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Is Tesla Pioneering a New Age of Compensation Plans for Executives?

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Elon Musk has always been a dreamer. He has been a visionary in space travel in the 21st century with his company SpaceX while also revolutionizing the automobile industry through his company Tesla. He is considered one of the most powerful people in the world by many standards. However, his new contract as CEO of Tesla could result in him not making a single penny from the company in the next ten years.

On January 23, Tesla announced that Elon Musk would stay on as CEO for the next ten years. During this span of time, Musk will not receive any guaranteed compensation. For Musk to receive any compensation for his work, he must reach certain performance objectives that Tesla has set for the company. Tesla has broken the objectives down into two separate categories: market cap milestones and operational milestones. Each category consists of 12 tranches, or levels, that Musk much reach in order to gain more compensation. Both the market cap milestones and operational milestones must be met in order for Musk to move up a tranche. Upon completion of each tranche, Musk will receive “stock options that correspond to 1% of Tesla’s current total outstanding shares.” With 1.69 million outstanding shares, Musk has the potential to gain approximately.

Tesla CEO Performance Award-2The market cap milestones are based on Tesla’s market valuation. The first tranche is completed once the company is worth $100 billion. Each subsequent tranche is completed for every $50 billion added to Tesla’s value, topping off at $650 billion. Musk is optimistic about his ability: “I actually see the potential for Tesla to become a trillion-dollar company within a 10-year period.”

The operational milestones Musk must meet are slightly different than the market cap milestones. For these, Musk only needs to reach 12 of the 16 levels to reap the full benefits of the payment plan. The 16 levels are divided into two categories, revenue and Adjusted EBITDA, of 8 levels each. The revenue path is simple; when Tesla’s revenue reaches each level, it will have been completed and can be used to move up a tranche, granted that the market cap milestone has already been met for that level. Adjusted EBITDA is Tesla’s earnings before interest, taxes, depreciation, and amortization. This essentially measures a firm’s profitability; if Musk can increase the profits of Tesla then these levels should gradually be completed over the next ten years.

The new payment plan for Musk comes at a time of concern for the company. Musk has been ambiguous in the past about continuing as the CEO of Tesla. However, this new deal ensures that he will stay on for the next ten years, either as CEO or as the Executive Chairman and CPO of Tesla. Regardless, Tesla has just locked down one of the most innovative minds in the world for ten years, something shareholders should be very content with. This news also comes just weeks after Tesla delayed releasing the production targets again for the Model 3. Tesla has been on fire lately, but Musk must continue directing the company towards new heights if he wishes to be compensated for all of his time and effort.

With Tesla being one of the leaders in the automobile industry lately, Musk’s new payment plan may spark similar plans from other companies. In regard to the effect of the new compensation plan on Tesla shareholders, compensation committee chairman Ira Ehrenpreis stated, “It’s heads you win, tails you don’t lose.” If Musk reaches all tranches of the plan, then he would have increased Tesla’s valuation by almost 11 times its current amount, a feat that is almost unthinkable in a ten-year span. This would be fantastic for shareholders as their shares would correspondingly increase in value. If Musk fails to meet even one tranche, then the shareholders do not need to pay the CEO that failed to do anything for them. This plan puts the majority of the responsibility for the company on Musk and it is up to him to move this company forward if he wishes to be compensated for his work.

Other companies should develop similar compensation plans to shift more accountability to the leaders of companies. If all executives in companies are not given guaranteed salaries but rather compensated based on performance of the company, then these executives will ostensibly put much more effort into their work and moving their companies forward. Shareholders will no longer have to worry about paying the salary of a CEO who fails to do anything for the company. By increasing accountability, top executives will strive to make their companies better, which can only mean good things for the average consumer. Elon Musk has the confidence in himself to achieve the goals set forth by his company, but do other Fortune 500 executives have the same faith in their own abilities? Only time will tell, but Musk’s new plan may be the start of a new age in compensation for executives.

Sources:

https://www.nytimes.com/2018/01/23/business/dealbook/tesla-elon-musk-pay.html

https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/profile/elon-musk/&list=powerful-people&refURL=&referrer=

http://ir.tesla.com/releasedetail.cfm?ReleaseID=1054948

https://www.wired.com/story/musk-model-3-tesla-production-delays-january/

Another Royal Wedding may Boost the UK’s Economy

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Another royal wedding is on its way! If you have not heard by now, Prince Harry and Meghan Markle announced their engagement on November 27, 2017. [1] Reports have stated that the happy couple will wed spring of 2018. The last British royal wedding was in 2011 when Prince William married Kate Middleton. Six years has passed and the world is now anticipating the next royal wedding unfold.

Prince Henry of Wales is the son of Charles, Prince of Wales, and Diana, Princess of Wales. He is currently fifth in line for the throne after his father, his older brother (William), and his nephew (George), and niece (Charlotte). [2]

Meghan Markle is an “American actress, model, and humanitarian.” She is best known for her role as Rachel Zane on Suits, a legal drama series. Born and raised in Los Angeles, California, Meghan and Prince Harry undoubtedly grew up from different worlds. Following their announced engagement, Meghan “plans to retire from acting and devote her time to humanitarian causes.” [3]

Prince Harry and Meghan met from a mutual friend who had set them up on a blind date in the summer of 2016. [4] They then went on to date for the past year and a few months. Because they tried to keep their relationship private from the media as much as possible, they spent most of their time in the Nottingham Cottage in the Kensington Palace while in the UK. [5]

The news of a royal wedding not only brings about an increase in media coverage on the royal family, but also the many activities needed to be done before the actual wedding. Such activities include searching for the perfect dress, finding the venue, and creating the guest list. Such an extravaganza comes at a hefty price. We can see from Prince William and Kate’s wedding that a reported $34 million was spent. The majority of the cost ($32 million) was directed to security, while Kate’s dress totaled a grand $434,000. [6]

To show the grand scheme of how much a royal wedding costs, Brides Magazine, the UK’s NO. 1 Bridal Magazine, found that the average cost for a UK wedding is $40,567. [7] This cost includes everything ranging from the invitations to the photographer. This number is drastically smaller compared to William and Kate’s $34 million.

Along with the costs to finance the big day, a royal wedding also signifies a change in business and ultimately an increase in the economy. Prince William and Kate Middleton’s wedding can be seen as a sign to predict the effects of a royal wedding on the UK’s economy. Kate’s wedding dress, designed by Sarah Burton, was heavily detailed with lace. It is no doubt that Kate’s strong influence impacted the trend for lace in wedding gowns and everyday fashion. This is shown in how the fashion house Alexander McQueen that created Kate’s gown saw an increased growth in operating profit by 33% in 2011, compared to the year prior. [8]

Other forms of revenue that could potentially boost the UK economy include retail spending, tourism, and pub sales. It was reported that these related facets generated between 1.2 billion to 2.4 billion U.S. dollars. Many businesses took advantage of the royal wedding by producing and selling souvenirs, such as, “Keep Calm and Marry On” posters, and “Kiss Me Kate” beer. [9] Thus, the revenue brought about from Prince William and Kate’s wedding is a sign that Prince Harry and Meghan may have similar effects on the economy.

The time period of when Meghan and Prince Harry announced their wedding date is also around the same time that Prince William and Kate’s expected third child will be due in April 2018. Not only will the royal wedding be a worldwide spectacle, but so will the birth of the Duke and Duchess of Cambridge’s third child. Thus, the wedding and the expected child will attract even more attention to the Royal family.

On Friday, April 29, 2011, William and Kate received a bank holiday on their wedding. This day is a holiday in which british citizens are given the day off from work. A study conducted by the Center for Economics and Business Research (CEBR) showed that the average cost of a bank holiday in the UK was $2.7 billion. [10] However, because Prince Harry is fifth in line, Theresa May stated that there will not be a bank holiday. Therefore, the UK economy will not witness a loss in revenue when Meghan and Prince Harry wed from businesses not being open.

