Competitive Intelligence

Oracle vs. PeopleSoft: The Final Round

I was waiting until tonight to weigh-in an updated opinion on the Oracle/PeopleSoft fight, after Craig Conway's rebuttal today of Oracle's win in the Justice Department case challenging the merger as anti-competitive.

Despite potential European regulatory challenges and the poison pill of a customer loyalty program ($2 billion in rebates worth a $5 a share premium over the current $21 asking price in a valuation on the company) that Oracle is challenging in a few days in Delaware, significant obstacles remain to Oracle's success. However, I believe that, not only will PeopleSoft fail in its defense, I think the time has come to acquiesce and make the most of of a rotten situation... oh, and, Conway has got to go, and soon.

The timing of the Justice Department ruling could not have been worse for PeopleSoft - nearing the end of its fiscal third quarter when a lot of deals get signed - getting any kind of traction in a market that thinks your company has no future will be tricky. Still there was a bright spot in August when PeopleSoft announced a $50 million contract, its largest ever, with Mexico's Tax Administration Service to modernize Mexico's tax system. The two-year contract - which PeopleSoft won after beating Oracle - aims to cut tax evasion and improve tax collection in Mexico.

But Oracle now cannot let this thing die - they need to win it... Oracle last week reported first-quarter earnings that, while exceeding estimates, were dragged down by disappointing applications sales, highlighting the strategic importance of its acquisition.

Their shared competitors are cetainly enjoying all of the uncertainty in the marketplace, and, if the sweetener added to the executive comp mix is any indication, it would appear PeopleSoft's management would agree with me that their chances of success are dim. However, Oracle said speculation that increases in executive pay at PeopleSoft would raise the purchase price of PeopleSoft were not at all true. "But this necessarily lowers the value of PeopleSoft and is just the latest in a long string of measures that takes value away from PeopleSoft shareholders," Oracle vice president Jim Finn said in a statement. Oracle Chairman Jeff Henley spoke to a Banc of America securities conference in San Francisco today regarding PeopleSoft's poison pill, which effectively makes a takeover impossible, saying PeopleSoft's shareholders need to speak up if they believe management isn't working on their behalf. "At some point the shareholders may stand up and say enough is enough."

The company said these changes address concerns employees had regarding their "long-term employment prospects" and only apply if there's a change in control of the company and a worker is terminated involuntarily. An Oracle executive testified during this summer's antitrust trial that the company plans on getting rid of at least 6,000 PeopleSoft staff, or almost 80 percent of the company, if it succeeds in its takeover. Still it seems pretty sweet: PeopleSoft said all employees will get a minimum of 12 weeks of base salary and payments for up to 12 weeks of health coverage, instead of a minimum of two weeks of base salary for each year of service up to a maximum of three months base salary. Executive officers besides the chief executive (who got his parachute a while back) will get between 1.5 times and 2.0 times their annual base salaries and target bonus payments for up to 24 months of health coverage. The executive officers were to get 0.75 and 1.0 times their annual base and target bonus. PeopleSoft has also provided for the accelerated vesting of all employee stock options if a takeover occurs.

It is in this climate that PeopleSoft started the week at Connect 2004 - its customer cheerleading event where spirits were high with record turnout, making it the biggest in the industry. "More than 15,000 attendees from the Americas, Japan, and Asia Pacific will convene at the conference being held September 20-24 at The Moscone Center in San Francisco. Just one year after the acquisition of former J.D. Edwards, PeopleSoft President and CEO Craig Conway, PeopleSoft Executive Vice President of Products and Technology Ram Gupta, and PeopleSoft Chief Technology Officer Rick Bergquist will deliver keynotes highlighting significant merger milestones, product roadmaps, and technology strategy. Other featured speakers include Intel CEO Craig Barrett and television host and author Bill O'Reilly."

Still there's that elephant in the room: "This conference is taking place under an enormously dark cloud," said Joshua Greenbaum, a Berkeley consultant who has closely followed PeopleSoft and Oracle for years. "It's got to be one of the more uncomfortable moments we have seen in a while." And, JD Edwards customers are probably the ones with the most to worry about. "It's kind of awkward," said Terrance Hauser, who helps oversee PeopleSoft applications as an information technology manager for the University of Michigan. "I think the question on everyone's mind is what is going to happen next for PeopleSoft, and I'm not sure we are going to get a lot of answers."

"Have you ever had a bad dream that just didn't seem to end?" Conway asked the crowd. "We have, and it's been going on for 15 months." Despite the judge's ruling, Conway said, that "does not mean PeopleSoft will be acquired by Oracle," a vow that drew loud applause.

Conway, himself a former Oracle executive, also announced an alliance with IBM. PeopleSoft will bundle its software with IBM's WebSphere, and the two companies said they'll spend more than $1 billion over five years on shared development and sales. The deal marks PeopleSoft's biggest-ever partnership... Huh? Doesn't it also seems just a little less than realistic. And, what's IBM think will happen in all of this?

Conway in his speech also noted the birthday of company founder and Chairman David Duffield, who was seated in the front row of the audience. Drawing a sharp contrast to Larry Ellison, Conway cited Duffield's reputation as an honest, humble leader. That legacy, Conway said, helped carry PeopleSoft through its ongoing battle with Oracle.

"We had a year that tested our resolve, stretched our resources and challenged our values," Conway said. "But we didn't blink, and we're not going to blink."

Showing their support, some employees stretched a large banner across the convention center's ceiling. It read "see you next year in Las Vegas," which is the site of PeopleSoft's 2005 users' conference. Customers, though, are cautious. "We're taking a wait-and-see approach," said Norm Wold of tech services company Oracular, an 18-month PeopleSoft customer. "We expect a long process of appeals and other events, but there is a definite amount of uncertainty."

And, a start date for PeopleSoft's billion dollar damages lawsuit against Oracle in a California state court has been pushed back to January 10 from November 1, after Oracle requested additional time to prepare, a move that might delay access to a potentially important defensive weapon for PeopleSoft’s fight. "Clearly, we want to get on with the case as soon as possible, but we're pleased that the judge moved it only to January and not any later," PeopleSoft PR chief Swasey said. PeopleSoft sued Oracle alleging unfair business practices as it pressed ahead with its bid. The case will be tried in front of a jury and PeopleSoft claims damages exceeding $1 billion and is requesting the takeover bid be halted.

Oracle said it needed more time because PeopleSoft didn't produce for the court a list of transactions central to the case until earlier this month and that wasn't enough time to conduct proper discovery. "The court recognized that this late disclosure was meaningful to the case and that it would deny Oracle its due process," said Oracle spokeswoman Deborah Lilienthal.

The question is, is there any real victory for Ellison's hopes of a tactical advantage over an otherwise threatening rival? Having scuttled the benefits of the JDE deal and hurting it with customers by injecting FUD (fear, uncertainty and doubt) into any software investments they might consider with PeopleSoft, Oracle’s bid had the unintended effect of strengthening otherwise less likely rivals, particularly a delighted SAP, especially in fast growing markets like China:

Germany's software maker SAP AG said on Monday PeopleSoft and Oracle had disappeared as major rivals in the Chinese market due to their messy takeover battle and that SAP was growing at least twice as fast as the market.

"Oracle has disintegrated. They have no people on the ground," SAP's head of greater China, Klaus Zimmer, said at the Reuters Asia Technology Summit in Shanghai. At the same time, Oracle's hostile bid "destroyed PeopleSoft's business in China".

The Chinese market is rapidly emerging as the most important market in the Asia Pacific region for SAP, the world's biggest producer of enterprise planning software. SAP's Chinese business overtook India and Korea last year, is on a par with Australia and aiming to exceed its Japan business, Zimmer said.

The growth is fuelled by local Chinese companies, many of them state-owned, which need business planning software to evolve from centrally planned behemoths to market-driven enterprises.

"State-owned companies need to become cost-efficient modern enterprises," he said. After two years of roughly doubling sales in China, SAP expected in excess of 60 percent growth this year.

"This year we will more than double the (expected) market growth of 32 percent," Zimmer said.

In that fertile market, its two main international competitors were fading to the background, Zimmer said.

"PeopleSoft were trying to come up last year. They gave us a hard time at banking, trying to penetrate through human resources (software). But the shadow of Oracle behind it scared the banks away. Banks are very conservative."

PeopleSoft is trying to fight off a hostile takeover by Oracle. A U.S. judge ruled earlier this month that Oracle could pursue its takeover attempts.

"Perhaps I should send Larry Ellison a thank-you note. PeopleSoft is now out of the picture. It's non-existent."

SAP's market share in China, as measured in May 2003 by market research firm IDC, was 28.7 percent. Oracle then measured nearly 10 percent, but has experienced setbacks in the region since, Zimmer said.

In head-to-head contract battles against Oracle, SAP was winning 95 percent of the time, he said.

Zimmer said his counterpart at Oracle had left, the third time he had witnessed a switch at his rival during his eight year tenure in China.

"When the head leaves, his allies in the company leave."

Oracle's Asia Pacific technology officer, Kevin Walsh, said at the summit that China was one of the fastest growing areas for the company, but declined to give details.

Zimmer said he was winning back business from Oracle, such as from electronics manufacturer TCL Corp.

"The struggle was four years ago. Oracle started (with planning software in China) five years ago. In database (software) they have 80 to 90 percent of the market, so they had a very strong name. It was tough to fight against them."

"The market wasn't educated by then. The story was that SAP's system were rigid and painful and Oracle said it didn't have to be. And they were very cheap. In one of the deals we won back recently, Oracle's price was substantially lower than ours."

Local Chinese software makers posed no serious threat for SAP when bidding for big customers, he said. In fact, many of the major utilities, banks and industry companies owned by governments were ditching local software, despite efforts by the central government to use home-grown solutions.

"At all the state-owned companies we displaced local players. I see less obedience to this (government) request."

As for what Conway should do next, I agree with the BusinessWeek recommendation:

It's time for Conway to give up the fight. True, doing so will mark an ignominious defeat for a talented leader who helped turn PeopleSoft around in the late '90s. A takeover also will mean painful layoffs. But if Conway soldiers on, his company's prospects -- already made worse by the protracted fight -- will turn dire. Ellison, who badly needs PeopleSoft to shore up his sagging applications business, isn't going away. Says Addison L. "Tad" Piper, vice-chairman at investment firm Piper Jaffray: "Stretching this out hasn't helped anyone."

When Ellison first made his bid in June, 2003, it made sense for Conway to test his resolve. Over the years, PeopleSoft had built an enviable relationship with its corporate customers. What's more, the company had a reputation for being more innovative than Oracle in applications. Conway argued, not without merit, that being taken over by Oracle, led by the famously abrasive Ellison, would undermine both of those strengths.

But that was then. PeopleSoft's business, troubled for two years, is crumbling. For a while customers kept the faith, but in recent months growing concerns about the takeover fight have eroded their confidence. What's more, corporate spending has not revived as strongly as projected. The combination means companies that are buying software these days are consolidating around fewer suppliers -- and PeopleSoft isn't on the short list. While PeopleSoft has been forced to discount heavily to keep many customers, German giant SAP has emerged the big winner, with a 23% gain in U.S. software sales for the second quarter. PeopleSoft's second-quarter net income fell 69% from a year earlier, to $10.98 million, while sales of $647 million fell well short of analysts' expectations.

Still, Ellison badly needs PeopleSoft. Thanks to Oracle's strong database unit, fiscal first-quarter earnings jumped 16%, to $509 million, on sales of $2.22 billion.

But its application sales plunged 36%. Eager to get his hands on PeopleSoft's customers, Ellison has guaranteed to support its software for up to 10 years to ease their fears. That's better than PeopleSoft's existing maintenance contracts.

Oracle's bid has plenty of upside for investors, too. The cash offer of $21 a share values PeopleSoft at $7.7 billion, plenty for a company with just $2.3 billion in yearly sales. The bid is also about 26 times PeopleSoft's earnings; big software deals usually don't go for more than 20 times earnings. PeopleSoft is now trading at about $19, but only because a takeover appears probable. It is unlikely to get near $21 on its own. Conway would do better negotiating the best price he can before its fortunes decline even further.

