Tesla: The Car Company of the 21st Century

In a gasoline or diesel powered internal combustion engine, a piston is pushed through a cylinder by way of an explosive combustion of fuel. The piston’s force turns a crankshaft that then turns the wheels via a drive shaft, which gets you to where you want to go. We don’t care where the gasoline comes from, as long as the vehicle stops, starts and reverses. And we could care even less about the detrimental impacts traditional gas-powered vehicles have on the environment. The innovation of Tesla Motors (NASDAQ: TSLA) shines a bright light on the failures of other electric vehicle manufacturers. And though Tesla continues to grow at an exponential rate, what could be the dark forces that keep it from becoming the car company of the 21st century?

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Elon Musk, the CEO and Chief Product Architect of Tesla Motors, not only believes that electric cars are the future, but also that in 30 years, the majority of the cars made in the United States will be plug-in electric vehicles.  He argues that Tesla will be instrumental in forcing automakers to care about the impact they have on the environment. In addition, his commitment to creating vehicles powered by electricity and partnering and funding renewable energy sources will reduce industrialized and developing nations’ dependence on oil from foreign nations and the potential volatile oil prices that come with the dependence.

And he might be on to something. The Tesla Model S, the second installation in the Tesla product line, was the top selling vehicle in North America among comparably priced cars ($59,000 base). Tesla expects to deliver more than 35,000 Model S vehicles in 2014, a 55 percent increase from the year previous. In addition, Tesla plans to ramp up production and produce 1,000 cars per week, an increase from 600 cars per week.

Though Tesla produces and sells fewer vehicles than Toyota, General Motors or Honda, it continues to expand its reach globally.  Tesla, most recently, expanded its operations to China, the world’s biggest car market, which surpassed the United States in 2010. Tesla projects to sell at least 5,000 cars in China by the end of 2014.

By creating a network of solar-powered Supercharging Stations across the United States and Europe, Tesla solves a fundamental problem many consumers have when thinking about purchasing a Tesla or any other electric vehicle ­­– range anxiety. Range anxiety describes a suspicion that an electric vehicle will run out of charge before reaching its destination.


In the United States, Tesla owners can now take cross-country trips with the help of strategically placed charging stations. They can also drive up and down each coast. In Europe, Tesla owners can find six charging stations in Norway, four in Germany, two in the Netherlands and one each in Austria and Switzerland.

Not only are investors developing projections based on Tesla’s global growth in 2014, but many also see Tesla forcing prominent automotive manufacturers to commit or recommit to producing electric vehicles. Tesla is building at least one $5 billion “Gigafactory” that can produce more than 500,000 vehicle battery packs per year. Once operational, the Gigafactories will double the world’s output of batteries for electric automobiles.

With the help of the Gigafactory, Tesla plans to build a car that sells under $30,000 and target automobile buyers at the mass-market entry level. But the Gigafactories are innovative productions themselves. Spanning more than 1,000 acres, the factories will be powered by onsite wind and solar energy plants and could cost tens of millions of dollars, according to Ben Kallo, senior equity analyst with Robert W. Baird.

But many believe without the factories, Tesla won’t be able to meet demand, especially if Tesla sales continue to grow in China and Europe. With plans to have at least 500,000 electric cars on the road by 2020, a delay in investing in its infrastructure would stagnate Tesla’s growth. However, to finance the $5 billion project, Tesla might have a trick up its sleeve.

The primary difference between Tesla and other automobile manufacturers is that Tesla wants to sell cars itself, not through dealerships. Some states continue to be hostile to allowing Tesla to disrupt the system. To force the hand of state legislators, Tesla could choose to build a Gigafactory in a state like Texas (something all states would love to have) in order to gain leverage with a conservative legislature.

“The political issue around whether Tesla should have a direct sales model as opposed to selling through dealers is almost as big of an issue as the battery plant, and I don’t think the two are totally separable, “ said Charles Hill, professor of management at the University of Washington’s Foster School of Business.

