Views on the Bailout, from Harlem to Wall Street

Outside Samuel's Temple Pentecostal Church on 125th Street in New York, Shirl Moody sits at a fold-up table with a donation basket. As she does every day, Moody, 40, is collecting funds to support the church and its activities for the East Harlem community. Small packets of candy like Skittles and York Peppermint Patties are laid out to stir the generosity of passersby. On this morning in late September, she has collected about $1.50. And now a reporter is standing in front of the table asking Moody about the $700 billion donation the U.S. government wants to hand to Wall Street and various banks.

Moody calls that plan a "sham." She says she doesn't trust Treasury Secretary Henry Paulson, President George W. Bush, or the lawmakers who say it's needed to save the stumbling U.S. credit markets. "I think they're trying to force people's hand just so they'll benefit," she says. Moody believes it would just extend the current state of financial affairs: "The rich get richer, the middle class gets poor, and the poor get poorer." Instead, she suggests, $700 billion could go toward addressing the growing homeless rate and stocking food pantries. And Moody does not fear the consequences of congressional inaction on the financial crisis. "How could it get any worse?"

A 10-mile journey on the No. 4 and 5 subway trains down the east side of Manhattan—from Harlem to Wall Street—reveals a wide range of emotions toward Paulson's financial rescue plan, which is nearing a vote in the Senate and a revote in the House. Many, like Moody andapparently a broad range of Americans, are fed up with the fat cats of finance and in no mood to bail them out. But from Harlem to the ritzy Upper East side, through the tourist bustle of Times Square, and downtown to the winding streets of Wall Street, people have vastly different takes on whether U.S. taxpayers should ante up the money. That point of view depends a lot on what each individual has at stake in keeping the current system solvent.

Big-Time Hustlers

Hop off the train at the 125th Street stop in Harlem, and you'll find few fans of the bailout. The once-impoverished neighborhood has developed quickly in recent years, benefiting from rising home values and an influx of chain stores such as the Body Shop and Pathmark. In theory, a bailout would keep that investment flowing. But Mantel Thomas, a 33-year-old social worker, sits at a Starbucks (SBUX) and compares the investment bankers who created the complex derivatives to "hustlers" on a street corner—the difference being that they're working on a massive scale, and probably with taxpayer money. He thinks some action is needed to prevent the pain from spreading, but isn't sure what will work. He thinks the threat to the U.S. economy as a whole is real and not just propaganda. Not that he expects a fair outcome: "If they send [the plan] through, will it actually help, or will we see more of the same?"

One stop further south brings you to 86th Street and Lexington Avenue, the edge of the fashionable Upper East Side. Just blocks from Central Park, this neighborhood is home of the high-end shops of Madison Avenue, high-rent apartment buildings and penthouses, art galleries, and the Whitney Museum of American Art. Residents are out walking a variety of pedigreed dogs, and groups of children are returning from private school in their uniforms.

Ronald Rieder, a 66-year-old professor and psychiatrist walking down Madison Avenue, says the markets are on his mind. "I spend a lot of time tracking it; I'm worried about my retirement funds," says Rieder, who is dressed in a beige suit, floral tie, and white sneakers. He says he thinks investment banks exhibited a "lack of foresight" as they created exotic derivatives from shaky mortgages. But unlike many of his uptown neighbors, he doesn't feel angry.

"I'm a psychiatrist— I deal a lot with feelings," Rieder says calmly. "Anger isn't going to help."

A Radical Solution

A few blocks down, Pia Byron, 28, says she's more confused than anything else about the plan. Byron works for a fashion advertising agency and is headed that day to her parents' apartment to celebrate Rosh Hashanah. She says she doesn't blame any one person for the financial mess but points to "systemic problems" that brought us here. Byron says she doesn't know if she supports the bailout, and worries that even if it passes, the current economic structure may not be sustainable. "We need a system geared more around everyone looking after each other," she says. "I wonder if it requires changing the whole foundation to balance the scales in some way. A radical solution could in a way be the most realistic."

