Business Update with Mark Lacter | 89.3 KPCC

What the Federal Reserve will tell us about the economy

Business Update with Mark Lacter — Tue, 18 Jun 2013 12:46:00 -0700

KPCC's business analyst Mark Lacter says we'll be getting some clues about the economy this week from the Federal Reserve.

Susanne Whatley: Mark, is this going to be a big deal?

Mark Lacter: Certainly not compared with last year, Susanne, when there was a presidential election and almost every jobs report took on a life of its own. These days, the economy isn't making front-page news because it's not been very newsy - just chugging along with incremental improvements, but not the kind of breakout recovery that often happens following a recession. You know, we're stuck in a kind of "yes, but…" stage. In California, job growth is outpacing almost every other state in the nation, but - as of April - it still has the fourth-highest unemployment rate in the nation (the May numbers are coming out later this week). As for housing, May home prices jumped almost 32 percent from a year earlier - the biggest year-over-year jump since 1980. Huge numbers. But, there are way too many buyers and not enough sellers, which means that inventory levels keep falling.

Whatley: I guess that means bidding wars…

Lacter: That's right - and, it leaves out lots of folks who want to finance because too many buyers are willing to pay all cash. So, while the market is coming back, there isn't a healthy balance of buyers and sellers. I'm sounding a little like Roseanne Rosannadanna - it's always something.

Whatley: What about the Federal Reserve pumping so much money into the financial system?

Lacter: That's one reason that the stock market has been doing so well, which is one reason the California budget has been helped along. But, the Fed can't keep pumping forever, which has folks concerned about what happens when - and to what degree - the stimulus measures are cut back (we might get some clues when they meet this week). And, there's sequestration - remember that? Washington was being forced to cut back severely, and it was supposed to affect government spending at all levels. Well, so far the effects on the overall economy have been modest.

Whatley: Any idea why?

Lacter: Possibly because the private sector has been doing quite well (people are buying cars, taking vacations, the stores are crowded). Maybe it'll stay that way, maybe it won't. The point is there's just enough uncertainty for the recovery to be less than full throttle - and that's why you're seeing growth that's good - but not great - and that's why the economy has become a pretty dull story.

Whatley: Speaking of low profile, what about the city of L.A. merging two of its most important departments?

Lacter: One of the most important proposals in years, Susanne, and very few people are paying attention. The idea is to merge the city of L.A. Planning Department with the Department of Building and Safety. It's a move that supporters believe will streamline development - what's often a frustrating process, and one of the reasons L.A. is considered unfriendly towards business. City officials are holding off until early next year to work out the details, of which there are many.

Whatley: What's the real advantage to merging the two?

Lacter: Well, city departments don't have a great history of working well together. The problem, in this case, is that these two departments serve very different purposes - the Planning Department is geared more towards projects as they relate to overall public policy, and Building and Safety is the enforcer of rules and regulations. You could just imagine the turf wars of having one side of the department signing off on a project, and another side putting up all sorts of roadblocks.

Whatley: Sounds like two departments with different missions.

Lacter: That's right - real answer, it seems, is not just joining two departments, but coming up with more efficient ways of processing applications. If it keeps taking months - or even years - for a business owner to expand in the city of L.A., it won't much matter what your organizational chart looks like. It'll still be a mess.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

Amazon offering delivery service in Los Angeles

Business Update with Mark Lacter — Tue, 11 Jun 2013 12:14:31 -0700

If you lived in LA County in the 1960s, you might remember the Helms bakery trucks that would bring food up and down residential streets. Donuts and bread, mostly, but it was very convenient. KPCC's business analyst Mark Lacter says that's changing.

Steve Julian: Mark, now Amazon's getting into the picture, about a decade after online grocery services popped up...

Mark Lacter: Steve, that was during the first dot-com boom in the '90s - except that the concept never quite caught on. So now, Amazon believes it can deliver produce, dairy, meat and other items you might find at a supermarket, and do it within just a few hours. And, along with groceries, they'll deliver many other products you can find on Amazon (books, DVDs, whatever). There's a 90-day trial, and after that membership for the service costs $299 a year - it will be part of the Amazon Prime feature. That covers delivery fees, so long as your orders are over $35. So clearly, this isn't for everyone.

Julian: They can make money doing this?

Lacter: Good question. Some would argue that Amazon is less interested in food - which ordinarily generates very small profit margins - than it is on electronics and other high-margin items that would be included in many of these orders. The grocery service - which is called AmazonFresh - has been operating in Seattle for several years, so presumably the company has learned from any mistakes it's made over that time. The most obvious challenge is quality control - it's one thing to order a printer, which is always made the same way. But, peaches comes in all shapes, sizes, and levels of ripeness, and someone will have to determine which is which. And what if produce goes bad, or gets damaged?

Julian: There's also competition -

Lacter: - oh yes, Southern California is one of the most competitive markets for grocery shopping in the world. It includes the major supermarket chains - of course - plus the membership stores, plus the big-box stores like Target, plus the smaller niche stores like Trader Joe's, plus the chains that cater to ethnic shoppers. Now, I would wager that the area where traditional retailers could be most vulnerable are bulk items like soft drinks, household products, canned goods - everyday items that are a hassle to shop for because you have to first drive to the store, and then deal with crowds in the store. If Amazon does manage to get past all the logistical and quality control challenges, it could represent a huge boost to online shopping. By the way, Walmart is testing an online grocery service, as well.

Julian: I hate to mention something as mundane as getting through traffic, but how will they deal with that?

Lacter: Actually, they're already doing it. A number of services are providing next-day or even same-day delivery. And Amazon has a huge distribution facility in San Bernardino, so it's becoming a lot easier to complete an order without having to rely on some warehouse two-thousand miles away. This is really the next step not just for Amazon, but for any business that feels the pressure to deliver as quickly as possible.

Julian: Drugstore items are a good example…

Lacter: That's right - if you're about to run out of aspirin, you want to get a new bottle as quickly as possible. Remember when you would place an order from a mail-order catalog, and they would say: allow four to six weeks for delivery? Well, now anything that takes longer than a week seems like a lot. And, even though next-day delivery becomes a huge logistical challenge, much of the work can be done in the early morning hours when traffic is light (actually, that's when a lot of food deliveries are made). Here's the thing, Steve: retailers are trying to somehow balance the convenience of online shopping with the immediacy of receiving an item at a traditional store - and you're seeing it at all levels.

Julian: This may be the first time in my life I can use a grammar school comparison, but digital is to newspapers as online delivery is to brick and mortar?

