time, it is streaming its Sunday Night Football game on its site and that of broadcast partner NBC free of charge.

Sports leagues are taking advantage of better video technology and see live streaming as a way to bring in more advertising revenue as users spend more time on sports Web sites. What isn't clear is whether advertisers will spend less on television as online video grows, cannibalizing the overall sports market. Online video is still a small market, with less than $1 billion in revenue, according to Jupiter Research analyst Bobby Tulsiani.

GameCenter Live will stream as many as 40 games a week starting in October. Subscribers can watch as many as four games at once, or watch a single game from several different camera angles. The league will offer free preview nights Oct. 10-12.

The Web makeover is one way the NHL is trying to rebrand itself after a debilitating lockout that forced it to cancel its 2004-2005 season. Along with the subscription service, the league has signed a deal with Yahoo Inc. to launch a new game that allows users to create their own fantasy hockey teams and see video of the players.

The NHL also has spruced up its free online-video features. It now offers real-time video highlights and more online programming before and after games, as well as a feature that lets users chat with other fans during games. Digital agency AKQA, which has worked with Nike and Walt Disney Co.'s ESPN, helped revamp the Web site.

The NHL is hoping for an overall increase in digital traffic. Its Web site received a monthly average of 2.4 million unique visitors for the year ended in July 2008, according to independent Web-measurement firm comScore. That puts it behind not just the MLB, NFL and NBA, but even behind sports-entertainment properties like World Wrestling Entertainment Inc.

By: Stephanie Kang
Wall Street Journal; September 23, 2008

About the last thing someone thinks about when buying a franchised business is what happens if the franchiser declares bankruptcy.

But in this dicey economy, it is wise for both current and would-be franchisees to prepare for such a possibility.

People try to enter a closed Bennigan's restaurant in Santa Clara, Calif.

In recent weeks, casual-dining franchiser Bennigan's, which had been run by Texas-based Metromedia Restaurant Group, filed for Chapter 7 liquidation -- a going-out-of business proceeding that immediately closed 150 company-owned restaurants. The 138 Bennigan's that franchisees ran weren't included in the filing.

Also, franchisers Mrs. Fields Famous Brands LLC, a cookie and frozen-yogurt outfit, and Realty Information Systems Inc., which operates the Help-U-Sell Real Estate chain, filed for reorganization under Chapter 11 of the federal bankruptcy code.

Under Chapter 11, a company remains in business while it works out payment arrangement with its creditors. That plan may require a financial restructuring, including asset sales.

Preventive Measures

While franchisees have little protection from such events in their contractual agreements, there are steps they can take to help limit the damage to their businesses.

One is to have a contingency plan in place so you won't be making a hasty decision if your franchiser suddenly goes out of business, says Bob Richards, a franchising attorney with the Chicago firm of Sonnenschein Nath & Rosenthal LLP.

"Make sure you have an exit plan to rebrand [with a different franchiser] or go independent," he says. Often, a franchised system can "implode very quickly."

That involves doing your homework on what other affiliations would fit your location and your business style. Also consider the consequences of going it alone -- including having to line up vendors yourself.

Another safety net is to have a bigger hand in maintaining the health of one's business by joining a franchise that has an independent franchisee association.

Such a group will have more bargaining power than an individual franchisee when dealing with the franchise on operational issues, advertisements and promotions. It also could give franchisees greater clout with vendors and lenders.

Talk Up Your Status

If a franchiser does make a bankruptcy filing -- whether it's a reorganization or liquidation -- the public is likely to question the viability of every outlet under that brand.

So franchisees may want to squirrel away money that allows them to quickly put out advertisements that communicate to their local markets that they remain open for business.

"A lot of people thought we had closed," says Larry Briski, president of the Bennigan's Franchise Operators Association. In fact, two financial firms agreed to acquire the food chain, although many of the 150 closed restaurants aren't expected to reopen.

For their part, franchisers who find themselves in financial trouble should let their franchisees know, attorneys say. They also should keep them apprised of efforts to right themselves.

Mr. Briski agrees. "It could have been done in a more orderly fashion," he says of Bennigan's demise. "They did a slash and burn," Mr. Briskiadds, referring to the swift and surprising action that he contends hurt franchisees' sales.

Metromedia Restaurant Group says the company couldn't comment and referred questions to the bankruptcy trustee in the case.

By: Richard Gibson
Wall Street Journal; September 23, 2008

The Chicago Tribune named Tony Hunter publisher, in the latest of a string of masthead changes for the Tribune Co. newspaper.

Mr. Hunter, 47 years old, has worked for the Chicago Tribune since 1994 and has overseen the newspaper's printing operations and circulation since last year. The Chicago paper, one of Tribune's eight major dailies, has been without a permanent publisher since Scott C. Smith retired this summer.

People familiar with the paper's operations have said Mr. Hunter campaigned for the post, and was considered a top candidate. "I did raise my hand, and I competed hard for the position," Mr. Hunter said.

Mr. Hunter's appointment continues a leadership overhaul started in December, when real-estate mogul Sam Zell led an $8.2 billion buyout of Tribune. Under Mr. Zell, the company has, for the most part, hired executives from outside the newspaper industry for leadership roles.

By: Shira Ovide
Wall Street Journal; September 23, 2008

The head of Circuit City Stores Inc. was forced out by the company's board Monday after months of lackluster sales and an aborted takeover effort by Blockbuster Inc. that cast doubts on the future of the nation's second-largest electronics retailer.

Philip J. Schoonover, who served as chairman, president and chief executive officer, was brought in from industry leader Best Buy Co. four years ago to turn around Circuit City. Instead, the 48-year-old executive, who was named CEO two years ago, presided over a further decline in the company's fortunes.

Following news of his ouster, Circuit City's stock jumped 11% to $1.89 in after-hours trading. The shares had finished 4 p.m. composite trading on the New York Stock Exchange at $1.70, down 10 cents, or 5.6%.

Mr. Schoonover, who couldn't be reached for comment, was immediately succeeded by James A. Marcum, who will serve as acting president and CEO. Mr. Marcum was elected to the board in June after being nominated by activist investor Mark J. Wattles, whose investment firm owns 6.5% of Circuit City.

Mr. Marcum, 49, was formerly an operating partner of Tri-Artisan Capital Partners LLC, a merchant-banking firm, and was a senior executive at Hollywood Entertainment Corp., a home-video retailer founded by Mr. Wattles.

Circuit City's board elected as its chairman Allen B. King, 62, a former chairman of tobacco company Universal Corp.

"A change in leadership at the chief executive officer level is always a difficult decision," Mr. King said in a statement, adding that Circuit City's board "is committed to accelerating the pace of the company's turnaround."

Circuit City's new leaders are actively soliciting bids for the Richmond, Va., company.

Blockbuster's unsolicited offer to buy Circuit City for $1 billion, or about $6 to $8 a share, ended in July when the video-rental giant got cold feet. Colin McGranahan, retail analyst at Sanford C. Bernstein & Co., said Mr. Schoonover made several blunders over the years, such as replacing 10% of the highest-paid, most-seasoned staff in the company's stores, in an effort to reduce costs and recoup losses caused by falling TV prices.

"He underestimated the disruption that would cause," Mr. McGranahan said. "If you worked at Circuit City, the only way to interpret it was that if you do well, you will be fired."

Circuit City is scheduled to report second-quarter results next Monday. Analysts polled by Thomson Reuters are forecasting a loss of $1.04 a share. But the company said Monday it expects the results to be slightly better than the pretax loss of $170 million to $185 million it previously predicted.

By: Miguel Bustillo and Ann Zimmerman
Wall Street Journal; September 23, 2008

Stock Repurchases Totaling $53 Billion Come as Other Firms Are Conserving Cash

Microsoft Corp. announced a $40 billion program to buy back shares, while Hewlett-Packard Co. and Nike Inc. also announced buybacks, countering a recent trend that has led many companies to conserve cash to cope with the slow economy and Wall Street's meltdown.

Microsoft CEO Steve Ballmer has continued investing in online services despite the failed Yahoo bid, but the stock buyback signals the software maker isn't planning any big acquisitions.

Some companies are putting "money on the table again," said Howard Silverblatt, in regards to used HP laptops, used Sony laptops, and used Compaq laptops. "We haven't had many of these announcements recently because everyone's been so nervous" about using cash.

Microsoft's share buyback, to be spread over five years, is the single biggest repurchase disclosed this year, outstripping International Business Machines Corp.'s $15 billion plan announced in February. H-P said it authorized another $8 billion buyback after two similar ones last year, and Nike said it would repurchase $5 billion of its stock.

Buybacks are often a response to stock declines -- shares of all three companies have been gyrating in recent days -- since they tend to boost investor confidence and can seem a good way to use excess corporate cash. Trimming shares boosts a company's per-share earnings, since the profit is divided among fewer shares. Last Friday, the Securities and Exchange Commission eased buyback rules so that corporations have the flexibility to purchase in one day up to 100% of the average daily trading volume of their stock.

Microsoft, H-P, and Nike said their new buybacks are part of the normal course of business, rather than being related to market volatility. H-P, the Palo Alto, Calif., computer giant, said its buyback program is intended to manage dilution created by shares it issued for employee stock plans; the company also said it often seeks to repurchase shares "opportunistically." Nike, of Beaverton, Ore., and Microsoft, of Redmond, Wash., said their new repurchase programs are part of efforts to return value to shareholders by using cash to repurchase stock.

In 4 p.m. trading on the Nasdaq Stock Market, shares of Microsoft were up 24 cents at $25.40. Microsoft's $40 billion buyback authorization was accompanied by an announcement that it will raise its quarterly dividend by two cents a share, or 18%, to 13 cents.

On the New York Stock Exchange, H-P shares were down $1.10 at $47.16 and Nike was off 55 cents at $63.15 on a day when the overall stock market was down.

The three companies had embarked on large share-repurchase programs in the past. Microsoft began buying back $30 billion worth of shares in 2004 to reduce its enormous cash reserves and boost its stock price. H-P authorized two $8 billion share repurchase programs last year. Nike is in the final stages of a $3 billion buyback.

But the new programs contrast with slowing buyback activity overall. Corporate stock repurchases, which had been on a tear since late 2004, peaked in the third quarter of 2007 at $172 billion and fell to $114 billion in the first quarter of this year, according to S&P. S&P plans to release new figures Tuesday that show share buybacks dropped to less than $100 billion in the second quarter. The decline coincides with the slowing housing market and the credit crunch, which have led to Wall Street turmoil and other fallout.

Microsoft's board also gave approval for the first use of debt in the company's 33-year history, authorizing it to take out up to $6 billion in debt and to establish a $2 billion commercial paper program. Microsoft said it will use the proceeds from any debt financing for general purposes, including stock buybacks.

Earlier Monday, S&P rated Microsoft AAA, its highest grade and S&P's first new AAA rating in a decade.

Microsoft's board approval for debt comes as the market is seeking credit-worthy commercial paper amid the recent crunch, something Microsoft acknowledged. Microsoft treasurer George Zinn said, "The company's strong credit quality coupled with investors' current appetite for high-quality paper provides a unique opportunity for the company to establish its first-ever commercial paper program and enhance its capital structure."

Microsoft's reworking of its capital structure comes at the hands of Chief Financial Officer Chris Liddell, a former paper-industry executive who has helped guide the software company through $40 billion of share buybacks in recent years and is a strong proponent of Microsoft reducing its cash reserves. As of June 30, the company had about $23 billion in cash and short-term investments. Its market capitalization is about $230 billion.

Microsoft's finances have always been run conservatively, starting in its early years when co-founder Bill Gates followed a policy of having enough cash on hand to run the company for a year without revenue. Microsoft Chief Executive Steve Ballmer maintains a similar desire for the company to have a large cash holding, Microsoft executives say.

Still, Mr. Ballmer has regularly expressed frustration with the company's long-languishing share price. That has led the company to return about $115 billion to shareholders through buybacks and dividends over the past five years. The stock has traded below $30 for essentially all of the past six years.

By: Robert Guth and Pui-Wing Tam
Wall Street Journal; September 24, 2008

Like other retailers, CVS Caremark Corp. has an ethics policy meant to keep suppliers from using pricey travel, entertainment or gifts to buy the favor of its employees. But many companies have found a way to spread largess to the drugstore giant's influential executives -- with the blessing of CVS.

This year, for example, KKM LLC of Lincoln, R.I., paid at least $50,000 for a weekend of yachting and golf with two top CVS officials. In past years, KKM, which sells goods to CVS on behalf of manufacturers, has funded other vacations that paired its executives with those from the retailer.

Access to company decisionmakers is a hallmark of the CVS Caremark Charity Classic, the drugstore chain's annual golf tournament, which this year featured golf pros Nick Faldo, Rocco Mediate and Davis Love III vying for $1.55 million in prize money. Held each year at the Rhode Island Country Club, the four-day event attracts scores of donors, many of them CVS vendors. Companies that underwrite the event are granted time with top CVS officials, including department heads and executives who make important purchasing decisions.

Generous contributors are rewarded with rounds of golf at the tournament with CVS employees. Top sponsors get fairway-view pavilions and private visits by company officials. The highlight of the event's gala dinner is an auction where this year, KKM bought one of the seven vacations for golf, game fishing, riding or yachting. Each auction lot included high-level CVS executives as guests; one promised a day of golf with the company's CEO.

"I take advantage of this Classic, asking the different manufacturers I work for if they want to participate," said KKM's president, John Malmborg. "They all chip in and we work to get to a high level of participation and have access to CVS executives on an informal basis. It really is helpful."

Bans against vendor gifts are meant to ensure that buying decisions are made solely based on who is offering the best prices and quality. The strict gift policy of Wal-Mart Stores Inc. was at the center of a recent flap that led to the ouster of a top marketing executive. Earlier this summer, two former buyers for Home Depot Inc. pleaded guilty to federal charges that they defrauded their employer by taking payments from vendors in return for favored treatment.

Greg Norman, left, talks with CVS President Tom Ryan, second from right, as others look on during the 6th Annual CVS Charity Classic in 2004.

Some CVS insiders have complained that the Charity Classic promotes a "pay to play" system, according to people familiar with the company, under which the ninth-largest U.S. retailer favors donors when deciding which products to promote and how they're displayed. Former employees say that donating to the tournament boosts suppliers' chances to be named a CVS "supplier partner," an award that signals to store managers which vendors are in favor with headquarters.

CVS doesn't benefit financially from auction purchases or other vendor donations, which primarily support charities in its home state of Rhode Island. Since its inception in 1999, the event has contributed about $10 million to Boys and Girls Clubs, the March of Dimes, the Special Olympics and others.

Experts in charitable giving say that a relatively small slice of the event's overall revenue flows to charity. For every six dollars it took in, less than one went to charity, according to the event's 2006 federal tax filing, the latest available. That represents a significantly smaller share than some comparable events donate.

CVS declined to grant interviews about the Charity Classic. In written statements, it said the event "plays an important role in helping us give back, which is why we ask our executives to commit their time and energy to support this event each year." It said "participation in the event each year is optional and does not affect our vendor selection process" or "influence in any way" how merchandising decisions are made. CVS said it has not received complaints from vendors about any pressure to participate in the event.

Driving Force

The CVS ethics policy prohibits all but modest vendor gifts, but makes a specific exemption to allow employees to participate in the golf matches and auctioned trips associated with the company's annual event.

The driving force behind the Charity Classic is CVS Chief Executive Thomas Ryan, who is rated one of the top golf-playing CEOs by Golf Digest magazine. People familiar with the company say Mr. Ryan is instrumental in rallying CVS workers to the cause. Company employees solicit vendor gifts, help organize the event and comprise its entire 11-person board of directors. Mr. Ryan doesn't sit on the event's board.

Mr. Ryan does sit on the board of the nonprofit organization that has received the biggest checks in recent years from the Charity Classic -- Andrade Faxon Childrens Charities, named for Brad Faxon and Billy Andrade, two golf professionals from Rhode Island. From 2001 through 2006, Andrade Faxon received more than $1 million from the Charity Classic, according to federal tax filings. In 2005 and 2006, Andrade Faxon received the majority of its funding from the Charity Classic.

The CVS chief has frequently paired up with Mr. Faxon at the famed Pebble Beach pro-am tournament, winning the event with him in 2003. Mr. Faxon is a fixture at the CVS event and is annually listed as one of its two hosts.

The CVS chief also holds a stake in Summit Golf Brands, a closely held company that sells apparel to the Charity Classic, including the shirts worn by hundreds of tournament volunteers and merchandise given to VIPs and sold to spectators. Summit's head of corporate sales, Kirk Kowalewski, said the Charity Classic is one of Summit's top revenue-generating events, exceeding some bigger PGA Tour tournaments.

CVS said in a statement that Mr. Ryan owns less than 1% of the company and has nothing to do with the tournament's buying decisions. Peter Jacobsen, a PGA golf pro who owns a company that runs the Charity Classic -- it was paid $1.8 million in 2006, according to that year's filing -- said the decision to purchase products from Summit was made by his own company. Mr. Jacobsen said he was unaware of Mr. Ryan's stake in Summit.

CVS Caremark -- the outgrowth of Consumer Value Stores, founded in Lowell, Mass., in 1963 -- has expanded rapidly in recent years. With about 6,300 stores, it now rivals Walgreen Co. as the biggest U.S. drugstore chain. It has also diversified into prescription-benefits management. With sales last year of $76 billion, CVS is a coveted customer for companies that produce prescription drugs, over-the-counter medication, personal-care products, snacks and general merchandise.

Many of these suppliers turn out for the Charity Classic. Contributions to the event totaled $2.45 million in 2006, according to that year's tax filing. A document included with the filing lists the names of 147 contributors to the event, at least 125 of which have identified themselves as CVS vendors.

Donors for the 2006 event included drug makers Barr Laboratories Inc., which gave $160,900, and GlaxoSmithKline PLC, which contributed $11,560. A unit of Nestle SA that sells bottled water to CVS gave $76,724. Others included PepsiCo Inc., at $33,190, and Kimberly-Clark Corp., maker of Huggies diapers and Kleenex, at $22,500. Those companies didn't dispute their participation.

Some vendors say the event provides relief from strictures against doing something nice for their retailing contacts.

"In today's marketplace, giving gifts to any company's employees -- you can't do it," said Jim Miller, president of QMI Security Solutions, an Itasca, Ill., outfit that sells security grates to stores including CVS. Mr. Miller said he believes retailers adopted tough policies out of a fear that generosity could affect employees' judgment. "At Wal-Mart today, you can't buy them lunch," he said. "Here, you have that opportunity to do it in a very nice setting where you are appreciated and discuss business. When you get done [on the course], the whole company is there with you."

Mr. Miller says he makes a donation annually -- this year it was $12,000 -- to secure a foursome in the Charity Classic's amateur golf tournament, held ahead of the pro event. He says he picks three CVS employees who work on the QMI account to join him or another QMI executive on the links. "This is very important for their employees," Mr. Miller said. "They really like to play in it."

The golf tournament also solicits sponsors. This year, the top-level "platinum" sponsorship package, for $120,000, included air-conditioned course-side suites with "scheduled visits from CVS Caremark executives," according to tournament marketing material. CVS wouldn't identify platinum sponsors. Three contributors this year were singled out as "presenting sponsors" in programs and event Web sites -- battery maker Energizer Holdings Inc., medical-products giant Johnson & Johnson and PepsiCo.

Johnson & Johnson and PepsiCo. both said CVS is an important partner and that the event provided an opportunity to support New England charities. Energizer didn't respond to requests for comment.

Martini Flumes

This year's gala dinner and auction, held June 23 in Newport on the lawn of the Breakers mansion built by the Vanderbilt family, drew 1,000 guests. At a $27,000 drink station, Ketel One apple martinis, cosmopolitans and lemon drops flowed through six flumes in an ice sculpture. The Pointer Sisters played. Lehman Brothers Holdings Inc., which is representing CVS in its current $2.6 billion bid to take over Longs Drug Stores, was listed as the performance's sponsor. (Lehman's advisory business has since been purchased by Barclays PLC.)

Under a giant white canopy, vendors ate filet mignon and mingled with CVS managers before the auction for the seven golf-vacation packages. Five of the trips fetched a total of more than $600,000. Hammer prices for the other two trips couldn't be determined; bidding for those lots started at $35,000 and $50,000.

KKM, the Rhode Island company that represents manufacturers that don't have sales forces, paid to be one of the Charity Classic's sponsors. It also bought one of the auction packages, said Mr. Malmborg, its president. The "European Spa, swimming, yachting and riding" vacation promised accommodation for two couples for four nights at the private Carnegie Abbey Club on Narragansett Bay in Rhode Island. "This item includes two CVS Caremark executives of your choice as your guests," the auction program stated.

The program placed the fair-market value of the trip at $30,000. Bids opened at $50,000. Mr. Malmborg declined to say how much he paid. For his guests, he said he picked CVS's vice president of merchandising, Mike Bloom, and another vice president. CVS declined to make Mr. Bloom and other executives available for interviews.

The event "gives us a chance to talk to guys we don't get to ordinarily talk to," Mr. Malmborg said. But he added that the benefits are intangible. "I can't say I wrote an order at the event," he said.

The trip that featured CVS chief Mr. Ryan as a guest -- a game for four at the Liberty National Golf Club, a private New Jersey club that features views of the Statue of Liberty and the Manhattan skyline -- went for $130,000. Another lot was a three-night stay for four at the Bandon Dunes Golf Resort in Oregon, with transport on a CVS corporate jet. The special guest for this trip was Larry Merlo, president of the CVS pharmacy business. It sold for $110,000.

