Why The Hollywood of the South Keeps Getting Bigger

October 17, 2015 by Elias Goodstein Leave a Comment

Since the arrival of Iron Man, Marvel Studios has built a major platform for distributing profitable movies. In the summer of 2015, they introduced a new superhero called Ant-Man. In its opening weekend, the movie earned $177 million at the domestic box office. Forbes Magazine reported the movie actually made more initial money than previous films like Captain America: The First Avenger.

However, the most impressive feat the film pulled off was becoming the cheapest film to date in comparison to previous Marvel Studios productions. One of the biggest blockbusters of the year cost $130 million to make and a majority of the budget was spent in one city: Atlanta, Georgia.

Tax incentives and more job opportunities continue to shift the established economic model of strictly Hollywood filmmaking. The increasing number of runaway productions, or movies filmed in other states for economic reasons, has given other states some advantages and disadvantages in the lucrative film business.

Inexpensive filming locations, like Atlanta, are fast becoming a favored spots to make a movie, but the city also has the potential to become the new entertainment capital of the United States.

Why did Georgia want a piece of the film industry pie?

Before the earliest introduction of tax incentive programs, films were made in locations outside of Hollywood for creative reasons. Some films and television programs today still follow this procedure, such as the HBO series Game of Thrones, which films in Ireland and Spain to reflect the locations in the original novels.

In 1997, everything changed when Canada introduced the Production Services Tax Credit program. According to the Department of Canadian Heritage, the program was designed to promote Canada as a less expensive place for film productions to take up shop. The Canadian government created a 16 percent tax credit to alleviate the expenses productions usually incur in Hollywood. Tax credits are tax incentives created by states and countries to remove a small amount of the income tax productions companies owe the state or country. As a result, Canada started looking like a cheaper place to invest in both television and film.

Screen Shot 2015-10-28 at 9.12.58 AM In the last several years, Canada has built a large repertoire of foreign film productions, with many coming from the United States. Between 2010 and 2011, about 33 percent of film and television production in Canada was through foreign production
companies. Once the Canadian government started their program, runaway productions began to affect the United States.

A 1998 study conducted by the management-consulting firm Monitor Deloitte revealed 285 of the 1,075 films recorded for the study were economic runaways. Due to almost a third of productions moving out of state, the U.S. lost $10.3 billion, which combines the loss in direct production spending and the loss in spending and tax revenues.

Today, 37 states including Georgia have similar tax incentive programs because of the growing fear of runaway productions in places like Canada. More states now compete to counter the massive success of their neighbor to the north. In a sense, Georgia began its own program about fifteen years ago because every other state had the same mentality: If Canada can have the same economic benefits of Hollywood in California, why can’t I?

(Courtesy: California Legislative Analyst’s Office)

A Brief History of the Georgia Film Tax Credit

Since the 1970s, Georgia has been the location for several movies, television shows and music videos. Famous films like Deliverance, Fried Green Tomatoes, Forrest Gump, and Remember The Titans all found their home in and around the state capital Atlanta. Although Georgia had a steady amount of film production for a number of years, it was not until 2001 when the state government became more interested in capitalizing on the filmmakers interested in heading south for cheaper production opportunities.

The Georgia General Assembly passed legislation in 2001 exempting the television and film companies from sales and use taxes on production expenses. This meant productions did not have to pay taxes on the film equipment they needed and bought in the state. In 2005, the creation of the Entertainment Industry Investment Act allowed out-of-state production companies to apply for a 9 percent base tax credit for productions over $500,000. The state income tax in 2005 was set at 35 percent, but with the 9 percent tax credit it meant larger productions only had to pay 26 percent. In addition, the law gave another 3 percent tax credit to filmmakers who spent money in poor and rural counties or on income paid to Georgia residents.

As film production declined in 2006 and more states like Louisiana and North Carolina began constructing their own incentives, then Georgia governor Sonny Perdue was quick to revise the law in 2008. He expanded the tax credit from 9 percent to 20 percent. Additional incentives included another 10 percent for placing a Georgia logo in the finished film. The potential to receive a 30 percent tax credit for working in Atlanta instead of Los Angeles started to become more lucrative for production companies.

Three Reasons Georgia has (arguably) the Best Tax Credits in the U.S.

1. Transferable Tax Credit – Georgia is one of 14 states who offer transferable tax credits, which allows production companies with tax credits exceeding their tax liability to sell the credits to other taxpayers. Since most productions companies coming from out of state do not have tax liability, tax credits in Georgia have a greater value.

2. Multi-Year Tax Credit – Georgia has a carry-forward period of up to five years for tax credits. This means production companies have up to five years to claim the tax credit against tax liability.

3. No Production Caps – Production companies can request unlimited tax off-set liability. This means Georgia has a better chance of attracting big-budget movies capable of bringing in large amounts of revenue.

Criticisms of the Georgia Film Tax Credit

This past summer, Georgia governor Nathan Deal announced film and television productions made $6 billion for the state during the fiscal year 2015. Some critics argue this number is inaccurate because the direct spending in Georgia this past year was $1.7 billion. The Atlanta-Journal Constitution reported in August the state economic development department uses a specific multiplier, 3.57, to estimate the economic impact of film production. Officials from the department said they were unsure of the credibility of the multiplier, even if it did supposedly quantify the revenue generated by production companies.

Another big issue in the film tax credit world is whether tax credits are a form of corporate welfare. Corporate welfare refers to a disproportionate amount of tax breaks given to corporations rather than groups in need of the money. The Tax Foundation, a non-partisan research group from Washington D.C., released a report in April 2015 saying state tax incentives actually cost states revenue and can increase taxes in other areas of their budgets.

Runaway production has also had huge impact on the people working in the film industry. As more production companies are making places like Georgia their home, more workers based in Los Angeles get hurt by the constant maneuvering of out-of-state production. However, the workers are trying to fight back. Last year, Variety reported Los Angeles-based visual effects artists launched a campaign to get the U.S. government to place a tax on countries taking away business by subsidizing labor costs. These actions indicate the constant traveling of film production workers has taken a toll. In the race to have the best tax incentives of any state, Georgia is also alienating some members of the industry with their lucrative tax credits.

Goodbye Hollywood, Hello Y’allywood

The film industry in Georgia continues to flourish today as more production companies decide to not only shoot movies, but also take up shop in Atlanta. Pinewood Studios Group, a multinational film facility company based out of the United Kingdom, opened Pinewood Atlanta Studios in 2014. It was the primary filming location for Ant-Man and, according to its website, will now serve as the filming location for the upcoming Captain America sequel.

The sharp rise in the tax incentives has also had an equally dramatic effect on the number of productions. The chart above shows, between approximately 2003 and 2005, there were less than 5 film productions in the state. In a statement released by the commissioner of the Georgia Department of Economic Development in July 2015, the state had 42 productions filming at the same time. He argued more than 100 new businesses flocked to Georgia since the expansion of the tax credit in order to support the industry. Although the economic impact of film and television production appears to be heading in the right direction with greater job opportunities for multiple businesses, there are still major issues Georgia faces as it builds its identity as an entertainment powerhouse.

Issues Facing The Georgia Film Industry Part 1: Suitable Workforce

In June 2015, the Motion Picture Association of America reported the state film industry provides over 24,000 jobs and pays local workers over $1.68 billion in wages. In addition, the MPAA said the average salary for a worker in the industry is $84,000.

Well-paying jobs are bringing in a greater number of local people seeking employment, but the industry lacks the proper workforce to keep film production at a high standard. In the earlier days of the Georgia film incentive, the major challenge for the state was how to keep people within the industry to build their careers in Atlanta. Production companies would import people in from Los Angeles to do the work needed because Georgia did not have enough local citizens who had the skills needed to be successful in the industry. Today, Georgia continues to struggle with this problem. An NBC News article published in September revealed industry executives in Atlanta wanted to hire people from within the state, but instead were forced to look everywhere else to get the necessary workers.

However, recent events indicate Georgia may have found a solution: The Georgia Film Academy. The academy reflects a growing need for film industry training and education. According to the Atlanta Business Chronicle, Kennesaw State University professor Jeffrey Stepakoff was chosen to head the program, which will work in conjunction with university and technical college systems in the state. The academy will offer certification for entry level positions in the film industry in order to give people an opportunity to land a job with specialized skills. In addition, production and studio companies are taking notice of the new initiative. Pinewood Studios is the first major partner of the academy, which will give students the chance to get hands-on experience on real film sets as part of their classes.

How can Georgia measure job success in the film industry?

Georgia is a right-to-work state, which means any workers can work for a living with or without joining a union. However, in the last several years, the number of people joining film worker unions in Atlanta has grown dramatically. (U.S. Department of Labor) These numbers suggest a shifting trend in the industry from imported workers from the west coast to local workers with more expertise in film production.