Bernard Donoghue, director of the Association of Leading Visitor Attractions, believes that the United States will have greater interest in Prince Harry and Meghan Markle’s wedding then when Kate wed Prince William in 2011 because Meghan is American. [11] Meghan’s international recognition for her acting and humanitarian work can easily boost the number of visitors from the United States to the UK. Subsequently, the royal wedding will bring many international visitors to witness the coming days of the ceremony. Therefore, the increased tourism will greatly impact the UK’s economy in a positive manner.

Although I do not know much about the royal family, I find it fascinating to see how such an intimate moment in a couple’s relationship is shown for the whole world to see.  The announcement of a royal wedding signifies not only a growth in revenue for UK’s economy, but also an enhanced image of the British monarchy. It seems as though people from all over are curious to see how the wedding will turn out, shown in how there was more than 24 million viewers watching the live coverage of Prince William’s and Kate Middleton’s wedding. [12] It will be interesting to see as Spring 2018 slowly approaches the impact the royal wedding of Prince Harry and Meghan Markle will have on the world.

Sources

[1] https://www.thesun.co.uk/fabulous/4033766/prince-harry-meghan-markle-dating-together/

[2] https://en.wikipedia.org/wiki/Prince_Harry

[3] https://en.wikipedia.org/wiki/Meghan_Markle

[4] http://people.com/royals/prince-harry-met-meghan-markle-blind-date/

[5] https://www.thesun.co.uk/fabulous/5011224/nottingham-cottage-kensington-palace-prince-harry-meghan-markle/

[6] https://www.cbsnews.com/pictures/most-expensive-weddings-of-all-time/12/

[7]http://www.bridesmagazine.co.uk/planning/general/planning-service/2013/01/average-cost-of-wedding

[8]https://www.huffingtonpost.com/carmen-feliciano/the-economics-of-royal-we_b_3700858.html

[9]https://www.thomaswhite.com/world-markets/the-u-k-royal-wedding-a-mixed-bag-for-the-economy/

[10]http://www.independent.co.uk/news/business/analysis-and-features/meghan-markle-prince-harry-engaged-wedding-latest-uk-bank-holiday-cost-extra-spending-tourism-retail-a8078071.html

[11]]http://www.telegraph.co.uk/news/uknews/royal-wedding/8485325/Royal-wedding-24-million-tune-in-to-watch-Prince-William-and-Kate-Middleton-marry.html

[12] http://www.mirror.co.uk/travel/news/prince-harry-meghan-markles-wedding-11597021

 

 

How Tech Could Impact the Local Housing Market

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If one ever had to offer a summation of what makes a market thrive, many of those respondents would probably have their own individual ideas, but they will all probably revolve around the same concept: lots and lots of growth. Over the course of modern history, the growth of industry and the flourishing of bigger and brighter ideas have been the lynchpin for success in our highly capitalistic society. Over the last few decades, Pittsburgh has transformed itself from a ghost of a dying industry into a futuristic, high-tech powerhouse teeming at the brim with opportunity for those who are willing to dive in. That optimistic trend looks to continue into the near future, as tech employment has grown 12% in the last two years while the city can boast of having the fourth-largest tech labor pool among small markets. [1][2]

Pittsburgh contains even more opportunity, though, and it comes in the form of average housing prices that often fall far below what one would expect for such a high traffic area. Indeed, according to Zillow estimates, the average price of a home in Pittsburgh is $125,400, which falls below the nationwide average of $201,900, and, while the average nationwide growth rate clocks in at 6.9%, Pittsburgh’s growth rate hovers at 4.6%. This ostensibly makes Pittsburgh a great place for those who are either living on moderate income sources or just entering the job market to own an entry-level suburban home. It’s crazy to think that your mortgage can be lower than rent, but, in this town, that’s an everyday reality.

Of course, the housing market is always in flux, and scenarios are always changing, so why is this issue so important now, and what does tech have to do with anything in a market where numerous factors are always interacting? The answer possibly lies with Amazon’s plans for a new headquarters, with Pittsburgh as one of the main competitors along with fourteen other cities. This may not, at first, sound like much of a big deal. This is likely due to the fact that, over the years, Pittsburgh has seen companies like Google and Uber take residence. Therefore, the presence of another tech giant should just be a continuance of the status quo. However, there is an extra variable that makes this scenario more interesting in that the city that will be bestowed with the right to house Amazon’s second headquarters will be greeted with a whopping 50,000 new jobs. Of course, some of those jobs can naturally be filled by current residents, but, of course, many of those jobs will have to be filled by a massive influx of new habitants. [3]

So, when it comes to Pittsburgh, how much growth is good growth? Where is the line dividing opportunity and a scenario that prices middle-class families out of the market? Well, before any kind of conclusion can be drawn, it is important to put things into perspective. Namely, one should assess just how active Pittsburgh’s job market really is when compared to some others in order to get a sense of where the market is heading. If one were to do that, it would be apparent that, while Pittsburgh is still a tech hub, there are other metropolitan areas around the U.S. that are slightly ahead of the Steel City in terms of continuing growth of tech jobs.

According to Glassdoor, there are ten cities right now where tech jobs are increasing at a rate over that of other areas. Pittsburgh is not one of those cities; however, what is interesting in this case is how the housing trends in those cities compare to the national average. In all but one of the metro areas, the average home price exceeds the national average, and, in all but two metro areas, the year-to-year growth rate does so as well. In fact, Detroit, the area with the highest growth rate, is also the one previously mentioned as the area with below-average housing prices. [4] Now, of course, it would be irresponsible to claim that the entirety of this issue can be directly attributed to tech growth. A housing market can be influenced by a plethora of factors: interest rates, policies, and the overall growth of the economy, which obviously includes non-tech-related job growth.

However, there is also another critical area that can drive up housing prices, and, while it seems very simple in concept, there are key economic ideas that support this issue. This issue concerns the size of metropolitan area, and, to be clear, while one might traditionally address the size of a city by the number of people residing within it, this issue literally concerns geographical size. Of course, in economics, the theory of supply and demand is well known and understood, and its relation to how goods and services are priced is also well established. As one may know, if supply decreases while demand increases, prices will skyrocket. It is a tale as old as time, supported by miles and miles of research and evidence so laboriously conducted throughout the years.

So, what does size have to do with any of this? Well, while this may possibly be purely coincidental, the three cities listed in the Glassdoor article with the highest average home prices are also the three smallest in terms of square miles, according to U.S. Census data. [5] Those cities are, for referential purposes, San Francisco, Seattle, and Washington, D.C. Now, if one were to invoke economic theory into this issue, one would see why size is such a substantial factor. Even if one were to assume that new residential areas were to be constructed in these areas’ surrounding suburbs, there is a limit to how much can be built in one area. So, hypothetically, if the demand for labor and, subsequently, housing increases while supply cannot keep up at the same rate, it makes sense that housing prices go through the roof.

But, what does Pittsburgh have to do with any of this? Well, even though the Steel City’s tech market may not be growing as quickly as these other ten markets, it has been established that it is still growing. So, then, how does Pittsburgh’s size factor into this conversation? When one understands the pattern that has just been introduced, size becomes of utmost importance. While Pittsburgh does not have as many people as San Francisco, Washington, or Seattle, if one were to arbitrarily add Pittsburgh to that list of ten cities as a means of comparison, one would see that it joins the three previously mentioned cities as one of the four smallest cities as measured by square miles. And, if one were to assume a trend with this scenario, then, if Pittsburgh were to experience continuing tech market growth on a scale comparable to that of these other areas, then one could be looking at a situation where Pittsburgh’s housing market experiences an unprecedented boom especially when one considers the possibility of something entering the city with a large plan and a demand for educated labor like Amazon has.

Lawrenceville is currently one of Pittsburgh’s most in-demand neighborhoods. Photo courtesy of nextpittsburgh.com. 