Now it's back on the train and on to Grand Central Terminal on East 42nd Street. Walk west several blocks and you reach Times Square, where the ball drops each New Year's Eve and constantly flashing signs and advertisements keep things lit up 24 hours a day. For the past year or so this area has been filled with visitors from Britain, Germany, Italy and Japan taking advantage of the strong mileage of their currencies against a falling dollar. The Brown family from Leeds in Yorkshire is among them. Alison Brown, 51, her husband, son, and his girlfriend have been in town for a week of nonstop shopping.

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Nokia's Touch Screen 5800 Nods to iPhone

The new Nokia 5800 XpressMusic handset certainly looks like an iPhone. Same rounded corners, similar screen, and of course software operated with the touch of a finger. But don't—repeat, don't—call it an iPhone killer. With 40% of the global handset market, Nokia (NOK) is not in the business of copying puny rivals such as Apple (AAPL). Rather, Anssi Vanjoki, Nokia's executive vice-president for markets, calls the 5800 a "youth-oriented multimedia product made very affordable to the target audience of heavy music consumers."

Maybe a better description of the 5800 would be iPhone triangulator. No, the handset launched on Oct. 2 in London is not aimed directly at the hard-core iPhone crowd. But the 5800 does indicate how Nokia hopes to ensure that Apple remains a niche player in the global handset market. Nokia will try to smother Apple and other rivals with a range of touch products, aiming to peel away different target groups.

And Nokia will launch the products simultaneously around the world, exploiting a distribution system that neither Apple nor any other competitor can match. The 5800 can handle 60 different languages covering 90% of humanity and will be in shops all over the globe, including the U.S., before the end of the year, Nokia says.

Musical Bonus

As Vanjoki points out, the 5800 is designed for young folks whose lives revolve around music. The $407 price tag, before taxes and subsidies, is more than a third below that of an unsubsidized iPhone. And the 5800 will be available from a range of telcos, in contrast to the iPhone, which is officially available only from select providers such as O2 (TEF) in Britain or T-Mobile (DT) in Germany.

Perhaps the most important feature of the 5800, though, isn't hardware but the built-in music collection. Beginning next year, the phone will feature Nokia's Comes With Music service—a year's worth of downloads from a catalog that includes all four major labels and 4 million songs (BusinessWeek.com, 9/2/08). It may be the music, more than the device, that's really aimed at Apple. Anyone who buys a 5800, with a massive selection of music embedded in the price, is unlikely to pay for the same music on iTunes.

So how does the 5800 compare with the iPhone? It's more sophisticated in some ways, less so in others. The more compact 5800 has a one-finger touch screen, in contrast to the iPhone, whose surface can handle input from two fingers simultaneously. The iPhone's two-finger interface lets users do cool things, such as easily shrink or expand images on the screen. On the other hand, the 5800, unlike the iPhone, has a screen that vibrates ever so gently when you touch it, providing subtle confirmation that the device is responding to your command.

Sophisticated Insides

The 5800's inner workings also are more advanced. (Saying such things always generates hate mail from iPhone fans.) It's a fact that Nokia has much more experience than Apple—or anybody else, for that matter—in packing an astonishing number of radios and other electronics into a small package and making everything work reliably.

The 5800 has a better camera, including a Carl Zeiss lens. Its Internet browser can handle Flash files, which the iPhone can't. And it has built-in GPS navigation (as do the newest iPhones). Since Nokia hasn't yet released test versions of the 5800, it's impossible to say which is better. But given how much effort Nokia has put into navigation (it's already the world's largest maker of GPS devices), it will be a surprise if the new phone doesn't turn out to be more precise and better at snagging a satellite signal than the iPhone. Nokia will include an introductory subscription to voice navigation in the price. "It's increasingly about the combination of services that come with the product," Vanjoki says.

