Over the Top: the Emergence of Arctic Ocean Trade

The north polar view of the world is not a common perspective, most of us may know it from the white on blue flag of the United Nations. However this view of the world may become increasingly common as the effects of climate change on the Arctic Ocean have opened new opportunities for Arctic trade routes. The opening of these trade routes is of particular interest to certain actors and nations and has the potential to change the face of global trade.

The Polar Paths for Shipping (The Globe and Mail)


A dream of the seventeenth century explorer, Henry Hudson, the fabled Northwest Passage over Canada was first navigated in 1906 by the Norwegian Roald Engelbregt Gravning Amundsen, who was also the first explorer to reach the South Pole. The other Arctic Sea route is the Northeast Passage over Russia’s northern coast, more commonly called the Northern Sea Route it is a Russian-legislated shipping lane

Scientists predict ice-free summers by the end of the decade and navigable winters by the mid 21st century. Regardless of how one may feel about environmental politics, the question of the polar caps melting is not one of “if” but “when.”

The Russian Federation has already started developing infrastructure to service the Northern Sea Route. Between 2009-2013 maritime traffic has improved from a handful to several hundred. So far Norway and Russia have been the primary navigators but in the past few years Chinese shipping giant COSCO has turned its eyes northward. Huigen Yang, Director General of the Polar Research Institute of China announced in 2013 that as much as fifteen percent of China’s maritime trade may travel the route by 2020.

A visual comparison of the Northern Sea Route (Blue) to the Suez Route (Red). The Northern Sea Route is 40%, or 12-15 days shorter than the traditional Suez route. (via wikimedia)

The Arctic region is governed by a combination of international agreements such as the UN Convention on the Law of the Seas (UNCLOS) and multilateral governance institution such as the International Maritime Organization (IMO, a UN Agency) and The Arctic Council (AC). The Arctic Council is made up of the eight nations that intersect the Arctic Circle: The United States, Canada, Russia, Norway, Finland, Iceland, Sweden, and Denmark by virtue of Greenland. In the past few years the AC has passed agreements on search and rescue and the IMO is finalizing a shipping ‘polar code‘ that is expected to be in place by 2016.

Most data estimates suggest that roughly 90% of mercantile trade is shipped. For China the potential of arctic routes could represent savings of hundreds of billions of dollars  “Once the new passage is opened, it will change the market pattern of the global shipping industry because it will shorten the maritime distance significantly among the Chinese, European and North American markets,” said Qi Shaobin, a professor at Dalian Maritime University according to China Daily. Not to mention China’s traditional route to European ports passes through pirate infested waters that the Arctic Route would avoid.

Infrastructure is still the key obstacle to the expansion of trans-Arctic trade. So far Russia has been the only player to make significant commitments to development by reopening research stations and arctic ports. Canada has done little aside from accepting a legal framework on paper. Notwithstanding there has been an increase in maritime activity through Canada’s Arctic waters:

Northwest Passage Transits 1903-2013 (Globe and Mail)

At a meeting in Stockholm with USC students in the summer of 2012 Gustaf Lind, the Swedish ambassador to the Arctic Council, accepted the possibility of Arctic Ocean Trade routes but noted “I don’t think we will see much shipping for quite some time.” Mike Keenan, an economist at the Port of Los Angeles, noted “you need long stretches that are regularly free of sea-ice and right now you don’t have that.”

There is an undeniable economic advantage to Arctic Trade Routes to connect not just China to Europe but China to the East Coast of the United States. Currently the typical shipping time from Shanghai to Rotterdam is twenty-five days, from Shanghai to Los Angeles is thirteen days and then seven days by rail to reach New York. Rotterdam to New York is another nine day sail. However a Northern Sea Route to Rotterdam from Shanghai would shorten the journey to ten days making a Sail from Shanghai to New York via Rotterdam last nineteen days. This number could be even shorter without a stopover but it already is faster than the current path from Shanghai to New York taking rail from Los Angeles.

The Port of Los Angeles, which along with the Port of Long Beach is the busiest container port in North America, is currently the fastest way for good from China to reach consumers in most of the United States. It represents a huge economic asset that handles $260 billion of trade throughout the US. According to Keenan “3.6 million jobs throughout the U.S. are related to the port’s activities.”

Whether Arctic Sea Routes posed a challenge to the port’s position seems an unlikely prospect for the port to consider in the near future. In addition to the infrastructure problem Keenan noted that “there’s simply too many variables to make any predictions for the port.” In terms of adapting to a changing trade environment “there’s a limit to what [the port] can do if you have a serious time advantage.” Keenan further noted that “the priority should be to focus on climate change and sea level rise” and pointed to the Port’s respectable environmental record and investment in clean technology.

Perhaps it is too early to quantify the effect of Arctic Sea Routes on global shipping but even if there is a long term threat to the Port of Los Angeles the sheer volume of trade between Asia and Los Angeles accounts for over ninety percent of the port’s volume. Mike Keenan asserted “cargo will always come here.”




Fast Facts for Future (Monetizing) YouTubers

“How hard is it to really make it into the YouTube business?” I thought to myself.

Well, it seems pretty simple and many would agree that it indeed seems actually quite simple. There are mommy bloggers, food bloggers, comedian bloggers, make-up bloggers, pranksters, pick up artist videos, political videos, social commentary videos and the list goes on and on. These users make an income off YouTube by explicitly allowing YouTube to place advertisements in their videos and in exchange the user receives a 55/45 cut from ad revenues. With reaching over 1 million users being “YouTube Partners,” users that are actually monetizing, there has been a significant rise in partnerships since 2008 when it only had 30,000 and the number of videos watched has increased from 3 billion in 2011 to 6 billion in 2013

“So with the demand rapidly increasing

Picture by website TheMainStreetAnalyst

, how is the YouTube Economy looking?”

Well you can look to Amazon and see that YouTube Strategies 2014 has become the #1 Book at Amazon for Marketing, and that’s not even the punch line. Between 2012 and 2014 the number of YouTube partners increased from 30,000 to 1,000,000. It seems then, that with the increasing number of partnerships and interest that there is more people trying to get a piece of YouTube’s pie. The money.

But the pie can only feed so much. Especially cause the pie won’t be able to feed all the new kids coming down the block.

While the number of users entering into partnership are increasing (through a click of a button), the supply of ad revenue, mama’s apple green pie, has yet to keep up.

“Advertisers paid an estimated $4 billion for YouTube ads in 2012, up 60 percent from 2011,” according to RBC Capital Markets stock analyst Mark Mahaney. However, according to an article by Todd Juenger who takes a critical look on the future of online video advertising, he suspects that an increase in advertising revenue will begin to halt. This turns out to be true, considering that YouTube only brought in 5.5 billion this year according to a Forbes article. That is 25% decrease from the previous year’s growth

Given, the users in 2012 should be very grateful since there were almost seven times fewer partners in 2012 compared to today. Unbeknown, the lucrative and prosperous year of 2012 would also mark the eventual and continual downfall of future earnings ahead.

In the early year of 2012, YouTube decided to restructure their revenue-sharing program to allow more users to enter into a partnership by making the process of entering into a partnership much easier. Now with just a click of a button users are able to immediately become paid partners of YouTube while before that users had to apply and go through a lengthy process to get their permission.

What resulted was similar to your mother allowing all your friends and friends of friends and neighbors and those baked high schoolers from Dazed and Confused to hop over into your yard to have a piece of her seemingly insufficient pie.

Though there is an increase in partnerships there is an increasing plateau of ad revenue — which hurts current partners as they now deal with increasingly more competitors for a limited amount of money.

