Kaká has sadly been left out of Brazil’s roster for the upcoming 2014 World Cup but he still very much on the list of prospective players to move to the MLS later on this summer. Along with the AC Milan midfielder, Anderlecht midfielder Sacha Kljestan’s name was “tossed around the rumor mill” according to a Fox Sports article.

Many successful international players have migrated from the European league to Major League Soccer. David Beckham had a great run with the Los Angeles Galaxy. Theiry Henry is still enjoying his time with the New York Red Bulls.

The European soccer season is slowly coming to an end, and with the attention slowly turning to the American soccer league (leaving out the World Cup from this discussion), now is the best time to compare the two leagues and how both handle their transfer windows.

The European Transfer Market

The common rationality for any transfer window is that Team A offers a certain amount for a specific player, the player’s current team (Team B) negotiates the prices offered, negotiations reach a certain agreement and finally Team A obtains the player that they desired.

It’s simple, right? Not quite.

The European transfer market is one of the most expensive markets in the world, millions of Euros are exchanged every season.  Speculations influence transfers; dozens of media stories being released on who might be sold, sports analysts doing multiple segments on the subject and now, social media users voice their opinions on which players are the best fit for their teams. 

But aside from speculation is the freedom that the European leagues offer. For one, there is no salary cap. Teams can spend as much money as they want on the player and resources of their choice.  Back in 2003, Roman Abramovich bought Chelsea and took over west London with his one billion euro investment. This sort of “big money” is not just seen in the English league, but in Spanish and Italian leagues as well.

The other factor is the contingency that allows players to leave their clubs at any time—before, during or after the transfer window—and the club is responsible for making those arrangements happen. The most recent example of this was when Juan Mata, unhappy with Chelsea, was able to leave and be traded to Manchester United for 37.1 million Euros.

While this trade still occurred during the time of the transfer window, it does prove a point when it comes to the freedom that players, even big commodities such as Juan Mata, have when it comes to playing for the teams of their choice.

But as previously mentioned, players are able to leave regardless of the “boundaries” that the transfer window claims to have.

As the English Premiere League website states:

There are two transfer windows in each Barclays Premier League season.

The first commences at midnight on the last day of the season and ends on 31 August if a working day – or, if not, on the first working day thereafter, at a time determined by the Board.

The second transfer window commences at midnight on the 31 December and ends on the 31 January if a working day, and again, if not, on the first working day thereafter, at a time determined by the Board.

Temporary transfers can be made permanent outside of the transfer windows. For further information please see the rules in the Premier League Handbook.

This, also, is the same framework used in other European soccer leagues.

 

The Dilemma

As the rule with materialistic items is “the more exotic, the more expensive” the same rule is somewhat used when it comes to soccer players. Soccer players prices are based on one thing more than anything: location, location, location—in this case, where they were born (or what country they decided to nationalize themselves in). Neymar is a great example of this. His performance as a player was impressive but him being Brazilian was what made him that much more valuable. South American players are a big commodity as well as European players, but there is hardly demand for players from Canada or even Russia.

Country of origin is not the only thing that defines a player’s value but there is also the factor of what club owns the player. Continuing with Neymar, he started his career off playing with Santos FC  in Brazil. If he had decided to continue there, his value as a player would not have been as significant. The level he had and the competition he played against also play into this as well (performance being the third factor). So when Barcelona FC (one of the top teams in the Spanish league) purchased him, his value as a player soared through the roof.

While Neymar’s stories is a “Cinderella story” that is continuously seen not just in soccer, but in sports in general, these factors are what create a giant gap between different nations and clubs. The role that the transfer market plays creates a hierarchy of clubs that will always be at the top of the table that the “poorer” clubs will never be able to catch up to. Note: it is important to mention that performance for clubs has nothing to do with the system per se. Even though Manchester United did horrible doing this season in the Premiere League, they are still one of the richest teams in the EPL and will continue to stay in that position.

Continuing with the Neymar example, there is no regulation on the amount of money that is being spent. This led to Barcelona sparking a media frenzy regarding the purchase of Neymar.

 

American Soccer Transfer Market

The transfer window for Major League Soccer (MLS) works a bit differently than Europe’s.

For one, MLS works as a close league and not the European open league. Players are not able to leave clubs when they please and to even the playing field more and avoid this gap of rich and poor clubs, there is a draft is held around the time of the two transfer windows that occur during mid-February and another that opens on July 8^th. Teams’ position in the draft is based on: their performance and what the standing was in the previous season.

As with other American sports, the highest pick goes to the worst performing team and the best teams find their slot at the very bottom. These teams draft in rounds, which goes from #1 to however many rounds indicated.

This allows for something that occurs in the MLS draft that does not appear in the European market at all—the role of trading draft picks. So, a team somewhere towards the bottom can trade their pick in the draft with a team that is a little higher up.

Another difference between the European transfer market and the MLS is the salary cap. As the MLS “Roster Rules and Regulations” states:

• Players occupying roster spots 1-20 count against the club’s 2014 salary budget of $3,100,000, and are referred to collectively as the club’s Salary Budget Players.
• Roster spots 19 and 20 are not required to be filled, and teams may spread their salary budget across only 18 Salary Budget Players.  A minimum salary budget charge will be imputed against a team’s salary budget for each unfilled senior roster slot below 18.
• The maximum budget charge for a single player is $387,500.*

* See section entitled Allocation Money below, under Player Acquisition Mechanisms, for details on buying down a player’s budget charge.

As one can see, there is a budget that is upheld within the MLS; there is accountability for each player and how much can go when it comes to salary. That is not seen in European (as is evidence with the large amount of money that soccer stars such as Messi and Cristiano Ronaldo are paid).

The MLS looks to have a more even playing field and does so by regulating all aspects of the transfer window. This also helps to create greater competition for teams, regardless of how much money they have, because they have a better chance of obtaining a good player.

 

The Dilemma

The dilemma with the American transfer window is the role of politics. Players are not given as much freedom as there is in the European market when it comes to where and when players want to play. Though there is a disparity in income with European players, American players have very strict contracts with their teams that are often too expensive for any team to simply pay off to get that specific player.

As is noted:

• A Team may buy out one (1) guaranteed player (including a DP’s) contract during the off-season and free up the corresponding budget space. Such a buyout is at the particular MLS Team’s own expense.
• A Team may not free up budget space with a buyout of a player’s salary budget charge during the season. Such a buyout will be conducted by the League and count on a Club’s budget in a manner consistent with current MLS guidelines.

As with anything, is a very strict, orderly procedure that takes place for the buyout to even occur.

Nothing happens outside the transfer window that is not seriously examined for a long time.

 

Conclusion

Both the European and the American soccer transfer markets have their flaws. One seems to have a very free and open place that creates disparity while the other seems too strict to even try to mention the word “freedom.” What is important to note though is the simple question about the love of the game. The American soccer league is very strict about making sure they make a profit or do not spend any more than they have to  to avoid a deficit. However, what is important to note about the European market is this lack of salary cap that allows for people to waste so much without a worry; they simply do it for “the love of game.” Going back to Roman Abramovich and his purchase of Chelsea, economically it is seen as a bad investment. But from a pride standpoint, the investment was definitely worth it (it brought a Champions League Cup, two League Cups and two FA Cup wins).

So whether you enjoy soccer from an economic standpoint or for the love of the game, both have their flaws but both also have their benefits.