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The Criticisms 

The success of Tesla is both rooted in its product and customer service, but also the influx of positive messaging it has received from news media across the country. Recently, when we see other auto manufactures covered in major outlets, it’s primarily due to a failure on the manufacturers part.

When Tesla is discussed in a negative way, the conversation focuses on one key component: How environmentally friendly are electric vehicles if we’re replacing one polluter (petroleum) with another (coal)?

According to Tesla, its cars cut in half the carbon dioxide emissions of its petroleum-burning rivals, despite the fact that more than half the electricity grid is powered by coal. But to quantify the environmental impact of Tesla, you’ll have to understand the composition of your state’s electric grid. According to Slate, if you drive a Tesla Model S in West Virginia — where the power mix is 96 percent coal — you’ll emit about 27 pounds of carbon dioxide during a regular 40-mile driving day, which is similar to the amount of carbon dioxide you would emit in a gasoline-powered Honda Accord. However, if your charging your Tesla in California, where natural gas supplies more than half the electricity, your per-mile emissions would be a fraction of that amount.

Several studies continue to cast doubt on the overall environmental benefits of electric cars. But when we look to the future of the national energy mix and the movement toward the reduction of coal and the increase of natural gas, electric cars will only get cleaner. And to argue that electric vehicles might not be as clean as we thought they were because of various nations’ reliance on coal is a rather faulty argument, one that, many argue, seems driven by the automotive industry and big oil.

To propel the environmental benefits, Tesla has partnered with SolarCity (where Musk is the Chairman) to help homeowners enjoy the benefits of clean, more affordable energy without having to pay a large down payment. Instead of purchasing solar panels, SolarCity allows consumers to pay for the power they use – just like a utility bill.

Why Others have Failed

Tesla is one of the most modern cars of our generation. It has the lowest drag coefficient (0.24) of any other vehicle in market allowing it to cut through wind and use less energy. A 17-inch LED display mounts on the front dash, giving drivers an opportunity to navigate using Google Maps and even browse websites. And it’s a commitment to being a technology company creating innovative products, rather than a stagnate automobile manufacturer, that differentiates Tesla.

Far too often, electric vehicles either looked 20 years old or like they belonged in an episode of “The Jetsons.” And they might be great for the environment, but they’re often slow and impractical and consumers weren’t lining up to buy them. What’s so different about the Tesla Model S is that it’s disrupted the business model of electrical vehicles flipping the equation entirely. The Model S is one of the fastest cars on the road, increasingly practical with the development of Supercharging Stations and what’s most interesting, Tesla continues to struggle to keep up with demand.

The electric powered Coda was on sale for about a year before the company filed for bankruptcy. Experts questioned the build quality and consumers didn’t like the styling. Even with its lousy performance and hand-me down platform, Codas sold for nearly $40,000.


But it’s not just Coda that’s failed. Electric automobile maker Fisker Automotive, which received $529 million in federal loans also struggled. It’s cars were beautifully designed rivaling the Model S, but terrible customer reviews, including one of the worst ever from Consumer Reports, a few fires and a recall later, Co-Founder Henrik Fisker decided to resign. By the end of 2013, Fisker Automotive had blown through its federal funding and $1.2 billion in private equity.

The now Chinese-owned Fisker plans to re-launch a supercar in 2015. But electric carmakers have often struggled with financing and profitability. It’s often difficult to develop new technology and achieve economies of scale. While companies like GM and Nissan can benefit from their massive production capacity, other similar automobile manufacturers continue to fail. In late 2012, Toyota decided its sub-compact iQ plug-in wasn’t a great idea and stopped production. Before Tesla’s late 2013 growth, it also had its fair share of hiccups reporting a fourth quarter loss in 2012. So what then differentiates Tesla in a market where big and small manufacturers continue to struggle or quit?

