Head of AOL parent open to merging online firm with another company

March 15th, 2008

AOL, the company that introduced millions of people to the Internet, has tried to reinvent itself many times. The latest effort - like those before it - does not seem to be going very well.

On Tuesday, Jeffrey Bewkes, the chief executive of Time Warner, AOLs parent company, acknowledged weakness in the business and said he was open to combining AOL with another company - “whatever configuration makes it the strongest and the most valuable.”

But he may have been soft-pedaling what seems to be an increasingly troublesome situation at AOL, which has bet its future on a new strategy of selling advertising across the Internet and spent more than $1 billion on related acquisitions.

On Monday, the third of four top executives put in place last summer to run the new advertising division, known as Platform-A, left the company. That executive, Curtis Viebranz, was fired and replaced by the executive who had been battling his strategy all fall, Lynda Clarizio.

Several recently departed executives contacted this week described the climate at AOL as acrimonious. They said there had been confrontational employee meetings and screaming matches in private offices as senior executives worried about making their aggressive quarterly ad sales goals. Bewkes acknowledged Tuesday that revenue at AOL would be flat for at least another quarter.

AOL still enjoys many advantages that most companies can only dream about, from a prestigious brand name to an enormous revenue stream ($5.2 billion in 2007, down 33 percent from 2006). AOLs Web sites attract 112 million visitors a month, and 9.3 million Americans still pay the company for Internet services. But these days, no Internet portal can succeed without a thriving advertising business, and that is where AOL is trying to shore itself up.

While the problems may amount to little more than growing pains at a business that is trying to compete with the likes of Google, Yahoo and Microsoft, they do suggest the obstacles that AOL faces as it tries to pull off its latest strategy, which was announced with great fanfare last August.

The goal is to expand AOLs advertising networks, which sell ads on thousands of Web sites, by knitting together the seven advertising and technology companies that AOL has purchased and rolled into Platform-A. Until recently these fiefdoms have continued to operate separately - in some cases, fiercely so.

“We were ahead of the curve in the creation of Platform-A and remain in a great position to compete in this intensely competitive marketplace,” said Randy Falco, the chairman and chief executive of AOL. “Our No. 1 priority is consolidating and integrating Platform-A to make it easier for marketers to harness the full power of digital media to solve their marketing problems.”

On Tuesday, Bewkes, who spoke to analysts at a conference in Palm Beach, Florida, confirmed that AOL no longer saw a meaningful future for its dial-up Internet subscription service, which may be spun off.

He expressed tepid optimism for the AOL Web portal, which has lost ground to Microsoft, Yahoo and Google, and indicated that the company meant to keep AOL.com and Platform-A together, saying that they complemented each other.

AOL remains the single biggest issue that Bewkes must handle. On the one hand, Time Warner needs a strong Internet operation to hedge against the declines in its traditional business. On the other hand, AOL has been troubled for years and may not have the scale or capabilities to survive on its own. Time Warner explored merging AOL with Microsofts online operation two years ago and is now discussing a potential deal with Yahoo.

If there is one thing that AOL executives do agree on, it is that the future of their business lies in advertising revenue.

AOLs overall revenues have declined as it has lost dial-up access subscribers. Its advertising revenues were $2.2 billion in 2007, up 18 percent over the previous year, but the pace of ad revenue growth has slowed each quarter, even as AOL bought companies like the ad network Tacoda.

AOL will not meet its goal for the first quarter of this year, according to several senior executives there. And advertisers say the company has fallen into a pattern of making frantic phone calls at the end of each quarter to offer last-minute price cuts on its ads, if only the client will buy more.

Hopes are high, as are the hurdles, for alternative fuel

March 15th, 2008

Biofuel, a technology once championed by Henry Ford and Rudolph Diesel, is roaring back into public consciousness after almost a century of oblivion.

Among the factors contributing to its comeback are soaring oil prices, climate concerns and government anxiety over dwindling oil reserves. The combination has led more than 40 governments to enact biofuel consumption mandates that not only set annual targets for adoption but also provide tax incentives and subsidies to the companies supporting this emerging technology.

To varying degrees, it is working. As of 2007, WorldBioPlant.Com, a database service created to track biofuel development, reports that there were 954 biofuel plants - 386 biodiesel and 565 bioethanol - in 56 countries with a cumulative output capacity in excess of 43 billion gallons, or 163 billion liters. Dig down into who is helping fund such projects and big oil names like Royal Dutch Shell, BP and Chevron come up, as do automakers like Daimler, General Motors and Volkswagen who get tax credits for producing vehicles that can burn “green” fuel.

Retailers, a vital link in the chain, are also beginning to jump on board. Last month, a biofuel producer in the United States, VeraSun Energy, made a deal with Kroger, a leading U.S. grocery chain, to sell its 85 percent ethanol blend at 20 of its convenience store locations in Texas. The fuel, known as E85, is intended for the small but growing rank of flex-fuel vehicles capable of running on either conventional gasoline or on high-percentage blends.

That the deal was done in Texas, home of many of the biggest U.S. oil companies, is symbolic of the growing interest in and legitimacy of biofuels as an alternative energy source. Whether and when that interest will translate into big profit for makers of biofuel is harder to gauge.

Biofuels account for a minuscule part of the overall fuel market. Biofuel sales reached $25.4 billion in 2007 - trailing only wind power, at $30 billion, in the alternative space - and are projected to grow to $81.1 billion by 2017, according to Clean Edge, a research firm in Oakland, California. Alternative fuels of all types, including fuel ethanol and biodiesel as well as synthetic crude and fuels, accounted for only about 2.6 percent of total fuel output in 2006, according to data released by Goldman Sachs International at the end of last year. Even with continued government support, alternative fuels are not likely to exceed more than 5 percent of the market by 2015, Goldman said.