Issues Facing The Georgia Film Industry Part 2: Competition

Another obstacle for the Georgia film industry remains the stiff competition with different states and Hollywood itself. A year ago, California governor Jerry Brown signed an expansion of the film and television tax credits. The main goal of the legislation was to triple the size of the tax credits to $330 million and reduce the amount of production that was leaving the state. In an interview with the Atlanta NPR station, the communications director for Los Angeles mayor Eric Garcetti explained how the employment gains in states like Georgia puts middle class jobs in California in danger.

Other states, such as New York, New Mexico, and Louisiana, have similar ambitions to Georgia. They want a piece of the $57 billion dollar film production pie in the United States. In the state of New York, the tax incentives were raised to 30 percent in 2008. In New York City, the potential tax credit is now 35 percent, which is much higher than Georgia. In New Mexico, the tax credits sit at 25 percent, but the state established a Film Crew Advancement Program, which reimburses 50 percent of wages of local workers for hands-on training. Georgia will begin its own program, the Georgia Film Academy, in January 2016. Louisiana began offering refundable, permanent and transferable tax credits in 2002. Similar to Georgia, increased film production enabled the state to expand its infrastructure and labor force. Overall, Georgia faces stiff competition for film production from around the country. However, their goal of trying to become one of the top five film destinations in the country and the distinct perks of the tax credits compared to other states like California does give Georgia an edge over the competition.

The Future of the Georgia Film Industry

Despite various roadblocks, the film industry in Georgia continues to expand to attract more people. There are several reasons why the film industry will remain vibrant in Georgia.

The construction of more film studios brings in more foot traffic to the area. According to the Atlanta Journal Constitution, close to 80 film industry companies relocated or expanded to Atlanta in the last six years. Several production companies and real estate developers have chosen Atlanta as their base of operations, including Jim Jacoby. He plans to build a 5 million square foot production facility catering to film, television, and video game development. The massive Atlanta Media and Campus and Studios would include sound stages, offices, and classrooms.

Financial stability of the state film industry will play a huge role in attracting more people to turn Atlanta into the new Hollywood. Some states, like California, expanded their tax credits, while others are now looking to eliminate incentives all together. In addition, the film industry could succeed because of the mass migration of several other businesses to the area. Service industries, such as tourism or catering, could see a large boost in profitability as the interest in films produced in Atlanta expands further.

State identity could be another reason why the film industry succeeds. Georgia has a variety of shooting locations needed for different films, whether its an urban or rural environment that would be needed. In addition, Atlanta is home to Hartsfield-Jackson International Airport, which holds the title of busiest airport in the world. The airport has direct flights between Los Angeles and Atlanta several times a day, making travel accommodations for the cast and crew of a film fairly easy.

Georgia is in the midst of a major shift in its emphasis on the entertainment industry, but the future looks bright for the state as it embraces more alternative methods to make it the Hollywood of the South.

Iran to Fuel its Growth: Remergence in Oil Markets

October 9, 2015 by Karan Ashar Leave a Comment

Post Iranian Revolution, the Islamic Republic of Iran has continued to be in a state of unrest. The country’s political and economic instability has resulted in several accusations made against it. From entities accused of supporting terrorism (2001), to nuclear proliferation (2005), to officials in the government responsible for serious human rights abuse (2010), Iran has been at the forefront of violation of international laws. Consequently, in 1995, the US implemented sanctions against Iran that extended to companies dealing with the Iranian Government. Additionally, in 2006, the UN levied economic sanctions against Iran as a result of the country’s refusal to suspend its uranium enrichment program. The nail in the coffin was when the Congress issued the Accountability and Human Rights Act, 2012, targeting companies conducting business with Iran’s national oil company. “These sanctions have significantly hurt the exports of oil, which contribute to 80% of the country’s revenue,” said Mr. Wayne Sandolhtz, Professor of International Relations at University of Southern California. Sanctions on Bank of Iran and Iranian financial institutions have curbed the flow of capital into the country. Reduced foreign investments have further contributed to the declining growth. Consequently, the sanctions have disrupted supply chains, contributing to higher operating costs. High costs and reduced investments have forced companies to lay off workers. As a result, the economy has been severely damaged. Inflation is at 40%, with prices of basic food and fuel expected to further soar. Unemployment lurks at 10.3%, with unofficial figures rising to 35%. Recent sanctions (2012) have taken a toll on Iran’s growth, with the GDP figures estimating a drop by 20% from 2012. However, with Iran agreeing to restrict its nuclear program, an opportunity for future economic success has presented itself.

The recent conference in Tehran concluded on a nuclear deal agreed between Iran and the six economic giants: Britain, US, France, Germany, Russia and China. Iran agreed to limit its uranium enrichment program in return for the sanctions being lifted. New contracts were launched at the conference, with Iran expected to initiate 50 new projects in the coming year. “The deal will increase production by 500,000 barrels per day,” said Syed Mehdi Hosseini, head of the country’s oil contracts. This deal has major implications for Iran as it opens a door for reentry into the global oil market. The country can now attract foreign investors who will supply capital to the economy. This will bolster growth, primarily through rise in production and exports of oil.

According to the BP Statistical Review of World Energy, Iran leads the world in natural gas reserves and is fourth in oil. Influx of Western and European investment and technology could revive an industry that in a decade of sanctions has lost much ground to its rivals. “Since the sanctions in 2012, Iran’s oil production has dropped more than 20%. Meanwhile, Iraq has increased its production by 70%, where as Saudi Arabia has been pumping at near record levels,” said Mr. Gaurav Mukherjee, Professor of Applied Statistics at University of Southern California. “The country is currently producing 2.9 million barrels a day, and has a capacity to produce 4 million barrels a day. To fulfill this potential, Iran will require more investment than what the National Iranian Oil Company can muster. This opens the door to increased foreign investment.” The deal provides the perfect platform for influx of investment to aid Iran to step back into the oil markets, and challenge its competitors to gain back the lost share. The new contracts will increase daily production by 500,000 – 800,000 barrels per day, which will significantly boost the countries exports.

Iran will now become the largest country to rejoin the global marketplace since the breakup of the Soviet Union. Energy sector companies and business from other sectors have already travelled to Iran to seek market opportunities since the agreement to lift sanctions. “Iran holds potentially interesting promises and perspectives. We have to see how the market will develop,” said Shell Chief Executive Ben Van Beurden. Iran is already in contact with former oil buyers in the European Union – traders such as Vitol Group and big oil producers such as Royal Dutch Shell PLC, Total SA – as well as existing importers in Asia. Although Iran will welcome foreign capital, it will be careful on the manner of negotiations. “Iranians are likely to seek deals in which they pay a fee per barrel for the output increases achieved by Western companies’ technology and investment,” Professor Sandolhtz. However, with the assured backing of foreign investors, Iran is likely to make a strong statement in the global oil market. In addition to increasing supply to 3.5 millions barrels per day, Iran will experience an influx of foreign technology and ideas. This combined effect is predicted to raise Iran’s economy by 2 percentage points, to more than 5 percent GDP growth within a year. After an additional 18 months, GDP growth could reach 8 percent. With new channels to trade, easy access to raw materials and technology will improve efficiency and reduce cost of operations. This will help combat rising prices. Additionally, investment and consequent growth will also provide more jobs in the economy, hence chipping off on the high levels of unemployment.

In the global oil markets, Iran will benefit from increasing leverage. The sanctions restricted Iran’s exports of oil to limited countries. Iran heavily relies on China as a consumer for its oil supply. More than 15% of Iran’s oil is shipped to China. Additionally, due to limited access to global markets, Iran imports 35% of its gasoline from China. Hence Iran is significantly dependent on China for the functioning of its economy. Consequently, this reduces it power to dictate terms. However, with increased consumers, Iran is likely to enjoy an improvement in its economic position allowing it to have leverage in negotiations.

Scaling back sanctions will help Iran keep its best and brightest at home. From 2009 to 2013, more than 300,000 Iranians left the country in search for better job opportunities. Today, 25% of Iranians with postgraduate live in developed OECD countries outside Iran. This is a significantly high rate of “brain drain”. According to the World Bank, Iranian economy loses out on $50 billion annually as local talent look elsewhere for work. Iran’s GDP last year was US $368.9 billion. Hence, retaining its talented workforce will have a substantial impact on Iran’s growth. With access to high levels of investment and technology, the Iranians will regain confidence in their economy, willing to take their chances at home.