Is Tesla Here to Stay? 

Elon Musk’s goal is to design things that will have a positive impact on the world. But it’s not 1912 anymore and as Coda and Fisker Automotive show us, it’s hard to build a car company in 2014. The last successful car company startup was Jeep, which started building cars in 1941. Tesla’s success, however, is rooted in its proprietary technology, a technology big car companies don’t quite understand and a technology that Tesla wants to begin to sell.

In April 2014, Mercedes-Benz debuted its B-Class Electric Drive using a battery created by Tesla. Selling its technology to competing manufacturers is an intricate way to develop a new revenue stream. But Mercedes-Benz’s U.S. CEO Steve Cannon publicly questioned the long-term viability of Tesla when large auto manufacturers jump onto the electric car game. But many have jumped on the bandwagon before, and many continue to fail. If major automakers had the desire and political independence (from big oil) to pursue electric vehicles, don’t you think they would’ve already?

Tesla will be the car company of the 21st century and continue its competitive advantage, by building cars that have real environmental impact, enticing consumers to invest in renewable energy, and disrupting the traditional distribution model by selling to consumers directly. If Tesla can begin to partner with other large automobile manufacturers, diversify its revenue streams and continue to grow and make profits, its impact on our transportation paradigm will be profound.

“Tesla wants to make millions of cars, and we have to make millions of cars to make a difference,” Musk said. “And to make millions of cars, we have to be profitable with each car along the way.”

Sources: Business JournalForbes, Marketplace, SlateTesla MotorsSolarCityEnergy Innovations, PBS

Reviving Baseball in Inner Cities

Fewer African Americans are playing in Major League Baseball today than 20 years ago.  In 1995, 20 percent of Major League Opening Day rosters were black. But by 2014, that number had declined to eight percent. It’s no secret that inner cities have faced a tough battle promoting the game of baseball to African Americans with fewer African-American baseball heroes to look up to. Major League Baseball continues to work hard to revive baseball in inner cities, but with declining viewership in all demographics, and a game fundamentally opposite of the fast-paced digitally disrupted media landscape, reaching African-American boys in inner cities might be more important than ever.

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Let’s put the decline of African-American baseball players in context: If eight percent of Major League baseball players are black, that means about 70 started on Opening Day rosters in 2014. (856 players: 30 teams of 25 active players plus about 100 players who started on the disabled list). Now, take the handful of African-American players who are All-Stars and you’ll better understand how it’s hard for black boys in inner cities to see signs of success in the Major Leagues. Less interest in baseball from African Americans leads to lower television ratings, more empty seats at the ballpark and less advertising revenue.


But Major League Baseball has setup a taskforce to increase interest. This taskforce has three initiatives: expand Major League Baseball’s existing urban leagues and academies; improve and modernize coaching; and market African-American baseball players more aggressively.

“As a social institution, Major League Baseball has an enormous social responsibility to provide equal opportunities for all people, both on and off the field,” said Major League Baseball Commissioner Bud Selig.

Yet, the problem might be bigger than Major League Baseball and any effort by the league to stem the tide, might be futile. Young athletes from low-income families make a financial decision when choosing which sport to pursue. Since Division I college baseball only offers 11.7 scholarships, which are divided among more than 30 players, it’s an easy and sound economic decision to choose basketball or football, which offers full scholarships.

“Take me, for example,” said New York Yankees’ pitcher C.C. Sabathia. “If I had a choice, I would have to go to college to play football, because my mom couldn’t afford to pay whatever the percent was of my baseball scholarship. So if I hadn’t been a first round pick, I would have gone to college to play football, because I had a full-ride.”


Thus, athletes from low-income families in inner cities aren’t choosing to play baseball for a variety of reasons. Yes, Major League Baseball isn’t doing a good enough job marketing its best African-American baseball players, such as Andrew McCutchen and Matt Kemp. But going to college on a partial scholarship is impossible for many inner city athletes and add to that the growing number of inner city baseball fields that are being bulldozed over and its no wonder the number of African American baseball players has steadily declined over the past 20 years.

