LA Biz Observed

L.A. tourism gets a boost

2008-07-04T16:52:49Z

In the months after 9/11, when folks were afraid to get on planes and overall travel took a dip, L.A.-area tourist spots benefited from local residents staying home. That same scenario seems to be playing out this summer with what's being dubbed "Staycations." This time, it's the high price of gasoline and airline tickets that's eating into the travel business. All of which is potentially good news for Disneyland, Universal Studios and other local destinations (tourism is the second-biggest industry in Socal). There's another plus this summer: foreign visitors. The decline of the dollar is making the U.S. a favored destination. The LAT lays it out in a biz section feature:

Reservations by Southern Californians at local hotels are up 9% compared with last year, according to Expedia Travel Trendwatch, and many popular state beach campsites are booked solid for the remainder of the summer. "What we are seeing is a revision of travel plans, rather than cutting them out," said Bruce Baltin, senior vice president of PKF Consulting Corp., which monitors the hotel industry. "Eighty-five percent of travel within California is by Californians, anyway," he said. "Southern California as a whole typically benefits when people are cutting back on what we do."

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Sue Pisaturo, owner of Small World Vacations Inc., an online site that exclusively sells Disney vacation packages, said she hadn't noticed any significant change in interest in trips to Disneyland, nor has the agency seen a large number of cancellations. The only subtle shift is in hotel accommodations -- more people are staying at less-expensive hotels outside the resort. "It can mean the difference between going and not going," Pisaturo said.

Another Delta cutback: Expect more elbow room at LAX - but for the wrong reason. Delta is discontinuing nonstop service to 13 cities, including Seattle, Portland and Phoenix. The flights to be halted are operated by ExpressJet Airlines under the Delta Connection name. Along with previously announced cutbacks, Delta will have 60 daily departures out of LAX, down from the current 93. (LAT)

L.A. crashes rank higher

2008-07-03T20:11:48Z

Allstate has released one of those studies that mean practically nothing, but which is getting all kinds of attention because it's intriguing - sort of. The insurer has ranked the average frequency of getting in an auto accident in various cities. The U.S. average is one collision every 10 years. In L.A., it's once every seven years, placing it way down in 182th place. At least Philly has a worse record: once every 6.6 years. We can probably guess as to the reasons: Long commutes, impossible congestion, large numbers of uninsured drivers, etc. This being an insurance company, the results are sliced and diced in every conceivable way. Phoenix ranks 87th and is the safest city with a population over one million (9.8 years), while Sioux Falls, S.D. is the safest city overall, with one accident every 14.6 years. Here's the NYT post and here's the Allstate release. Have fun.

Latest worry: newsprint

2008-07-03T19:11:15Z

I realize it's fashionable these days to demonize newspaper owners as greedy bastards and leave it at that, but there's a little more to the story - namely that the business is getting hit on virtually every possible front. Analysts who have followed the industry for 20 and 30 years have never seen anything like it. Case in point is the price of newsprint. It's a newspaper's second-biggest expense, after labor, and the price has hit a 12-year high. The reason has a lot to do with the merger of Abitibi-Consolidated Inc. and Bowater Inc. Never heard of them? Together, they have created the world's largest newsprint producer. "We've seen substantial and unprecedented price increases since the merger," said John Sturm, president of the Newspaper Association of America. From Bloomberg:

Since its formation, money-losingAbitibiBowater Inc. has closed mills to reduce supply by 600,000 tons annually, responding to record oil prices and a strong Canadian dollar. That has allowed the Montreal-based company, with about 45 percent of the North American market, to push through $20-a-ton price increases every month this year, even as consumption of newsprint by daily newspapers fell 15 percent in the 12 months through March. The jump in prices is ``unprecedented'' in a period of falling demand, said Ed Atorino at Benchmark Co. in New York, who has followed newspapers for 25 years.

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Prices will continue to rise $20 a month in the third quarter, AbitibiBowater spokesman Seth Kursman said. Energy, labor and fiber costs have all climbed, he said. RBC Capital Markets paper analyst Paul Quinn in Vancouver expects the increases to continue for six months. The newsprint producers have pricing power because AbitibiBowater, White Birch Paper Co. and Kruger Inc. control 75 percent of the North American newsprint market, said CreditSights Inc. analyst Chris Ucko.