However, there are some other consequences that need to be considered if something like this were to happen. Now, of course, continued growth would be a fantastic outcome. It would be great for investors and great for the city’s economy at large, but it would certainly risk harboring some negative factors. Seattle, which also stands as Amazon’s main corporate hub, is the one place where Pittsburgh can possibly see its own future reflection, for both good and bad reasons. While the Pacific Northwest tech haven has continually experienced enormous growth, it has also inherited some negative side effects. For example, as noted by real estate reporter Mike Rosenberg in a Reddit AMA, Seattle’s nation-leading price growth could lead to an average home price nearing $2 million by 2026. This would, therefore, lead the city to have to take on increased issues regarding unaffordable housing as well as zoning concerns that would redefine neighborhoods and add increased urban density, which Rosenberg notes can be directly attributed to Seattle’s smaller size in relation to larger metropolitan areas that, conversely, have the space to sprawl out. [6]

Yet, a more serious issue looms over this scenario: in Seattle, like in several other tech-boom cities, homelessness is on the rise. In fact, in some areas, it has risen close to the point of becoming a public health crisis. Now, homelessness has been a systemic problem of the course of modern history, but it is now amplified because housing prices have skyrocketed. So, because of this, those at the lower end of the income spectrum who might have been able to keep up with rising rates before the boom can no longer keep up, and it is creating a genuine crisis. [7] In fact, as Mike Rosenberg also noted in his AMA, even his dreams of owning a single-family home have been devastated, and, at the rate that Seattle’s housing market is going, he may be soon priced out of other options.

So, what if Pittsburgh is unable to keep up with the possible effects of the housing market changes? If the patterns align, and the Steel City’s market accelerates in a way similar to that on the West Coast, will our future look like the one shown above? As these are purely hypothetical questions and situations, it is nearly impossible to confirm any possibilities with definitive resolution. However, there are some aspects that can allow one to shine a light on the possible outcomes to this situation. For example, zoning issues in Pittsburgh could be difficult to work around, as they historically have been, and, while new residential areas are currently under construction within the city limits, the way in which the city is laid out begs the question of whether or not this solution is feasible in the long-term.

Now, of course, as has been mentioned before, home prices will increase as supply decreases, which, in theory, should be good for current homeowners, but here is some more food for thought to consider: not all neighborhoods are created equally. The market is a funny thing; one may assume that, because one aspect of an industry is moving in one way, everything else will follow. This is not always the case, and this becomes incredibly important when, again, one considers this: not all neighborhoods are created equally. Some neighborhoods in Pittsburgh are in higher demand than others, regardless of some factors such as affordability. For example, areas like Lawrenceville, Highland Park, and Brookline are on the rise while some other places like Penn Hills, Carrick, and Beltzhoover remain unchanged due to various factors such as inconvenience or fixer-upper issues. [8] This means that, even with the job growth, these neighborhoods are not moving. At the moment, that is great for potential first-time homeowners, but it might not be so great for current residents if they are increasingly priced out of other neighborhoods. A situation in which neighborhoods are further divided by income class might not be in everyone’s best interest.

On the other hand, if the markets in these neighborhoods begin to pick up, then it is the first-time homeowners who begin to suffer. At the beginning of this piece, I noted that housing affordability makes Pittsburgh a great place for those on middle-class income or who are just entering the job market. Like Seattle, that trend probably cannot sustain itself if the growth is too high. And, also, renting might not be an optimal solution either, if this were to be the case. Referring to the Amazon issue again, it is noted that, of all cities considered for the new headquarters, Pittsburgh is one of the ones most likely to have the sharpest increases in rent costs. [9] If one were to combine this with a possible surge in housing prices, it makes for a possible surge in overall residency costs for everybody. It bears remembering that, even in a high-tech world, not everyone is going to be part of this market. What happens to current renters, then, if this were the scenario is that they could be priced out of their apartments, which, again, can possibly fracture communities, create class divides between neighborhoods, and, yes, even lead to homelessness if renter incomes cannot keep up.

So, in the end, there are several different ways of looking at this, and none of these ways are mutually exclusive. A city like Seattle is a place with a lot of opportunity and a lot of problems, but it does not mean that their problems are not being addressed, and Pittsburgh should do the same thing by planning for the future. However, it is important to discuss the future one last time. In this piece, I have directly tied the possibility of large growth with Amazon’s new headquarters. So, then, what if there is no Amazon in Pittsburgh’s future? Does anything change about this scenario? Well, yes, obviously, in the short term, Pittsburgh will not see the kind of massive growth that Amazon’s HQ2 will bring to the region, but it must be noted that this will not be the end of the world. For example, what if UPMC’s newly announced plans for new, high-tech specialty hospitals result in a similar scope of growth? [10]

Also, all of the statistics and stories citing Pittsburgh’s current growth do not factor Amazon into the equation. The city’s tech market is still growing, and this discussion needs to be had because, in the end, growth is still good, but there are issues around it that need to be managed. If the negative examples illustrated in this story are adequately planned for, then it remains a possibility that a good majority of this city can thrive in the new market. Of course, one cannot simply cure the ailments of the market and society. That is a truly naïve concept to believe in because no plan is perfect, and some people will lose out anyway. Every choice has consequences; if the benefits outweigh the costs, you have to take a shot at those choices, but you still have to minimize those costs, especially when lives are affected. In the end, that’s what makes this issue so important to everyone within the city limits.

 

[1] http://www.post-gazette.com/business/tech-news/2017/07/26/startup-pittsburgh-tech-jobs-growth-cbre-group-study-best-small-tech-markets-us-momentum-market-madison-wisconsin/stories/201707240106

[2] https://www.cbre.us/about/media-center/pittsburgh-among-top-cities-for-tech-talent-growth

[3] http://www.chicagotribune.com/business/ct-biz-amazon-50000-workers-seattle-20171020-story.html

[4] https://www.cnbc.com/2017/07/27/tech-jobs-silicon-valley.html

[5] https://www2.census.gov/geo/docs/maps-data/data/gazetteer/2016_Gazetteer/

[6] https://www.seattletimes.com/business/real-estate/seattles-crazy-housing-market-answers-to-your-questions-on-record-high-rent-zooming-home-prices-and-more/

[7] http://www.sfgate.com/news/article/Homeless-explosion-on-West-Coast-pushing-cities-12334291.php

[8] http://www.post-gazette.com/business/money/2017/02/27/House-prices-rise-above-average-in-three-city-neighborhoods/stories/201702260031

[9] https://www.curbed.com/2017/10/19/16502988/amazon-hq2-bid-rent-apartment-housing

[10] http://www.post-gazette.com/business/healthcare-business/2017/11/03/upmc-2-billion-hospitals-highmark-allegheny-health-network-vision-cancer-transplant-heart-rehab/stories/201711030169

Amazon Photo: https://www.buffalorising.com/2017/09/amazons-hq2-is-a-golden-opportunity-for-the-heartland/

Lawrenceville Photo: https://www.nextpittsburgh.com/city-design/artist-dan-kitchener/

Blade Runner 2049: Cinematic Marvel, Box Office Fiasco

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Blade Runner 2049 was released in October, and was largely unsuccessful at the box office.

To call Blade Runner 2049 a disaster would be far from the truth. For thirty-five years, creating a sequel to Ridley Scott’s Blade Runner was considered (by most) a bad idea. The original 1982 Blade Runner is a cult-classic about a cop called a ‘blade runner’, played by Harrison Ford, who has to hunt down bioengineered people called ‘replicants’. The film revolutionized the sci-fi genre in style, tone, and thematic elements. However, Blade Runner 2049 seemed to do the impossible. Directed by Denis Villeneuve (the director of Oscar nominated films Sicaro and Arrival), the sequel is currently boasting an impressive 87% on Rotten Tomatoes, 8.4 on IMDb (the 63rd highest rated movie of all time), and is even gaining considerable Oscar buzz. Villeneuve made a film that kept the flair of the original while adding more to the story, justifying its importance as a sequel.