Why won't Conway give up? He's eager to protect his legacy. PeopleSoft's employee-empowerment plans and dedication to customer needs are widely admired. Analysts figure over half of the company's 12,000 employees will lose their jobs. And he still argues that PeopleSoft will make better software alone.

But consider one alternative scenario: Oracle launches a proxy fight and takes control of the board after another year of decline. Everyone at PeopleSoft would lose -- shareholders, execs, and employees. That's not a fitting legacy for a leader who, up to this point, has always done right by his company.

Others in attendance at the IBM press conference think Conway’s showing signs of stress:

While Conway and other PeopleSoft execs have been directed not to say much about the Oracle takeover bid because of ongoing legal proceedings, sometimes saying less is more. In the case of Conway, his few words on the topic spoke volumes. He referred to Oracle’s unwanted overtures as a “bad dream that wouldn’t end” and made numerous subtle references to the situation being a distraction for the company. He said the past year had challenged PeopleSoft’s resolve. And he insisted that the company was not interested in being acquired, and that it was not seeking a “White Knight.”

Then, during a subsequent press conference at which PeopleSoft and IBM execs provided details of a huge alliance between the companies, Conway called the agreement “perhaps the most ambitious announcement in the history of enterprise applications.” In quickly surveying the gathered journalists and analysts immediately after that remark, I spotted eyebrows raising and heads shaking at the unexpected and largely preposterous claim. Wall Street analyst Charlie Di Bona found it to be a head-scratcher, saying that PeopleSoft’s newfound focus on service-oriented architectures placed it well behind its competition.

So what did I take from all of this? That Conway may be a CEO in denial, not only about his company’s future, but also about the impact the Oracle advances are having on its present. I'm not the first to suggest this--numerous analysts have suggested as much to me and other journalists. Unquestionably, the situation is taking its toll on Conway, who may ultimately find that shareholders can only stand firm for so long—eventually, if the deal clears all its regulatory and legal hurdles, Oracle’s offer may become too sweet to pass on.

So what’s the deal with IBM? Conway mulled the idea of trying to sell out to IBM last summer as a way to thwart Oracle's bid, according to evidence that emerged during a June trial on the antitrust challenge. According to internal company documents, IBM was also worried about Oracle's bid that it would lose millions of dollars in sales if Oracle gained more market power in a PeopleSoft takeover. But, the deal announced Tuesday doesn't necessarily mean IBM is taking sides in the takeover battle, said Steve Mills, who heads up the company's software group. "What you see is what you get," Mills said Tuesday. "We are not making any declarations about events outside our control."

But analyst Di Bona also predicted the IBM partnership won't sway PeopleSoft shareholders who are weighing the merits of Oracle's $21-per-share bid. "If PeopleSoft wanted to do shareholders a favor, they would take the $21," said Di Bona, who believe PeopleSoft's shares would be trading around $15.50, if not for the takeover offer. For the propeller-heads in the audience, the details are pretty interesting, even if they do confirm PeopleSoft's relative competitive weakness in middleware technology:

Conway and IBM Senior Vice President Steve Mills refused to comment on whether the alliance was a stepping stone toward IBM possibly buying PeopleSoft. Some analysts have speculated that such a "white knight" offer for PeopleSoft could not be ruled out despite Oracle's takeover effort.

Mills later told reporters the alliance would result in a boost in head count that could reach the "multi-100s" over time, though he did not elaborate.

Conway said the IBM alliance was aimed at giving customers Web-enabled access to PeopleSoft's software applications - allowing them to make changes in their business processes more quickly - through the use of IBM "middleware" products, which allow different programs to work together.

PeopleSoft will bundle IBM's WebSphere middleware products with its applications free of charge, and the two companies will invest $1 billion during the next five years to jointly develop industry-specific software that will capitalize on IBM's WebSphere products. The two also will jointly establish what they say is the first business-process-interoperability lab to test and certify application interoperability.

The expanded relationship with IBM is key to a strategy Conway outlined in his keynote address: Over the next 12 months, PeopleSoft will deliver more adaptable applications to let customers use Web services to build service-oriented architectures. Both IBM and PeopleSoft are committed to helping customers better link applications to create smoother business processes, executives from the companies said at a press conference detailing the alliance. "There's not a company anywhere in the world that isn't talking about horizontal integration," said Steve Mills, senior VP of IBM Software Group.

IBM is deploying teams to PeopleSoft's Pleasanton, Calif., headquarters and will make additional resources available as needed. "This is a very important strategic investment from IBM's perspective, and we're going to back that up," Mills said.

But Charles Di Bona, an analyst with Sanford C. Bernstein & Sons, wasn't impressed with the announcement or PeopleSoft's message about Web services and service-oriented architectures. "I don't think it makes that big a difference," he says. "It's kind of embarrassing that they're just talking about this now. They're so far behind." The alliance is similar to relationships IBM has with many other vendors, and PeopleSoft had to establish a middleware partner if it's not going to market its own infrastructure products, Di Bona says. (PeopleSoft sells an application server, though it trails offerings from IBM, BEA Systems, and others by a large margin.) The primary impact will be on BEA, which was thought to be PeopleSoft's primary middleware partner, he says.

Conway also highlighted PeopleSoft's accomplishments over the past year, most notably the rollout of the company's Total Ownership Experience, a program designed to lower the time and costs related to product rollouts and upgrades. The marriage of J.D. Edwards' manufacturing applications - inherited when PeopleSoft bought the smaller competitor in July 2003 - with PeopleSoft's product roster has created the world's most integrated manufacturing system, he said. In the past 12 months, 140 enhancements and 110 regulatory updates were added to PeopleSoft World, and 300 enhancements were added to PeopleSoft EnterpriseOne, including support for radio-frequency identification technology, Conway said. Some 250 additional enhancements are planned for EnterpriseOne by the end of the year.

Sure, IBM doesn't want to see its biggest database competitor - Oracle - strengthened in a growth business while IBM suffers the pain of losing an independent PeopleSoft as a sales channel. But, IBM's made a strategic decision to stay out of enterprise applications so it doesn't alienate other players with more revenue potential like SAP or Siebel by becoming a direct competitor with its former partners - which is exactly what will prevent IBM from ever actually buying PeopleSoft.

In short, if IBM wanted PeopleSoft it would've bought them by now; rather the company made a statement in the $1 billion partnership - that this is it, and nothing more. Still, convenient timing has given PeopleSoft a modest bounce at its user convention - perhaps getting a few of the customers who were holding off on signing deals to move ahead with back-burnered plans... however, a lot like political conventions I think, any bounce in the polls should settle back to earth in short order... and this might just be one of the last cards PeopleSoft has left up its sleeve.

The silver lining to this story - and something Oracle is sure to point out to the Justice Department and European regulators moving forward - is how competitive vendors are getting in the enterprise applications business. In addition to SAP's success, smaller ERP vendors - from Microsoft to Ross - are benefiting from all the FUD.

Another Oracle/PeopleSoft competitor, Lawson Software, is trying to make sure the company's customers don't forget about the Oracle threat. St. Paul, Minnesota-based Lawson has launched an advertising blitz in San Francisco this week, with a billboard and ads on dozens of taxis: "There's nothing hostile about letting Lawson take over."

- Arik

Kerry’s Resonating Attack on Bush Economic Policy

I though John Kerry finally reached out to the middle last week with his critique of the President’s economic policies – it really hit home to me, what my friend Mark Dankof would call a “paleo-con” small government conservative. Much better than the sandbox “W is Wrong” argument, Kerry finally started slinging mud like he knows what he’s doing, despite precious few details of his own economic plan for America.

Senator John Kerry lashed out at President Bush's economic record on Wednesday, saying that Mr. Bush had created more excuses than jobs and that in the closing months of his term he could no longer refuse to take responsibility for the failures on his watch.

"His is the excuse presidency: never wrong, never responsible, never to blame," Mr. Kerry said in a speech to the Detroit Economic Club that amounted to his strongest attack yet on the Bush administration's economic policies. "President Bush's desk isn't where the buck stops, it's where the blame begins. He's blamed just about everybody but himself and his administration for America's economic problems."

Mr. Kerry's speech, billed by his campaign as a major economic address, offered no policies beyond what he had already put forth: tax incentives for American corporations to help keep jobs in the United States, a rollback of tax cuts for people who make more than $200,000 a year and a $1,000 child care tax credit for the middle class, among other proposals.

But at a time when Mr. Kerry has pledged to hit harder at Mr. Bush and focus more on domestic policy, he framed his economic argument against the president with hot new rhetoric. Mr. Kerry said that the job losses and economic troubles under Mr. Bush were a result not of bad luck - the recession, the Sept. 11 attacks and the corporate scandals that the president cites in his speeches - but of bad choices.

Mr. Bush's choices, Mr. Kerry said, have consistently been in favor of the rich and the powerful. "He chose and he chose and he chose," Mr. Kerry said. "And every single time his choices made middle-class America pay the price."

In Mr. Bush's America, Mr. Kerry added, "a fireman who works overtime to save money and pay for his kid to go to school actually pays a higher tax rate than a billionaire who just inherited a fortune."

Mr. Kerry was apparently referring to Mr. Bush's 2003 tax bill, in which the top tax rate on dividends and capital gains, a source of most billionaires' income, was lowered to 15 percent. That is a lower rate than would be paid on the overtime of a firefighter who earns $70,000 a year.

The Bush campaign replied that Mr. Kerry was offering up more gloom about America. "He rehashed old, tired ideas of higher taxes, of more regulation and of more government control of people's lives that his own advisers say will not work," said Ken Mehlman, the president's campaign manager, in a conference call.

Mr. Mehlman added that Mr. Kerry had voted 98 times for tax increases totaling $2.3 trillion and had voted 8 times for higher taxes on Social Security benefits.

Mr. Mehlman was apparently referring to a record that is more complex than suggested in the daily charge and countercharge of the two campaigns. In reality, Mr. Kerry voted for one large tax increase, the Clinton tax bill of 1993. Most of the additional income taxes in this bill were imposed on the wealthy, but it did include an increase in the taxes on Social Security benefits for middle-income retirees.

Mr. Kerry also voted against two large tax cuts, the Bush tax bills in 2001 and 2003. Although most of the tax cuts went to the wealthy, the bills included lower taxes for middle-income couples and families. Mr. Kerry favored the middle-class cuts but voted against them in the course of voting against the entire legislation.

Mr. Kerry did cast 98 tax votes, but nearly half of them were not on bills but rather on budget resolutions, measures that set overall tax and spending targets. The total also includes the many times he cast multiple votes on the same bill.

Mr. Kerry delivered the speech, at Cobo Hall in downtown Detroit, accompanied by Robert E. Rubin, the Treasury secretary under President Bill Clinton. In the introduction to his remarks, Mr. Kerry lavished praise on Mr. Rubin and made it clear that if he was elected he would want Mr. Rubin at his side.

Mr. Rubin, he said, is "one of those rare public citizens who has this great ability to move between the public sector and the private sector and keeps his credibility through both." He added that "there are those of us obviously who would love to see him make that transition and move again."

Over all, Mr. Kerry's remarks were greeted with tepid applause, which one of his advisers, Gene Sperling, attributed to what he said were the largely conservative leanings of the economic club. Mr. Sperling, an economic adviser in the Clinton White House, was in Detroit to brief reporters after Mr. Kerry's speech.

With an argument like that, Kerry might even persuade some Bush supporters to stay home on election day, giving him the edge he needs to win – that is, if he can beat that drum without turning off his own more sensitive base, who traditionally find such lowbrow tactics tacky, at best.

- Arik

Do the Emmys Still Matter? "Arrested Development" Sure Hopes So…

The 56th Annual Emmy Awards were televised last night – not that I caught it – and the “Sopranos”, “Angels in America”, Kelsey Grammer, Sarah Jessica Parker, James Spader, HBO in general and Fox’s critically-acclaimed (but unwatched) comedy “Arrested Development” were all big winners. The question of whether people really pay attention anymore is a good one – the fall TV series’ and season premieres aren’t as important as they used to be, but great shows like “AD” might just be saved from cancellation if enough viewers decide the Emmys still have a place in the pantheon of celebrity and entertainment award shows…

Intended to serve as the standard-bearer for the opening of the fall TV season, the Academy of Television Arts & Sciences awards are far removed from the convergent frenzy of other Hollywood self-love pageants.