But Sabathia brought up another reason beyond the philosophical and practical issues that Major League Baseball will confront when trying to revive the sport in inner cities; an issue that might be beyond their reach.

“Baseball is a sport where you learn how to play catch with your dad,” Sabathia said. “There’s a lot of single-parent homes in the inner city, so it’s hard to get kids to play.”

Sources: NY Times, Business InsiderMLB

College Athletes on Strike

On Wednesday, March 27th, the Chicago district of the National Labor Relations Board (NLRB) ruled that Northwestern players, led by former Northwestern Quarterback Kain Colter, qualify as employees of the university and can unionize. The decision, at first glance, might seem like a big win for collegiate athletes and their battle for compensation. But unionizing collegiate athletics is layered with multiple issues ranging from the differences between private and public institutions, tax issues and vast economic implications.


Jay Bilas, an ESPN College Basketball analyst, former Duke basketball player and lawyer argues that the NLRB’s decision won’t affect anything in the short term, as the decision of whether collegiate athletes can unionize will, ultimately, end up in federal courts if it’s able to pass the national NLRB. But scandal has surrounded the NCAA since its formation more than a century ago, and now, more than ever, athletes, administrators and fans sense a momentum of change.

In 2013, the NCAA March Madness Tournament brought in more than $1.1 billion in television advertising revenue, $55 million more than the NFL Playoffs and $223 million more than the NBA Playoffs, according to ESPN. Student-athletes do not recoup any of that revenue, besides an athletic scholarship that ranges between $5,000-$65,000 per year. In 2008, the athletic programs at Alabama, Texas, Ohio State, Florida and Tennessee each made more than $100 million in total revenue. Alabama’s Head Football Coach, Nick Saban, is the highest paid public employee in the State of Alabama and makes at least $7 million per year, which is more than the salaries of all the head football coaches in the Mid-American Conference combined.


The NCAA argues that amateurism and money are mutually exclusive. But collegiate athletes, especially in sports that turn a profit, such as football and men’s basketball, continue to challenge that notion. However, the NLRB decision could have unexpected tax implications and throttle the momentum. The motion put forth by Northwestern players and their lawyers argued that athletes received compensation in the form of a scholarship making them employees of the university. If the scholarship were deemed as taxable income in federal courts, an athlete would have to pay at least $15,000 in federal taxes on a $61,000 per year scholarship. In addition, this particular ruling only serves private universities, because the NLRB does not govern labor matters at public institutions. A majority of the top performing Division I collegiate athletic programs are public universities, including all five of the universities that exceeded $100 million in total revenue in 2008.

If collegiate athletes were ever able to unionize, the NCAA would deem them ineligible for receiving compensation for play. And the NCAA has always been happy with taking the easy way out and promoting inertia. But the answer to paying collegiate athletes is simple and not as convoluted as the NCAA makes it seem. To pay athletes, universities could utilize a free-market approach, as it’s worked well for the rest of us. Like any other contract, the player and university could negotiate terms, require a player to stay for three or four years, introduce non-compete and behavioral clauses and detail a performance clause that highlights performance goals on the football field or basketball court and in the classroom. Smart minds can dictate how change can be effective and efficient and satisfy the needs of all parties involved, but asking fat cats to stop eating and make room at the dinner table, might be a little harder.



The End of the Australian Automotive Industry

When a Toyota Camry Hybrid rolls off the assembly line in the port city and Melbourne suburb of Altona, the mid-sized sedan is shipped to 13 markets from New Zealand to the Middle East and the Pacific Islands. At one point, Australia was a production hub that allowed large automakers to tap into thriving auto markets throughout the South Pacific and Middle East. But by 2017, Toyota will stop manufacturing the Camry and other vehicles in Australia ending the country’s once vibrant automotive industry.