Although the economy will be brimming with optimism, it is important to acknowledge that lifting sanctions does not mean all players will invest in the economy. American oil companies, in particular, are subject to tighter restrictions than their European counterparts. They are likely to be far more cautious in their activities. Furthermore, oil experts predict that it may be some time before major oil and gas projects get underway. “The level of interest in Iran will be high, but actual investment will be slow,” Professor Mukherjee. Additionally, Iran cannot immediately increase its production to its predicted capacity of 3.5 million barrels per day. This will create an oversupply of oil in the market, dropping the price of oil, and hurting several economies in the Middle East. Hence, Iran must slowly work towards its target, which means realizing slow and steady growth.

The nuclear deal has raised interest elsewhere in the Middle East, with Iraq and Saudi Arabia keeping a watchful eye. The reentry of Iranian oil to the global market could lower 2016 forecasts for world crude oil prices by $5-$15 per barrel. With the current price already as low as $49 per barrel, Iran’s activities will trouble members of the OPEC. “Iran, through its contracts and potential investment, will take away a major share of oil exports from Iraq,” Professor Sandolhtz. Nearby, Saudi Arabia will also be dealt a significant blow. The leader of the OPEC has already increased supply of oil, dropping the prices to where they are today. The country is heavily reliant on oil for its revenues, and will stand to lose market share to Iran. The tensed Saudis will have to look to diversify away from deep dependence on the US for markets for Saudi oil exports. And what about the political and economic implications for Israel?

Conquering the world with wine

October 9, 2015 by Tujia Pallaste Leave a Comment

Finnish-French Marketta Fourmeaux accomplished her dream of having her own winery in California. What else than a dream is needed to make a winery successful?

Näyttökuva 2015-10-09 kello 15.55.04

An oddball. When Marketta Fourmeaux moved to Napa Valley, California, in 1988, she heard she is an oddball. That was probably a nice way to put it. A blond in her mid-thirties, a mother of two, coming from France, born in Finland, said she wanted to buy a vineyard to make her own wine in California.

”Some people would have rather talked to my male dog than me!” Fourmeaux says and laughs. ”There were not many foreign winemakers nor female winemakers in California back then.”

Now, 30 years later, Marketta Fourmeaux is the only Finnish female wine-maker of Napa but no longer an oddball. California is a growing wine area attracting international investors. The U.S. is both consuming and exporting more and more wine – situation totally opposite to that of old wine empire France.

Fourmeaux has created two wine brands in California: Château Potelle and Marketta Winery, and now people pay close attention to what she says. She is a board member of The Wine Institute, the largest advocacy and public policy association for California wine, and the ex-president of the Mount Veeder Appellation Council.

She came to the U.S. well prepared.

Fourmeaux has a master’s degree in economics from Finland and a diploma in enology – the science of wine and viticulture– from France.

In 1976, one single happening in Paris changed Fourmeaux’s life and that same happening shook the world of wine. The Judgement of Paris, a prestigious blind tasting wine competition, rated California Chardonneys and Cabernet Sauvignons over French comparisons.

This was devastating news in France. Fourmeaux was then married to a Frenchman and evaluated wines for the honorable ”Institut des Appellations d’Origine”, the core of the qualifications of French wines.

A group of French wine producers asked her to travel to California to find out what is happening in its’ vineyards. Years earlier she had been an exchange student in California and her English was fluent. Fourmeaux agreed to travel to Napa. Later she sent a telegram home. It said: ”Looks good. We’ll stay.”

Wine is not an easy business. Making a vine grow is a basic form of agriculture, but farming vine to produce wine is much more complicated than farming vine to sell grapes or raisins. The quality of soil, the amount of rain and sun as well as the temperature all play a role in setting the taste and the quality of the final product. It is impossible to control nature. Fourmeaux says that the draught in California has not yet affected Napa Valley’s wine production but she is afraid of what the future brings. If northern California gets dryer, both the volume and the quality of its’ wine may decrease.

Now California produces 90 percent of the wine made in the U.S. The production, consumption and exports of Californian wines have all steadily grown during the time Fourmeaux has been here.

When she came much of the wine making was in the hands of big companies producing industrial bulk wine.

The prohibition law of the 1920s and 1930s had a long lasting effect on the wine culture of the U.S. It swept away many old vineyards, and later quality vines were replaced by lower-quality vines that grew thicker-skinned grapes, which could be more easily transported.

Much of the knowledge of artisanal winemaking was lost.

When Fourmeau bought the 273-acre estate Mount Vedeer in Napa Valley she planted new vines – Cabernet Sauvignon, Zinfandel, Syrah, Chardonnay and Sauvignon Blanc.

Americans ”new nothing about wine”, says Fourmeaux. The food culture and viticulture ”were not sophisticated in the 80s”, she says, but there was a reason for her to stay in California.

”I could have never became a winemaker in France. Here the oldest vineyards are run by maybe fifth generation of the same family. In France, it is the 15th generation. Foreigners are not accepted or taken seriously as winemakers in France.”

People doubted her in California too, but Fourmeaux says that the U.S. legislation made it easy to start a business and then proof that she can make good wine.

”Having a vineyard and winery in France means endless fighting with bureaucracy. Here I was able to concentrate immediately on developing the vineyard and the business.”

Fourmeaux wishes she could say that quality of wine means everything in sales but that is not true. The brand means nearly everything. Newcomer has to market aggressively.

”The most expensive wines of the world are not necessarily the best wines,” Formeaux says. The most wanted wines are the ones that have a name and fame.

Fourmeaux’s Mount Vedeer produced and sold around 300 000 bottles a year. It was a small, independent winery that had clients – restaurants, wine dealers and direct buyers – who had learnt to know the winemaker and appreciated her talent and brand. They were not looking for big volumes or a cheap price.

This kind of production is very vulnerable in economic turmoils.

The volume of the wine production of the U.S. has grown in past ten years from 35 million gallons to 117 million gallons. At the same time, the revenues to wineries grew from from $196 million to $1,494 million. There was a drop of one million dollars between the years 2009 and 2010, after the financial crisis of 2008.

”Premium wine is a luxury product. Many of my clients have big wine cellars. After the market crash they stopped buying new wines and started drinking the ones they already had in their cellars,” says Fourmeaux.

”I know many small winery owners who have been forced to quit because they haven’t had capital to overcome bad years.”

Fourmaux was forced to give up the Mount Vedeer estete and Château Potelle brand when she divorced. She now buys grapes from vineyards she has helped during her years in California and gets to choose the ones she wants. She gets a small amount from her own backyard plot of 100 acres. She matures and blends her current wine called Marketta in downtown Napa.

Marketta Winery produces only about 100 boxes of wine per year and sells them to two restaurants and loyal old customers. Earlier her wines were exported to Europe. Today Fourmeaux prefers to keep her business small although she knows that there are potential markets.

The European Union’s 28 member countries are the largest export market for California wine. Last year they accounted for $518 million and 35 percent of the exports. Canada is the second largest export market with value of $487 million. Following eight export areas are Japan ($88 million), China ($71 million), Hong Kong ($69 million), Mexico($24 million), South Korea ($22.2 million), Nigeria ($21.9 million), Vietnam ($20 million) and Singapore ($16 million).

”Cheap dollar helped the exports for many years”, says Fourmeaux.

With weakening Euro, exports to Europe are down slightly. The Wine Institute of California is not expecting the situation to get any better in the near future.

The UK however, is seen as a more promising market. The sales of wines at low prices are decreasing in the UK but the sales of wines costing $15 or more increased last year by 30 percent.

In Japan, the situation is similar to the UK. The volume of the exports to Japan is decreasing because less and less bulk wine is shipped to Japan but at the same time Japanese show more interest in premium California wine.

Since 2011, the value of wine exports to Asia has doubled, and the future looks bright.

Even though the economy of China is currently slowing down and California wine exports to China and Hong Kong decreased last year. “Asia’s emerging wine markets remained buoyant in 2014 despite the negative impact of China’s ongoing austerity campaign”, reports The Wine Institute. ”However the long-term outlook for these key markets remains very promising.”

Wine industry lobbied strongly for the Trans-Pacific Trade Agreement and is pleased with the result so far. Wine trade will remain under special regulation but many trade barriers are to be eliminated.

If Marketta Fourmeaux was now to advice a young, enthusiastic winemaker on where to start her own winery, she would not recommend California.

”The land is so expensive. One acre of vine costs 250,000 dollars or even more.”

California attires affluent investors, and in Marketta Fourmeaux’s opinion some of them come here out of vanity. ”They want to make themselves nobles by buying a vineyard.”

California still has many advantages. The climate is ideal, and it is easy to get cheap work force from Mexico.

The country’s wine consumption is growing. The U.S. is now number two in wine consumption in the world and will likely bypass France soon. In per capita consumption, the U.S. is only the 23rd in the world when France holds the second place – after tiny Luxemburg. There should be plenty of room to sell more and more wine to the Americans.

