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Introducing the Central Social District

EpicentreAs real estate companies explore new combinations of retail, hotel, and residential living spaces, a recent ULI study (Adobe Acrobat required) suggests that businesses want to be in places where people can enjoy life, feel safe, and have a good time.

William Hudnutt III, an Urban Land Institute Senior Resident Fellow,  argued there are three new groups of people who want a return to urbanism. Demographically, he said, they can be described as: 'singles, mingles, and jingles.'

"...Singles are, of course, unattached adults; "mingles" are young couples who like the urban lifestyle and have no school-age children; and "jingles" are high-income empty nesters moving downtown for the urban amenities, culture, restaurants, and shopping."

"The new city is a metropolitan mosaic," Hudnutt added. "It is an interconnected network of nodal urban centers. This new pattern can be enhanced by a commitment to mass transit and to transit-oriented development." Developments like The Ghazi Company's Epicentre project (shown above) show how new construction can provide opportunities for redevelopment and revitalization of a community.

As real estate managers mull how to encourage traffic (the same type of issues that media types consider with the so-called Long Tail), they, like Westfield, will need to understand the economics of delivering much higher levels of customer service.

Link: The Future of Cities (Adobe Acrobat required)

Bidding for Neiman Marcus Draws to a Close

Neiman_marcus Three private equity partnerships are expected to submit bids today for Neiman Marcus, between an initial range of $95 to $105 a share. Business Week reports Neiman shares broke the $100 barrier for the first time ever.

The three groups are Bain Capital with Kohlberg, Kravis, Roberts; Blackstone and Thomas H. Lee; and Texas Pacific Group with Warburg Pincus. A fourth partnership of Apollo Management and Leonard Green & Partners pulled out earlier.

The deal is valued at around $4.6 billion to $5.1 billion, a premium of more than 25% to Neiman's closing price of $74.75 on March 15, the day before the company announced it was contemplating a sale. Neiman's credit card business is expected to be sold off separately, and has received four bids by itself. Neiman has been rated as the top luxury retailer and its $555 per square foot sales productivity (subscription required) outpaces all of its peers.

Goldman Sachs advised Neiman Marcus on the transaction (registration required).

Time for Lightspeed: Questions About the SBC IPTV Platform

2wireHigh projections for IP TV subscribers may actually be on target - but only because the carriers are going to be asking Madison Avenue, Hollywood and Wall Street to rethink the commonly accepted definition of a subscriber.

First, a little about the architecture of IP TV. Scientific-Atlanta will supply the IP video equipment for SBC's IP video operations center (VOC), two national IP video super hub offices (SHO) and 41 IP video hub offices (VHO), presumably under this timeline. Think of the VOC is a "command center" that will monitor the availability and quality of all of the content traveling through SBC's network. The SHOs receive, process, and encode video and TV programming from satellite feeds into IP packets. This content is then sent to the VHOs (typically one per major metropolitan area, such as St. Louis), via SBC's national IP-based network. SBC says they'll deliver U-Verse to some 18 million households by the end of 2007 - at a cost of between four to six billion dollars.

Compared to broadcast, cable or satellite TV systems, in which all content is continuously sent to every customer's home, SBC companies will use a switched IP video distribution system, where only the content the customer requests is sent. In any given month, a representative household might receive a thousand different channels, five hundred, or just a single episode of The Sopranos's fourth season.

While this is going to enable all kinds of nifty consumer-friendly applications to be accessed via the 2Wire set-top box, the traditional local advertising model is kaput - $80 million last year for the automotive sector alone, who trust advertising vehicles like roadblocks more than PVRs.

Likewise, Hollywood already has an architecture of participation in the form of intermediaries who are going to put some skin in the game, not passive distribution players. ShoWest is all about getting distributors to ante up, and competition between HBO and Starz provides billions of dollars to the studios, dollars that mean the difference between success and failure for thousands of films every year. Think of this as the Long Tail of the studios: a few great hits, and great marketing, ensure the company can produce all sorts of niche products that may or may not succeed.

Starz has negotiated VOD and IPTV rights to films released by Sony Picture Entertainment over the next 6 years, mirroring an earlier deal with Disney. These contracts include provisions for DRM and antidumping that limit the studio's ability to provide an IPTV carrier with promotional pricing, say a dollar, early in the PPV window.