But what if Emmy's isolation ended? After all, the traditional fall-to-spring TV season has been declared passe by at least one broadcast network and is little observed by cable channels.

Could an earlier Emmy ceremony juice viewership, which last year measured just under 18 million? That's compared to nearly 27 million viewers for this year's Golden Globes and 43 million-plus for the Oscars.

For actors, the shift from Los Angeles' typically sizzling September to a cooler month amounts to a health and safety issue.

"At that time of year, it's 4 in the afternoon in Los Angeles and it's 98 degrees and they're sweating in their tuxedoes," observed analyst Bill Carroll of Katz Television Group.

Most importantly, a springtime awards show could benefit worthy but ratings-challenged shows that need a boost.

"Emmys have a noble history of saving shows," said Tom O'Neil, author of "The Emmys" and host of GoldDerby.com, an awards prediction Web site.

"All in the Family" was mired in the ratings cellar after it debuted in January 1971. The Emmys were held in the spring that year and the sitcom received the best comedy series award as well as the best new series trophy (no longer given) and went on to become an invaluable part of America's culture.

This Sunday, when the 56th Annual Primetime Emmy Awards are held (airing 8 p.m. EDT on ABC), the critically lauded yet low-rated Fox sitcom "Arrested Development" could be the beneficiary of Emmy largesse.

After evading cancellation, its best comedy series bid could draw audience attention to its charms.

Emmy's impact on endangered programs would be even greater if the awards came early in the year when they have a chance to affect viewership for struggling shows.

More than a few series canceled in May, when the fall schedules are announced, have enjoyed the empty honor of an Emmy nomination in July.

Those wary of change should consider the evidence: Until 1976 the awards were usually held no later than May, at the TV season's conclusion. They moved to September in 1977 after a split between East and West Coast factions of the TV academy.

The Los Angeles branch took control of the prime-time awards and change was afoot.

"Shifting from a (spring) retrospective to a (fall) preface probably made sense," said ATAS awards director John Leverence. "It helped brand the new Emmys as the fall kickoff and the (West Coast) academy as the organization that was going to do it that way."

Moving the Emmy presentations, which are produced on a rotating basis by the four major networks, to earlier in the year would change the period of eligible competition from the TV year to the calendar year.

This means the first competitive period of the change would be just nine months long, something Leverence downplayed as a mere "administrative hiccup."

Since politics and promotion are at the heart of Emmy timing, why not consider a change? The September-to-May TV model, although still dominant, is showing signs of stress.

Among broadcasters, Fox is leading the way to year-round original programming, prodded by its need to navigate the postseason baseball playoffs that usurp the network's first weeks of the fall season.

Other broadcasters have made some effort to offer fresh summer fare, although at this point it's generally been quick and cheap reality series.

For cable channels, summer has become a prime launching pad for flashy new series to entice viewers turned off by network repeats.

There's an irony in having an awards show kick off the new season while celebrating many shows that have nothing to do with the traditional cycle, said Preston Beckman, Fox's executive in charge of program planning and year-round programming operations.

"Big chunks" of the Emmy broadcast, especially in the movie and miniseries categories, honor programming from season-blind cable channels, including HBO, A&E and Showtime, he said.

Some in the industry are open to the idea of an Emmy makeover.

"I do think the awards cycles for TV will have to change in order to match the new reality of what's happening on television," said filmmaker Gregory Nava, whose "American Family: Journey of Dreams" is a miniseries nominee.

He and PBS rushed production of the drama for a marathon showing so it would air within the eligibility period ending May 31. It had debuted in the spring to avoid the fall crunch.

The academy's rules "are set for the way things used to be and that's obviously changing," Nava said.

But many observers contend both TV's autumn rebirth and the September Emmys are entrenched for now.

"In all honesty, we're going to have fall seasons," said Katz Television Group's Carroll. "That's the way advertisers buy."

"At the end of the day, the fall season is the kickoff season," said Leverence. "It's part of the calendar of this country: back to work, back to school, back to the TV set."

Fox's Beckman is skeptical about the value of a spring ceremony, contending it's more the competitors than the placement that decides whether viewers tune in. Niche cable nominees are the issue, he argues.

Emmy viewership is "not so much about where it is during the year ... as about the fragmentation of the audience and the celebration of programming that has been seen by virtually no one," he said.

Still, the really unique thing about the 2004 Emmys was supposed to be the addition of reality TV shows like “Apprentice” and “American Idol”… in an era when fast-food TV (cheap to produce and even worse than their food industry counterparts) at least their stars got some visibility.

- Arik

JPMorgan Chase & IBM’s $5 Billion Shrug: Palmisano’s Strategic Collapse or Really No Big Deal?

J.P. Morgan Chase & Co. is scrapping a $5 billion outsourcing deal with IBM as the company plans to manage more of its own technology services. "The recent merger between JPMorgan Chase and Bank One created a new firm with significantly greater capacity to manage its own technology and infrastructure. After a rigorous review, the merged firm concluded it now has the significant scale, enhanced capabilities, tools and processes to build its own global infrastructure services organization."

Back in December 2002, when the financial services company announced the seven-year, $5 billion deal to outsource much of its data processing to the world's largest computer company both companies bragged that the contract - the largest of its kind for IBM - would reduce costs, create value and propel innovation at J.P. Morgan. Today, both companies are downplaying the termination.

IBM put a positive spin on the cancellation, stating that it would actually help its 2005 earnings. JPMorgan Chase likewise said the cancellation would have no material impact on its business. The bank noted that IBM remains a key technology partner and provides IT services and products to a number of its businesses. The functions to be reintegrated back into the bank cited by the two are "the previously outsourced portions of its technology infrastructure, including data centers, help desks, distributed computing, data networks and voice networks." IBM said the cancellation could improve earnings because it was still in the early stages of deployment on the contract. It also said its backlog of services will be revised when it announces its third-quarter earnings. IBM estimated a $118 billion services backlog at the end of the second quarter.

Fewer all-encompassing technology services deals are expected in coming years as competition pushes down the size of these agreements, and customers consider doing more themselves. In turn, services providers like IBM are looking to sign more pacts for individual projects like software or data.

Bank One decided to bring its information technology in-house several years ago and has spent over $1 billion to upgrade its entire technology suite, including building data centers. This philosophy has now taken hold at J.P. Morgan.

Plus, this week JPMorgan's president and chief operating officer, Jamie Dimon, announced the opening of two new data centers in Delaware. The $300 million investment will add 100 jobs and support the bank's national network.

Here's an excerpt with some further detail:

Executives at IBM Global Services must have cringed earlier this year upon hearing that J.P. Morgan Chase had tapped Jamie Dimon as its president and chief operating officer. As CEO of Bank One Corp., Dimon scrapped a $2 billion IT outsourcing contract the bank had inked with IBM and AT&T in 1998 under a much-ballyhooed "Technology One" alliance.

Dimon canceled that deal in 2002. Now, he appears to have done it to IBM again.

Industry watchers see Dimon's fingerprints on Chase's decision, announced Wednesday, to cancel the company's $5 billion, 10-year "business-transformation-outsourcing" contract it signed with IBM in late 2002. "After the Bank One experience, he's become a big believer in doing things in-house," an analyst says.

Indeed, Dimon publicly said in 2002 that Bank One's outsourcing experience "hadn't worked out" and that henceforth it needed to "control its own destiny." Dimon joined Chase as a result of its merger with Bank One, which was completed in July.

In a Chase press release issued Wednesday, a statement attributed to CIO Austin Adams uses language similar to Dimon's to explain why Chase nixed its outsourcing contract. "We believe that managing our own technology is best for the long-term growth and success of our company," Adams said in the statement.

Chase says it plans to reel in the 4,000 IT workers it dispatched to IBM under the defunct deal and take back a number of ongoing IT projects.

For its part, IBM is looking to put a positive spin on the news, noting that the contract required substantial up-front investments that would have placed a slight drag on its earnings this year. However, $5 billion in revenue isn't easy to make up. One Wall Street watcher says the loss of the contract should cost IBM about 2 cents per share in annual earnings over what would have been its remaining years. The analyst notes that IBM will enjoy some fees that Chase will be obliged to pay as a result of its decision to cancel the deal.

JPMorgan Chase wanted to get the most out of its newly acquired Bank One assets as well:

Spokesmen say the move actually was based on a desire to make full use of IT assets and processes the company acquired through its July merger with Bank One, which "really changed the equation" in terms of effective IT use, says executive VP Charles Costa.

The financial-services company will have access to a state-of-the-art data center that Bank One opened in Wilmington, Delaware, last week at a cost of $150 million, says Costa, J.P. Morgan Chase's executive VP for global technology infrastructure. Among other things, the building features dedicated fiber-optic lines and new server and storage systems. "This didn't exist for us" when J.P. Morgan Chase struck its outsourcing deal with IBM in 2002, Costa says, adding that the company is better served assimilating Bank One's advanced IT assets than turning them over to IBM to manage.

Bank One's IT capabilities also will help J.P. Morgan Chase meet tech-driven business requirements, such as the Check 21 initiative that lets banks process checks using graphic images instead of paper. "That's a big priority that we need to be well positioned for," Costa says. Last year, Bank One rolled out a system that converts consumer checks into electronic debits for next-day settlements using high-speed imaging.

Bank One recently completed a $500 million initiative to standardize and centralize its IT systems, an effort that's expected to shave $200 million from its annual operating costs by, among other things, eliminating 600 software applications and reducing 11 loan systems to six. "The merger really changed the equation, and Bank One's technology infrastructure is a key part of that," Costa says.

In my opinion the deal's falling apart is really a philosophical shift more than anything and this is somewhat of a blow to IBM's grand corporate strategy of providing technology services to companies large and small around the globe. The 2002 contract was the centerpiece of IBM's transformation from a technology manufacturer to a technology manager, a strategy devised and overseen by the chief executive, Sam Palmisano. The contract with JPMorgan was among the largest such outsourcing contracts ever signed; only a $6.9 billion deal won by Electronic Data Systems to manage information technology for the U.S. Navy was larger. Trying to put the contract loss in the best possible light for IBM is still tough. "The combined firm found itself with an abundance of IT assets," an IBM spokesman, James Sciales, said. "This decision was like other business decisions related to the merger."

The announcement makes me (and much more influential analysts) wonder whether IBM's technology outsourcing strategy - its response to what it calls the on-demand era - is as promising or as profitable as the company has led investors to believe.

"This was Palmisano's grand vision, and this was the reference account," said Fred Hickey, editor of The High-Tech Strategist, an investment newsletter in Nashua, New Hampshire. "This whole on-demand strategy kicked off just a couple of years ago was predicated on these kinds of large accounts they were going to win. Now, not very long after starting it, they're pulling it back. You have to question whether this strategy is going to be successful or if services will be, as Sun's Scott McNealy says, the graveyard for old tech companies that can't compete."

There is no denying that IBM's future is heavily reliant on success in Global Services. Revenue from that unit now accounts for half of IBM's sales, which totaled $89 billion in 2003. Hardware revenue was roughly a third of the company's total sales in the first half of 2004, reflecting IBM's recent exit from the disk drive, consumer PC, semiconductor and chip-packaging businesses and software sales accounted for just 15 percent of revenue.

However, after IBM's decade-long push into services, revenue growth in the unit is slowing and services revenue rose only 2 percent in the second quarter of 2004, compared with the prior year's revenue growth of 9.3 percent.

Indeed, throughout 2003, Global Services provided the only bright spot for IBM in revenue growth, after software sales rose only 1.9 percent last year and hardware, financing and enterprise investments all declined. While services dominate IBM's revenue, gross profit margins in the business - at 25 percent in the second quarter - are the lowest at the company.

Sciales said that the cancellation of the deal has not caused great concern at the company over its on-demand strategy, but IBM is not the only company that has encountered problems with long-term contracts. EDS, its chief rival in this business, has struggled with some of its largest contracts and Cap Gemini, a competitor in Europe, has also had some big problems.

Long-term contracts like these are almost impossible for investors to assess for profitability because, under accounting rules, the companies devising the contracts have wide license in the expenses they can assign to the business during a given period. If expenses are underestimated, the contracts look a lot more profitable than they really are.