However, Marketta Fourmeaux would advise a new winemaker to start in South America – or maybe in India which is an emerging wine area.

Chinese drink more and more Western style wine, and the climate is good for growing grapes in many parts of the huge country. China is already a huge producer of raisins. But China does not welcome foreign entrepreneurs in its’ agriculture.

France and Italy have long been the largest wine producers of the world. These old world countries are slowly losing their positions. The traditional, hierarchical, male-dominated wine industry is not appealing to young consumers nor innovative entrepreneurs.

Fourmeaux thinks this could actually open paths for new winemakers in lesser-known wine areas of France.

Marketta Fourmeaux is sure that one does not need to be an economist to become a successful wine producer. One needs to know wine and be ready to work hard.

Sharing is the New Buying

October 9, 2015 by Sally Huang Leave a Comment

Why pay exuberant prices for goods and services when you can rent it more cheaply from a stranger online? That is the principle behind a range of online services that make it possible for people to share accommodation, household appliances, cars, bikes and other items, connecting owners of underused assets with others who are willing to pay for them. A growing number of businesses such as Uber, where people use their car to provide a taxi service to paying passengers, or Airbnb which lets people rent out their spare rooms, act as matchmakers, allocating resources to where they are needed and taking a small percentage in profits in return.

Such peer-to-peer rental business is beneficial for several reasons. Owners make money from underused assets. Airbnb says hosts in San Francisco who rent out their homes average a profit of $440 (after rent) and some neighborhoods snagging upwards of $1900 a month. Car owners who rent their vehicles to others using RelayRides make an average of $250 a month; some make more than $1,000. Borrowers, meanwhile, benefit from the convenience and pay less than they would if they bought the item themselves, or turned to a traditional provider such as a hotel or car-hire firm. And there are environmental benefits, too: renting a car when you need it, rather than owning one, means fewer cars are required and fewer resources must be devoted to making them.

The internet plays a vital role in this business, it makes it cheaper and easier than ever to provide accurate supply and demand information. Smart phones with global tracking services can find a nearby room to rent or car to borrow. Online social networks and review systems help develop trust; internet payment systems can handle the billing. All this lets millions of total strangers rent things to each other. The result is known variously as “collaborative consumption”, the “collaborative economy”, “peer economy”, “access economy” or “sharing economy”.

The model of the sharing economy works for items that are expensive to buy and are widely owned by people who do not make full use of them. Bedrooms and cars are obvious examples but you can also rent fields in Australia, washing machines in France and camping spots in Sweden. As proponents of the sharing economy likes to put it, access trumps ownership.

How Did We Get Here and Why Now?

The world is at a turning point. Globally, economies are strained as companies and governments are seeking to “do more with less”. Natural resources are no longer cheap and plentiful and some are at the risk of exhaustion. The urbanization of populations continues to rise, and more old people are ageing while young people, such as the Millennials also known as generation Y, are booming. These changes are most prevalent in big cities and new business have already begun to adapt.

The consumer is changing, the Millennials generation, born 1980s to early 2000s, are 92 million strong and stand to inherit large amounts of wealth and decision making power in the U.S. for many years to come. Millennials have experience incredible uncertainty, having lived through the 2008 – 2009 financial crisis and struggles with increasing student debt. These financial pressures lead to demand for a more efficient allocation of resources – and that, by large means they want to own less, be more connected with others and be a part of something bigger than their individual selves.

While the classic American dream is to own everything, the Millennial’s version is to move to an “asset light” lifestyle. These trends have sparked massive innovation, created new marketplaces and potentially holding the keys to the future.

Premium on Ownership Disappears

About a decade ago, companies such as Zipcar started to capitalize on idling cars, which sit on idle for an average of 23 hours a day. Today there are hundreds of ways to share assets, the most popular ones include entertainment, transportation and hospitality and dining.

At 9% entertainment and media holds the highest percentage of users. The consumption of media has changed drastically since the rise of digital age and perhaps it is the best example of the millennial Screen Shot 2015-10-09 at 12.26.20 PM generation shift.

Let’s travel back to 1999, when the millennials were still children exploring the internet. Many children took advantage of Napster, a website that enabled users to download songs for free. Illegal? Sure. But no one really cared. There are profound differences between the millennial’s peer-to-peer downloading than that of their parents or even people 5 years their senior. From the very beginning the experience of acquiring and consuming media content was based on the premise that access to content should be easy and free.

Now back to 2015, access to media content is essentially free. Want on-demand access to whatever music you want? Spotify has got you covered. On-demand access to movies and TV shows? Netflix. On-demand access to videos of anything you want to watch? Lose a few hours on Youtube. Of course some of these services require a subscription fee so they are not truly free. But when access to goods and services becomes cheap, satisfactory and reliable enough that the premium on physical ownership has disappeared, there is hardly any reason to purchase these goods and services aside from personal habits or peculiar requirements.

Ten years ago, to watch a movie released on DVD, there were 2 options: purchasing or renting. Of those options, renting was the inferior option as there was a greater premium on ownership. Today, that premium has disappeared, streaming a movie on Netflix isn’t inferior to owning a DVD the same way that renting was. And ever since then, the extensive access to cheap and easy media content, has lead to new kinds of behaviours have emerged like binge-watching. Similarly, the rise of music streaming services has enabled behaviours such as sharing playlist, a process that used to be time-consuming and effort-intensive. When nobody buys music but has access to it, social sharing of music emerges as a natural and human behaviour.

Obstacles on the road to Success

To truly grasp the scale and greatness of the sharing economy, consider the following data. Airbnb averages 425,000 guests per night, totalling to more than 155 million guest stays annually – nearly 22% more than Hilton Worldwide, which serves 127 million guests in 2014. Five-year old Uber operates in more than 250 cities worldwide and as of February 2015 was valued at $41 billion – a figure that exceeds the market capitalization of companies such as American Airlines and United Continental. According to PwC’s projections, the sharing economy (including travel, car sharing, finance, staffing and music streaming) has the ability to increase global revenues from $15 billion today to around $335 billion by 2025.

It is not hard to find evidence of successful sharing economy but not everyone is as delighted by the rise as its participants and investors. Taxi drivers in America and now Europe have complained loudly (and in the case of Paris, violently) about the intruders who, they say not only are unqualified but also under insured.

Uber has always been plagued with problems with regulation and taxi unions around the world. In 2014, a court in Brussels prohibited drivers from from accepting passengers through UberPOP or face a €10,000 fine. In July 2015, Uber took one of its biggest hits. The judge ruled that Uber has not complied with state laws designed to ensure that drivers are doling out rides fairly to all passengers, regardless of where they live or who they are. This lead to a $7.3 million fine or California Suspension.

It is not just car-sharing services that have run into legal problems. Apartment-sharing services have also fallen victims of regulations and other rules governing temporary rentals. Many American cities ban rentals of less than 30 days in properties that have not been licensed and inspected. Some Airbnb renters have been served with eviction notices by landlords for renting their apartments in violation of their leases. In Amsterdam, city officials point out that anyone letting a room or apartment is required to have a permit and to obey other rules. They have used Airbnb’s website to track down illegal rentals.

On top of legal regulations, issues with customers have also become obstacles for sharing businesses. In 2011, Airbnb suffered a rash of bad publicity when a host found her apartment trashed and her valuables stollen after a rental. After some public relations and Airbnb eventually covered her expenses and included a $50,000 guarantee for hosts against property and furniture damage.

Peering into the Future

The sharing economy can be compared to online shopping, which began in America 15 years ago. In the beginning, people were not too sure about the vendors and didn’t trust the services. However with time and perhaps a successful purchase on amazon or two, people felt safe buying from other vendors too. Now consider Ebay, a company started as a peer-to-peer platform, now is now dominated by professional “power sellers” (many of whom started as ordinary Ebay users).

Big corporate companies dominating the market are getting involved too. Avis, a car rental firm has shares in Zipcar, its car sharing rival. So do GM and Daimler, two car manufacturers. In the future, companies may follow a hybrid business model, listing excess capacity on peer to peer websites. In the past, new ways of doing things online have put the old ways out of business. But they have often changed them.

We will have to wait and see which on-demand services start to gain traction with mainstream markets and which wont’t. It is not likely that in thirty years time our whole lives will be on demand and we won’t hold ownership. But a major possibility is products and industries most likely to be disrupted by the sharing economy would be things that we possess but not necessarily. An example would be Airbnb, it has disrupted the demand for owning vacation homes (something you possess) and tourist hotels (something you don’t possess but is still “yours” in a way that an Airbnb isn’t).