Pro sports leagues are going to behave similarly - their business model is based on auctioning media rights to the highest bidder. They could care less whether fiber is going to the node, curb, or home. I agree with the basic premise of the force of the many (Microsoft Powerpoint required) - that's why I nag companies like Akimbo to think about how they can support logical groupings like commercial locations, or EchoStar about niche approaches to content such as fantasy sports.

Given all this, I have a hard time seeing how Wall Street is going to ascribe cable or satellite subscriber valuations to IP TV. At an install cost of $200-$300 per home, they may get higher subscriber numbers, but the initial value of each subscriber is going to be less than the current going rate of $3500-$4000 (subscription required). That's when carriers need innovation from companies like Brightcove to demonstrate IP TV is capable of sustaining stronger recurring revenue than the MSOs.

Link: Mark Glaser's OJR review of IPTV efforts from Google, Brightcove and others

Wal-Mart's Growing Local Influence

Walmarttv_1Wal-Mart rang up $285 billion in sales and $2.3 billion in profits worldwide last year, and its customers and employees didn't do so badly either, said H. Lee Scott Jr., the company's president and CEO, addressing this year's ICSC Retail Real Estate World Summit in Istanbul.

Wal-Mart's economic power with municipalities is on the rise as cities and states continue to struggle with the collection of online sales tax. Some estimates place Wal-Mart's annual sales tax contribution as high as $2.9 billion.  In the meantime, Amazon.com blames its sagging profitability on new requirements to collect sales tax, a complaint echoed by many small businesses. Federated Department Stores estimates that it spends $5 million a year just to remain in compliance with all local sales tax statutes, distinct from sales tax actually paid out.

Wal-Mart Stores Inc. spokeswoman Cynthia Lin said that voluntarily collecting online sales taxes was the right thing to do. "Many states are struggling with tax revenue shortages that affect funding for everything from schools to fire and rescue. This is our effort to help customers and the states they live in," she said.

The Next Great Shopping Meccas

DigitalphillyAs home buyers get priced out of the market, other cities benefit from the spillover effect. WSJ published an interactive feature on six cities:

  • Baltimore - driven by young families willing to commute to DC, and interested in upgrading Baltimore's historic real estate
  • Ft. Myers - a tourism-friendly retirement alternative to West Palm Beach, Boca Raton and Delray Beach
  • Philadelphia - NY and NJ workers are finding affordable living here, with most houses sold in less than 30 days
  • Phoenix - California immigrants can save $100K on a house here
  • Reno - San Francisco Bay home prices is driving younger families to take advantage of low real estate taxes and no state income tax
  • Seattle - Former Californians who have earned some equity seem to flock to Seattle and surrounding cities like Tacoma

Shopping centers near growing residential areas are well-positioned to enjoy decades of solid performance. As REITs perfect their urban infill capabilities, properties like the Galleria at Tyler have matured along with their population.

Why Bother Monitoring Web Site Content?

LanesboroughToday's WSJ (subscription required) tells the tale of $51 flights to Fiji, $1.86 US Airway flights, and £35 nights at the Lanesborough Hotel, or about US$67, instead of £350.

All of these deals were greedily snapped up by consumers, always online. In the past, sellers took comfort in their ability to rescind offers that were clearly mistakes.
Under contract law, a buyer enters a deal with a seller as soon as a seller makes an offer and the buyer accepts it. However, if the offer really isn't to be believed - in other words, if a reasonable person would recognize that it was clearly a mistake - then a court could rule that there was no offer, and therefore no contract.

Yet times are changing. From the same WSJ article:

"It is possible that some judges in a court of law might uphold a consumer's claim to some rock-bottom deals, according to Elizabeth Warren, who specializes in contracts at Harvard Law School. A retailer 'can say he's selling it all off -- and if the customer has reason to believe him, then the sale holds,' she says."

There are efforts to hold the landlord accountable for counterfeit goods sold at their property. Google was successfully sued by Louis Vuitton on similar grounds. If your web site posts information on retailer sales and events - and you make a mistake in the information that was posted - you are increasingly at risk of being held liable for economic damages.

With Spring, The Cerises Are In Bloom

Takashiripoffs_smallIt was bound to happen. As the New York Times reports, New York sidewalk vendors are well stocked with all kinds of variations of Takashi's Monogram Cerises handbag design.