CVS declined to identify auction winners. Nestle Waters North America, which sells Poland Spring water to CVS, says it has been a past winner.

'Shades of Unethical'

Michael Levy, the director of Babson College's Retail Supply Chain Institute, said that allowing vendors to buy trips for executives who are in the position to influence business decisions on the vendors' behalf was "shades of unethical."

Mr. Levy says most big retailers generally let employees "accept something of minor value for a birthday or Christmas," he said. "When it goes beyond that, it starts corrupting people's judgments."

The Charity Classic's 2006 tax filing reported revenue of $10.5 million. It gave away $1.7 million to charities, or about 16% of the total cash the event took in. By comparison, the charity for South Carolina-based supermarket chain Bi-Lo LLC, which receives most of its revenues from the Bi-Lo Charity Classic golf tournament, gave away $3.2 million in 2006, or 56% of its revenue. CVS competitor Rite Aid Corp. sponsors its own annual charitable golf tournament, which made donations of $1.7 million, or 53% of its revenue.

"This event is very much about marketing and making people feel good," says Ken Berger, president of Charity Navigator, an organization in Mahwah, N.J., that studies the efficiency of charities and reviewed the IRS filings of the Charity Classic. "The actual amount going to charity compared to what is being turned out is really poor and pathetic."

Harvey Kamil says his company has won several trips at the CVS auctions, but said he didn't think the donations had helped boost his sales to the chain. The president of NBTY Inc., a Ronkonkoma, N.Y., company that supplies CVS with Nature's Bounty and house-branded vitamins, said he and other NBTY officials had been joined by merchandising vice president Mr. Bloom and other executives.

"We actually did a lot of business" on the trip he attended, Mr. Kamil said. But if his company fails to deliver competitive products, he added, the drug-store chain "will throw me out."

By: David Armstrong
Wall Street Journal; September 24, 2008

A push by Democrats to include in the proposed Wall Street bailout new legislation that would allow U.S. judges to modify mortgages for people in bankruptcy potentially could save hundreds of thousands of homeowners from future foreclosure, judges and other legal experts say.

The provision is being demanded as part of an effort to make the $700 billion bailout plan for financial institutions more populist, so that individuals will see more of its direct benefits. "The government is providing a trillion dollars in assistance to financial institutions to deal with the problem that people can't afford to pay mortgages, so there ought to be something in the program to help people pay their mortgages," said Samuel L. Bufford, a U.S. bankruptcy judge in Los Angeles. "It's a matter of fairness."

Several federal bankruptcy judges said in interviews that they support including the provision in the bailout package -- the second attempt this year by Democratic lawmakers to change bankruptcy laws. About two-thirds of debtors who file for Chapter 13 bankruptcy have a mortgage, and half of them aren't able to keep paying the mortgage as part of their reorganization, judges and lawyers say.

Changing bankruptcy law might be a long shot. The provision is stoking opposition from the Bush administration, Republican lawmakers and the mortgage industry, who beat back a similar provision in a housing bill earlier this year.

John Courson, chief operating officer of the Mortgage Bankers Association, an industry group, said the proposed change would increase mortgage rates for consumers because investors who typically buy the loans might deem new mortgage contracts too risky. Opponents also say the language of the new bill is so expansive that any mortgage -- not just the riskier mortgages that have the highest default rates -- would be covered. Homeowners who simply made bad borrowing decisions could be bailed out.

The number of people filing for Chapter 13 bankruptcy -- in which debtors can pay back their debt over three to five years -- rose to 170,423 in the first half of 2008, up from 150,000 in the same period last year, according to the American Bankruptcy Institute.

Currently, judges overseeing bankruptcy cases can approve the modifications of the terms of auto and student loans and second-home mortgages, but not those of primary homes. Under the Democrats' proposal, judges could approve reorganization plans that would allow debtors to pay a lower, fixed interest rate for their primary-residence mortgage and pay it over as many as 40 years. And, if the value of the property falls below the loan amount, debtors potentially could reduce the loan's outstanding balance to equal the current value of the property -- commonly called a "cram down."

The provision also would allow debtors already in bankruptcy who are on the verge of foreclosure to modify their mortgages. Cathleen Cooper Moran, an attorney in Mountain View, Calif., said she can look at the blackboard in her office and see the names of a dozen families who would benefit from the proposed change. Among them are Marcus and Mary Leavitt of Aptos, Calif., who filed for Chapter 13 bankruptcy in May.

The Leavitts had first and second loans -- both refinances -- leaving them with debt on their house totaling $876,500. Today the house is worth only $535,000. While the smaller, second mortgage can be modified, the Leavitts must pay the $714,000 first mortgage under the original terms. "As the economy softens, they wonder about their ability to generate enough income to service the first loan," said Ms. Moran. Changing the law "would be a godsend for them."

By: Amir Efrati
Wall Street Journal; September 24, 2008

"Clean and quick," whistled Henry Paulson past the mortgage crematoria. The Treasury secretary's hope for expedited passage of his bailout plan may be realized, but clean and quick won't describe its implementation. You wanted a bailout; you got a revolution.


This column has advocated injecting the money at the level of the collateral -- buying and demolishing the least-wanted, market-souring homes in the subprime hot zone of Florida and the Southwest. This solution really would be clean, quick, would minimize the subsidy to bad actors, could be turned off as soon as it had served its purpose, and would involve no sticky issue of whether to bail out foreign banks along with U.S. ones.

Instead, Treasury's plan is to enter the market at a higher level, buying the depressed mortgage securities supported by these houses. In brief and eye-opening remarks in the Senate yesterday, Ben Bernanke spun a scenario in which derivative mortgage debt would be boosted in market value closer to the value of the underlying cash flow, restoring the banking system to solvency. Then why not just let banks value them that way on their books now, so they aren't teetering on insolvency? Wait for it. We'll get there, but not now apparently.

Nor does the Paulson plan have the Occamite virtue of cutting to the heart of the problem, the housing market. So many mortgage cash flows have been sliced and diced and spread over different kinds of securities owned by holders all over the world -- a big stumbling block to the private sector trying to manage its way out of a hole. It's not clear the new agency offers a solution to this problem. It would probably have to buy the entire outstanding stock of questionable mortgage debt before it would have any hope at getting at the underlying collateral, i.e., houses. But then it would become the world's biggest, most troubled landlord and biggest forecloser on homes. Politics would intervene -- and any potential taxpayer gains would likely be frittered away to keep nonpayers in houses they can't afford.

"No bailouts" makes a nice slogan, but taxpayers are already on the hook for half the nation's mortgages through Fannie, Freddie and the FHA. And nobody wants to find out what total meltdown of confidence in the financial system feels like. But with Chris Dodd ready to nationalize the banks and Barney Frank to dictate executive pay -- and with Clement Attlee Obama waiting in the wings to pile on his own big-government plans in the name of compensating "the middle class" for its sacrifices on behalf of Wall Street -- a more minimalist approach than Treasury's suddenly has a lot to recommend it.

Here it is: Let the government be a buyer of last resort for mortgage derivatives for a set price (say, 25 cents on the dollar), hoping others will gain confidence to step in. Hope, too, that this whets the appetite again for investors to recapitalize hurting banks. If banks continue to falter even with the option to dump their mortgages on government for a deep discount, deal with those challenges as they occur, with forbearance where possible. Meanwhile, use taxpayer dollars to clean up the housing mess in the Southwest and Florida -- the surprisingly confined source of all our troubles.

Every time we mention demolishing houses, somebody slaps us over the head with Bastiat -- the French economist who'd say you don't increase wealth, you reduce it, by destroying some houses to make the value of others go up.

True -- but we're in a situation today where responsible homeowners will pay one way or another for the acts of irresponsible lenders and buyers. The cheapest bailout would be one that weeds out enough surplus housing to stop the free fall in a handful of overbuilt markets, whose foreclosure epidemic is dragging down the entire securitized mortgage market. We're talking about buying thousands of houses, not millions of mortgages. And yet the resulting higher mortgage debt prices automatically would help to recapitalize the banks, while (knock wood) leaving some Paulson powder dry for future contingencies.

The fine print of the Paulson plan includes sweeping authority to buy "other assets." Going after houses and knocking them down would fit this commodious garment -- and would let the agency wrap up its work quickly and go away in the natural course of things, whether everyone was satisfied with the result or not.

That's a virtue not to be sneezed at. All the monumental interventions of recent months will have unintended consequences. Once the panic dissipates and the political class returns to form, we'll have a hell of a time unwinding the cure.

By: Holman Jenkins
Wall Street Journal; September 24, 2008

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke labored Tuesday to describe the mechanics of an auction in which the government would buy as much as $700 billion of assets from financial institutions -- a plan raising questions ranging from the prices taxpayers will pay for the assets to potential conflicts of interest among the asset managers the Treasury plans to hire.

At a five-hour Senate Banking Committee hearing, skeptical senators pressed Messrs. Paulson and Bernanke for details, and the two officials pleaded for maximum flexibility. Mr. Bernanke, early in the hearing, distinguished between what he called fire-sale prices -- which he defined as "the price a security would fetch today if sold quickly into an illiquid market" -- and a hold-to-maturity price, or the value of a loan if the borrower eventually pays it off.

"If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price," he said, "there will be substantial benefits."

That produced speculation that Mr. Bernanke was advocating the purchase of assets at prices other than market-determined values, a development that could benefit banks at the expense of taxpayers. In answering subsequent questions, however, Messrs. Bernanke and Paulson appeared to indicate otherwise, arguing -- in effect -- that a well-designed auction process would lift the market prices of the assets above today's fire-sale values by restoring liquidity.

Establishing those new prices in the market would be a big plus. "Where there is some value that the market can look at, then private capital will come in," Mr. Paulson said.

"The holders have a view of what they think it [the asset] is worth. It's hard for outsiders to know," Mr. Bernanke said. The point of an auction is to reveal those prices. "If you have an appropriate auction mechanism... what you'll do is restart this market," Mr. Bernanke added. "Just as when you sell a painting at Sotheby's, nobody knows what it's worth until the auction is over," he said.

The two men vowed to consult outside experts to design an auction mechanism that would minimize the cost to taxpayers and encourage financial institutions to compete to reduce the prices at which they offer to sell.

Under one scenario being discussed, Treasury would put out a list of specific securities it is willing to buy and would hold auctions for a preannounced quantity of each security or class of security. Holders of securities who wanted to sell them would compete with one another to offer them to Treasury at attractive -- that is, lower -- prices. Treasury would rank the bids from cheapest to highest and buy as many as it seeks at the cheapest price.

"This is not going to be a normal auction, because the Treasury is going to be there with a $700 billion checkbook," said Sen. Bob Bennett (R., Utah).

If the prices set in the auction are very low, financial institutions that hold those securities -- both those selling at the auction and those that aren't -- may have to take deeper write-downs than they have already. But if the prices are high, then banks are benefiting at taxpayer expense.

One concern raised by members of Congress and others is the potential conflicts of interest among the asset managers who would be hired to run the program. Some critics worry that the program would create incentives for asset managers -- or a future Treasury secretary -- to benefit institutions with which they have financial or personal ties.

"To the extent that any of the people that they hire or institutions they hire have clients or affiliates that are on the buy side or the sell side of these same assets, there is huge potential for conflict," said Cornelius Hurley, director of Boston University's Morin Center for Banking and Financial Law.

Senate Banking Committee Chairman Christopher Dodd (D., Conn.) has suggested giving a role in the management of these assets to the Federal Deposit Insurance Corp., which manages and disposes of assets it takes on after bank failures. Mr. Dodd said the FDIC has experience dealing with many of the issues that asset managers for Treasury's potential program might face. FDIC Chairman Sheila Bair has been in close talks with policy makers in recent days, but it is unclear what role her agency might play, if any. She was unavailable for comment Tuesday.

Treasury plans to solicit bids from asset managers with experience in handling large portfolios -- managers who likely have related assets already in their portfolios. That could create a conflict, as the manager would essentially be using the government's money to buy and sell assets in which it has a financial stake.

Another wrinkle, says Douglas Elmendorf of the Brookings Institution, a former Treasury official, is that many of the assets are highly concentrated in one or two financial institutions. Choosing to buy certain assets could benefit an individual bank, essentially giving the asset managers -- and the Treasury secretary -- the ability to reward individual firms.

Mr. Paulson said he was "very conscious" of potential issues regarding conflicts of interest. "We have procedures that are designed to mitigate against conflicts, but we need to move very quickly here, so we can't go through all the normal processes or it won't work for the markets," he told the Senate committee.

Mr. Paulson said Treasury is expected to buy assets in phases, but asked that Congress give him the authority to pull the full amount, so he or his successor wouldn't have to come back to Congress for more authority, a prospect that would reduce the chances of stabilizing markets.

The Treasury secretary said Treasury probably would begin with simpler assets, such as mortgage-backed securities, and then move to collateralized-debt obligations and other more-complex securities.

By: Damian Paletta and Deborah Solomon
Wall Street Journal; September 24, 2008

William O. Perkins III says he turned a $1.25 million profit trading Goldman Sachs Group Inc. stock last week.

You would think that would count as a pretty good paycheck for the Houston energy trader. Instead, the experience left him so angry about the demise of capitalism that he says he has decided to spend his profits on advertisements attacking President George W. Bush's planned $700 billion Wall Street bailout.

The president has run into a wall of skepticism over his plan. Troubled voters are calling their congressmen. Academic economists are churning out sound bites. Democratic lawmakers are demanding that the plan include perks for the working classes, while Republicans are saying the plan interferes with the invisible hand of the free market.

But the 39-year-old Mr. Perkins is putting cash behind his anger. He commissioned an African-American arts collective to draw a cartoon depicting Mr. Bush, Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke trampling on the graves of private enterprise and capitalism. Then he paid $139,104 to run the drawing as a full-page ad in the Tuesday editions of the New York Times. And he promises to spend a million more on ads before he is done.

"I see it as trickle-down communism," Mr. Perkins said. "We have a communist action where everybody is paying for the benefit of the few and hoping the benefits will trickle down to everyone else."

Mr. Perkins says he isn't motivated by politics. He hosted a fund-raiser for Democratic presidential candidate Barack Obama and contributed $2,300 to the Illinois senator's campaign. But he says he doesn't know where Sen. Obama stands on the issues he is raising and that his foray into antibailout rabble-rousing came about accidentally.

Normally, he trades natural gas for a $5 billion hedge fund that he declines to identify. He runs a venture-capital firm, Small Ventures USA, and develops energy projects in Central America.

But last week, he was betting his own money on Goldman Sachs. Other investment banks were crumbling -- the Treasury Department had forced Bear Stearns Cos. into the arms of J.P. Morgan Chase, Lehman Brothers was folding up shop and Merrill Lynch & Co. was selling itself to Bank of America. But Mr. Perkins figured Goldman Sachs was poised for a comeback. He liked its low debt levels and sound decision making; the investment bank had famously bet against the subprime-mortgage market that has brought so much grief to so many.

"I just felt that whatever the storm was and whatever bankruptcies happened, Goldman would be a survivor," said Mr. Perkins. "I believed that they had access to capital."

So he says he bought Goldman Sachs at $129 a share. The stock fell, so he bought more at $100 a share. It fell again, and he bought at $90. The next day it rallied and he sold out at an average price of $130 a share, for a net gain of about $1.25 million over three days of trading, he said.

Trouble was, the stock didn't rally because of the fundamental strength of the company, Mr. Perkins said. It rallied because the federal government announced that it would rescue Wall Street from its own subprime follies, he said.

"The stock did OK because the government came in and said, 'No one can fail,'" he said. "It's capitalism on the way up and communism on the way down."

His success left him furious, and he decided that someone had to speak out about the damage such a plan would cause to a system based on the premise that risk can bring failure, as well as rewards.

A Treasury spokeswoman declined to respond directly to Mr. Perkins. But Mr. Paulson told the Senate Banking Committee Tuesday that the government must act swiftly "in order to avoid a continuing series of financial-institution failures and frozen credit markets that threaten American families' financial well-being, the viability of businesses both small and large, and the very health of our economy."

To design his ad, Mr. Perkins called a favorite artist, Dawolu Jabari Anderson of Otabenga Jones & Associates, a four-man Houston arts collective. The group explores African-American themes, and its name is meant to recall the fate of Ota Benga, a Congolese Pygmy put on display at the Bronx Zoo in the early 20th century.

What Mr. Perkins got back was a cartoon showing Messrs. Bush, Paulson and Bernanke planting a flag in the graveyard of capitalism, Iwo Jima-style, with a hammer and sickle where the field of stars would normally go. Mr. Perkins said he plans to run a series of antibailout ads nationwide until he has spent all of his Goldman gains. "I've gotta give that money back," he said.

By: Michael Phillips
Wall Street Journal; September 24, 2008

Students with learning disabilities are applying to college and for private student loans this fall at more than five times the rate of the 1980s -- and facing a confusing thicket of special-needs jargon in the process.

Colleges and universities are "the new frontier, in terms of access to education" for students with learning differences, says George Jesien of the Association of University Centers on Disabilities. Only recently have they made much progress in leveling the playing field for qualified students with disabilities and attention-deficit hyperactivity disorder to earn college degrees.

Campus attitudes and programs for special-needs students vary wildly, as Robbie Burnstine, Cambridge, Mass., saw on a tour of campuses. Her son needs accommodations for a learning difference; on some campuses, questions about the topic elicited "whole paragraphs" describing fine-tuned supports. On others, however, "they'll say, 'We don't really have a need for much of that' -- which is a red flag."

This is a sharp contrast to the standardized approach required by federal law in public schools; they must tailor instruction to fulfill all students' right to a suitable education. But colleges are required by law only to make "reasonable accommodations" for qualified students with disabilities.

Some complex terminology surrounds these accommodations. Colleges lack universal labels to describe their supports, and guidebooks and educational consultants use no less than a half-dozen terms -- basic, limited, self-directed, decentralized, coordinated, structured and proactive -- to describe various service levels.

Thinking of support programs in three main categories can help students compare colleges. "Basic" programs, also called limited, self-directed or decentralized programs, offer only the accommodations required by law, such as untimed testing or note-taking help. Most schools fall into this category, and it works fine for many students. Among my five step- and biological children, two have special needs, and one attended a college with basic services, where she got the minimal help she needed to secure extended-time testing.

At worst, however, a "basic" label is a smokescreen for doing nothing. Such failings are one reason retention rates among undergraduates with learning disabilities trail overall retention rates by 10 percentage points, federal data show.

At the next level of support are programs described by Marybeth Kravets, co-author of a Princeton Review guidebook on the topic, as "coordinated services." These go beyond the minimum supports required by law. They have at least one trained staffer, may have input on admissions decisions and offer study-skills classes, tutors and other services.

The highest level of support is found in what experts describe as "structured" or "proactive" programs. These programs often require students to sign a contract, and may charge fees of $2,000 to $8,000 a year. They may offer modified coursework, and trained staffers monitor students' progress. Fewer than 100 schools fall into this category, Ms. Kravets says.

At least as important as all these categories, however, is a campus visit. Students should make an appointment with the disabilities office or staffer, which all schools should have; interview staff about services and size up their comfort level in working with the personalities there. While many students worry that tipping their hand about a disability will poison their chances of admission, campus officials say that isn't likely to happen at most colleges. (Besides, if a college discriminates against you for visiting the disabilities office, maybe you don't want to go there anyway.)

Make the first cut of target colleges based on general factors, such as academic and extracurricular offerings and campus climate; then do a second cut based on disability supports.

And don't forget an exit plan. Often, "people are so focused on, 'Can I get in?' that they're not sufficiently worried about, 'Can I get out' " with a degree, says Michael Shuttic of the Association on Higher Education and Disabilities. Make sure graduation requirements, such as math or foreign language, aren't insurmountable, and that needed course substitutions or remedial classes are provided.

By: Sue Shellenbarger
Wall Street Journal; September 17, 2008

Ben Bernanke couldn't have planned it better if he tried. Monday's announcement of new stock-buyback programs by three well-known companies -- Microsoft, Hewlett-Packard and Nike -- was a reminder of the strength of nonfinancial U.S. companies.

In contrast to banks in need of a bailout, all three companies have solid balance sheets and strong cash flows. Microsoft dwarfs the others. It had about $30 billion in cash and investments at June 30.

The timing of the announcements, however, may be somewhat symbolic. H-P and Nike, at least, have buyback programs under way that are far from being exhausted. As of July 31, H-P had $3 billion of repurchase authorization remaining under its current $8 billion plan, and it had only spent $1.6 billion in the quarter ended July. Nike was only two-thirds of the way through its $3 billion plan as of May 31. Microsoft was announcing a new program to replace one whose authorization was exhausted earlier in the quarter.

The real significance of Microsoft's announcement came in its decision to tiptoe into the debt market with a $2 billion commercial-paper program. Microsoft historically hasn't needed to borrow money because it generates so much cash. On Monday it became the first new corporate issuer to secure a triple-A rating from Moody's since 2002.

It certainly doesn't need to borrow to fund the buyback. But establishing a presence in the debt markets will give Microsoft the flexibility to make big acquisitions, whether renewing its pursuit of Yahoo (whose shares are back below the level that proved too tempting for Microsoft in February), or another multibillion-dollar morsel.