 

However, to call Blade Runner 2049 a success would also be far from the truth. The sequel had a significant budget of 150 million dollars (not including marketing), but bombed at the box office, only raking in 31.5 million domestically its opening weekend. It then dropped 52.7% to 15.5 million in its second week, and 54% its third week to 7.2 million. This put its domestic earnings at 54.2 million dollars after three weeks, which is barely even ⅓ of its budget.

 

To put this into perspective, the recently released Thor: Ragnarok had similarities to Blade Runner 2049, being a sci-fi movie with a high budget of 180 million dollars and critical praise. Its opening weekend, it earned 116 million dollars and after three weeks, has earned approximately 278.5 million dollars domestically. Now, Thor: Ragnarok is a very different product than Blade Runner 2049, being a part of the very financially successful Marvel Cinematic Universe, but it is clear from this that Blade Runner 2049 is a box office blockbuster bomb. But if the original was so revolutionary, why wasn’t the sequel a hit?

 

A lot of signs point to the marketing in the trailers. Most trailers today give away a lot of the movie. To reconsider Thor: Ragnarok, the trailers gave away what could have been an amazing surprise: that Mark Ruffalo’s Hulk was in the movie. However, they sacrificed that surprise by making Hulk a large part of their marketing campaign. Blade Runner 2049 refrained from that route. Ninety-nine percent of the plot was held in secret, and all that was really shown from the trailers is that Ryan Gosling plays a new blade runner and Harrison Ford is in it. This sense of curiosity is a double-edged sword. While this is what a trailer should do, general audiences are used to having big, exciting trailers that are almost like their own movie. Trailers are so important now that there are even trailers for trailers. Since Villeneuve and his marketing team left most of the movie a secret, Blade Runner 2049 sacrificed making the quick buck for a rare and intriguing moviegoing experience.

 

Another aspect that led Blade Runner 2049 to becoming a box office disaster is that it’s an unconventional blockbuster. The film is nearly three hours long, finishing at two hours and forty-three minutes. Not only is this asking a lot from the audience to sit through, it’s also hard for movie theaters to show a lot of viewings because of how much time it takes for each screening to play. The film also deals with a plethora of complex themes, and has many ambiguous questions that are left unanswered by the end of the film. Most general audiences are not interested in this type of complicated film, and prefer their blockbusters to be uncomplicated popcorn flicks that are fun to watch (examples are the Transformers movies and a majority of the superhero genre). It is also rated R, which means a lot of youth can’t see it without an adult, and a lot of adults can’t see it if they have kids they don’t want subjected to nudity, cursing, and intense violence. Unfortunately, Blade Runner 2049 is a slow, insightful film that is trying to appeal to a demographic too large for its market.

 

One of the biggest reasons that Blade Runner 2049 is a financial wreck is that it’s coming out thirty-five years after the original. Blade Runner isn’t like the Star Wars franchise that’s continued on through huge box office prequels, multiple TV shows, and an extensive expanded universe before it released a thirty-two year sequel. The original was also not financially successful, and had to go through multiple different cuts before even earning its cult-classic label. A lot of general audiences have heard of Blade Runner, but it’s a guarantee that most haven’t seen it. It’s gritty, very slow-paced, and R-rated like its sequel. It’s also a highly recommended to see the original before viewing the sequel, and if most people get bored watching Blade Runner, chances are they won’t be paying to see Blade Runner 2049.

 

It’s sad that Blade Runner 2049 was a financial failure, because it’s the type of blockbuster that audiences deserve and should support. It’s a film that makes the viewer think while providing what can only be described as visual extravagance, opposed to something like one of the Transformers sequels that are just a bunch of pointless explosions. One can only hope that audiences can become more accustomed to blockbusters like Blade Runner 2049, but there’s always the chance its Oscar campaign is successful and that the critical praise will lead to high DVD sales.

 

Footnotes:

https://www.rottentomatoes.com/m/blade_runner_2049

http://www.boxofficemojo.com/movies/?id=marvel2017.htm

http://www.boxofficemojo.com/movies/?id=bladerunnersequel.htm

http://www.boxofficemojo.com/movies/?id=bladerunner.htm

 

A Nation of Drone Regulation?

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Over the course of American history, there have been a countless number of shifts in the role of regulatory bodies and how they function. The most recent change occurred when there was a power shift on January 20th, 2017 – the date of the 45th Presidential Inauguration. This, of course, marked a shift in power in the scope of partisan politics, but it also marked the beginning of an administration determined to make sweeping overhauls. However, in the case of the federal government creating a plan of action towards the future of drone regulations, there is no clear path. It is evident that there is no clear cut solution towards how to implement drone policy in conjunction with the Federal Aviation Administration.

The sales (and subsequent use) of drones in a recreational sense was something that really took off in the past decade. Before the turn of the century, drones were typically the subject of ongoing developmental projects by military personnel of countries across the globe. However, the use of the drones as a recreational gadget just started to grow amongst consumers over the past few years. In fact, sales were estimated to have surpassed one million units during the 2015 fiscal year. As these machines quickly became such an attractive item for consumers to play around with, it became clear that the FAA was not ready for the regulatory issues that came with personal drone usage.

Although the FAA tried to be proactive towards dealing with these issues by setting broad rules and regulations, the requirements that are currently in place are seen as too broad by many. There have also been a great deal of issues that continue to arise with drones being used amongst unlicensed hobbyists. Incidents over the past few years have sparked major debates amongst regulatory bodies and common citizens alike. From August of 2015 to January of 2016 alone, the FAA reported that there were nearly 600 incidents involving drones flying too close to airplanes and airports. There have been concerns of drone usage creating danger and havoc and all types of areas. Obviously, the thing to consider in the scope of this statistic is just how specific this type of incident is. Though this statistic only measures how many cases there were involving commercial air, there were still nearly six-hundred occurrences over a six month period. The issue with drones potentially interfering with commercial aircrafts as well as restricted airspaces is one that should not be taken lightly. However, this is only one of the many issues that is being actively discussed when talking about the regulation of personal drone usage – and regulators in various roles are taking note.

As the drone industry is anticipated to grow into an industry that millions of United States citizens are involved in, this leads the conversation to two questions: Is the federal government going to protect this industry and allow expansion in order to help the sustained success of this industry? If so, what measures will be taken by the FAA and the federal government in terms of regulating airspace and licensing drone operators? This is an issue that the Trump administration has recently began to tackle head on during his first year in office, as President Trump signed a memo which instructed the Department of Transportation to devise a plan to make it easy to fly a drone for commercial use in US airspace. Clearly, the specification of commercial use is incredibly important to recognize, but this is a critical step forward towards the protection of prevalent drone usage in the United States.

The conversation now moves to the FAA and how they will react. They have built a very strong framework that outlines every regulation dealing with commercial airlines, but the influx of rules and modifications to existing regulations in order to address the new shared airspace could lead to huge blowback from the airline industry. It is clear and simple – the airline industry wants no part in a shared airspace with drone users – especially when the requirements to operate a drone are very relaxed (as it stands.) There would need to be a tremendous overhaul to how the FAA regulates personal and commercial drone usage in order to get a general framework agreed upon.

After all, there are large pockets of people who are opposed to any drone usage at all. Obviously, most see the merits of their use for search and rescue missions, but there are a significant amount of people concerned about safety, personal privacy, and general irritations that could come with a country that has drones delivering packages to front doors. Drone usage and industry protection are certainly favored by the current administration, but there are clear hurdles to overcome in order for this industry to be sustainable in the long run. There are no clear paths as to where exactly this industry is heading, but the drone industry certainly holds vast potential in being a major power for the future.

 

— Matthew Gary

As E-Commerce Grows, Department Stores are Dying Out

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Customers fight over Black Friday sale items at Walmart.

As Thanksgiving approaches and people stock up their food pantries for the big meal, retailers are preparing themselves for their biggest day of the year: Black Friday. One company that is looking to make a rebound after a streak of recent losses is Toys-R-Us. In September, the company filed for bankruptcy as their long-term debt now totals over $5 billion [1].