Toyota’s departure follows the announced departures of Mitsubishi, General Motors (GM) and Ford. In 2013, GM and Ford blamed the strong Australian currency and small local market as reasons for the closing of its manufacturing operations. Industry experts predicted Toyota would soon follow, despite appeals from Australian Prime Minister Tony Abbot.

In an article in the Financial Times detailing GM’s departure, former GM Chief Executive Officer Dan Akerson said, “The decision to end manufacturing in Australia reflects the perfect storm of negative influences the automotive industry faces in the country, including the sustained strength of the Australian dollar, high cost of production, small domestic market and, arguably, the most competitive and fragmented auto market in the world.”

The strength of the Australian dollar has negatively affected the domestic economy for many years, not only resulting in lower auto sales profits, but has also hurt the tourism and hospitality industries among others.

But how did the Australian dollar get so high in the first place? Economists point to Asia as the main reason. Australia has a strong trade relationship with many Asian countries and Asia’s demand for Australian natural resources has propped up the dollar. Volatility in the U.S. and EU economies has also made Australia a stable place for speculative investment, which has contributed to the dollar’s strength.

And the stronger the currency, the more expensive it is to produce goods domestically. Since the dollar has stayed consistently high, the manufacturing industry has dwindled, as Australia tries to support traditional economic drivers, such as housing.

The Australian dollar has risen more than 20 percent against the United States dollar since 2011 and more than 10 percent against the Japanese yen since 2012. The Reserve Bank of Australia constantly describes the Australian dollar as “uncomfortably high.” The current value of the Australian dollar has dipped to $0.90 per U.S. dollar in recent months due to the Reserve Bank of Australia slashing interest rates to a record low 2.5 percent.

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GM noted that at the Australian dollar’s peak, making things in Australia was 65 percent more expensive compared to a decade earlier. And retail has remained flat in recent years as consumers spend less and save more.

The higher the Australian dollar, the more Toyota, GM and Ford lost in export markets. More importantly, cars made in Japan or Korea could sell in Australia for a cheaper price than cars manufactured in Australia resulting in a loss of market share in the domestic market.

Toyota’s departure is especially wrenching, because of all the automakers in Australia, Toyota was the most commercially viable. Exports in growing automotive regions, like the Middle East, allowed for additional manufacturing volumes and economies of scale.

Though the loss of Toyota only results in a loss of about 4,000 jobs, unions argue that the end of the auto industry could lead to the loss of 50,000 skilled jobs across all car and automotive component industries and, ultimately, trigger a recession.

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The History of the Australian Automotive Industry

John and David Shearer, who were agricultural machinery manufacturers and inventors, built the first car in Australia in 1896. The isolation of the country forced those interested in owning a vehicle to create, design and produce cars on their own. By 1909, Ford began importing the Model T and GM and Ford began producing vehicles in the country after Australia lifted a ban that didn’t allow production of foreign car bodies.

In 1963, Toyota began importing small, low-cost cars competing with companies like GM, Ford and Chrysler, which had a combined market share of 86 percent. After nine years of selling cars in Australia, Nissan and Toyota asked permission to build factories and manufacture cars.


By 1982, the automotive industry employed more than 70,000 people in Australia, but according to a 1990 study conducted by the Massachusetts Institute of Technology (MIT), it wasn’t a great place to work. The Australian automotive industry ranked lowest in workforce flexibility, human resources management and overall management.

In 1991, exports reached $1 billion, but more and more imported cars began to enter the market. Between 1989 and 1996, the amount of imported cars, primarily from Japan, increased by more than 10 percent from 29.8 percent to 40 percent of the market. And by 2003, only 28,000 people had jobs building cars and that number steadily decreased throughout the 2000s.

