Off the Wires

Netflix Founder Reed Hastings: Make as Few Decisions as Possible

November 17th, 2014  |  Source: Stanford Business

The CEO of Netflix discusses what he's learned while redefining movie-watching.

What does it take to be a great chief executive officer? For many CEOs, it means making most of the major decisions and settling the tough calls. For others, it means being a product genius, akin to Steve Jobs, able to divine the next big thing again and again. But none of those attributes applies to Reed Hastings, the cofounder and CEO of Netflix.

Hastings prides himself on making as few decisions as possible, and he lets his team dream up new products and new initiatives. That may sound like a recipe for failure, but it obviously isn’t. Worth more than $23 billion, Netflix has redefined how American consumers watch movies and is disrupting the established business model of cable television. In September, Stanford Graduate School of Business awarded Netflix its 2014 ENCORE award for the most entrepreneurial company of the year. In accepting the award, Hastings discussed some of the lessons he has learned during his 17 years at the helm of the company.

Stay ahead of the competition.

When Netflix was founded in 1997, Americans who wanted to watch a movie at home went to a video store, rented a DVD or VHS tape, and then tried to return it on time. The largest rental chain by far was Blockbuster, which at one time had more than 9,000 stores and 60,000 employees. Hastings says he realized that a plastic disc has room for a huge amount of data and weighs next to nothing, making it feasible to distribute movies on DVDs by mail. The idea caught on, but Blockbuster was slow to respond, not recognizing Netflix as a serious competitor until 2004. “They had a big advantage, were 15 times our size, and if they had started [a mail-order business] two years sooner, they probably would have won,” Hastings says.

Employee freedom and responsibility go together.

“I take pride in making as few decisions as possible, as opposed to making as many as possible,” Hastings says. One example: Netflix’s decision to produce the popular House of Cards was a huge one, but the meeting that gave the project a green light lasted just 30 minutes. Others had already laid down the groundwork and details, making it easy for Hastings to sign off. “It’s creating a sense [in your employees] that ‘If I want to make a difference, I can make a difference.’” Freedom is only one part of the Netflix culture; the other is responsibility. Netflix, says Hastings, has created a culture of high performance. “Adequate performance gets a generous severance package,” he says, adding that “we turn over a lot of people.”

Islamic State Mints Coins as Jihadis Develop Trappings of Power

November 13th, 2014  |  Source: Bloomberg

After seizing oil refineries to fund its self-declared caliphate, Islamic State militants will mint their own money.

The group plans to issue gold, silver and copper coins, according to a statement released by its Beit al Mal, or treasury, and posted on websites used by jihadist movements. The currency aims to replace the existing “tyrannic monetary system” that has contributed to poverty, it said.

As Islamic State conquered territory from the Syrian city of Aleppo to the outskirts of Baghdad, it has sought to entrench its strict interpretation of Islam. It has meted out brutal punishments to those who opposed its march.

In issuing coins, the group is making its latest pitch for statehood, said Mohsin Khan, a senior fellow at the Atlantic Council’s Rafik Hariri Center for the Middle East. “One of the attributes of a state is that it issues its own currency,” he said by phone from Washington. “That defines you as a state at least in the eyes of your own people and perhaps in the eyes of others.”

Islamic State leader Abu Bakr al-Baghdadi ordered the coins to be circulated and the group’s shoura council approved the measure, according to the statement, which couldn’t immediately be verified. Instructions will be issued later on how the money will be used, it said.

The group’s gold dinar coins bear inscriptions and images of what appears to be wheat, while the copper coins feature a crescent moon. Silver coins with denominations of 1, 5 and 10 dirhams include depictions of mosques and a shield and spear.

Khan said minting coins instead of the cheaper option of issuing paper money was also symbolic of the group’s desire to replicate early Islam when “coins were issued and they were either gold or silver.”

Fears of US cold snap trigger gas price swings

November 11th, 2014  |  Source: FT

Warnings of a sharp US cold snap – and below freezing temperatures on the country’s east coast – have led to big swings in the price of natural gas with New York futures hitting four-month highs this week.

Prices of the fuel used to heat homes, run power plants and operate factories have gyrated as forecasters eye the first chilly weather of the forthcoming winter.

Nymex December gas soared more than 20 per cent in two weeks to a four-month high of $4.544 per million British thermal units before closing lower on Monday.

On Tuesday, it fell a further 1.4 per cent to $4.195.