By: Martin Peers
Wall Street Journal; September 23, 2008

Virginia Gun Seller Adopts Strict Rules Retail Giant Uses

New York City has a new weapon in its fight to stem the flow of illegal guns into the city: the Wal-Mart code.

On Monday, New York Mayor Michael Bloomberg is expected to announce a deal with the lone retailer that had continued battling a landmark lawsuit the city filed against a group of out-of-state gun dealers in 2006.

In an out-of-court settlement, the former holdout, Bob Moates Sport Shop, Midlothian, Va., agreed to tougher rules for selling guns, according to a copy of the agreement reviewed by The Wall Street Journal.

The new rules are based directly on stricter standards Wal-Mart Stores Inc., the nation's largest gun seller, adopted earlier this year in a voluntarily agreement with a gun-control group called Mayors Against Illegal Guns. Wal-Mart wasn't involved in the New York City lawsuit, but its gun-sales practices had come under scrutiny in recent years.

In 2006, New York City sued 27 mostly small gun retailers in Georgia, South Carolina, Virginia, Pennsylvania and Ohio, claiming their illegal gun sales and lax screening practices created a public nuisance in the city. Twenty of the 27 original defendants settled the case, giving a city-appointed monitor complete access to their stores for at least three years.

Three other retailers declined to defend themselves, making it likely the court will force them into a similar settlement. A judge dismissed the city's allegations against another three of the retailers named in the suit.

That left Bob Moates as the only active defendant in the case. But in a settlement Wednesday with New York City, the retailer agreed, among other things, to make and store video of gun purchases and keep an internal log of any gun it sells that is later used in a crime.

Before filing their 2006 lawsuits in federal court in Brooklyn, New York officials arranged sting operations conducted by private investigation firm James Mintz Group. The investigation concluded that many stores showed a willingness to participate in illegal straw purchases, in which one person buys a gun for another person who is legally barred from buying guns.

In a bid to stamp out that problem and come up with other "responsible" firearm sales practices, New York City's criminal justice coordinator, John Feinblatt, and other officials flew to Wal-Mart's Bentonville, Ark., headquarters, late last year, to consult with the chain's former head of compliance.
[Richard Hill, of Bob Moates Sport Shop, displays a .45 caliber pistol. The retailer has adopted stricter rules on gun sales.] Associated Press

Richard Hill, of Bob Moates Sport Shop, displays a .45 caliber pistol. The retailer has adopted stricter rules on gun sales.

In April, the discount chain became the first, and so far the only, gun retailer to voluntarily join a 10-point code known as the Responsible Firearms Retailer Partnership, which was created by Bloomberg administration officials and Mayors Against Illegal Guns, a two-year-old coalition.

Among other things, Wal-Mart agreed to keep video surveillance tape of gun sales longer than the customary six months or less in the event that the tape could be helpful in tracking down a gun and owner involved in a crime. It also agreed to accept only valid federal- or state-issued picture IDs as primary identification for firearms purchases.

About four of the 10 reforms Wal-Mart agreed to -- including a computerized log of any of its guns traced to crimes -- haven't been implemented yet because they are "still in development" with the mayors' group,according to Wal-Mart spokesman David Tovar.

Wal-Mart currently sells guns in about 1,180 of its U.S. stores.

Mayor Bloomberg's legal campaign illustrates some of the growing legal and economic pressures on the nation's gun retailers, whose numbers already have dwindled sharply. Today, there are about 48,600 federally licensed "type one" firearms dealers. At their peak in the early 1990s, there were 248,155 such dealers, according to the Bureau of Alcohol, Tobacco and Firearms.

So far, no other city has replicated New York's legal assault on out-of-state retailers whose guns have been used in urban crimes, but gun-control advocates and big-city officials are paying close attention to what, if any, results come from the tougher gun-sales practices the suit encouraged.

The Bob Moates settlement is the first that city officials have linked to the Wal-Mart deal. The retailer agreed to post signs at its stores that say "Follow the Law, Don't Be a Straw!" and to use an employee training program that is "based on Wal-Mart's training program," the settlement document says.

From February 1994 though June 2002, at least 22 guns sold by Moates in Virginia were recovered by New York City in connection with violent crimes, according to the New York City lawsuit. They included several recovered within 18 months of their sales.

In 2005, Wal-Mart agreed to pay $14.5 million to settle charges by the California attorney general that it committed "thousands of violations" of state gun-safety laws at five stores, including delivering firearms to 36 prohibited buyers through "straw purchases" carried out by relatives or friends.

Mr. Tovar of Wal-Mart said these were mostly "record-keeping issues." In 2006, Wal-Mart decided to stop selling shotguns and rifles in about a third of its U.S. stores in what it calls a marketing decision based on lack of demand in some places. And in 1994, it discontinued sales of handguns at all of its stores, except for special orders in Alaska.

By: Vanessa O'Connell
Wall Street Journal; September 23, 2008

New York-Presbyterian Hospital has raised as much as $200 million in a good year, with the help of a gilded board stacked with Wall Street luminaries.

Now the hospital is growing queasy.

"Some very important people may hesitate, some others may delay and some others are not affected," says Herbert Pardes, New-York Presbyterian's Chief Executive. "We will still raise money. I am not sure we will raise as much as before." He added, "We will try as hard as we can -- it is critical to the hospital."

The tremors from Wall Street's crisis are being felt up and down Bedpan Alley, as the area on New York's East Side where many of the city's medical centers are located is known.

New York hospitals have traditionally attracted financiers and captains of industry to their boards. Trustees could be counted on to shell out millions to build wings, departments, even buildings. In return, they enjoyed the social cachet that membership on a New York hospital board offers -- equal in some cases to the snob appeal of serving on the board of a top museum or the opera.

Now these facilities, which include some of the country's leading academic medical centers, are battening down for a storm. The loss of Wall Street jobs is expected to cause severe deficits in the state budget. That could mean cuts in Medicaid payments, hurting the hospitals' bottom lines.

Stock-market gyrations also have eroded hospital investments, causing multimillion-dollar losses. And the financial fracas threatens the gifts and pledges these hospitals came to depend on during the flush years when Wall Street boasted munificent salaries and bonuses.

New York-Presbysterian's board and donor lists include a Who's Who of finance: The hospital board chairman is John Mack, Chairman and CEO of Morgan Stanley. Serving alongside him were Richard Fuld, CEO of Lehman, now reorganizing under bankruptcy protection. Another board member is John Thain, CEO of Merrill Lynch, which last week sold itself to Bank of America. The hospital's chairman emeritus is Maurice "Hank" Greenberg, former chairman and CEO of AIG, the insurance titan effectively taken over by the government.

Last week, Dr. Pardes says, he refrained from phoning to ask for contributions out of deference to some donors. "There are some people I know are having a hard time now and I wanted to be sensitive to them, so there are some people I will not call," he says.

Mt. Sinai Medical Center, also on the East Side, has a board of financial and business hotshots that have stood by it through other crises. Sinai's board includes financier Henry Kravis and James Tisch, president and chief executive of Loews Corp.

But last week, when Mt. Sinai's fund-raising czar spoke to potential donors, he was asked about the possibility of deferring gifts. "In talking to some of our best donors over the last couple of weeks, no one is deferring," says Mark Kostegan, senior vice president for development. "They are asking, 'If I need to, could I? I want to know if this option is available.'"

Across town in Greenwich Village, St. Vincent's Catholic Medical Centers has been planning to build a new hospital to replace its aging facility, which administrators say is beyond repair. Now the hospital's CEO is wondering how he will raise the $150 million he had targeted for this year. St. Vincent's, which prides itself on its work on behalf of the uninsured, now fears an even greater influx: Officials predict that thousands who have lost jobs will be without coverage when their benefits run out.

"We are concerned because Wall Street and all who make up Wall Street have been so important to the philanthropic engine of New York, particularly hospitals," says Henry Amoroso, St. Vincent's president and CEO. "Some other hospitals can maybe rethink their capital campaigns, maybe change their direction and focus a bit, but for a place like St. Vincent's it can hit us particularly hard because we don't have that ability to delay."

Kenneth Raske, chief of the local hospital trade association, says he woke up in the middle of the night Sunday, after news of the fall of the Lehman and the sale of Merrill Lynch broke, and began drafting a memo to members to warn them of the coming upheavals.

"The current economic crisis could pose a chilling effect on philanthropic giving in the short run," says Mr. Raske, whose Greater New York Hospital Association represents 250 hospitals and medical centers in New York as well as New Jersey, Connecticut and Rhode Island.

By: Lucette Lagnado
Wall Street Journal; September 22, 2008

As the credit crunch threatens to throw the economy into a deep slump, Americans are already cutting back on health care, a sector once thought to be invulnerable to recession. Spending on everything from doctors' appointments to preventive tests to prescription drugs is under pressure.

The number of prescriptions filled in the U.S. fell 0.5% in the first quarter and a steeper 1.97% in the second, compared with the same periods in 2007 -- the first negative quarters in at least a decade, according to data from market researcher IMS Health. Despite an aging and growing U.S. population, the number of physician office visits also has been declining since the end of 2006. Between July 2007 and 2008, the most recent month for which data are available, visits fell 1.2%, according to IMS.

As consumers cut back, spending on everything from doctors' appointments to preventive tests to prescription drugs is under pressure.

In a survey by the National Association of Insurance Commissioners last month, 22% of 686 consumers said that economy-related woes were causing them to go to the doctor less often. About 11% said they've scaled back on prescription drugs to save money. Some of the areas being hit include hip and knee replacements, mammograms, and visits to the emergency room, according to a survey conducted by D2Hawkeye Inc., a Waltham, Mass., medical data analytics firm, on behalf of The Wall Street Journal.

Since sales at the Sebring, Fla.-area car dealership where Christopher Pye works have dwindled, so have the commissions that were 40% of his income in good times. Barely able to afford his $850 monthly mortgage and pay for groceries, he says something had to give: his two young sons' annual medical checkups.

"It's just a little too expensive right now," says Mr. Pye, 32 years old, who says he can't afford to have his family on the company health plan or to pay up front for the visits. This month, Mr. Pye is canceling his own insurance, hoping the $56 he'll save in weekly premiums will pay for the exams of his boys, ages 3 and 4, later.

Health-policy experts say that patients' short-term care cutbacks could lead to more medical problems and higher spending down the road. As more people forgo screenings or wait until minor medical problems blow up into serious complications, hospital and emergency-room admissions could eventually spike.

"Once you've had that heart attack and end up in the hospital, that's when the expensive stuff begins," says Dana Goldman, director of health economics at the Rand Corp., a nonprofit research institute in Santa Monica, Calif.

Health-care companies say the current economic slump's impact on demand for medical services has been surprisingly swift. Laboratory Corp., the country's second-largest clinical lab-testing company by sales after Quest Diagnostics Inc., says the number of blood tests and other types of lab work it does for uninsured customers fell 8% in the second quarter, compared with the 1% quarterly growth it usually sees.

The company's analysis of outside market data also shows that obstetrician-gynecologist visits, the sole source of preventive care for many women, dropped 6% in the first quarter compared with the same period last year.

"That says to me that people are just deferring care if it's not acute," says Laboratory Corp.'s chief executive, David King.

Speaking at an investor conference this month, Walgreen Co. Chief Executive Jeffrey Rein said the U.S. is experiencing the "tightest prescription market" in his 27-year career, as more cash-strapped patients skip their pills or take half doses. He said the company has looked at different ways to get people to fill prescriptions. For example, pharmacists are reaching out to patients through phone calls and emotional appeals such as, "Do they want to be around when their kids grow up, or their grandkids?" Mr. Rein said.
Pricey Blood Test

Marianne Falacienski of Pensacola, Fla., had health coverage through her husband's land-surveyor job until he was laid off in April last year. Her husband, Brian, has since bought a policy for himself and their 2-year-old daughter on the individual market, but the family couldn't afford to include Ms. Falacienski, who has a chronic inflammatory bowel disease called Crohn's. The premiums charged by insurers for health plans purchased by individuals with pre-existing conditions can be prohibitive.

Ms. Falacienski, 33, has been putting off a pricey blood test to monitor her Crohn's-related anemia, which if it worsens, can indicate bleeding in the intestines. She says she already owes more than $3,000 for a blood transfusion she needed in January -- the result, she says, of skipping the tests last year and thus failing to spot her worsening blood count in time.

"I'm just trying not to get sick again," she says. She found a receptionist job in July but won't be eligible for its health benefits until late fall.

A recent analysis of claims from 250,000 people in several dozen mid-Atlantic employer health plans suggests even people with coverage are cutting back on care. The study, conducted for The Wall Street Journal by research firm D2Hawkeye, found that a number of preventive or nonacute areas of care saw declines despite little change in benefits or employee cost-sharing. Knee replacements per 1,000 people fell 18.6% between March 2008 and March 2007, pap smears fell 6% and dispensed prescriptions for antidepressants dropped 29%, the D2Hawkeye analysis shows.

Jim King, a family physician in Selmer, Tenn., says patient visits at his practice this summer were down 10% to 15% compared with summers past, even though 90% of his patients have some form of insurance. A big problem, he says, is getting patients to come back for tests to check their diabetes or to act on referrals to specialists, many of whom are at least 40 miles away in Jackson, Tenn.

"It's hard to get people to follow up when they're having to decide between the gas bill, the electric bill or deciding to come in and see the doctor," Dr. King says.

Many insured Americans face much bigger out-of-pocket costs today than just a decade ago. The average family plan deductible at an employer last year ranged from $759 for health-maintenance organizations to $3,596 for a high-deductible plan with a savings-account option, according to the Kaiser Family Foundation. The cost of premiums to employees has nearly doubled to $3,281 a year since 2001.

People who buy health plans on their own often face even higher deductibles. Patricia Campbell of San Diego bought a $7,500 deductible plan after she took fewer freelance television production assignments to help care for her mother, who has Alzheimer's disease.

Her doctor has told her that the longer she waits to get a cataract in her left eye removed, the harder it will be. But she says she can't afford to pay for the surgery because she is still paying off her share of the costs of an appendectomy last year. "Since I don't work out of the home, it's not that crucial," she reasons. "And I can drive with one eye."

Gabrielle Kenna, 33, who suffers from debilitating rheumatoid arthritis, says she occasionally skips her weekly dose of methotrexate. The pills help with pain and inflammation, and require a $10 monthly co-pay. But Ms. Kenna says she has to balance that with the price of her main medication, a specialty drug called Remicade that costs her nearly $180 every six weeks. "When I'm not feeling so bad, I'll try to stretch [the methotrexate] out or wait until I have the money," she says.

That task is about to get tougher now that her job as a school social worker in Fort Wayne, Ind., has been cut to a part-time position. Beginning this month, she'll no longer have health benefits. To stay on the school district's plan for a temporary period under federal Consolidated Omnibus Budget Reconciliation Act, or Cobra, rules, she'll have to pay $570 a month in premiums.

Her mother, Edith Kenna, says she has been skipping her osteoporosis drug every other week and stopped taking her antidepressant, each of which require a $40 monthly co-pay, to help pay for her daughter's treatments. But, she worries about the day her daughter's Cobra benefits run out since Remicade can cost more than $12,000 a year.
Hitting the Coverage Gap

Medicare beneficiaries on fixed incomes say higher energy and food prices are making it tougher for them to pay for drugs as well, even those who have the government program's drug benefit. Some, like Joan Stroup of Butte, Mont., are starting to hit the drug plan's coverage gap, which is $3,215 this year. The gap in 2008 begins after beneficiaries and their plans pay $2,510 in drug costs, at which point plans aren't required to pay benefits until spending reaches $5,725. Then benefits kick in again.

For Ms. Stroup, a 73-year-old retired elementary-school principal, that means paying roughly $1,000 a month for various medications until she's bridged the gap. To make do, Mrs. Stroup says she's been skipping her asthma medication Advair, sometimes a week at a time, and switched to a cheaper but less effective pill for her acid reflux. "I don't always want to tell people I don't have the money for it," she says, "so I might wait a week or so to go to the drugstore to pick it up."

By: Vanessa Fuhrmans
Wall Street Journal; September 22, 2008

Truce Allows Waste Management, Allied and Republic to Push Higher

The country's three largest garbage haulers have been steadily raising prices despite the slowing economy. And with a major buyout among them looming, prices are likely to continue their climb.

The increases are a break from the recent past, and follow a strategy shift in the wake of the industry's 1990s consolidation. They also followed some blunt, public suggestions about pricing by the companies' top executives.

Bulldozers compress mountains of trash at a Waste Management Altamont landfill in Livermore, Calif.

Earlier this decade, the nation's garbage giants held prices steady for hauling and disposing trash as they battled for market share. But beginning in 2006 and continuing into 2007 and this year, Waste Management Inc. of Houston, Allied Waste Industries Inc. of Phoenix and Republic Services Inc. of Fort Lauderdale, Fla., each boosted base prices by more than 3% annually.

Prices paid by customers climbed even more because the base price excludes fuel and other surcharges often built into collection agreements. In the first two quarters of 2008, average core prices at the three trash companies are up 3.9%, according to Citigroup Inc. In 2006 and 2007, U.S. consumer inflation excluding food and energy prices rose 2.5% and 2.3%, respectively.

Another big merger among the waste giants could spur ever higher contract prices, say industry observers. The big three trash companies already control about two-thirds of the landfill business.

In late June, Republic, with $3 billion in annual revenue, agreed to merge with Allied Waste, with $6 billion in revenue. A month later, Waste Management, with $13 billion in revenue, made the first of two rejected bids for Republic. The Justice Department is reviewing the proposals.

"They've all been increasing prices, and there hasn't been a price war to lure away accounts from other companies," says John Skinner, executive director of the Solid Waste Association of North America, which represents trash managers.

Earlier this decade, rising costs squeezed margins, but haulers didn't raise prices for fear of losing market share, says Waste Management Chief Executive Officer David Steiner. "We all know it's impossible to do pricing when you think you're at the mercy of the market," he said in an interview.

In 2004, Mr. Steiner started to publicly encourage garbage haulers to change their pricing and practices. "If you are going to continue to raise prices as an industry, you've got to have all the industry players acting consistently," he said during a July 2004 conference call with investors, according to a Thomson Financial transcript. He added: "We're going to continue to raise price. We would certainly hope that the industry follows along with us."

Other haulers also focused on pricing in investor meetings. In a February 2005 call with investors, Republic CEO Jim O'Connor acknowledged his rivals' price increases and said in the long term he was targeting core price increases of one-half to 1½ percentage points greater than the consumer price index due to an investment in WWTP design.

In November that year, John Zillmer, the then-new chief executive at Allied Waste, told investors: "There have been a lot of signals ... from all the major public companies that they are going to work very diligently to support the pricing environment."

Public discussion of pricing by competitors is potentially risky, say antitrust-law experts. "I personally get very nervous when a client starts talking about what the industry should do," said Robert Schlossberg, a partner at the law firm Freshfields Bruckhaus Deringer LLP. However, he said, actions matter more than words.

The companies say they've done nothing wrong. Republic's Mr. O'Connor said haulers have focused more on returns on investment than revenue growth. Waste Management's Mr. Steiner added: "We can't control what this industry does. We can only control what we do. I may have said it's certainly easier if the industry follows along. I don't think I ever said I expected it."

By: Ilan Brat
Wall Street Journal; September 18, 2008

In a spate of morose predictions for the retail industry this week, economists say the 2008 holiday season will have the weakest sales gains in 17 years.

Forecasts from research and consulting firms Deloitte LLP and TNS Retail Forward Inc. hadn't yet factored in the latest economic turmoil from Wall Street, which could drive sales even lower, particularly for luxury retailers.

The sudden decline in oil prices won't do much to fend off the money-zapping forces of higher unemployment and food prices, slowing housing turnover and the credit crunch, the economists say. Even with oil prices dropping, it will take awhile for lower gasoline prices to show up at the pump. And heating bills still are expected to be above last year's prices.

In recent years, warnings of bad Christmas sales have almost become a staple of the season, but this year the economic forces seem particularly grim. The debate comes down to just how bad sales will be, and some forecasters are now re-evaluating their numbers based on Wall Street's most recent turbulence.

Among them, the National Retail Federation, an industry group, said Wednesday that it expects to join the chorus predicting a season of historically low holiday sales.

"I can't tell you for sure that it's going to be the worst season in the last decade and a half, but we expect this season to be as challenging as any in recent memory," said Scott Krugman, an NRF vice president, adding that the group didn't expect the retail economy to begin improving until the middle of 2009.

A year ago, many retail analysts had a similarly gloomy outlook for the 2007 holiday season. The National Retail Federation forecast that sales would increase by 4%. When the dust settled in January, the NRF found that holiday sales rose by just 3%, the lowest increase since 2002.

TNS Retail Forward, a Columbus, Ohio, market-research firm, predicts retail sales growth for used Dell laptops in the fourth quarter of 1.5%, "weakening from modest third-quarter growth as the boost from tax rebates runs out," said Frank Badillo, senior economist for TNS Retail Forward.

Deloitte predicts that holiday sales, excluding motor vehicles and gasoline, for the November-January period will increase 2.5% to 3%, compared with 3.4% last year. Deloitte includes restaurant and grocery-store sales in its forecast, while TNS Retail Forward doesn't.

Some of the predictions for the 2008 holiday season warned that the period would rival an anemic Christmas during the recession of the early 1990s. Back then, discount retailers Kmart, now part of Sears Holdings Corp.,Wal-Mart Stores Inc. and sellers of designer women's apparel prospered while department stores such as Macy's, now part of Macy's Inc., foundered, a pattern that mirrors current sales trends.