An Unlikely Comeback: The Resurgence of Vinyl and its Impact on the Music Industry

October 9, 2015 by Amanda Sin Leave a Comment

It has been said that fashion is a relentless cycle in which the trends of earlier generations are set to return with both its original charm accompanied with a modern twist. However, just as we are now seeing the billowing bellbottoms of the 70s reemerge back on our fashion runways so is another forgotten treasure belonging to a different trade: vinyl records.

Vinyl records and turntables can be spotted almost anywhere nowadays. From retailers such as your local Target or Best Buy to Urban Outfitters LPs are reappearing on the shelves of various stores across the United States. No longer do vinyl enthusiasts have to search far and wide for an indie music retailer to purchase a copy of their favorite record.

The cyclical path that fashion undertakes may seem rational for the respective industry because there are only a limited number of ways a pair of denim jeans can be redesigned, however, the technology field on the other hand has made tremendous advancements within this past decade alone that has in turn revolutionized the music industry.

Vinyl records pioneered the at-home listening experience and remained on top for nearly 50 years after being introduced in 1898 by RCA Victor. Records were originally launched as “program transcription” discs and initially varied in size between 10 and 12 inches in diameter.

Yet, it was assumed that vinyl was a long forgotten medium by mainstream consumers as it fell from cultural popularity in the 1960s alongside the introduction of cassettes. Cassettes replaced our beloved records and turntables, and were later substituted with compact discs (CDs) and Walkman’s. But it was MP3s and MP3 players, such as Apple’s IPod and Microsoft’s Zune, which ultimately superseded CDs. Undoubtedly; MP3s transformed the music industry and drove the business towards the digital realm, whereas vinyl became an ancient relic that remained exclusive to only a small niche of individuals whom were deemed vinyl collectors.

Digital media has produced both positive and negative outcomes for the music industry. Digital tracks and streaming have allowed artists to expand and grow, whereas it has also eased the ability for music to be shared at a greater volume and speed than ever before. However, digital media has also facilitated the risk of piracy within the music industry and has subsequently caused an excessive loss of revenue for the business.

While piracy remains a looming issue that artists and record companies continue to combat it has also affected the U.S. economic market. The institute for Policy Innovations has revealed that universal music piracy causes approximately $12.5 billion dollars of financial losses every year and cuts 71,060 U.S. domestic jobs. Additionally, it also creates a loss of $2.7 billion dollars in workers’ total earnings, and causes a loss of $422 million dollars in tax revenues annually.

Unfortunately, the digital age has made purchasing music less than necessary in today’s market. Digital and physical album sales have declined tremendously in recent years. After selling approximately 165 million CDs in 2013, the total number of album sales has dropped 14 percent to 140 million by the end of 2014. Furthermore, digital sales through platforms, such as ITunes, have fallen 9.4 percent as reported by its 2014 sales figures.

Statistics company Nielsen Music, which observes and records album and song sales and streams, has disclosed that mass market and chain music stores, such as FYE, have reported that their total music sales have declined roughly 20 percent by the end of 2014.

“Music fans continue to consume music through on-demand streaming services at record levels, helping to offset some of the weakness that we see in sales,” said David Bakula, Nielsen’s Senior Vice President of Industry Insights. “The continued expansion of digital music consumption is encouraging, as is the continued record setting growth that we are seeing in vinyl LP sales.”

Still, it has been observed that the vinyl revival movement has gained incredible momentum. The demand and popularity of vinyl has become an exciting music industry trend for artists and record companies. It has been noted that the 12-inch record sold roughly 9.2 million entities in 2014, which has been the highest amount of units sold in decades. Vinyl’s 2014 sales figure is over a 50 percent increase above its 2013 numbers, which has become a trend that has been observed within the vinyl market for nearly the past four years. A decade ago vinyl sales accounted for only 0.2 percent of the total number of albums sold, but record sales now make up roughly six percent of all physical music sales.

It is no secret that the music industry and its original business model has been flipped upside down and transformed throughout the 21^st century. Upon the dawn of the digital age, CD sales began plunging at an alarming rate and large chain music stores, such as Tower Records, became unable to keep up with the shift and were forced to file for bankruptcy.

Similarly, when the demand for vinyl records waned in the 1980s companies began pressing fewer LPs. Therefore; in accordance to the economic law of supply and demand retailers began to cut its inventory of records and the audio equipment that would accompany the music format. Eventually most local retailers completely rid itself of the medium.

Even specific music genres that were eminent in the vinyl industry began to abandon vinyl discs. Jazz was recognized as a longtime forerunner in the vinyl industry as it was one of the first genres of music to appear on a vinyl record and released commercially to the public. The first Jazz recording was Livery Stable Blues by the Original Dixieland Jass Band in 1917.

However, with the comeback of the vinyl industry, many individuals and artists are swiftly jumping on the vinyl bandwagon.

It has been observed that traditional record stores are quickly reemerging in the United States, and vinyl record pressing plants have seen a significant spike in record orders and production overall. New vinyl pressing factories have also began appearing alongside the few plants that have sustained business since golden age of the vinyl era. It is estimated that smaller sized pressing plants are producing and receiving orders for at least 450,000 units per year, whereas larger factories are turning out around 7 million annually.

The owner of Quality Record Pressings in Kansas, Chad Kassem, launched his own vinyl record-pressing factory in 2011 after he grew tired of waiting for his primary supplier to receive and complete his orders. Kassem’s business utilizes four presses in total and manufactures approximately 900,000 discs annually.

“We’ve always had more work than we could do,” Mr. Kassem said. “When we had one press, we had enough orders for two. When we had two, we had enough orders for four. We never spent a dollar on advertising, but we’ve been busy from the day we opened.”

Musicians have also recognized the new opportunities that vinyl industry provides. The number of vinyl reissues, such as albums by the Beatles and the Rolling Stones, has grown in recent years. And many new musicians have begun providing vinyl discs as an alternative option alongside digital albums and CDs.

Jack White of the White Stripes released a solo album in 2014 entitled Lazaretto set a vinyl sales record. White’s latest album sold 40,000 vinyl units its first week and 87,000 by the end of the year.

In total 2014 emerged as the greatest sales year for vinyl records in decades. The vinyl comeback was definitely unforeseen, as many believed that vinyl discs were an antiquated music medium after the introduction of new technological advancements that have produced CDs and MP3s. But the resurgence of vinyl could not have come at a better time. While the music industry has been taking major losses as a result of piracy it will be interesting to see how the new vinyl wave impacts the music industry and sales overall.

Sources:

http://www.wsj.com/articles/the-biggest-music-comeback-of-2014-vinyl-records-1418323133

http://www.rollingstone.com/music/news/streaming-vinyl-rises-amid-declining-album-sales-in-nielsens-2014-report-20150108

http://www.riaa.com/faq.php

Internet Streaming and its Impact on the TV Industry

October 9, 2015 by Kevin Lie Leave a Comment

The emergency of new technologies has brought a change in the media industry. The digital media has brought a change that is affecting the entertainment industry. In the past, the Television network was the leading entertainment channel with almost 90% of people across the world using this platform. This has changed today as new services have been introduced in the market that are more affordable and offer a flexible way of watching any channel that you want. They offer specific options that are able to meet all the consumer desires and needs. Majority of the citizens are considering using these services as a source of entertainment, an act that has led to a drop in the viewership of the Television network.

Internet streaming is leading today in the entertainment industry. Among the most common and known companies are Netflix, Hulu and Amazon Prime that are offering lower prices for one to watch any type of film that they want. These internet streaming services has changed the manner in which people view TV while at the same time it affects the economy of the cable TV which is doing poorly in terms of viewership. The main point that is driven here is that Internet streaming has changed the ways in which the entertainment industry works.

A drastic change has been experienced in the number of TV viewers ever since the introduction of streaming services such as Netflix. Internet streaming has given the people especially the youths a chance to watch films on their own pace, at any time they feel like and on which ever platform they feel is more affordable in terms of cost of viewership. With this change experienced by Television network, it will be important to determine how some of the big networks like NBC and CBS adapt to this change and their future plans as the internet streaming platform continues to dominate the entertainment industry. It is also important to consider the factors that have led to the drop in the TV ratings over the years. The most important aspect of this issue is the economic impact that the shifts from the cable TV to internet streaming have, taking into consideration the future of the TV industry.

The introduction of internet streaming has made it easy for people to watch movies across the world especially those who have access to the internet. Today, anyone can watch or download video from their homes or the comfort of their office. Various internet streaming websites decided to take advantage of the fact that several people have access to internet and are using this platform to watch various films. Companies such as Netflix and Hulu have transformed the consumption methods within the entertainment industry. These online companies offer small charges for live streaming or downloading of various video contents.