GM discontinued the Pontiac brand in 2008 and GM’s Australian exports declined by 86 percent. By 2009, only 16 percent of cars on Australian roads were built in Australia, while cars built in Thailand comprised 15 percent of the local market. Not only had Australia stopped making cars for the world, but they’d stopped purchasing and driving the cars they made.

Who’s to Blame? 

Seeing the industry seize before their eyes, the Australian government provided a $52 million grant to Ford in 2006 to expand design operations. And before Toyota decided to pack up its manufacturing hubs and layoff Australian employees, Australian Prime Minister Tony Abbot vowed to do everything in his power to keep the giant Japanese automaker in Australia.

But being the last major producer of cars in Australia has major drawbacks. First, Toyota can no longer find savings in costs due to increased levels of production. Projections show that the cost of doing business in Australia will only continue to rise. Lastly, it’s unlikely young Australians will want to enter the automotive workforce since career opportunities would only be limited to Toyota’s manufacturing hub in Altona.


So, who’s to blame? Automotive manufacturers lost more than $1.5 billion on local manufacturing over the past decade, despite receiving more than $3 billion in taxpayer funding over the same period. Many critics have argued that CEOs at major automakers used Australia as a cash machine. But it’s hard to compete in a market where cheap foreign cars no longer have to pay high import tariffs. And when the dollar gets too high and Australia stops becoming a production hub for Asian countries, Toyota starts building more cars in Japan.

The Impact on the Australian Economy

By 2017, the Australian automotive industry will be no more, and it could have a profound effect on the Australian economy. But the levers that forced Toyota, GM and Ford to end manufacturing, might still be Australia’s biggest concern.

Though Australia is transitioning to more traditional economic drivers and away from former powerhouses like mining and manufacturing, the country must be prepared to deal with a rising unemployment rate.

Dave Smith, a secretary at the Australian manufacturing workers union told the Australian Herald Sun “when you take a person’s job and the dignity that goes with that job, it creates enormous social problems.”

“When Mitsubishi closed, a lot of workers fell into drug and alcohol problems, domestic violence issues, suicides, mental health issues and all these things need to be carefully managed because they will happen,” Smith continued.

For Australia to come out of this transition and “perfect storm” of external factors, as former GM Chief Executive Akerson noted, they’ll need to rely on the continued recovery of the United States economy.  In addition, Australia will need to improve trade with China, currently Australia’s biggest trading partner. And most importantly, the Australian government needs to create the right conditions for new businesses and innovation to occur within the island continent.

Sources: Wealth Daily, The Sydney Morning Herald, RTE News, Herald Sun News, The Car Connection, Financial Times, The Wall Street Journal, GMA News, ABC News, Toyota, D.C. Haas

GDP is an Outdated Idea

According to Diane Coyle, an economist and author of GDP: A Brief Affectionate History, we tend to think about GDP as a natural object, like a mountain, river or lake. But GDP isn’t a thing; it’s an idea – an idea that made the U.S. economy $500 billion bigger in 2013.

Why does the world revolve around an idea that hardly anyone understands? GDP can impact elections, influence major political decisions and determine whether countries can continue borrowing or be put into a recession. In addition, though utilizing the GDP might’ve been a good statistical measure of the economy during the twentieth century, it’s become increasingly inappropriate for an economy driven by innovation, services and intangible goods, argues Coyle.

The GDP was created because of the Great Depression and people first referred to it as national income. In the decades that followed the Great Depression, national income transitioned into gross national product and eventually Gross Domestic Product.

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But around the 1950s and 1960s, the GDP began to have too much power. If a country needed help from the World Bank or the United Nations, it needed to know its GDP.  When the Cold War began, GDP began to reflect the success of a country and distinguished winners and losers.

When the GDP, a statistical measure of the economy, begins to have an inflated importance that defines whether your country is doing well or not, politicians begin to look at is a measure of their success as well. But what the GDP doesn’t do, as Robert F. Kennedy famously spoke about, it doesn’t measure the “health of children, the quality of their education, or the joy of their play. It doesn’t include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.”