Lacter: As all these innovations play out, we'll be getting a better idea of just how vulnerable the traditional brick and mortar stores will be. So far, they seem to be holding their own, but some of these services seem pretty attractive.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

The future of expansion at Los Angeles International Airport

Business Update with Mark Lacter — Tue, 04 Jun 2013 09:51:54 -0700

KPCC's business analyst Mark Lacter says expanding Los Angeles International Airport was an issue during the LA mayor's race... and it's not going away anytime soon.

Susanne Whatley: New lawsuits have been filed, Mark. What's the story behind this headline?

Mark Lacter: Actually, that could have been the headline 10 or 20 years ago, Susanne - it just shows you how hard it's been to make changes at the airport, even though everyone agrees that changes are badly needed. This latest lawsuit has the cities of Ontario, Inglewood, and Culver City challenging a new project recently approved by the L.A. City Council. It would move the northernmost runway 260 feet closer to Westchester (but still within the confines of the LAX property). They'd use the extra space for a center taxiway that would make it easier and safer for those larger planes to maneuver (the current configuration was designed for much smaller planes, like the old 707). The project also adds terminal space and a car rental facility, but it's the runway that's been the source of the controversy.

Whatley: Neighborhood groups worry about the noise, of course; and now that Eric Garcetti won the election, what's his stance?

Lacter: Garcetti is opposed to moving the runway, and that position won him the support of voters in the area. So now, he has to stick to that opposition, but still push for the other projects. As for the lawsuit, it ensures further delays in the modernization effort. Under the best of scenarios, you're looking at several years before they even begin construction.

Whatley: If everyone agrees that the airport needs work, why all the delays?

Lacter: You have to pull back, Susanne - back to the 1940s when real estate developers were allowed to build homes on land that was close to what is now the runway. Remember that in those years, the area around the airport was a major center for airplane manufacturing, and the folks working in those factories liked the idea of living nearby. The problem is that when air travel exploded, there was no room for expansion. (Back in the 60s, there was a big push for having a major airport in the Antelope Valley and you can see how far that went.) The good news is that LAX has undergone any number of improvements in recent years, most notably the expansion of the Bradley international terminal that will be fully completed next year. That alone is a big deal.

Whatley: If LAX is bursting, wouldn't it make sense to add more flights out of Ontario?

Lacter: Well, city officials in Ontario would like to know the answer to that one. Ontario Airport is operated by the city of L.A. (has been going back to the 1960s), and in recent years passenger levels have been plunging. Now, the assumption has been that it was tough economic times in the Inland Empire that caused a drop in demand, and that might have been true during the recession, but it's not true now. Part of why Ontario is such a ghost town is that the airlines have focused more on LAX, which brings up another big reason for bypassing Ontario: it's too expensive for them to fly there. That's because landing fees and other operating costs are among the highest in the country.

Whatley: Does that mean fares are higher than at LAX?

Lacter: It does - that's the only way they can make money on Ontario routes. Actually, that works on flights that are heavy on business travelers. But, leisure travelers don't want to pay that much - even if it means driving 40 or 50 miles to LAX.

Whatley: The city of Ontario sued yesterday...

Lacter: Right, it alleges that the city of L.A. has mismanaged the airport and wants to take over operations. L.A. officials say they are interested in cutting a deal, but the two sides have been miles apart in negotiations. The next step is likely to be Garcetti's - he's spoken about the importance of regional air service (which sounds nice), but is more easily said than done because LAX - for all the complaints - remains the airport of choice for many travelers. So, whoever ends up with Ontario will have to figure out how to convince the airlines that it's worth their while to add more flights at lower fares.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

How the Dodgers' sub-par season could affect team finances

Business Update with Mark Lacter — Tue, 28 May 2013 11:50:20 -0700

KPCC's business analyst Mark Lacter says poor performances on the baseball field don't necessarily mean a financial burden for the Dodgers.

Steve Julian: If you've been following the Angels and Dodgers, you know neither team's above .500; in other words, they've lost more games than they've won. But, it's the Dodgers who have a new ownership group that's poured a LOT of money into the team. Mark, they can't be too happy with the season so far.

Mark Lacter: They actually played very well last night, Steve, coming from behind to beat the Angels 8 to 7. But, that still leaves them with a record of 21 wins and 28 losses - and, it still leaves them in last place in the National League West. What makes the story especially bleak is that the new owners, led by the investment firm Guggenheim Partners, paid a crazy amount of money for the team last year ($2.15 billion, which is way more than anyone has ever paid for a sports franchise).

Julian: And then the players.

Lacter: Oh yeah. They paid more crazy amounts of money for a bunch of free agents - giving the Dodgers the largest payroll in baseball. Of course, deal-making is never a sure thing - Rupert Murdoch certainly discovered that when he bought MySpace in 2005, and then the social media site took a nosedive in popularity because of a little outfit called Facebook. There also was the disastrous purchase of AOL by Time Warner, and the even more disastrous purchase of Countrywide Financial by Bank of America.

Julian: Now, to be fair to the Dodgers, it's still early - sort of.

Lacter: It is - not just for the season, but for the ownership. And, let's not forget the huge number of injuries the team has faced, along with a couple of key players off to a bad start. Of course, to succeed longer-term (and this is true for any business), you need more than a few breaks - the folks who follow this stuff say the real answer is to develop a strong farm system (as the Dodgers used to have), but that could take several years, and that's not fast enough for the fans who have been without a World Series championship for 25 years. So, for now, they're trying to become competitive by signing the most talented players they can get their hands on. The strategy makes sense, except that it doesn't seem to be working very well. Money always helps, but it's never enough.

Julian: Let's keep things in perspective: this is just one season. Does it really affect the owners?

Lacter: Frankly, not much. The Dodgers remain an extremely valuable franchise, even if it turns out that the new owners overpaid a little. That's because the purchase has been predicated on the massive amount of money available from television rights - $7 billion over the next 25 years. Those are the basic terms of a partnership deal between the Dodgers and Time Warner Cable that would go a long way towards recouping what the owners paid for the team. The Dodgers will effectively own the channel carrying the games - that's as of next season. Time Warner Cable figures it won't have to renegotiate TV rights deals with the Dodgers every few years, which has been a real problem because the teams keep demanding more money.

Julian: It's not a done deal.

Lacter: No, it still needs approval from Major League Baseball, which might not be thrilled by the way the Dodgers have structured this partnership. In a nutshell, baseball franchises are obliged to share about one-third of their local TV revenue with the other teams in the league. But, the Dodger owners are trying to keep more of the money.