It’s quite funny how tuition has been able to resist the laws of physics within the past years of recession. Unlike the mortgage industry where it took a nice dive south in 2008, tuition has been able to resist this urge and continues its leap. In fact for public schools the annual increase has been 6.5% each year for the past decade. However certain policies both fiscal and monetary are out there, but how much do they even help?  If they don’t help at all I sure as heck would like to know of some alternative options to college that might provide more of a benefit in securing a financially secure future. While the public is told that colleges are a promising step to securing a financial future, the cost of tuition seems to act as a stump towards finishing the end of that promise. This stump hurts many aspects of society, mainly the middle class American dream. An important value that has become more demanded but less available to the public with some more than others.

After considering some numbers on this chart, it might seem that coming out of college in debt would most likely put the average college student few tens of thousands in debt and for some, many tens of thousands.

Considering that the average tuition for college graduates is around $45,000, it would seem that is very possible to manage the debts out of college. For loans taken after 2013, Obama’s new policy that fixes loan payments to 10% of monthly income will be able to ease the stress of paying back the loans. Unfortunately, this only covers federal loan debt, which is helpful considering that federal loans take up 90% of the student loan market. Yet, only around 1.5 million are even eligible to use President Obama’s “Pay as you Earn…” plan. This is because in order to qualify for the policy, a borrower must have an outstanding federal debt in comparison to their family size. This obviously helps the lower socio-economic borrowers, but this leaves a wide gap towards the rest of the “middle* (middle class is no longer middle class)” class borrowers –borrowers whom are actually the most worst off in terms of college loans. Because federal aid is limited to those who are in more well off financial situations, borrowers in this category must resort to private lenders, primarily like those of Sallie Mae.

Sallie Mae “also offers reduced monthly payments, extended repayment schedules, and likely some less-advertised hardship programs. In their letter to the CFPB, they also state that they are in favor of rehabilitation programs for private loans that can help borrowers recover from default.”

Yet after looking at the so many videos, blogs and comments , it’s obvious that Sallie Mae doesn’t have a practical way of helping borrowers. For that reason, it’s common to hear stories of loan debt from Sallie Mae being doubled and paying monthly rates of over 1500.

Tiffany, a borrower who has suffered the much too common problem comments,

“I’ve spoken to their reps many times and it seems they can never help or answer any of my questions. I asked them how much of what I do pay actually goes to the primary loan and how much goes to interest. that rep couldn’t answer me. Just said I don’t know and I’m sure your loans will go down. (they haven’t) they have actually almost doubled ($25,000) now ($45,000). I am now searching for outside help and hoping to get someone involved because it doesn’t seem right to do all these programs and the sum of the loan never [goes] down.”

Responses like these are all over loan assistance forums, blogs and YouTube.

What it comes down to is whether these loans are affordable to the borrower in a way that takes into consideration the most important factors of the economy. Is the borrower entering a sound financial market in the coming years? Will the economy shape up and provide enough quality jobs to sustain borrowers in their repayments? Are interest rates comparable to these factors?

Interest Payment
11.875% $197.92               $392.92 72 $33,753.19

Fixed Payment
12.375% $25.00 $414.73 96 $40,434.05

Deferred Payment
12.875% $0.00 $410.66 108 $44,185.09

 

These are all questions that answer themselves but have not been replied by the government or the institutions themselves. Obviously, with the current average salary of $45,000, repaying $30,000 would take over 15 years IF the income to ratio payment plan was available to use. One can only expect a borrower from Sallie Mae who is unable to use an income ratio payment plan to be in a much more difficult situation to say the least.This is the repayment plan for $20,000 loan. Why should a loan increase over double the amount when deferred? The deeper question is: Why would someone take out such a loan with the imposed risk of destroying oneself financially?

It’s about time that not only private lenders like Sallie Mae change their lending practices, but also borrowers become more responsible consumers by taking a stand against predatory lenders. But in reality this requires students to look towards other alternatives and sadly there are no real alternatives that provide such assistance. That means a lot of students would have to stop going to school and the future of college students would drastically drop in numbers.

Of course this adds the benefit of pushing for reform in creating alternatives to the whole post-secondary educational system, but the time that it would sacrifice would be much to dire for a single generation to make this move. Therefore, the only plausible solution would be for reform, like any sustainable reform, to happen slowly. This will act as yet another barrier to allowing current college debt holders from being able to pay their debts off.

If one was looking to find a solution in today’s market, one would have to focus on a career that is in demand and provides a secure return. Two of those jobs are nursing and teaching. Since baby boomers are now retiring a great number of those jobs are becoming increasingly in demand. These jobs even if requiring a large sum of debt are secure

This could create a major shift in the workforce where middle class Americans are fighting more for a secure workplace rather than their dream job. These attitudes already exist primarily in majors like pre-med, engineering and accounting but a severe shift into these jobs could create a problem of supply and demand in future generations. As of now, they remain as a credible option for securing a life as a middle class American and more importantly getting the bang for the buck.It’s unfortunate that the solution to the economic market requires overlooking the value of the educational institution and instead considering the conditions of the job market. It completely debases the goal of universities of spreading diversity, education and promising a future. Money is spread too far thin in America and economic security is only available in the holes in which it leaks. As nursing and teaching jobs are being widely pursued after, it is evident that more and more students are becoming aware of this fact.enough to pay off debts and provide a financially secure future.

Given that there are so many fields of careers in each of those industries that are increasing and decreasing at different paces, the prospect of the job market varies with holes that are both hidden and publicly evident. So looking for those things is important in order to really make a conscious decision in the future path of a post-secondary education. Within all these holes of mysteries and wonders the only way to really find a secure route towards careers, ones like public relations, journalism, business, philosophy etc. , institutions have to provide resources that cater to these fields –things like specific training and hands-on (internships) that give a more practical and applicable tool to the student.

The company, Coursera does this exact thing. Founded by Andrew NG, Coursera is a site that offers the “world’s best courses, for free.” This is an example of a tuition return at its finest. Free tuition and specific helpful resources. This helps employers as well as it locates them with specialized workers whose educational background can be used more accurately and in sync with what they are looking for. This also does tuition cost a service as an institution like Coursera has all the ability to compete with universities if they were to be recognized by employers. I hope sarcasm is ringing its bells, because a zero cost tuition could equate to a complete reform of the tuition market.

Naveed, an environmental engineer explains that Coursera is in a way

“recycling information within the educational system.”

Within all this commotion and episodic dialogue there is a piece of thought I hope to shed light on. The importance of college tuition has become emphasized more than ever in the past decade and yet it’s also the worst time to get one. Maybe in a couple years when alternative forms of education are properly institutionalized, one can expect to find a secure job without carrying a load of debt. As stated, this takes time and a lot of effort considering that colleges would not like to see their tuition costs diminish. But another important aspect to also consider is innovation. The great country of USA has been excelling in innovation, but education has yet to reap its benefits. But with technological advancements already taking place in companies like Coursera maybe one day Coursera might be referred to instead as an institution rather than a company or site.

An economy is only as good as the families that profit from it. And while, this may be the worst time in this article to get sensitive, protecting and nurturing families has always been the end goal of having a good economy. The economy should never discriminate against class, race or ethnicity but unfortunately that is not the case. With tuition costs expected to increase, society can only expect to continue redlining certain audiences of the public.

Certain audiences would fall under immigrants, minorities –first generation college students who are only beginning to transition into post-secondary system. The time is more important than ever for a revolution for integration to occur but that is difficult to do when private lenders like Sallie Mae thrive from these very people. There is obviously a lot of sewage that drains from college tuition, but the problems leak far deeper than publicly acknowledged and it is important time to begin looking into these matters.