The sharp cutback in pages being mandated by Tribune Co., which owns the LAT, is in part an effort to save on newsprint, though it�s not clear how much of a hit the company has actually taken because of the increases. Some publishing companies, including the NYT, have partially hedged in order to get a cheaper price. Trouble is, the higher cost of newsprint is combining with the drastic plunge in advertising to create the worst of all worlds: higher operating costs and lower revenue coming in. And it's hitting everybody.

Zell still upbeat

2008-07-03T18:41:25Z

On the same day LAT Editor Russ Stanton announced the big newsroom cuts, Tribune CEO Sam Zell was out with another one of his "Partners" memos that outlines all the good stuff going on around the company. Interesting timing. He said that the Orlando Sentinel's bubblegum makeover was getting good reviews among readers (especially young ones), that the LAT political blog, "Top of the Ticket," was generating lots of traffic, and that a fellow at KTLA-TV suggested compiling licensed celebrity videos into a Web site. Here's the memo, via Romenesko. Zell closes this way:

I encourage you all to send in more success stories that reflect how we are going to make Tribune the industry leader on all fronts. So, I ask you, what have you and your team changed lately?

This would be an interesting case study for corporate management types. How exactly do you get the troops fired up in the wake of so much terrible news? I have a sneaking suspicion this �Partners� business isn�t the answer.

Thursday morning headlines

2008-07-03T16:25:31Z

Another weak jobs report: The only thing good to say about June's numbers is that they generally matched estimates, so at least there hasn't been any panic on Wall Street. But the report basically stinks. Payrolls dropped by 62,000 after a 62,000 drop in May. The jobless rate was unchanged at 5.5 percent. "It's really a weak labor market," Credit Suisse analyst Kathleen Stephansen told Bloomberg Radio. "When you look at the details it seems as though there is no redeeming factor here." One economist calls it a "slow-motion recession," which sounds about right. Here are stories from Bloomberg and the WSJ. The NYT puts it this way:

The job cuts came across a range of industries, affecting bankers, construction workers, and manufacturers. The report is the latest signal that the nation is struggling with one of the worst downturns in a generation. As job losses mount, even those still on payrolls have felt the pain: employers are cutting hours for their full-time employees and shrinking salaries just as workers face record-high prices for gasoline and food.

Stocks are zig-zaggin': The market was up in the first few minutes of trading, perhaps because traders expected the jobs report to be even worse. Also, the dollar was up and oil was down. Then it was back in minus territory and now the Dow is up again. Perhaps the best news this morning is that it's a holiday shortened session (volume is thin).

SAG update: No new talks are scheduled until Monday between the Screen Actors Guild and the studios and networks. Supposedly, SAG wants more time to study the offer made on Monday by the Alliance of Motion Picture & Television Producers. On Tuesday, the results of the AFTRA ratification vote are expected to be announced, at which point the SAG leadership could be forced into capitulating. From Variety:

SAG insiders have maintained that if the AFTRA vote passes by a relatively small margin, it will strengthen SAG's hand in seeking a better deal than AFTRA's. But a Hollywood labor official asserted that SAG has put so much effort into defeating the AFTRA deal that it won't gain any leverage if the pact's ratified -- as is widely expected. "The final offer from the companies may not be completely final, but it's going to be damn close," the insider added. "And with the economy going into a recession, SAG's not going to be able to persuade its members to go on strike."

Ports update: The refusal by the dockworkers union to extend its contract until a new agreement can be reached has port operators nervous. The concern is that the International Longshore and Warehouse Union might resort to work slowdowns. The union's most recent contract expired Tuesday after months of negotiations. From the FT:

The most contentious issue in the ports is likely to be the role of new technology. Many ILWU members currently have highly-paid jobs as clerks checking containers or in other roles that ports elsewhere in the world have abolished through using better technology. The ILWU has persistently resisted the introduction of technology it believes threatens jobs.