As one of the world’s largest toy store chains, Toys-R-Us joins a list of other retailers that have been forced to take this proactive measure to try and save their company. Gymboree, Payless ShoeSource, and rue21 are other notable retailers that have had to file for bankruptcy in just this past year. In addition, there are thousands of retailers that have had to close stores and lay off employees in an effort to cut costs [1].

Why are retailers doing so unsuccessfully recently? It all starts with the fact that they are competing with online shopping and a worldwide powerhouse in Walmart.

Shoppers are now making a majority of their purchases online. A survey annually conducted by an analytics firm found that, for the first time in history, more people shop online than in stores. Shoppers in 2016 made 51% of their purchases online, as compared to 48% in 2015 and 47% in 2014 [2].

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2016 marked the first year online shopping took over as the most-used method of shopping.

In addition, the National Retail Federation predicts that online retail will grow between 8-12% this year, which is three times higher than the growth rate of the wider industry. The Census Bureau proposes that e-commerce sales are poised to be in between $427 billion and $443 billion this year. In comparison, brick-and-mortar retail, which is composed of typical retail stores, is expected to grow at just 2.8%, slower than the average rate of growth for the overall industry [3].

As technology has grown, so has people’s laziness. They can now shop in the comforts of their home, and no matter how much retail stores try to replicate that for their own stores, they won’t be able to match online shopping’s convenience.

However, even with all the failure that retail stores have been having recently, Walmart has still been able to grow as a company. In fact, they are making more now they ever have before. How are they accomplishing this feat? Well, it all starts with their outlook on their company.

While other companies are so focused on how the profit and loss statements for their company and how much debt they are in, Walmart focuses on how they can save people more money. The companies that are failing are the ones that constantly worry about the numbers and their profits. Instead, Walmart puts all of their focus on how to best run a business that will attract customers.

What can retailers do now to turn their businesses around when the industry they’re in as a whole is declining so quickly? Well, they could adapt their business mindset towards Walmart’s. Their current mindset is most likely that they are just a business trying to sell products to people. They could start to cater to what their customers really want and what they can afford. Until they make this change, retail stores may continue to have a streak of failures and the industry may be obliterated altogether.

[1] https://www.nytimes.com/2017/09/19/business/dealbook/toys-r-us-bankruptcy.html?&moduleDetail=section-news-2&action=click&contentCollection=Business%20Day&region=Footer&module=MoreInSection&version=WhatsNext&contentID=WhatsNext&pgtype=article  

[2] http://fortune.com/2016/06/08/online-shopping-increases/

[3] http://www.businessinsider.com/national-retail-federation-estimates-8-12-us-e-commerce-growth-in-2017-2017-2

[4] https://www.forbes.com/sites/louisefron/2017/05/31/why-wal-mart-is-winning-in-a-losing-industry/#12dd75bc44d5

Palantir: The Silicon Valley Unicorn No One Knows About

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Go to your local Starbucks and ask someone to list the most powerful technology firms today – you’ll probably hear Google, Facebook, Apple, or Amazon. Compared to these firms, Palantir has largely gone unnoticed, yet it may have just as much influence in our daily lives as its peers. Valued at $20 billion in 2015, Palantir shares its spot with Airbnb, Xiaomi, and Uber as one of the world’s most valuable tech startups.

 

The name “Palantir” comes from J.R.R Tolkien’s Lord of the Rings. It is a dark crystal ball that allows its user to see any part of the world. Palantir Technologies Inc. plays a similar role for its clients by funneling data sets through its software interface to create intuitive maps and predict the future. The NSA, FBI, CIA, law enforcement agencies, various military agencies, and even the IRS have used “Palantir Gotham” to make sense of the enormous amounts of data they’ve collected. The Pentagon used Palantir to track patterns in roadside bombs. Infowar Monitor used Palantir to uncover China’s cyber-espionage operations, Ghostnet and Shadow Network. Palantir is even rumored to have helped track down Osama Bin Laden. 

 

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Saruman searching for Chinese hackers (Colorized TA 2953)

 

Palantir’s sensitive “big brother” clients have kept the company private with minimal publicity, but that may soon change as the company is mulling an IPO in 2019. Over the course of 10 years, Palantir has slowly shifted its business from counterterrorism towards the commercial sector. “Palantir Metropolis” helps hedge funds, banks, and financial services identify trends and anomalies from various data sets. Today, commercial contracts generate approximately half of Palantir’s total revenue.

Not much is known about Palantir’s business model, but the company is expected to turn a profit for the first time this year in its 13-year history. A report by Zion Market Research predicts the global advanced analytics market to reach $60.44 billion by 2021, growing around 33% per year. Palantir seems poised to capture this growing market. Its European operations have tripled revenues since 2013 and cash burn rate has decreased by 60% across the company, according to Alex Karp, the company’s CEO and co-founder. However, it will face intense competition from established players – IBM, Microsoft, and Oracle.

For now, it is uncertain whether Palantir will follow through with its plans to go public in 2019. With a growing commercial demand for big data analytics and trends in global counterterrorism and information warfare, Palantir’s potential for explosive growth should not be overlooked by tech investors.

Amazon Go’s New ‘Just Walk Out’ Shopping

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Many companies today are using the power of technology to create competitive advantages for their businesses. Now more than ever, industries are attempting to meet the needs of their customers through supplying affordable products at a fast-pace. Amazon is one of the world’s leading electronic commerce and cloud computing companies. The use of the Internet allows for customers to purchase varying types of products from companies from all over the world in a quick and easy manner.

Amazon continues serving customers on a timely and convenient manner by extending their brand: Amazon Go. On Monday, January 22, the company debuted their cashier-less convenience store to the public. This store is only located near the Amazon spheres in Seattle and is open from 7am – 9pm, Monday through Friday.

Before Amazon had opened their new store to the public, Amazon Go was only open to the company’s employees for nearly 14 months. The features and benefits of this convenience store align with the target market: office workers who are pressed for time and want to quickly grab food on the go when they are hungry. The company’s goal is to eliminate the time customers wait in line to purchase a simple item, such as a sandwich or a bottle of coconut water.

Amazon Go wanted to innovate the brick-and-mortar shopping experience by intertwining the combination of shopping at a physical location, while using the internet to actually pay for the products. The store is only 1,800-square-feet. Similar to most convenience stores, Amazon Go offers a beer and wine section, a variety of pre-made sandwiches, salads, and other typical breakfast, lunch, dinner and snack options. Amazon also offers customers the opportunity to purchase “chef-designed Amazon Meal Kits” that contain all the ingredients needed to make a home-cooked meal for two in thirty minutes. Unfortunately, there is no hot food selection.

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Customers are required to scan their phones as soon as they enter the store.

Amazon has coined this new way of shopping as “Just Walk Out” shopping. Customers must have the Amazon Go app and an account to be able to shop in the store. As soon as they walk-in, they are required to scan their phones. They are then able to help themselves while grabbing the product that they want, putting it in their bag, and then walking out without having to physically check out. The customer will then receive a receipt on their Amazon Go app of the items they purchased and then be charged on their account. If there is an item that they did not put in their bag, they have the ability to remove the item on their phone and not worry about being incorrectly billed. Amazon is following the honor system because they are just that confident in their technology. The company believes that they would be able to pinpoint sketchy behavior  because of the data collection of customer’s shopping patterns.

Amazon GO pic 3
Amazon Go’s sensory detected technology hang throughout the ceilings.

 

You may be wondering how exactly the technology behind this process works. Similar to technologies used in self-driving cars, Amazon Go uses “computer vision, sensor fusion, and deep learning” to automatically detect the actions of the customer. Whenever a product is taken from or returned to the shelves, the “Just Walk Out” technology will keep track of each product in a virtual cart.

Although the store is cashier-less, there are still Amazon employees at the actual store that help with food preparation, assisting with any questions customers may have, and checking for valid ID for alcoholic purchases.

With cashiers being the second-most-common job in the United States, many people fear  that this technology could potentially reduce the number of cashiers needed. [1] However, Amazon stated that their goal is not to scale down the number of retail employees, but instead to expedite the convenience store experience in not having to wait in long lines.