Otherwise we are headed into a catastrophe that could yield devastating systemic blow to the educational system, financial system and government. Based on the history of America’s economic and political system, it’s now more than ever that the cost of education is hurting the economy more than ever.

___________________________________________________________________________________________

References

 

http://pnpi.newamerica.net/sites/newamerica.net/files/program_pages/attachments/college%20published%20tuition%20and%20fees%20chart%20year.png

http://aspanational.files.wordpress.com/2011/12/collegestuition.jpg

http://xmiragestat.files.wordpress.com/2014/04/higher-education-increase.gif

http://www.clearpointcreditcounselingsolutions.org/how-to-pay-off-private-student-loans-from-sallie-mae-and-other-lenders/

Kiyoshi Kimura, president of Kiyomura Co, paid $1.76 million for the bluefin tuna he had won at the Tsukiji Market auction in January last year. As his staff towed the prized tuna back to his restaurant, the cart carrying the giant fish was surrounded by groups of professional photographers. He posed for a photo before he cut the tuna, his employees clapping hands in the background.

The picture that ran next to headlines about the eye-popping price tag for a single bluefin tuna is a snapshot of a lucrative industry spinning out of control due to a decade of overfishing under lax regulation.

Fed by ravenous demand from sushi lovers, Japanese and European fleets have exploited the commercial value of bluefin tuna and nearly depleted its stock in the Atlantic and the Pacific Ocean.

“The stock of bluefin tuna, by far the most valued tuna species, has been so heavily overfished in recent times that its collapse has become a very serious and threatening possibility,” said Fabio Hazin, chairman of The International Commission of the Conservation of the Atlantic Tunas (ICCAT), at a meeting in 2008.

Days after Kimura bought his tuna, the Pew Charitable Trusts announced the number of Pacific bluefin tuna has declined by 96.4 percent from pre-1950 levels. The eastern Atlantic bluefin spawning stock has plummeted by nearly 75 percent over the past four decades, according to reports from ICCAT, a Madrid-based regulatory body with 47 members and the European Union.

Half of that loss, says ICCAT, occurred between 1997 and 2007, a period commonly known as “the golden years” among European fishermen. When the market for bluefin tuna took off in the 1980s, the advent of ranches — large coastal pens for fattening the fish before trading them with the Japanese — transformed the economic outlook of the industry. During the two decades followed, European ranchers and Japanese conglomerates worked together to take advantage of a lack of regulatory oversight. They caught as many as they wanted, and rested assured that state government would take whatever catch number they report for granted. The French government helped expand their fleets with subsidy, only to fuel a black market where trading unreported catch has become an international routine.

From Nobody to Somebody

Bluefin tuna has very few natural predators, but the species paid a price for becoming one of the most sought-after fish among well-heeled sushi devotees in Japan and worldwide.

In the 1960s, bluefin sold for a tiny fraction of its market price today. It was mostly ground up for cat food in the U.S., and dish made out of its meat held little appeal to the Japanese who preferred white-fleshed fish and shellfish. There were plenty of stock of bluefin around the northwestern corner of America, but commercial fishers considered it a trash commodity and passed it on to be the targets of weekend sportsmen.

The turning point came when sushi bars went global in the next ten years: Americans turned out to have an appetite for “toro,” the fatty underbelly of tuna commonly used for sushi. In Japan, people had grown accustomed to meat with strong flavors and dark flesh. It was also about this time that Japanese cargo planes, after delivering electronics to the U.S. market, started buying up cheap bluefin tuna near New England to sell them at a good price back home.

By the 1970s, bluefin tuna had caught on in Japan, prompting the nation’s importers to take in large quantities from fisheries worldwide. Fishing for bluefin in the western Atlantic increased by more than 2,000 percent between 1970 and 1990, according to the International Union for Conservation of Nature. The average price paid to Atlantic fishermen for bluefin exported to Japan exploded by 10,000 percent.

Today, Japan consumes about 80 percent of the bluefin tuna caught globally. The country is home to the Tsukiji fish market, the world’s largest seafood wholesale center. There, the annual fish auction held on the first Saturday in January demonstrates how much hype there is around bluefin tuna. For patrons of the auction, winning the head of a single bluefin tuna at an outrageous price is a fight for status and free advertising. Kimura, who became widely known after he paid $1.7 million last year, also won the bid this year and in 2012.

The auction price, as shown above, has soared since 2008, before taking a nosedive early this year. “The wildly fluctuating price demonstrates only that the auction is subjective and distorted, dictated almost entirely by the bidders’ wealth and whims,” writes Emma Bryce, a reporter with The Guardian.

Ranching to the Utmost

During the golden age for catching bluefin tuna Japan’s demand turned several family businesses in France into fishing empires. But it was the advent of “ranching,” the industrial method of fattening bluefin in underwater pens before selling them on the market, that facilitated the ruthless catch, particularly in the Mediterranean Sea.

Originated in Australia, tuna ranches were introduced by Spanish and Croatian fishermen to the Mediterranean area around 1998, the same period when ICCAT instituted the first quota on bluefin tuna. The old-fashioned way was to catch the bluefin near the shore and kill them immediately before returning them to the port. The advanced method is much more complicated: Purse seiners transfer the catch to cages; Tugboats slowly carry the cages — for as long as a month — to circular underwater pens located in coastal waters; Fish in the ranches are then fattened for months on sardine, mackerel, and herring till their fat content, flavor and color match the demand of Japanese consumers. Tunas at harvest are shot in the head and kept cool in cold seawater slush; In the end, most of the fish are shipped deep-frozen to Japan on refrigerated vessels, while the rest are packaged and flown to Japanese markets, where they’d be auctioned off fresh. See a video on how ranching works below:

Those circular ranches revolutionized the industry. Fishermen were able to steer their vessels father from the port without worrying the fish caught would rot on their way back to the port. The deeper the water, the larger the bluefin, and the bigger the profit.

“What you gain is consistency in the quality and the supply, because you are not subject to seasonal factors,” says Rex Ito, president of Prime Time Seafood, a Los Angeles-based importer that provides 85 percent of the bluefin tuna needed in L.A. restaurants. “It’s an efficient way of producing a quality product.”

Earlier, the supply of fresh bluefin could only last for a few months per year, with just a tiny percentage of the catch being fat enough. The introduction of ranches means fishermen in his greatest capacity, and hold on to his stock till Japanese traders are ready to deal. For connoisseurs, a stable supply enables bluefin tuna to be on the menu year-around.

Tuna ranches, says Ito, is what gave rise to increased fishing capacity and over-catching. His biggest suppliers are located in Spain and Mexico, where bluefin tuna are ranched and sold to sushi bars in the U.S.

Compared to Spain’s long tradition in the bluefin business, Mexico is new in the game. The country, which now catches the majority of bluefin in the eastern Pacific Ocean, adopted the ranching technology around 2000.

“You wouldn’t necessarily save money by keeping the tuna in a cage and feed it. The process is actually fairly expensive. It’s quite an operation,” says Ito. “But farming or ranching is the future of a lot of seafood.”

In Europe, ranching has helped French fisheries strike a fortune between 1997 and 2007, depleting the stock of bluefin in eastern Atlantic Ocean by half, according to an investigative report from The International Consortium of Investigative Journalists, a global network of 185 investigative reporters.