When compared to the cable network, majority of the viewers has stated “the internet streaming is more reliable and cheaper compared to cable network thus the reason for their shift in the mode of entertainment.” According to a number of audiences that were interviewed regarding internet streaming, majority replied that “it was all about mobility and immediacy; we want content which is just a click away that will meet our needs without limiting us to be in specific place in order to be entertained.” Some claimed that the internet streaming has enabled them to catch up with their favorite programs while they are travelling or when at home and everyone wants to watch the television they can get a chance to see what they want without fighting over the remote.

However, as the internet streaming network is becoming more popular across the world, the cable TV is deteriorating in terms of viewership, something that would affect the cable industry. For instance, according to a report released by New York Times magazine, by the end of last year, the cable TV industry had lost about 2.2 million customers to internet streaming. The report stated that the consumers of cable TV were “cutting the cord” at the same time stopping to subscribe for their services.

According to a report released by the Experian Marketing Services, those individuals in the world who has high-speed internet stopped subscribing to satellite TV. The number of those who cut the cord rose to 5.1 million by the year 2013 with more than 7.6 million homes not watching the cable TV. The report showed that in the near future, majority of adults across the world would not spend their time watching the cable Television and instead will prefer online streaming method.

There are those analysts who however believe that with time, internet streaming will go down and companies such as Netflix will decline in regards to ratings. Ted Sarandos, who is the Chief Content Officer at Netflix, was quick to brush off this claim stating that “we have witnessed the company and the internet streaming network viewership increase in ratings with majority of the entertainment fans preferring to watch films and news on their tablets; we are hoping that the online streaming industry will continue to grow as the world continue to become computerized.”

Nevertheless, regardless of the difference in views on whether the cable TV will be totally overtaken by the internet streaming or not, the fact is that with time, people will get bored of subscribing to particular streaming services. This may lead to a decrease in viewership in various online streaming networks, but the truth is that the industry will continue to exist and be used by those who prefer flexibility when it comes to entertainment. It means that online entertainment industries such as Hulu and Netflix will continue to function in future. The demand for these online streaming networks might go down, but just like the cable TV, they will continue to exist.

The shift to online industry has greatly affected the economy of selling and producing TV shows. However, in order to protect the cable industry, the broadcasters and the producers are guarding the financial details so that their online streaming competitors cannot acquire the information. The Canaccord Genuity Group Corporation stated that “despite the huge competition coming from the internet streaming industry, the cable TV will continue to survive in the entertainment industry through provision of grants and loans to maintain the industry.”

The CEO of the Netflix Company agreed with this fact stating that “the cable company still has power and more advantage over the online streaming because of the strong relationship that the industry had built with the studios and video producers of the network television programs which are aired online.” This relationship will enable the cable TV company to demand for a right to own some programs, something that will force the viewers to watch television in order to catch up with their favorite programs.

However, while it seems that the viewers have seized control and power on how and when to watch TV, they should be aware that the cable network is getting curved up to meet the economic demands from the distributors. This will make accessing various shows online complicated and next to impossible. The viewers will be left with no choice but to pay more for multiple services, something that most of them will not be ready or willing to do. While the cable TV will be looking for people to fund their services, they will tend to be strict. Several analysts have suggested that this move could create a network snowball that would in the long run affect the viewers.

It is true that a stiff competition has been set between the cable TV and online streaming industries such as Hulu, Netflix, HBO, and Amazon among many others. The competition is contributed by various economic forces that are active in the current situation. For instance, the value of the dollar has affected the cable TV which today is charged highly. In developing nations, in order for a person to comfortably watch their cable television, they have to pay for it monthly. Majority of the people consider the cost of paying the cable TV plus the programs being aired on the channels and weighs it against downloading movies through various online networks and watching them at any time or at their homes or in the bus while travelling. After this careful evaluation, most people tend to prefer the internet streaming because it is cheap and affordable.

Majority of the online streaming websites charge less than 10 dollars to download movies for a specific period of time. On the other hand, the cable TV charges are always fixed and in some nations where the rate of the dollar is high against the nation’s currency, the charges on watching television also increases. This has made several people to shy away from the cable television thus the reason for the lower ratings in watching the cable television.

The other factor that has changed the pricing in the entertainment industry is the oil prices across various regions in the world. Today, the prices of oil are low, but the citizens pay for the low costs indirectly. Economic analysts believe that it is the major cause of rise in particular products in the nation such as the price of watching cable television. It means that the price of oil change has the power to change the game for an industry or a region.

However, in order for the government to keep the economy of a nation rising, they may consider shrinking city budget which may not only hurt businesses, but also families at large. The family and the business will have less money to spend thus continued to deteriorate in performance especially for the businesses. The federal government can consider recovering the dollar by increasing the taxes; something that economic analysts believe will have no impact on the cuts.

Sources:

http://www.wsj.com/articles/pay-tvs-new-worry-shaving-the-cord-1412899121

http://www.experian.com/blogs/marketing-forward/2015/03/06/one-million-households-became-cord-cutters-last-year/

To Buy or Not to Buy

October 9, 2015 by Ying-Ying Lin Leave a Comment

A bus full of Chinese tourists arrive in front of Galeries Lafayette Haussmann, a must-visit department store in Paris; it is just one of many throughout the year. Although recent policy in Chinese government has devalued its currency, RMB¥, and consequently slowed down its economy, it doesn’t seem to scare Chinese people away from traveling to Europe. Nor has it decreased the desire to purchase luxury products. According to the article “Meet The Chinese Luxury Shoppers Who Are Taking Over The World” from Business Insider, Chinese customers account for 35% of the luxury sales around the globe and their spending is 1-2 times higher than other nationalities.

Jasmine Lai, 24, is a recent college graduate from one of the well-known universities in Shanghai, Fudan University. After graduation, she took a trip to Europe to help propel her career as an overseas purchase agent. “Before this trip, I was not aware that the price for the same luxury product in Europe and in China could varies so much.” Lai saw a chance for her to step in. The price discrepancy between luxury products priced in Euros and the same product’s price in China, gave her the idea for a brand new business model. “I started to ask myself. If I was able to purchase the luxury products in Europe and bring those products back with to China, even if a service fee is added, the price for the product from Europe is still lower than its retail price in China.”

With the advancement of technology, instead of setting up online website, Lai created a business that relies solely on two of the most used mobile applications in China, which are Sina Weibo and Wechat. Sina Weibo is a social media application that combines the functions of Facebook and Twitter. Users are able to comment, share posts from friends, and upload photos, and videos. Contrarily, Wechat offers free messaging and focuses on interactions between the user and his/her friends. “Wechat serves as a great way for me to interact directly with my client. When my clients saw a product that they are interested in buying, they would send me the picture of the product directly through Wechat.”

Using these graphics, I will explain how Lai’s business model works. Take this iconic handbag from Saint Laurent, one of the luxury brands in Paris. On the top, the price for the bag is £1590, which is ¥9540. On the bottom, the price for the same bag in China, is $2190, which is ¥14322.6. When a customer requests the bag, Lai would signal her buyers in Europe to confirm the price of the bag. Once the price, ¥9540, is confirmed, Lai will add thirty percent of service fee, ¥2862, to the price and report the price back to the customer on Wechat. After the client’s nod, Lai’s employee in Europe will purchase the bag and sent it back to China.

Although it might seem to be fun and glamorous to be an overseas purchase agent, there are many underlying difficulties and uncertainties jeopardizing Lai’s daily work. “The most challenging part of my job is going through customs,” Jasmine said.

A big part of Lai’s career as an overseas purchase agent is to travel to Europe twice a year, during its sale season. It was easy and quick for Lai and her employees to buy the desired products for the clients. Nevertheless, bringing all the products back safely to China without custom’s suspicion is the hardest part.

“Carrying all the products with me didn’t become a problem until recent years. During my first and second year as an overseas purchase agent, I would place all the items into two large suitcases. Except having to pay an extra overweight fee, I never encounter problems with China custom. However, the situation is different nowadays.” With an increase numbers of overseas purchase agents, Chinese shoppers tend to purchase luxury products overseas thus leading to a shrinking economy for the luxury brand market in China. As soon as the government realized the overseas purchases are endangering the growth of its luxury brand industry domestically, it immediately enforced stricter custom policies.

“With the new custom policies, instead of leaving the price tag, boxes, and the wrap for the luxury products, we need to remove everything in order to pretend that all the products are for personal instead of commercial use.” The updated custom policies definitely bring changes to the overseas purchase industry but it seems that even though the risk for buying the products through overseas purchase agents is bigger than buying the products in a nearby department store. Chinese shoppers are willing to take the risk instead of paying for the retail price, which include stiff taxes imposed by the government.