One category that seems to be immune to the economy is wedding jewelry. Sales of engagement and wedding jewelry products such as men's wedding rings continue to show strong sales volumes. Retailers are evaluating store layouts, kiosk, and retail presentations of hot selling items. Best Buy has been reporting strong sales of laptops, used Sony laptops, mobile phones, and HDTV and plasma television screens.

Indeed, TNS Retail Forward says there will be definite retail winners and laggards this holiday season, reflecting similar shopping patterns in the past year as the economy squeezed shoppers.

By: Ann Zimmerman and Miguel Bustillo
Wall Street Journal; September 18, 2008

When the Dow dives, ratings soar for television's most popular business-news shows.

General Electric Co.'s CNBC, the top-rated cable business-news network, has drawn its highest audiences since the 2001 terror attacks with its coverage of the Wall Street crises this week, with top shows "Mad Money" and "Fast Money" each attracting around half a million viewers, their largest audiences ever, according to data from Nielsen Media Research.

The channel broadcast live amid reports of Lehman Brothers Holdings Inc.'s looming bankruptcy filing, Merrill Lynch & Co.'s sale to Bank of America Corp. and the perilous situation of insurance company American International Group Inc.

Around 488,000 people tuned in to the network's coverage between 5 a.m. and 7 p.m. Monday, as the Dow Jones Industrial Average fell more than 500 points. Tuesday, when worries continued, 523,000 people tuned in.

Bloomberg Television also had one of its highest-rated days ever Monday, when the network aired an interview with Sen. Barack Obama to discuss the markets, according to a company spokeswoman.

Television ratings aren't publicly available for News Corp.'s Fox Business Network because Nielsen qualifies the network as "fledgling," meaning the network receives only private audience data. A Fox spokeswoman declined to provide this week's ratings data. News Corp. owns The Wall Street Journal.

By: Rebecca Dana
Wall Street Journal; September 18, 2008

Boards Intensify Efforts to Review Risks and Dodge Disasters

This month's meltdown of several financial giants exposed a serious flaw in corporate governance: Many U.S. boards don't cope well with a crisis. But some directors are now ratcheting up efforts to anticipate, and avert, trouble.

Too many boards are stocked with poorly prepared directors, who fail to ask enough tough questions or adequately scrutinize management, governance specialists say.

In the wake of the financial turmoil, more boards will ask themselves, "Are we well prepared for the unforeseen crisis?" predicts Jerry W. Levin, former chairman of retailer Sharper Image Corp. and a director on four public-company boards.

Few corporate boards are well-equipped to deal with the issues some financial companies faced recently, when storied firms such as Lehman Brothers Holdings Inc. and Merrill Lynch & Co. had only days to seek rescue plans or mergers. But the governance experts say those boards, and others, could have taken steps months ago to spot danger signs.

The issues frequently start with who is sitting in the boardroom. Just three of Lehman's 10 outside directors have direct experience in the financial-services industry. "For an extremely complex financial institution like Lehman, that set of directors probably wasn't the best group to populate its board -- or help prevent its collapse," contends Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware business school. A Lehman spokesman declined to comment.

One common vulnerability is assessing corporate risk. In 2006 and 2007, when Lehman was amassing mortgage-backed securities and questionable real-estate loans, the risk committee of its board met twice each year, regulatory filings show. A person close to the board says risk was discussed at four committee meetings and 25 board meetings in 2008.

Now, more boards may take a bigger role in risk management. During a Sept. 9 roundtable held by the National Association of Corporate Directors, 24 chairmen of audit committees agreed "the whole board needed to be engaged" in monitoring risk, an association official says.

One company where directors actively assess risks is Tyco International Ltd., which survived a scandal earlier in the decade. Soon after former DuPont Co. Chief Executive Jack Krol joined the Tyco board in 2002, the company faced a liquidity crisis following accusations that former CEO L. Dennis Kozlowski and another former top executive had looted the conglomerate of nearly $600 million.

As lead independent director, Mr. Krol created a risk-assessment process for the board. He and one or two fellow directors visited each business unit once a year. They spent a day with a unit's leaders, reviewing a 10-item checklist of risks and proposed remedies. The full board then discussed their findings.

Among other things, initial visits uncovered a handful of payoffs to foreign officials, which could have led to sanctions against the company. "We were able to nip [it] in the bud," Mr. Krol says. "It could have been a big crisis."

But Tyco appears to be an exception. Mr. Krol says he has tried, without success so far, to persuade directors on two other corporate boards where he serves to embrace similar risk-assessment strategies.

A growing number of boards are creating emergency-communications systems, with secure Web sites, document sharing and online board meetings, says Joe Ruck, chief executive of BoardVantage Inc., a Menlo Park, Calif., company that offers such systems.

Other boards conduct scenario planning to prepare for crises. "You imagine the worst things that could happen," and craft a playbook, explains Fred Crawford, chief executive of AlixPartners LLP, a Southfield, Mich., turnaround firm that often advises companies during crises. Mr. Crawford estimates that a minority of U.S. corporate boards pursue extensive scenario planning.

The board of Reynolds American Inc. takes scenario planning to an extreme. During a mock board meeting in July, directors and executives of the tobacco maker simulated the death of Chairman and Chief Executive Susan M. Ivey in a plane crash.

The company's head of human resources made a presentation about possible internal successors for Ms. Ivey. Maura Payne, vice president of communications, says she distributed mock press releases and other materials to alert regulators, investors and employees about Ms. Ivey's "death" and replacement.

The two-hour simulation exposed gaps in Reynolds's emergency-succession plan, recalls Betsy Atkins, a board member and venture capitalist. For example, Ms. Atkins says, the board hadn't previously considered whether it would want Ms. Ivey's successor to be both chairman and CEO. Directors also debated whether they would name one of their own as interim chief executive.

The board found it easier to air such issues "without the intense emotion of facing the [actual] loss of a CEO," Ms. Atkins notes. "We ended up feeling better prepared."

By: Joann Lublin and Cari Tuna
Wall Street Journal; September 22, 2008

Retailers that helped turn Bratz into a sensation when the pouty-lipped dolls first appeared in 2001 are giving the line a chillier reception for this holiday season.

Target Corp. and Wal-Mart Stores Inc. have both reduced stocks and shelf space for Bratz, with Target cutting its Bratz space by about 50%, according to the retailer. A key reason for the waning retailer enthusiasm is that Bratz sales have been slipping. Analysts expect Bratz, made by closely held MGA Entertainment Inc. of Van Nuys, Calif., to generate about $300 million in revenue this year, down from an estimated $400 million last year.

Bratz creators tried to design dolls that would evolve with girls' tastes.

Some attribute the dolls' recent dip to the inevitable come-down that has hit even the most sought-after toys of years past, from Tickle-Me Elmo to the Cabbage Patch Kids. "Nothing stays hot forever," says Gerrick Johnson, a toy industry analyst at BMO Capital Markets.

But there's another reason for Bratz's decline. MGA was distracted this year as it battled a lawsuit from Mattel Inc., which claimed MGA stole the idea for the dolls from the toy giant. In July, a federal jury sided with Mattel and later awarded the company as much as $100 million in damages. Mattel is now asking a federal judge to evaluate MGA's continued ownership of the brand. MGA has agreed to consider settlement talks with Mattel before the judge approves the award, though it hasn't ruled out an appeal.

Bratz's creators had set out to design dolls that would evolve with girls' fickle tastes rather than be trampled by them. With their big eyes and skimpy outfits, the multiethnic dolls were supposed to be able to ditch trends quickly when they faded and jump on new ones. Fresh lines were rolled out each season, just like in the fashion industry.

MGA Chief Executive Isaac Larian concedes that Bratz lost their edgy looks as his company fought the allegations by Mattel, maker of rival Barbie. The change struck him as he and other employees were reviewing the current fall line earlier this year. "We said, 'Oh my God, we lost focus on what our brand was,'" Mr. Larian said. The company had standardized some of the dolls' accessories and features, reducing the individuality that had long been their appeal. "They had become the same doll with different names," he said.

For example, for this fall's line, some Bratz dolls were set to carry lookalike miniature handbags made of molded plastic. Mr. Larian says the company was able to change some of them to sewn cloth bags whose designs vary. And the company added a number of embroidery patterns to jeans that originally had been set to be plain. But other alterations won't be seen until next spring's line.

Though these details are small, Mr. Larian said recent market research indicated girls were noticing. "What attracted them to these dolls was the clothing that was different from one doll to another," he said.

Mr. Larian insisted his dolls still remain popular. Still, retailers have taken note of Bratz's problems. A Target spokesman said the reductions had been influenced by recent Bratz sales. A similar trend is afoot at Wal-Mart, the world's largest toy seller by sales, where the declines in shelf space for Bratz are 15% to 30% in some stores, according to recent research by Needham & Co., a New York investment bank.

On a recent afternoon at a Toys "R" Us store in Los Angeles, shoppers milled past dozens of items that the store had put on clearance. A Bratz hand-held game had been slashed to $6.98 from $14.99. Bratz dolls themselves also were on sale, though the original price tags had fallen off. Such markdowns have become common nationwide, analysts say, and Needham has noted double-digit shelf-space declines for Bratz at many Toys "R" Us stores.

Other dolls are facing retail problems as well, as children gravitate toward expensive consumer electronics. Shelf space for Barbie has been flat or declining at many retailers, according to Needham, and some other girls toys, such as Polly Pocket and My Little Pony, have seen their presence shrink. For the 12-month period ended July 2008, U.S. sales of fashion dolls and accessories slid 4% to $1.7 billion from the year before, according to NPD Group Inc., a market-research company.

Meanwhile, MGA faces stiffening competition from rival dolls, including toys based on characters from Walt Disney Co.'s "High School Musical" and "Hannah Montana" TV shows. These dolls, made by Mattel and Jakks Pacific Inc. of Malibu, Calif., have made triple-digit strides in shelf space at some major retailers, according to Needham. The brands are also supported by the TV shows and vast media campaigns whose halo effect extends to related consumer products.

Studios, often armed with consumer-products divisions of their own, generally take part in retail deals and offer some negotiating clout to smaller toymakers. "It's going to be potentially harmful for [MGA] not to have a partner," said Reyne Rice, who analyzes trends for the Toy Industry Association.

Last year, MGA reached out to Lions Gate Entertainment Corp. to release a live-action feature film called "Bratz." But the movie, which featured girls with the same names as the doll characters, had a poor showing at the box office, bringing in roughly $10 million domestically, according to Box Office Mojo LLC, which tracks ticket sales. "The movie was a disappointment and personally I believe it had a negative effect on Bratz," Mr. Larian said. He now plans to focus on Bratz-themed animated movies released on cable TV to drum up attention for the brand.

By: Nicholas Casey
Wall Street Journal; September 22, 2008

The attorneys general of 25 states are urging MillerCoors to abandon plans to launch a new version of its Sparks alcoholic energy drink, claiming that it is even more dangerous than the original drinks.

Attorneys general, including New York's Andrew Cuomo and Connecticut's Richard Blumenthal, said they sent a letter to the brewer on Wednesday, calling on it to shelve plans for Sparks Red, whose launch is planned for October 1.

Miller Brewing spokesman Julian Green said he had not seen the letter and could not confirm its receipt by the newly formed company, which combines the U.S. operations of SABMiller PLC and Molson Coors Brewing Co.

Sparks is a line of canned alcoholic drinks that contain stimulants like caffeine and taurine, which are often found in popular energy drinks such as Red Bull, Rockstar and Full Throttle.

Sparks Red will have an 8 percent alcohol content, up from 7 percent for its Sparks Plus and 6 percent for its light and original versions.

Earlier this month the nonprofit Center for Science in the Public Interest sued MillerCoors over Sparks, seeking a court order to prevent the sale of the drink.

Critics claim that Sparks' marketing, along with its bright color and sweet taste, appeal to young drinkers. They add that the stimulants mask feelings of drunkenness, leading drinkers to exceed their normal limits, resulting in more drunk driving, more injuries and more sexual assaults.

In June, Anheuser-Busch Cos Inc agreed to stop selling its caffeinated alcoholic drinks under an agreement with 11 state attorneys general who had alleged that the brewer was marketing the products to underage drinkers.

Green, who noted the existence on the market of caffeinated drinks with higher alcohol levels, said MillerCoors does not target Sparks at kids and noted that the drink's label and formulation meet all federal regulations.

By: Chad Bray
Wall Street Journal; September 18, 2008

It is looking like it will take more than a major hurricane to turn off the growth of the energy sector that's helped make the Houston area's office market one of the country's healthiest.

Earlier this week, storm-fatigued residents and companies were cleaning up shattered windows and digging out from Hurricane Ike. As recovery efforts focused on restoring power and providing water and food, it was too early to tell the exact extent of the property damage sustained by the city's homes, stores and office buildings, Patrick Trahan, a spokesman for Houston Mayor Bill White, said Monday.

While Galveston, Texas, took a more severe hit from Ike, the massive size of the stock of Houston-area buildings that stood in the path of Ike's high winds and heavy rains still makes the damage considerable in terms of volume, he said. One building damaged was the JPMorgan Chase Tower, which lost many windows. Brookfield Properties Corp. on Monday also said it lost windows in many towers but opened all but two of its nine downtown Houston office buildings. Some top floors of the Devon Energy Tower, also known as Two Allen Center, were closed Monday due to a damaged roof.

A building-maintenance worker snaps a picture of the blown-out windows of the JPMorgan Chase building in Houston. The city, hit by Hurricane Ike, is riding out the property slump relatively well.

But property owners were confident that Houston's office market will sustain its strength despite the damage. Paul Layne, executive vice president with Brookfield Properties in Houston, noted that office tenants needing to relocate temporarily out of storm-damaged buildings could even bump up office absorption over the next few months as repairs are made.

Of course, Houston's location near the Gulf of Mexico has long made it vulnerable to hurricanes -- a factor that plays no small part in decisions to locate in the region. Yet, concern that storms could be worsened by global warming and rising water levels could make at least some companies think twice about whether they're game to handle the region's weather-related hassles. As recently as 2005, Houston's chaotic evacuation in preparation for Hurricane Rita led to traffic gridlock and was blamed for many deaths.

But the area's weather risks have been overshadowed by Houston's appeal as an energy capital. The economy in the region, which has a population of 5.7 million, has downshifted to a 2.2% gain in jobs in July from the year-earlier month. But that outperformed the national economy, which shed about 0.1% of its jobs in July, according to the Bureau of Labor Statistics.

This year, average office rents in the Houston region are expected to rise 11.9% from 2007, the highest percentage gain of the 54 major metropolitan areas surveyed by Property & Portfolio Research, a Boston-based real estate research firm. The nation's sixth-largest metro area office market with an estimated 217 million square feet of space, Houston also tied with Salt Lake City for the third-lowest office vacancy rate of 54 U.S. metros as of the second quarter, PPR said. This puts Houston in a similar situation as Philadelphia, New York, Minneapolis, and Chicago.

That growth comes as many energy firms, burned by overzealous expansions in the in past boom-and-bust cycles, finally chose to take more space during the past two years or so, brokers said. Office rents are forecast to decline slightly and vacancies rise next year as some new office buildings, including speculative space, are completed, PPR said.

Hurricanes and the national economic malaise aren't the only threats to Houston's future growth. Last year, oil-service giant Halliburton Co.'s Chief Executive David Lesar moved to Dubai and the company now operates dual headquarters in Houston and Dubai, although the company said no other employees were relocated there as a result of the new headquarters. Halliburton still employs more than 5,000 people in the Houston area and occupies more than one million square feet of office space in the region. Sanford Criner, executive vice president CB Richard Ellis in Houston, said the company is growing and is believed to be considering major new offices in Houston. A Halliburton spokeswoman said the company was dealing with the aftermath of Hurricane Ike and couldn't comment on the speculation.

While the move to Dubai in the oil-rich Middle East was hailed by some as a possible harbinger of future competition for Houston, the strong performance of the region's office market suggests that for now Houston has done better than simply surviving without Mr. Lesar. "The movement of the headquarters has had no impact," Mr. Criner said. Houston, he said, "is doing fine."

By: Maura Webber Sadovi

Sallie Mae Protests U.S. Move to Award No-Bid Pact to Rival

The U.S. Department of Education and SLM Corp., the mammoth student lender known as Sallie Mae, are embroiled in a contract dispute that could delay efforts to shore up the student-loan market.

The hostilities revolve around who will be paid to process federal student loans that the Education Department buys from private lenders. After getting congressional approval in May, the department announced it would begin buying the loans to pump liquidity into the market, which has suffered in the credit squeeze.

Sallie Mae filed a protest last month with the U.S. Government Accountability Office over the department's decision to steer its new loan-processing business to Affiliated Computer Services Inc., without seeking competitive bids. Affiliated, a Dallas-based company, has provided other loan-processing services to the department since 1993.

Federal agencies are permitted to award and extend contracts without competition in certain circumstances, such as a national emergency. But Sallie Mae alleges that this deal was done improperly, and that the additional processing will "vastly expand" the scope of ACS's existing contract.

The case reflects the financial pressures facing private lenders as they grapple with subsidy cuts and struggle to raise lending capital. More than 100 lenders have stopped participating in the Federal Family Education Loan Program, or FFELP, in which the government guarantees loans made by private lenders. Lenders that remain "are in a very difficult situation, so they are trying to get revenue any way they can," says Mark Kantrowitz, publisher of Finaid.org, a Web site devoted to financial-aid issues.

In its complaint to the GAO, which has jurisdiction, Sallie Mae asked the government to suspend the additional loans processed by ACS. The company also asked the department to either put such processing work out for bid or let private lenders service the loans they sell to the government.

The value of the processing fees in the dispute is unclear. Based on fees typically paid for processing other student loans, Mr. Kantrowitz estimated that about $228 million in processing fees would be involved if the government bought all $65 billion in new FFELP loans expected to be issued during the 2008-09 school year. In one scenario, federal officials estimated the government would purchase half of all FFELP loans this school year if market conditions don't improve.

Authority for the department's loan-purchase program is set to expire after the 2008-09 school year. But Monday night, the House of Representatives voted to extend the effort for another year. The Senate is expected to take up the issue as early as this week.

In a memo filed in the case, Michael Whisler, an Education Department contracting officer, wrote that putting the business out for bid could take as long as 90 days. Letting multiple private lenders do the processing also would lead to a loss of control of federal assets, he wrote.

He warned against any disruption of the loan-buyback program. "Of great concern, is that any perceived wavering by the department in its commitment to purchase these loans could further destabilize the already fragile credit markets, bringing student lending to a halt just as students return for their fall semester," he wrote.

Sallie Mae spokesman Tom Joyce said the company services student loans for more than 10 million borrowers, including those with in an automotive management degree program. "We want to fulfill our commitment to those customers, and to service the business we have already earned in the open marketplace," he said. "There is a substantial cost to students, families and taxpayers when service is disrupted after a loan is made."

Samara Yudof, a spokeswoman for the department, declined to discuss details of the case. "We are in the process of fully and completely responding to the issues raised by Sallie Mae in its protest and are confident in our position," she said.

Through a spokeswoman, ACS declined to comment.

The GAO plans to issue a decision in the form of a recommendation by Dec. 1. Such GAO recommendations aren't binding, but federal agencies generally abide by them.

In 2001, Sallie Mae filed a so-called agency-level protest over a different ACS contract. After a department hearing officer ruled in Sallie Mae's favor, the business was put out to bid in 2003, and ACS won the contract, which was worth an estimated $1 billion over five years.

Sallie Mae has said it expects to originate about $20 billion in FFELP loans this school year. Absent a market turnaround, it plans to sell some or all of them to the Education Department, according to a person with knowledge of the situation. But its effort to hold on to fee revenue comes as growing numbers of borrowers are shunning FFELP loans in favor of the direct-loan program, which doesn't involve private lenders.

As of Sept. 4, students and parents had borrowed $15.32 billion through the direct-loan program for the 2008-09 school year, up 49% from the previous school year. Meanwhile, borrowers took out $26.47 billion in FFELP loans, down 4% from a year earlier.

By: Robert Tomsho
Wall Street Journal; September 17, 2008

Billionaire Buys On, While Opposing Bid Of Rival for Takeover

Billionaire Bill Gates has been steadily increasing his stake in Republic Services Inc. even as he opposes a takeover bid from Waste Management Inc.

The Microsoft Corp. co-founder, through investment vehicle Cascade Investment LLC, has bought more than 5.7 million Republic Services shares since the beginning of August, bringing his total stake to 32.9 million shares, or about 18.1% of the shares outstanding. Mr. Gates bought the shares for an average price of $34.11 each. In 4 p.m. New York Stock Exchange composite trading, Republic Services shares were down $1.28, or 3.9%, to $31.48.

Mr. Gates's purchases come amid a merger triangle involving Republic, the nation's third-largest waste-services company by revenue, and the two largest trash haulers, No. 1 Waste Management and No. 2 Allied Waste Industries Inc. In June, Republic Services agreed to buy Allied Waste for $6.24 billion in a so-called merger of equals. The next month, Waste Management stepped in with a $34-a-share unsolicited bid for Republic Services, which it raised to $37 a share in August after Republic rebuffed the first offer.