The Santa Cruz Sentinel has some great advice for people who want the design without spending a fortune for it:

  1. First, steer completely clear of those manufacturers who avoid the law by making bags with different logos. You know, the interlocking G’s instead of C’s, random flowers and crosses instead of the LV print, etc. I’m serious. Run, don’t walk. Everyone will know, and you’ll look like a patsy.
  2. Study up on the real thing and find something with quality. It should have good leather and hardware, be sturdily put together and lined. If you wouldn’t buy it in plain black, don’t buy it in a famous print.
  3. A better solution to your cherry problem, however, would be to save up and get a wallet or coin purse that’s the real deal. The famous "pochette" bag is available on eLuxury.com for $355. Believe me, anyone who knows anything about designer bags will have more respect for a small, authentic piece than the largest and most convincing fake out there.

Great advice.

Broadband pundit Om Malik is shocked that some people will buy an MP3 player that is not an iPod, or buy a $400 PC when they can buy a $500 Mac Mini. Perhaps there are more creative ways to create entry points for a luxury brand.

The Evolution of Televised Entertainment

Majestic_175x189Fans of the Fox TV series 24 - and indeed, other shows like Lost, The Sopranos, and The West Wing - can take comfort in a feature in Sunday's New York Times magazine (registration required) that suggests that watching such TV shows actually makes you smarter, not dumber as usually demanded by conventional wisdom.

The argument is that "serious drama" - as distinct from episodic television such as Bonanza or I Love Lucy - has complex narrative structure, increasingly ambiguous resolutions to issues, and increasingly challenging situations. The author echoes an argument that I've made about how young adults have assimilated a videogame ethos into the way they generally consume media.

Four years ago Electronic Arts launched an ill-fated videogame entitled Majestic. The conceit of Majestic was that unlike traditional videogames, it extended itself into the real world and interacted with players not unlike yourself through fax, cell phones, and even messages written with lipstick on bathroom mirrors. I still believe Majestic was conceived well ahead of its time. Massively parallel games like The Matrix Online and The Sims needed time to develop, to the point where unexpected behaviors - like product placement - felt natural to its players.

As television companies increasingly look to DVD and IPTV as ways to recoup production costs - and perhaps give a second life to TV series that deserve it - they're going to look for ways, such as downloadable SAP to get viewers to watch the same product over and over. As Yahoo! goes Hollywood, I for one am excited to see how Majestic sensibilities will be tied into television.

McDonald's Pick 'n Roll Wireless Promotion

Mcd_pnr_phone_1McDonald's launched their NBA Playoffs wireless promotion in connection with their Internet-based promotion by the same name. If you pick the series winner and the number of games played, you score points. The top winner gets to see their team in action at some future point, and there will be 10 other winners that will receive a US$100 gift certificate from the NBA.com online store.

I think games like this are exactly what marketplaces need to do to increase what I call circulation, i.e., the number of stores shopped during a typical visit. Shopping center giant Westfield has made it a priority to bring in the retailers that enable shoppers to satisfy more recurring shopping occasions. For example, by replacing a department store component with a grocer, the mall gets much healthier traffic.

Google and others have recently released SMS tools that allow consumers to research movie showtimes, product pricing and driving directions. These are the kinds of tools shoppers will increasingly use to better manage their lives and determine where they are going to go to shop. Marketers like McDonald's and Westfield know that contests stimulate healthy sales traffic without training consumers to expect continuous price discounts.

The Half-Life of MP3 Business Models

KlipschdockKlipsch released a $400 speaker system that will work with any iPod. As Adam Baer points out in the New York Times, the increased audio quality comes with a price: perhaps for the first time, you will now be able to hear the distinct flaws so common to MP3 files.

This is an inheritance from the original CD mastering process itself: in the early days of the Sony/Philips collaboration that led to the CD - a process that Sony's outgoing CEO Nobuyuki Idei participated heavily in - there was much discussion about the loss of sound during the digital sampling process. As consumers become increasingly aware that 128 kilobit sampling rates are subpar, expect them to look beyond higher bit rates to find the audio systems (and DRM) to support their increasingly sophisticated tastes in music.

There's another snag: digital does not mean forever, which means the music CDs on your shelf will have a useful lifetime of 5 to 50 years (Adobe Acrobat required). Unlike vinyl, your CDs - and the hard drives you use for your iTunes and MP3s - are probably not going to be something you bequeath to your descendants.

Increasingly sophisticated audio systems, combined with unexpected storage requirements, create  openings for entrepreneurs. Future business models might take into account different bit rates (FM quality for free, DVD-audio quality for a premium). There's also the opportunity for unusual approaches: despite the physics of audio CDs, simply applying a special green paint to the edge of a CD has been reported to result in much better sound definition...a by-product of the way light bounces around inside a CD player.

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