Besides the need of paying extra attention on custom policies, monitoring the foreign exchange between RMB¥ and the Euro becomes the daily task of an overseas purchase agent’s due to the fact that it might also serve as a potential threat to the sales. On one hand, when the value of the RMB¥ increases comparatively to the value of the Euro, the price of Chinese exports increased because it is more expensive for European to buy Chinese products but it is cheaper for Chinese to buy European products. On the other hand, when the value of the RMB¥ decreases comparatively to the value of the Euro, the price of Chinese imports increases, which makes it cheaper for European to buy Chinese goods but more expensive for Chinese to buy European products. “When RMB¥ appreciates against Euro, our sales tend to decrease a little because our clients are more likely to pick Europe as their travel destinations,” recalled by Lai.

The luxury brand industry in China is booming. An increased number of Chinese shoppers, combined with an increased interest toward luxury products, creates more opportunity. However, just like how happiness is often associated with the purchase of luxury products, the risks, such as custom policies and the fickle foreign exchange rate, are closely tied to the success of overseas purchase agents.

Money, Ethics, and College Sports

October 9, 2015 by Tera Novy Leave a Comment

College sports are an important fragment of most universities. Athletics create a sense of community and pride for the schools and can ultimately lead to more applications and alumni donations if a specific sport performs well. Those sports in particular are male football and basketball teams. Many universities receive millions of dollars in revenue from television broadcast deals and merchandise sales for college football, and to an extent, men’s basketball. It is no wonder why the question of “should college athletes get paid?” is in discussion as well as currently being discussed in court.

One man who stepped up and voiced an opinion is former UCLA basketball star and NBA player, Ed O’Bannon. In July of 2009, O’Bannon filed a lawsuit against the National College Athletic Association pleading the department violates antitrust laws by using former and current players images, names, and likenesses for commercial purposes. What sparked O’Bannon’s reason to be a lead plaintiff was seeing his image in an NCAA video game that he was not compensated for. The O’Bannon v. NCAA case is fighting against the college organization and believes players should be compensated a fraction of the billions of dollars generated by college athletics from its huge television contracts. After six years the case has caused much controversy for the NCAA and universities. But just recently, some court decisions have impacted the case.

The NCAA has created multiple laws to keep college athletics as amateurism sports. This includes that all athletes cannot be compensated for the use of their name, image, and likeness while attending the university. If such actions are performed, punishments can be anywhere from losing playing time to being kicked of the team. For instance, during the 2014 football season, former Georgia player Todd Gurley was suspended from the team for four games because he made money off his own autograph. It even goes to as far as former players, like Ed O’Bannon, not compensated for their image used in video games authorized by the NCAA.

The NCAA is fighting for college athletes to receive no compensation beyond their scholarship because it would ruin amateurism status of athletes and goes against “eligibility” rules. Others argue paying players would destroy the moral purpose of college athletics and drive spectators away. But let’s not leave out a big factor here, money. It has been debated whether or not universities could generate enough money to pay athletes while also supporting them and contribute to other less popular sports. However, these concerns still leave out the main point. People are arguing that it is the athlete’s own name, and ethically he/she should be able to make money from it. Several college players have testified that the sport they play in college is their occupation and the many hours they devote to the game makes it difficult to function as a regular college student. An article from the Business Insider discussed one of the O’Bannon v NCAA trials over a year ago and how O’Bannon viewed his student-athletic career. “I was an athlete masquerading as a student,” O’Bannon said at trial. “I was there strictly to play basketball. I did basically the minimum to make sure I kept my eligibility academically so I could continue to play” (Dahlberg). This statement from the article demonstrates the commitment student-athletes have and why many are arguing for players to receive payment.

Recently some major decisions have been ruled in the O’Bannon v NCAA case. In June of 2014, a federal judge ruled that the NCAA cannot stop players from selling the rights to their names, images, and likenesses. This conclusion hit hard on the NCAA regulations which prohibit student-athletes from receiving anything more than a scholarship. The court suggested an idea that money generated from television contracts be put into a trust fund that college football and basketball athletes would receive after eligibility. The cap for the money would be up to $5,000 a year, and the most a player could make is $20,000 after four years. The NCAA of course disagreed with this statement and fought against it.

On September 30^th, 2015 The Ninth Circuit of Appeals confirmed the districts court decision that the NCAA amateurism rules violated antitrust laws. This of course was a big gain for O’Bannon but was not a complete victory. The court went against the injunction that would have forced universities to pay athletes up to $5,000 dollars a year. However, schools now must cover full cost of attendance, which is food, rent, books, etc., on top of scholarship. An article from Sports Illustrated claimed that Judge Jay Bybee, one of three judges out of the panel, expressed concerns that cash sums past educational expenses would transform NCAA sports into “Minor League” status. However, many still believe the cost of attendance is not enough for college athletes whose universities negotiate billion-dollar TV contracts.

The situation does not end there. Even though O’Bannon did not win the trust fund debate, the Lawsuit is far from over and he is not the only one striking down on the NCAA. Shawne Alston, Martin Jenkins, and two dozen other former and current players argue that the cap of athletic scholarships and cost of attendance are not enough and violate antitrust laws. If the cap was demolished, Universities may be forced to pay student-athletes market price scholarships, which can extend up to seven figures. This litigation will be heard in the U.S. District Court for the Northern District of California soon. That being said, let’s look at the possible financial decisions college athletics and universities would consider if athletes were required to receive money.

To help understand the situation better, I sat down with USC Sports Information Director Jeremy Wu and discussed the conditions that have athletic departments in dismay.

According to Jeremy, the new ruling that declares that Universities must pay full cost of attendance, food, rent, books, and more, is the first strain on schools financially. Some schools already proved this for football, such as USC, but now are required for all sports. Other major and smaller universities are in the process of making this transition.

The money for funding full attendance does come from the ‘billions of dollars’ schools receive from television contracts. But what a lot of people have a hard time understanding is the money received from these contracts are not just supporting football, but an entire athletic program. “A lot of schools even with TV contracts don’t make more money than they lose” Jeremy said, “Even though contracts are huge, such as millions of dollars, funding a full athletic department is a lot and it is covering more than just football, but all the sports”. Jeremy also continued to mention the money generated from TV contracts pays coaching staffs for all teams and buys necessities for the sports.

Before we dig in deeper, here are some interesting facts from the article, Cracking The Cartel, that talks about where the money for athletics is going:

$156,647 is the median amount a division one school spends on a scholarship football player as of 2013
$14,979 on a full time non student-athlete
In 40 States, Football and Basketball head coaches are the highest-paid public employees

The facts above demonstrate the expenses universities spend not only on athletes, but college coaches. If athletes were to receive payments, the money spent on coaches most likely will decrease.

In order for the majority of universities to provide payment for athletes they would have to make some changes that would create a scale-back. The process would start with cutting smaller sports from athletic programs, such as golf or tennis. This leads to job loss not only for the people who coach the sport, but maybe a couple strength coaches, a nutritionist, and perhaps academic advisers.

From the article, Cracking the Cartel, it claimed one reduction in programs would be a drop off in athletic scholarships. Universities provide 85 athletic scholarships for football and that could shrink to 45, just like an NFL team.

Colleges could decide not to try and cut athletic programs all together. The programs who are most likely able to perform this financial event are the so-called Power Five conferences (the ACC, Big Ten, Big 12, Pac-12, and SEC), but even some say it may be too much and schools slowly would drop down to Division II. Jeremy discussed how small schools like South Dakota State, who don’t generate enough money off their athletic programs, would have no choice but give up its sports teams.

Even Title IX plays a heavy role and universities must still obey the rules that are enforced by it. If one women’s sports team is cut, then three men’s teams are cut as well. Title IX provides a unique experience for young female adults to receive an education and achieve an athletic career. Financial struggle to pay athletes would not only take this opportunity away from women, but men as well.

As a student-athlete myself, this situation definitely has me concerned. Though it is apparent that the NCAA needs to make some rule changes, paying college athletes certainly would transform intercollegiate athletics. If universities were to act on the most dramatic possibilities from this event, college athletics as we know it, would cease to exist.

Drink Juice and prosper

September 23, 2015 by Sally Huang Leave a Comment

With lifestyles that usually incorporate healthy choices, it’s no surprise Los Angeles has made the juicing trend a way of life. I had the privilege of interviewing Lucy Wagner, one of the original employees of The Juice, a cold pressed organic juice bar in Atwater, Los Angeles.

Lucy Wagner has been working at The Juice since day one and she has been through the business changes and expansion of the company for over 2 years. She shared with me her understanding on the day to day challenges the founders of The Juice has faced and her first hand perspective on business development.

What makes The Juice different from other stores is that they cold press all their juices. Cold pressing it’s a newer process in which the fruits vegetables are first crushed and then pressed in a huge hydraulic press (with a pressure equal to 5 times the pressure found in the deepest part of the ocean). Because cold pressing don’t produce much heat, it keeps more of the fresh ingredients’ nutrients intact. Traditional centrifugal juicers uses a fast spinning metal blade that generates heat which destroys some of the enzymes in the fruits and vegetables rendering less nutritious juice.