Cascade Investment and the Bill & Melinda Gates Foundation Trust are also shareholders in Waste Management, together holding 2.3% of the company. In July, the investment office that manages the assets of Cascade and the Gates Foundation Trust sent Waste Management a letter voicing their support for the Republic Services-Allied Waste deal and asking Waste Management to abandon its proposal.

"I think it's a win-win for [Cascade] under either scenario," said Brian Butler, research analyst with FBR Capital Markets Corp.

Mr. Butler said Cascade is happy with Republic Services' management team, and would be pleased with its running a combined Republic-Allied business, as the merger agreement provides. "They want to be there for the very long term and adding to their portfolio, long term, it's a win if Allied and Republic merge," he said.

Mr. Butler said that he doesn't expect the Waste Management bid to succeed and that he thinks Cascade and septic tank cleaner companies are raising its Republic Services stake to help vote through the merger with Allied Waste. A Cascade representative didn't return a call seeking comment.

When Republic Services adopted a so-called poison-pill plan in July to thwart the Waste Management bid, it allowed Cascade and the Bill & Melinda Gates Foundation Trust a waiver to increase their combined stake to 20% from 15%.

According to Ben Silverman, research director at InsiderScore.com, which tracks and rates insider-stock transactions, Cascade's recent purchases of Republic Services signal more than just their support for the company's deal with Allied Waste. "I think they truly believe the better deal is for Republic to buy Allied Waste, and for that combined company to then compete directly with Waste Management," Mr. Silverman said. "However, if it doesn't go through, they still believe Republic is a strong company."

Mr. Silverman also cited the investment approach of Michael Larson, who manages the Gates funds, as playing a role in the recent purchases. "Larson takes a very value-focused approach. They believe the stock is, even at these levels, undervalued," Mr. Silverman said.

By: Yogita Patel

Swedish outdoor-machinery maker Husqvarna AB Tuesday warned that its operating income for the third quarter will be “substantially lower than in the previous year” and that it will cut 850 jobs. The company said it is suffering from lower sales of its consumer products in North America and Europe and its products aimed at the construction industry.

Wall Street Journal; September 18, 2008

Owens-Illinois Inc., a maker of glass containers for beverages and other consumer goods, said it will shut down additional manufacturing capacity above what was previously announced, citing weakening demand in the slumping economy.

The company also reduced its expectations for cash flow this year and announced a $350 million stock-buyback plan.

The company's shares sank Tuesday on the New York Stock Exchange. In 4 p.m. trading, they were down 17% at $29.36.

Owens-Illinois now anticipates 2008 cash flow -- which it defines as revenue from continuing operations minus capital expenditures -- of $332 million to $400 million instead of earlier expectations of $500 million. The company blamed weaker demand and the increased production cuts for the lowered forecast.

In commenting on the company's stock-buyback plan, which lasts through 2010, Chairman and Chief Executive Al Stroucken said current share prices don't reflect Owens-Illinois' long-term value. The stock through Monday was down 28% this year, and 20% this month alone. The firm's market capitalization is about $6 billion.

Wall Street Journal; September 17, 2008

Adobe Systems Inc.'s quarterly profit dropped 6.6% despite an increase in revenue as customers awaited an upgrade to its flagship Creative Suite software.

For the fiscal third quarter ended Aug. 29, the maker of Acrobat and Photoshop software reported net income of $191.6 million, down from $205.2 million a year earlier. Earnings per share in the recent quarter were 35 cents, compared with 34 cents a year earlier, when there were more shares outstanding.

Revenue rose 4.2% to $887.3 million

In June, the San Jose, Calif., company said it expected sales of its Creative Suite products -- used by many newspaper and magazine publishing companies -- to drop slightly in the third quarter before the Sept. 23 release of the latest version, Creative Suite 4.

The company also makes Acrobat, used to create documents in the familiar PDF (portable document format) form, and Flash Player, which Adobe got through its acquisition of Macromedia Inc. in 2005.

More than half of the company's sales typically have come from outside the U.S., which benefited the company when the value of the U.S. dollar was falling.

Looking ahead, Adobe expects fiscal fourth-quarter earnings of 51 cents to 53 cents a share on revenue of $925 million to $955 million.

By: Kathy Shwiff
Wall Street Journal; September 17, 2008

Best Buy Co.'s fiscal-second-quarter net income fell 19% as higher spending on stores and growth initiatives more than offset better-than-expected sales at the consumer-electronics retailer.

The Richfield, Minn., company said Tuesday that the investments were "prudent" for long-term growth despite the difficult times for consumer spending and maintained its full-year earnings guidance of between $3.25 and $3.40 a share.

The company curtailed estimates for sales growth at stores open at least 14 months.

"In a challenging environment that finds many of our competitors retrenching, we are growing and opening more new stores," Chief Operating Officer Brian Dunn said.

The retailer said it planned to cut some advertising, infrastructure and labor costs during the second half of the year. Federal stimulus checks helped buoy sales in recent months, and their absence, coupled with consumers' already strapped wallets, led the company to curtail estimates for sales growth at stores open at least 14 months to between 1% and 3%, less than half its present rate.

Best Buy shares declined $1.30, or 3%, to $42.40 in 4 p.m. composite trading on the New York Stock Exchange.

"The inability of [Best Buy] to control spending in a tough macro environment adds to our angst towards [its] shares over the balance of 2008," said UBS analyst Brian Nagel.

Best Buy has moved aggressively on several fronts to ensure future growth -- retrofitting all 973 of its U.S. stores with mobile-phone sales outlets, pushing store development in places like China and Turkey, and paying $2.1 billion for a joint venture with U.K.-based Carphone Warehouse Group PLC to jump-start a push in Europe. On Monday, it announced it was buying digital-music-downloading company Napster Inc. for $121 million.

For the quarter ended Aug. 30, the retailer recorded net income of $202 million, or 48 cents a share, down from $250 million, or 55 cents a share, a year earlier. Revenue rose to $9.8 billion from $8.75 billion.

Comparable-store sales climbed 4.2%, compared with a 1.9% forecast among analysts polled by Thomson Reuters. Best Buy said its domestic market share increased by 1.6 percentage points.

Analysts at both Jefferies & Co. and UBS had warned earlier this month that an industry-wide glut of flat-panel televisions will hamper Best Buy's future profit margins because the store may have to lower prices in order to sell its supply.

But Best Buy's gross margin was in line with analysts' expectations, and the company said its growing mobile-phone business, which carries higher profit margins, helped.

Last week, Best Buy became the first retailer to start selling Apple Inc.'s latest version of the iPhone.

By: Mary Ellen Lloyd
Wall Street Journal; September 17, 2008

Miles Young recently won the top job at ad company Ogilvy Group because of his strong track record in running its Asian operations. Now, the question is whether he can repeat that success in the U.S., a bigger, tougher market, and one in the grip of wrenching change.

After 13 years as head of Ogilvy's Asia-Pacific business, the 53-year-old Englishman is moving from Hong Kong to New York to take the helm of the WPP Group unit, whose clients include American Express, International Business Machines and Unilever.

As Ogilvy CEO, Miles Young hopes to foster a less U.S.-centric view of the marketplace.

Mr. Young brings with him some impressive credentials: In the past five years, he doubled Ogilvy's Asian revenue to $500 million. The agency dominates the increasingly important Chinese market in terms of reputation, and says it hires an average of 1.2 new permanent employees in China every day.

"Miles has built the best agency network in Asia," says Greg Paull, the principal of R3, a Beijing-based consulting firm that advises marketers on working with ad agencies. "But he is going to come into his new position as a middleweight, rather than a leader," Mr. Paull says, referring to Ogilvy's more-modest standing in the U.S. market.

Mr. Young's debut as Ogilvy's chief executive comes at a critical juncture. The teen advertising business in the U.S. is on the brink of a recession. Spending is expected to grow a paltry 2% this year, despite such major-league advertising events as the Beijing Olympics and the U.S. presidential election.

Ogilvy's business in the U.S., which still accounts for the bulk of its roughly $2 billion in annual revenue, has been flat in recent years. And the company has struggled to pick up new clients. Over the past 18 months, it has come up short in its pitches for major accounts, such as wireless carrier Sprint Nextel and retailer Office Depot.

Mr. Young says he is just beginning to formulate a strategy to cope with these issues when he formally takes the reins in January. He says he thinks Ogilvy has already gone a long way toward fixing its dearth of new clients simply by going after new accounts more aggressively. He points to the New York office's recent win of the Stolichnaya vodka account as a "kind of virility test for some of the changes that have been made in the last year."

The executive, who dresses and acts more like an Oxford don than an ad man, is largely an outsider in the New York-centered ad industry. And he says he will try to usher in a less U.S.-centered view of the marketplace. Mr. Young, who has traveled extensively, owns a cinnamon plantation in Sri Lanka and is a major collector of Asian art.

But he says he has much in common with his high-profile predecessor, Shelly Lazarus, who is known for building close ties to the top brass of Ogilvy's clients. She plans to stay on as chairman of Ogilvy, and will help Mr. Young develop relationships with its clients.

Ms. Lazarus, who is on the boards of General Electric and Merck, is one of the industry's few top executives with cachet beyond Madison Avenue. But Mr. Young says he is probably more comfortable than she is at getting involved in the nuts and bolts of the business. "My critics would say I am too detail-oriented," he adds.

He may also be more likely to give his staff homework. In July, he led a group of academics, businessmen and Chinese and Russian students on an Ogilvy-sponsored train trip to Russia's Lake Baikal for an academic study of globalization and the environment. Mr. Young assigned participants a five-book reading list.

Filling big shoes won't be Mr. Young's only challenge. Madison Avenue, which built much of its reputation on TV advertising, has been turned upside down by the teen advertising on the Web. As marketers shift their ad dollars online, the industry is working overtime to catch up. The big agencies are buying up digital-ad shops and trying to recruit digitally minded executives.

Ogilvy promoted a top-notch digital creative executive to the upper echelons of its creative department several years ago. Last year it was one of the first ad agencies to hire a chief digital officer.

Ad agencies also have been forced to become more versatile, integrating businesses like public relations and direct marketing, which they long considered relative backwaters, into their other offerings. Over the past few years, Ogilvy has moved in that direction by combining its traditional advertising division with its OgilvyOne marketing-services unit.

Mr. Young says he'll try to better implement the cross-disciplinary approach to marketing services that was set out by his predecessor. He also says he will "put a real premium on creativity," and invest in strategic planning, the consulting service offered by agencies to help marketers better understand consumers and market opportunities. "If you have those two things, those are what clients really want to pay for," he adds.

That's the agency's best defense, he says, from the onslaught of new digital players such as Google, which is getting into the business of selling traditional advertising and creates tools for planning campaigns.

Mr. Young also has its own ideas about what it means to be a global company. His experience in Asia and Europe, he says, has convinced him that most management theories about international business are wrong.

"Global does not mean the export of vanilla from one home base around the world. It means harnessing intelligence from all sorts of different sources and leveraging it into a solution," he says.

Mr. Young says that within 10 years he hopes Ogilvy "will be the most culturally diverse agency in the world." By that, he means "the least Anglo-Saxon."

By: Geoffry Fowler and Suzanne Vranica
Wall Street Journal; September 17 2008

Dell Inc. said Tuesday it is seeing "further softening" in global demand, raising questions about the health of the technology industry and fresh concerns about the computer maker's turnaround efforts. Dell shares tumbled 11%.

The company's finance chief, Brian Gladden, told investors that August, typically a slow month for Dell, was particularly bad this year, and "what's changed is we haven't seen it snap back in September."

But there are signs other large tech companies, including Dell's biggest rival, have so far been better able to weather the economic downturn. On Tuesday, Hewlett-Packard Co. Chief Financial Officer Cathie Lesjak told investors the company is "very confident" it can hit its current quarter profit target. Shares of H-P climbed nearly 7%.

Dell is in the midst of an effort by founder Michael Dell to revamp the Round Rock, Texas, company's business model. The changes, including selling PCs and refurbished Dell notebooks through retail stores, have yet to pay dividends.

"The company's inconsistent performance and lack of confidence means there's a lot of uncertainty in the turnaround," said Bill Kreher, a securities analyst with Edward Jones.

Also Tuesday, John Chambers, the chief executive of Cisco Systems Inc., held to the networking company's long-term revenue growth target, despite the economic slowdown. "We've never been more comfortable with our 12% to 17% growth long-term projection than we are right now," Mr. Chambers said at an analysts' conference.

Despite such positive comments, some analysts worried that the technology sector -- which has so far weathered the economic slowdown -- is now increasingly vulnerable to a deceleration in spending, especially with the collapse of some big clients on Wall Street such as Lehman Brothers Holdings Inc.

Shebly Seyrafi, an analyst at Calyon Securities, estimated both Dell and H-P get about 15% of their revenue from financial companies. But, he added, H-P has more insulation from the financial-services turmoil than Dell, since H-P offers technology-consulting services. Dell, meanwhile, is largely dependent on hardware like PCs and server computers for revenue, and it has often found it necessary to reduce prices -- and therefore profit margins -- to boost sales.

While financial services firms make up just 18% of overall U.S. tech spending, "there will be an impact" on tech companies from the financial sector crisis, said Andrew Bartels, a Forrester Research analyst. Financial firms are projected to cut their tech spending by several percentage points this year, he said, unlike other industries that are still growing their tech spending. On Tuesday, Forrester dropped its forecast for 2009 growth in U.S. tech spending to 6.1% from 9.4%, citing the financial industry turmoil and the slowing economy.

Dell isn't the only firm feeling the pinch. Ingram Micro Inc., which distributes computer products made by companies like H-P and Cisco, said Tuesday it is seeing weakening demand. The Santa Ana, Calif., company cut its third-quarter outlook, saying "economic softness is continuing into September, which is exerting greater pressure on operating margins."

By: Justing Scheck, Ben Worthen, and Pui-Wing Tam
Wall Street Journal; September 17, 2008

Early Digital-TV Switch Has Flaw

Viewers Could Lose Certain Channels on Permanent Basis

One of the most surprising lessons from the early digital-television transition that took place last week in Wilmington, N.C., is that some viewers may permanently lose access to certain broadcast channels.

Federal Communications Commission Chairman Kevin Martin said Tuesday that TV stations whose analog signals stretch far beyond their digital broadcast areas may be on the hook to build more antennas to reach those viewers.

FCC Chairman Kevin Martin, left, accompanied by National Association of Broadcasters Television Board Chairman Jim Yager at a news conference in Washington last month.

On Sept. 8, TV stations in Wilmington made the digital switch five months early to give regulators a chance to identify potential problems with the nationwide transition.

The analog signal for Wilmington's NBC affiliate, WECT-TV Channel 6, one of the stations in the experiment, broadcasts several counties away from its actual digital market. When WECT stopped broadcasting in an analog format, as all TV stations must do Feb. 17, several customers outside the official market suddenly lost the channel.

Most of those viewers can access other NBC affiliates closer to their homes, but Mr. Martin is concerned that in February, some people will lose access to channels they have been accustomed to watching without a local replacement.

Mr. Martin told the House Energy and Commerce Committee Tuesday that about 15% of television markets across the country will shrink their markets "in a significant way" when broadcasters shut off their analog signals next year.

The Government Accountability Office estimates that stations with decreased coverage areas after the digital transition could affect 23,000 viewers.

The FCC is currently working on identifying the problematic markets and considering ways to solve the problem, Mr. Martin said. The FCC will ask TV broadcasters to build new antennas to extend their digital signals into dark areas.

"It's important and we will work with the broadcasters to make sure we're filling in those holes," Mr. Martin said.

The FCC wants to distinguish between viewers who will lose access to channels after the digital switch and those on the edge of an analog-TV station's market who can receive a similar affiliate closer to home.

In Wilmington, WECT General Manager Gary McNair said his station's large analog broadcasting domain dates back to when it was the only NBC affiliate across several markets. Other NBC affiliate stations have since sprouted in regions outside Wilmington. Until last week, some viewers on the outer edge of WECT's broadcast area had access to two NBC channels.

When WECT shut off its analog signal, several viewers outside of WECT's market called to complain that they couldn't receive that channel.

Mr. McNair described the problem for WECT viewers outside Wilmington as "inch-wide, mile deep." Even if those people had access to a local NBC affiliate, some preferred the Wilmington channel because they are from the area and feel connected to it, he said.

And when Mr. McNair told those callers there was nothing he could do about it, he said they blamed the government.

By: Fawn Johnson
Wall Street Journal; September 17, 2008

The former chief financial officer of Tommy Hilfiger Group's handbag licensee pleaded guilty to fraud charges in the theft of more than $19 million over a seven-year period.

The U.S. Attorney for the Southern District of New York said Tuesday that Martin S. Bodner, former chief financial officer of Tommy Hilfiger Handbags & Small Leather Goods Inc., an independently owned licensee of Tommy Hilfiger Group, pleaded guilty to mail fraud and wire fraud charges. According to court papers, the theft occurred while Mr. Bodner was employed by the handbag licensee from the middle of 2000 to the end of December 2007.

Mr. Bodner, 60 years old, agreed to repay the licensee an amount no less than $19.6 million minus the $2.5 million Mr. Bodner has already returned to the company. He also agreed to forfeit a home in Sands Point, N.Y., a Manhattan apartment, three cars and various other property. Mr. Bodner is scheduled to be sentenced on Nov. 5. The sentencing guidelines in the plea agreement said a prison sentence within "the range of 63 to 78 months is reasonable." The court may also impose a fine ranging from $12,500 to $125,000, the plea agreement says.

Mr. Bodner's attorney, Matthew Menchel had no comment. Ludo Onnink, chief financial officer of Tommy Hilfiger Group, said in an email message that Tommy Hilfiger Handbags & Small Leather Goods -- which changed its name from Dickson North America in 2000 -- has been a licensee to Hilfiger Group for nine years. "We are not involved in the fraud of this guy and have no ownership or interest in Tommy Hilfiger Handbags & Small Leather Goods," Mr. Onnink said.

Mr. Bodner was first arrested in connection with the fraud on Dec. 21, 2007, by the Federal Bureau of Investigation. According to court papers, Mr. Bodner supervised the handbag licensee's payroll, which gave him control over the amounts the company paid to its employees through a third-party payroll service.

Court documents state that Mr. Bodner began stealing money from the licensee by secretly increasing his salary and bonus as well as getting reimbursed for phony business expenses. Court papers state Mr. Bodner directed the firm's payroll service to increase his compensation by $14,712,000 during his six-and-a-half-year tenure.

Mr. Bodner also put one of his sons on the payroll during 2004 and 2005, with a salary of $225,500, "when in truth and in fact (Mr.) Bodner's son did not work," for the licensee, according to court papers. Mr. Bodner "caused hundreds of checks to be issued to various payees for the purpose of paying off (his) personal credit card bills, purchasing a luxury automobile for himself, paying for insurance for a home, apartments, and automobiles owned by Mr. Bodner, and paying for decorating services," court papers said.

By: Teri Agins
Wall Street Journal; September 17, 2008

Figure Head Puppets Should Face Litigation for Empty Suit Behaviors

Nine of them are retired. Four of them are over 75 years old. One is a theater producer, another a former Navy admiral. Only two have direct experience in the financial-services industry.

Meet the Lehman Brothers Holdings Inc. external board directors, a group of 10 people who, perhaps unknowingly, carried the health of the world’s financial system on their shoulders the past 18 months.
lehman0915_art_200v_20080915172050.jpg
Lehman Brothers employees signed in green a portrait of Lehman Brothers CEO Richard Fuld, Jr.,outside the New York headquarters Monday, Sept. 15, 2008 in New York. (Associated Press)

As the world nervously awaits the effects of the unprecedented Lehman Brothers liquidation, one can’t help but wonder how and why this board let its long-time chairman and patron, Richard Fuld Jr., cling to both hope and power.

Perhaps it was because Mr. Fuld wanted it that way. Over the years, Mr. Fuld had become the living embodiment of the securities firm, creating a top-down culture that sometimes had a military feel to it. Most mornings, Mr. Fuld rode alone in an elevator up to his executive suite. His colleagues simply call him “The Chairman.” And it is telling that press accounts of Lehman’s capital-raising efforts focused entirely on the efforts of Mr. Fuld, and make nary a mention of the 10 other members of Lehman’s board.

Who was on this board? Until the 2008 arrival of former US Bancorp chief Jerry Grundhofer, the group was lacking in current financial-knowledge firepower. A number of the members did have past financial-markets expertise, but most of their working lives were tied to a different era: The one before massive securitization, credit-default swaps, derivatives trading, and all the risks those products created.

The board’s members include John Macomber, 80 years old, a former McKinsey & Co. consultant and chief executive of chemical-maker Celanese Corp; John Akers, 74, former IBM chief; Thomas A. Cruikshank, 77, chief executive of Halliburton Co. prior to Vice President Dick Cheney; and Henry Kaufman, 81. In the 1970s and ’80s, Kaufman, the chief economist at Salomon Brothers, was known as “Dr. Doom” for his bearish views on the U.S. economy. Ironically, in April, Mr. Kaufman termed the credit crisis a “global calamity” and criticized the Federal Reserve for “providing only tepid oversight of commercial banking.”

Other current members include: Sir Christopher Gent, 60, the one-time chief of mobile-phone company Vodafone PLC; theater producer Roger S. Berlind, 75; former Telemundo Chief Executive Roland Hernandez, 50; Michael Ainslie, 64, former chief executive of Sotheby’s Holdings; Marsha Johnson Evans, 61, one-time head of the Red Cross and a former Navy rear admiral.