The 5800 should be seen as Nokia's first attack on the touch screen phone market. A real challenger to iPhone will come some time in the next few months, when the Finns unveil an Nseries device with a touch screen. The top-of-the-line Nseries handsets are the ones that most appeal to the same tech connoisseurs who have made the iPhone such a phenomenon. Vanjoki might let you get away with calling that product an iPhone killer.

Music Downloads: Is the Price Right?

A contentious battle between Apple and part of the music industry is set be decided today (Oct. 2), when a panel of judges appointed by Congress is expected to rule whether Apple (AAPL) and other online music distributors should pay higher royalty fees to music publishers.

The ruling by the Copyright Royalty Board affects not only Apple but also Amazon.com (AMZN), EMusic, RealNetworks' (RNWK) Rhapsody, and Best Buy's (BBY) Napster. Music publishers, who represent creators of song lyrics and sheet music, want an increase in royalty payments while Apple and the other companies are pushing for a reduction.

Their dispute underscores the larger debate over the best methods for distribution and how to divide the proceeds from online music sales. As more consumers access music over the Web and eschew compact disc purchases, a cross section of companies led by Apple has emerged as a conduit between consumers and the music industry, keeping a share of sales.

Publicly, Apple has railed against the prospect of a fee increase. During a 10-month trial that concluded earlier this year, Apple executive Eddy Cue claimed that a rate increase could narrow already thin margins and that the company "would not continue to operate [the iTunes Music Store] if it were no longer possible to do so profitably." The testimony fueled worry that iTunes, whose downloads have helped drive sales of iPods and iPhones, would shut down or drastically change its business model if a royalty increase comes down the pike.

Strange Bedfellows

Many within the industry expect the board to leave the current royalty rate unchanged at 9.1 for every 99 music download. The panel is due to provide the parties with a written decision on Oct. 2 before making it public on Oct. 6.

Music publishers would like to see the rate raised to 15 for every 99 sale, arguing that online music distribution costs much less than those of CDs, which also carry a 9.1 royalty. "You don't have to ship them, there aren't any breakage problems," says David Israelite, president and CEO of the National Music Publishers' Assn..

In an unusual twist, Apple's opposition to a royalty increase puts it on the same side of the debate as the Recording Industry Association of America, which represents record labels including EMI, Sony BMG, Universal Music Group, and Warner Music Group (WMG)—and is often at odds with Apple. Under existing agreements with online music sellers, the recording industry would be forced to absorb royalty increases, at least until it could strike new accords with Apple and others. Record labels currently receive 70 of every 99 song download. They, in turn, dole out the portion that accrues to publishers.

The RIAA and the Digital Media Assn. say the current rate is already too high and want it reduced to about 4 per download. Record labels are competing against music that's distributed freely, explains DiMA Executive Director Jon Potter. "It's a difficult thing to do," he says.

The 99 Price Is a Hit

If royalties are increased, Apple is unlikely to change its tune on what it charges per download. CEO Steve Jobs has adamantly clung to the 99-a-song price tag. And even if Apple eventually coughs up a few pennies a song, the company's bottom line won't take a big hit, says Trip Chowdhry, an analyst at Global Equities Research. The iTunes Music Store accounts for less than 5% of Apple's sales and just a sliver of earnings.

Analysts also don't expect much change in Apple's pricing or business model either. JupiterResearch surveys show that the 99 price strikes a chord with consumers. Higher prices and different approaches, such as subscriptions, apparently do not find favor with the mass market. "Going to subscriptions is not a simple solution," says Jupiter analyst David Card.

Ultimately, the music industry could suffer if Apple were somehow forced to raise its prices, some analysts say. "If the price is too high, everyone is going to go the other way, which is free," says Daniel Ernst, an analyst at Soleil-Hudson Square Research, which has a buy rating on Apple.