First The Juice store in Atwater

The founders of The Juice, Elizabeth and Melissa both believed in high quality juices and splashed out on the cold presser despite it’s $50,000 price tag. This was a huge cost to them but ensured the quality and nutritional value of their products.

The process of cold pressing is very labour intensive and each batch can take up to an hour. Since all juices are pre-made and bottled up, customers have complained about the lack of customization and not having juices made to order.

Even though The Juice now has 3 locations throughout LA (two in Atwater and one in the Arts District) they only have 1 juicer. Juices are usually transported to the two newer locations because it’s more cost efficient this way.

One of the biggest challenge that all juice bars face is the season’s effect on business. No only are these juice bars impacted by seasonal produce but they also have to deal with lower demand in the colder months. People often assume that with biotechnology we are able to get fruits in season all year round, this is not true. When fruits are off season, it’s harder to maintain the quality and a consistent menu. Organic Juiceries such as The Juice are particularly affected by this as they only serve organic produce which is more natural and harder to control.

And just as juices are hard to maintain in the colder months, business is too. In order to keep business during the winter Elizabeth and Melissa position the juices as post holiday cleanses and defence against the flu season. At $9 a bottle, The Juice is considered a luxury in the eyes of many people. Even though the US economy is no longer in a financial crisis, when people are not doing so well juices are the first things cut out. Restaurants experience a similar decline too especially when people try to eat in more and reduce unnecessary spending.

The regulars

In the beginning, the Juice served customers ranging from regulars to locals and people visiting the area. It was very much dependent on the customers within the vicinity. However to expand their customer base, the Juice has done promotions in local farmers markets and also partnered with other local stores and cafes around the area.

Currently they collaborate with Undefeated, a hip sneaker store in the Silver Lake area. Undefeated carries The Juice products in a small in-store fridge. For this partnership The Juice created a special “undefeated” flavour only available in that store. They’ve also worked with small cafes and coffee shops around the area to expand their local customer base and increase brand recognition. These small businesses are usually close enough that the customers can return back to the original The Juice store however not so close for cannibalization. The Juice has also partnered with Pop Physique and Soul Cycle in order to reach potential health conscious customers.

A quick stop at the Juice post Zumba lessons

Apart from expanding to other local businesses, The Juice is now available on Amazon Fresh. The Juice used to deliver their juices and cleanses to their customers for a small fee, however with the emergence of more online delivery services, it has allowed them to focus on creating a high quality product. This development has enabled a larger reach, as customers who were too busy to go in-store can now reach the product online. Association with a corporation like Amazon has also boosted it’s brand image.

Since starting the business in 2013, one of their greatest reasons for success is the location and the support from the surrounding community. In 2013, Atwater was a hip up and coming place in LA and there were cool new businesses in the area. Melissa and Elizabeth were very much a part of that community so they knew the trends of their potential customers very well. The seized the opportunity to set up in Atwater before the market was saturated with other stores. The neighbourhood has changed a lot since then, with more artisan coffee shops and boutique restaurants.

To the Melissa and Elizabeth expansion is all about timing and knowing the your customers. The neighbourhood needs to be new enough that rent prices are still low and other businesses are beginning to set up. Another great indicator is when there are a few health conscious restaurants who are beginning to be successful. Highland park is the current location The Juice is looking to expand into, it is a location that is starting to experience gentrification and already has a successful vegan donut place and vegan taco place in the area.

Visit the Juice at 3145 Glendale Blvd, Los Angeles, CA 90039

A Booming Housing Market in Low-income Communities, with Low Demand

September 22, 2015 by Zihao Yang Leave a Comment

It’s been seven years since the burst of housing bubble in 2008, and the market started showing signs of recovery after 2012. It seems to be a good time to consider buying a house now, with the still-going-down 15-year fixed-rate mortgage fell to 3.08 per cent, slightly above the record low 3 per cent in May 2015, according to a Freddie Mac report.

As the mortgage rate now running below 4 per cent for nine straight weeks, the cost of getting a loan to purchase a new home has become a lot lower when compared to the data earlier this year. However, many potential first-time home buyers in low-income community, such as East Los Angeles and Boyle Heights, took a wait-and-see stance instead. More people in low-income areas have chosen to rent instead of buying houses.

“I’ve seen people renting for over 15 to 20 years,” said Alicia Bonilla, a mail carrier who moved to East L.A. in late 1990s.

Slow wage growth is not the only reason deterring potential homebuyers from owning houses in East L.A. In fact, the median home price has been hovering around $350,000 in the last quarter, which is still affordable comparing to surrounding areas of East L.A. and Boyle Heights. The median home value in Los Angeles County is much higher, at the price of $503,700.

(A house was put for sale in East Los Angeles. Photo: Zihao Yang)

The booming for-sale housing market is on its way to reach record high since the housing market collapse in 2008. The median price for a 3-bedroom house in East L.A. and Boyle Heights was around $200,000 in 2012 and $310,000 last year, according to data released by Zillow.com.

For a neighborhood highly populated with working-class families and new immigrants, living in their own houses has always been a dream for many young residents. However, many potential homebuyers see this area merely as a springboard in their life to a better community.

“The accessibility to a lot of utilities such as transportation, Metro, freeways, airport – that’s why [people are renting in this area],” said Luis Negrete, a real estate broker who started his business in 1983 on the E. Third St., “other than that, I don’t see that much incentive to own.”

A housing market with ever-rising prices but sluggish real demand has seen an increasing number of houses for sale, but the number of potential buyers didn’t go up. Investors are less interested in investing in the area because of historical reasons, so most of the buyers are immigrants or families that have been living there for a long time, said Negrete.

(Real estate agent Luis Negrete stands in front of his agency in Boyle Heights. Photo: Zihao Yang)

Due to its vicinity to downtown Los Angeles, Boyle Heights enticed many blue collar workers who want houses near their work locations but have no desire to own properties in the neighborhood.

“One thing that’s undeniable is the location. This is a prime location [for commute],” said Sergio Ramos, a realtor whose major business area includes Boyle Heights and East Los Angeles.

According to Negrete, the ideal final home destinations for the younger generation no longer include East L.A. and Boyle Heights, and the cultural root is not a factor as important as people thought to be. Instead, neighborhoods such as Pasadena and Hacienda Heights are becoming more attractive as places to own a property.

Take a walk on the streets in East L.A. and Boyle Heights, and you will be surprised to find how many houses were put for sale in the neighborhood recently. “They were not even for sale last month,” said Art Kawaguchi, an auto repair shop manager on the E. Third St.

But the number of home sales transaction remained flat and sluggish. Since 2012, not including investors, East L.A.’ housing market shifted further toward renting, said Ramos.

According to East Los Angeles Community Corporation (ELACC), the homeownership rate was only about 11 per cent in Boyle Heights, far lower than the average 46.9 per cent of Los Angeles County. On the national level, the homeownership rate is about 64 per cent, reported the U.S. Census Bureau.

“In this building, a lot of young families did move in. They are just trying to find a place to live on their own. But for them to buy a house, I believe they are not ready yet. They haven’t really mentioned it or talked about it,” said Jeremias Tomas, a property manager of Sol Y Luna Apartments on the E. First St.

It is projected that the mortgage rate will stay low after the Federal Open Market Committee decided to keep interest rates at record lows. But according to Fed Chair Janet Yellen, a Fed rate hike, which could affect domestic housing market, is still likely in 2015. The FOMC will host two more meetings this year, in October and December respectively. A Fed rate increase could make home loans costlier and discourage people from buying houses.

Economists predicted that in 2016, more first-time and younger buyers will “take the plunge on homeownership because the cost of renting will keep going up”, and that will “make the security of a fixed mortgage payment more attractive to more otherwise content renters,” according to a Los Angeles Times article.

Even if predictions suggest that the decreasing cost of buying a house will incentivize more young homebuyers to consider owning properties, in many low-income communities in Los Angeles, it seems that the younger generation are thinking of somewhere else to settle down in the long run.

Sources:

http://www.freddiemac.com/pmms/index.html

http://freddiemac.mwnewsroom.com/press-releases/mortgage-rates-calm-ahead-of-federal-reserve-decis-otcqb-fmcc-1217973

http://la.curbed.com/archives/2015/07/los_angeles_housing_market_bubble.php

http://www.chicagotribune.com/business/ct-mortgage-rates-slip-20150924-story.html

http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

http://files.zillowstatic.com/research/public/Neighborhood/Neighborhood_Zhvi_AllHomes.csv

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