April 2008 Archive
Once there was an automaker that was struggling to reverse its years of poor performance. One could say it had to change its ways from that of a light-hearted grasshopper, hopping and sawing away in the summertime, to that of the diligent ant, droning away on the assembly line of management plans and strategic forecasts and stuff. The auto company even divested its grasshopper-like sports and luxury nameplates, so you know it was serious.
And all this hard work paid off! The end.
Wait — that’s not our moral. Hold on. The automaker found that, much like the little red hen down the street who planted the wheat, harvested the wheat, ground the wheat, and made the bread, now that it had dough, all the other animals wanted in.
In this case, the investor. The investor said, “Hmmm, I’d like part of that bread.” And the automaker said, “Uh, that was just an analogy. We don’t actually bake bread, we build cars. You mean, you want to buy up nearly 6% of our stock?”
“Yep,” said the investor.
“Well,” said the automaker. “The last time you bought large stakes in car companies, you tried to take over one and force another one into an alliance.”
“Oh, that won’t happen this time,” said the investor. “We don’t even want a seat on the board. In fact, don’t mind us, just go about your business. We’ll just be right here, nice and quiet, raking in dividends. You do have dividends, right?”
Now at this point the car company was probably thinking of another fable, the one about the fox and the scorpion.
In this one, a scorpion asks a fox to carry him across a river. The fox demurs, saying that the scorpion will sting him and he will drown. “No,” said the scorpion, “for if I sting you, I will drown right along with you.” So the fox agrees, and he takes the scorpion on his back across the river. Right at the other side, the scorpion stings the fox! And the fox cries out, “Why? why?!” and the scorpion says, “because it’s in my nature.”
On the other hand, in this case, the investor was validating the car company’s hard work and recent success. And as the automaker points out, anyone can buy stock in a public company. But it sure seems like it would be against Kirk Kerkorian’s nature to remain a passive investor for long — though it is doubtful his sting would be a mortal wound. Still, it’s going to be very interesting to see what comes of this turn of events.
Oh yeah, moral of the story: Investors aren’t scorpions. Carmakers aren’t foxes. And the little red hen needs a better business plan.
A front-page article in the Wall Street Journal yesterday highlights the common practice among US hospitals of requiring up-front payments from uninsured or under-insured patients before they’ll provide treatment.
The story describes the plight of Lisa Kelly, a Lousiana woman diagnosed with leukemia and referred to cancer hospital M.D. Anderson for care. Though insured under a limited-benefit plan sold by AARP and underwritten by UnitedHealth, she wasn’t able to get treatment at Anderson unless she agreed to pay big sums of money ($45,000, $60,000) beforehand.
The practice isn’t new, nor is it limited to M.D. Anderson. (For-profit operators HCA and Tenet follow the practice, as do not-for-profits and state-supported providers.) Hospitals have for years been plagued by bad debt, or the unpaid medical bills left by uninsured or underinsured patients. And they have found a number of ways to deal with the problem — policies that have led in part to a financial rebound in the industry. Among those new methods are better case-management practices that identify patients who can be enrolled in Medicaid. Requiring prepayment is another tactic, since it’s much harder to collect on bills after a patient has left the hospital or finished treatment.
Prepayment requirements are reserved for people who theoretically can pay, since care for indigent patients can be written off as charity care. And though Mrs. Kelly was insured, she had an insurance policy that wasn’t up to the kind of catastrophic costs she was facing.
Called a limited-benefit or mini-medical plan, her policy was likely good for covering doctors’ visits and minor costs, but probably had a relatively low annual cap and may have excluded certain services altogether. Such plans are popular for individuals not covered by their employers and businesses who employ lots of part-timers, but they’ve also become increasingly common offerings for the full-time employees of smaller businesses. Unfortunately, individuals purchasing the policies don’t always understand that they’re not good for handling major medical emergencies. And some peddlers of the products, including a Texas company called HealthMarkets, have come under fire for not adequately explaining the risks to their customers.