In Sète, a small trip nestled along the Mediterranean Sea, bluefin fishing has been a regional vocation for generations of captains. But it was the rise of bluefin and the technique of ranching that made them one of the wealthiest fishermen communities in France. They now operate the world’s most productive tuna fishing fleet, of which 36 multimillion-euro vessels target bluefin tuna in the eastern Atalantic Ocean.

Government subsidies played a significant role in the renovation and expansion of Europe’s powerful fishing fleets. The European Union and its member states, encouraged by a strong market demand for bluefin tuna, has poured €26.5 million into vessels in Sète between 1993 and 2007. The average French purse seiner in 1998 was twice as long and four times as powerful as they were two decades ago. By 2008, there were 131 purse seiners in EU fleet, and another 500 ships owned by ICCAT members outside the EU. All of them served the cause of exploiting the bluefin community. For owners who took out bank loans to purchase their pricey vessels, the only way to repay the debt was to over catch.

Japanese companies, even though at the very end of the supply chain, chipped in with money. They are known as “the architects and financiers of the ranching industry,” because they partnered with Spanish and Croatian fisheries in building and running the facilities. Paco Fuentes, a business mogul from Spain, jointly ownes Drvenik Tuna, a Croatian ranch, with Japanese conglomerate Mitsubishi and local partner Conex Trade. The man also serves as the general manager of Fuentes & Sons, which has eight ranching subsidiaries in six countries. When interviewed on the dire state of bluefin tuna, Fuentes said he didn’t consider it “an endangered species.”

“There are a lot of small bluefin tunas in the Gulf of Lion waters [near France],” he told ICIJ reporters.

Fish Till You Drop, Authorities Say

Tuna ranches inspired fishermen to maximize the economic benefit of bluefin tuna, and brought sushi lovers a sufficient supply of toro meat. But when the feeding frenzy went unchecked, it became gateway to a decade-long, illegal fishing craze in the Mediterranean.

Seventy-five percent of the region’s bluefin tuna stock had disappeared between 1998 and 2007, says ICCAT. During the same decade, off-the-book trade in bluefin market is estimated to be $400 million per year, says ICIJ reports. One out of every three bluefin was illegally caught, and a majority of them were young fish that have not yet reproduced. In 2008, the amount of eastern Atlantic bluefin tuna traded on the global market was still 31 percent larger than ICCAT’s quota that year. In 2010, the gap peaked at 141 percent.Ranching made it difficult to track the number of bluefin caught mainly because much of its operation is done underwater. Raising undersized fish may hardly be noticed when ranchers cleverly place them in a good adult mix; Fleets could transfer the fish immediately to another vessel without declaring the catch; A diver can simply stops videotaping and allows the fish to pass unrecorded when transferring them from net to cage, thus falsifying the catch number.

Unreported and illegal catches were fueled by a lack of accountability. One French fisherman named Nicolas Giordano told ICIJ that he and his peers declared freely their catch number until 2006 to the laissez-faire French government. “The administration didn’t do its job, and at the time no one took it seriously,” he says.

Until 2007, the French officials never bothered to verify the numbers reported, neither did the Spanish and Italian governments. They adjusted the figure further downward to meet the quota and then sent it to the European Commission, which in turn reported to ICCAT.

“The only country to give their real figures would get fined, so in that kind of game, everyone lies,” ICCAT scientist Jean-Marc Fromentin told ICIJ reporters.

In 2008, ICCAT introduced Bluefin Tuna Catch Documents, a paper-based catch documentation system aimed at tracking down every step of the bluefin trade along the supply chain. But only a handful of countries, mostly big players, have updated their documents since 2014. In response, ICCAT has put forward an electronic catch documentation system to counter the rampant black market.

Forging Ahead

Fuentes & Sons, now a leading seafood supplier in Spain, announced in December its plans to become the first to raise Atlantic bluefin tuna on land. The company would invest €5 million in building a hatchery for the endangered fish, with the expectation of producing about 500 metric tons by 2015.

Japan’s Fisheries Agency, on the other hand, has decided to rein in the nation’s catch of immature Pacific bluefin tuna. Starting in 2015, it would reduce by half the quota of bluefin tuna that are three years old or younger compared to the average catch number during 2002 and 2004.

The biggest market for bluefin has seen its officials turn down several batches of dubious bluefin imports in the past few years, but a moratorium on fishing bluefin seems unlikely given its popularity and economic value.

“They wanted the fatty fish and they recruited the people who could carry out this work for them. Now that the system is out of control and markets are saturated, they are scrambling to distance themselves from it,” said Sergi Tudela, head of Fisheries at WWF Mediterranean.

Reference:
http://www.theatlantic.com/international/archive/2014/01/sushinomics-how-bluefin-tuna-became-a-million-dollar-fish/282826/
http://www.icij.org/projects/looting-the-seas
http://www.theguardian.com/environment/world-on-a-plate/2014/jan/06/pacific-bluefin-tuna-auction-overfishing-sushi
http://www.bloomberg.com/news/2013-01-09/tuna-species-sold-at-record-price-faces-overfishing-study-says.html
http://www.nytimes.com/2010/06/27/magazine/27Tuna-t.html?pagewanted=all&_r=0
http://www.vanityfair.com/culture/features/2007/06/sushi200706
http://www.fis.com/fis/worldnews/worldnews.asp?monthyear=&day=11&id=67799&l=e&special=&ndb=1%20target=
http://bangordailynews.com/2014/03/23/business/japan-to-cut-bluefin-tuna-catch-by-half/
http://www.pewenvironment.org/uploadedFiles/PEG/Publications/Fact_Sheet/tuna-story-of-atlantic-bluefin-2013.pdf
http://www.pewenvironment.org/uploadedFiles/PEG/Publications/Fact_Sheet/tuna-story-of-pacific-bluefin.pdf

Faced with a rapidly changing consumer, the biggest hoteliers are changing their approach. In doing so, however, they threaten to almost entirely alter the hotel industry.

The hotel industry is not usually one known for innovation. In the last 40 years, hoteliers have introduced only minor changes coming few and far apart: Holiday Inn debuted the Double Queen bed room, someone painted a white wall grey, and a few have finally managed to add Wi-Fi. But a new wave of guests, the oft-discussed millennial generation, is demanding a new type of hotel that poses to fundamentally alter the industry. Initially dismissed as outlandish, the boutique hotel model is entering the mainstream, falling into favour with the latte-and-laptop generation over the carbon copy boxes championed by brands like Hilton, InterContinental, and Marriott. But responding to these needs is more than a momentary race for market share. As the big hoteliers move into the boutique game hoping to recapture the modern-day traveller, they are altering the industry at its roots, and perhaps unknowingly, sowing the seeds for a whole new way of doing business in the hotel space.

Traditionally the major players in the hotel industry left innovation to avant-garde boutique hotels. These city-based concepts that rose to prominence in the 1980s were viewed largely as fads. Hotels like the Bedford in San Francisco and The Blakes Hotel in London catered to an insignificant group in search of a sophisticated, unique, and off-beat hotel experience. For these people the boutiques acted as a counterweight to the unchallenged standardisation of the bigger chains. As the New York Times’ David Brooks explains in the The Edamame Economy, “instead of offering familiarity, they offered difference. Instead of offering beige, they offered edginess, art, emotion and a dollop of pretension.”

Standing strong behind staggering economies of scale and multi-brand loyalty programs, the larger hotel groups did not consider the forward-thinking boutiques a threat. This belief was reinforced as they expanded globally throughout the 1980-90s. The chains employed a growth model that demanded the standardisation and commoditisation of their products, giving rise to what is now known as the ‘box hotel concept.’