Basically the number of visitors are rising daily and so are the number of visitors that choose to become partners. Which is a really good thing for YouTube. But the only variable that poses a problem in this YouTube economical equation is they haven’t been able to increase the annual amount of ad revenue. But with YouTube’s increasing number of visitors and the progression of online video viewing the advertisers realize that it’s not a matter of if, but a matter of when.

So to answer the question: The pie of money got official in 2012, but ever since it hasn’t gotten any bigger. But more kids are coming for a slice and they are all aware of what that means. Smaller slices –even for the bigger kids usually are the ones to get bigger portions.

So what’s it looking like for the future?

Since the new program, YouTube has failed to keep up in finding more advertising sponsors to match its increasing number of partners –causing the difference in ratio between number of users and amount of ad revenue to become higher and higher. Therefore, the rate of how much partners get per view is continually dropping as other partners are competing for their views.

In a research analysis by TubeMogul it explains that the rates for the most lucrative pre-roll video ads have dropped from an average of $9.35 per 1,000 views in June of 2012 to $6.33 in April of 2013.

Some might say that is pretty bad, particularly the older ones who used to be making $25 per 1 thousand views in 2010 according to an article by Online Video Marketing Site, Will Video for Food. Unfortunately, veterans will continue to struggle in maintaining their income, because this opens doors for entering newcomers as they give advertisers the ability to look into a more diverse pool of sponsorships. With a more diverse and mediated population, the demand for the most popular videos will decrease as advertisers look to sponsor cheaper partners.

In 2012 a significant portion of ad-revenue sponsorships mainly went to the partners who were the most popularly viewed. However since then, 1/3 of the ad sponsorships left the most popular channels and headed towards the diversified partners (lower tier in popularity but newer and trendy) according to the research firm TubeMogul.


One reason is because with the increasing number of monetizing users there is less of a need to put advertisements in the popular videos. Instead an advertiser can choose to distribute its advertisements to cheaper and trendier channels. Meaning, this allows sponsors to meet their criteria by putting their advertisements in several videos rather than one for cheaper.

While some advertisers and partners are able to see this as a moment of opportunity, most advertisers believe that a majority of the content on YouTube lacks production quality and have therefore lost the incentive to invest further.

The problem lies in the growing number of partnerships.

While the growth of partnerships continues, there is also growing number of non-quality videos that are still able to get money for its views. Therefore, there this creates a higher demand for quality videos which in turn raises the rates for advertisers who want to sponsor those videos.

Some advertisers do not like the idea of having to settle for “non-quality” sponsorships and therefore have chosen to abandon their investment all together.

Here’s what it looks like for a veteran and a newbie according to an article by the site BusinessWeek.com.

Veterans of the YouTube business, brothers Vijay and Antonius Nazareth, a popular channel, saw a 50% decline in their earnings in early 2013. They were retaining the same number of views but their income has continually dropped.

Another popular channel by Hannah Hart, a newer experienced partner, who runs the very successful My Drunk Kitchen, said that her earnings began to decline since mid-2012 –which is right when the new revenue program launched.

So, what veterans and newcomers are doing in response is resorting to a new strategies proposed by “content networks.”

Content networks are companies that take a cut of their client’s advertising revenue in exchange for covering the costs of production, looking for direct sponsors and securing higher ad rates. Content networks have become a very popular way for up-and-coming users and is generally directed towards newcomers although many veterans have resorted to them in response to the changing economy. Big content networks that are able to achieve over 2 billion views a month with up to 5,000 contracted partners can combat against the dropping ad rates. On top of that, content networks have the ability to negotiate a price directly with ad sponsors themselves, which helps more with easing the drop in monetization rates.

Machinima for example achieved over 2.2 billion views in March of 2013 with its 6,500 partnerships and has been able to maintain their rates by directly negotiating with sponsors. Since they specialize in videos for male gamers between the ages of 18-34, whom of which are consistently the top 2 largest audience, Machinima has been able to partially combat against the dropping ad rates for certain users.

A very important and favored alternative to solving this issue is: capping the entry of new partnerships by (re) re-structuring the revenue sharing program, whether it’s by returning the program to its former procedure of application processing or by halting partnerships completely. But this would be very difficult to do. Particularly, because it would be taking a step back from what YouTube had set out to do in the first place –which is to make more money. Regardless of the ad rates for partners, the increased number of ad-revenue increased YouTube’s profits and will therefore continue to allow users to enter partnerships.

Don’t worry the future of YouTube will stay bright as long as it is continues its track in becoming the primary media outlet of the world. But until then, if you are thinking about making a career in YouTube, think twice (I personally still want to). But I think it’s important to keep in mind a common saying by one of YouTube’s most successful partners, Jason Calacnis who explains of YouTube,

“It’s a good place to get started, but not a good place to run a business. Why would you ever give your partner 100% of your ownership?”


Community colleges: benefit or burden?

Sarkis Ekmekian is a junior at USC, majoring in communication. He’s taking four classes, is the show-runner for Speakers’ Committee, public relations chair at Trojan Pride, and is a campus centre consultant at the Ronald Tutor Campus Centre.

He also is a transfer student.

Ekmekian, one of 1,430 transfer students who enrolled in USC in fall 2013, transferred from Santa Monica College, a top feeder school for USC and University of California. Community college transfer students have a strong presence at USC: 58% of the fall 2013 transfer class were community college students (up from 50% from fall 2012).

Community colleges have many purposes, from allowing students to save money on tuition, to allowing non-traditional students a place to pursue a different career path. The California Community College system is the largest system of not only community colleges but higher education in the nation, with more than 2.1 million students and 112 campuses. According to the California Community Colleges Chancellor’s Office, “70% of state nurses and 80% of firefighters, law enforcement personnel, and emergency medical technicians” are educated at California community colleges.” Furthermore, most California community colleges have agreements with the UC and CSU system in regards to transfer students: 29% of UC and 51% of CSU graduates started at a California community college.

However over the last few years, California Community Colleges, along with the UC and CSU system, have suffered severe funding cuts due to the Great Recession. Funding for California Community Colleges was “cut $1.5 billion between the 2007-08 and 2011-12 academic years”, resulting in about 25% of college courses to be cut.

As a result, there has been a significant decline in both the number of transfer applicants to four-year colleges and enrolment at community colleges in California. UCs received 1,653 fewer transfer applications from community colleges in the fall 2013 year, compared to fall 2011. California Community Colleges Chancellor’s Office also reported that “enrolment [in California community colleges] decreased by more than 585,000 students to 2.3 million in four academic years (from 2008-09 to 2012-13) due to severe budget cuts.”

Budget cuts have also caused the success rate of community colleges slip in recent years. According to an article in the Oakland Tribune, “As unemployment swelled, the system simultaneously saw soaring demand and $1.5 billion in state funding cuts, forcing its colleges to cut back on student services and classes. State universities also accepted fewer transfers during that time, another factor working against students.”

Now, with the economy showing faint signs of improvement, the question becomes whether the economic benefits that community colleges provide is significant enough for the state to reinvest money into the system. The passing of Proposition 30 in 2012 meant that the education sector dodged $6 billion worth of budget cuts. Community colleges were granted $210 million for 2012-13, allowing for the addition of 3300 classes for the Spring 2013 semester, 40000 additional students, and a temporary halt in the increasing tuition rate.

Recently, Gov. Jerry Brown proposed a budget which would increase funding to community colleges by $1 billion. The funding would freeze tuition rates at the current rate of $46 per unit and “allow colleges to increase enrolment by 3 percent. Enrolment has been cut by up to 15 percent since 2010.” According to Brown, the additional funding would allow students to transfer faster by increasing the amount of classes, counsellors and academic resources available to students.