Whatever decision the board announces, it's highly unlikely to go uncontested. Parties to the dispute can petition the board to revise its decision within 15 days. If a rehearing is refused, combatants can appeal to the U.S. Court of Appeals for the District of Columbia Circuit. Congress is another means of recourse. Just this week, House and Senate lawmakers passed legislation asking the music industry and Webcasters to reconsider royalty rates that the board imposed on Internet radio stations in 2007.

Nokia’s Touch Screen 5800 Nods to iPhone

Nokia’s Touch Screen 5800 Nods to iPhone

The iPhone Apps Sweepstakes

At first, Jon Trainer had visions of retirement. The software developer had created a game that could be played on the Apple (AAPL) iPhone and iPod Touch devices, and sales were through the roof. Users of the iPhone couldn't get enough of the $7.99 Bullfrog Touch, which pits a ravenous swampland amphibian against a swarm of invading insects.

After two weeks, reality set in. "People moved on," Trainer says. The number of nifty new software-based games, tools, and other pastimes came flooding into the online App Store, elbowing aside early entrants. "As more and more applications got into the store, people weren't delving deeper into the list," Trainer says. The number of applications has surged to more than 4,000, from 800 when the App Store opened on July 10. Even a $3 price cut failed to revive Bullfrog. At this point, "it's not making enough money to be a full-time business," Trainer says, adding that he'll fall back on sales of his Mac desktop application, which keeps track of software licenses and is priced at $20 a pop.

In the latest Silicon Valley gold rush, scores of programmers have raced to perfect and sell their own wares through the App Store, spurred on by stories of overnight riches, including the $250,000 earned by makers of puzzle game Trism. But as the market gets crowded and prices plummet, many developers like Trainer are resetting growth and demand expectations. "Yes, we have gotten some people rich quick," says developer Erica Sadun. "So does the lottery." The odds of striking gold in the App Store, she jokes, are only slightly better.

Surpassing Revenue Expectations

Developers had reason to hope for an iPhone app bounty. In June, Piper Jaffray analyst Gene Munster predicted that if 91% of iPhone and iPod Touch users purchased $10 worth of applications a year, the App Store would generate as much as $1.2 billion in revenue in 2009. Today, a little over two months since the store's launch, the App Store already rings up $1 million in purchases a day, indicating potential annual sales of $365 million.

But considering how fast iPhones are flying off shelves, Munster's figure may prove conservative, says Richard Doherty, director of Envisioneering Group. "It's safe to say that some time this fall, the App Store is going to surpass revenues of all mobile application stores in history," he says.

And the market for mobile software is about to get even bigger, as Google (GOOG) introduces its own online application bazaar, Android Market, later this month. Microsoft (MSFT), Deutsche Telekom's (DT) T-Mobile USA, and other companies are thought to have new stores in the works as well (BusinessWeek.com, 9/5/08). "This is only the very beginning," says Shiv Bakhshi, an analyst at researcher IDC. "It's an immense opportunity. We are talking really big sums."

Taking a 30% Cut

Big sums for Apple, maybe. The Cupertino (Calif.) company takes a 30% cut of App Store sales. But even the most successful developers are seeing sales skyrocket and then plummet after a matter of weeks as other apps rush in.

AmerisourceBergen's Scrimp-and-Save Dave

R. David Yost is acutely aware of tougher times ahead for his customers. Consumers are cutting back on prescription drugs to save money and retailers are struggling with less demand. But the AmerisourceBergen chief isn't worried. The balance sheet of the drug distributor, which acts as a middleman between drugmakers and retailers, is strong. Besides, Yost has been tightening his belt for years.

Even in an industry known for its razor-thin margins, Yost is remarkably cheap. He answers his own phone, flies economy class, and rarely strays beyond a shortie turkey hoagie with provolone from the local deli near his sterile industrial park headquarters in Valley Forge, Pa. Yost, 61, admits that his $66.1 billion company could absorb the cost of getting him extra secretarial help and a more comfortable seat on planes, but that's not the point. "The leader is very important in controlling business costs," says Yost, whose headquarters lobby is decorated with plastic plants to save on watering.