At any rate, Anderson wouldn’t accept Mrs. Kelly’s plan; as a de facto uninsured patient responsible for paying her own medical bills, she was forced to make payments up front. And though the practice may be common, the Journal article still manages to shock because of the personal story attached to it, which throws into stark relief the indignities such practices force on patients already under great strain from dealing with critical illness. (In one reported episode, for example, the hospital sent a bill collector into Kelly’s exam room to discuss payment before proceeding.)
Like almost everything related to the American health care system, this one’s a thorny issue. Hospitals provide services and, of course, ought to be compensated. But surely, surely we can do better than this.
It’s no secret that the cable television industry is going through a period of radical change. With consumers increasingly choosing different ways to get their entertainment, from video on demand services to online streaming to DVD purchases, media companies are throwing all kinds of innovative new distribution strategies at the wall and seeing what sticks. For studios Paramount, MGM, and Lionsgate, this means launching their own pay TV network to compete with the likes of HBO and Showtime.
This industry greeted this announcement with a noticeable lack of enthusiasm, if not outright skepticism that Paramount, MGM, and Lionsgate have any intention of launching the venture at all. It came on the heels of failed negotiations with Showtime to strike a new movie supply deal with the premium network. It has become extremely expensive for pay TV networks to get the exclusive rights to run movies, and they’ve been increasingly losing money on the deals because of the growing number of competing distribution avenues. As a result, Showtime demanded the studios lower their price (last year it paid $320 million to Paramount, MGM, and Lionsgate), the studios balked, and they bargained themselves into a stalemate.
In a surprise move, the studios said, “Well forget you, Showtime, we’re gonna launch our own channel then.” The whole thing reeks of the business equivalent of a child sticking out his tongue at someone who made him mad. Why, you ask? Because the whole plan is very sparse on details and seems hastily executed. Just look at the press release and notice the clues: It came out on a Sunday when it could fly under the media radar, the new channel has no name and is a year and a half away from launch, and it has no cable or satellite distribution partners lined up — which is unheard of when you launch this kind of endeavor; there’s always some sort of initial agreements in place before you go public.
Rightly, many analysts have wondered if the studios are merely using the announcement as leverage against Showtime. It’s somewhat of a cynical view that they would engage in such an elaborate game of chicken, but anything’s possible. I doubt it will matter though since Showtime, much like HBO, has long since expanded beyond the traditional pay TV model and become a hub of critically praised original series like Weeds, Dexter, and The L Word. In fact, given that HBO is in a bit of a creative rut now that they no longer have The Sopranos, Sex and the City, or The Wire, Showtime’s more than comfortable with their original programming and will likely respond with, “Whatever, dudes. Don’t let the door hit your you-know-what on the way out.”
Given the difficulty of launching any sort of new cable network, much less one that relies heavily on running movies from the libraries of three studios, will not be easy. Paramount, MGM, and Lionsgate tried to build enthusiasm by saying the channel will embrace video on demand capabilities and develop their own original series, but again, extreme skepticism is warranted. Show me, don’t tell me, guys.
It all started with the yogurt. Long thought an arcane, sour-ish, pudding-y substance eaten by elders in the Far East and obscure parts of Russia, US food purveyors put sugar and flavors in it, froze it up, and offered it for sale across the land at perky little shops with perky little kidfolks serving it up. Suddenly ice cream’s poor relative was hip and trendy, the words “I can’t believe it’s yogurt” falling from our sweetened yet benumbed lips as we gobbled up the stuff.
After that came latte, coffee’s high-falutin cousin, and we all know what Starbucks has done with what is essentially sweetened, coffee-flavored milk. Some 6,800 Starbucks stores in the US alone — need we say more?
Next on the scene, given Americans’ dual and dueling obsessions with healthy eating and sweets, came juice bars, of which Jamba Inc. is probably the largest purveyor. (It opened its 700th store in 2007. Maui Wowi has only around 500 sites; Planet Smoothie a mere 135.) And Jamba didn’t just offer sweetened, colored beverages. No, no, it used real juice, real fruit, threw in substances that were, when the company started out in 1990, known only to the health-food-store crowd (you know, old hippies, earth mothers, and others of the generally non-conforming sector of our society). Things like extracts from the leaves of the Ginkgo biloba tree and blue-green algae — things that Jamba said had healing powers. Even though it sounded so California — indeed, Jamba got its start in California and, even now, the great bulk of its outlets are in located there — we caved. We patronized the place. We stood in its often long waiting lines, which have abated somewhat, the company having figured out how to get their cute little smoothie servers to work more efficiently. And we paid five bucks for one of those babies. But, hey, they tasted so great, so fresh, and they were good for us.