The state certainly believes that there is community colleges provide significant economic benefit to the economy. According to a report conducted by the American Association of Community Colleges, “in 2012 alone, the net total impact of community colleges on the U.S. economy was $809 billion in added income, equal to 5.4 percent of GDP.” Furthermore, “community-college graduates receive nearly $5 in benefits for every dollar they spend on their education.” The average income also steadily increases with the education level, with those with associate degrees earning an average of $10700 more than someone with a high-school diploma.

The proposal for additional funding has been met with approval from community colleges, professors and students who have long suffered from severe underfunding. “We have been underfunded for a really long time compared to K-12 and the UC system,” explained Mary Mazzocco, who is the journalism department chair and advisor for school newspaper ‘The Inquirer’ at Diablo Valley College. “Given how many students we serve, given that we are the gateway for non-traditional college students, and given our role in helping retrain people who lose their jobs… I do feel like that they should at least give us the money to allow us to do the job that they have given us to do. And I feel like they haven’t done that in a really long time.”

Students who manage to transfer to four-year institutions are statistically successful. According to the University of California’s Accountability Report, “transfer students entering UC since 2004 have a 50 to 53 percent two-year graduation rate and an 85 to 86 percent four-year graduation rate.” By comparison, freshmen from the same cohort who enter the UC system have a four-year graduation rate of 60% and a six-year graduation rate of 84%.


Rachel Ann Reyes is a student at Diablo Valley College majoring in communication. She has been accepted to UC Davis for fall 2014, and is awaiting responses from UC San Diego and UC Santa Barbara. When she transfers, she will be the first in her family to attend an American university. “I’ve personally really enjoyed being at a community college,” said Reyes. “I think that sometimes community colleges get a bad rep for being almost being a continuation of high school, but I think it’s a great opportunity for people who want to save money. If they are determined enough to go to community college to get their AA degree or transfer, I think it can be a really helpful tool at a great cost.”

However, there are also concerns about the efficiency of community colleges – particularly regarding the students who either take too long or don’t manage to graduate or transfer to a four-year college. In 2009, the average graduation rate from California community colleges was only 25.08% while the transfer rate was an even lower 14.36%. An op-ed in the LA Times also criticized the ineffiency of community colleges and the burden that it places on the economy: “Community colleges are subsidized through direct state and local government appropriations and through student grant programs. Every student who drops out represents an investment loss by the taxpayers in that student’s uncompleted education.” Through further investigation, they found that “of the full-time, degree-seeking students who entered California community colleges in 2007, more than 35,000 had not earned their degrees three years later, and most of them were no longer enrolled in any postsecondary institution.”

The state has attempted to address the low transfer and graduation rates of community college by pushing “state law requiring guaranteed transfer pathways for graduates of the two-year institutions.” Furthermore, new bills would require the CSU system to accept a wider range of transfer degrees when possible, with the transfer pathways focused on “areas of emphasis rather than majors.”

While Mazzocco realizes the importance that community colleges play in transferring students and awarding qualifications, she also worries that the mission of community colleges has taken a turn for the worse. “Historically community colleges were not just for transfer students, but the state has adjusted our mission – we are now supposed to focus on certificates and transferring,” said Mazzocco. “And I don’t agree with that mentality – I think there is an advantage to life-long learning.”

Mazzocco went on to describe the changing environment of community colleges. “There’s a certain amount of worry that the states push for us to become more efficient and to cut classes that are not high demand, and to focus on certain classes that transfer or go towards a degree. For example we’ve added another Mass Communication class because now it’s a part of two or three different majors that transfer. But now I probably have to take feature writing out of the curriculum – not because students don’t enjoy it or because it’s a lousy class, but because it doesn’t fit into the transfer degree that was agreed upon on the state level… and that’s happening with a lot of classes that are good classes. There’s value to be had to be taking them and offering them, but they don’t fit the pattern that’s being established and are being squeezed out.”

From a purely economic point of view, it is evident that it is the state’s best interest to encourage more efficient transferring and graduation rates: “For every $1 California invests in students who graduate from college, the state expects to receive a net return on investment of $4.50.” Furthermore, millennials with a bachelor’s degree or more earn on average $45500 – compared to the average income of $30000 for those with an associate degree.

However, there is still a value in attending community colleges that can’t be quantified for some students. “If I had gone to a UC or university straight out of high school, I wouldn’t know what to do,” admitted Reyes. “I think my three years at DVC (Diablo Valley College) have really helped me discover who I am. I got the opportunity to take different classes in different fields and figure out what I liked and didn’t like at an affordable cost. Through that experience I fell into journalism and communication and that is something I really enjoy – I would have never found that straight of high school. Because of community college I am more prepared, and more willing and motivated to succeed at a university because I know what I want and I can apply myself to that.”

China’s Boom Is Bringing Its Prodigy Sons Back

For the past decades, some of the brightest and best of young Chinese left the country to seek educational and entrepreneurial opportunities overseas. Often, they went to the most privileged universities in United States, Europe and Canada. Then, they took top-tier jobs at multi-national companies and research institutes.

But now they’re coming home

Because there is more money in China. Growth rates are breathtaking. And new businesses find opportunities and capital more easily.

With its 8 percent annual growth rate, the Chinese economy has become the world’s second largest after the United States. After the financial crisis in 2008, while other major world economies were plagued by the dragging recession, China’s economy remained robust, hence spurring the tide of of some Chinese migrants returning.

The beginning of the twenty-first century witnessed soaring numbers of overseas Chinese migrating back home. According to statistics from the China’s Ministry of Education, from 2009 to 2011, 429,300 students who had studied abroad returned to their home country. In 2012 alone, more than 272,900 overseas students came back, up by 46.57 percent from the year prior.

Returning students have increased by an average of 36% per year over the past 5 years, pushing the total to more than 800,000. That dwarfed the entirety of all returnees back to China for the 30-year period from 1978 to 2008.

The returning trend shows no sign of mitigating, as a poll conducted in this January by a research team from Nankai University shows. The polls indicated that less than 10% of the nearly 2,000 undergraduate students surveyed had plans to immigrate to other nations after they finish their study abroad.

As the number of Chinese students at US universities surged to 158,000 last year, the number of “sea turtles” (or haigui, the Mandarin term for overseas-educated Chinese who come home from abroad) has also surged in what is a reverse-brain-drain trend.

As America has drastically axed the number of working visas available to foreigners — from 195,000 a decade ago to roughly 65,000 now — more educated Chinese have left the US, taking their skills with them. Data from US-based Ewing Marion Kauffman Foundation, more than 80 percent of Chinese who returned said that there were more opportunities at home than in the US.

As more and more overseas students are returning back to China, one big difference from previous generations who have made the same choice: the previous trend was to come back to China to work at universities or research institutes; nowadays, returnees are joining businesses or starting up their own enterprises off the ground. They might have been working abroad for several years and have seen the limitations of the foreign markets; they feel they can apply their own talent and experience to tap the greatest potential of the vast Chinese market.

Wang Mengqiu, 37, who was born in Sichuan province and went to the US a decade ago to obtain a master’s degree in computer’s science at UCLA.

Until 2012, she worked at a Silicon Valley startup producing network routers. Once the bubble burst, she and her husband — a fellow “sea turtle” who used to work at IBM — picked up and flew back to China where they consider opportunities are more promising.

Now, Wang is now the Vice-President of Engineering at Baidu, Chinese version of Google, while her husband is embarking on a startup to create a Chinese equivalent of Pinterest.

“I don’t think I would get the same opportunities in US, frankly,” Wang told Global Post. “Just last month, I went back to Silicon Valley to visit some friends. What I found out is they are doing the same things they were doing ten years ago. Nothing has changed. They are smart people, but they cannot get enough opportunities in the US.”