While Yost's zeal to cut costs may strike some as absurd, his efforts have helped Amerisource thrive. And he thinks the current credit crisis won't swing the company off course. Not only has Amerisource held its own against rivals McKesson (MCK) and Cardinal Health (CAH), but leaner operations have helped it grow revenues 8% this year while the broader industry is growing half as fast. In the last quarter, Amerisource profits increased by 30%, excluding one-time sales; McKesson's and Cardinal's were up 8% and 13%, respectively. Yost's total paycheck last year (including stock options) was $4.8 million, less than half that of Cardinal's CEO and barely a sixth of McKesson's chief. "He is not flamboyant or flashy," says Banc of America Securities analyst Robert Willoughby, of Yost's inclination to be modest. Adds John W. Ransom of Raymond James & Associates: "At 1% margins, you have to be."

Now he's under even more pressure to watch the bottom line as his customers struggle to stay competitive. Amerisource relies heavily on smaller, independent chains that are fast being gobbled by big players, who may have contracts with the distributor's rivals. But Yost predicts volume will pick up over the long term. "The older we get, the more drugs we take," says Yost, settling comfortably into a 1970s-era plaid chair (the weathered green leather chair at his desk, which he inherited from the previous CEO when he took over in 1997, looks like a yard sale find).

George Barrett, the CEO of Cardinal's drug distribution arm, says that what matters in a leader isn't frugality but foresight. "I don't want our people to see me as cheap but instead very efficient and cognizant of the environment in which we compete," says Barrett. But Yost insists he can be all those things. While he pays competitive salaries to attract talent, he allows employees to fly business class only if they pay for an upgrade themselves. And they must book 30 days in advance to get the best price. Yost is also investing more than $100 million over the next three to five years to improve customer service technology, and he paid $400 million to spruce up company distribution centers and consolidate operations.

THE PAYOFF

Of course, new technology also brings new ways to save money. Plant employees now wear wrist bands connected to a thimble device on their finger that uses an infrared laser that reads the bar code of what they unload or pick up. Workers who move more product than average receive bonuses for the time they've saved the company.

If that sounds Orwellian to some, Yost doesn't much care. While the Amerisource chief may not be eager to spend a buck, he certainly knows the value a dollar holds for others. Amerisource has returned more than a third of its free cash flow to shareholders for the last two years and used the rest for core acquisitions. "The landscape is littered with companies that think they can do a lot of businesses well," says Yost, adding that he no longer trots out the cliche "stick to our knitting" because he fears it makes him sound stodgy. "We're focused on knitting faster, better, and more creatively than anyone else."

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IKEA founder Ingvar Kamprad shares Yost's passion for cutting costs. An April 2008 article in London's Daily Mail described the Swedish billionaire, with his faded coat and scuffed shoes, as looking like "another pensioner scraping by on a tight budget." Kamprad takes pride in furnishing his home with IKEA items he assembled himself.

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A Business Plan for the Catholic Church

Three years ago, Geoffrey Boisi set out to improve the way the Roman Catholic Church was being run in America. The former vice-chairman of JPMorgan Chase (JPM), Boisi had become increasingly dismayed with how the church was losing members, squandering talent, and managing the $105 billion it annually spends. Its reputation was declining quickly amid screaming headlines about sex-abuse scandals—especially in Boston, where Boisi was chairing the board of trustees at the Jesuit-run Boston College. Swamped with pleas for help from figures in the church hierarchy, Boisi reached into the business community to form the National Leadership Roundtable on Church Management.

Boisi has since brought together influential Catholic executives to design a business plan for the country's largest religious organization. Among the members of the volunteer group: Adobe Systems (ADBE) Chairman Charles Geschke, Korn/Ferry (KFY) Chief Executive Paul Reilly, former Freddie Mac (FRE) CEO Richard Syron, Gerard R. Roche of Heidrick & Struggles (HSII), and former McKinsey Managing Director Fred Gluck. Lawrence A. Bossidy, the much celebrated former chief of Honeywell (HON), has also lent his expertise to the group as a pro bono consultant.