Memories of the extreme cold delivered by last winter’s “polar vortex” across North America triggered the price moves.

That extreme weather strained pipelines and power plants and led to records for single-day consumption. It drove spot gas prices above $100 in New York City.

“The market might fear a repeat of last winter,” said Anthony Yuen, energy strategist at Citigroup.

Commodity Weather Group, a forecasting service, warned that cold “dominates” the next 10 days with highs below freezing in Chicago.

However, Teri Viswanath, gas analyst at BNP Paribas, said a slightly warmer outlook in the latest forecasts had sent the rally into reverse.

“With milder more variable weather ahead this month, traders are losing confidence in the heating demand call on supply,” she wrote.

The need for heat and power during the polar vortex pushed buffer stocks below 1tn cu ft by the end of March 2014, less than half the average for that time of year and the least since 2003.

Inside Apple's Gigantic Rewards Program for Shareholders

November 10th, 2014  |  Source: Business Week

Apple (AAPL) has one of the biggest cash hoards in history, yet it has borrowed $35 billion in the past year and a half. Strange, no? Why does a company as rich as Apple need to ask other people for money?

Most of Apple’s cash is overseas, where it can’t easily be gotten at. And the world’s most valuable company is giving mountains of money to its shareholders—$130 billion over two and a half years. Apple Chief Executive Officer Tim Cook told analysts in April that the size and pace of its “capital-return program” is “unprecedented.” The following charts make clear just what Apple’s up to.

It all starts with profits, which Apple is producing in abundance. Net income has averaged more than $9 billion for the past nine fiscal quarters. That’s far more than Apple needs to fund development of future products. In its latest quarter, it had less than $4 billion in capital spending—a fraction of the almost $13 billion it generated from operations.

So the cash keeps piling up. When Apple says “cash,” it generally means cash plus marketable securities—things that could be quickly turned into cash. To avoid the high U.S. corporate income tax rate, Apple arranges its businesses so a lot of its profit is generated for tax-accounting purposes outside of the U.S. Only 12 percent of its cash is held in the U.S. And as Chief Financial Officer Luca Maestri told analysts in April, “To repatriate our foreign cash under current U.S. tax law, we would incur significant cash tax consequences, and we don’t believe this would be in the best interest of our shareholders.”

Read on here:

Student-Loan Market Recalls Subprime Crisis for U.S. Treasury

November 6th, 2014  |  Source: Bloomberg

The Treasury Department is looking at the rise of American student-loan debt and seeing worrying similarities to the U.S. housing-market bubble.

Deputy Secretary Sarah Bloom Raskin today voiced concern that education-loan borrowers could turn to repayment scams resembling mortgage-payment schemes from 2009 and 2010. Her remarks come a day after a Treasury committee report drew parallels between student-loan default risks and the mortgage market before housing collapsed starting in 2006.

“Millions of student-loan borrowers are in default on their student loans; many more could face default in the near future,” Raskin said today in Tampa, Florida, during her third public speech on student debt since becoming the Treasury’s No. 2 official in March. “I worry about the emergence of a student loan ‘debt relief’ industry.”

High default rates and delinquencies have been a focus for Raskin, in part because they may damage Americans’ creditworthiness and curtail their ability to invest in homes and businesses. They also create uncertainty for the Treasury, which finances about $100 billion of new student loans each year.

“To the extent the government doesn’t get repaid, that boosts Treasury borrowing needs,” Nancy Vanden Houten, a senior government policy analyst at Stone & McCarthy Research in Skillman, New Jersey, said in an e-mail. That is “ultimately a cost to taxpayers.”

Default Rates

About $100 billion of federal student loans are in default, 9 percent of outstanding balances, according to a Treasury Borrowing Advisory Committee update on student lending trends released yesterday.

The balance of student loans outstanding in the U.S. -- also including private loans without government guarantees -- swelled to $1.3 trillion as of the second quarter 2014, based on data released by the Federal Reserve on Oct. 7.

The Senior Citizen Sweep

November 5th, 2014  |  Source: Bloomberg

The Barack Obama coalition stayed home.

The demographic mix of young, minority and women voters that twice helped elect Obama to the White House never was going to be as robust in a midterm election  Yet the fall-off from the level of support the president enjoyed just two years ago was a major factor in the Democratic loss of the Senate.

Even when compared to the last midterm election in 2010, the American electorate Tuesday was older, exit polls show.