Until 2006, Lehman’s board included Dina Merrill, the 83-year-old actress once featured in the old Katharine Hepburn movie “Desk Set,” as well as “Caddyshack II.”

How much was Lehman’s board monitoring the company’s on-going risk as it began accumulating its portfolio of real-estate assets and securities? In both 2006 and 2007, the risk committee of Lehman’s board met twice each year, according to Lehman’s SEC filings.

By: Dennis K. Berman
Wall Street Journal; September 18, 2008

Mortgage rates have jumped in the last two days even as rates on Treasurys have fallen, disappointing homeowners and potential home buyers.

Rates on 30-year fixed-rate conforming mortgages currently average 6.11%, according to HSH Associates, a financial publisher in Pompton Plains, N.J., after dropping below 6% last week. Rates slid a bit more on Monday before jumping by roughly one-eighth to one-quarter of a percentage point in the past two days, mortgage lenders and mortgage brokers say. Rates currently average 7.42% for 30-year fixed-rate jumbo mortgages, which are loans too large to be eligible for purchase by government-sponsored mortgage investors Fannie Mae or Freddie Mac.

Mortgages are still well below their recent highs of 6.7% in July. But the latest increase is notable because rates on 10-year Treasurys have fallen by roughly 0.32 percentage point since Friday, to 3.41%.

Rates on 30-year fixed-rate loans have tended to move in line with rates on 10-year Treasurys. But the relationship has weakened in the past year or so. "When people look at the 10-year Treasury and mortgage rates don't follow, that's a surprise," says Wells Fargo & Co. Executive Vice President Joe Rogers. "But the two rates do not move in tandem." Even with the latest increase, mortgage rates are still "quite attractive," he says.

In the past week, the spread between 10-year Treasurys and 30-year fixed-rate mortgages has risen by roughly 0.35 percentage point, says Mahesh Swaminathan, a mortgage strategist at Credit Suisse Group. The wider gap reflects a variety of factors, he says, including reduced demand for mortgages because of the bankruptcy filing by Lehman Brothers Holdings Inc. and the planned sale of Merrill Lynch & Co. to Bank of America Corp. Both Merrill and Lehman have in the past been buyers of mortgages. At the same time, investors are fleeing from all but the very safest assets in the wake of financial troubles at Lehman and insurer AIG Corp.

"There's a credit panic going on, and people are afraid of buying anything but U.S. Treasurys," says Thomas Zimmerman, a managing director at Credit Suisse.

The result has been confusion for borrowers seeking to lock in a good rate. "It's been a roller coaster," says Melissa Cohn, president of the Manhattan Mortgage Co. in New York. "The whole market seemed to unravel" on Tuesday.

Rising rates aren't the only issue for borrowers. Many who would like to refinance can't because of tighter standards and falling home prices. "You have people who can't fully document their income, but are still making their payments, still have good incomes and good reserves, but under the new rules can't qualify for a new loan," says Jon Eisen, a mortgage broker in San Diego.

One big problem for borrowers is that over the past year, Fannie and Freddie -- the two main providers of funds for U.S. home mortgages -- have raised the fees they charge to lenders, and those fees get passed on to consumers.

Fannie and Freddie recently raised their "delivery" charge for loans that will be bought or guaranteed by the companies to 0.5% of the loan amount from 0.25%. That 0.5% fee translates into an interest rate about 0.125 percentage point higher than it would have been before such fees were imposed last year.

In addition, Fannie and Freddie charge another set of fees to all but the most solid borrowers including many people who own Charlotte condos. These fees are highest for borrowers with weaker credit scores or smaller down payments. For instance, effective for loans purchased on or after Nov. 1, Fannie will impose a fee of 1.25% on a borrower with a credit score of 660 to 679 who is making a hefty down payment of 25%. On a $400,000 loan, that means $5,000 in extra fees, some or all of which might be paid in the form of a higher interest rate.

The median credit score for Americans is about 720, according to Fair Isaac Corp.

If the goal is to revive demand for housing, "it isn't going to work this way," says Lou Barnes, a mortgage banker in Boulder, Colo.

The regulator of Fannie and Freddie, the Federal Housing Finance Agency, or FHFA, took over management control of the companies early this month, partly because of worries that they no longer had the financial strength to provide enough support to the housing market. Mortgage bankers hope the companies, backed by promises of financial support from the Treasury, will now be able to reduce some of the fees. A spokeswoman for the FHFA said Fannie and Freddie are reviewing their fees, but she declined to discuss when they might adjust them.

A Fannie spokesman declined to comment on the fees. A spokesman for Freddie said: "We are always looking at the market and making appropriate adjustments."

By: Ruth Simon and James Hagerty
Wall Street Journal; September 18, 2008

A steep decline in new-home construction last month to a 17-year low suggests that the hoped-for stabilization of the housing market -- key to boosting the U.S. economy -- is still a ways off.

Construction of new homes dropped by 6.2% in August to a seasonally adjusted 895,000 annual rate, the Commerce Department said. Construction of multifamily units fell sharply. Single-family home construction fell by a smaller amount but remained at very low levels.

Newly issued building permits also declined in August, suggesting that construction could continue to drop in coming months.

Economists have been watching for signs that home construction, which has been a significant drag on U.S. economic growth, is beginning to stabilize. But the latest data, mixed with the results of construction bonds and combined with gloomy sentiment among home builders and worsening problems in credit markets, suggest that conditions in the housing industry could worsen further.

"A credit crunch is materializing with significant force that completely invalidates the notion that the housing slump is 'bottoming,'" said Roger Kubarych, chief U.S. economist at UniCredit, a markets and investment bank.

The government also reported that the U.S. deficit on trade, income and other payments widened this spring as the price of imported oil surged.

The current-account deficit increased to $183.1 billion in the second quarter, compared with a revised $175.6 billion in the first quarter. Nearly half of the increase came from a rise in the cost of petroleum and related products. With oil prices falling in recent months, the deficit is expected to shrink.

Strong export growth in the second quarter is also expected to slow. Exports of goods rose by $19.5 billion to $337.3 billion in the April-June quarter, helped by a weak dollar and strong foreign demand for U.S. goods. The trade balance provided a huge boost to U.S. growth in the second quarter, so slowing exports could hurt growth in the months ahead.

The trade report also showed that foreigners bought $17.7 billion in U.S. corporate and agency bonds in the second quarter, compared with $28.7 billion in the first quarter.

By: Kelly Evans and Jeff Bater
Wall Street Journal; September 18, 2008

Nanette Lepore Balances Femininity and Practicality In A Season of Romantic Looks

The first look that designer Nanette Lepore sent down her runway during the New York fashion shows last week was a floral-print coat made of a very soft burlap. The coat's oversized, notched collar and bold print signaled power, but the elbow-length sleeves and flowers flashed pure femininity.

Ms. Lepore has built her 12-year-old fashion label on a signature look that manages to combine girlish charm with tailored power. Her designs seemed particularly relevant last week, as dozens of designers offered romantic, feminine looks (with varying degrees of success).

The talent of fashion designers lies in gauging the mood of our culture to create a clothing line that people want. As WSJ's Christina Binkley reports, politics and the somber mood of the economy has influenced Nanette Lepore's designs.

Fashion designers must walk a fine line this year as the economy continues its downward spiral. At a time when women are cutting spending on clothing, designers feel they must entice women with something new and special -- without coming across as frivolous and impractical.

Over the summer, Ms. Lepore decided -- as did a lot of designers showing at fashion week -- that the solution was not conservative designs. On the contrary, difficult economic times seemed to call for escape. In the fashion world, that translated to feminine '70s looks and floaty, frilly counterculture clothes.

Ms. Lepore was among the designers taking chances with ruffles and mixing materials and patterns such as plaid and stripes. "I'm not a huge rule breaker," Ms. Lepore said, but "we're breaking more rules."

Indeed, wearing Lepore requires a taste for well-managed risk. For spring, for instance, she will offer tailored jackets -- without sleeves. A simple sheath dress has a single ruffle running across the skirt. She calls her look "enlightened boho."

Yet Ms. Lepore knows how to balance the tension between function and fashion. More-conservative women might have overlooked the floral-print coat as it was shown on the runway. It was paired with green knickers -- decidedly not an office look. But worn over a more conservative pair of slacks or pencil skirts, the same coat would add verve to a professional wardrobe.

"I feel like I understand that working women need functioning clothes and dresses," said Ms. Lepore in her studio, wearing a transparent leopard-print blouse over a short black skirt. She is a native of Ohio and a working mother herself -- her daughter is 10 years old. She attributes her understanding of appropriate dress in part to her sister Michele, who is married to Ohio state Rep. Bob Hagan and has to find pitch-perfect outfits for a variety of public and political events.

Whether or not Ms. Lepore gets her designs right, the shifting economy is buffeting her business. Earlier this year, she was on the brink of selling a controlling stake in her company in order to expand. Bill Smith, the former president of investment bank Financo Inc. and founder of Global Reach Capital, a private-equity investment group, had been scouring fashion for labels that could be leveraged into juggernaut brands with the launch of accessories, perfumes and other spin-off products. Mr. Smith approached Ms. Lepore about a stake in her brand, which has seven retail stores, in addition to being sold in department and independent stores, producing about $140 million in annual sales.

Figuring Out What to Wear

How do you see the line between feminine and professional? Is there more room for feminine looks at the office these days, or less? Discuss on Front Lines.

Though intrigued, Ms. Lepore dragged the negotiations out for two years while her husband, who is the company's president, urged her to get to the finish line. "I didn't want to lose control of my company," she says. "And then the economy crashed." The deal fell through. "I come home to 'I told you so' every night," she says, as her husband, Robert Savage, nods with a rueful grin.

These days, with financial havoc on Wall Street, all kinds of stores are feeling pressure to reduce the prices of the clothes -- even low-priced Target stores, a Target spokesman told me last week. High-priced designers like Ms. Lepore have found retailers cutting back sharply.

"We're not getting what we're used to in reorders -- it's been hard for me to adjust," she said recently. "In a normal environment, we'd be having tons and tons of reorders, but now, stores are not wanting to get loaded with inventory."

Instead, Ms. Lepore is pressing to grow independently. Plans are in the works to open stores in Bal Harbour, Fla., and on Madison Avenue in New York City -- and she is looking to raise her profile overseas. She said about 15% of her sales currently are overseas, but she hopes to double that percentage within five years. In the U.S., she will launch her first advertising campaign this fall in magazines and on billboards.

Mr. Smith might manage to help out after all. At her show last week, he made it clear he hasn't given up. He said airily, "We'll do something at some point."

By: Christina Binkley
Wall Street Journal; September 18, 2008

American International Group bought itself some time Monday, and not a moment too soon.

The insurer received a $20 billion liquidity cushion when New York state said it could access funds tied up in regulated subsidiaries. AIG is also looking to secure a lending facility of as much as $75 billion arranged by J.P. Morgan Chase and Goldman Sachs.

Both steps became vital when both Standard & Poor's and Moody's Investors Service late Monday downgraded AIG's debt, potentially triggering the need for the company to come up with as much as $20 billion in additional collateral and payments for certain products. The access to additional liquidity should mean the firm won't have a problem doing so.

But even if AIG has momentarily escaped the worst ravages of the downgrades, it doesn't change the fact that the firm needs to raise more capital. Until it sorts out that longer-term problem, and comes up with a restructuring plan that streamlines its businesses and sells off assets, its stock will continue to suffer.

The added danger is new liquidity facilities could tempt AIG to continue to drag its heels. AIG is in its predicament partly because it incorrectly surmised that it had time to work out a grand strategic plan. Indeed, since the start of the credit crunch, AIG has failed to get out in front of its problems.

Now, AIG needs to take what it can get. That applies to accepting lower-than-expected prices for businesses it needs to sell or the level of dilution required to place equity with new investors.

That will be painful for both the company and shareholders. But it is better than the alternative: Just ask investors in Lehman Brothers.

Granted, AIG's silence Monday beat presenting a half-baked plan that only talked about the firm's intentions without presenting actual transactions. But it should be careful taking too hard a line with potential investors, as it reportedly did when it shooed away private-equity firms this weekend because it felt they were aiming for too sweet a deal. Playing hard to get only works when there are plenty of suitors circling.

That isn't the case with AIG. The markets know it needs capital and the firm shouldn't pretend otherwise.

With stock and debt markets taking a beating in the wake of Lehman's bankruptcy filing, AIG's losses may grow wider in the third quarter. Some analysts believe a $10 billion third-quarter loss isn't out of the question.

This looming loss in part explains the downgrade as S&P said it expects greater losses in both AIG's portfolio of residential mortgage-backed securities as well as in insurance products protecting against loss in complex instruments backed by mortgages. Such losses also would cut deeper into the firm's already weakened capital base. AIG may have a tough time selling assets at prices that bolster capital, given its status as a distressed seller trying to flog assets in the worst of markets. So access to liquidity could make it seem a little less desperate in negotiations.

But AIG can't try to drive too hard a bargain. Underscoring that point, S&P noted that if AIG fails to successfully raise capital, either through investments or the sale of assets, and mortgage losses continue to mount, the firm could face further downgrades.

In other words, AIG needs to jump quickly on any serious options that present themselves.

By: David Reilly
Wall Street Journal; September 16, 2008

Your description of AnnTaylor Stores' human workforce-management system ("Retailers Reprogram Workers in Efficiency Push," page one, Sept. 10) is an astonishing example of poor salesperson management. First, it focuses on short-term costs at the expense of long-term profits. Instead of demanding maximum sales per hour, AnnTaylor should seek to determine the optimal sales per hour to maximize long-term profitability by ensuring customer satisfaction. Second, AnnTaylor management is misusing its statistical metrics. If it takes an average of two minutes to help someone try on clothes, then it will take 50% of the employees longer to help a customer. Demanding that everyone be "above average" could only be achieved in Lake Wobegon. Third, employees hate such production-line systems where the customers are treated like widgets. Over time, their discontent will spread from employees to customers, decreasing customer loyalty and further eroding the profits.

Who's going to be loyal to a store that disrespects its customers with high-pressure sales tactics?

AnnTaylor has fallen into the classic mistake of reducing costs on the backs of front-line employees and cutting customer service. Retailers like Circuit City and Home Depot have learned this lesson the hard way. Managing employees like a just-in-time delivery system will only lead to lower customer satisfaction, customer defection and declining profitability.

Michael J. Howley, Ph.D.
Assistant Professor of Marketing
Drexel University

Rolph Anderson, Ph.D.
Professor of Marketing
LeBow College of Business
Drexel University
Philadelphia

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I am really excited about the institution of workforce-management systems at some large apparel retailers. I love it, and have been preaching for years about scheduling to traffic and getting the "right" sales people on the floor. There will, of course, be a shakeout and an upset of the associates, but this is a major step in getting people who can really sell and take care of the customer's needs on the floor when they are needed most.

For those retailers who choose the new workforce software to put the right people in place and access technology to bring the associate and the customer together when service is needed, I see tangible improvement of the in-store customer experience. This strategy will move "customer satisfaction guaranteed" from the memo wall in the break room, to real customer satisfaction on the sales floor, and significant improvement in the bottom line.

Marge Laney
Seabrook, Texas

----

There is a better way to increase sales: It's called supervision and improving the customer experience so customers will return and recommend the store to others.

Jordan Berliner
Alexandria, Va.

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Anyone can improve the bottom line by cutting hours, closing stores and laying off employees. It takes a leader and merchant to improve the top line.

George Hardy
Raleigh, N.C.

Students are doing better in elementary and middle school, but key indicators show little progress among high school and college students, Education Secretary Margaret Spellings said.

"We've got a long way to go," Ms. Spellings said in an interview with the Associated Press.

She cited a few of what she called leading indicators to make her point. Ms. Spellings is expected to present the figures at an education conference sponsored by the Aspen Institute, a think tank.

Children in elementary and middle school have made progress because that has been the focurs, Ms. Spellings said.

Ms. Spellings called for the same types of accountability, like more help services for students trying to obtain a bachelor degree, and student loan aid, whose numbers have largely stayed flat.

Wall Street Journal; September 12, 2008

Seventeen-year-old Alexis Corocan spends about $5 a month on clothes, accessories and eyes of various shapes and shades for her online persona on IMVU, a popular Internet hangout.

For 29 cents, for example, she can buy a set of deep gray eyes framed by dark lashes. Sixty cents gets her a white tiger. Or for $1.21, she could have an infant named Baby Candy.

Five dollars a month doesn't sound like much, but through these microtransactions — payments of little as a quarter for a virtual item — IMVU Inc. reaps roughly $1 million in revenue each month.

Micropayments have been one of the Internet's most-hyped and least-successful ideas — until now, as virtual world creators and video game companies are beginning to expect, and even depend on, players to buy virtual goods in little chunks.

The idea has already taken hold in Asia, where piracy is widespread, making it harder for companies to profit from the traditional model of selling the games themselves. Now some game companies in the U.S. are taking a stab at micropayments as a serious source of revenue.

Instead of charging for each virtual item separately, companies sell chunks of credits — through PayPal, credit card transactions or physical game cards bought in stores like Target — usually for $5 to $25 at a time. Users then spend the credits in small installments, which often amount to just a few cents.

Corocan, of Aurora, Ill., says the money she spends is worth it, but anything more a few dollars a month "is taking it too far."

South Korea's Nexon Corp. has based its entire $266 million business on giving away games for free and charging small amounts of money for little extras that enhance the playing experience, such as virtual clothes for online characters and a $4.40 "slime stick" in the role-playing game "MapleStory." Min Kim, the company's vice president of marketing, compares it to the classic model of selling razors cheaply and making money on razor blades.

The company, founded in 1994, is an established success in South Korea, and now is expanding to North American markets, where most video game money is still made in brick-and-mortar stores. This year when Nexon launches "SugarRush," its first game specifically for a North American audience, players will be able to customize their cartoon-like characters and battle with or against their friends.

Already, Nexon's $10 and $25 game cards are big sellers in big retailers like Best Buy Co. and 7-Eleven Inc. In Target stores, Nexon says, its game cards are the second best-selling prepaid card after Apple Inc.'s iTunes. Target Corp. spokeswoman Brandy Doyle wouldn't confirm that but said "I can say that we are very happy."

Large U.S. game companies such as Electronic Arts Inc. are taking notice. The company's chief executive, John Riccitiello, told a recent investor conference that micropayments will be crucial for EA's business as it distributes more games directly to customers online.

As an example, he cited "Spore," a highly anticipated game launching Sunday in the U.S. after years in the making. The game lets players create an evolving universe, from single-celled organisms all the way to civilizations capable of intergalactic travel. "Spore" does not yet use micropayments, but Riccitiello said he envisions eventually selling separate accouterments for the game like "body parts and planet parts and vehicle parts."

"The microtransaction potential for this game is huge," he said.

This year EA also plans to release "Battlefield Heroes," its first online game whose revenue will come entirely from selling virtual items.

"The game is about creating action heroes, war heroes, almost like making a GI Joe toy," said Ben Cousins, executive producer of the "Battlefield" franchise. He expects that "dress-up doll" items like a cool helmet, a bullet belt, or boots will be popular purchases, along with convenience items, such as being able to double the amount of points a player gets for killing an enemy.

Online micropayments are nothing new. They emerged in the 1990s but never really caught on, in part because early attempts often had people spend tiny amounts of money — a dime here, a quarter there — instead of buying a bulk of credits up front and using them in bite-sized bits.

Now when people buy virtual credits in larger increments and spend them over time, companies don't have to worry about the cost of using credit cards or other payment methods for the individual transactions.

There also might have been a psychological barrier for people reluctant to spend money on digital goods they couldn't hold in their hands.

Many of those conceptions probably changed as Apple's iTunes Store got people comfortable buying digital tracks for 99 cents, said Craig Sherman, who heads Gaia Online, another online fantasy world. Gaia collects $1 million every month from players who buy virtual goods ranging from puppy ears to lightning bolts to something called a "coal tavern wench's bustier."

For now, online gaming companies in the U.S. still mostly rely on subscriptions and, increasingly, ad sales to make money on games. But micropayments are popping up more and more.

To play PlayFirst Inc.'s popular "Diner Dash," for example, people can either pay $19.95 to buy the game or download an ad-supported version for free. Extra in-game items, such as Japanese lights or marble floors, are also available for pocket change to players wanting to spruce up their eateries.

Nexon's Kim expects a "microtransaction explosion" in the next two or three years, as kids and teens used to paying for virtual goods get older.

"It's a new, Web-savvy demographic," Cousins said. "Micropayments and virtual worlds and social networks are a totally normal, completely unscary thing for them."

By: Barbar Ortutay
Associate Press; September 7, 2008

The Virginia Supreme Court declared the state's anti-spam law unconstitutional Friday and reversed the conviction of a man once considered one of the world's most prolific spammers.

The court unanimously agreed with Jeremy Jaynes' argument that the law violates the free-speech protections of the First Amendment because it does not just restrict commercial e-mails — it restricts other unsolicited messages as well. Most other states also have anti-spam laws, and there is a federal CAN-SPAM Act as well, but those laws apply only to commercial e-mail pitches.

The Virginia law "is unconstitutionally overbroad on its face because it prohibits the anonymous transmission of all unsolicited bulk e-mails, including those containing political, religious or other speech protected by the First Amendment to the U.S. Constitution," Justice G. Steven Agee wrote.