The latte folks noticed. You-know-who added Frappuccinos and even Frappuccino Lights to lure us back to its coffee shops, the better to thin our waistlines and (surprise, surprise) fatten its bottom line.
But there’s another player in all this. The granddaddy of them all when it comes to selling Americans convenience, taste, and value, if not nutrition. Golden Arches anyone? The big McD had everything our poor little cast of “wannabe successful in the quick-serve restaurant biz” players had — yogurt, coffee, why, even, smoothies. (Although McD calls them Triple Thick Shakes and, on the good-for-you scale, they score pretty low, consisting in large part of fillers, colorings, sweeteners, and surprisingly, a good deal of salt.) And, while the burgers continued to flip their way into our tummies, McDonald’s successfully added breakfast to its offerings. The McMuffin was a breakaway hit from the beginning and it’s been going strong ever since.
But guess what? Starbucks noticed. Enter the faux egg-and-bread-product offering — queasy little hockey pucks that stank up the Starbucks venue with the greasy-spoon smell of eggs in the morning, out-aroma-ing what the company hopes is the heady, wallet-loosening aroma of its coffee. The pucks were yanked from the menu. The company went back to concentrating on coffee, particularly since McD has scared the corporate pants off of Starbucks by offering not-at-all-bad-tasting premium coffee at not-at-all-bad prices.
And now, in some strange game of musical breakfasts, Jamba has announced that 40% of us go without breakfast (horrors!) and it is going to do something about it (thank heavens). It just announced that it is adding a breakfast menu to its lineup. Tricky thing though, you can’t just plop a raw egg into expensive smoothies. We’re not looking for a cure for a hangover here. We want to get the customers in to our stores more often. We want not only thirsty customers, we want hungry ones as well. But it’s gotta be healthy.
Jamba says its breakfast menu, test-marketed last fall in Los Angeles and New York, will consist of all-natural baked goods, freshly squeezed juices, yogurt and fruit blends, and here comes what it thinks of as unique and healthier options, yogurt and granola blends. Naming them Chunky Smoothies, they range in price from $2.65 to $4.15. The Chunky Strawberry selection is made of bananas, strawberries, granola, and peanut butter blended with soymilk and yogurt.
Hmmm. A chunky smoothie? Does it come in an Oxymoron flavor?
When we last posted about First Solar, the thin-film solar module manufacturer’s stock had gone north of $200 a share. Now, after a few months of gyrations up and down, the stock has breached the $300 level and may be testing new highs on a daily basis.
This story is remarkable because the company went public in November 2006 at $20 a share. This 15x boost in price makes Google look like a value stock.
Earlier this month, Lazard Capital Markets increased its price target on FSLR from $250 a share to $300 a share, and the stock easily cruised to that target within days. The backlash came this week, as Collins Stewart downgraded the stock from “buy” to “hold.” It was the first time an investment firm had downgraded its rating on FSLR in nine months. Things might get crazy again next week, after First Solar reports its Q1 results April 30.
Not all solar power stocks are enjoying such good times, as investors have grown more skeptical and pickier about the alternative energy sector. LDK Solar got a clean bill of accounting health over its silicon inventory issues, and the SEC’s staff gave the company a pass. LDK’s stock, however, has been stuck below $40 a share for months. SunPower got spanked by investors last week by giving an outlook that was, well, not as sunny as expected.
Still, EMCORE recently sparked interest in its stock when it announced that it was thinking of splitting into two companies, Fiber Optics and Solar Photovoltaics. Fiber optics? That’s so 2000. Photovoltaic solar power: Now, that’s the ticket these days.