Not only is GDP out of touch with our current economy, but economists also warn that GDP is a tool only to be used to measure market activity and not a country’s prosperity. GDP needs to be redefined, restructured and/or replaced in order to enact progressive change. Case in point, GDP tends to rise when crime or pollution increases or when households accrue more debt. When the United States pays to fix the damage from a hurricane or tornado, the GDP actually goes up.

That raises the question, what does a post-GDP world look like and how can we promote a measure of economy that defines real progress in the United States?  Justin Zorn, a public service fellow at Harvard University, argues that we need comprehensive indicators that are empathetic to core elements of national wellbeing in the 21st century, including economic mobility, strong families and communities, entrepreneurship, health, education, environmental quality and public safety.


We shouldn’t leave GDP behind, but our ability to collect data and analyze it in new ways opens up the window for innovation in national accounting. With the capacity to tell stories with data in new and more complex ways, we can find an objective truth – a truth that can do better in measuring the prosperity of a nation.

Sources: Huffington Post, PrincetonNPR

Do Movie Theatres Love Recessions?

When’s the last time you watched a film in a movie theatre? This past weekend or has it been awhile? Well, if you’ve watched a movie in a theatre within the last month, you’re in the minority.

Sixty-one percent of adults said that they rarely or never go to the movies, according to a Harris Interactive poll conducted in early 2012. More importantly, the moviegoers indicated that the recession had impacted how often they go to the theatre. Fifty-five percent of the people who watch movies in the theatre said that they see fewer films now.

However, in 2009, ticket sales grew by 17.5 percent, to $1.7 billion, according to Media by Numbers, a box-office tracking company. Attendance also grew by 16 percent.

The disconnect between those surveyed in the Harris Interactive poll and 2009 box office numbers might seem perplexing, but a quick analysis of the yearly total gross numbers helps us better understand what’s going on. In 2009, total gross grew by 10 percent. But in 2010 and 2011, — years which those surveyed in the Harris Interactive poll would be recollecting — total gross declined by 0.3 percent and 3.7 percent, respectively, according to Box Office Mojo, a box-office reporting service.

The idea that people who want to forget their troubles often do it in movie theatres might be a misconception. In 1989, the employment rate was at a relatively low (and happy) 5.4 percent, but theatre audiences grew by 16.4 percent. In 2011, when the unemployment rate was hovering around nine percent, ticket sales declined by 4.2 percent from the previous year.

The reason for the incongruent relationship between ticket sales and unemployment rate is due, in large part, to the quality of movies made. Though Martin Kaplan, the director of the Norman Lear Center for the study of entertainment and society at the University of Southern California, argues that it’s common sense that people want to hide in a dark place and forget about their problems, they might not want to if they’re not intrigued by any of the movies being shown in theatres.

Moreover, as theatres continue to make technological advances (and pay for these technological advances) and movie studios continue to lose money on eight out of ten films made (according to my movie business professor, Peter Exline) ticket prices will continue to increase.

Ticket prices have grown by 41 percent since 2001, according to The New York Times. In 2001, the average price for a ticket was $8, but in 2011, the price had increased to $11.75. Children’s tickets rose 67 percent in the same period and senior tickets increased by 95 percent.

The other factors that influence yearly box office sales — quality of movies and ticket prices — often mask our ability to understand whether there is an inverse relationship between box office totals and unemployment or overall health of the economy. Though consumers might spend more on affordable splurges during times of distress, perhaps a night out at the movies isn’t so affordable anymore.

Sandwich Island

Sandwich Island sits in the northwest corner of the University Village International Food Court adjacent to an eclectic assortment of family-owned international restaurant options. For the last 20 years, Long Jang Wu has mixed her “made fresh everyday” potato salad, piled on meats and veggies on sandwich rolls, and served students, faculty members and South Los Angeles regulars.