Julian: You have a piece in the June issue of Los Angeles magazine that lays out the strategy for Time Warner Cable.

Lacter: That's right - and it's not just the Dodgers. You might recall that a similar deal was worked out with the Lakers, which has a channel called SportsNet that carries all the Laker games. The cable company considers live sports to be a good bet for ad revenue because the viewer base is loyal, and the games are not available anywhere else. Of course, any commitment going out so long - and involving so much money - has to be considered a risk. You just never know how the sports or television landscape might change longer term. But, for now, both the Dodgers and Time Warner Cable obviously figure it's a risk worth taking.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

The first order of business for the new mayor of Los Angeles

Business Update with Mark Lacter — Tue, 21 May 2013 12:15:44 -0700

KPCC's business analyst Mark Lacter says there will be plenty of financial challenges for either Wendy Greuel or Eric Garcetti as L.A.'s next mayor.

Steve Julian: Mark, when it comes to money matters, what's the first order of business for the new mayor?

Mark Lacter: It's all about the budget, Steve, which is still $100 million or so in the red - in large part because of the city having to pay out so much in pension and health care benefits. The public unions are trying to rescind a pending increase in the retirement age, along with a reduction in benefits for workers who are hired after July 1. Now, in addition, outgoing Mayor Villaraigosa would like to pare back - or even eliminate - a five-and-a-half percent pay raise for city workers effective next January. As you might imagine, union officials are not happy. They say that they've already made sacrifices in the form of furloughs and higher pension payouts. Frankly, it's kind of a jumble, and we haven't gotten much detail from Wendy Greuel or Eric Garcetti in how they intend to deal with these issues.

Julian: Where does the city stand now in terms of debt?

Lacter: Well, L.A. is obligated to help cover retirement and health care costs - even if it means cutting back on city services. The good news is that the economy has been improving, which means that more tax revenue will be coming in. But, the extra money is not expected to fully offset the pension obligations, and those obligations might actually increase over the next few years, which puts city officials in a tough spot. Do they try cutting back on employee benefits even further, which would surely create more animosity with the public unions, or do they keep things more or less status quo, which will continue to put the squeeze on services. One more thing: will the new mayor be able to work in concert with the LA City Council (which - after all - has the final say in all budget matters)?

Julian: It's a reminder that the mayor has only limited power, isn't it...

Lacter: Some might argue that it's City Council President Herb Wesson who is really in charge. This is the challenge that's been faced by previous mayors, and that's why it's so important for either Greuel or Garcetti to establish some sort of working relationship with the council. One area that's bound to come up is the city's business tax, which both candidates would like to eliminate. They think dropping the tax will help attract and retain businesses, which is totally at odds with what you'd expect from these two liberal-leaning Democrats. Actually, it's more akin to the policies of a Mitt Romney, but both Greuel and Garcetti are convinced that doing away with the business tax will mean more jobs for L.A.

Julian: If you drop the tax, can that lost revenue be made up?

Lacter: Well, not likely - and, as we see with the pension problems, L.A. needs all the revenue it can get. More broadly, there's the matter of doing business in L.A., which still can be a minefield of rules and regulations (though, in some areas it's a little better than it used to be). In years past, mayors have tried to attract industries into the city - biotech was one, electric cars was another - though incentive-type programs don't have a great history of working out well.

Julian: What about tech or Silicon Beach, as they're calling it?

Lacter: That's certainly a success story - you have all kinds of software firms, Web designers, and ad agencies setting up shop on the Westside. But, that's not the result of anything the city did - it's just young entrepreneurs wanting to be close to other young entrepreneurs, and all of them wanting to work near the beach.

Julian: Is there one challenge facing the new mayor that's more challenging than all the others?

Lacter: The same thing that faces any elected official in L.A.: controlling the influence of special interests (an issue, by the way, that received scant attention during the campaign, perhaps because both candidates were receiving contributions from those same special interests). We rely on elected officials to consider all sides, and the two candidates were talking a good game during the campaign. Of course, what's promised before an election and what happens once they're in office are not always the same thing.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

How immigration reform could affect the Southern California economy

Business Update with Mark Lacter — Tue, 14 May 2013 11:51:55 -0700

KPCC's business analyst Mark Lacter explains how pending immigration legislation in Washington might affect the Southern California economy.

Steve Julian: Mark, what do you think could happen if immigration laws are changed?

Mark Lacter: Don't expect too many changes in the short run, Steve, and that might be just as well, given the dynamics of Southern California. Look, it's well established that having such a large population of undocumented immigrants helps the L.A.-area economy big time, in that it provides a large labor pool willing to accept low-paying jobs that most other workers just don't want to do.

Julian: Picking fruits and vegetables, working in restaurant kitchens -

Lacter: - or as construction workers who get hired by the day. You know, there's that new USC study you reported that estimates 2.6 million people are in California illegally - about 900,000 of those folks live in L.A. County. Many of these people have been in the country for at least 10 years, and they represent some of the biggest economic success stories - even without an easy path to citizenship. (By the way, six out of 10 undocumented immigrants in L.A. County have full-time jobs, which is only slightly lower than the percentage of U.S.-born workers.) The reality is that without this workforce, the economy would be upended - low-paid jobs would go begging, and wage levels would increase, perhaps by a lot. The more relevant question is how the reform proposals might affect future migration patterns.

Julian: Naturally, most people entering the U.S. (whether legally or illegally) are looking to make better money and enjoy a better quality of than wherever it is they're coming from.

Lacter: And a few years ago during the recession, the number of immigrants coming in from Mexico and other parts of Latin America nose-dived because there were so few jobs here. Recently, the pattern began to shift because more work is becoming available. No amount of border security is going to totally end that back-and-forth pattern - and even though there are plenty of reasons for wanting to become a U.S. citizen, it only makes a difference if the economic opportunities open up. And. we're not just talking about an opportunity to be a dish washer. We're talking about the chance to buy a house, to have your kids go to college - opportunities that only happen if the job market is a lot more robust than it is right now.

Julian: If immigration laws won't affect economy, what about living wages?

Lacter: Well, here's a piece of the economy that's getting caught up in politics. A few of the labor groups supporting Wendy Greuel are making it sound as if all workers in L.A. would be receiving a minimum wage of $15 an hour if she were elected mayor. That would certainly beat the current minimum wage of $8 an hour. The problem is, it's not remotely true. No mayor, no city council is about to raise the minimum anywhere near that much - the city with the highest minimum wage is San Francisco at $10.55. What the $15 refers to, as you reported yesterday, is an effort to raise the wage of unionized hotel workers near LAX...