Agee wrote that "were the Federalist Papers just being published today via e-mail, that transmission by Publius would violate the statute." Publius was the pseudonym used by Alexander Hamilton, James Madison and John Jay in essays urging ratification of the Constitution.

"In my view, the case was never about Jeremy Jaynes — it was about the First Amendment," said Jaynes' attorney, Thomas M. Wolf. "The argument was never that there's a constitutional right to send commercial spam. It was that the government cannot criminalize the sending of noncommercial e-mail for political and religious purposes, and that is what this statute did."

Lawyers for the state had argued that the First Amendment doesn't apply because the Virginia law bars trespassing on privately owned e-mail servers through phony e-mail routing and transmission information. The court rejected that characterization of the law.

Attorney General Bob McDonnell said he was "deeply disappointed" and vowed to take the issue to the U.S. Supreme Court.

"Jeremy Jaynes used the private property of Internet service providers to defraud individuals worldwide," McDonnell said. "This was not a matter of free speech, it was fraud. Virginia acted appropriately to use this new law to put an end to this criminal behavior."

John Levine, a board member of the Coalition Against Unsolicited Commercial E-mail and one of the state's expert witnesses in the Jaynes case, said he too was disappointed, but added that the ruling won't have broad repercussions because Virginia is the only state that prohibits noncommercial spam.

"I don't see it as a fatal setback for anti-spam law," Levine said.

In 2004, Jaynes became the first person in the country to be convicted of a felony for sending unsolicited bulk e-mail. Authorities claimed Jaynes sent up to 10 million e-mails a day from his home in Raleigh, N.C. He was sentenced to nine years but is currently serving time in federal prison for an unrelated securities fraud conviction unrelated to the Virginia case, Wolf said.

Jaynes was charged in the spam case in Virginia because the e-mails went through an AOL server there.

The Virginia Supreme Court last February affirmed Jaynes' conviction on several grounds but later agreed, without explanation, to reconsider the First Amendment issue. Jaynes was allowed to argue that the law unconstitutionally infringed on political and religious speech even though all his spam was commercial.

Wolf said sending commercial spam is still illegal in Virginia under the federal CAN-SPAM Act. However, he said the federal law does not apply to Jaynes because it was adopted after he sent the e-mails that were the basis for the state charges.

By: Larry O'Dell
Associated Press; Sep 12, 2008

A new round of rainstorms soaked the state Sunday, complicating efforts to take stock of the damage.

For the short term, at least, the massive interruptions imperiled a Texas economy that has continued to flourish, even as the U.S. as a whole struggles.

Residents waited outside Ball High School to be evacuated in buses after Hurricane Ike in Galveston, Texas, Sunday.

"Texas has one of the, if not the, most vibrant economies in the country today, and the heart of that is southeast Texas," Texas Gov. Rick Perry said Sunday after flying over the battered coast, adding, "the hurricane threw us a hard punch."

Buoyed by the energy industry but no longer totally dependent on it, Houston has been booming. While the U.S. economy has shed hundreds of thousands of jobs in the past year, the Houston metropolitan area added 57,100 jobs, an expansion second only to Dallas's, according to data from the federal Bureau of Labor Statistics.

The unemployment rate in Houston in July was just 4.9%, up slightly from a year ago but far below the national average of 6%. Unlike most of the country, Houstonians have seen the prices of their homes inch up. The average sales price in July was $221,500, an increase of about $15,000 from the previous year, with a large number of sales also involving a Texas home inspector.

The Gulf Coast's oil refineries and petrochemical plants, the largest such concentration in the nation, appear to have escaped major damage. "The larger issue is going to be power restoration," said Kevin Kolevar, an assistant secretary with the federal Energy Department.

President George W. Bush said Monday after a briefing on hurricane recovery efforts that he was concerned about the "upward pressure" on energy prices for consumers. Mr. Bush said he was planning to visit Texas on Tuesday.

"We're looking forward to hearing from the local folks," Mr. Bush said. "I'm confident there will be people that are very frustrated because their lives have been severely affected by this storm. My message will be that we hear you, and we'll work as hard and fast as we can to help you get your lives back up to normal."

Power problems were preventing many refineries from returning to service. And Ike forced the shutdown of the Colonial Pipeline, the main gasoline pipe between Houston and New York.

Hurricane Ike was as big and bad as advertised, wreaking havoc on Texas towns in its path, Fox News reports.

Crude-oil prices settled down $5.47 at $95.71 on the New York Mercantile Exchange on Monday, as the Gulf Coast energy infrastructure appeared relatively unharmed after Hurricane Ike. It was oil's first finish below $100 since early March.

On Monday, a gallon of regular rose to a new national average of $3.842 -- up 17 cents from Friday, according to auto club AAA, the Oil Price Information Service and Wright Express. The shutdown of Gulf refineries sent wholesale gasoline prices spiking last week and pushed pump prices back above $4 a gallon in Alabama, Georgia, Michigan and other states.

CenterPoint Energy Inc., which maintains power lines for most of the 5.6 million people in the greater Houston area, warned it would be weeks before it restored electricity to all its customers.

On a tree-lined street near downtown Houston Sunday, a crew of the company's workers stared up at a tangle of tree limbs and wires created when an 80-year-old oak toppled. They said unraveling the main power lines would take a couple of hours, three trucks and at least four workers.

"It's really bad," said one crew member, Dan Martinez, adding that the company is bringing in thousands of contract workers on Monday to help.

Entergy Corp., which serves east Texas and Louisiana, said Ike had a "catastrophic" impact on its operations. It estimated that 600,000 homes and businesses lost power.

Even when electricity is restored, it may take a while for businesses to resume operation, said Chris Johnson, a spokesman for FM Global, a risk-management company. "When you hunker down for a hurricane, you don't just throw a switch and come back on line."

More than one million people evacuated homes, primarily in coastal communities prone to flooding. Many were still barred from returning Sunday, and officials in many cities, including Houston, the nation's fourth-largest metropolis, continued nighttime curfews to preserve order.

There was some chafing Sunday about a lack of supplies, including water and ice, with some locals accusing federal authorities of moving too slowly. But Harris County Judge Ed Emmett, who is coordinating the county's emergency response, counseled patience, as early efforts were concentrated on the hardest-hit areas.

Hundreds of roads, rail lines, airport terminals and ports were closed or devoid of traffic because of flooding and damage. Houston, littered with glass from skyscrapers, was placed under a weeklong curfew. While spots of downtown had power, trees still blocked streets and restaurants and businesses were closed. Planes were taking off and arriving at the airports again, but there were some delays. Schools were closed until further notice.

The Port of Houston, the nation's second-biggest by tonnage handled, suffered minor damage, according to its executive director, H. Thomas Kornegay. It lost track of many employees and was trying to determine Sunday how many were able to return to work.

The damage to tens of thousands of homes and businesses threatened to diminish tax revenue for many Texas cities, none more so than Galveston.

The west end of the city, which saw a boom in expensive vacation homes on stilts in the past decade despite lying just inches above sea level, suffered millions of dollars in damage, Mayor Lyda Ann Thomas said.

By: Miguel Bustillo, Ana Campoy, and Ben Casselman
Wall Street Journal; September 15, 2008

Two months after its launch, the latest version of Apple Inc.'s iPhone is showing strong sales around the world -- except in Japan.

Demand has dropped from launch levels in July when Taichiro Nakamura bought his iPhone at a Tokyo store.

Apple's partnership with Japan's third-largest mobile operator, Softbank Corp., to sell the iPhone 3G certainly created a buzz. Like elsewhere, Japanese consumers lined up at stores in advance of the phone's release on July 11, and many locations sold out almost immediately. But now analysts estimate that demand in Japan has fallen to a third of what it was initially and analysts are now expecting fewer iPhone sales. There is no supply shortage: The device is readily available in Apple and Softbank stores and other outlets. Major electronics retailer Yodobashi Camera's megastore in the western city of Osaka, for example, recently had more than 100 of them stacked up in open view.

A spokesman for Softbank, which has 19.5 million wireless subscribers, said the iPhone continues to be popular, but declined to provide details. A spokesman for Apple Japan declined to comment. Sales have been slowed by the iPhone's relatively high price and the fact that Japan is already home to some of the world's most advanced cellphones and VOIP phones. The iPhone's limited success so far shows how tough it continues to be for foreign manufacturers to crack the Japanese cellphone market.

More than 10 domestic handset manufacturers compete for a slice of Japan's cellphone market, one of the world's largest with annual sales of 50 million phones. Nokia Corp., the industry leader in global shipments, has less than 1% share in Japan. Instead, Sharp Corp. leads the Japanese market, with about 25% of shipments. The global market is more than one billion phones.

Still, expectations had been high that if anyone could break into such an insular market, Apple would with the iPhone 3G because of its strong brand name and popularity of its iPod players and Macintosh computers. The original iPhone wasn't sold in Japan.

According to market-research firm MM Research Institute, Apple sold about 200,000 phones in Japan in the first two months. Since then, however, demand has been falling steadily, and analysts now widely believe sales are unlikely to reach a total of 500,000 units. That is half the one million units that they previously thought Apple could sell. One big challenge is that Japanese users already have access to some of the most advanced mobile-phone technologies in the world. Models currently sold by Japanese cellphone makers typically contain a high-end color display, digital TV-viewing capability, satellite navigation service, music player and digital camera. Many models also include chips that let owners use their phones as debit cards or train passes. Noriko Tanaka, a 34-year-old Softbank customer in Tokyo, said she likes the iPhone's touch screen, but would prefer a phone with digital television capability. "The touch screen looks fun, but I'm not sure I could get used to it," said Ms. Tanaka.

Another challenge for Softbank is that Apple's marketing for the new iPhone has touted the devices compatibility with 3G wireless networks, which give users faster access to the Internet. While this is a relatively new service in the U.S., 3G access has been a standard feature on Japanese phones for years.

"The iPhone is a difficult phone to use for the Japanese market because there are so many features it doesn't have," says Eimei Yokota, an analyst with MM Research. He said one small but must-have feature that is often cited as a deficiency in the iPhone is the lack of "emoji," clip art that can be inserted in sentences to jazz up emails. Japanese consumers have also shied away from the phone because of its high price. Through a complex discount equation, Softbank makes a 16-gigabyte phone available for about 58,560 yen, or around $540, for current Softbank customers or 34,560 yen, or around $320, for new customers, both prices require a two-year contract. That compares with a U.S. price of $299 with AT&T Inc. under similar conditions.

In addition, Japanese customers pay as much as $60 a month to access the Internet and download software applications, along with the usual calling charges. Softbank has lowered its starting data service price since the iPhone launch, but the potential cost is prohibitive for some people, particularly when many Japanese phones are on sale at a lower price.

One iPhone feature that is unique even to Japanese users is the App Store, Apple's online clearinghouse for software, such as games and reference guides. The App Store is popular among U.S. users, but hasn't taken hold as much in Japan, where consumers tend to be more cautious about making purchases online.

Takuro Hiraoka, an analyst for GfK Marketing Services Japan Ltd., says Apple could take more advantage of this feature to boost sales going forward. "Japanese users don't know what to do with an iPhone," he said. "Sales could grow if Apple provides specific examples of how it can be used."

By: Yukari Iwatani Kane
Wall Street Journal; September 15, 2008

Limerick Facility Gave Region Boost; A Shift to Poland

Dell Inc.'s plan to sell its assembly plants could pose problems for cities that count the tech giant as a major employer. Nowhere have worries been greater than in Limerick, Ireland, where a Dell facility with about 3,000 workers helped revitalize the economy.

"It would be dreadful news if something were to happen to Dell," said John Gilligan, who earlier this year became the 812th mayor of Limerick, a city of almost 91,000.

Dell opened its plant in Limerick, Ireland, in 1991, but rising labor costs have diminished the country's attractiveness as a manufacturing hub.

Mr. Gilligan, whose son-in-law works at the Dell plant, said the city hasn't received any recent word from Dell on the plant's future.

There's reason for concern: Dell has approached contract computer manufacturers with offers to sell its plants, according to people familiar with the matter. One person briefed on the strategy, which was reported in the Sept. 5 Wall Street Journal, said some factories Dell doesn't sell could be closed.

As for Limerick, Dell executives have privately discussed closing the plant for two years, said two people with knowledge of those discussions. One of those people said Dell executives early last year decided to close the factory, though they didn't establish a firm timeline.

This person said the goal is to move production capacity from Ireland to Poland, where Dell opened a factory early last year -- though the company is moving cautiously to limit any disruption of manufacturing and defections of sales and operations staff Dell wants to retain. In addition to factory workers, Dell has more than 1,000 office workers who will likely remain in Ireland, that person said.

A Dell spokesman declined to comment on the future of the Ireland plant. "It's clear from our regulatory filings that we're continuing to evaluate and optimize our global manufacturing and distribution network," said spokesman David Frink.

Dell, of Round Rock, Texas, is trying to cut manufacturing costs because of increasing pressure to improve its profitability. While Dell's factories in India, China, Brazil and Malaysia should be relatively easy to sell, these people said Dell may simply close facilities in the U.S. and Ireland, where high labor costs make them less desirable to buyers. Dell already closed a plant in Texas earlier this year.

Dell opened its Ireland plant in 1991, joining a wave of U.S. tech companies that needed a base in Europe to avoid import tariffs and control costs for transporting finished goods. Many chose Ireland because of a low corporate tax rate -- estimated by the country's Industrial Development agency at 12.5% compared with 30% in Germany and 39.5% in the U.S. The Irish government also gave Dell grants totaling €55 million ($78.2 million), according to a spokeswoman for the development agency.

Limerick saw the benefits. In addition to factory jobs, companies supplying components to Dell have provided several thousand more jobs, said Mr. Gilligan. Limerick -- once-known as "stab city" for its high crime rates -- has begun redeveloping its decrepit public housing, and the city recently approved a €350 million downtown redevelopment project, he added.

Local uncertainty has grown in recent years, though, as rising labor costs have diminished Ireland's attractiveness as a manufacturing hub. Dell, meanwhile, ran into its own problems as a company that grew around sales of commercial desktop computers shifted to consumer laptops, particularly used Dell laptops.

While Apple Inc. and Hewlett-Packard Co. saved costs over the past decade by selling many of their factories and shipping some computers directly from contract manufacturers' plants, Dell produced laptops through a two-step process in which a contract manufacturer partially builds a PC and ships it for completion to a Dell factory like the one in Limerick. Many of these laptops are then later sold as used Dell notebooks and discount Dell notebooks.

The company's problems led Michael Dell, its founder, to return as chief executive early last year. He subsequently hired Mike Cannon, the former CEO of contract PC manufacturer Solectron Inc., to head Dell's manufacturing, and ordered a review of the company's production system.

Executives working with Mr. Cannon decided the company should sell as many of its plants as possible, said people briefed on those plans. But that process could take years, they said. So in the meantime, Dell has considered shorter-term solutions.

Closing or scaling back the Ireland plant could help, those people said, because the factory in Lodz, Poland, is large enough to absorb much of the laptop production being done in Ireland -- and PCs can be built in Poland less expensively.

Chris Van Egeraat, a researcher at the National University of Ireland who studies the PC industry, said Poland also has a low corporate tax rate and easy shipping routes to much of Europe, but its labor costs are much lower following recent rises in Ireland. "Ireland is not the same economy it was when these plants arrived," he said.

Recently, though, Ireland's growth has faltered amid a slowdown that could tip the 15-nation euro zone into recession. In addition to global financial turmoil and high commodity prices, Ireland faces a collapsing housing market. House prices, which quadrupled over the past decade, have been falling since last year and slipped 9.4% in July from a year earlier, according to the most recent permanent tsb/ESRI house-price index.

Since construction accounts for 10% of the 4.4 million-person Irish economy, the real-estate crash has had an outsize impact. Irish unemployment in August rose to 6.1%, its highest since November 1998 and up from July's 5.8%. Recent surveys predicted continued slowing in Ireland's manufacturing sector.

By: Justin Scheck and Joellen Perry
Wall Street Journal; September 15, 2008

Wal-Mart Canada Corp. has applied to establish a bank, positioning itself to offer new financial products such as credit cards.

The Canadian division of U.S. retailing giant Wal-Mart Stores Inc. has filed with Canada's Office of the Superintendent of Financial Institutions for a Canadian bank charter, according to a notice on a Canadian government Web site Friday.

A Wal-Mart Supercentre in Canada, where retailer aims to open a bank.

"By obtaining a banking license, we will be able to provide our customers with great value and convenient financial products and services," said Andrew Pelletier, Wal-Mart Canada's vice president of corporate affairs.

Wal-Mart started a banking business in Mexico this year. Doing so didn't fly in the U.S., where its application for a banking license caused much debate and was withdrawn in March 2007 after almost two years of wrangling with U.S. regional banks, unions and community organizations.

If approved, Wal-Mart Canada Bank will be under the jurisdiction of the OSFI and be subject to the same rules and regulations all Canadian banks follow. It wouldn't be allowed to engage in banking in the U.S.

Banking has become a larger part of Canadian retailing in recent years. Publicly traded mass merchants that have received Canadian bank charters in the past include Loblaw Cos., Canadian Tire Corp., and Sears Canada Inc., which subsequently sold its financial arm to J.P. Morgan Chase & Co.

Wal-Mart Canada Bank doesn't have a final list of services it plans to offer, and it doesn't expect to set up traditional bank branches "for the foreseeable future," Mr. Pelletier said.

"Our initial focus will be offering financial services that are consistent with our business as a retailer, such as credit-card services," he said. He wouldn't speculate about how long the review process may take.

By: Andy Georgiades
Wall Street Journal; September 15, 2008

Nearly seven months after announcing an unsolicited offer to acquire Take-Two Interactive Software Inc. for $2 billion, Electronic Arts Inc. Sunday dropped the bid for its videogame rival.

The offer by EA, launched in February, would have united two of the largest publishers of videogames, with hits such as EA's Madden football and Take-Two's Grand Theft Auto series.

EA had long said it needed to integrate Take-Two's games into its portfolio by the holiday season for its offer of $25.74 a share to make sense. Take-Two's management consistently rejected that offer as too low, especially given the strong performance of Grand Theft Auto IV, which has sold more than 10 million copies since going on sale in April.

EA eventually let its hostile offer for Take-Two expire, but it still seemed possible in August that the two sides might arrive at a deal when EA said it was entering into confidential discussions with Take-Two, during which it had access to non-public information about Take-Two's plans.

EA, Redwood City, Calif., on Sunday said it decided not to make a new offer after those discussions, which included a management presentation and other due-diligence materials. Owen Mahoney, senior vice president of corporate development at EA, declined to say exactly what clinched the company's decision to walk away, but hinted that the inability to get a deal done in time for the holiday was a factor.

"This was never must-have proposition, but we respect their people and products," Mr. Mahoney said. "We don't need Take-Two to make EA successful."

Take-Two said EA's decision would have little impact on its fortunes and that it remains "actively engaged" in discussions with other possible suitors, though the company declined to identify them.

"Take-Two is in terrific shape," said Strauss Zelnick, Take-Two's chairman, in an interview. "Our options are numerous, including remaining independent."

Take-Two shareholders in recent months appeared to be betting that EA would walk away from Take-Two. Its shares closed on Friday at $21.89, 15% lower than EA's last public offer for the company.

EA's Mr. Mahoney said the company would continue to scout for other acquisitions. One area of interest: businesses that allow it to distribute directly to consumers over the Internet, without going through a retailer.

By: Nick Wingfield
Wall Street Journal; September 15, 2008

CEO Karmazin Seeks Revamped Financing and Subscriber Options for Satellite Radio

Does anyone trust Mel Karmazin?

Controversy and confusing clouding Sirius XM Merger.

Mel Karmazin Latest Blunder Riddled With Debt and False Projections

With satellite radio's growth slowing and Wall Street rattled, Sirius XM Radio Inc. Chief Executive Mel Karmazin last week joked at an investor conference about how difficult it is to refinance some of the company's debt on reasonable terms. "Am I going to lend the company the money?" Mr. Karmazin asked. "I hope not. I hope we don't get to that.

Sirius XM shareholders weren't in the mood for wisecracks. Since the merger of Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. in late July, the company's stock has fallen about 40%, and now trades at less than a dollar. The downward trajectory accelerated last week after the company issued subscriber forecasts that fell below analysts' expectations and failed to reassure investors about looming debt payments.

In an interview, Mr. Karmazin conceded that his comments about the company's debt were flippant. "I wish I didn't say it," he said. "I tend to be candid. I said something off-handed. I wish it was as simple as that." Ultimately, he says there has been "a tremendous overselling of the stock" and that his company "is heading toward making a bunch of money in the future."

The merger of Sirius and XM was supposed to build confidence in satellite radio, in which subscribers pay a monthly fee for programming that is delivered through special receivers. But already, the normally cocksure Mr. Karmazin is on the defensive about satellite radio's prospects.

The months ahead will be a crucial proving ground. Sirius XM hopes to regain traction with consumers during the holiday season with its first programming packages and radio receivers that combine the Sirius and XM services. As an enticement to consumers who tried satellite radio but didn't stick with it, Mr. Karmazin has considered a plan to reactivate the radios of lapsed subscribers and give them a small selection of programming free of charge.