Schumer gets reamed: Federal regulators were none too pleased with the NY senator expressing his concern "that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers." In the banking biz, that's shouting "Fire" in a crowded theater. And besides, how did Schumer know this? John M. Reich, director of the Office of Thrift Supervision, told Schumer that "Dissemination of incomplete or erroneous information can erode public confidence, mislead depositors and investors, and cause unintended consequences, including depositor runs and panic stock trades." Of course, let's not forget that IndyMac was trading at just over a buck a share before Schumer's letters. Tom Petruno at Money & Co. has the details. "Which Way L.A.": I talked about IndyMac on last night's KCRW show. Here's the link.

Ground beef returns: Ralphs markets were restocking after clearing out previous supplies of ground beef that were linked to reports of E. coli illnesses. Kroger Co., parent of Ralphs, first pulled the meat from its stores in the Midwest, where the E. coli cases were reported. It expanded the effort on Tuesday. The new ground beef came from a different supplier. (LAT)

Album sales plunge: CDs accounted for much of the 11 percent drop for the first six months of 2008. Downloads, however, posted a 34.4 percent increase, to 31.6 million units. The top-selling album at midyear was rapper Lil Wayne's "Tha Carter III." (Billboard)

Worrries at Cond� Nast: So much for defying the drops in advertising seen elsewhere. The three big titles - Vogue, Glamour and Vanity Fair - are all flat to down in the first half. Only the smaller magazines, such as Bon Appetit or Architectural Digest, are up. Retailers do most of their advertising in the final quarter, but there's concern that marketing budgets will stay tight through the end of the year. (NY Post)

New Century plan approved: The bankruptcy liquidation for what had been the nation's second-biggest subprime-mortgage lender will pay unsecured creditors up to 17 cents on the dollar. Those creditors say they're owed as much as $35 billion (Yow!). OC-based New Century filed for bankruptcy last year after state and federal investigations were launched and a bunch of shareholder lawsuits were filed. (Bloomberg)

Vegas is a steal

2008-07-03T01:09:57Z

Heck, just because it's 107 degrees at a little past 5 doesn't mean the place is all bad. Dataquick says that the median home price in May was $239,940, a 17.3 percent drop from a year earlier. That's a four-year low, largely the consequence of all those foreclosures (hat tip to Lansner on Real Estate). Of course, low prices have also helped boost sales to their highest point since last August (much like the situation in Phoenix and the Inland Empire). The subprime meltdown is part of the explanation, but there's also the Vegas economy, which is no longer recession-proof (just too much big-money development). From the WSJ:

The industry is facing what insiders and analysts call its biggest challenge in years. Rising gasoline prices, the housing crisis and other economic troubles are prompting consumers not just to gamble less, but to spend less at the luxury boutiques and restaurants where casinos draw most of their profits. Struggling airlines are cutting service to Las Vegas. And pressures are building on casinos that cater to local residents, who have been hard hit by economic troubles. "This is the toughest environment we've faced," says Gary Loveman, chief executive of global gambling giant Harrah's Entertainment Inc., referring to the economic challenges roiling the entire industry. Casinos are being pinched by less access to cash as they grapple with predownturn expansion plans and billions of dollars of debt. Turnaround and bankruptcy experts say they are getting more calls from casinos than they have in years.

The Journal piece brings up a struggling sector I hadn't even considered: low-glitz, high-profit casinos that cater to the locals. In April, revenues at these locations fell 9.5 percent from a year earlier, according to J.P. Morgan casino analyst Joseph Greff (what a job, eh?). By comparison, revenues at casinos on the Strip dropped 1.3 percent.

Among those hard hit by the local decline is Boyd Gaming, started in 1975 by Sam Boyd and his son, Bill. The publicly traded company is bidding to become a big player on the Strip, via a $5 billion casino development on 87 acres. The project, called Echelon, is slated to include five luxury hotels, a retail promenade and an exposition center. Boyd is committed to funding $3.3 billion of the project, through a $4 billion credit line and its own cash.

Misery loves company

2008-07-02T23:54:19Z

The loss of 150 newsroom jobs is bad, but don't forget the elimination of 7,000 jobs at American Airlines. The NYT reports that 8 percent of the airline�s workforce will be slashed between now and the end of the year, the result of reduced flights that are the result of higher fuel costs. The cuts appear to be twice as big as those announced by any other carrier - so far. Folks, this is shaping up to be one brutal summer and fall. NYT economics columnist David Leonhardt expects the job market to remain weak through the end of the year (employment can fall for months after a downturn has ended). But here's the thing: layoffs have little to do with the economy's problems. Really.