Julian: The current wage for those workers is close to $12 an hour.

Lacter: Yes, that's without health care benefits. Greuel has been unclear on whether she'll push for $15; her opponent Eric Garcetti hasn't taken a position. But, we do know absolutely that the overall minimum wage is staying at $8.

Julian: What do you take away from this?

Lacter: Two things: first, you shouldn't believe everything you hear in a campaign. The second more important lesson is that the low-wage world is really a world of haves and have-nots. Here in L.A., some employers are obligated to pay what's described as a "living wage," and that's different than what we know as the overall minimum wage. A living wage is higher, and usually agreed to on a case-by-case basis. Besides hotel workers, the living wage is paid by airport operators, building contractors, and other businesses that have some working relationship with the city of L.A. Can other businesses afford to pay $12 instead of $8? On a yearly basis, the difference is around $8,000, which for many families is serious money.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

Unemployment reports don't tell the whole story

Business Update with Mark Lacter — Tue, 07 May 2013 10:08:11 -0700

KPCC's business analyst Mark Lacter says the latest jobs report looked good, yet so many people are being counted as out of work.

Steve Julian: Mark Lacter, why is that?

Mark Lacter: This obviously has not been a strong recovery, Steve, and you're hearing many different explanations: debt levels are still high, money is still tight, businesses are still cautious - and now you have the government sequestration cuts, which may be having an effect, as well. But here's another possibility - that the economy might actually be in better shape than we're being led to believe because people are finding work that's off the books. And, we're not talking about drug dealers - we're talking about housekeepers, website designers, video game developers, construction workers. In these kinds of businesses, people are often paid in cash. You know, there was a recent study of California contractors, and two-thirds said they had no direct employees. That means they're not paying workers comp taxes or payroll taxes.

Julian: So, it's possible there's no record of their employees even working -

Lacter: - and that could skew the government's job numbers. Now, what we're talking about - sometimes it's called the underground or gray economy - has always been a problem, especially during a recession. But, we're not in a recession anymore, and yet, the number of people being paid in cash still appears to be high, especially in Southern California. Of course, coming up with cold hard numbers is next to impossible. But, we do know that people are buying stuff - retail sales at local shopping centers are back to the levels from before the recession, and car sales are up substantially throughout the region.

Julian: Therefore, the money to pay for all that has to be coming from somewhere.

Lacter: We also know that more people, especially younger people in creative occupations, like the idea of casual work arrangements as opposed to a traditional nine-to-five job. One economist estimated that the unemployment rate could be a couple of percentage points lower if you included work that's off-the-books. Now, that's just a guess, mind you, though it's an interesting one.

Julian: How hard is it to gauge the unemployment rate?

Lacter: Very hard, even within a relatively small region. Let's just take L.A. County, where the jobless rate in March was 9.9 percent (the April numbers are due out next week). Now, if you break that down to the cities within L.A. County, there's huge variation. The city of Commerce is close to 19 percent, the city of L.A. is at 11 percent, Santa Monica 8.2 percent, and Torrance 4.9 percent (these numbers aren't seasonally-adjusted, and that can also make a difference). So, that's for L.A. County. Let's broaden it out to include the L.A. metro region, which includes Orange County's typically lower unemployment rate. By that measure, the March jobless rate was nearly a full percentage point lower, at 9 percent.

Julian: Don't those numbers get revised several times?

Lacter: They do - and the revisions can be substantial. Point is, when you see a big headline about the unemployment rate going up or down - or the number of jobs added to the workforce being better or worse than expected - you're only getting the barest snapshot of what's going on.

Julian: And yet, these news stories - along with the analysts' comments - are in our faces.

Lacter: And they can influence public attitudes about where the economy is headed. What we do know is that this has been a very unusual recovery - partly because the recession was the result of a financial crisis, and those downturns historically are devastating to the job market, and can take years to sort out. You have entire industries that have gone through restructurings and downsizings - businesses that are fundamentally changed from what they were in 2007. This is not necessarily all bad, but it is different, which is why you can't draw too much from a single month's unemployment rate - good, bad, or indifferent.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

LA's Gibson Ampitheatre to be torn down

Business Update with Mark Lacter — Tue, 30 Apr 2013 12:32:35 -0700

KPCC's business analyst Mark Lacter explains why the Gibson Ampitheatre is no more.

Steve Julian: A lot of famous and not-so-famous acts played concerts at Universal Studios. Mark, why the decision to tear down the Gibson Amphitheatre?

Mark Lacter: You might remember it as the Universal Amphitheatre, Steve. It's one of L.A.'s most famous, most venerable music venues (lots of memories at that place) - and it's being razed to make room for the new Harry Potter attraction. The Universal theme park in Orlando recreated some of the famous Harry Potter moments a few years ago, and that resulted in a big boost in attendance. But, what's going on at Universal City is a lot bigger than even Harry Potter (if that's possible) - this is part of what's known as NBC Universal's "Evolution Plan," which is a $1.6-billion development - that they're careful not to call an expansion - but which does involve adding about a million-and-a-half square feet of production and office space, along with room for two hotels, restaurants, stores, and those theme park attractions.

Julian: County Supervisors finally signed off the plan after years of public hearings...

Lacter: ...and after an earlier proposal to build 3,000 residential units was dropped following lots of opposition. You know, this has been a case of very conflicting agendas: NBC Universal is looking to bolster its theme park and TV studio operations, homeowners and environmental groups are concerned about additional congestion in the area (it's already plenty congested), and elected officials are trying to appease both sides.

Julian: NBC Universal did agree to accommodate the changes...

Lacter: That's right, they'll spend $100 million in various transit and roadway improvements (that includes upgrades to the 101 Freeway), and they'll also have a bike path along the L.A. River, along with additional green space. This isn't a game changer for the local economy, especially since the project will be completed in phases over many years, but it will generate lots of construction jobs - which is good - and it also affirms the fact that the entertainment industry isn't going anywhere, no matter how many incentives other states might provide. And, by the way, L.A. has seen a rebound in the amount of location shooting during the first three months of the year, especially involving TV dramas. Also, employment in the entertainment industry was way up in L.A. County in March compared with a year earlier.

Julian: But Burbank is still losing the "Tonight Show."