“Biofuels in this country are clearly supported by government policy and not economically viable on their own,” said Marc Levinson, a senior commodities research analyst for JPMorgan. By support, Levinson is referring to the recently expanded U.S. Renewable Fuel Standard, which raised targets on biofuel consumption, including advanced biofuels - defined as cellulosic biofuels and biomass-based diesel - to 36 billion gallons by 2022.

In Levinsons view, there is “no way” the U.S. biofuels industry will be able to meet the targets. Levinson said he believed that the U.S. biofuel industry would either need to find more efficient ways of converting existing feedstocks into biofuel or turn to outside sources like Brazil, which is rich in sugar-ethanol but faces heavy U.S. import tariffs.

Brent Erickson, a former oil industry lobbyist and now an executive vice president of the Biotechnology Industry Organization, said he believed that the U.S. directive was not unrealistic: “It guarantees a market for biofuels” and is a “big risk reduction” for corporations and private equity that might want to invest. Erickson pointed to the Brazilian government, which adopted an aggressive biofuel policy mandate over 30 years ago. Today, some 40 percent of its total transport fuel comes from locally grown sugar cane turned into fuel for 75 percent of Brazils total automobile fleet.

As a form of combustible fuel, commercial biofuels come in two primary forms: fuel ethanol derived from fermented plant sugars and starches, and biodiesel made from plant and animal oils converted into fuel.

Critics of biofuels contend that they contribute to higher commodity prices and encroach on food supplies and that their production processes deplete the environment.

Given the growing criticism, policy makers have become more conditional in their support. In February, several members of the European Union called for a review of the 1998 Fuel Quality Directive as a means of enforcing stricter environmental and sustainability standards on biofuel procurement and use within the bloc.

To Martina Otto, who heads the energy and transport policy unit of the United Nations Environment Program, the backlash against current-generation biofuels is neither surprising nor wholly damning.

Amid a possible U.S. recession, debt collectors put on a gentler, kinder face

March 15th, 2008

CHICAGO: Just in time for a recession, the debt collection industry in the United States is working to shed its reputation for remorselessly hounding their targets.

The collectors still want the money. But now they would like to be seen as helpful and sympathetic, even a force for good.

They have started calling the indebted “our customers.” They are pushing consumer tips on the ideal way to respond when a collector comes calling (basically: pay up). They note that debt collecting is an old American tradition. (Some histories and biographies say that Abraham Lincoln, among many other things, was a debt collector.) They point out how, in a time of rising unemployment, they are hiring.

“Collectors actually care about consumers,” said Rozanne Andersen, general counsel of ACA International, the main industry trade group. “They want to teach consumers how to get out of debt. Theyre trying to put themselves out of business.”

If so, they are doing a poor job. So many people are in so much debt that the government says bill collecting is one of the fastest-growing U.S. businesses. By 2016, employment in it is projected to exceed half a million workers, up 23 percent in a decade.

When that projection was made in 2006, the times seemed comparatively good. Many Americans were paying their bills by refinancing their homes. That era is rapidly receding as home equity shrinks, foreclosures spiral upward and credit card defaults increase.

The data are scant on the number of debtors or how much they owe, but it is clear that even mild downturns can push millions toward insolvency. The number of borrowers who were at least four months behind on a credit card, auto, house or installment loan doubled after the 2001 recession, to nearly seven million, according to credit bureau data analyzed by a Federal Reserve economist.

When a bill goes unpaid, the credit card company, hospital, store or other creditor usually makes efforts to collect. If that fails, the debt is assigned for collection or sold outright to third-party agencies. In 2005, 150,000 such debt collectors took in $51.4 billion, a PricewaterhouseCoopers study indicated.

A weak economy yields more work for third-party collectors but not necessarily higher revenue because unemployed debtors as a rule cannot pay. The industry thinking is that if collections can be made less adversarial, the success rate may go up.

“Most of our customers want to pay,” said Gary Wood, president of DBA International, a group of debt buyers and collectors. “We want a relationship that will enable the customer to satisfy their need to pay what they owe and at the same time enable us to feed our families.”

ACA International, through its foundation, is developing a personal financial management course, which it plans to post on its Web site next month and promote in national newspaper advertisements.

A draft version offers a view from the collectors perspective: It recommends that consumers who are victims of identify theft contact the Federal Trade Commission, but does not say that they can do the same if they have complaints about collectors. (They can.)

“You attract more flies with honey than with vinegar,” the ACA foundations chairman, William Wilcox, said. “This is just a start.”

There is another reason for the collection industrys public relations push: tough economic times could bring more scrutiny of collectors by legislators and regulators.

“Collectors are in a jam,” said Robert Hunt, a senior economist at the Federal Reserve Bank of Philadelphia, who follows the industry. “The business is so big and the anecdotes so nasty, they cant hide.”

Much better, Hunt said, to take the initiative.

Even in the relatively good times in the middle of this decade, complaints about the industry consistently rose. In 2006, the most recent figures available, the Federal Trade Commission received 69,204 complaints against third-party collectors, more than quadruple the number in 2001.

Many people said the collectors misrepresented the character, amount or legal status of a debt. Others said the collector harassed them by calling repeatedly or continually, used obscene language or threatened dire consequences if no payment was forthcoming.

Collectors say the complaints are a tiny fraction of the hundreds of millions of communications a year they have with debtors, and should not be used as a lever to tighten regulation.

To protect its interests, ACA International, formerly the American Collectors Association, opened a full-time Washington lobbying office this month.

Another collectors group, the National Association of Retail Collection Attorneys, has hired a leading public relations firm, Waggener Edstrom Worldwide, and started pressing its arguments on Capitol Hill.