Meanwhile, Mr. Karmazin's focus is to shore up investor confidence by refinancing $300 million in convertible bonds that come due in February, replacing them with bank debt. Last week, he told investors that he had already begun a series of meetings with banks. "They didn't want to hear that we're having discussions," Mr. Karmazin said. "They wanted it done." While the refinancing is a priority, Mr. Karmazin says he wants to arrange it at favorable terms; the last time he renegotiated debt in a hurry -- in July, the day before the merger closed -- the stock price dropped 16%. On the consumer front, the company is currently negotiating with big retailers like Best Buy and Circuit City to ensure top-notch placement and promotion for its product over the key holiday sales season. The retail market has been dead for well over a year, Mr. Karmazin said, because of confusion over the Sirius-XM merger.

The company will soon introduce radios that allow consumers more flexibility in the programming, including a 50-channel plan that costs $6.99 a month. Sometime next year, radios that can play the entire lineup from both Sirius and XM will hit the market.

Starting next month, even those who don't upgrade their radios will be able to pay an extra $4 a month and get a few "best of" channels from the other company's service. For example, a current XM subscriber will be able to get Howard Stern and Martha Stewart, now exclusively on Sirius.

One potential use for inactive radios: zapping a limited selection of programming to them. "That would be a very efficient use," says Mr. Karmazin, adding the company has considered the move but currently doesn't have plans to implement it.

Given Sirius XM's low stock price, Mr. Karmazin said he would love to take the company private. But given the state of the credit markets, "How do you find [the money] today?" If the company were generating positive cash flow, which he expects it to do for the full year in 2009, privatization would become much more feasible, he says.

Talk-show host Howard Stern's five-year, $500 million pay package, announced in 2004, included 34.4 million shares payable to him and his agent, Don Buchwald. Then, the shares were worth about $110 million; by the time he joined the company in 2006, they were worth more than $220 million because of the stock's sharp rise. Today, those shares would be worth $32.6 million. Mr. Karmazin declined to comment on Mr. Stern's current holdings; Mr. Buchwald wasn't available for comment.

Univision and Telemundo should be forced by the FCC to broadcast in English eight hours a day; FCC granted public airwaves to foreign language broadcasts

Univision Communications is facing a test of strength. The Spanish-language broadcaster must disclose soon whether it will meet a March interest payment on $1.5 billion of "toggle notes" in cash or "in kind" -- by adding to the debt. The market is expecting the latter, as the company tries to conserve cash.

But the broadcaster could well do the opposite to give bondholders a confidence boost. The company hasn't exactly performed as hoped since its $12.3 billion buyout last year -- reporting a 4% drop in second-quarter revenue. Clear Channel and Tribune, other massive media buyouts, also have been hit by the advertising downturn.

Hopes of significant asset sales -- expected to help Univision quickly reduce its debt -- have been dashed by the credit crunch. As a result, the company's leverage, given its net debt of about $9.9 billion, has actually increased a tad, to 11.7 times earnings before interest, taxes, depreciation and amortization. Its 2011 senior unsecured notes are trading at 62 cents on the dollar.

Univision hopes to generate extra cash by persuading cable-TV operators to pay for carrying its broadcast-TV signal. Wachovia estimates that could generate at least $81 million a year. Striking such agreements looks feasible, despite wariness from cable operators. More important, though, Univision needs to settle long-running litigation with its main program supplier, Televisa. That could include selling an equity stake to Televisa.

Univision needs that deal to happen. Not only would it resolve uncertainty about a vital source of programming, but the cash from an equity sale also would help Univision pay down debt, something bondholders in other overleveraged media buyouts must also be praying for.

By: Martin Peers
Wall Street Journal; September 12, 2008

It's Not Because of Books; They're 'Memory Rooms' Or TV-Free Private Spaces

In the library of her 5,800-square-foot house in Glen Cove, N.Y., Linda Teitelbaum keeps trophies from dog shows, needlepoint pillows of bulldogs and gold-framed photos of family. Though the plaid-papered room has a scattering of books, she often retreats to it not just to read but to remember the dogs she used to breed, to nap, or to get away from the TV. "It's my veg-out room," Ms. Teitelbaum says.

Reading rates are down and Americans say they love casual living. And yet, one of the most popular rooms in big new houses is a library. Rather than being about books, their appeal is often about creating a certain ambiance with library casework that creates a relaxing environment. "Libraries connote elegance and quality," says New York architect and interior designer Campion Platt, adding that most of his wealthy clients want one, even if they do most of their reading online.

Libraries have become so fashionable that this month, talk-show host Oprah Winfrey featured the one in her Santa Barbara, Calif., home on the cover of her magazine; it contains first editions collected for her by a rare-book dealer.

In the latest annual National Association of Home Builders consumer survey, 63% of home buyers said they wanted a library with the appropriate library casework, a percentage that has been edging up for the past few years. Many mass-market home builders are including libraries in their house plans, sometimes with retro touches like rolling ladders and circular stairs.

A RETURN TO THE CLASSIC

Jeani Ziering, an interior designer in Manhasset, N.Y., says the newfound popularity of libraries is part of a general movement toward traditional design and décor. "When the economy turns bad, people turn to the classics," she says. Libraries are especially appealing during anxious times because they project coziness and comfort, she adds.
Podcast

The Journal's June Fletcher discusses the resurgence of libraries.

What can make libraries more soothing than other formal rooms isn't so much books but the framed family photographs, awards and mementos that share the shelves and define a family's interests and identity, says McLean, Va., architect Chris Lessard. "They're memory rooms," he says. Because libraries are public rooms, oftentimes the books are purely decorative and don't say as much about the family who lives there. The books that people really read, like paperback novels and how-to guides, often are kept out of sight elsewhere in the home.

Even in a downturn, U.S. adult hardcover and paperback book sales reached $16.6 billion last year, a slight increase from the year before, according to the Book Industry Study Group, a New York trade group. But crammed schedules and the Web have slashed the amount of time people spend reading books. According to the National Endowment for the Arts, 5% of Americans said they read literature in 2002, the latest survey data available, down from 14% in 1992.

HIS AND HERS LIBRARIES

Still, some homeowners are book lovers. Michael Burkitt and his wife, Roberta, own an estimated 9,000 books, all hardbound, which they keep in two formal libraries in their new, 5,800-square-foot home in Reno, Nev., and their 3,800-square-foot vacation house in Newport Coast, Calif. Mr. Burkitt, 65, the recently retired co-owner of a structural-plastics firm, says he's been too busy working most of his life to read even a fraction of them. But he enjoys relaxing among them in what he considers his "sanctuaries" -- one paneled in dark wood, the other in white -- free from distractions like computers. "They're the wombs of my homes," he says.

Tucson, Ariz., interior designer Terri Taylor says she spends a lot of time scouring flea markets and bookstores for books with fancy bindings for her clients' bookshelves. She selects books to match color schemes rather than for their content. She once was ecstatic to find a stash of beautiful, leather-bound books at the bargain price of $20 apiece -- never mind that they were written in German, a language her clients didn't read. "I bought cases of them," she says.

For home builders who are scaling back the size of houses to make them more affordable and cheaper to construct, libraries are a more functional way to create an upscale look than the "old, crazy massive foyers and 'Gone With the Wind' staircases," that characterized houses a few years ago, says Memphis, Tenn., architect Carson Looney.

In some mass-market builders' plans, libraries are replacing dens, which have become redundant in the age of huge family rooms. A home plan called the Monterey Mediterranean offered by Toll Brothers, of Horsham, Pa., has 5,183 square feet, and includes a family room and a library with double glass doors off the foyer -- but has no den.

Neither does the 4,289-square-foot Blue Harbor Plan 4 house that John Laing Homes of Irvine, Calif., sells for nearly $1.3 million in San Juan Capistrano, Calif. In addition to a wine room and a family room with fireplace, it puts a library on a landing between the first and second floors, which allows the ceiling height to be extended for more bookshelf space.

Of course, selling built-in bookshelves is a way for builders to pump up their bottom lines, especially if buyers choose custom-made shelving in exotic woods and frills such as secret doors hidden in paneling. About half the clients of London Bay, a Naples, Fla., builder whose prices start at just under $1 million, order such upgrades, at a cost ranging from $30,000 to $300,000. Lately, says Mark Wilson, the builder's chief executive officer and president, there's even been demand for "his and hers" libraries for spouses who like to keep their books, collections and alone-time separate.

JAY MCINERNEY'S PHILOSOPHY

Some builders are also creating mini-libraries scattered throughout the house. Popular spots are under the stairs, in lofts, in alcoves near master bedrooms and along entry hallways. Gary Stefanoni, senior executive vice president of Orleans Homebuilders in Bensalem, Pa., says that for the past few years, he's seen demand for bookcases in children's playrooms, since kids often have more books, trophies and collections than their parents do. "They want to display them in their own space," he says.

Dan Poag, a shopping-center developer, is putting a dedicated library and built-in bookcases in nearly every room of the 10,000-square-foot house he's building in Memphis. He doesn't know how many books he owns -- he estimates several thousand -- but has kept nearly everything he's purchased since college, as well as his three grown sons' college textbooks, a collection of science fiction, and children's books that his five grandchildren read when they visit. Since nearly every wall of his current house is filled with books, his decorator urged him to re-cover them so their multicolored spines wouldn't clash with the décor. He refused. "The books are my priority," he says.

Similarly, author Jay McInerney and his wife, Anne Hearst, happily mix dog-eared paperbacks with first editions of Fitzgerald and Joyce in the overstuffed bookcases of both their Manhattan apartment and their Hamptons house. Mr. McInerney thinks the visual jumble of thousands of mismatched books is appealing. "If you're not reading what's on your bookshelves, you should find something else to decorate with," he says.

By: June Fletcher
Wall Street Journal; September 12, 2008

Both Candidates Weigh the Best Path To American Dream

The government takeover of Fannie Mae and Freddie Mac is forcing John McCain and Barack Obama to consider the proper fix for the companies' long-term structure. A key question in that effort: How aggressively should a new administration promote homeownership?

Most of the discussion from the candidates has been about how to stem rising foreclosure rates. Both tout homeownership as a central pillar of the American dream. But with many borrowers defaulting on loans and housing prices plummeting in some areas, both also are rethinking how best to achieve that goal.

"This is something the next administration will have to deal with: Are they going to be pushing people into homeownership?" said Dean Baker, co-director of the Center for Economic and Policy Research in Washington and a critic of the government's advocacy of homeownership.

Government policies have promoted homeownership for decades, from Franklin D. Roosevelt's New Deal, which paved the way for the 30-year mortgage, to postwar policies that explicitly ensconced it as a federal goal.

During the 1990s, Washington pushed Fannie and Freddie to expand their role providing loans for low- and middle-income borrowers. In 2002, the Bush administration charted a more aggressive course by pushing for lower down payments and touting vouchers that would allow public-housing tenants to one day own homes.

Neither candidate has suggested that the government's basic goal of expanded homeownership is a mistake. Sen. Obama has proposed a 10% mortgage interest tax credit for homeowners who don't itemize. The goal is to give more low- and middle-income Americans an existing tax subsidy, as two-thirds of taxpayers don't itemize on their returns, according to the Internal Revenue Service. The campaign estimates that the provision would provide an average $500 each to 10 million homeowners.

Both candidates are challenging the way the U.S. has pushed for homeownership, however. "It doesn't mean the goal was flawed. It means that the Bush administration went around it the wrong way," said Jason Furman, an Obama economic adviser. The Democratic platform calls affordable rental housing "more critical than ever," while the Republicans call for a housing policy that recognizes the "needs of renters."

In 2004, President George W. Bush campaigned on lower barriers to homeownership as part of the domestic agenda for his second term. The Republican Party platform that year singled out the down payment as the "most significant barrier to homeownership."

This year's Republican platform makes no mention of that plank, instead warning that "government action must not implicitly encourage anyone to borrow more than they can afford to repay."

Sen. McCain was a leading advocate of raising down-payment requirements on loans backed by the Federal Housing Administration and has warned against lending to homeowners who don't have enough of their own capital in the investment.

The Fannie-Freddie rescue has revealed differences between the campaigns over how they believe the next president should approach long-term reforms. Sen. McCain supports downsizing the companies, then selling them off, severing all ties to the government. His advisers have called for the FHA or other government agencies to make mortgages available to borrowers who otherwise might not qualify.

Sen. Obama's advisers have argued against privatization. "If your only plan is privatization, that is reckless and ideological and risks affordable housing in this country," said Mr. Furman. While parts of the institutions may need to be privatized, he said, the failure of investment bank Bear Stearns Cos. is an example that "a private structure is no guarantee that you avoid problems."

Both candidates have urged stiffer measures to stem mortgage fraud and called for greater transparency in the loan process, so homeowners can better understand their mortgage terms.

Sen. McCain offered his most detailed response to the liquidity crisis in March, when he rejected the use of taxpayer money to bail out speculators or financial institutions and warned against rescuing irresponsible players, from big banks to small borrowers.

Sen. Obama has called for amending the federal bankruptcy code to allow judges to force mortgage lenders to take a loss on their loans as part of a Chapter 13 settlement. He has criticized Sen. McCain for voting in favor of a 2005 bankruptcy bill that critics say made it harder for lower- and middle-class consumers to file for bankruptcy. The bill had the support of Sen. Obama's running mate, Joe Biden.

The Illinois senator also has called for restoring public-housing funding cuts made by the Bush administration, and supports efforts to create an affordable-housing trust fund, which would provide a dedicated source of funding for low- and middle-income housing.

By: Nick Timiaos
Wall Street Journal; September 12, 2008

The next U.S. president will be confronted with slow growth, high unemployment and an economy teetering toward recession, say 51 private economists surveyed by The Wall Street Journal.

If they are correct, pumping up the economy will the first challenge facing either Democrat Barack Obama or Republican John McCain. That is likely to place tax cuts and government spending high on Washington's agenda, and push back costly measures such as reforming health care and fighting global warming.

The Wall Street Journal's latest monthly survey paints a gloomy picture of the outlook through the first half of 2009. The economy is on course to post four straight quarters of annualized economic growth below 2%, the longest stretch of subpar growth since the 2001 recession.

The respondents saw a 60% chance of an outright recession, expect the economy to shed 19,000 jobs a month for a year, and say the jobless rate, which jumped in August to 6.1%, will keep rising, to 6.4% by midyear, passing the 6.3% seen after the last recession.

The worst stretch will be the next few months, the economists say, coming as elections shift into high gear. Annualized growth in the gross domestic product is projected at 0.7% in the fourth quarter. A few months ago, forecasters thought the economy would be growing at a much faster clip by then.

By inauguration day, Jan. 20, the situation won't have improved much, they say. Growth in the first quarter is projected at a 1.3% annual rate.
Charts and Full Results

See and download forecasts for growth, unemployment, housing and more. Plus, views on another stimulus package, a consumption slowdown, where the economy will be on election day. Survey conducted Sept. 5-8.

"Rapidly rising unemployment, rebates behind us, falling house prices, falling stock prices, general loss of confidence and much tighter credit conditions. None of it looks good," said Paul Ashworth of Capital Economics.

Not all the news is bad. Inflation is expected to moderate. Economists forecast oil prices to be down to about $102 a barrel by the end of this year, and below $100 a barrel by June, potentially helping to take pressure off stretched households.

Even so, consumers are likely to be hurting. They have been stung not only by rising food and energy prices, but also by a deteriorating job market, tighter credit and falling home prices.

Yvette Perera, 39 years old, of Vallejo, Calif., was laid off in January from her job handling help-wanted ads for a small local paper, and has since been unable to find work. Her unemployment benefits end Nov. 1. "I'm looking for anything," she said. "Anything." On supermarket runs, she tries to limit herself to spending $40.

Sen. McCain has proposed cutting corporate taxes to 25% from 35%, and retaining all the Bush tax cuts on individuals, figuring that would give a boost to business. Sen. Obama would increase tax rates for those making more than $250,000 and use the proceeds for tax cuts aimed at moderate-income workers. Helping them would pump up the economy through consumer spending, his advisers argue.
About the Survey

The Wall Street Journal surveys a group of 56 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted every month. Once a year, economists are ranked on how well their forecasts have fared. For prior installments of the surveys, see: WSJ.com/Economists.

On average, the survey respondents expect a 0.1% contraction in consumer spending during the third quarter. It would mark the first such retrenchment by consumers in 17 years. Consumers kept spending during the last recession, to the surprise of many economists. The respondents expect 0.1% growth in consumer spending in the fourth quarter as the holiday shopping season kicks into gear.

Retailers posted weak August same-store sales -- sales at stores open at least a year -- amid a disappointing back-to-school season. On Friday, the Commerce Department is set to release official retail sales numbers for August. Economists surveyed by Dow Jones Newswires expect an anemic monthly advance.

Nearly one-third of economists surveyed said the consumer retrenchment may not be reversed for years, a problem that could quickly rise to the top of the next president's agenda.

The Federal Reserve already has cut interest rates sharply, meaning any future stimulus might need to be driven by the White House. But choosing a fiscal-policy course will be tricky. A rising budget deficit could constrain the next administration. Meantime, tax rebates proved to be only a fleeting help.

Two-thirds of economists said a second stimulus package, currently being debated in Congress and supported by Sen. Obama, isn't the right move. Most support extending or making permanent President George W. Bush's tax cuts, as does Sen. McCain.

Among the economists who support a new stimulus, none said it should primarily be based on rebates to individuals, as Sen. Obama would do. His $115 billion plan includes $65 billion in rebates and $50 billion split between aid to state and local governments, and infrastructure spending. He would pay for the rebates by taxing oil-company profits. Sen. McCain has said he is open to a stimulus plan, but hasn't committed to any specific proposal.

Thirteen percent of the economists who support a stimulus plan said it should include infrastructure spending, which some argue carries more bang for the buck, while 2% said it should focus on extending unemployment insurance and food stamps. Nineteen percent said it should include some mix of rebates, infrastructure spending and benefits.

"You can't afford to bail out the financial system and the real economy at the same time," said Mr. Ashworth.

By: Phil Izzo and Kelly Evans
Wall Street Journal; September 12, 2008

Home Page, Email To Include Content From Third Parties

At Yahoo, it's all about monetizing pages, increasing profit per page view, per email login in; Yahoo wants to serve profit driven pages.

Yahoo Inc. executives provided an update on the company's plans to open its online services -- including its home page and email service -- to contributions from third-party Internet and software companies.

The efforts, described in a briefing at the company's headquarters in Sunnyvale, Calif., range from allowing users to search other content -- such as classified-ad sites -- from within Yahoo Mail to allowing them to access online music download services like that of Amazon.com Inc. from within Yahoo Music. Yahoo also said it will be redesigning its home page to make it easier for users to tap these third-party services, demonstrating how users might add a link to the movie site Netflix Inc. in the right corner of their screens.

Yahoo said it will be redesigning its home page to make it easier to tap third-party services.

Opening up Yahoo's sites and technology has been an important pillar of Yahoo Chief Executive Officer Jerry Yang's strategy to turn around the company since he took over as CEO last year. While Yahoo has described some of these initiatives before, it has showed off only a few new products so far.

Now parts of the vision are becoming clearer. On Friday, Yahoo is hosting a "Hack Day" for developers to start building versions of their service that integrate with its home page or that can be used by Yahoo Mail's 275 million monthly users.

Ash Patel, head of Yahoo's audience products group, said the company is working with developers to roll out the new mail applications -- designed to help users perform functions like sending online invitations or photo albums right from their in-boxes -- in coming months.

Yahoo is one of a number of Web companies seeking to prove how open they are to drawing in users spreading their time across a broader range of sites. Time Warner Inc.'s AOL this week launched a home page that allows users to pull in more content from rival email services like Google Inc.'s Gmail.

Scott Moore, head of Yahoo's media group, said Yahoo's media sites, which include heavily trafficked staples like Yahoo Finance and Yahoo News, have strong track records of drawing on outside content but see opportunities to expand. "We are not just doing this open thing because it is the flavor of the month," he said. "This open approach is really in our DNA."

On the advertising front, Hilary Schneider, executive vice president of Yahoo U.S., discussed the company's efforts to open up its advertising technologies to other publishers, like newspapers. She also referenced the company's planned search-advertising partnership with Google as an example of a deal that allows Yahoo to benefit from integrating with outside partners and services.

The deal, which is being reviewed by the Department of Justice as well as some state attorney generals, would allow Yahoo to display some advertisements sold by Google to boost revenues. While a number of advertisers have raised concerns that the deal could lead to higher prices for online advertisers, Ms. Schneider said the agreement would enable Yahoo to sell search ads for queries where it currently doesn't have enough demand from advertisers, using a search for a local flower shop as an example.

Mexican billionaire Carlos Slim and his family have accumulated a 6.4% stake in New York Times Co., making them one of the largest shareholders in the newspaper publisher outside of the controlling Ochs-Sulzberger family, New York Times Co. disclosed late Wednesday in a regulatory filing.

Mr. Slim, the world's second-richest man according to Forbes, owned 9.1 million Class A common shares as of Sept. 4.

The investment by Mr. Slim comes as the company faces financial pressure. The migration of readers and advertisers from print to the Web has led to steep advertising declines that have accelerated amid the U.S. economic slump. Print-ad revenue for New York Times Co.'s News Media Group, which includes the Times, the Boston Globe and several other papers, declined 14% in the first half of 2008, while the company's stock price recently fell to its lowest point in about a decade. Shares have fallen 32% over the past 52 weeks.

The company's performance earlier this year led to a proxy battle by the hedge fund Harbinger Capital Partners and investment company Firebrand Partners LLC, which together were seeking four seats on New York Times Co.'s board and strategic changes at the company. In March, New York Times Co. granted the group two board seats.<