The final contradiction cannot be avoided… to paraphrase one analyst, IBM has been touting its on-demand strategy and how great their backlog is as a result, but if losing this contract is a good thing, how can getting more of these contracts also be a good thing?

- Arik

Sony Beats Time Warner to Take Home MGM

The consortium led by Sony has reached a tentative agreement to buy Metro-Goldwyn-Mayer for about $4.8 billion in cash, snatching it from Time Warner’s clutches at the last moment. The past couple of years, MGM has been hunting for ways to get bigger having made an $11.5 billion all-cash bid for Vivendi Universal Entertainment last year, losing to NBC.

Time Warner had been seen as the front-runner to acquire MGM but Sony raised its offer, setting off a bidding war that Time Warner decided it didn’t want to participate in. "As we pledged to our shareholders, we approach every potential acquisition with strict financial discipline," said Time Warner chairman and CEO Dick Parsons. "Unfortunately, Time Warner could not reach agreement with MGM at a price that would have represented a prudent use of our growing financial capacity."

Sony is expected to shutter MGM's current production, with the likely exception of the "James Bond" franchises. Among MGM's upcoming films are a "Pink Panther" remake with Steve Martin, "Code 46" with Tim Robbins and "The Beauty Shop" with Queen Latifah. MGM has a considerable library of thousands of titles, including the "Rocky" franchise. Analysts have estimated MGM's library will generate $440 million in cash flow in 2004 by exploiting only 1,500, or about 36 percent, of its titles on the newer DVD format. Sony announced a future partnership with cable provider Comcast to establish a video-on-demand content channel with Sony Pictures content along with MGM content and Comcast is may become a minority equity investor in the acquisition. The deals, should they occur, would constitute a major consolidation of content production and distribution. Here's some detail:

The deal, which ends an auction that was filled with behind-the-scenes machinations for months, included one last surprise twist: Comcast, the cable giant, joined Sony's consortium as a strategic partner and a possible investor.

The Sony-led group, which includes the buyout firms Providence Equity Partners, Texas Pacific Group and DLJ Merchant Banking Partners, struck the deal with MGM on Monday, just 24 hours before the studio had scheduled a board meeting to approve a deal with Time Warner.

If the transaction is completed, it would be the third time that Kirk Kerkorian, MGM's controlling shareholder, would have sold the company since he first acquired shares in it in 1969.

The deal caps a come-from-behind story for Sony, which originally bid for MGM in April but was unable to complete the deal after becoming bogged down in negotiations with its backers, opening the field to a rival offer from Time Warner.

With the last-minute addition of Comcast to the Sony-led consortium -- a pact that was negotiated over Labor Day weekend in Martha's Vineyard, where executives from Sony and the other investors converged on the summer house of Brian Roberts, Comcast's chairman -- the group decided to raise its bid to $12 per share from $11.23 and to sweeten its offer by offering a nonrefundable $150 million deposit. Time Warner had offered $11 per share and had guaranteed the deal's completion.

The Sony-led group could justify the higher bid because part of its deal with Comcast calls for the creation of several new premium cable channels that will broadcast both Sony and MGM movies, adding revenue for the company.

For Comcast, its participation came with some reluctance. Having lost its hostile bid for the Walt Disney Co. and been derided by investors for even making the offer, Roberts was wary about being part of another potentially unsuccessful bid for a content provider, executives close to the negotiations said. Indeed, he was so insistent about not being on the losing team that he signed onto the deal only as a programming and distribution partner. He indicated to the group that Comcast would become an investor only after the deal is completed. To keep Comcast's role in the deal secret, MGM and even bankers for the Sony-led group were kept in the dark until the very last moment.

Time Warner pulled its offer off the table and decided against a higher bid when it learned early Monday that the Sony-led group appeared to be the winner.

"Although MGM is a valuable asset, we have decided to withdraw our bid," Richard Parsons, Time Warner's chairman and chief executive, said in a statement. "Unfortunately, Time Warner could not reach agreement with MGM at a price that would have represented a prudent use of our growing financial capacity."

While MGM may be famous for making films like "The Wizard of Oz," under the plan being developed by the Sony-led group, most of the movie studio operation would be shut down. Sony would license and distribute MGM's most valuable asset, its library of more than 4,000 films. Only the studio's best- known film series, like James Bond, would continue to be produced under the MGM brand through Sony.

In recent years, Alex Yemenidjian, MGM's chief executive, turned the company around by focusing on its library while shrinking its studio business. As a result of those moves, the company produces an enormous amount of free cash flow compared with its rivals. The company forecasts $150 million to $200 million in free cash flow for 2004.

The arrangement with the consortium was originally conceived and structured by Sony, which already owns the Columbia and TriStar studios, so that it could gain access to MGM's library without having to pay the entire bill and take on additional debt, a requirement of its Japanese parent. MGM's library of films will not only give Sony additional revenue from next- generation DVDs, but also give it added weight in the looming fight over technology standards for those DVDs.

Despite nearly five months of back and forth inside the Sony-led group, the bid was kept alive by Jonathan Nelson, the co-founder of Providence Equity, and Robert Wiesenthal, Sony's executive vice president and chief financial officer, according to participants.

Under the terms still being negotiated, Providence has committed to invest the most money with $450 million. Sony and Texas Pacific Group -- based in Fort Worth with a regional office in San Francisco -- will each invest about $300 million, as will Comcast if the deal is completed. DLJ Merchant Banking Partners, a unit of Credit Suisse First Boston, will invest about $250 million. J.P. Morgan Chase will finance the deal with a $4 billion loan. Quadrangle Partners has been invited to become an investor, the executives said, but has yet to make a commitment.

- Arik

Oprah & Pontiac: Over the Top Product Placement and a 276-Car Giveaway

Pontiac wanted to draw attention to its brand-new sport sedan, and Oprah Winfrey wanted to celebrate the start of her 19th season. The result was Pontiac G6s for 276 surprised audience members on "The Oprah Winfrey Show" and an event that marketing executives say could set a new bar for product placement. As advertisers struggle with viewers either tuning out or fast-forwarding through traditional commercials, product placement has been on the rise.

Winfrey spent about half of the show on the Pontiacs - including a taped visit to the factory where they were made - and the giveaway was featured all over the media. Mary Kubitskey, Pontiac's advertising manager, said the company was looking to reach women, who are Winfrey's primary audience.

The company approached Winfrey about doing a giveaway, but the event grew in scope - and Pontiac decided to gamble by spending a chunk of what would have been used on traditional advertising, Kubitskey said. "Quite frankly, we have a car no one has ever heard of. We knew we had to go really big, and she was the holy grail for us," Kubitskey said.

Winfrey's influence with consumers is well documented. When she launched a book club, its selections were virtually guaranteed a spot on bestseller lists. Her personal trainer, Bob Greene, has his own endorsement deals, and her protege, Dr. Phil McGraw, launched his own successful talk show. Winfrey's annual "My Favorite Things" episode - when she distributes bags of goodies to her audience - inspires such hysteria in the crowd that it spawned a spoof on "Saturday Night Live."

"We're calling this our wildest dream season, because this year on the Oprah show, no dream is too wild, no surprise too impossible to pull off," Winfrey said. Making sure the audience was kept in suspense, Winfrey opened the show by calling 11 audience members onto the stage. She gave each of them a car - a Pontiac G6. She then had gift boxes distributed to the rest of the audience and said one of the boxes contained keys to a twelfth car. But when the audience members opened the boxes, each had a set of keys.

"Everybody gets a car! Everybody gets a car! Everybody gets a car!" Winfrey yelled as she jumped up and down on the stage. The audience members screamed, cried and hugged each other - then followed Winfrey out to the parking lot of her Harpo Studios to see their Pontiacs, all decorated with giant red bows.

One woman stepped up onto the frame of a driver's side door, put her head on the roof and hugged the vehicle. Winfrey said the audience members were chosen because their friends or family had written to the show about their need for a new car. One woman's young son said she drove a car that "looks like she got into a gunfight"; another couple had almost 400,000 miles on their two vehicles.

The real question is, did it work?

Web sites operated by Pontiac and Oprah have reaped the benefits of the giveaway with a "massive" increase in website traffic. Web searches for "Oprah" and/or "Pontiac" increased 1000%. Visits to both websites peaked on Tuesday, with the Oprah website seeing an increase of 864% (over 600,000 visitors) and the Pontiac website seeing an increase of 636% (over 140,000 visitors). Visits from the workplace jumped for both sites, with Oprah's site seeing 60% of its visits from people at work (it usually gets 50%) and Pontiac getting 70% (up from 50%).

According to comScore Networks, visits to Pontiac.com increased by 322 percent over the average of the previous four days with about 85,000 logging on to the site that day. Tuesday was even better when around 141,000 visitors browsed Pontiac.com that day, an increase of 636 percent. Visitors dropped in the following days but were still well above pre-stunt averages, at 76,000 on Wednesday, 74,000 on Thursday and 69,000 on Friday. The previous Friday, the site had drawn 33,000 visitors.

The Pontiac stunt illustrates the lengths innovative marketers will go to in order to break through the ad clutter, and nowhere is the competition to do more intense than among domestic automakers.

The estimated value of the 276 new Pontiac G6s given away on Monday’s "Oprah" is $7.7 million. GM retails the cars for $28,000 each and says the expense of the donation was the equivalent of 50 ads on primetime television. A 30-second ad on Oprah typically costs about $75,000.

The promotion was also the best free publicity "Oprah" could ask for, icing on the cake after posting the highest rating for a season premiere since 1996. The episode earned a 10.1 national rating and also helped boost traffic to Oprah.com as well. That Monday, Oprah.com attracted 346,000 visitors, 551 percent higher than the average of the previous four corresponding days. Tuesday was even better for the site, with 634,000 visitors logging on. Traffic then eased but remained well above pre-giveaway levels, dropping to 290,000 on Wednesday, 244,000 on Thursday and 201,000 on Friday. That was still 259 percent higher than the day before the Pontiac giveaway, when the site attracted 56,000 visitors.

- Arik

Dark Skies: US Airways Skips Pension Payment as Escape Looks Less Likely

US Airways Group told a bankruptcy court on Monday it would skip a $110 million pension payment due Wednesday as it looks to slash costs and avoid liquidation after filing for protection from its creditors over the weekend. I frankly don't think the odds are very good US Airways will ever emerge from Chapter 11 and neither do most observers. Their operating costs are just too high to compete with low cost carriers that don't have such pension funds to support… and the airlines themselves have managed to so commoditize their business that competitive differentiation is hard to come by.

The decision to miss the payment to pension plans covering mechanics and flight attendants gives the airline financial breathing room but the judge presiding over the case said he would hold a hearing on the matter Oct. 7.

The No. 7 U.S. airline, which filed for its second bankruptcy in as many years on Sunday, did get permission on Monday to continue operating using a loan it secured last year with the help of a guarantee from the federal Air Transportation Stabilization Board.

The company, which negotiated new relief from the loan board, still owes more than $700 million to the government.

US Airways aims to cut costs in a bid to become more like the discount airlines that threaten its survival, but analysts said the job would be difficult without additional financing.

"With no (debtor-in-possession financing) and with no serious prospect for an equity investor injecting cash into the carrier, you'll need to see a radically different cost structure in place by 2005," said William Warlick, senior credit analyst for Fitch Ratings.

When a company goes bankrupt, its debt ratings shift to default and its stock usually sinks as investors expect shares to be worthless by the end of the bankruptcy process.

US Airways said current management had no plans to liquidate the carrier. "This management team isn't here to preside over a liquidation," US Airways chief bankruptcy lawyer Brian Leitch told the court.

"There is no reason in the world that the plan cannot be successful. We won't ask for unrealistically low costs," Leitch added.

US Airways has said it must cut costs by $1.5 billion -- $800 million of which it hopes to get from labor unions that yielded nearly $2 billion to help the company out of its first bankruptcy.

"We're still talking, we talk every day, we're still working very hard," Chief Executive Bruce Lakefield told reporters outside court about thus-far-unsuccessful efforts to win givebacks from the airline's unions.

US Airways did not rule out the possibility that labor contracts and pension agreements could be rescinded if the talks fail, but the court would have to agree.

US Airways is arguing its case before the same judge, Stephen Mitchell, who approved its initial restructuring in March 2003.