The tremendous rise in returning students since 2008 coincides with the government rolling out a wide-ranging series of initiatives and incentives aimed at appealing to highly educated citizens. Those benefits include better opportunity for career development, favorable tax rates, housing, more research project opportunities, and government awards.

One initiative, the Talent Development Plan (2010-20) launched June 2010, offers favourable policies on tax, housing and children and spouse resettlement for high-end talents willing to return to work in China.

China has also established more than 160 industrial parks encompassing more than 8,000 businesses to provide approximately more than 20,000 jobs for returnees.

The central government programmes for attracting overseas talents also include the 2008 Thousand Talents Programme; 2010 Thousand Young Talents Programme; 2011 Thousand Foreign Experts Programme; 2011 Special Talent Zone and the 2012 Ten Thousand Talent Plan. In line with the central government’s talent attracting strategy, by August 2012, 35 industries in 31 provinces and municipalities in China initiated a total of 2,778 local talent plans, such as the Beijing Haiju Programme, Jiangsu Seagull Programme and the Guangdong Pearl River Talent Plan. Under these programmes, more than 20,000 high-level overseas talents have been recruited.

However, the growth in Chinese students pursuing studies in the US has been exponential during the past decade: China sent 60,000 students to the US in 2000, almost all graduate students sponsored by the government; in 2012, 194,000 Chinese students went to the US, with most of the growth stem from increase of self-funded undergraduate students.

Overall, China started to lead all nations in sending students to US universities since 2008. Today, it sends five times more students to US institutions than the second-largest source, according to US State Department statistics.

Amid the upward trend in the number of Chinese returning, it does not ring true for the highly talented students who have obtained doctorate degrees, who are performing research or who have high-level work skills. According to a report released by the Central Chinese Human Resources Work Coordination, China is losing more highly talented people than any other country, and about 87% of those not returning are from science and engineering backgrounds.



opendoors_large 2

images 3









The invisible hand

Opportunists taking legal risks to wedge into marijuana business say uncertainty offers a nice middle ground for startups before high rollers come around

Having ditched Morgan Stanley to work in the weed business, Derek Peterson was pretty confident he’d made a good bet when his company ran close to an IPO in 2011.

A year earlier, the former Wall Street banker quit his job and founded GrowOp Technology after he learned a friend’s marijuana dispensary was clearing $18 million a year. California-based GrowOp, which started its business in March 2010, manufactures and sells indoor hydroponic and agricultural equipment to cannabis growers. Peterson reaped $800,000 in revenue in the first nine months. And the business looked so promising that he told Bloomberg his sales goal would be $2.5 million and $5 million to $8 million in the two years to come. He revealed in the same interview that his company was poised to go IPO by the end of 2011.

That IPO plan was never materialized. The startup eventually managed to go public through a reverse merger in 2012, but hasn’t been able to secure significant funding until early this year — all because of legal swings.

“Because the federal government has come to be more supportive, and because they are allowing banks to do business with us now, and because they are not cracking down anymore, the industry is allowed to move forward,” says Peterson.

For fear of legal pitfalls, cannabis-related companies have treaded on thin ice for years. Their hands were tied because investors with deep pockets wouldn’t go against federal law to finance weed businesses. Recent passage of recreational use of pot in Washington and Colorado has rejuvenated the market, driving investors’ appetite up. And some pioneering entrepreneurs have learned to sail through the murky legal water.

*  *  *

Back in 2011, GrowOp’s IPO plan fell short mainly due to an unfriendly political environment. Fifteen states had legalized medical use of cannabis, yet California was cracking down on dispensaries. Worried that the SEC wouldn’t let the IPO come to fruition, Peterson backpedalled. The offering plan had reached its auditing stage.

“Judging from all the pressure that was melting from the federal level, it seemed to us that we might not be able to go public through an IPO, and we don’t want to risk that,” says Peterson.

GrowOp ended up merging with Terra Tech Corp, a listed shell company that does no real business. Peterson and his colleagues took over the management and resumed day-to-day operation. “It’s kind of a back-door channel which goes around the expensive and cumbersome process of going through IPO,” says Peterson. “We think we’ve made a smart decision.”

GrowOp’s story shows how political clout can put off investor sentiment, leaving a dent on startups’ financing ability. But the legal stakes are higher than that. The fact that states and the federal government take opposing stances on weeds has left many investors and entrepreneurs wary about tapping into this niche market. Goldman Sachs and its peers have kept people like Peterson at arm’s length because they could be punished for lending money to cannabis-related companies. Or, if the federal government chooses to come down harder, law enforcement may simply show up at Peterson’s doorsteps and seize all of GrowOp’s assets. For Goldman Sachs, that means loads of money going up in smoke overnight (given that they do care).

Again in 2011, the media touted a “green rush” in the cannabis industry, but the market underwent ups and downs in years followed.

With a net income of $1.2 million in 2010, California-based General Cannabis once sought to raise $10.5 million in an IPO a year later. The technology-based service company with a focus then on the legal pot business was founded as early as in 2003, and began trading some of its stocks on OTC markets in 2010. During its heyday, the company owned seven subsidiaries, including Weedmap.com, an equivalent of Yelp in the world of marijuana dispensaries. It managed 14 medical cannabis clinics in California, and was processing $2,200,000 worth of transactions in March 2011.

But the company sold off its weed business once and for all at the end of 2012 after consecutive slumps in its shares. It also changed company name into SearchCore, Inc. shortly before sales of its pot-related assets.

*  *  *

Medical marijuana use is already legal in 20 states and the District of Columbia. Recreational use of marijuana was passed in Colorado and Washington in 2012. But under federal law, cannabis has always been treated no different from heroin or cocaine: it is highly addictive and has no medical value, therefore should continue to be banned.

Legalization of Weed

Even in places where medical use of marijuana has been legal at state level, operating costs and rigid regulations make it tough to stay in the business.

In Colorado, legislators have completely freed up weed. The number of medical marijuana businesses there peaked at 1,131 toward the end of 2010 as the drug was being funneled in bulk into the mainstream market from the black one. But the number has dropped to 675 two years later, which equals a more than 40 percent shrink in the industry, says Denver Post. Heavy regulations and police crackdowns have forced a big chunk of practitioners to leave: Stores near schools were forced to close after the state’s U.S. attorney warned that they could be prosecuted if didn’t move. Others collapsed because federal rules denied marijuana businesses of bank loans or common tax deductions.

What adds to the financing hurdle was a big upfront cost that goes into a medical cannabis dispensary even before it opens its door. Jeremy Kelsey, owner of a medical marijuana outlet in Seattle, told NPR that his facility needed bulletproof glass and a 24-hour monitoring system. He spent heavily on ventilation, dehumidifiers, air movers, and air conditioning units — all for producing high-quality cannabis.

Fluctuation in retail price is another vexing problem. Transaction data collected anonymously by priceofweed.com show mixed results of changes in pot prices in the past three years. There have been drops in the prices of high-quality cannabis, whereas price of low-quality breeds has been marked up.

Pot Price 2010 - 2013

*  *  *

One piece of comforting news for weed growers is that the market is gaining new traction after voters made recreational use of cannabis legal in two pioneering states. Nationwide, new marijuana-related legislation is pending in 17 others. Investors are looking at a market that is expected to reach from $1.5 million to $6 million by 2018.

Washington and Colorado are at the very forefront of this rapid growth. In Colorado, pot storeowners cheered for a total of roughly $5 million in sales revenue during the first week selling recreational weed. The retail price of marijuana there has doubled in that week. Seattle-based Privateer Holdings, an equity firm led by two former Silicon Valley bankers, is buying up warehouses in Washington with the $7 million they’ve raised three years into their weed business. They are confident about bringing in roughly $50 million this year alone.