All around the world, hoteliers adhere to cookie-cutter methods that centre on a number of familiar core products and capabilities. Standard Operating Procedures (SOPs) delineate exactly how hotel staff must behave to maintain the brand’s image. A 2010 Hilton manual outlines how a caller’s name must be used twice during a call. Housekeeping staff at Marriott famously follow a 66-point checklist for guest room servicing and ensure the sheets in Kuala Lumpur have same specified thread-count as those used in London.

While the consistency of these brands is a remarkable accomplishment, the ‘McDonaldisation’ of the hotel experience has made the experience what The Economist calls an “emotional failure.” Inherently, the model continues to see economic success due to its established reliability and worldwide network. After all, the familiar red Marriott logo remains one of the surest signs of comfort and a decent night’s sleep. Undeniably however, there is a  growing segment of travellers looking for more. Currently only serviced by boutique hotels, more and more big hoteliers are looking to tap into this market of affluent, trendsetting travellers.

The Modern Guest

As the larger hotels look to the boutiques for their pioneering insight, the greatest difference is surely the type of guest. The modern traveller, who is as likely to step out of a sleek black Uber wearing a tailored suit as arrive in a t-shirt and jeans after using the Tube, is one of the most significant changes in the hotel industry’s recent history.

“Guests used to come for one of two things: business or pleasure,” says Patrick Tan, a student at Cornell and front-office supervisor at the school’s esteemed Statler Hotel. “Now it’s a mix of work and play that involves everything from business meetings and art gallery visits to city tours to drinks at the city’s best bars”

Tan’s statement is supported by market research. A 2013 survey conducted by a Hilton Garden Inns saw 45% of respondents cite new experiences as the best part of business travel. For 65% of the survey-takers exploring a new city was the number one motivator to extend a business trip.

More than ever before, the hotel guest has transcended the confines of their hotel. Keen to explore, curious, social, and often combining work and weekend trips, the modern traveller and guest no longer looks for the uniformity offered by the larger business chains.

“People are seeking unique experiences. They are seeking hotels that are distinctive from others in style, design and service.” writes Veronica Waltdhausen in a study for leading Hospitality Consultants HVS.

In the golden age of hotels, people came to be pampered and surrounded themselves with luxury. It was under this model that the star system, where the number of stars equates to higher price point, came into being. But the modern-day traveller is no longer looking for a money-driven experience. Instead of status symbols they seek experiences.

“Do they really want a Nespresso machine in their room (the proud new addition to most hotel rooms),” Waldthousen asks. “Wouldn’t a guest be much more likely to relax in a bar in the hotel’s lobby lounge and drink a coffee surrounded by other people?”

This movement away from the tangible product to an experiential one is complemented by a change in what millennial consumers look for in hotels. Rooms at CitizenM, the contemporary Dutch hotelier that was one of the first players to act on these new demands, feature plush beds, high-powered rain-showers, and free WiFi and movies. Advertisements for the hotel, however, centre on the actual guest experience, highlighting “a great night’s sleep” and “a love for free movies on demand.”

The company’s mantra – affordable luxury for the people – does away with unnecessary luxuries over which many hotels compete. The hotel’s lobby swapped out doormen and luggage carts, favouring automated check-in kiosks that set room temperature and mood lighting to a personalised preference upon a guest’s arrival. A buzzing bar and eatery is complemented by sharp but inviting italian furniture, contemporary art and books, as well as dynamic meeting spaces right off the lobby-floor.

“The lobby is more like a living room than anything else,” says Noreen Chadha, CitizenM’s Commercial Director. “The room is the place to sleep and relax while the lobby is the perfect place to work, meet, eat, and drink.”

As Chadha explains, the physical boundaries that once distinguished hotel lobbies, bars, and restaurants are blending together. The open-space lobbies of hotels like CitizenM or the Ace Hotel simultaneously entertain an array of work meetings, lunch dates, happy hours, and even musical performances. For the hotels, the lobby’s transformation works to bring in both guests and city residents. Whereas the typical hotel bar and restaurant sits mostly empty, these venues hum and buzz, drawing in both the hotel guests and local crowds. For these kinds of hotels, the restaurant can move from being a money-losing nicety to a key asset. According to a Business Journals report, hotels that share their vision and values with restaurants can see up to 20% of revenues coming from food and beverage operations.

The hotels also benefit by being able to generate more revenue per square foot. While the larger corporate hotels may have higher occupancy levels and even feature several restaurants, a comparably-priced boutique hotel that optimises its space and plays host to more guests and visitors in its bar, restaurant, or lobby will have greater revenue per square footage. So while it is difficult to make an apples-to-apples comparison, the boutique model almost certainly presents a better deal.

Historically, the big hoteliers looked on passively on from the sidelines. Business guests and foreign tourists built work trips and holidays around the reliable and consistent nature of the big chains. From Caracas to Mumbai, a Hilton was a Hilton.

But as the millennial generation approaches its peak, a new type of guest is emerging. No longer impressed by turn-down service and trouser presses, they seek unique experiences and interactions. Generation X and Y already make up more than 50% of hotel bookings. And with the boutique industry expected to increase at 6.5% annual rate between 2014 and 2019 according to an IBIS World report, each of the major chains is now keen to capitalise on this growing industry.

Bringing in the Big Boys

With the hospitality industry continuing its post-recession recovery, the large hoteliers are looking to diversify their portfolios. Though boutique hotels took a 12.7% hit in 2009 with revenue per available room (RevPAR) falling as much as 30%, the segment typically yields high profit margins. During times of economic upswing, boutique hotels are more attractive than ever. Generally low-cost investments, they attract an affluent customer and offer an exciting opportunity for brand building. Among the hotel industry’s largest operators, these projects are being fast-tracked by forecasts about the vastly different needs of the rapidly expanding millennial segment.

Besides the substantial research pointing to the millennial opportunity, one of the industry’s largest players, Starwood, is already knee-deep in the boutique world. The company, whose 10-brand portfolio demands about 12% market share in the boutique industry according to IBIS World, owns some of the industry’s leading names. Its W, Aloft, and Element hotels and franchises have proved to be  “game-changing” for the company and continue to lead and “disrupt” their respective industries, according to Starwood’s 2012 report. In each market, these Specialty Select Brands (SSBs) continue to drive growth*. In Canada, the hotelier’s Element brand debuted just last year but has already overtaken its competitors on the popular comparison website TripAdvisor.

Given Starwood’s demonstrated track-record, more and more of the major players are launching brands into the space. Next year, Marriott will debut its Moxy brand in partnership with the Swedish design giant, IKEA. Despite it being the world’s largest hotelier’s first foray into the millennial space, the hotels feature a now-familiar model of design, approachability, and affordability. By a similar token, the parent of the normally no-frills Radisson brand plans to spend $140 million building or acquiring the first five properties of its new, daring Radisson Red brand. The hotel, which channels the concrete, loft-like feel of a modern art gallery joins Starwood’s Aloft, Hyatt’s Andaz, and InterContinental’s Hotel Indigo brands .

It goes without saying that the entry of the larger players has dramatically increased the size of the boutique industry. As explained by IBIS World, the industry is “on its way up to the penthouse,” with industry growth expected to surpass pre-recession levels before 2019. Fielding heightened demand from a 3.1% and 2.7% annualised increase in the number of international arrivals and domestic trips respectively, hotel operators will see a surge in demand in both domestic as well as foreign markets.