Lacter: Yes, NBC is moving the show to a brand new studio at 30 Rockefeller Center in New York. Jimmy Fallon, of course, takes over early next year for Jay Leno (Fallon already does his late-night show in New York). Now, there might have been all kinds of reasons for making the switch, but one of the biggest ones could be money. The state of New York made an interesting adjustment to its tax incentive program for TV shows - let me read off the requirements, Steve, to see if they ring a bell: you have to have a talk show that's taped before a studio audience of at least 200 people, you need a production budget of at least $30 million, and the show had to have been produced outside New York for at least five years.

Julian: Er, sounds like the "Tonight Show" to me...

Lacter: They obviously crafted this change specifically for the "Tonight Show," and it could give NBC a 30 percent tax credit, which works out to more than $20 million in annual savings - that's according to the Hollywood Reporter. For a show that's only making $30 to $40 million, which is less than a third what the network used to bring in, that's some serious money. But for New York State, this kind of tax break is a gamble - you have to assume the show is going to provide a big enough economic boost to offset the tax loss the state is going to incur, and as we've seen with other tax credit programs, the benefits are not that clear. (as a matter of fact, several state legislatures are cutting back on their film and TV incentive programs.)

Julian: As far as the economic benefit of L.A. versus New York, does anyone really care where a show is located?

Lacter: Maybe it made a difference in the 60s and 70s when Johnny Carson was still around (and when the two cities were different in lots of ways), but these days everyone is from everywhere - and, it's also worth remembering that the Jimmy Kimmel show on ABC is taped... in Hollywood.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

Mayor Antonio Villaraigosa's spending plan

Business Update with Mark Lacter — Tue, 23 Apr 2013 12:47:29 -0700

KPCC's business analyst Mark Lacter weighs-in on the mayor's proposed budget.

Steve Julian: LA Mayor Antonio Villaraigosa has left some people wondering how his proposed budget will affect them. Mark, how does the budget proposal look to you?

Mark Lacter: You know, Steve, this budget is a little like taking a Rorschach test - it can be interpreted in any number of ways. If you're an optimist, you'll see that the mayor has proposed no furloughs, no layoffs, he wants to have the Central Library open seven days a week (it's now open six), and he'd provide more funding for tree trimming and sidewalk repair. Maybe the best news is that the deficit for next year is expected to be quite a bit lower than expected. That's not just wishful thinking - this current fiscal year has seen more tax revenue coming in than expected because more people are buying stuff and because L.A. has seen big increases in the number of tourists, and that means additional revenue from the hotel tax. The bet is that those numbers will keep improving, which would mean still more tax revenue that can be used to pay off higher pension and health care costs.

Julian: That's quite a change from a few years back, when tax revenue was way down and the city had to make some drastic cuts...

Lacter: Yes, in order to cover those retirement costs. Actually, they're so optimistic about higher tax revenue that by 2017 the city of L.A. is supposedly going to eke out a budget surplus (now that is wishful thinking). We need to remember that any budget is based on a set of assumptions about how much money will be coming in and how much will be going out. And budgets are not static - the numbers are always moving.

Julian: Wasn't it just a few months ago when city warned about possible cuts in emergency services if a sales tax increase wasn't approved?

Lacter: That's right - and it wasn't approved by voters, but city officials are nonetheless more optimistic about the economy. That's why the budget isn't being chopped. The question is whether city officials have it right this time. Keep in mind that the unemployment rate in the city of L.A. is still 11 percent. And, let's also not forget that the city has been forced to eliminate thousands of positions and sharply reduce services. The real answer is to restructure city government so that business can be done more efficiently. Of course, that means breaking a lot of eggs, and many elected officials would rather just hope for the best.

Julian: Has this housing market, that seems to be reviving, helped improve the budget picture?

Lacter: It has, though not always for all the best reasons. The median price for a Southern California home was $345,000 - that's the highest level in more than four-and-half years, according to Dataquick. Sales have been especially strong at the high end: the number of homes sold for more than $500,000 jumped 40 percent from a year earlier. But, a lot of the activity is due to pent-up demand and very tight inventory. To give you an idea of how tight, if you took all the homes on the market in L.A. County and calculate how long it would take sell all of them, based on current pace of sales activity, the time needed would only be 2.7 months. That's among the lowest in the entire state.

Julian: What's the average?

Lacter: In a healthy housing market, around six months. Now, when too many buyers are going after too few homes, prices are bound to take off, and that leaves large groups of people on the sidelines. I mean, why would you want to put your house on the market if buying a new home was essentially prohibitive? We're seeing lots of potential buyers with financing, but they're often bypassed in favor of all-cash deals (almost one-third of all sales in Southern California last month were all-cash).

Julian: Anything else getting in their way?

Lacter: Well, the average age of homebuyers is increasing - and that could reflect the tough job market, or simply the preference among young people to live in urban areas where home prices tend to be high. So, this is not an especially healthy housing market - and the local economy isn't really going to get over the hump until it becomes easier to buy and sell homes. That is why the newfound optimism coming out of LA City Hall might be a little premature.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

How Kobe Bryant's injury may affect the Lakers' franchise

Business Update with Mark Lacter — Tue, 16 Apr 2013 11:20:17 -0700

KPCC's business analyst Mark Lacter says it's difficult to know how Kobe Bryant's Achilles injury could affect the Lakers going forward.

Tess Vigeland: The Lakers still have a chance to make the playoffs. But it's only natural to wonder how Kobe Bryant's season-ending injury might affect the franchise. Mark, do you think it does?

Mark Lacter: Well, it probably pushes up the inevitable Tess - the day when Bryant is no longer a part of the Lakers, and that could have interesting business ramifications, not just for the Lakers but for all of basketball. Now, during the playoffs, this doesn't mean much. Even before Kobe's injury no one was expecting the team to get very far. That means a probable drop in ratings - not unlike what happens during golf telecasts when Tiger Woods isn't playing. As it stands, having San Antonio and Oklahoma City at the top of the NBA Western Division can't be great news for ESPN and TNT, which will televise the playoffs. San Antonio is the 37th largest media market and Oklahoma City is the 45th.

Vigeland: But, what about the Clippers?

Lacter: Clearly, the ratings are up sharply this season, and if the team advances into the playoffs, the numbers will probably jump further. Actually, this is a great opportunity for the Clippers to pick up more fans for next year, especially if Kobe has a tough time getting back. But, keep in mind that the Lakers, for all their troubles, remain a hugely successful franchise. Forbes values the team at $1 billion – second only to the New York Knicks and way higher than the Clippers, which are valued at just $430 million. The value of sports franchises go beyond won-lost records. A big part of it is location (which explains why New York and L.A. are the top two teams), and another important part of it is branding.