GrowOp, now a subsidiary of Terra Tech Corp, is acting fast to capitalize on Washington’s marijuana reform. It announced in May last year the opening of a new location in Seattle. It is also vying for permits to open marijuana dispensaries in Nevada in hopes of becoming a cannabis grower itself.

“In controlling the actual product that goes for sale at $3,000 to $7,000 per pound wholesale, there is huge amount of strength being the core cultivator,” says Peterson.

The company has just closed a $6.8 million round of financing with Dominion Capital. It also had another $8 million raised from issuing new shares. “The more healthy the political scene gets for us, the more investors come in, and the easier and cheaper it gets for us to raise money,” says Peterson.

He says current legal environment is in fact helpful for GrowOp to get on track to become the Starbucks of weed.

“If it were fully legalized and there’s no legal risks, the big boys would be getting into it. Fortunately this quasi-legal environment provides enough cover for us that the big people will stay out and give us the ability to build market share and our brand,” he says.

He’s right in a sense that the market is already booming with private investors brimming with confidence. ArcView, a California-based organization that connects investors with entrepreneurs in the cannabis industry, has helped its clients secure 4 million of financing in the past few months. The company nearly went out of business two years ago due to a lack of investor interest.

And the money is not only going into selling pot, it’s been poured into ancillary goods that are being built around it. Colorado’s law requires that pot be sold in child-resistant containers, so Ross Kirsh invented Stink Sack, a startup that sells odor-proof packages for weed. He sold his idea immediately to a group of ArcView investors, and was put on a plane to China with the $150,000 he’s raised right after the meeting.

Earlier this month, the federal government issued guidelines on how banks interested in the cannabis industry may navigate the murky legal waters.

“I think you’re gonna see the smaller and regional banks jump in first. As soon as the big potatoes see there is money to be made there, bigger banks will follow,” says Peterson. 

To view an infographic on marijuana in America, click here; To learn how weed got in the U.S., click here.

Soft Power Makes It Happen

The miracle

On Valentine’s Day, groups of Chinese young people waited for a Chinese movie, “Beijing Love Story” in Monterey Park AMC Theater, which was released day-and-date with China. The film made a strong opening weekend in North America earning128, 000 dollars from a limited release in nine screens over its first three days in the market following a Valentine’s Day premiere. Moreover, the film set a single-day record for a 2D film in China with16.1 million yuan.

“It’s a golden age. China film market is experiencing a prosperous development now…China’s local movies beat Hollywood movies and became to lead the market in the past few years…I remembered that 60% revenues are from our local movies, which could not be imagined in the past,” said Long Wan, Founder of Fire Rock Global Media. Wan is doing pre-production as the supervisor producer for a US-China co-production film, which is going to be filmed in Las Vegas this summer.

“Beijing Love Story” is only one of the “miracles” made in February, the Chinese New-year month. Another blockbuster, “ The Monkey King”, has earned 1.02 billion yuan since it released, which became the third movie in one-billion club in the mainland China. According to box-office record from Huxiu technology blog, China’s February box-office revenues hit 2.96 billion yuan (about 50 million US dollars). Experts predicted that the number would probably hit 30 billion yuan at the end of 2014.

The second largest film market

According to a report from Motion Picture Association of America in March, China overtook Japan to become the second largest film market after America, with box-office receipts of around 17 billion yuan (about 2.8 billion dollars).

More than 5,000 new cinema screens were added last year, and a massive 903 new complexes were opened. The State General Administration of Press, Publication, Radio, Film and Television reported that China now has 4,582 cinema complexes and 18,195 screens, increasing of 25 percent and 39 percent respectively.

The data also shows that cinema visits per head of population are approximately 0.5 per person per year (given that China has a population of some 1.3 billion). That is low compared with China’s neighbors in Asia – South Koreans buy an average of 4 tickets each year – and with developed country markets, according to Variety.

Screen Shot 2014-02-27 at 4.57.30 PM

In the past five years, the demographic structures and habits of Chinese audience have been changed a lot. Below the chart shows that 48.9 percent of audience watched two to four films in 2009, but in 2012, we can see that the number of films has been diversity, which means more people choose to watch films in cinemas.Screen Shot 2014-02-26 at 4.02.12 PM

The high price of movie tickets never stops people’s steps into cinemas. In Shanghai, an ordinary movie ticket costs 100 yuan (around 15 dollars) and a 3D movie ticket costs 150 yuan(around 25 dollars), according to Want China Time. China’s movie ticket prices are reportedly the most expensive in the world.

In China, 30.5 percent audiences are 21-25 years old, which are the main-power consumers. “Do you know the average age of our audience is 22….Do you understand those young people born in 90s?” Wei Liang said to the Chinese director veterans in an interview. Liang’s film marketing company, Magilm Pictures, is one of the pioneers marketing companies in China.Screen shot 2014-02-27 at 11.36.56 PM

China’s cultural market & Propaganda

China has a long history of propaganda on both news media and cultural market. In 1942, Chairman Mao Zedong gave a speech in a cultural panel meeting in Yan’an, which emphasized that literature and art should serve for workers, peasants, soldiers and proletariat. And movies are the tools of propaganda for educating people “right things” and also have to express right political views. At that time, Chinese film market experienced a period of downturn.

During the Cultural Revolution, the film industry was severely restricted. Most of previous films were banned, only a few new ones were produced. The most notable ballet version of the revolutionary opera was “The Red Detachment of Women” (1971). Film production revived after 1972 under the strict jurisdiction of the Gang of Four until 1976, when they were overthrown. The few films that were produced during this period, such as 1975’s Breaking with Old Ideas, were highly regulated in terms of plot and characterization, according to Wikipedia.

China’s economic reform and opening in 1979 gave a new birth to the whole country as well as movie market. The government film distribution reform project, which was released at the same year, said that film distribution companies could keep 80 percent for developing new projects and pay 20 percent of film revenues to central government.

The film industry flourished for a short time as a medium of popular entertainment after the reform project. Around 29 billion audiences went into cinema in 1979, according to historical record. The planned economic mechanism played an important role during the flourished period.

In 1993, Chinese government released a new reform report to doors for private film companies to produce movies. The newly formed SARFT, State’s Administration Radio, Film and Television strengthened supervision over production. Propaganda never stops. “The Founding of a Republic” produced by DMG is one example of new style of mainstream Chinese films in 2009.

Foreign films restrictions & Co-production

Since 1994, China set up an import quota system and started to import ten Hollywood movies every year. “China places a strong emphasis on censorship not only to ensure compliance with the political aims, but also because the country lacks a rating system. The SARFT censorship board regulates the content of movies to make them suitable for the entire national audience”, according to “Government Allocation of Import Quota Slots to US Films in China’s Cinematic Movie Market”.

This board consists of 40 members including government officials, filmmakers, academics, and representatives from interest groups. The Hollywood films, which apply for a quota slot, must submit either a script or a finished film to the board. If it is passed, then making edits for the film eligible release. The SARFT reviews the finished product before passing it for cinematic release.

In 2008, the SARFT published a list of offensive content that would not be allowed in any imported films, which includes “disparaging the image of the people’s army,” “murder, violence, terror, ghosts and the supernatural,” and “showing excessive drinking, smoking, and other bad habits”, according to “Government Allocation of Import Quota Slots to US Films in China’s Cinematic Movie Market”.

Each Hollywood studio expects to get four to six studio films each per year in to China through the revenue-sharing quota system that expanded from 20 per year in 2011 to 34 in early 2012. The expanded total includes an additional 14 Imax and special category movies, according to Variety.

“Every week, there is at least one Hollywood producer asks me if there is any good co-production projects in China…They are eager to producing co-production films with China,” said Wan.