A Boutique Bubble?

While the numbers point to a triumphant ‘go,’ questions remain about the viability of this new model. For one it seems as though both boutique and big brands occasionally lose sight of the purpose of this modernisation. From a literal standpoint, critics of Marriott’s upcoming Moxy brand claim the brand’s fast-paced rollout – which hopes to build 150 Moxy hotels in Europe over the next 10 years – may be too ambitious. Others cite the location of its first property next to Milan’s Malpensa airport as too far removed for the economically-minded millennial.

In a 2007 article for The Wall Street Journal, Darren Everson highlights some of the industry’s more fundamental issues. Everson sketches the stay of a University of Southern California graduate student staying at the W Chicago City Center hotel, citing confusion and discomfort.

“There is a backlash brewing against boutique hotels,” Everson writes. “[While] W’s are still thriving, the…segment is finding that some customers – even once loyal ones – are getting tired of their tragically hip ways.”

Indeed, as the industry giants skip from baby steps to a full-steam sprint, they risk alienating their newest customer before they even arrive at the hotel’s doorstep. In the age of cut-throat competition and review sites like Hotels.com and TripAdvisor, just a few negative reviews can result in being crossed permanently off the list.

So, while the millennial guest has almost certainly swapped room service and bidets for contemporary design and free Wi-Fi, certain elements remain, and are perhaps more relevant than ever. Though veterans of the old-model, consistency, loyalty incentives, and good service remain at the top of the list for many consumers. The form follows function principle continues to reign supreme (as this author found out when water from his shower spread cooly across the entire bathroom floor at The Standard Hotel).

For the boutique industry, the entry of everyone from Hyatt to Hilton ushers in an unprecedented era of competition. For the full-line producers however, the move into the boutique space may be the first step to fundamental change the hotel industry as a whole. While currently still limited to one or two brands in the portfolio, the tenets driving the change: change in the core customer, promises to revolutionise the field.

As Jeffrey Catrett points out in his article for Hotel Business Review, similar changes to the retail and other service sectors have forced industry-wide overhaul. For the standardised hotel industry, the costs of changing thousands of properties around the world seems almost unimaginable. The ageing core products of these hotels – behemoth conference spaces, spas, and other amenities – may soon be more or less obsolete. While the luxury segment, particularly resorts, will be sure to carve its own niche, the mainstream hotels may soon face something of a crisis. Indeed, changing consumer trends sometimes stirs trouble. For the hotel industry and the biggest players in particular, however, they just might change the way they do business entirely.

*Starwood’s Annual report does not provide a financial breakdown of each brand, making it difficult to quantify how much each contributes to the company’s overall profitability and growth.

Uber is a technology company based in San Francisco that provides customers with private car services on demand with its smartphone app. Basically, with only one tap on its smartphone app, Uber will connect a customer with a Uber driver, and the customer can enjoy a reliable and safe ride experience. Everything is done through the app, so it’s totally cashless and convenient. Since its founding in 2009, Uber service has expanded to over 70 major cities around the world. While its revenues had grown more than 10 times in 2013, Uber continues to seek out for larger markets. And recently, in February 2014, Uber officially launched in China. As China has the largest population as well as the largest smartphone market in the world, Uber considers its expansion into China as a greatest opportunity for the company ever in terms of the size of the market and potential customers, but maybe it should be prepared to face its toughest challenge while performing in China.

Hiring local staffs will be a starting point for Uber’s localization. Uber needs to hire the right team in China in order to succeed in the country as a foreign company. For example, one of Groupon’s biggest mistakes which led to its failure for expansion in China is that it failed to hire local staffs for the right management positions. Right now, Uber is still actively hiring management roles in China, as well as drivers in major cities like Beijing, Shanghai and Guangzhou, to join its ride-sharing community. Besides this, Uber has made some important decisions in terms of localization, including creating its Chinese name “You Bu” to target local customers and build up its brand image, and supporting online payments via Alipay, which is one of the most popular e-payment services in China. And instead of owning all its cars in China, Uber forms partnership with local car rental companies to rent the cars.

One existing opportunity for Uber to grow in China is that many Chinese people in major cities have already accepted the idea of giving rides to strangers, so it won’t be difficult for Uber to fit in the culture with its ride-sharing app. As a consequence of the increasing number of middle class in China who can now afford taxis as their daily transportation options as well as the fact that the number of taxis in urban centers hasn’t kept pace with the increasing demand, it now has become extremely hard to get a taxi in major cities like Beijing and Shanghai, not to mention the time during holidays and rush hours. Thus, as a result of the high demand of taxi services and the lack of enough supplies of taxis especially in major cities, there have been a growing number of “black cabs” in the cities. Black cabs refer to those private cars that the drivers make money on their own by providing rides to people in need of cabs, without any proper taxi licenses. It’s an illegal service, but somehow becomes acceptable in China due to the high demand by customers and as it’s hard to regulate by the government as well.

It’s quite normal for people in major cities to hop into a black cab when they fail to catch a taxi but in need of a ride. I personally do the same thing. Sometimes I need to get to somewhere in hurry, and I can never make it if I take the bus or subway as it takes too much time. But I just cannot catch a taxi nearby. When I call the taxi company to ask for a cab, they usually tell me “There’s no available taxi around your place. Please wait for a few minutes and try again.” It’s really frustrating. However, the good thing is that there are always a couple of black cabs waiting near our neighborhood. When the black cab drivers assume that you are trying to get a cab, they will approach you and ask where you are heading to. If you accept the price based on the distance, deal! It’s usually cheaper than a taxi and much more convenient to get one especially during rush hours or holidays, so such illegal service is somehow quite popular in China. Of course, safety will be a concern, just like people’s concern for Uber’s safety control when it just launched in the U.S. as a ride-sharing app connecting drivers with customers. But many of the people in China actually accept such ride-sharing concept, which creates the potential for Uber to expand in China.

Besides the opportunity, there will also be competitions, accordingly. The biggest challenge for Uber will be the fierce competition in the Chinese market. Interestingly, even though Uber has benefited greatly from its innovative and successful ride-sharing model, its presence in China doesn’t seem to disrupt the taxi cabs industry in the country. Actually, according to Quartz, “the market for taxi services has never been bigger in China”, especially in major cities like Beijing and Shanghai. I interviewed a taxi driver, Hailin Wu, in Shanghai, and from his perspectives, he didn’t even take Uber as a competitor. “There had been competition over the past few years, when it was quite easy for people to catch a taxi and we as drivers needed to compete for customers.” Wu said, “But now, the demand for taxis is always higher than the actual number of taxis available in the city.” Wu shares his taxi with his friend and does one shift per day (for approximately 10 hours), and he usually has customers from the start to the end of his shift. He barely has the time to grab a meal during work. According to Wu, there are some apps doing the same thing as Uber, but they don’t seem to affect the business for taxi drivers. In cities like Shanghai, there is always more demand than supply in the market. So for taxi drivers like Wu, there will always be enough people looking for taxis, even when there are those black cabs all the time, as well as those emerging apps. It’s even usual for drivers to “select” their customers in these major cities. For example, if the distance to your destination is not far enough or the route to the destination is with heavy traffic, it’s very likely that a driver will refuse to provide the service to you.