The company told Mitchell it also cannot pay $19 million it owes to its pilots' retirement plan. The previous plan for pilots was terminated during the company's first bankruptcy and replaced with a cheaper plan.

Soaring fuel costs, $300 million higher than expected at US Airways -- and weak sales amid competition from low-cost rivals like Southwest Airlines are at the root of US Airways' problems.

US Airways was the first big U.S. carrier to enter bankruptcy during the industry's worst downturn, accelerated by the Sept. 11, 2001, hijack attacks. It filed its first bankruptcy in August 2002, followed months later by No. 2 United Airlines, which is still in Chapter 11.

Delta Air Lines, the No. 3 U.S. carrier, is fighting to avert a filing.

While Lakefield said discussions with the unions on possible concessions continue, labor groups said the company's plan to skip pension payments could complicate negotiations on concessions.

"US Airways management has thus far demonstrated an overwhelming inability to look beyond labor costs for any means to replenish falling revenues," said Randy Canale, president of the US Airways unit of the International Association of Machinists.

However, the company's financial problems are so daunting that industry experts agree with the company that labor must concede givebacks.

"These workers have chosen not to (take paycuts) voluntarily, so it will be imposed upon them," said Gary Hindes, managing director at Deltec Asset Management where he runs a distressed securities fund. "US Air probably is a goner."

The company listed assets of about $8.8 billion and liabilities of $8.7 billion. It has about $1.45 billion in cash.

Pension fund Retirement Systems of Alabama, which invested $240 million during the last bankruptcy, owns 36 percent of US Airways. The pilots' union, the Air Line Pilots Association, holds a 19 percent stake.

The U.S. government, through its loan guarantee, holds 10 percent. General Electric Co., a supplier of regional jet financing, owns 5 percent.

Despite the dark clouds hanging over the airline, we have to ask ourselves if there’s any way to save the other five of the six majors? To do that, we have to ask why so many airlines are struggling right now. I found a great article on NYTimes.com about it:

High fuel prices and the post-9/11 slump have taken a toll, to be sure. But many in the industry - including some of the major-airline executives themselves - say the traditional airlines are finally being brought low by a more fundamental problem of their own creation, one that has been building up for years.

Simply put, they have taught their customers to resent them, and to resist paying the fares they need to make a profit.

"People's expectations for airline service are pretty low," said Peter Cappelli, professor of management at the Wharton School of Business. The situation is so dismal that "things could deteriorate another 20 percent and I'm not sure you could calibrate the difference," he said.

Year after year, under chronic financial pressure, the traditional airlines have made flying less comfortable and less convenient for most passengers. In addition to the cramped seats on crowded planes, with cutbacks or extra charges on nearly ever facet of service from the food to baggage allowances, travelers navigate complicated fare systems that still exact sky-high "full" prices from some passengers while dangling ever-changing discounts before others. These systems, intended to reap as much revenue as possible while still filling the plane, have left consumers feeling that there is no such thing as a fair price for air travel and have encouraged them to game the system.

On top of that, the airlines have added one restriction after another to their tickets in recent years, making it expensive or impossible for passengers to change their travel plans after booking. The chief consolation offered for all these irritations - frequent-flier miles - have been drained of value as the airlines make redemption harder by limiting the available dates and seats.

And in recent months, several of the major airlines have begun charging a $5 fee to buy tickets over the phone and $10 to buy them at an airport counter, where "How can I help you?" used to be free.

Even the airlines' "hub and spoke" route systems became a nuisance for many passengers. Though they brought new air service to many smaller cities, they forced harried throngs of passengers to make connections in crowded hub airports to get where they wanted to go, rather than be able to fly nonstop. Meanwhile, the major airlines set a trap for themselves in the 1990's, when the long economic boom produced some fat years that many executives thought would go on indefinitely.

In an industry already famed for high pay and lavish benefits, companies locked in high, hard-to-cut costs with union contracts that were the envy of the labor movement. The airlines could afford those costs only as long as the public was willing to pay high fares for their reputation and service.

The rapid growth of discount airlines like Southwest and JetBlue, with their bare-bones service and lack of pretensions, shows what many passengers think of that proposition now.

These airlines, which have never held themselves out as anything more than a way to get from here to there, can charge much less than the old majors and still make money because they have avoided the big airlines' big mistakes.

The low-fare airlines' operations are simpler and leaner; their labor costs are much lower; they do not have the financial burden of pension obligations to thousands of retired workers, a major expense for the older carriers; and crucially, they have not annoyed their customers nearly as much.

On the low-fare carriers, passengers are not pampered, but they do not expect to be. People who might be disappointed with the quality of a United meal - or resent being forced to pay extra for one on a Ted flight - do not seem to mind when Southwest gives them just a drink and a bag of peanuts, because that is all Southwest has ever promised them.

While a segment of the market is still willing to pay premium prices for a substantially higher standard of service, it exists now mostly on long-haul and international routes. Flights of just a few hours have become a commodity bought strictly on price, and the market won't bear the fares that the big airlines need to cover their costs. So, in their current form, these companies are not viable any more. The question for the traditional carriers now is whether they can transform themselves into something like the low-fare carriers, or find niches where they can still thrive.

US Airways and Delta have each said in recent weeks that they would drop hubs and eliminate thousands of jobs in an effort to rein in costs. Each hopes to make its operations more like their low-fare rivals. But those hopes depend on the willingness of their workers to accept new cuts in pay and benefits, and investors to pump in more money.

Once the public would have had an emotional investment in the fates of storied names like Delta and United: witness the anguished reaction to Pan Am's closure in 1991. But not now.

There was some sympathy for the airlines in the dark days after Sept. 11, but despite the bailout that Congress approved after the attacks, the industry is still in turmoil, and the continuing drumbeat of bad news has had a numbing effect on customers.

- Arik

Packer’s Best Carolina 24-14 in Season Opener

In what was a fun season opener, our beloved Green Bay Packers saw in Brett Favre’s rusty start to his last Monday Night Football appearance an upset as the Packer’s beat the defending NFC champion Panthers on their home turf.

The Green Bay Packers dealt the Carolina Panthers the kind of defeat now familiar to Super Bowl losers.

Ahman Green ran up, down and all over the defending NFC champion Panthers, scoring three touchdowns to lead Green Bay to a 24-14 victory Monday night. That made Carolina the sixth straight team to lose in the Super Bowl and drop its ensuing season opener.

"I was surprised at how well we ran the ball," quarterback Brett Favre said. "Our philosophy is we'll wear you down before you wear us down."

The Packers could have had that chance in January, if not for Favre's errant final pass on his first snap in overtime of the divisional playoffs. The pass was intercepted and set up Philadelphia's winning field goal.

Carolina then beat the Eagles to advance to the first Super Bowl in team history.

But the Panthers looked nothing like that team on Monday night.

As Favre said before the game, anything less than the Super Bowl this season is a failure. We’ll see how they do at home against Chicago’s Bears this Sunday… if they get too cocky (i.e., fall victim to forced turnovers) they’re liable to lose.

- Arik

Home Depot Opens World’s Largest Home Improvement Store in Manhattan

The Home Depot had a "board-cutting" ceremony last Friday morning at the new Manhattan location marking the opening of the world's largest home improvement store boasting 105,000 square feet of sales space and merchandise. The multi-level store employs 300 associates, including a full-time concierge and is located at 23rd Street between Fifth and Sixth Avenues. The Home Depot's chairman, president and CEO, Bob Nardelli, said, "Our new Manhattan location is a retail marvel and proof positive that The Home Depot continues to break the mold in how we approach new formats, new markets and new customers."

The company will be playing to a more urban crowd at the 105,000-square foot space in Chelsea, an area that already boasts mega-stores like Staples, Best Buy and Bed Bath & Beyond.

Home Depot's first Manhattan store, which opens to the public on Friday, will have a doorman for help in hailing cabs and a concierge to offer information and schedule appointments with designers. It promises same-day delivery of most merchandise, a boon for public transportation-bound urbanites.

"Manhattan is unique, and it has a tremendous customer base opportunity," Robert Nardelli, the company's chairman, chief executive and president said at the store's grand opening on Thursday. "We're confident that with success here, it will give us the opportunity to continue to expand our business."

The store, located on 23rd Street between Fifth and Sixth Avenues in Manhattan, announces itself with orange banners on its facade and features a more classic, homey interior, with white columns and an atrium.

The company says that it has transformed the store for the urban audience through months of working with focus groups and doing customer research.

The store will focus on the upscale, fashionable home items and decor that city dwellers demand, the company said.

"We've got nails. We've got electrical sockets. But we've also got $7,000 rugs," said Tom Taylor, the company's Eastern Division president.

While customers can still buy themselves a miter saw or a cordless drill, those who, for example, don't have room to store large power tools in their studio apartment, can rent tools, which the store will deliver and pick up.

The store will also offer urban-oriented home improvement clinics with names like "Make 500 sq. ft. feel like 5,000 sq. ft." and "How to Create a Garden on a Fire Escape."

Instead of displays of lawn mowers or lumber or sheetrock (which are still available by special order), the Manhattan store has expanded showcases of light fixtures, cabinet hardware and small appliances.

With space at a premium in many Manhattan homes, the new store has focused on storage solutions, offering the help of special closet designers.

There are also down-sized stoves, stackable washer-dryer sets and mini refrigerators, as well as a $2,299 "Gym-In-A-Box" with a treadmill, weightbench and dumbbells that all fold neatly into an armoire. New York-only items include electric fireplaces and 40 one-of-a-kind area rugs.

Home Depot has poured $14 billion into new store construction, store remodeling and technology upgrades over the past four years, Nardelli said.

If they can make it there, maybe they really can make it anywhere…

- Arik

"W" is for Winner…?

The "W is for Wrong" tagline Kerry rolled out in an effort to compete with W's post-convention bounce in the polls has left me wondering if he thinks he's running for president of the seventh grade student council instead of leader of the free world. In what feels like panic with a reshuffle of the campaign team, an analysis suggests that the number of swing states Kerry can compete in has dwindled in recent weeks from 21 to 16 (give or take) has left the Kerry campaign with fewer options and will almost have to win either Ohio or Florida or else win every other contested state but those two. To boost their chances then, they've scaled back operations in less winnable states and reinforced them where it'll count.

Divide in Democrat's Camp (LA Times): Party advisors' discussion on how to forge a 'new direction' for the candidate leads to mixed messages and lost momentum.

Size of Battleground May Be Smaller Than Expected (Washington Post): President Bush's post-convention bounce in state and national polls has left Democratic challenger John F. Kerry with a smaller battlefield upon which to contest the presidential election and a potentially more difficult route to an electoral college victory than his advisers envisioned a few months ago.

Looking Backward - Did Kerry learn the right lesson from Dukakis? (Slate.com): Remember when this was John Kerry's race to lose? Now the question on everyone's minds is whether he's lost it, and if so, what it will take for him to win it back. The Kerry campaign remains stagnant—though improved from where it was a week ago—because, despite claims to the contrary, it hasn't absorbed the lesson of Michael Dukakis' failed presidential bid. Or worse, Kerry might have learned the wrong lesson from 1988.

- Arik

Muzak: Elevator Music No More

Once "Elevator Music," now "Audio Architecture," Muzak creates experiences with music. When General Squier patented the transmission of background music in the 1920s, that is music from phonograph records delivered over electrical lines, he soon found out that it not only soothed the minds of his workers, it enhanced their production. What the general never knew is what his idea would become with 3,000 employees, more than 250,000 subscribers and all 80 million plus listeners worth. Today with offices across the nation and around the world more people listen to Muzak than any music provider in the world and Muzak has become a hip new branding tool for corporate clients eager to keep eyeballs in stores as long as possible. I found an article at USAToday about how Muzak has reinvented itself, over and over, throughout the years:

Every day, Muzak is heard by 100 million people, the equivalent of more than a third of the U.S. population.

But if you're straining to remember the last time you heard sleep-inducing orchestrations of the Beatles played in an elevator or grocery-store frozen-food aisle, you have it all wrong. That was the old Muzak.

Today's Muzak is played in the Gap, McDonald's and Barnes & Noble and in homes via the Dish Network, to name a few. It sounds completely different, featuring combinations of upbeat, toe-tapping songs.