The main point of co-production films is that they have the same right to share revenues with cinemas as local movies, around 43 percent of revenues, but imported quota films only share 25 percent. “The Expendables” ever “lost” a lot of revenues from China after selling copyright to a Chinese distribution company.

“They want Chinese culture to spread around the world so that they are known and have influence. So we look at the problem from the macro level to figure out what we need to do so that all our partners—U.S. and Chinese—feel like their needs are being met,” Dan Mintz said to The Hollywood Reporter, CEO of DMG Entertainment Company.

“The Growing Pains”

Expansion was the key word of China’s economic development in the past years as well as film market. Hot money played roles in movie production industry and lots of non-professional enterprises such as coal companies entered into film market accelerating the bubbles. Moreover, Genre films became main powers in the market like fast-food movies, fans movies and young idol movies, which lack of deep cultural elements. Most of Chinese moviemakers follow the trend of popular topics and hardly create real art. Most of Chinese movies lose money and only a quarter of them are shown into theatres.

Chinese audiences used to watching films in cinemas recent years but still don’t get used to thinking deeper. Examination style education kills the ability of creative and critical thinking among the new generations in China.

Where is the future?

Economic austerity is the policy that China released for the new planning years in 2013. It is hard to predict if there is any influence on Chinese film market in the future.

“It’s actually really hard to tell one movie produced by one specific country…there are co-productions all over the world,” said Bo Guan, international selection committee member of FIRST International Film Festival.

More Chinese students choose to study film production in US and they will be the main power of China’s new generation filmmakers.

“I want to learn the technology and the ways they tell stories from US film school and then tell Chinese stories to the whole world,” said Chen Feng, a student in US film school.








The Pixelated Screen: The Sudden Move of Entertainment and the disappearance of Movie Rental Shops

Sam Nguyen wakes up everyday at around 8 AM to drive to work at his movie rental shop, “Video Town,” located in the city Hawthorne, to open up at exactly 10 AM. Throughout the rest of the day, he is met with a majority of long-time customers–who have been going for years–that are either returning a movie or asking him for help on what the best new release is to rent.

“Is this movie good, Sam?” one 5-year-old boy asks, holding up a DVD.

“It’s horrible,” replies Sam, with a little laugh.

Sam has been fortunate enough to be able to open his shop for more than 15 years, welcoming all those that want to rent movies from his establishment.

Sam, of course, is the exception.

With the sudden business transaction between Time Warner Cable and Comcast that was followed by Netflix paying Comcast for better streaming access, it is safe to assume that a majority of viewership is shifting towards the lovely world of the internet.

And while most of this discussion revolves around the relationship between television shows and broadcasting channels, the discussion should start to include movies and the financial stake when it comes to certain businesses for that particular industry.

The movie industry has always been fortunate to leave an economic “car accident” scene virtually without a scratch. Almost all of the Motion Picture Association of America (MPAA)’s theatrical market annual reports show consistent progress, proving that no matter what the cost, consumers will still line up at midnight to see the latest blockbuster film. mpaa-all.png

However, once those movies have left the theatres and begin their way to the land of renting and purchasing movies from specific local businesses, not as many people are racing to get there at midnight.

What caused this very gradual shift?

Back in the 1970’s and 1980’s, US citizens would rush to stores in order to access their favorite movies without having to depend on television broadcast schedules telling them when they were going to watch it. In the 90’s, as Blockbuster rose up, making $785 million in profits on $2.4 billion in revenues: a profit margin of over 30 percent.  However, what is important about Blockbuster’s success was all the profit they made from overdue and late fees from customers who would forget to turn it their rentals as scheduled and the fact that people had no other method of viewing movies, aside from actually buying the movie.

But things have changed.

These “brick and mortar” shops are facing large competition from technological alternatives. Instead of going to a local rental store such as the once-upon-a-time giant Blockbuster, one can now quickly go to the grocery store and pay for their bread and then quickly rent out a movie from a Redbox machine all before leaving the store.

Or if that is too much of a burden on people, the existence of Netflix and Amazon provide even more convenience by allowing consumers to access whichever movie they want from the comfort of their home. Netflix started their business model by showing commercials that focused on the fact that DVDs could be mailed to one’s house and one could mail it right back in the same envelope–and with no late fees.

Amazon also provides the same alternative to consumers, allowing them to both rent and buy movies from their website. Blockbuster attempted to compete with these emerging enterprises by creating its own website, but by 2007, it was tanking and going on the verge of bankruptcy (which it declared in 2010).RC-WatchNow1.3_Blockbustervsnetflix.gif

Even to those that are still seeking a physical space to purchase their product, the opposite is expected. Much like the way that Redbox is offered at grocery stores or outside convenience stores, the interior of the Redbox itself provides lots of options. One has the choice of DVDs, Blu-Ray discs and even video games when searching through the “Box”.

This abundance of product is why locations like Target or Best Buy are able to have such success. Joanna Cantu, manager at a Best Buy in Lawndale, CA, believes that Best Buy is the best of both worlds.

“Here, one can go into the DVD or Blu-Ray section and see something they like, want to buy it, and then decide they also need a laptop to watch it,” she said.

Although Best Buy gets a majority of its profit from its laptops, tablets and large high definition televisions, Cantu says the store still recognizes that watching movies will never go out of style.

“Movies are extended shows in a sense–they are a form of escape and the way that people like going to bookstores because they still get excited purchasing a book or even just being inside of a bookstore, I believe people have the same feeling when they buy a movie they really wanted,” she said.

Still, there is no denying that movie rental shops are now talked about once in a blue moon. There are overwhelming different forms of getting a movie once it has stopped being shown in the movie theatres.

What is even more threatening is the emergence of taking out this fine line between movie theatres, movies at home, and access of the internet. Slowly, it is becoming all intertwined into one big thing.

Televisions are now being turned into Smart TVs, where you can access your cable channels and switch onto Netflix with the click of a button.

But if that is not enough for consumers, particularly to the younger demographic, Microsoft’s newly released Xbox One now has an update coming up later in March that will allow players to watch video, play games and chat with friends all on one screen. Video includes movies which players can purchase and save in their Xbox One hard drive to watch whenever they want.

There has not been any speculation about Comcast going into the video game console industry, but considering the way that this lure into the internet spectrum is flowing, one can only assume that Comcast is patiently waiting for the appropriate opportunity to do this.

And yet, as companies and technology are racing to the top of the cultural universe, it is the simple and once rental shops that are being left at the bottom without a ladder.

However, for successful people like Sam Nguyen who have managed to stay alive, the advice provided by them to those that believe all hope is lost is the simple realization that never goes away: the gift of family.

“What people are looking for is an experience with entertainment. And in order to appreciate an experience, it has to be shared with someone,” he said. “If you are able to provide that aspect of family to people, and you can do it from a shop that is not even suppose to exist anymore, you have done a good job.”

From Restaurants to Retail: Businesses Flock to Downtown Los Angeles

Cities: LA 3, scape

In the past 15 years the neighborhood of downtown Los Angeles has seen a dramatic rise in the number of businesses that have decided to open up shop downtown. But what is driving this dramatic rise in demand for businesses to open downtown? Definite signs of gentrification have been seen, and the catalyst of this movement is in large part due to the creation of the Staples Center in 1998. According the official Staples Center website, this multi-purpose stadium hosts over 250 events and around 4 million visitors a year, an outstanding number of people to see the revitalized downtown neighborhood. Before the completion of the arena, downtown was best known for the juxtaposition of skid row and financial businesses in the financial district. In the early 1990’s, banks located in downtown began to consolidate and merge their offices, thus creating empty office buildings and spaces throughout the neighborhood.