Thus, from Wu’s point of view, Uber’s major competitors should be those similar apps in the market which already have their customer bases as well as large amount of drivers. Uber’s biggest competitor as a smartphone app should be Didi Dache. It has been the most popular ride-sharing app in China since its launch in 2012. Users can use voice messages to contact drivers nearby and can even pay a small fee to let the drivers wait for them for a while. At the end of February 2013, Didi announced to have 600,000 subscribers and 12,000 drivers in Beijing only, not to mention the number of drivers it has around the country. Other competitors include Dudu Jiaoche, Yaoyao Dache, Kuaidi Dache, and Dache Xiaomi. All these apps provide services in a similar manner. But compared to Uber, they already have a steady and even growing user base to maintain stable revenues. More importantly, many of these apps have seen growing investments from outside. For example, the E-commerce giant Alibaba has invested nearly $1 million in Kuaidi Dache in April 2013. As a result, when expanding into China, Uber really needs to find out its competitive advantage in order to attract customers and succeed in the market.

Moreover, how to maintain a competitive price is also a question. Initially, Uber positioned itself as a premium or even luxurious riding option in China, in order to differentiate itself from the so-called “crazy cheap” taxi market in the country. However, there isn’t such high demand for riding services that come with a premium price. Those who can afford such services on a daily basis usually already have their private drivers. And the competition still exists. For example, Yongche is a famous web-connected car rental company in China, offering limo rides with drivers at a competitive price. Yongche’s price is 300 RMB for driving you in an Audi A6 from central Shanghai to Shanghai Pudong International airport, while Uber charges approximately 350 RMB for mid-range to high-end cars for the same distance. In order to be more competitive, Uber has adjusted its position and strategy. Now the base fare to use Uber service in Shanghai has dropped to 30 RMB, compared to double the price (around 60-70 RMB) when it started its test run in the city in summer 2013. However, the price is still not quite competitive in the market, especially when you take into consideration all the similar apps, black cabs, and the already affordable taxis. After all, a price war won’t help Uber succeed in the Chinese market.

I consulted Uber’s issue with Carl Cai, a senior consultant at PwC Beijing. He told me that Uber approached a famous consulting company in the industry to take care of its localization in China. However, according to Carl, “Whether Uber can succeed or not in China fully depends on how soon it can figure out its competitive advantage in the market.” Now Uber has its Chinese name, convenient payment options tailored to Chinese customers, and it is actively building up a outstanding management team as well as a welcoming community for both its drivers and its customers. But this is not enough. They still haven’t figured out their “fit” strategy to perform in the competitive market in China, and to differentiate itself from competitions. Uber should take a close look at itself, take approaches to performing that are suitable to the given situation in China, and build on their strengths based on their success in the United States. For example, instead of lowing the price and starting a price war, maybe build on their innovative idea not just as a ride-sharing app, but as a ride-sharing community, which is a fairly new and unique concept in China.

It’s difficult to judge Uber’s performance right now as it has just launched officially in China for few months, and the company didn’t want to mention the actual numbers of its performance in China so far. Yet, Uber is still optimistic toward its expansion in China despite all the challenges. Actually, Wall Street Journal reported based on the interview with Allen Penn, Uber’s head of Asia, that the number of trips booked in Shanghai through the Uber app since the test run in August 2013 even exceeded the number of trips made in San Francisco or New York during each of their first half year. “The company prides itself on being a premium service and, perhaps crucially, a “safe” option that includes a high level of customer service.” said by Sam Gellman, head of Asia expansion at Uber, “Our focus is on delivering a great experience, and numbers so far have shown great initial results and we just want to keep building it up.” Maybe we just need to wait a few more months to see Uber’s results in the following periods, and to find out whether its future in China is as promising as it has expected.

 

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References

 

http://thenextweb.com/asia/2013/08/07/uber-china/

http://www.techinasia.com/4-mistakes-behind-groupons-failure-in-china/

http://qz.com/70123/chinas-versions-of-uber-could-fix-city-cab-shortages/\

http://www.techinasia.com/uber-picks-chinese-officially-launches-china/

http://thenextweb.com/asia/2014/02/13/uber-is-bullish-about-its-potential-in-china-but-it-wont-discuss-rivals-or-reveal-figures/

http://online.wsj.com/news/articles/SB10001424052702304703804579379884010342724

 

Interview with Hailin Wu, taxi driver in Shanghai

Interview with Carl Cai, senior consultant at PwC, Beijing.

 

The cable television industry’s costs are increasing while its user base is simultaneously vanishing. “2013 marked the first year in which the paid TV industry actually shrank,” reports USA Today. More and more people are looking to a cable-less future, flagshipped by a trend dubbed “cord-cutting”, while the current generation of millennials will probably exist as something more along the line of “cord-nevers”. However, multichannel video programming distributors (MVPDs), including cable television/pay-TV operators like Comcast, satellite operators like DirecTV, and telco companies like Verizon, all rely on the current model and won’t give it up without a fight…a fight finally unified under the banner of: ‘TV Everywhere’.

America easily made the transition from a broadcast- to a cable-nation. An endless array of channels featuring a smorgasbord of programming perfectly suited our appetite for consumption, while also fixing some of the technological issues found with (free) antenna-based broadcasts. In 1996, the Telecommunications Act created the cable industry as we know it by “relaxing regulation on media cross-ownership…to foster competition…[and allow] telephone companies to offer TV service and cable operators to deliver phone service.” This also opened the door to FCC-approved mergers between the big boys of the media industry, resulting in the monopolistic fact that all content creators are controlled by a few major companies: Comcast/GE, Walt Disney, Viacom, CBS, News Corp. [that recently spit out other giant 21st Century Fox], and Time Warner Inc. Several of these companies own local TV stations in key media markets. Comcast is also the largest cable provider in the country, even more so if their attempted acquisition of Time Warner Cable (a separate entity than Time Warner Inc.) is allowed.

As online distribution continues to rise, consumers wouldn’t be faulted in wondering why content creators still kowtow to the Man. The answer will in no way surprise you: money A.K.A big bucks in the form of affiliate fees. Every year, $32 billion flows from the cable companies to content creators in order to grease the machine. “Estimates suggest that the annual affiliate fee revenue at companies like Viacom and Disney is around $1.5 billion and $2.0 billion respectively.” So for content creators, the strategy becomes entirely focused around “profit maximization.” Find a couple hit shows, while keeping the rest of the lineup relatively inexpensive to curb programming costs. “The ‘hits’ make you a ‘must have’ for any cable or satellite carrier – granting you the right to ask for fees.” Content creators want channels balanced at just the right point between costs high enough to give a few shows the production-cost/marketing edge they need, while still keeping the overall schedule cheap enough to reap the benefits of affiliate fees. Why are there so many sports channels? Remember the mantra: “If you own exclusive content, you might as well build a channel around it.” In this way, even with online distribution an option for the content creators, the cable companies still have them hooked on precious affiliate fees.