Along with issuing guidelines for a financial audit of all 195 dioceses (the territory under the authority of a bishop), the group has created best-practice guides for church leaders in such areas as human resources and accounting and has won kudos within the Catholic community for helping restore the Catholic school system in Katrina-battered New Orleans. "All we're doing is applying those skills and experiences that we've had," says Boisi.

Skeptical of Lay Efforts

Of course, the group faces daunting challenges. While Vatican Cardinal William Joseph Levada, a native Californian, and about 50 U.S. bishops are working with Boisi, much of the church leadership remains skeptical about lay efforts to reform their business.

Still, Boisi's initiative is gaining traction at a time when the Catholic Church is under increasing attack. The number of Americans studying for the priesthood is down to 3,286, according to the Center for Applied Research in the Apostolate, with fewer than 500 expected ordinations this year. Even with foreign recruitment, the ratio of priests to parishioners in the U.S. is 1 to 1,600, compared with 1 to 650 in the 1950s.

While revenues from collections are inching up, expenses are rising faster because of aging facilities, mounting labor costs, and continued settlements from litigation over abuse charges. Also troubling to church leaders: 7.5% of Americans born into the faith no longer even identify themselves as Catholic, according to the Pew Forum on Religion & Public Life.

Enter the Leadership Roundtable. Veteran recruiter Roche says he was skeptical when Boisi asked him a few years ago to join the group although, like all the members, he felt a desire to help it thrive. "I told him the church is thousands of years old; it doesn't change a lot," says Roche, who now sits on the human resources committee, which meets several times a year.

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World Economic Forum: China Looms Large

There couldn't have been a more interesting time to hold the World Economic Forum Summer Davos 2008, which ran Sept. 26-28 in the eastern coastal port city of Tianjin, China. Just like at Davos, the organization's main event held every winter in the eponymous Swiss ski resort, the forum brought together a mix of business leaders, pundits, and policymakers, including Citigroup (C) Vice-Chairman William Rhodes, Ernst & Young CEO James Turley, and Lenovo Chairman Yang Yuanqing. Also attending were China Mobile (CHL) chief Wang Jianzhou, TCL CEO Li Dongsheng, Alibaba founder Jack Ma, and European Union Trade Commissioner Peter Mandelson.

And, as at Davos, there were the innumerable panel discussions, closed-door sessions, and networking as delegates, speakers, and journalists met throughout the sprawling convention center and at a scattering of hotel bars. But what made the second annual Summer Davos in China different, of course (last year's was held in the northeastern coastal city of Dalian), was the backdrop: first, a grimy, largely industrial port city—a far cry from the snow-clad Alps of Davos; much more importantly, the unprecedented turmoil in the world's financial system that dominated discussion for the 2,000 attendees. "Confidence is more important than the gold and currency at the moment," said Chinese Premier Wen Jiabao during the keynote address on Sept. 27.

So rather than just high-level pontificating (the WEF motto is "committed to improving the state of the world"), the three days in Tianjin were more serious business—in short, what comes next for a world economy facing tremendous challenges and uncertainty. Indeed, the Tianjin forum was much more about raising questions than answering them, many revolving around China. In particular, to what degree will the mainland, the world's most important rising economy, continue to drive global growth? And what leadership role might China play going forward?

U.S. Consumers Are "Toast"

First, the economic question: As the world economy reels, will China be able to move more decisively toward its long-term goal of building a more domestically focused, consumption-driven economy? And will China help cushion the impact of the likely dramatic slowdown in the more developed economies? Over the last 30 years, China's gross domestic product has grown from just 1% of the world's total, to more than 5% last year, Premier Wen pointed out in his keynote address. China's share of global trade has grown from less than 1% in 1978, the year the nation first opened its economy to the world, to about 8%.

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