Vigeland: So even though the Lakers are in a rough patch, they are the Lakers...

Lacter: ...right, which means TV ratings will be solid no matter what, attendance will be high no matter what, and the ancillary revenue from stuff like caps and t-shirts will be strong no matter what. There's even an argument that with Kobe in the tail end of his career and with his injury likely to impact his play - whenever he does get back - the Lakers should consider putting him on waivers. Doing that would save around $80 million, which could be used for a young player. Team officials have downplayed that possibility, but at some point there will be some sort of rebuilding effort – and that becomes a financial and marketing issue, as well.

Vigeland: Mark, Hollywood had an unusual box office weekend that involved another sport…

Lacter: That’s right, the Jackie Robinson film "42" took in $27 million, quite a bit higher than the initial estimates. It also received an A+ grade among the folks who saw it, which will be good for word-of-mouth over the next couple of weekends. And, in terms of demographics, it scored well among women, and among those over 25 – again pretty strong results for a movie without any big stars, and that takes place in the 1940s, and that doesn't use special effects.

Vigeland: Reviews were good, not great...

Lacter: ...yeah, about 70 percent of the critics liked it, according to the review site Rotten Tomatoes. Now, figuring out why a particular film does better than expected is a fool's errand, which is why Hollywood can be such a fickle place. In a case like "42," you have a compelling subject (breaking baseball's color barrier), plus the fact that this has been a lousy movie year so far and most anything that stands out is likely to do well. By the way, "42" was helped along by the head of Legendary Pictures, Thomas Tull, who really wanted to get this movie made.

Vigeland: I wonder if it'll do well in Europe.

Lacter: You know, normally, sports movies do very little business overseas - and the foreign box office is becoming a big deal in determining financial success. The football film "The Blind Side" picked up more than $300 million in ticket sales but 83 percent of that came from the U.S. It’s hard to convince moviegoers overseas that they should care about a ballplayer they never heard of and a game they don't know much about. Maybe this will be the exception.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

The struggling electric vehicle industry

Business Update with Mark Lacter — Tue, 09 Apr 2013 09:45:57 -0700

KPCC's business analyst Mark Lacter says these are not the best of times to be in the electric car business.

Steve Julian: Mark, why is that?

Mark Lacter: A lot of things, Steve, but it really boils down to not many people feeling the need to have an electric car. The bad news starts with Fisker Automotive (that's the Orange County company that received almost $200 million in government loans), and last week it laid off most of its workforce. This morning, the Wall Street Journal reports that Fisker is close to filing for bankruptcy – not a huge surprise considering that the company hasn’t produced a single car since last summer, when its battery supplier filed for bankruptcy. It's been trying to find an investor to put still more money into the operation, but no luck so far. Also, the co-founder recently resigned.

Julian: Not a good sign. Anyone else?

Lacter: Well, there's Coda Automotive, the L.A.-based company that started out with an impressive list of investors, including former Treasury Secretary Hank Paulson. Coda also has laid off most of its staff, and has been struggling to pay off its suppliers (a bunch of them are in court). It turns out that the company has only sold a few hundred cars, compared with the 10,000 that it was planning to sell in its first year of operation. And then, there's the Chinese electric-car maker BYD that had Warren Buffett as an investor, and had set up its U.S. operations in L.A. with all kinds of fanfare. But BYD has also faced various setbacks, and now the focus is on electric buses rather than electric cars. The company did win a contract from Long Beach Transit, so we'll see how that goes.

Julian: I imagine investors and supporters had a better start in mind.

Lacter: Way better. President Obama was pushing to have at least a million electric vehicles on U.S. roads by 2015, and so far, just 85,000 have been sold. The biggest challenge could be the traditional internal combustion engine, which has become a lot cleaner and a lot more fuel efficient. There's also a shortage of charging stations on the road, which could be a problem if the vehicle is not a hybrid like the Chevy Volt that can be gas powered as well as battery-powered. And then there's the cost, which is significantly higher than for a non-electric vehicle. Now, the government has been offering rebates, but sooner or later, the prices of those batteries have to become more competitive. There is one piece of decent news: Tesla, the high-end electric car maker, says it will have its first profitable quarter, and that’s important development given all the skepticism about that company's long-term viability.

Julian: You mentioned China. The governor is off on a trade trip there with a bunch of business and government folks.

Lacter: That's right, he'll be signing deals with Chinese companies - and he'll also make a big push for major projects in California, such as the state's bullet-train project. The Chinese have been on an overseas investment tear for the last several years, both because there's so much available cash there, and because the recession has brought down the prices of many businesses in the U.S. and elsewhere. There's certainly no shortage of Chinese investors coming to California, many of them under the radar.

Julian: What have they been buying?

Lacter: Shopping centers, warehouses, solar panel companies – last year, the special effects company Digital Domain was acquired by Chinese investors. A study estimated that $1.3 billion in Chinese investment deals were made between 2000 and 2011, which is not all that much considering California’s size and its proximity to the Pacific Rim, and – of course – its large number of Chinese immigrants.

Julian: Does that leave state officials wondering what they can do to generate more interest?

Lacter: It does. You know, Chinese entrepreneurs are often clueless about the basics of buying a company in the United States. Sometimes, just as an example, they don't realize that it's best to hire an attorney when doing deals. So, there’s a pretty deep business divide that has to be closed - and yet there are roughly one million Chinese who are millionaires and about 100 who are billionaires. That money could come in handy, especially at a time when the state and local economy are still looking to get back on its feet.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

Controversy at Occidental Petroleum in Los Angeles

Business Update with Mark Lacter — Tue, 02 Apr 2013 09:37:18 -0700

KPCC's business analyst Mark Lacter says there's drama in the boardroom at a big oil company in Los Angeles.

Steve Julian: Mark, what's going on?

Mark Lacter: This could be a pretty good reality show, Steve - lots of intrigue and lots of money. It centers on the chief executive of L.A.-based Occidental Petroleum, a fellow named Steve Chazen, and the company's chairman, a fellow named Ray Irani. We've spoken a lot about Irani because of all the money he's made - over a 10-year period when he was still CEO, Irani pulled in almost $900 million. Well, a bunch of shareholder groups went after him, and finally - in 2010 - he agreed to take a substantial pay cut and step aside as chief executive, but stay on as chairman. And in the beginning that seemed to be working out all right. But then, the Occidental stock price began falling, and it just so happens that Irani owns more than eight million shares.