The case of Hulu is a great example. With stakeholders including Fox, Disney, and NBC Universal, the service was initially a consumer-friendly (read: free) way of streaming their favorite shows whenever they so desired. Nicely personified by Bill Gurley of Above the Crowd, pay-TV distributors smiled nicely at the content creators, while through gritted teeth said, “[w]e pay you an affiliate fee to distribute your content to the homes we serve. We understand you have multiple distribution partners. What we don’t understand is why you would give content to some of them for free, and still expect us to pay our fees…” And like that, Hulu became a subscription-model service itself.  Join us or die, says Pay-TV…

Now the rebellion seems to have moved to a grassroots level. The cable bigwigs created the pay-TV model by charging customers a subscription price in exchange for a cable package of channels. Once-reasonable prices have grown with the scope of television, driven by our increasingly cinematic desires. Like the DVD boom fueled the booming budgets of Hollywood, TV scale has increased to the point where millions and millions of dollars can be spent on a single episode of Lost or Game of Thrones. Spectacle is where the eyes drift. Cable companies have also reduced spending in the customer service department, leading to an immense decline in consumer satisfaction, with jokes about Comcast’s lack of reliability just as relatable as the age-old classics like “what’s the deal with airplane food?” While $86 on average in 2011, cable bills are expected to climb as high as $123 by 2015. Addicts, and by that I mean television viewers, have realized they might be taking a ride they wouldn’t actually have to pay such exorbitant costs for elsewhere. So, they cut the cord, and end their subscription to cable. The age of “cord-cutters” and “cord-nevers” began.

Eyes opened when Netflix emerged as an instant streaming titan, alongside video purchase and rental systems like those present on iTunes and Amazon Prime. Combine such services with products like the AppleTV, the Roku, or the new Amazon FireTV, and a hassle-free solution to cable company headaches became clear to a lot of people. Instead of a high cable bill, a one-time purchase of a streaming device opened the door to a still-immense quantity of content. With many cable customers already in possession of a Netflix account, Amazon Prime login, or iTunes videos, it seems the costs ended there, with no messy dealings with Comcast needed. This ‘a la carte’ or ‘over-the-top (OTT)’ model of content consumption already had a popular infrastructure in place, and now quality products popped up to streamline the process further.

According to Jim Edwards of Business Insider, “1.3 million of [cable distributor] Charter Communications’ 5.5 million customers no longer want TV – only broadband [as of November 2013]…[p]eople are giving up on cable TV as a standalone product.” Fewer households are stocking televisions as a part of their personal American Dream, content to consume media on technology like mobile devices, tablets, and laptops. Instead of plopping down on the couch in front of the tube after a hard day’s work, people instead boot up their electronics, Mom upstairs, Dad in the basement, the kids in their rooms…it’s come to be known as “vampire media,” coming out after dark and sucking away life as the pay-TV industry knew it.

Even antennas are making a comeback, able to offer the Netflix-enabled population sixty channels or so of free broadcast content, in better-than-cable HD, and, if new company Aereo has its way, the ability to record and rewatch free broadcast content on the device of their choosing. In this case, broadcasters claim theft, while Aereo responds it’s only supplying the equipment (“arrays of small antennas – one for every subscriber – to stream over-the-air television signals to its customers”) and not the content.

Many like Aereo have taken up the ‘cord-cutting’ mantle and proclaimed it the future, a weapon to use against the supposedly greedy and inept cable giants. Video for the people, made by the people, distributed by…well, here’s where it gets tricky. Returning to Aereo, the company has found itself before the Supreme Court, its business resting in their hands, while cable calls for blood. The Court finds itself in a tight spot. While it views Aereo’s business as unconstitutional, their ruling’s wording must be very carefully constructed in our digital age – they don’t want to accidentally outlaw the Cloud alongside Aereo. With such a thin line between legal and illegal a distinct possibility, how is cable to combat the rising threat of Silicon-Valley-fueled distribution while keeping consumers firmly in their (certainly not free) corner? Enter Jeff Bewkes, CEO of Time Warner, circa 2008.

Bewkes, who once headed HBO and led it to success, watched as cable’s cultural grasp slowly loosened. He also noticed how HBO was experimenting with an online streaming service, in select Wisconsin cities, where as long as viewers could login as an HBO subscriber (‘authenticate’ their account) they could stream all the HBO they wanted. Bewkes, along with Comcast CEO Brian Roberts, saw such a model could be viable for cable subscriptions as a whole. Thus, TV Everywhere was born.

Bred slowly through systems like Time Warner’s TWCTV and Comcast’s Xfinity TV, TV Everywhere has now been picked up by the Cable & Telecommunications Association for Marketing (CTAM), rebranded in trendy lowercase ‘tv everywhere’, and put forward as cable’s Netflix-generation killer app. CTAM is readying its member companies (including A&E, Discovery, Disney, Time Warner, Comcast, Viacom; 16 cable companies and 25 content providers in full) to advertise all of their diverse subscription/streaming services under the singular new banner in order to promote unity and simplicity. “’The cable industry has been very good at not jumping too early on a technology, and watching it play out first,’ says Colin Gounden of Grail Research, which advises companies on new products. ‘They have a knack for getting the time right.’” CTAM’s goals for the new year have been set in stone by the board of directors, made up of programmers and cable operators from across the spectrum of the partnered companies. The First Commandment of tv everywhere is for half of all cable subscribers to be aware of tv everywhere by the end of 2014, up from about twenty percent now. The Second is to make the half already aware into devoted users.

Bewkes illustrated such a possibility with his battle plan to use viewers’ familiarity with cable’s huge brands and turn their love of streaming against the new independents by restricting digital rights to popular shows. The goal of tv everywhere is “to keep subscribers happy by letting them access cable content wherever they might be. In practice, this means lots and lots of apps,” like HBO Go, FX Now, and Xfinity TV. Comcast’s new X1 box operates very much like a Roku, full of app offerings like Pandora and even video games, but with a full cable subscription stacked on top. CTAM is also betting on the remaining cable figures: 56 million people are still subscribers, on top of their cord-cutting-enabling devices. To Multichannel News, CTAM CEO John Lansing said, “Compared to an $8-per-month over-the-top service, offering past seasons of shows plus some new original series, TVE is ‘all-original, it’s all last night, it’s live streaming [like the recent Olympics and Oscars] and it doesn’t cost you another nickel.” TV Everywhere was ‘broadcasting’ 150 million videos per month as of the end of 2013.

There are those within the industry that criticize CTAM’s label, saying it could distract or confuse consumers when they’re presented with the veritable cornucopia of tv everywhere services, and that it would be more valuable to expend effort improving the content instead. Cord-cutting proponents point to recent contract renewals between cable companies and content, where cable has been forced to loosen up on digital rights to make the increasingly pricey programming costs digestible. That said, controlling distribution is the pump that keeps the affiliate money flowing to the content creators in the first place. Right now, Netflix is profiting from the content owners’ need to reach the eyeballs of America. However, according to USA Today, Disney’s cable expenses soared over $8 billion last year, and “$7.99-per-month Netflix subscriptions are never going to float a ship that big.”

If tv everywhere, as a brand itself, is able to build enough of a reputation, USA Today suggests, “it may be just a matter of time before more of this content is kept in-house and Netflix finds itself stuck with whatever’s left.” Once tv everywhere, silly lowercase spelling or no, evolves into a more coherent form, and content creators settle down and move in, the disruption will end, most likely with a whimper. Remember, the cable companies know how to lie in wait, slowly absorbing technological advances, and then pouncing, armed with their special weapon: billions of dollars. Cord-cutters are right about one thing, at least. Get out your scissors, and cut that connection…but the cable companies have cut ties and migrated to the Clouds, too. The future of media is a big ol’ party, and everyone’s invited. Just remember there’s always got to be a cover charge, and the big guys like to collect. Personally.

 

 

Sources: Business Insider, Wall Street Journal, Forbes, New York Times, Above the Crowd by Bill Gurley, Businessweek, USA Today, CNN Money, Multichannel News, CTAM Official site

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 21^st century?

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.

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 21^st 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 Journal, Forbes, Marketplace, Slate, Tesla Motors, SolarCity, Energy Innovations, PBS