 

On the day of the store opening, there was already a large crowd trying to get in and shop. Only a specific number of customers are allowed to enter the store at once; thus, the long line almost defeated the purpose of a quick and easy trip to the local store. Following the debut, almost a week after, customers are still having to wait outside before entering.

The concept of being able to walk into a store, purchase whichever product you desire, and then walk out changes the experience of shopping.  Many people, especially office workers and college students who are crunched for time, would greatly benefit from Amazon Go. As a college student, it would be very useful purchasing a small snack on the go and not bother taking out my wallet and having to wait in a long line to purchase the item. One drawback  is that I may purchase more items than necessary because of how I do not have the time while waiting in the check-out-line to reflect on whether I actually do need an item.

The company has not stated whether they will expand Amazon Go outside of Seattle. Thus, it will be interesting to see what will lie ahead for your average brick-and-mortar store and if other companies will follow Amazon’s lead in using technology for their shopping experiences. For right now, however, if you are ever in the Seattle area and you want to satisfy your hunger, you should definitely stop at Amazon Go.

Sources:

https://www.seattletimes.com/business/amazon/amazon-go-cashierless-convenience-store-opening-to-the-public/

https://www.amazon.com/b?node=16008589011

[1] https://www.ranker.com/list/most-common-jobs-in-america/american-jobs

Is Tesla Pioneering a New Age of Compensation Plans for Executives?

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Elon Musk has always been a dreamer. He has been a visionary in space travel in the 21st century with his company SpaceX while also revolutionizing the automobile industry through his company Tesla. He is considered one of the most powerful people in the world by many standards. However, his new contract as CEO of Tesla could result in him not making a single penny from the company in the next ten years.

On January 23, Tesla announced that Elon Musk would stay on as CEO for the next ten years. During this span of time, Musk will not receive any guaranteed compensation. For Musk to receive any compensation for his work, he must reach certain performance objectives that Tesla has set for the company. Tesla has broken the objectives down into two separate categories: market cap milestones and operational milestones. Each category consists of 12 tranches, or levels, that Musk much reach in order to gain more compensation. Both the market cap milestones and operational milestones must be met in order for Musk to move up a tranche. Upon completion of each tranche, Musk will receive “stock options that correspond to 1% of Tesla’s current total outstanding shares.” With 1.69 million outstanding shares, Musk has the potential to gain approximately.

Tesla CEO Performance Award-2The market cap milestones are based on Tesla’s market valuation. The first tranche is completed once the company is worth $100 billion. Each subsequent tranche is completed for every $50 billion added to Tesla’s value, topping off at $650 billion. Musk is optimistic about his ability: “I actually see the potential for Tesla to become a trillion-dollar company within a 10-year period.”

The operational milestones Musk must meet are slightly different than the market cap milestones. For these, Musk only needs to reach 12 of the 16 levels to reap the full benefits of the payment plan. The 16 levels are divided into two categories, revenue and Adjusted EBITDA, of 8 levels each. The revenue path is simple; when Tesla’s revenue reaches each level, it will have been completed and can be used to move up a tranche, granted that the market cap milestone has already been met for that level. Adjusted EBITDA is Tesla’s earnings before interest, taxes, depreciation, and amortization. This essentially measures a firm’s profitability; if Musk can increase the profits of Tesla then these levels should gradually be completed over the next ten years.

The new payment plan for Musk comes at a time of concern for the company. Musk has been ambiguous in the past about continuing as the CEO of Tesla. However, this new deal ensures that he will stay on for the next ten years, either as CEO or as the Executive Chairman and CPO of Tesla. Regardless, Tesla has just locked down one of the most innovative minds in the world for ten years, something shareholders should be very content with. This news also comes just weeks after Tesla delayed releasing the production targets again for the Model 3. Tesla has been on fire lately, but Musk must continue directing the company towards new heights if he wishes to be compensated for all of his time and effort.

With Tesla being one of the leaders in the automobile industry lately, Musk’s new payment plan may spark similar plans from other companies. In regard to the effect of the new compensation plan on Tesla shareholders, compensation committee chairman Ira Ehrenpreis stated, “It’s heads you win, tails you don’t lose.” If Musk reaches all tranches of the plan, then he would have increased Tesla’s valuation by almost 11 times its current amount, a feat that is almost unthinkable in a ten-year span. This would be fantastic for shareholders as their shares would correspondingly increase in value. If Musk fails to meet even one tranche, then the shareholders do not need to pay the CEO that failed to do anything for them. This plan puts the majority of the responsibility for the company on Musk and it is up to him to move this company forward if he wishes to be compensated for his work.

Other companies should develop similar compensation plans to shift more accountability to the leaders of companies. If all executives in companies are not given guaranteed salaries but rather compensated based on performance of the company, then these executives will ostensibly put much more effort into their work and moving their companies forward. Shareholders will no longer have to worry about paying the salary of a CEO who fails to do anything for the company. By increasing accountability, top executives will strive to make their companies better, which can only mean good things for the average consumer. Elon Musk has the confidence in himself to achieve the goals set forth by his company, but do other Fortune 500 executives have the same faith in their own abilities? Only time will tell, but Musk’s new plan may be the start of a new age in compensation for executives.

Sources:

https://www.nytimes.com/2018/01/23/business/dealbook/tesla-elon-musk-pay.html

https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/profile/elon-musk/&list=powerful-people&refURL=&referrer=

http://ir.tesla.com/releasedetail.cfm?ReleaseID=1054948

https://www.wired.com/story/musk-model-3-tesla-production-delays-january/

Racial and Gender Diversity in the Workplace: The Country Needs to do Better

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Increasing the diversity of their employees should be a top priority for companies.

The United States is getting more and more diverse with every year that passes. For the first time in the country’s history, a majority of children (50.2%) under the age of five were classified as being part of a minority ethnic group [1]. As a result of the country undergoing this change, it has led to a more diverse workforce. In fact, according to ArchPoint, the minority working-age portion of the workforce is projected to double from 18% to 37% from 1980 to 2020, while the white population is projected to decline from 82% to 63% during that same period [1].

However, even though there has been an increase of diversity in the workforce, many are still not being treated equally. Resumés submitted by people with African American-sounding names are 14% less likely to get a call back than those with white-sounding names. In addition, an increase of diversity in the workforce has not lead to an increase in more diverse top executives. In fact, only 1% of all Fortune 500 companies have African American CEOs [1].

Women are also trying to change the diversity of the workforce. Hoping to increase their job opportunities, there are now more women than men that are receiving four-year bachelor degrees. Men are 30% more likely to be promoted from an entry level position to a manager position compared to women of equal caliber [1]. Despite this, in 2015 there were still fewer Fortune 500 CEOs who were women (4.1%) than who were named David (4.5%) or John (5.3%) [1]. The fact that two single male names outnumber an entire gender in high positions in companies is a strong indicator of where our country is at in the gender diversity of their companies.

Increasing racial and gender diversity in the workplace has long been a goal of Human Resource departments of companies. However, no matter how much companies claim it is a top priority of theirs, their plans have been ineffective to date. This might be because they have not had the correct mentalities.

The mere idea of increasing diversity is not enough for it to be done. It cannot happen “naturally.” Instead, companies need to create a specific hiring plan that has goals and expectations so when they are in the middle of job interviews for an open position, they can revert back to those goals before they make a final decision. Currently, people of color are not regularly encouraged to apply for job positions, let alone apply for the higher up positions in their companies, even though they are just as qualified, if not more, than their white counterparts. Diversity is created through understanding, recognition, planning and execution of the plan companies create themselves [2].

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UPMC’s newest Chief Diversity and Inclusion Officer James. E. Taylor.

An example of a company taking the initiative to make their company more diverse through their hiring process can be found close to home. UPMC recently announced James E. Taylor as the new Chief Diversity and Inclusion Officer. His goal in his new position will be to lead UPMC’s efforts to continue as an employer, provider, and insurer that reflects and embraces the rich diversity of the Pittsburgh region in both employment and in the services they offer to their patients [3].

