Explaining Southern California's economy

Moody's raises a red flag about November California tax revenues

CA Governor Jerry Brown Holds News Conference On Pension Reform

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California Gov. Jerry Brown discusses pension reform during a news conference in Los Angeles. The state's revenue outlook deteriorated slightly in November.

The tax revenue outlook for California has been improving. But Moody’s, the big credit rating agency, reported Friday that the take for November was lower than expected. 

The agency wasted no time is raising a red flag about the sudden reversal of a positive revenue trend. November came in 11 percent lower than the state’s budget called for.

Emily Raimes, a Moody’s analyst with whom we've talked before at the DeBord Report, pointed out that the shortfall highlights the volatility of California’s tax revenues — a point I've been droning on about for months now. In the state, we're overly dependent on the incomes of the rich to make the budget work.

This is something that Raimes says Moody’s “sees in states with high wealth.” The same issue arises in New York and New Jersey. 

"California’s progressive income tax structure fuels the volatility; the wealthiest 15% of state taxpayers pay approximately 80% of all state taxes, according to the state’s audited financial reports," she wrote in a contribution to Moody's Weekly Credit Outlook.

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Disney earnings: This company is all about broadcast and parks

disney disneyland

Photo by KeithJ via Flickr Creative Commons

Sleeping Beauty Castle at Disneyland in Anaheim, California. The Walt Disney Company reported third-quarter earnings today, and parks proved themselves once again to be a revenue leader.

Disney just released earnings for its third fiscal quarter. They beat analysts' expectations in terms of profit, but the company missed on total revenues (although not by much). There's a story within that story, however, that relates to recent trends for the Mighty Mouse.

At about $11 billion, the company's revenue was up 4 percent from the third quarter of 2011 (Wall Street wanted more). Earnings per share were up 31 percent, from to $1.01 in 2012 versus $0.77 in 2011.

A decent quarter, but that's just the beginning of story. If you look at Disney's revenues, you see that stuff like the Disney Channel and ESPN — broadcast — and the parks and resorts business combined accounted for roughly $8.5 billion. That's...77 percent of total revenue for the quarter.

The movie business is at $1.6 billion.

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How much traffic is the Los Angeles Times willing to lose on new paywall?

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David McNew/Getty Images

The Los Angeles Times building as seen on the evening of September 20, 2006 in Los Angeles, California.

It's finally happened. The Los Angeles Times has joined the New York Times and the Wall Street Journal in charging for online content. It's a paywall, but they're not calling it that. They're calling it a membership program. And the switch gets flipped March 5.

LA Observed sums it all up (and also included LAT President Kathy Thomson's memo):

Freeloaders get 15 stories for free in a month. Otherwise, it's $3.99 for a week of digital access, less if you take the Sunday paper in print, the Times story says. There's a cheaper introductory rate of 99 cents for four weeks of what the paper calls a membership program, to go into effect March 5. Print subscribers get the online paper for free.

You can compare this with the New York Times paywall, which we learned earlier this month has managed to convince 325,000 folks a month to to pay for access the online edition. The NYT also charges a 99-cent four-week intro rate, but thereafter it jumps to $15-35, depending on whether you want full online, mobile, and tablet access. For now, the LAT is keeping tablet and mobile access free — perhaps because it's reportedly pursuing a proprietary tablet that may affect how content for the device is bundled. 

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Why not just start newspapers from scratch?

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AP Photo/Sang Tan

A man views a news stand displaying national newspapers, some carrying the story on WikiLeaks' release of classified U.S. State Department documents, at a newsagent in central London, Monday, Nov. 29, 2010.

It's becoming abundantly apparent that even a robust online presence can't rescue newspapers as we know them. The problem is simple: online revenue, while growing, can't replace the print losses. This has seriously undermined the profits margins of big-city dailies, from the New York Times to the Los Angeles Times to the Washington Post. Small-market dailies are having an easier time of it, but that's because they have lower costs to support and don't need to become online powerhouses.

This is from the Wrap:

Web traffic for newspapers keeps growing, but not fast enough for Washington Post staffers, who on Wednesday learned there would be yet another round of voluntary buyouts at the paper. 

The buyouts - up to 48 news staffers at the Post, according to the paper's ombudsman - are the latest in a new round of cuts at major newspapers as online traffic grows and overall unemployment numbers fall nationwide.

The average number of daily visitors to Washington Post's site jumped by more than 3 million, or nearly 15 percent, during the last quarter of 2011, according to a study released last week by the Newspaper Association of America.

The number of unique visitors over that period increased nearly 6 percent, while the total minutes visitors spent on the site rose by 14 percent.

But all those eyeballs are not translating into real money, or at least not at enough of a clip to cushion circulation losses and declining print advertising revenue. 

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Wall Street pays bankers more to keep them from being unemployed

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Chris Hondros/Getty Images

Andrew Ross Sorkin has a good column today on banker pay, which has declined as the fortunes of big Wall Street investment banks have turned south. However, he insists that we look to a more opaque metric: the compensation-to-revenue ratio.

For publicly traded banks, increased profits from rising revenue is supposed to be returned to shareholders. But as Sorkin notes, there's a battle between shareholders and employees for the pieces of that pie. When the revenue-to-compensation ratio is out of whack — well above 50 percent, for example — it indicates that employees are winning. 

This becomes especially apparent when the economy is in a bearish mood and revenues are lower. The conventional wisdom says that this is no time to cut compensation at banks. Sorkin expresses some mild skepticism at this notion:

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