Los Angeles is a city that, despite the economic woes of its state, can be seen as a beacon of hope with a global interest. This sentiment has become increasingly more evident with the construction of the Wilshire Grand building that is owned by Korean Airlines. The Wilshire Grand building will become the eighth largest building in the United States, once completed. And as an economic indicator of a city, the more skyscrapers and tall buildings a city has, the healthier its economy is. That is not always true, but in this case it demonstrates that Los Angeles, and the booming downtown, want to compete on a global scale. Sure, the rebuilding of the downtown neighborhood has been a slow process since the late 1990’s, however, according to Nate Berg, “many in the city are hopeful that the Wilshire Grand is part of a new wave of investment downtown that will help the city compete internationally” (Nate Berg, The Guardian). It seems as though Nate’s sentiments are justified in terms of the investments being brought to the neighborhood, when there are plans for chains like Whole Foods, retailers like Urban Outfitters, and several local restaurants who have decided to expand to the downtown area.

Cities: LA 4, graphic

In order to put the rise of downtown in the context of data, towards the end of 2013, “Six parking lots in downtown Los Angeles recently sold for $82 million” according to Dawn Wotapka of the Wall Street Journal. A staggering amount of money for some parking lots that have plans to be turned into an apartment complex. This is just one deal of many that have transpired over the past 15 years, and the figures seem to keep rising.

However, the other side of this story is the issue with occupancy rates, and whether or not there are too few apartments or too many people. Wotapka reports that “With more people flocking downtown, the vacancy rate for apartments has fallen. In the third quarter, downtown Los Angeles had a vacancy rate of 3%, down from 3.3%” Along with the dropping vacancy rates in downtown, which means in increase in demand, the consequence is that the average price of rent jumped almost 4% in the final quarter of 2013.

To shed more light and data  on the rise of housing in downtown, Wotanka found “There are about 14,000 apartment units in downtown Los Angeles. About 5,100 units are under construction, and more than 3,400 units were built between 2008 and 2013, according to Polaris Pacific, a real-estate sales, marketing and research firm. More than 3,000 additional rental units have been approved, with another 7,000 proposed. Meanwhile, there are only 17 condo units for sale and 68 under construction.”

Although there are some concerns that there has been such a vast amount of investment for housing downtown that we could see a drop in prices, the consensus among real-estate executives is that the demand will still stay fairly constant and strong. This prediction is justified by a recent report on the diminishing availability of apartment buildings and the relationship with rent prices. Since 2010, rent in the downtown neighborhood has increased by an outstanding 18.2% and is still predicted to grow because of the strong demand.

Another major indicator of the downtown area boom, although it may seem trivial at first glance, is the addition of Whole Foods to the flourishing neighborhood. The development of a Whole Foods in downtown serves not only high-priced, fair trade organic groceries, but as a symbol of the seriousness of downtown as a vital area in Los Angeles. As David Pierson of the Los Angeles Times reports, he calls it “a major development in the neighborhood’s gentrification efforts.” He is not the only one praising the development of the high end grocery store with City Councilman Jose Huizar recently stated “”Downtown Los Angeles is like a city within the city that needs a diverse range of services – including grocery stores,” Huizar said in a statement.  “Bringing Whole Foods Market to downtown is long-awaited news that represents a major coup.”

But Whole Foods is not the only tremendously successful chain that has chosen to explore the downtown area, the recently remodeled United Artists Building now called the hip Ace Hotel provides another example of what downtown has become. With locations in London, New York, and Panama to name a few, the expansion to the downtown area exemplifies the “hip” and “young” vibe that the area now exudes.

Downtown has made tremendous strides and has hurdled many obstacles to get the state that it is in today, and many real estate executives believe that the best has yet to come for this burgeoning neighborhood. With rising rents and diminishing vacancy rates, an interesting few years are expected to come in the housing market, with several apartment complexes to be completed. However, in retrospect, you have to look back to the addition of the Staples Center and the subsequent development of L.A. Live as the genesis of this downtown explosion.


Sources: http://www.theguardian.com/cities/2014/feb/14/world-largest-concrete-pour-la-trucks-los-angeles, http://www.aegworldwide.com/facilities/arenas/staplescenter, http://online.wsj.com/news/articles/SB10001424052702304281004579220210670242326, http://articles.latimes.com/2013/jul/31/business/la-fi-mo-whole-foods-downtown-20130731,

Need a Lyft? Ride-sharing and the Rise of Collaborative Consumption

My girlfriends and I with Lyft's famous pink mustache

My girlfriends and I with Lyft’s famous pink mustache

It is Saturday night. You and your friends are planning to go downtown for a few drinks. Instead of calling a cab, someone takes out her Iphone and books a ride with Patrick. He has a friendly smile, a five-star rating, and a white Toyota—with a pink mustache.

Lyft is a ride-sharing app that markets itself as “a friend with a car.” The economic transaction is more than just an exchange of service; it’s an experience. The app is free and syncs to your smart-phone. At any point in time, you can open up the app and hail a friendly Lyft driver around the area.

You enter the car, give the driver a fist-pump, and he or she entertains you with a friendly conversation as you are dropped off at your location. The transaction is processed by Lyft so you avoid the awkward paying and tipping process. Lyft raised $60 million in its third round funding last May with venture firm Andreessen Horowitz and company has grown to be available in 22 cities.

According to TechCrunch, Lyft is currently growing at a faster pace than its main competitor, Uber, with a 6% growth rate disclosed my its co-founder, John Zimmer (TechCrunch). Lyft has especially been popular especially with the tech-savvy and thrifty Millennial generation. Katherine, a college student from California, says it has to do with convenience and saving money.

“I use Lyft because it feels more personal and I feel like I can trust the drivers more. Plus it’s convenient to find a car from an app on my phone – I never know which number to call for a taxi or what service is better than another. Plus it’s cheaper. A ride to downtown via taxi can be $14, while using Lyft, I can get a rate as cheap as $8.”

If we dive further into the success of Lyft, we can find there are multiple economic forces at play. The first is the economic recession. In tough times, people are gathering part-time jobs to make ends meet. For instance, Patrick started Lyft to make more money on the side.

“I needed a second job to help pay some bills and also to help save up for grad school. I do see myself doing this long term because I can make some extra cash and not have it interfere with my regular work schedule.”

In every transaction, Lyft gets 20% of the cut. There are also “Prime Time Tips,” that escalates rates during high-demand periods (i.e. 11pm on a Saturday night). These tips can go as high as 70%, but the entirety of the increase goes to the drivers. Lyft gets to bypass the system by asking for “donations” rather than charging “fares.” The legality of this is as fuzzy as Lyft’s iconic pink mustache, evidenced by the app’s ban in certain cities like Seattle. However, this does not mean Lyft does not take safety seriously. In some aspects, Lyft’s screening process is harsher than some taxi companies, with higher standards on criminal records, and linking your Facebook for safety and providing insurance of up to $1m for the drivers. The car also has to be clean and presentable.

Another economic factor is proliferation of mobile technology. “There’s an app for that” is a common slogan in response to every day problems. Technology of apps and mobile phones have allowed companies like Lyft to reduce transaction costs. People are able to conduct business with private individuals rather than a chain. Perhaps ironically, through innovation, our generation is reverting back to a peer to peer localized model. People have referred to this phenomenon as the sharing economy, or collaborative consumption.

Rachel Botsman, the co-author of What’s Mine Is Yours: The Rise of Collaborative Consumption, talks about how technology is enabling trust between strangers, and this concept of collaborative consumption is a “powerful cultural and economic force reinventing not just what we consume, but how we consume.” Botsman writes collaborative consumption is a class of economic arrangements in which participants share access to products or services, rather than having individual ownership.