Since 1992, the Labor Department has been tracking something called �gross job losses,� which is the number of positions eliminated at a given office or job site. In 2007, these losses were at nearly their lowest point on record, just above the 2006 level. That�s right � last year, companies eliminated significantly fewer jobs than they did in any year of the fabulous late 1990s boom. Unfortunately, gross job gains � the new jobs created � have fallen more sharply than job losses. Companies have gone on a �hiring strike,� notes Ed McKelvey, a Goldman Sachs economist. Existing firms aren�t expanding much, and not enough new firms are starting. The country is suffering from an innovation deficit.

By the way, the June employment numbers are due out tomorrow - and they're likely to show another month of contraction. Also getting scrutiny will be the separate survey measuring unemployment. You might recall that the May jobless rate jumped 0.5 percent from the previous month, to 5.5 percent, putting many economists into panic mode. Unemployment is not supposed to increase so much so quickly. It's possible that number will be revised downward (jobless data this time of year tends to be funky). State and local employment numbers for June are due out in a couple of weeks.

*LAT announces cuts

2008-07-02T23:08:13Z

About 250 positions will be eliminated paper-wide, including 150 newsroom jobs. That's 17 percent of the editorial staff (the newsroom currently has 876 people). Also, the number of pages published each week will be reduced by 15 percent. The cuts were outlined in memos released by Publisher David Hiller and Editor Russ Stanton. From the LAT:

You all know the paradox we find ourselves in," Times Editor Russ Stanton said in a memo to the staff. "Thanks to the Internet, we have more readers for our great journalism than at any time in our history. But also thanks to the Internet, our advertisers have more choices, and we have less money." He also noted that the poor economy had struck particularly hard at the California housing market, traditionally a robust source of advertising revenue for The Times.

Stanton didn't provide many details, other than he hopes to make the cuts by Labor Day. Perhaps lost in the staff cuts is the decision to combine the print and Web staffs into a single operation. At this point, it's really all about the Web. Hiller said "we want to get ahead of the economy that's been rolling down on us and get to a size that will be sustainable." The cuts are based on his expectation that the downturn will bottom out early next year. (That's fine for the overall economy, but a bit doubtful for the newspaper business.) When the dust settles, there will be about 700 people in the newsroom, which is a stunning decline from the 1990s and yet reflective of a business that's in terrible shape. From Hiller's memo:

As we move forward, our plans include:
--A re-designed flagship Los Angeles Times newspaper to debut in the fall, reflecting the work of the Reinvent team, the Spring Street Project, and related efforts underway for quite some time.

--A re-designed latimes.com website.

--A combined multimedia newsroom to produce excellent content for both.

--More targeted products for new audience segments.

--A re-organized sales team fired up to turn our revenue picture around Increased utilization of our operating strengths so we can print and distribute newspapers and other products all across SoCal.

*Updated post

LAX bomb scare

2008-07-02T20:30:13Z

A man has been arrested near Tom Bradley International Terminal after supposedly claiming he had a bomb. The bomb squad was called in, and part of the airport roadway near the terminal was closed. Surface streets around LAX are jammed. There are conflicting accounts on how this is impacting flight traffic (everything from shutting down the airport to little or no delays). But clearly, LAX is a mess. (KNBC, LAT)

Wednesday morning headlines

2008-07-02T16:47:55Z

Will my Starbucks close?: The 600 stores to be shuttered by early next year have not been revealed, but the coffee king did disclose that 70 percent of them have opened since the fall of 2005. These newer locations appear to be cannibalizing older stores, a long-held concern among many Starbucks watchers. Analysts say that Starbucks lowered the bar for choosing new locations, and in turn tarnished the overall quality of the chain. (WSJ)

Calming down at IndyMac: The rush to withdraw funds appears to be ebbing at the Pasadena mortgage company. Meanwhile, Sen. Charles E. Schumer, who some say started the panic by suggesting IndyMac was in dire shape, now says that Treasury Secretary Hank Paulson and Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., "are on top of the situation," whatever that means. About $100 million in deposits were pulled out in a couple of days. That sounds like a lot but it's only 0.5 percent of total deposits. (Money & Co.)