And there are words, real words sung by the artists themselves. Muzak has been doing that for decades. If it's a Beatles song, you'll actually hear Ringo, Paul, George and John. Unless, of course, it's a rendition sung by Tori Amos, Aerosmith or Nirvana.

It's, dare we say, hip?

"It's been one heck of a ride," says Alvin Collis, who is head of strategy and branding and joined Muzak 19 years ago. Collis, a thin 52-year-old wearing a dark T-shirt, pants and high-top sneakers, once played in a punk-rock band and admits to being fired as a child by his violin teacher. Not exactly how most people picture the typical Muzak employee.

Yet Collis is one of the people who has orchestrated Muzak's transformation into a much more modern company, an effort that officially began in 1997.

But Muzak's mission is still the same: provide music for offices, restaurants, retailers and other businesses to help maximize productivity, morale and sales. While the company has been successful in its 69 years — more than half of companies that play music play Muzak — it's still fighting the "elevator music" stigma. And Muzak officials have their sights set on the numerous businesses sitting in silence.

"If we have a problem, it's that we haven't told the story loud enough and clear enough," Collis says.

Muzak was founded by Gen. Owen Squier, who during the Great Depression patented the transmission of music over electricity lines. The name Muzak combines the word "music" with "Kodak," Squier's favorite company.

Squier introduced music into typing pools to help boost productivity. In the 1930s, as buildings grew taller and elevators became more prominent, Muzak was piped in to soothe the nerves of riders leery of the new contraptions. Thus, elevator music was born.

In the subsequent decades, Muzak spread into retailers, restaurants and other businesses countrywide. During Eisenhower's administration, Muzak was played in the White House. Astronauts even listened to Muzak in the Apollo lunar spacecraft.

Today, Muzak is a privately held company. The principal owner is ABRY Partners, a Boston-based media investment firm.

Muzak estimates it is heard in about 60% of the U.S. businesses that subscribe to music programming.

Many companies seek Muzak to customize their music, creating a personal soundtrack that can be heard only in their stores.

Moe's Southwest Grill is one of those firms. Not only does the Atlanta-based company want a soundtrack for its 133 casual restaurants to reflect its fun, upbeat style, it has another special request for Muzak: All of the artists must be dead.

"Our music is a tribute to the heroes of the days gone by, the legends who will never be able to enjoy Moe's food," says Carl Griffenkranz, head of marketing at Moe's. The music "creates an energy in our restaurant that we feel makes us successful."

On a recent visit to a Moe's in Charlotte, artists as diverse as Roy Orbison, Johnny Cash, Jimi Hendrix, Frank Sinatra and Marvin Gaye were heard. Griffenkranz says Ray Charles, who died in June, will be added soon.

Even though Muzak had evolved into a modern company, officials realized in the mid-1990s that to most people, Muzak was still, well, Muzak. And the company wasn't helping to change that image. Promotional materials were drab. There was no brand uniformity, be it the business cards or the 1,000 vans driven by technicians across the USA.

It became evident that a radical effort to better promote the brand was needed. Collis says it was a "necessity" from a personal level.

"People would ask, 'Where do you work?' and I wouldn't want to tell them," he says.

Collis, along with Kenny Kahn, head of products and marketing, went on a crusade, hiring a design firm to overhaul the Muzak brand.

A modern, simple logo — an encircled, rounded "M" — emerged, gracing updated business cards and vans. Edgy, oversize brochures were developed, featuring large lettering and examples of well-known, modern clients, with the words, "What does your business sound like?"

The company took its efforts to become modern to a new level at its headquarters, a futuristic-style building located just south of North Carolina's border near Charlotte. It built the 120,000-square-foot building four years ago, when the firm moved from Seattle, in part to take advantage of the South's lower operating costs.

"Once you decide to become a modern brand, you have to live that way," says Kahn, 42, a down-to-earth man who has been with the company seven years.

From the parking lot, visitors can immediately hear music. On a recent day, songs from the "New Grooves" program were being played, a combination of upbeat, jazzy music with a touch of Caribbean flair. It's hard not to bob your head a bit to the beat on your way to the door.

Kahn explains that the building was designed with an Italian city in mind. Near the entrance is the "city center," where employees hold spur-of-the-moment meetings and meet clients. Sometimes the entire staff greets potential clients. When the folks from Red Lobster restaurant came, staff members all wore Red Lobster bibs. Bowling lanes were set up for AMF Bowling Worldwide's visit.

Exposed wires snake across high ceilings, and the floor is solid concrete. There are no offices. Even the CEO doesn't have a door to close. Twenty-five conference rooms are sprinkled about, made of varying materials, including bamboo and plastic. Mailroom workers deliver packages riding an orange bicycle.

And although there is an elevator in the building, it does not have a speaker.

Everyone is dressed casually. On a recent hot day, employees were wearing shorts, jeans, T-shirts and flip-flops. There's not a tie in sight. Collis says employees often bring their families from out of town to see their workspace; he considers that a good sign.

As expected, music can be heard throughout the building. It's played fairly loudly — loudly enough that a visitor is always somewhat aware of what's playing, but somehow remains undistracted. It's a soundtrack to what seems like a fun place to work.

"There's a feeling here that doesn't exist in a lot of places. I see it. I feel it," says Lon Otremba, Muzak CEO for nine months now. He notes that when Muzak recently held a Saturday job fair to fill about 115 spots, 3,000 people showed up. Employees conducted interviews from 8 a.m. until past 10 p.m.

Otremba, 47, is quick to point out that the company is blessed with a long legacy. In its 69 years, Muzak has established itself in the business world. That's where being a household word pays off.

"We have a legacy on which to build; we don't have to create it," Otremba says. "The intention here is not to put a keg of dynamite under it and blow it up.

Yet Otremba knows firsthand there is a Muzak stigma. Last year, when he was wooed from America Online, where he was the executive vice president of the Interactive Marketing Group, the recruiter initially told him everything about the company except for one minor point: the name. She wanted him to listen without any prejudices about Muzak. It wasn't until he had all the information that she finally told him what the company was.

Otremba laughs at the story now, saying he would have considered the job anyway.

Going forward, Muzak will continue to work to fight the elevator-music label, Otremba says. It's taken years to get this far, he says, and it will take many more years to get where they want.

As part of that effort, last month the company unveiled a new Web site design at www.muzak.com, incorporating music, quickly moving pictures and lots of company information, including its seven-decade history.

Company leaders are setting their sights on expansion both in the USA and abroad, where they have 13 offices in places such as Japan, Canada, Mexico and the Netherlands. While they note that Muzak is by far the leader in its industry, many companies still do not subscribe to any music providers. Muzak doesn't plan to enter the consumer market to compete with firms such as XM Satellite Radio, instead choosing to focus on commercial clients.

The challenge is to convince companies that do not play music that life would be better with Muzak, a challenge Otremba says the company is finally ready to tackle.

"I believe we will rewrite the rules again," Otremba says.

- Arik

Neiman Marcus vs. Saks Fifth Avenue

Is a complacent Neiman Marcus about to be schooled by a newly aggressive competitor in Saks Fifth Avenue, as each firm competes for dominion of the $62 billion luxury market?

Over the past decade, the Neiman Marcus Group has cornered the market on luxury goods, turning the business of selling expensive handbags, alligator pumps and Chanel suits into a fine art.

Now, its closest rival, Saks Fifth Avenue, which for years had been sidelined by poor management, is trying to make a comeback, setting the stage for a Gucciesque battle that could rock the fashion world.

The contest is poised to take on a uniquely personal twist, pitting two former colleagues — Burton Tansky, the CEO of Neiman Marcus, and Fred Wilson, who holds the corresponding position at Saks — against each other for command of the $62 billion luxury market.

The two men once worked side-by-side, as buyers in the early 1970s for Rike's, a Dayton, Ohio, department store that is part of the Federated Department Store chain.

The similarities end there.

Tansky, who at 66 is considered an elder statesman of the industry, has earned his fashion stripes many times over, first as president of Saks, then as CEO of the Neiman-owned Bergdorf Goodman store, and, now, as chief executive of the group, which includes the namesake department stores, an online business and the Kate Spade and Laura Mercier brands.

Known affectionately in the industry as a big teddy bear, Tansky has also drawn criticism from colleagues, who chastise him for a seeming complacency and old school ways, including a tendency to scold employees for spending too lavishly on lunch.

To his credit, Tansky has taken Neiman ever more upscale, making it the place to shop for the very wealthy, even as other department stores courted the middle market in the 1990s.

He is unapologetic about Neiman's exclusiveness, often remarking, "I like rich people."

Wilson, by contrast, eight years Tansky's junior, is more like a bulldog, compact and coiled with energy. Employees said he willingly throws out old ideas, and spends amply to make a statement, including a planned $150 million renovation of the Fifth Avenue flagship to be designed by Frank Gehry.

After toiling in relative obscurity for 19 years at DFS, the specialty retailing division of LVMH Moet Hennessy Louis Vuitton, Wilson only recently grabbed the attention of the fashion world when he was named CEO of Donna Karan International, another LVMH division, in 2002. He assumed his duties as CEO of Saks in January.

"There's a competitive rivalry that goes back to the days of Rike's," said one executive who knows both men. "Here they are 35 years later going head-to-head. It could be a war zone out there."

Tansky was unavailable to comment.

Wilson would say only that he is too focused on his company to worry about the competition.

Like good ambassadors, both Tansky and Wilson are scheduled to make selected appearances in the tents of Bryant Park for Fashion Week, helping to promote the image of their respective stores and confer with buyers.

Saks has been criticized in the past for lacking a specific viewpoint, a problem Wilson and his team have begun to address, sources said.

In a strategy that more closely mimics Neiman's approach, buyers now have the leeway to stock up on key looks, these people said. In the past, Saks buyers often acted more like accountants, using their spreadsheets rather than their instincts to make decisions.

Some apparel manufacturers said they are noticing a difference.

"I've seen a much more aggressive approach to the Saks Fifth Avenue buys," said Michelle Stein, senior vice president of sales and marketing for Aeffe USA, which sells clothes under the Moschino and Narciso Rodriguez names, among others.

Buoyed by a resurgence in luxury goods, Saks reported a 17.2 percent increase in sales at stores open at least a year in the most recent quarter. Neiman reported a 10.2 percent jump for the comparable period.

Still, observers like retail analyst Maggie Gilliam said the contest remains too close to call.

One major disadvantage facing Saks, observers said, is a sales staff that has become increasingly less service oriented over the years.

By contrast, sales people at Neiman are famed for their ability to woo customers, often calling them at home when new designer shipments arrive in stores.

Neiman executives, for their part, seem unfazed by the changes at Saks.

"Neiman executives think Saks is crazy, making big orders that they'll never sell," said one Neiman insider. "But they're making a mistake in not taking Saks seriously."

- Arik

Small ISPs vs. the FCC & Big Cable: In Broadband Era Cable Network Access is Fundamental to Survival

Small ISPs just can’t buy a break like big cable companies can. The FCC came out in favor of protecting monopoly access to cable networks from what are sure to be deflationary competitive pressure from small ISPs that cannot otherwise provide non-DSL based broadband access to customers.

Small businesses looking for more broadband choices are unlikely to get help from the Bush administration, which is taking a hands-off approach to cable regulation.

Despite a federal appeals court ruling overturning their decision, federal regulators are continuing to push their edict that cable companies, unlike telephone companies, do not have to give rival ISPs access to their lines at regulated rates. Administration officials last week asked the U.S. Supreme Court to review the matter.

The case pits the Federal Communications Commission against ISPs that say requiring cable operators to share their lines—much the way telecommunications companies are required to lease lines to competitors at set rates—would result in increased build-out of cable networks and more choices for consumers.

SMBs (small and midsize businesses) and home offices typically have two choices for broadband: cable and DSL. But while DSL offers myriad choices among ISPs, with cable there is typically just one option—the cable provider.

If the government supported access to the cable network by independent ISPs, cable companies would have an incentive to build their networks into downtown business districts, said Mike Jackman, executive director of the California ISP Association, in Sacramento.

"If you plan on being in business in five years, you might want to have the option of having cable," Jackman said.