Wu will make her last sandwich on May 31st, 2014 when the University of Southern California begins construction on the USC Village, a $1.1 billion redevelopment project that will transform the University Village into a “vibrant, pedestrian-oriented and safe environment.”

The USC Village will include new student housing, academic space and retail and entertainment offerings, according to USC. In addition, the redevelopment project will create 12,000 new jobs and the university plans to hire at least 30 percent of the jobs from local sources.

Though the university has attempted to help Wu find a new location for her popular sandwich shop, rental space near the university is limited and expensive.

“It’s very difficult to find locations for small businesses around USC,” Wu said. “The university tried to help us find a new location, but the good spots are either taken or too far away to keep the business we get from USC students, which is the most important.”

The university has given the restaurants in the International Food Court an option to return to the new USC Village in three years when retail spaces have been completed. The option exists, but the university hasn’t promised anything and Wu, who immigrated to the United States in 1982, hasn’t known much else other than Sandwich Island.

“I’ve been working here seven days a week for the last 20 years with my husband,” Wu Said. “Maybe we can rent a food truck temporarily, but it costs too much. The truck will set us back $3,500 per month and parking near the university will cost upwards of $1,500. That’s just something we can’t afford.”

On weekdays, Sandwich Island will serve upwards of 500 customers, the majority coming from USC, the largest private employer in Los Angeles County. You can find Wu’s daughter or son manning the sandwich station or cutting vegetables. And Wu is constantly trudging between the refrigerator and the register greeting regulars and meeting first-time customers.

Two large “Cash Only” signs are placed strategically at both the location to order and point of sale. Sandwich Island and many other businesses in the University Village International Food Court only take cash, choosing to avoid credit card processing fees.

“When we began, no one had credit cards,” Wu said. “The evolving technology and the processing fees, ultimately, scared us away from pursuing credit card options, but we definitely thought about the pros and cons.”

Though the cash only option hasn’t impacted Sandwich Island’s business negatively, the Great Recession sure has. When families or individuals struggle with paying the bills, they often take their lunch to work. The more people that take their lunch to work, the less business Sandwich Island gets.

In addition to the recession, an increase in competition, especially from the world’s largest restaurant chain, Subway, has impacted business at Sandwich Island. In a market where awareness is paramount, Subway has the upper hand. And with three locations within a mile from USC’s campus, purchasing a sandwich at Subway might also be more convenient for consumers.

Sandwich Island focuses on word-of-mouth marketing and with platforms like Yelp, the small sandwich shop tucked into a corner of the International Food Court has been able to stay competitive.

“I don’t know much about Yelp, but we have great reviews and that’s where a lot of our new customers learn about us,” Wu said.

On Yelp, Sandwich Island has 107 reviews with an average 4.5 out of 5 star rating. The reviews constantly compare Sandwich Island to Subway noting the cheaper prices and better taste of Wu’s restaurant.

In more than 20 years of business, Sandwich Island has only changed its prices four times. But with the volatility of wholesale meat and vegetable prices, which negatively impacts the bottom line of Sandwich Island, the lack of change might be surprising to some consumers.

“A few years ago, beef was $1.75 per pound,” Wu said. “Now beef costs $3.20 per pound. And the same with salmon. We paid $23 per pound of salmon last week, but I remember when we paid $15 per pound.”

When vegetables aren’t in season or when the weather is colder than usual and farmers struggle to keep up with demand, prices skyrocket. More importantly, prices rarely go down.

“The price of vegetables, in particular, seems to always be going up,” said Wu. “If it ever goes down, it never goes down too much.”

The fear of change, the impact of the recession and the idea of not having a job when USC begins to tear down the University Village constantly weigh on Wu.

“My mind is sharp, my memory is good and I think I can work at least 10 more years, but at my age, no one wants to hire me,” Wu said. “It’s very difficult to find a job and though I’d love to keep the restaurant, it doesn’t seem likely.”