Those 65 and older represented a quarter of the national electorate, up from 21 percent four years earlier. Democrats sought to turn out younger voters, but that didn't happen nationally. The share of those 29 and younger was identical to 2010. The proportion of the electorate represented by Hispanics–8 percent–was identical to 2010.  Turnout among black voters increased by a percentage point to 12 percent this year, and Asian voters increased by a single point as well, to 3 percent.

Obama was also clearly a drag on Democrats, with 55 percent of those voting telling exit pollsters that they either somewhat or strongly disapprove of the president's job performance. In the most closely watched states for Senate control, the exit polls provide the answers behind wins and losses.

Branson’s Virgin America pushes on with IPO

November 3rd, 2014  |  Source: FT

Sir Richard Branson sought to regain a semblance of normality on Monday as Virgin America, the US airline partially owned by the British billionaire, pressed ahead with plans to float in New York, just days after the crash of the Virgin Galactic test aircraft.

The airline, in which Sir Richard’s Virgin Group, has just under a 25 per cent stake, is seeking a valuation as high as $1bn as it looks to complete an initial public offering on Nasdaq before year’s end.

Economy in U.S. Grew 3.5% in Third Quarter, More Than Forecast

October 30th, 2014  |  Source: Bloomberg

The economy in the U.S. expanded more than forecast in the third quarter, capping its strongest six months in more than a decade, as gains in government spending and a shrinking trade deficit made up for a slowdown in household purchases.

Gross domestic product grew at a 3.5 percent annualized rate in the three months ended September after a 4.6 percent gain in the second quarter, Commerce Department figures showed today in Washington. It marked the strongest back-to-back readings since the last six months of 2003. The median forecast of 87 economists surveyed by Bloomberg called for a 3 percent advance.

Growing oil production is limiting imports and contributing to a pickup in manufacturing, allowing the economy to overcome slowing growth in overseas markets from Europe to China. At the same time, job gains and cheaper gasoline are giving American consumers the confidence and the means to spend, brightening the outlook for the holiday-shopping season and helping explain why the Federal Reserve ended its bond-buying program yesterday.

“The fundamentals behind the consumer are improving as job growth gains traction,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “And withconsumer confidence rising, that is a clear indicator that consumers are feeling better about the economy.”

Forecasts in the Bloomberg survey of economists ranged from 2.1 percent to 4 percent. Today’s estimate is the first of three for the quarter, with the other releases scheduled for November and December when more information becomes available.

Alibaba's Ma says open to working with Apple on payments

October 28th, 2014  |  Source: Reuters

Alibaba Group Holdings Ltd (BABA.N) executive chairman Jack Ma said he's open to working with Apple Inc (AAPL.O) on mobile payments, as China's richest person prepares to call on Hollywood this week in search of media partners.

Alibaba affiliate Alipay is China's largest payments service, while Apple just this month debuted its own version of a mobile wallet, letting iPhone 6 users make payments at retailers with their smartphones.

Ma told a Wall Street Journal Digital Live conference on Monday that he has tremendous respect for Apple CEO Tim Cook.

"I hope we can do something together," he said when asked if Alipay and Apple Pay might tie up.

Ma, who amassed a fortune estimated at $25 billion partly through his stake in recent market debutante Alibaba, is a frequent visitor to the United States. This week, he plans to visit a number of Hollywood studios, reportedly to strike up content deals.

"I want to come here looking for partners," he said, adding that China will eventually become the world's largest movie market.

Alibaba, which handles more e-commerce transactions than Inc (AMZN.O) and eBay Inc (EBAY.O) combined, does not have much of a presence among American retail customers and Ma said his focus for now was on serving his Chinese clientele.

Ma added that he wanted to work on selling American and European products to China, reversing the typical flow of goods over the past 10 to 15 years.

Alibaba has acquired some smaller American companies such as niche online retailer 11Main and Ma said he will continue to invest in the United States.

Corporate America starts to spend again

October 27th, 2014  |  Source: FT

US corporations are starting to run down their cash balances for the first time since the recession – a sign of returning confidence – but they remain reluctant to invest in new equipment.

More companies cut their cash holdings than increased them over the past year, the first time that has happened during the recovery, according to a new survey of corporate treasurers by the Association for Financial Professionals.

The willingness of companies to hold less cash is an important turning point in the recovery from the Great Recession. It is a sign of animal spirits returning to the US economy – but growth will not accelerate until the cash gets invested in new factories and machinery.

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