FCC Chairman Michael Powell, meanwhile, lauded the administration for backing the FCC and asking for a Supreme Court review, arguing that if the appeals court's decision isn't reversed, regulatory burdens imposed on traditional telephone companies will have to be applied to cable companies as well.

"This is about ensuring that high-speed Internet connections aren't treated like what they're not: telephones," Powell said. "A successful appeal of this case would ultimately mean lower prices and better service for American consumers."

Independent ISPs disagree.

"If [Powell] could name me an instance where you had more competitors and prices rose, I would be very interested," Jackman said. "There's no technological reason why customers who choose cable shouldn't have a selection among hundreds of ISPs."

Although independent ISPs overall do not have regulated access to cable networks, they consider the issue imperative in the larger matter of broadband competition.

"We're talking about a philosophical battle here," Jackman said. "Do we want true competition, or are we going to give the market to two or three companies?"

ISPs are also concerned that the Supreme Court's review of the case could affect other areas of the broadband service industry. Anticipating that Congress will review the Telecommunications Act of 1996 and that it will face intense lobbying pressure from incumbent phone companies, ISP associations across the country have formed the National Internet Alliance, which plans to debut officially next week.

As a VoIP user running over cable, I’d argue cable companies are very much becoming telcos… plus, after having started a small ISP in the late 1990’s (since spun off, after serving its intended purpose of providing my own company with high-speed Internet access, back in the days before DSL/Cable), I can tell you that ISPs without broadband are sitting ducks.

Finally, having had my office in the only Wisconsin county (Barron, in the west central part of the state) with more than one cable company, I can tell you they tend to sharpen their pencil when the monopoly goes away. Our rates were approximately half that of surrounding counties.

- Arik

Novell Reorganizes – Linux & Identity Markets Compact for Two Hybrid Divisions

Novell has finally decided Nterprise just doesn’t warrant its own division anymore, since the purchase of SuSE Linux a few months back, and alongside identity management, constitutes the future of the company. If reviewers assessments are accurate, indeed, it would appear a reinvigorated Novell is getting back in the game after languishing through the Internet era of network operating systems.

Novell vice chairman Chris Stone on Monday sent staff members an e-mail informing them of the organizational changes. Stone said Novell's future success will be based on two key initiatives: the now-familiar Linux and open-source platforms and related services, and a series of strategic customer solutions based on identity management.

"These are both significant growth opportunities and markets where Novell already has substantial expertise and presence," Stone said in the memo. "In combination, these represent the core strategy of the company.

"In order to align Novell's product development efforts with our corporate strategy and go-to-market model, I am announcing some organizational changes, effective immediately."

Bruce Lowry, Novell's San Francisco-based director of public relations, on Monday confirmed the authenticity of the e-mail, telling eWEEK that Novell "is strategically aligned behind platforms and identity-driven solutions."

"These moves were designed to align product development behind these two major strategic goals," Lowry said.

There are currently four product business units at Waltham, Mass.-based Novell: Nterprise, Secure iServices, Resource Management and SuSE. These four are being morphed into "two major units focused on our two core strategies," Stone said, adding that Identity Services would combine the existing Resource Management and Secure iServices teams, while the Platform and Application Services would now be a combination of the existing Nterprise and SuSE units.

David Patrick will become general manager of the new product business unit for Linux, Open-Source Platforms and Services. Reporting to him will be Markus Rex, vice president for SuSE; Nat Friedman, vice president for the desktop; Angie Anderson, vice president of applications and services; Ed Anderson, vice president of product marketing; and Rob Kain, director of product management.

David Litwack will become general manager of the Identity-Based Solutions business unit, with the following people now reporting to him: Kent Erickson, vice president of identity-based solutions; Frank Auger, vice president of product management and marketing of identity-based solutions; Carlos Montero-Luque, vice president of resource management development; and Alan Murray, director of product management and marketing, resource management.

Stone ended his e-mail by telling Novell employees, "With everyone's help, this new alignment will help drive Novell toward its key strategic goals and future success."

With the formal reorg around the renewed Linux focus, the old saying appears to ring true: When you can’t beat ‘em, join ‘em.

- Arik

Quaker Drops Radcliffe After Poor Olympic Showing

The fastest women’s marathoner of all time lost an endorsement for Quaker Oatso Simple porridge’s "Go the Distance" ad campaign, after dropping out of both the Olympic marathon and the 10,000 meter final in Athens. Here's the scoop:

Paula Radcliffe has been dropped from an advertising campaign for porridge because she doesn't fit the advertising slogan.

The 30-year-old Olympic athlete was due to shoot a TV commercial for Quaker's Oatso Simple porridge this week, showing her winning a marathon after eating the cereal.

The advertising slogan was to read: "It helps you go the distance."

But Quaker has pulled out of the idea after Radcliffe's poor showing at the Athens Olympics where she failed to finish both the marathon and the 10,000m.

Radcliffe had been seen as the perfect celebrity to promote the cereal as she says porridge is her favourite pre-race meal, says the Mail on Sunday.

A source linked to the company said: "Although a contract was not in place, the whole advert had been verbally agreed between Paula's agent and Quaker, although it was made clear that it would only go ahead if Paula won the medal."

But agent Sian Masterson said the idea was scrapped because Quaker couldn't get the script approved by the Broadcast Advertising Clearance Centre, which pre-vets commercials, because it contravened regulations.

Radcliffe had been due to sign the contract once she returned from Athens.

Apparently, Quaker can’t go the distance either – except it takes a lot more guts to be the best long-distance runner in the world than it does the world’s greatest bowl of porridge…

- Arik

The History of Labor Day

"Labor Day differs in every essential way from the other holidays of the year in any country," said Samuel Gompers, founder and longtime president of the American Federation of Labor. "All other holidays are in a more or less degree connected with conflicts and battles of man's prowess over man, of strife and discord for greed and power, of glories achieved by one nation over another. Labor Day...is devoted to no man, living or dead, to no sect, race, or nation." Labor Day, the first Monday in September, is a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country. I got some background from the U.S. Dept. of Labor:

More than 100 years after the first Labor Day observance, there is still some doubt as to who first proposed the holiday for workers. Some records show that Peter J. McGuire, general secretary of the Brotherhood of Carpenters and Joiners and a co-founder of the American Federation of Labor, was first in suggesting a day to honor those "who from rude nature have delved and carved all the grandeur we behold."

But McGuire's place in Labor Day history has not gone unchallenged. Many believe that Matthew Maguire, a machinist, not Peter McGuire, founded the holiday. Recent research seems to support the contention that Matthew Maguire, later the secretary of Local 344 of the International Association of Machinists in Paterson, N.J., proposed the holiday in 1882 while serving as secretary of the Central Labor Union in New York. What is clear is that the Central Labor Union adopted a Labor Day proposal and appointed a committee to plan a demonstration and picnic.

The first Labor Day holiday was celebrated on Tuesday, Sept. 5, 1882, in New York City, in accordance with the plans of the Central Labor Union. The Central Labor Union held its second Labor Day holiday just a year later, on Sept. 5, 1883.

In 1884, the first Monday in September was selected as the holiday, as originally proposed, and the Central Labor Union urged similar organizations in other cities to follow the example of New York and celebrate a "workingmen's holiday" on that date. The idea spread with the growth of labor organizations, and in 1885 Labor Day was celebrated in many industrial centers of the country.

Through the years the nation gave increasing emphasis to Labor Day. The first governmental recognition came through municipal ordinances passed during 1885 and 1886. From them developed the movement to secure state legislation. The first state bill was introduced into the New York legislature, but the first to become law was passed by Oregon on Feb. 21, 1887. During the year four more states -- Colorado, Massachusetts, New Jersey, and New York -- created the Labor Day holiday by legislative enactment. By the end of the decade Connecticut, Nebraska, and Pennsylvania had followed suit. By 1894, 23 other states had adopted the holiday in honor of workers, and on June 28 of that year, Congress passed an act making the first Monday in September of each year a legal holiday in the District of Columbia and the territories.

The form that the observance and celebration of Labor Day should take were outlined in the first proposal of the holiday -- a street parade to exhibit to the public "the strength and esprit de corps of the trade and labor organizations" of the community, followed by a festival for the recreation and amusement of the workers and their families. This became the pattern for the celebrations of Labor Day. Speeches by prominent men and women were introduced later, as more emphasis was placed upon the economic and civic significance of the holiday. Still later, by a resolution of the American Federation of Labor convention of 1909, the Sunday preceding Labor Day was adopted as Labor Sunday and dedicated to the spiritual and educational aspects of the labor movement.

The character of the Labor Day celebration has undergone a change in recent years, especially in large industrial centers where mass displays and huge parades have proved a problem. This change, however, is more a shift in emphasis and medium of expression. Labor Day addresses by leading union officials, industrialists, educators, clerics and government officials are given wide coverage in newspapers, radio and television.

The vital force of labor added materially to the highest standard of living and the greatest production the world has ever known and has brought us closer to the realization of our traditional ideals of economic and political democracy. It is appropriate, therefore, that the nation pay tribute on Labor Day to the creator of so much of the nation's strength, freedom, and leadership -- the American worker.

Which makes it all the more ironic that the Bush administration’s Secretary of Labor decided to cut overtime pay for millions of Americans…

- Arik

InBev: Belgium's Interbrew Acquisition of Brazil’s AmBev Surpasses Anheuser-Busch to Become World’s Largest Beer Maker

With number one or two positions in 20 key global markets and 13 percent of the world’s beer brewing volume, Interbrew’s purchase of AmBev has created the new powerhouse worldwide beer competitor: InBev.

Shareholders voted in favor of the deal at an extraordinary meeting in Brussels, bringing Interbrew one step closer to creating a global behemoth with brands such as Stella Artois, Bass, Beck's, Brahma, Rolling Rock and Skol.

Interbrew shareholders approved the first in a series of resolutions enabling the deal, allowing Interbrew to give AmBev's controlling shareholders 141.7 million shares in the new company in return for their stake in the Brazilian brewer.

The deal, valued at about 8 billion euros ($9.66 billion), will close once AmBev shareholders give it their blessing at a meeting in Sao Paulo.

"The transaction creates a global platform for the combined group to develop its three global flagship brands, Brahma, a top-ten brand worldwide, and what we believe are the two fastest growing international brands, Stella Artois and Beck's,'' Interbrew said in a statement.

The deal allows Interbrew access to Latin America, where it had scant presence in the past. AmBev gains the opportunity to expand outside of the Americas.
European regulators have already approved the deal.

Although Brazil's main Cade anti-trust watchdog has yet to rule on it, its head has said it appeared to pose no competitive threat to rivals.

The approval was expected given that the controlling shareholders of Interbrew and AmBev created with the deal.

They will remain firmly in control of the new company and have equal representation on its 14-member board.

The free float, however, will fall to 26.2 percent from Interbrew's 35 percent and 23 percent at AmBev, also known as Companhia de Bebidas das Americas.

Interbrew Chief Executive John Brock will take on the same job at the new company, to be based in Leuven, Belgium, Interbrew's current headquarters.

Interbrew expects 280 million euros of annual cost savings.

Despite initial skepticism, investors have warmed to the deal, pushing Interbrew shares nearly 10 percent higher since the deal was first announced in March.

AmBev's preferred shares have slumped about 18 percent since early March but its common, or voting stock, has gained some 66 percent over the period.

Interbrew has said it would consider listing the new company on New York Stock Exchange in the next two years.

With the next six months, Interbrew will make a tender offer for AmBev's remaining voting shares at a cost of up to 1.4 billion euros.

Brazilian regulators recently rejected a request by the country's largest pension fund to determine whether the deal would hurt minority shareholders.

- Arik

Dismantle the CIA?

Another hair-brained attempt to reorg the nation’s intelligence apparatus again lands hopelessly ignorant of the power that control over one’s own budget conveys in managing intelligence priorities.

The proposal, floated by the chairman of the Senate Intelligence Committee, to reorganize the U.S.'s intel agencies even more radically than recommended by the Sept. 11 commission is being supported by eight other committee Republicans. Chairman Pat Roberts wants to break up the CIA into three pieces that, along with agencies like the Pentagon's NSA, would be placed under the complete control of a new National Intelligence Director.