Making companies more ethnically and gender diverse is a worthy investment for all involved.  Besides the fact that employees are more likely to be happier working under an inclusive company than a non-inclusive company [1], there could also be financial benefits. In fact, ethnically diverse companies are 35% more likely to outperform their respective national industry medians. Additionally, gender diverse companies are 15% more likely to outperform their respective national industry medians. Similarly, companies reporting highest levels of racial diversity in their organizations bring in nearly 15 times more sales revenue than those with lowest levels of racial diversity [1].

Inclusion in the office provides many benefits for businesses and their employees. However, we will continue to see lackluster improvement in diversity of companies in the country until these companies recognize there needs to be a change in the thought process of how they hire.

[1] http://archpointgroup.com/the-state-of-us-workplace-diversity-in-14-statistics/

[2] https://www.huffingtonpost.com/marshall-cannon/racial-diversity-in-the-w_b_7192414.html

[3] http://www.upmc.com/media/NewsReleases/2016/Pages/james-taylor-cdio.aspx

Is Crowdfunding Helping or Hurting the Cause of the Sharing Economy?

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The term crowdfunding, defined as a source of alternative finance where a project is funded through raising small amounts of money from a large population, usually through the internet, is taking off in a big way in the United States and throughout the world.  It is estimated that there are over 2,000 crowdfunding platforms for a variety of different purposes (real estate, consumer products, business ideas, etc.) with more than $34 billion raised through these combined platforms in 2015 alone.[1]  For reference, this is more than the $30 billion raised in venture capital each year and is, therefore, a force to be reckoned with in the world of investing.

There are a number of implications that pertain to all industries that utilize crowdfunding and implications that are more industry specific.  All industries, for example, utilize one of two primary methods for crowdfunding: equity and non-equity.  Naturally, equity crowdfunding involves the raising of capital and contributions through the disbursement of equity or shares in the organization.  Non-equity or “rewards-based” crowdfunding involves an exchange of financial contributions for non-equity things, which can include almost anything the fundraiser wants to give away.  Examples could include anything from physical items or non-physical rewards like naming rights or social media shout-outs.  Both equity and non-equity crowdfunding platforms have been effective in a variety of industries.

Moreover, both equity and non-equity strategies have been effective in their own ways depending on the platform.  The largest non-equity crowdfunding site, Kickstarter, has alone raised over $3 billion in financial contributions for thousands of organizations all over the world.[2]  Equity crowdfunding sites in 2013 alone have funded over 300 projects.[3]  That sort of power should have traditional investment platforms scared.  The ability of crowdfunding platforms to scale massively to meet the needs of worldwide projects and for capital allocations to come from anywhere in the world means crowdfunding platforms have a wider reach and more sources of capital than any other source of investment.  While this does not necessarily translate to a complete industry disrupter, like ride-sharing or home-sharing companies, industries once dependent on traditional sources of capital now have new means of funding their projects.

Take the real estate finance industry for example: there are many projects looking for funding all the time, and only so much traditional investment money to be allocated to those projects.  In addition, the barriers to entry for small businesses often prohibit smaller real estate projects from taking a seat at the table and working with larger investment banking institutions.[4]  However, platforms like AngelList, EquityNet, EarlyShares, and other equity crowdfunding companies remove some of the barriers to entry, like capital requirements and professional experience/credentials.  Each organization still has some restrictions in place, including some form of minimum committed investment (usually around $25,000) or some documentation filed with the SEC.  On the whole, platforms like these allow projects to become financed where there may not have been the opportunity before.  These include projects like YOTEL San Francisco, a high-tech, mid-market property with 203 rooms and an onsite restaurant that sought a portion of its equity (10-15%) through equity crowdfunding.  AKA United Nations Hotel-Condo is another project, a $95 million extended-stay hotel and condo project with around $12 million in contributions from equity crowdfunding.[5]

Another industry being disrupted is the technology market, both on the consumer level (remember the Fidget Cube?  That project was crowdfunded for $6.5 million[6]), to larger projects focused on advanced manufacturing and robotics.  There is now a community of startup incubators, consultants, thought-leaders, and of course, crowdfunding platforms, solely dedicated to crowdfunding technology startups.  With such a tight knit but expansive community, startups often eschew Wall Street in favor of crowdfunding platforms; they can do it all from the comfort of their couch (provided they have access to WiFi).

Moreover, it is important to note that not every project has to be successful for the idea of crowdfunding to continue to eat into the market share of traditional financing institutions.  TechCrunch identifies many tech startups that have failed for one reason or another (poor leadership, too little funding, competition, etc.)[7]  One of the most dramatic examples is Star Citizen, one of the most funded projects in Kickstarter history, which to date has amassed more than $150 million since the campaign launched in 2012.  However, that sort of money has been more hurtful than helpful, pushing back the launch date of the game as the creators kept expanding the scope and features of the game.  With no declared publish date for the game as of this writing, the question still remains if the game will ever launch[8]. There are hundreds more examples of projects falling through despite substantial monetary backing via crowdfunding.  However, the point is that a community for these niche projects exists, and that community has a much deeper pool of “investors” and capital than traditional investment institutes thought possible.

Finally, let us not forget the additional benefit that crowdfunding provides: a sense of ownership in the project.  When individuals participate in crowdfunding a project, they do not just send their money away without having the opportunity to get to know the project.  Crowdfunders have the choice to become an active supporter and champion of any particular project should they want to.         

One prominent Pittsburgh example of non-equity crowdfunding is the Superior Motors restaurant project by acclaimed chef Kevin Sousa.  The project raised $310,225 from over 2 thousand backers over a period of one year.  Tiers of rewards were used, varying from $25 dollars for a twitter “shout out” to $10,000 dollars for a fully funded function of the contributor’s choice.[9]  This type of project, with local community support and rewards that give back, is why crowdfunding is taking off.

There has never been this level of personal involvement in large-scale projects like these in my lifetime.  Giving individuals a voice in this way allows people’s dreams to come true, and allows project contributors to help them come true.  The disruption we see in this industry is a good thing, and instead of killing off or threatening traditional enterprises like Uber did to taxis or Airbnb did to hotels, I think more opportunities will come out of crowdfunding, not less.

[1] https://www.forbes.com/sites/chancebarnett/2015/06/09/trends-show-crowdfunding-to-surpass-vc-in-2016/#7aa3e9914547

[2] http://crowdsourcingweek.com/blog/top-10-usa-crowdfunding-platforms/

[3] https://www.cnbc.com/2015/10/02/hotels-join-the-crowdfunding-craze.html

[4] https://www.entrepreneur.com/article/289213

[5] http://time.com/money/4019013/crowdfunded-condo-aka-united-nations-new-york/

[6] https://www.kickstarter.com/projects/antsylabs/fidget-cube-a-vinyl-desk-toy

[7] https://techcrunch.com/2017/02/27/2017-crowdfunding-guide/

[8] https://www.nytimes.com/2017/05/10/technology/personaltech/video-game-raised-148-million-from-fans-now-its-raising-issues.html

[9] https://www.kickstarter.com/projects/379429428/superior-motors-community-restaurant-and-farm-ecos

Fox, We Hardly Knew Ye

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There are several principles that always ring true in the world of business, and these principles transcend time, cultures, and trends. One of those key principles is this: things are always changing. No matter how prestigious or ostensibly powerful something may seem, if it can’t keep up with the times, it simply gets lost to the times. But, another interesting tidbit about business is that one always needs to expect the unexpected. So, for many in the media industry, it was an unexpected shock when, in November, it was reported that media mogul Rupert Murdoch approached Disney, then later Comcast and Verizon about selling off much of the assets contained within the massive media empire of 21st Century Fox. The company, which contains the Fox film library, also contains assets related to FX, FXX, National Geographic, and more. If this deal were to occur with one of these companies, it would leave 21st Century Fox with its broadcasting company, its affiliate stations, Fox News, the Fox sports networks, and various networks in other countries such as STAR in India and a portion of Sky broadcasting. So, why would this media mogul want to sell such a massive portion of one of Hollywood’s most historic film conglomerates? Is it a sign that, perhaps, this media empire cannot keep up with technological change like other titans can, or is there an ulterior motive at hand?