Julian: Energy company stocks aren't the steadiest you can buy...

Lacter: No, they often fluctuate because their profits are reliant on the price of oil and natural gas. That's not necessarily the fault of the CEO, it's just a reflection of the market. But nevermind that - Ray Irani, along with several board members, now want Mr. Chazen out as chief executive. Except that Mr. Chazen has his own supporters on the board (all this reported over the weekend by the Wall Street Journal). You should know this kind of boardroom drama is not exactly Oxy's thing (they're had only three CEOs in the last 55 years), and that makes this skirmish all the more intriguing.

Julian: And unusual, I take it…

Lacter: To some extent, yes – Irani has been running things for a long time, and he has a strong financial stake in how well the stock is doing. But what this really shows is how insular so much of corporate America continues to be, despite the efforts at reform. Millions of shareholders own stock (I'm not just talking about the big boys - I'm talking about people who own a mutual fund or have 401(k) plan) - and yet there's sometimes very little transparency and very little accountability. It still comes down to a small bunch of people – mostly guys – who rule the roost.

Julian: How much money is Irani making?

Lacter: A lot. He took in almost $46 million last year, which is actually a big pay cut from what he had been making as CEO. But, that's still among the largest payouts for any U.S. executive - higher than what the chairman of Exxon Mobil makes, and that company is more than six times the size of Occidental. It's also higher than the pay of Disney CEO Robert Iger, whose company's stock price rose 73 percent in 2012 while Occidental's fell 16 percent.

Julian: Is there a shareholders’ meeting any time soon?

Lacter: It's in May, and I bet shareholders will have something to say about all that. The thing is, lots of CEOs are making big money, largely because of the Wall Street rally. Their contracts typically provide incentive bonuses that are based on how well their stocks perform. Also, many of them have been collecting stock options that are a lot more valuable now that the share prices are so much higher. USA Today did an analysis that found median pay in 2012 to be almost $10 million - and at several locally-based companies, the numbers were often higher. Iger made $37 million, for example, and Michael White - the CEO of DirectTV (based in El Segundo) - made almost $18 million, which is a huge raise from 2011.

Julian: Perks as well?

Lacter: Yes, things like free use of the corporate jet and free accounting services, the sort of excess that rubbed investors the wrong way some years back when stocks were going way down. But stocks are no longer going way down, so maybe they figure the coast is clear. Of course, all this is happening at a time when 12 million or so Americans remain out of work. So, there's still a real disconnect between what happens in Corporate America, and what happens in Main Street America.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

Lacter: slow growth in the pay-TV business

Business Update with Mark Lacter — Tue, 26 Mar 2013 13:02:33 -0700

KPCC's business analyst Mark Lacter says growth in the pay-TV business is slowing.

Shirley Jahad: Mark, what gives?

Mark Lacter: What gives, Shirley, is that many of us already have a cable and satellite hookup, so that business is maturing. And it has been for some time - the latest numbers from the research firm SNL Kagan show that the number of cable subscribers actually fell by a million or so in 2012 (cable pretty much peaked 10 years ago). Meantime, the telecom services like Verizon and AT&T gained a little ground from a year earlier. All told, pay-TV operators added about 50,000 customers in 2012, which is basically flat growth in an industry that has 100 million households.

Jahad: How's network TV faring?

Lacter: It's also slowing down, especially among viewers from ages 18 to 49, which is the main demographic that advertisers care about. Through last week, Fox was down 23 percent this season, NBC down 7 percent, CBS 3 percent, and ABC 8 percent. Now, there are all sorts of explanations for the drop-off - they range from the increased use of digital video recorders, or DVRs (those don't get included in the main ratings numbers). Also, the huge growth of online streaming services like Netflix and Amazon allow viewers to circumvent pay-TV. There's a survey out that has 17 percent of TV watchers saying they would be willing to cut the pay-TV cord, though how many of them would actually do it is a debatable point (someone said that cord-cutting was a little like wanting to be a vegan - it sounds like a nice idea until you realize how impractical it is).

Jahad: I suppose sports programming is an area where pay-TV has a leg up.

Lacter: Yes, and that’s especially true in L.A. because of the new Lakers channel from Time Warner Cable, as well as the Dodgers channel, which is being planned for the 2014 season. So, the question is not so much whether people will hold onto cable and satellite, but what will they be watching on cable and satellite. And that explains why we’re seeing so many non-network channels offering original series. It's not just the obvious names like AMC and Bravo - it's FX and Oxygen and the Hallmark Channel and the History Channel. They all want to somehow stand out among viewers in order to ensure that the pay-TV companies keep them on the schedule. All told, it's a crazy time for all facets of the TV business.

Jahad: There also are changes in the way creative content is being financed.

Lacter: Small-scale content, Shirley. Here's an example of how the online world has changed both the media and philanthropic landscape, and a lot of it is being played out in L.A. You might be familiar with Kickstarter - it's the online fundraising site that allows people to help finance a creative project of some kind. It could be a movie or a videogame or an album. There's usually no payback on your investment, except maybe a t-shirt or DVD. But, it's become a new kind of philanthropy, especially among people in their 20s and 30s who find the concept compelling because it provides a measurable return as opposed to contributing to some huge organization and seeing their money disappear into a black hole.

Jahad: You can't go to Facebook without seeing someone with a Kickstarter campaign.

Lacter: Well, it turns out that 122 projects were financed in L.A. last year (only New York had more). The local activity is not surprising, given that film and video is the most popular category among those asking for money, and the second-most popular among those giving out money. Actually, this isn't all that different from when a musician or filmmaker asked his friends or family for support - except that they're able to do it on a much larger scale and attract perfect strangers.

Jahad: Any standouts?

Lacter: Well, earlier this month the producers of the TV series "Veronica Mars" went on Kickstarter to ask for funding to produce a movie version. Within 12 hours, they received more than $2 million. It’s just among the many projects receiving support that a few years ago would have gone nowhere.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

What does Leiweke's departure from AEG mean for an NFL stadium in Los Angeles?

Business Update with Mark Lacter — Tue, 19 Mar 2013 12:39:45 -0700

KPCC's business analyst Mark Lacter says people interested in the NFL may well be wondering whether the league will provide any clarity on an L.A. team at an upcoming owners meeting.

Steve Julian: Mark, you're a business analyst, what do you think?