But, there's little chance anything like it will actually be implemented as is. The Pentagon is likely to guard its intelligence budget with an arsenal of bureaucracy and the Armed Services Committee won't be too keen on losing oversight of that budget, either. While the CIA refused to comment and the White House said only that it would study the proposal, an unnamed senior intelligence official said, "Rather than bringing intelligence disciplines together, it smashes them apart. This proposal is unworkable and would hamper rather than enhance the nation's intelligence operations."

Consensus opinion: It’s dead before it ever hits the ground… Here’s backgrounding on it from:

• Washington Post
• New York Times
• LA Times

- Arik

Montreal Alouettes Secretly Videotaping League’s Coaches to Steal Signals

Competitive intelligence…? Maybe. But the Canadian Football League has to decide whether it’s okay:

Montreal Alouettes president Larry Smith would not say whether his Canadian Football League team will or will not continue to secretly videotape the league's other coaches as a means of stealing signals.

"Internally, we'll have a chat about it before we make any public statement," Smith said. "But I'm not sure we'll have a public statement, because we look at this as an internal matter.

Last week, the Alouettes were accused of using video to steal signals for the second time in just more than a month. The allegation was made after security staff at Frank Clair Stadium in Ottawa removed a man with a video camera midway through the second quarter of the game between the Hamilton Tiger-Cats and Ottawa Renegades last Thursday. The tape, which was confiscated, showed repetitive close-ups of Ottawa head coach Joe Paopao and assistant Gary Etcheverry as they signaled in plays.

Stadium security identified the camera operator as Serge Brotherton, the same person Winnipeg Blue Bombers assistant coach Less Browne claimed to have seen taping the Blue Bombers' bench during a game at Ottawa in July.

Brotherton, who is listed in the Als' media guide as an equipment volunteer, was apparently wearing a Renegades jersey last Thursday while sitting high in the north stands of the Ottawa stadium. According to security records, Brotherton, who was ejected from the stadium, said he had been taping games for years and was unaware of regulations preventing such a practice.

Smith, however, much like Alouettes head coach Don Matthews, is unapologetic about the incident.

"We're aware there are other teams that gather intelligence," he said. "The issue is how you do it. Competitive intelligence is part of competitive advantage. Is it bad to have competitive advantage?"

CFL commissioner Tom Wright said last week that he discussed the signal-stealing issue with the Alouettes after the July incident and let it be known he considered it inappropriate. He also said he told the club he would "appreciate it if they would review it with their staff so it wouldn't continue."

Yesterday, Smith did not want to discuss the contents of the earlier conversation.

"We talked about a variety of issues and didn't spend much time on that one," Smith said. "But as a former commissioner, I don't discuss what our conversations are about. If [Wright] wants to make public statements, that falls within his prerogative. But this stays between the two of us because we look at this as an internal matter."

While the Renegades, Blue Bombers and other CFL teams seem to be opposed to Montreal's tactics, Smith said it's up to the league to rule on the matter.

"The issue is whether getting competitive information is within the rules of the CFL," Smith said. "That's something that will have to be debated either now or after the season by the commissioner and the governors of the league. If you create a rule, then everyone has to agree. That's how co-operatives or federations work."

"This is not a case of ethics, because the difference between this and kids taping movies in a theatre is that we are not taking the product, we are taking intelligence to make us better."

Wright had no comment yesterday beyond saying he has not received a copy of the tape confiscated by the Renegades.

A matter of ethics or not, in this, as in most other CI issues, the Golden Rule probably applies.

- Arik

Conrad Black & the Hollinger Kleptocracy

In the wake of the sale of London’s Daily Telegraph, I noticed this Washington Post piece on the ‘kleptocracy’ that was Hollinger International. Not to Mr. Black: comparisons to Dennis Kozlowski should not be considered complimentary...

Press tycoon Conrad M. Black and other top Hollinger International Inc. officials pocketed more than $400 million in company money over seven years and Black's handpicked board of directors passively approved many of the transactions, a company investigation concluded.

A report by a special board committee singled out director Richard N. Perle, a former Defense Department official, who received $5.4 million in bonuses and compensation. The report said Perle should return the money to the Chicago company.

The report also criticized the board's audit committee, which includes former Illinois governor James R. Thompson and former ambassador Richard R. Burt, for failing to question Black's large management fees. It said it was reasonable for former secretary of state Henry Kissinger, another independent director, to rely on the audit committee.

Black's holding company said the report was filled with "outright lies."
Black resigned in November after an internal investigation showed that he and associates, mainly chief operating officer F. David Radler, received money that the company should have kept. Hollinger International is suing Black -- a native of Canada who is now a British citizen -- and others for $1.25 billion in damages for their alleged pillaging of the company, which owns the Chicago Sun-Times, the Jerusalem Post and other newspapers. It recently sold London's Daily Telegraph.

The new report, filed with the Securities and Exchange Commission late Monday, added details of what it called the "corporate kleptocracy" Black and Radler created at Hollinger. It said they treated the company as a "piggybank" and fashion accessory, with Black using the prestige of the newspapers to gain access to the wealthy, powerful and royal.

For example, the report said Black and his wife, Barbara Amiel Black, treated the Hollinger corporate jet as a private shuttle between cities such as Chicago and Toronto and vacation spots. They took frequent trips to Palm Springs and one 33-hour round trip to Bora Bora, which cost the company $530,000, the report said. It also said Black charged the company $90,000 to refurbish a Rolls-Royce and used $8 million in company money to buy memorabilia of President Franklin D. Roosevelt, about whom Black wrote a book.

From 1997 to 2003, the report said, Black, Radler and other controlling shareholders steered 95.2 percent of Hollinger's adjusted net income into their personal accounts. Black's Hollinger Inc. has 68 percent voting control of Hollinger International and 18.2 percent equity interest.

"Behind a constant stream of bombast regarding their accomplishments as self-described 'proprietors,' Black and Radler made it their business to line their pockets at the expense of Hollinger almost every day, in almost every way they could devise," said the report, prepared by Richard C. Breeden, a former SEC chairman. "At Hollinger, Black as both [chief executive] and controlling shareholder, together with his associates, created an entity in which ethical corruption was a defining characteristic of the leadership team."

Ravelston Corp. Ltd., Black's holding company, disputed the findings. "The special committee's report is recycling the same exaggerated claims laced with outright lies that have been peddled in leaks to the media and over-reaching lawsuits since Richard Breeden first began his campaign against the founders of Hollinger International," Ravelston said in a written statement. Black filed a defamation suit against Breeden in February. "The report is full of so many factual and tainting misrepresentations and inaccuracies that it is not practical to address them in their entirety here."

The report said Perle "breached his fiduciary duties" as a member of the board's executive committee, signing documents without evaluating or, sometimes, reading them, including those that allowed Black and Radler to evade audit committee scrutiny. Perle received more than $3 million in bonuses and hundreds of thousands of dollars more in compensation from a Hollinger subsidiary that invested in new media companies during the dot-com boom. The report said Hollinger International put $63.6 million into 11 companies Perle recommended and lost nearly $50 million. "Perle was a faithless fiduciary . . . and . . . should not be allowed to retain any of his Hollinger compensation," the report said.

Perle did not return a call to his office and e-mails asking for comment yesterday. He said in an interview in May that any suggestion "that actions or decisions taken by me involved a quid pro quo for compensation I received . . . is absolutely false."

The report said Black and others diverted Hollinger money through Ravelston, which charged management fees when Hollinger sold properties. The audit committee, for example, approved $52 million for Ravelston when Hollinger completed its sale of Canada's National Post newspaper to CanWest Global Communications Corp. in 2001.

Members of the company's audit committee either didn't know or didn't care what Black and Radler were doing, probably because they were too close to Black, the report said. "Black named every member of the board, and the board's membership was largely composed of individuals with whom Black had longstanding social, business or political ties," the report said. "The board Black selected functioned more like a social club or public policy association than as the board of a major corporation, enjoying extremely short meetings followed by a good lunch and discussion of world affairs."

Black said the board's audit committee signed off on his decisions. The report said the audit committee should have pushed Black and Radler for more information.

Laura Jereski, an analyst with minority shareholder Tweedy, Browne Co., which spurred the creation of the special committee, said yesterday's report is "a step in the right direction."

The report is inconclusive about the directors, she said, as it withholds its opinion on how much blame they should receive for the actions of Black and others. "So much money left this company," she said. "The special committee is fully empowered to seek all remedies. We just want our money back."

The report contains e-mails from Black to other company officials about Perle, whom Black called a "trimmer and a sharper" who was profiting from Hollinger's name in establishing his own venture fund.

"I have been exposed to Richard's full repertoire of histrionics, cajolery, and utilization of fine print," Black wrote. "He hasn't been disingenuous exactly, but I understand how he finessed the Russians out of deployed missiles in exchange for non-eventual-deployment of half the number of missiles of unproven design." Perle was an assistant secretary of defense in the Reagan administration.

The report also contains some unexpected humor. When detailing the "Happy Birthday, Barbara" dinner party that Black threw for his wife at New York's La Grenouille restaurant ($42,870), the authors noted: "At least Black's choice of venue for his wife's birthday was less expensive than Dennis Kozlowski's party for his wife on Sardinia that was charged in part to Tyco."

- Arik

Foster’s Staggering over U.S. Wine Business

Since I’ve just gotten back from Australia and one of the feedback items on my evals was to have more Aussie examples to share of competitive strategy, I thought it’d be fun to take a look at Foster’s Group (“Australian for Beer”, according to the American ad campaign, although I never did find the lager on tap ANYWHERE in Sydney… I had mostly Tooheys New and VB). It seems Foster’s has hit a rough patch as a result of disappointing results from its former "growth engine" in Beringer wine business.

Foster's Group's drifting share price yesterday had its biggest one-day fall in 10 months after the global drinks company told investors to wait until 2006 before its struggling US wine business fully recovered and to expect only moderate earnings growth next year.

The group disappointed investors by announcing a net profit, before significant items, of $469.4 million - down more than 17 per cent on the previous year's $568.1 million. This was below market forecasts of between $479 million and $515 million.

Foster's share price shed 10 ¢ yesterday to close at $4.57, down more than 2 per cent. The weaker profit was propped up by the $329.9 million net gain from the spin-off of its pub assets, Australian Leisure & Hospitality.

Most of the damage was done by the group's Beringer Blass Wine Estates (BBWE) business which cost Foster's $1.5 billion four years ago when it was acquired as the growth engine for what was once a pure brewing company.

BBWE's earnings before interest tax and amortisation and significant items (EBITAS) crashed 32 per cent, falling from $428.8 million in 2003 to $291.7 million.

Like its competitors, BBWE has been forced to sacrifice some of its profit margins in the face of the California grape and wine glut, price wars and US consumers quaffing cheaper wines.

Announcing his first full-year profit result since taking the helm in April, Foster's chief executive Trevor O'Hoy said Beringer's figures were "unacceptable".

Some of the pain was set to continue in the first half of this new financial year, but a significant turnaround in the second six months was expected.
Foster's is counting on radical surgery, unveiled by Mr O'Hoy in June, to overhaul the ailing wine unit. This includes write-downs, reduced inventory levels, increased marketing spending and installing a team of new managers.

Mr O'Hoy said there would be no wine acquisitions for 12 to 18 months, and not before BBWE was fixed. "Clearly we've got to run the businesses we've got well and get towards the optimum performance before we even consider m&a (mergers and acquisitions)," Mr O'Hoy said.

The group's second problem-child, wine clubs and services, is also being overhauled and Mr O'Hoy signalled yesterday that Foster's might jettison the business if it wasn't fixed.

EBITAS for services fell 49.4 per cent to $17.8 million and clubs' EBITAS fell 10 per cent to 44.3 million.

Mr O'Hoy said the aim was to keep these as part of the group, partly because it also provided good competitive intelligence about the market, but the businesses needed to be integrated into the group's operations over the next two years and start generating returns of at least 15 per cent.

"If you can't see a 15 per cent return at the end of that period, it's not a business you would want to hang on to," he said.

The group has forecast single-digit earnings per share growth of between 5 per cent and 9 per cent per cent in 2005 - about half coming from share buybacks - with growth reverting back to 10 per cent-plus levels in 2006.

Australian for beer, indeed; but apparently, not American for wine.

- Arik