Well, it is important to put the company’s market position into perspective when discussing what one may define as a success or failure. Over the past couple of years, 21st Century Fox has seen a trend in its annual earnings in which overall revenue has increased, but these increases are mainly attributed to the fees charged to local Fox affiliates as well as advertising fees on cable networks. Fox’s original content has actually seen revenues decline over the last couple of years. [1] If these issues are ostensibly correlated, it becomes somewhat easier to pinpoint why the company is considering such a deal, but revenue fluctuations happen in many companies at many different points. It would be irresponsible to point the proverbial finger directly at some small year-to-year trends on the company’s 10-K. As such, it also becomes important to bring a company like Disney into this discussion for a couple of reasons. For one thing, Disney does own a majority of the market share in several key Fox markets like television and film. [2] However, it also has a lot to do with Disney’s attempts to hold onto its market prestige by establishing intentions to create its own direct-to-consumer streaming service using its own film and television content, which both separates it from services like Netflix and Amazon while, somewhat ironically, adopting those companies’ respective technologies as PBR’s own Ronny Rineer pointed out in October.

Of course, this article is not about that particular matter, but it does concern itself with understanding the fact that, in a rapidly changing entertainment landscape, it is important for each conglomerate to establish itself in the new or cutting-edge technology or else risk falling behind in the market. Based on the words of management, it would be fair to assume that Fox already knows this. Following the release of the company’s earnings in August, it stated that it was optimistic about how “skinny-bundled” streaming services would affect the company’s business and was considering the possibility of launching its own streaming site. [3] But, these “projections” run a little deeper than some positive analysis in a news article. In the entertainment industry, direct-to-consumer models are a topic of conversation of which even Fox cannot escape from. In a September Goldman Sachs conference, Fox executive Lachlan Murdoch was questioned directly about said services and then answered in a way that one might or might not consider to be antagonistic to the company’s involvement in the issue.

While L. Murdoch acknowledged that there was a possibility that all companies would go direct-to-consumer at some point, he maintained that, at that point, it was more beneficial to continue utilizing a multiple-content provider model because exclusivity models have the potential to hurt the consumer. Within that discussion, there was the revelation that Fox had made a deal to give most of its FX library to Comcast for a $5.99 a month premium service for customers — perhaps a hint of things to come but also an act in alignment with Fox’s supposed line of thinking as it pertains to opening up its library to multiple content providers. Murdoch also stated that, of all the assets within Fox, STAR was the one most likely to grow, as it had a $1 billion EBITDA target by 2020. [4] Now, if this was not mentioned before, it is very much worth mentioning now because STAR was not part of the reported list of potential sales items. It should also be mentioned that the Fox broadcasting network and its profitable affiliates are also not a reported part of this “fire sale”. So, do the Murdoch’s really believe that Fox’s film and TV properties have little growing room? Is STAR really going to be the prestigious media property of the future that replaces an entity that has produced the likes of The Simpsons, Titanic, and a robust number of Marvel films…or is something else at work?

Another important factor in this conversation is that 21st Century Fox is not the only key building block of the Murdoch empire. The second key conglomerate in this pool is News Corp, which mainly owns news and publishing assets such as the Dow Jones firm, the Wall Street Journal, MarketWatch, HarperCollins, the New York Post, the UK tabloid The Sun, realtor.com., and many other news industries within the U.S., UK, Australia, and other countries. Until 2013, News Corp and Fox were one entity until it was decided that the two would split.

It is thought by some that Rupert Murdoch’s true interest and passion lies with news-based products and services. If this were to be the case, then the selling off of this great media empire could just be the case of a man who knows where he wants to focus his long-term investments and let the consequences fall as they may. [5] It also makes a lot of sense when one considers how much of a grasp companies have on their respective markets. Look at it this way: Disney may own ABC News but News Corp owns everything you see above — as well as all of the digital advertising rights that come with them. It doesn’t look like Disney will dominate this field in the near future, and Murdoch, one might surmise, already knows this story by heart. Of course, one may have ideas as to what the Murdochs may want to do next, but caution must always be exercised in weighing such claims.

It also needs to be said that even if News Corp is truly Murdoch’s pride and joy, even it is not a spectacular golden goose that always lays golden eggs for its shareholders. Over the past few years, News Corp’s global earnings have declined as well, and those declines have a few key areas in common: lower print advertising revenue, foreign currency fluctuations, and declines in the newspaper and publishing business. Yet, the company has seen recent successes with sites such as realtor.com and also with increases in digital subscription revenues and upticks in its real estate investments. [6][7] It does need to be said, also, that the company attributes some of its increased losses and expenses to various acquisitions for its news and information services division. [8]

There is something to be said here about what one may describe as a media empire. A vast asset pool filled with local affiliates and means of absorbing advertising revenue may not necessarily be the sexiest asset group one has ever seen, but perhaps Rupert Murdoch is no longer concerned with being hip and modern. In today’s increasingly competitive day and age, perhaps Murdoch and others at Fox are just acutely aware of the means by which the company is most likely to thrive in the long term.

21st Century Fox’s film and TV assets have suffered some losses over the last few years, but so has News Corp, and Murdoch does not appear to be so keen on slimming that down, at least for now. It is difficult to predict with reasonable probability what actions Murdoch will take next. However, given the actions that have already been witnessed, there might be some key ideas to take away from these developments. I’ve already proposed that a change in media habits and the subsequent growth of new and existing powers like Disney and Netflix, respectively, might have led Murdoch to reevaluate Fox’s long-term viability.

However, it is a brave new world for online applications as well. News Corp has seen upticks in its online subscription revenues, and for someone like Murdoch, whose conglomerate owns assets like MarketWatch and The Wall Street Journal, it opens up a plethora of possibilities. Of course, Murdoch also has to contend with reality in regard to News Corp’s current state. Print revenues are down and foreign currency fluctuations have also gotten in the company’s way. So, in theory, it means that one has a viable company that needs some patience and restructuring to keep its long-term viability. When framed from this light, it becomes completely understandable as to why Murdoch is taking News Corp via the fork in this metaphorical road and is, as a result, choosing to slim Fox down to assets that are either growing or making a consistent profit.

In the end, as one can probably surmise, this potential merger posts a lot of implications for the world of media, and, despite the analyses present in this article, there could still be a lot of factors that have not yet been brought to light. As a singular writer, I cannot pretend that I know either the true intentions or business mindset of Murdoch, his family, or his executives. However, what this scenario provides is an interesting look at how changing trends can alter the landscape of power in the blink of an eye. When the dust settles, only one thing will be certain, and that is the fact that the changing times wait for no one, not even Rupert Murdoch.

 

[1] https://www.sec.gov/Archives/edgar/data/1308161/000156459017017693/fox-10k_20170630.htm

 

[2] https://csimarket.com/stocks/competitionSEG2.php?code=DIS

 

[3] https://www.reuters.com/article/us-fox-results/twenty-first-century-fox-revenue-misses-profit-tops-estimates-idUSKBN1AP2H3

 

[4] https://www.21cf.com/sites/default/files/uploaded/investors/presentations/goldmansachsconf-lkm-transcript-sept2017-corrected_0.pdf

 

[5] http://www.vulture.com/2017/11/21st-century-fox-rupert-murdoch-broadcast-tv.html

 

[6] https://www.theguardian.com/media/2017/aug/11/news-corp-posts-817m-loss-after-falls-in-value-of-newspaper-and-pay-tv-assets

 

[7] https://www.theguardian.com/media/2016/aug/09/news-corp-posts-28-decline-in-global-earnings-despite-real-estate-boost

 

[8] http://investors.newscorp.com/secfiling.cfm?filingID=1193125-17-257248&CIK=1564708