Mark Lacter: Are you serious, Steve? Has the league ever provided clarity on bringing pro football back to L.A.? And now that Tim Leiweke is no longer CEO of AEG – he, of course, had been the major dealmaker and cheerleader for getting an NFL team - the prospects are a lot less clear. The big question is whether Leiweke's old boss, the Denver billionaire Philip Anschutz, is willing to cut a deal with the league by building a new downtown stadium? Frankly, it's doubtful. However things go, it seems to be time for city officials to move on. They've been playing footsie with the NFL owners for years - and so far, it's amounted to a big fat zero. Actually, it's been worse than zero, considering the time and energy that's been spent working on various development ideas.

Julian: There are some good reasons for having an NFL team here.

Lacter: No question, but the city has survived without a team for almost 20 years. It'll have a much harder time surviving a seriously high jobless rate, a troubled education system, terrible traffic problems, and - of course - a chronic budget shortfall. So, maybe the focus should be on those issues instead of whether Philip Anschutz likes pro football (apparently he doesn't, by the way). They also might want to focus less on remaking the Convention Center, which AEG had agreed to finance as part of the stadium project.

Julian: Should LA even be in the convention business?

Lacter: That's a good question. The City Council has been looking into the possibility of bringing in a private operator to run the operation. As for a full blown makeover of the Convention Center, it might not be all that necessary, especially if it means the city having to pay instead of AEG. L.A. is already drawing record amounts of visitor traffic without any big renovation, and the convention business, which is highly competitive, isn't likely to bring that much extra activity. There is a lot of other more pressing business to deal with.

Julian: Wasn't the Leiweke/Anschutz relationship unusual from the start?

Lacter: Normally, you don't see a billionaire with such a publicly visible second in command. That's perhaps a reflection of Anschutz wanting to stay in the background. It was also unusual because Tim Leiweke is known for his bluster - in fact, he would openly talk about battling with Anschutz over business strategies, including the downtown stadium. There's a cautionary tale here, Steve: no second-in-command is indispensable to the person or people who own or at least control the business - and when you’re dealing with two very independent personalities, the arrangement often ends unhappily. That appears to have been the case here, with Leiweke being told at the last minute that his boss had decided not to sell Anschutz Entertainment Group - the company, by the way, that Leiweke really helped build.

Julian: He didn’t get much of a sendoff.

Lacter: I’ll say. Here's what AEG said in a press release: "We appreciate the role Tim played in the development of AEG and for the many contributions he has made to the company." I've seen interns get bigger sendoffs.

Julian: He did, though, help remake the South Park section of downtown LA.

Lacter: That’s right – he’s not only responsible for the L.A. Live-Staples Center complex, but nearby development of hotels, condos, and restaurants, as well. Now, Tim Leiweke won’t have to worry about finding another job - and I'm sure his time with Anschutz has made him quite comfortable financially. But clearly, this thing did not go down as he had hoped: L.A. still doesn't have a football team, or a stadium, or a remade convention center - and it's questionable whether any of those things are going to happen, though Anschutz insists he’s still interested. We’ll see about that.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.

Disney's prequel to "The Wizard of Oz" is a bright spot at winter box office

Business Update with Mark Lacter — Tue, 12 Mar 2013 12:14:38 -0700

KPCC's business analyst Mark Lacter says it's been a tough winter for the box office.

Susanne Whatley: Hollywood movie studios may have struggled in recent months, but Disney’s prequel to "The Wizard of Oz” did very well in its opening weekend. Business analyst Mark Lacter, will we be seeing more from the Land of Oz?

Mark Lacter: It’s a good bet, Susanne – certainly that’s what the Disney folks are hoping for in coming out with “Oz the Great and Powerful.” It drew more than $80 million in domestic ticket sales over the weekend, which looks pretty good in what’s otherwise been a dismal year. But, the real question is whether this will lead to a studio franchise – just as Disney has done with “Pirates of the Caribbean” and “Toy Story.” Movie franchises are a big part of Hollywood’s business model these days – they figure that audiences who liked the first film will want to see a second and third installment. They also provide additional revenue streams, whether it’s theme park attractions or merchandising. Even before the “Oz” movie was released, Disney executives were considering a sequel, although nothing has been finalized.

Whatley: But not every film is destined to be a franchise…

Lacter: That’s right – and not every film is even destined to make money. You saw a good example of that the weekend before with the opening of “Jack and the Giant Slayer,” which was released by Warner Bros. and is a riff on the “Jack and the Beanstalk” fairy tale – except that it brought in just $28 million. They’re starting to compare it with last year’s Disney bomb, “John Carter.” Not great.

Whatley: They’re both based on classics and they’re both big-budget films. Why does one make it and the other not make it?

Lacter: …The next thing you’re going to ask is why the stock market goes up or down. If only we knew. But, there are a few things the Oz movie has going for it, starting with the general view that’s it’s a somewhat better movie. Also, Disney put together a very effective marketing campaign, there’s been a big presence on social media, and – maybe most important – moviegoers are crossing many demographic groups since everyone has seen the “Wizard of Oz” multiple times. And, it’s not only Disney tapping into this popularity: Warner Bros., which actually owns the rights to the “Wizard of Oz” movie from 1939, is planning an Oz cable TV show and a re-release in 3D of the original. That’s part of the studio business model: milking success right down to the last drop.

Whatley: Sounds like there’s good news on the Hollywood job front.

Lacter: That’s right. When the Labor Department released its employment report last week, one area singled out was the movie and television business, which added 20,000 jobs in a single month. That’s a lot of new jobs in an industry that isn’t especially large nationally. Now, Hollywood is a highly cyclical business and employment levels tend to bounce around from month to month. Still, as of last month, there were more payroll jobs in the movie and television industries than at virtually any point in history.

Whatley: I would imagine a lot of those jobs are in L.A…

Lacter: They are – about a third of all payroll jobs are here, and that doesn’t include freelance contracts, which make up a large portion of industry employment. What these figures won’t show is the number of jobs that have been lost to other states – even other countries – that provide attractive tax incentive packages for filmmakers. Certainly there have been losses over the years, which is one reason an incentive program has been established in the state of California.

Whatley: What areas are especially vulnerable?

Lacter: Well, the special effects business is having a real tough time – most recently, El Segundo-based Rhythm & Hues (which had a big hand in the film “Life of Pi”) was forced to file for bankruptcy protection, although a South Korean company has recently made a bid. Obviously, none of this reflects the popularity of special effects – just the economics involved. But, that doesn’t mean much to the hundreds of people who have lost their jobs.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.