Named as one of TIME’s 10 ideas that will change the world in 2011, the concept of collaborative consumption has proved it is a force to be reckoned with. Botsman co-wrote the book in 2010, and since then, the concept has taken the app world by storm, with giants like Airbnb, Uber and Lyft rounding billions from venture capitalists. However, this new concept is disrupting the economic system. In Lyft’s case, the service is a huge threat to the taxi and limo service industry. Formally trained drivers who are screened in a testing and licensing system are now competing with normal civilians. In essence, the barriers to entry to the transportation industry has been compromised.

There has also been tensions between governments and the new model. In 2012, the California Public Utilities Commission issued “cease and desist” letters to Lyft along with other similar services. Although the knee-jerk reaction may be the issue of safety, there are many factors contributing to the debate of this new business model. Taxi and limousine companies who once enjoyed monopolies are heavily lobbying against legalizing these services. In addition, many cities rely on the regulation fees these companies pay to operate, fees private ride sharing programs are not obliged to pay.

“To me it’s a really dumb debate,” Patrick says.

“The real concern for the state of California and other states that Lyft operates in is that they see private ride sharing programs as entities that are taking money from them. They hide under the issue of safety, but their arguments are based off of taxi companies having to pay fees regulated by the state while private ride sharing programs do not. How does that equate to being concerned about passenger safety? It’s really ridiculous.”

The issue of safety is always brought up in these debates. However, it seems like Millennials have more faith in strangers. Katherine says “the idea of communicating even with a stranger online isn’t quite as daunting anymore.”

“There’s a growing inherent trust between young people in this generation (twenty-somethings), so doing things like calling a cab or organizing a ride share through an app or online service doesn’t seem so out of ordinary, and most don’t think anyone is trying to scam them.”

Patrick says the age of his passengers range from 21-45, which is consistent with the wide belief ride-sharing is embraced mostly by the Millennial generation. Botsman asserts that we now live in a global village, and there is a new importance of reputation. In Lyft’s case, transactions are followed by a rating system, from these reviews these drivers and users leave a trail. If you average less than 4.5 stars, you are in danger of being dropped. Our ability to collaborate is quantified into a form of “reputation capital,” and it is put in public display, and ultimately determining our access to collaborative consumption.

Last September, the State of California became the first state to regulate ride-sharing, or what is now newly dubbed as “transportation network companies.” Depending on how these new rules perform, other cities may follow the California framework in the future.

A Rich Man’s Game – A Glance into the Art Market

In November 2013, a Francis Bacon piece was sold for $142 million at Christie’s auction house, which gave the piece the title of “the Most Expensive Artwork Ever Sold at an Auction.” Only in this past year a Picasso was sold for $155 million, a Warhol for $105 million, a Pollock for $58 million, and a Lichtenstein for $56 million. Although arts has long been seen as an investment and a long-term profit, with new collectors from emerging countries such as China and Russia, and with the market experiencing substantial growth in the past 25 years, it is not surprising that prices are increasing dramatically for the finite art pieces – especially those by artists who are no longer alive, often referred to as DWMA (dead white male artists) – causing the market to be known as a Rich Man’s Game.


How much money each artist grossed at auction in each year from 1998 to 2013 adjusted for inflation (Salmon, Reuters).


The art world is one we ‘commoners’ have a hard time understanding and making sense of. It is a totally different parallel universe, where millions are spent momentarily to buy a painting, a sculpture, or an art piece by a recognized artist. While we debate over and over if going through with a 20-year mortgage to get an apartment is a good idea, people in the art world would go through with a transaction worth millions instinctively over a conversation they have with their art consultants. The market has its own unique economic indicators, which explains why supply-demand theory doesn’t apply in this case.


It is a market, in which the price confirms the objects worth; as Ernst Beyeler, Swiss art dealer who helped found Art Basel said: If [you] can’t sell something, [you] just double the price.” It is a rare market that defies simple economics by functioning without the notion of exchange value. An art piece is worth more one day and less the other, just because an auction house creates hype over a specific artist, or a Russian billionaire drives the prices up for a piece that wouldn’t be considered valuable before. If a consultant or a collector agrees with a dealer on the worth of a piece, that becomes its value – it’s as simple as that. It’s what psychologists refer to as ‘anchoring bias’, which is fancy wording for saying that when a specific art piece is linked to a price, the anchor is set and that becomes its ‘natural’ price – no questions asked. Arne Glimcher, founder of world-renowned Pace Gallery, justifies this by his statement: “all you need is two people to make a market.”


Although one imagines that a market dominated by the richest people in the world would not even slightly be affected by the changing economy, taking a look at the statistics, it is safe to say that the stock market crash in the 90s and in 2008 extremely impacted the market, causing price to decrease by 30%. Olav Velthius notes that confidence in the art market had dropped 40% in just a few months after the 2008 crash, bursting the bubble of confident auction houses, dealers, and collector. There is definitely a correlation between the art marker and the financial environment; simply because if the economy is doing well or is stable, the consumer confidence index will be higher, where collectors would be expected to be more actively buying within the market. Today, with recession coming to an end and the stock markets doing well, the consumer confidence is higher; and richest of the richest are competing to buy art worth billions of dollars again, driving the prices up in rocket speed.


Another approach to look into the relation between the art market and the economy is that people buy art in unstable economies, with the belief that it is a better investment since it’s more tangible and lucrative. A study by New York University economist Michael Moses supports the argument that art is a solid investment. Through applying economics theories and equations, Moses found that art as an investment showed significantly better returns than any class of bonds. These are not the billionaires though; they are upper middle class collectors, more interested in pieces worth 5 figures rather than millions. Their activity in the market, again in which they compete with other collectors for a finite number of pieces, result in driving the prices high in the overall market. Swapnil Pawar, chief investment officer at Karvy Private Wealth, suggests that “during the global financial meltdown, the works of most artists saw a steep fall in prices [while] [well-known artists] remained on top.” He claims that after the recession, qualitative works of renowned artists are now more in demand than ever, as they proved to be lucrative investments.


An additional argument to why the prices are increasing in the art market is the exponential growth of the market itself. In 1990 the market was valued at $27 billion, whereas this figure doubled by 2013 ($56 billion). There are now more buyers, more auction houses, and more dealers than ever before. More of everything except for the most sought after art pieces, which are finite in number since they’re mostly by DWMA. The main cause for the market growth is primarily the increasing demand of the newly rich from the emerging countries such as Russia, China, and India. This is now a global market, in which China accounts for 25% of sales, with United States leading with only 33%.


These newcomers, often in search of an identity for themselves in the elite world, turn to the art market to justify their presence. They are attracted to the glamorous life the market promises: parties, art fairs, and biennales. Eli Broad, a Los Angeles based collector, proving that buying art is the way to justify one’s position in society says, “spending [money] on huge yachts is despicable. I have a lot more respect for the people who put their money in art.” They are most often attracted to DWMA because they want to their names to be heard, and what better way to announce their presence than buying a $50 million worth Pollock? “It’s become extraordinarily unpleasant to compete for work in this market with people buying for social-status reasons… What you have now is more buyers overpaying and creating misaligned values,” Dean Valentine, a major art collector states, because while purchasing respect and status through purchasing art, the newly rich drive up the prices in the art market.


While the prices of DMWA art keep rising as collectors compete for “super-status” effect, the mid-market is slowly and steadily dying down. Small galleries are closing, emerging artists are struggling, and niche art is disappearing. Polarization in the market is evident, with the super rich driving up prices for the super valued finite art pieces, and a handful of auction houses benefitting from these major transactions. However, the mid-market is struggling and looks far less optimistic. With creativity no longer valued as art, and art being valued for what it is said to be worth, it seems that the market has become a rich man’s game – maybe all you need is two rich man to make a market after all.