Report denied: IndyMac strongly took issue with allegations by the Center for Responsible Lending that the company �fueled its growth with unsound and abusive mortgage lending.� The report, says the company, relies entirely on unsubstantiated anecdotal evidence contained in pending lawsuits. Well yeah, but those suits do contain serious allegations from IndyMac customers and employees (some of whom are plaintiffs). So they do have an agenda, but it also doesn�t mean they�re wrong. Besides, the credibility of mortgage companies these days is just to the south of dog catcher.

Hollywood marches on: Two days after the Screen Actors Guild contract expired, quite a bit of work continues, despite chatter about a strike or a de-facto strike. They're especially busy on the TV side. Variety does one of its talk of the town snapshots that suggests little, if any, enthusiasm for a strike - and relatively scant concern that there's one in the offing.

"The sentiment is that people who are working don't want to go out. If there hadn't been a writers strike, there might be more support for (a SAG strike)," said a veteran talent rep who specializes in TV thesps. "Right now, there's too many people who are just desperate to get something going." Indeed, while there's great skepticism about SAG's ability to rally actors for a full-blown work stoppage, there's no question the town is enduring the labor pains of a de facto strike because of the uncertainty.

Ralphs pulls ground beef: The store gets its meat from parent company Kroger, which has been recalling ground beef linked to an outbreak of E. coli illnesses. Omaha-based Nebraska Beef Ltd. recalled 531,707 pounds of ground beef produced since May. The extent of the local recall is unclear - the wires report that Ralphs markets in Silver Lake, Hollywood and Orange County were pulling meat. (KCBS)

Microsoft's new Yahoo run: This time, Microsoft is supposedly looking for a media partner(s) to help them go after Yahoo's search business. Discussions have been held with Time Warner, News Corp. and others, according to the WSJ, which has the story at the top of p1. But hold on, look at paragraph three: "Some of the people familiar with these talks say they are preliminary and unlikely to result in a deal with Yahoo." There�s a lot of head-scratching on why this story even exists. As DealBreaker correctly pleads, "Just end already! Seriously!"

Edison gets railed: A 16 percent rate hike request will do it every time, especially when gas is near five bucks a gallon. Edison customers griped about the request during a meeting in Compton, noting the executive bonuses and stock options being given to executives of the utility, a unit of Edison International. If approved by the California Public Utilities Commission, next year's rate increase would add more than $7 to the average residential monthly bill. From the LAT:

One of the most unusual provisions in the proposed increase calls for ratepayers to fork over $1.6 million to remodel Camp Edison, a public camping ground owned by the utility at Shaver Lake in the Sierra Nevada northeast of Fresno. Camp Edison boasts 252 campsites, wireless Internet service and laundry facilities. The utility plans an expansion and overhaul, which would include new bathrooms and an administrative building. In April, the utilities commission's consumer advocacy arm said less than one-fifth of Edison's rate hike request was justified. The Division of Ratepayer Advocates recommended a $156-million increase for 2009, or about 50 cents a month for the average home.

No condos at Beverly Center: A real estate company has agreed to drop plans for two high-rise residential towers that would have been part of the center's overhaul. The move came after two community groups sued the developer and the city of L.A. over the project. It's not often that developers lose these kinds of battles, especially these days, but the arguments against the high rises were overwhelming. From the LAT:

Laura Lake, a land-use consultant who advised Burton Way Foundation, said that few community challenges of development projects go to court and that, if they do, the community groups tend to lose once the cases go to trial. "This is a very unusual situation because it was so blatantly clear to the trial court" that the environmental impact report was required, she said. "It was a massive project with major impact."

Port update: Still no deal and quite a few issues to be resolved, but the dockworkers and shipping companies continue talking. News coming out of the talks has been so skillfully managed that there are few, if any, clues on where things really stand. And judging from the dearth of reporting, nobody is talking. The two sides could agree to extend the contract to continue talks, but there are no signs of that happening. And there's not been a strike authorization vote. (FT)