November 27, 2017

Hearty
Tortilla Soup

Delightful Holiday
Dinner Ideas
For the Apocalypse
Survivalist foods go mainstream p40

Savory
Roasted Beef

Teriyaki Style
Chicken
 November 27, 2017

3
PHOTOGRAPH BY IKE EDEANI FOR BLOOMBERG BUSINESSWEEK

36  Richard Plepler, chief executive officer of HBO

 CONTENTS Bloomberg Businessweek November 27, 2017

 IN BRIEF
8 ○ Uber belatedly discloses a data hack ○ Janet Yellen says so long ○ This year, give thanks for cheaper turkey

 REMARKS  VIEW
12 Finish college in three
10 One fix for fake news: Bring radical years—not four—and start
transparency to Facebook and Google your career with a whole
lot less debt

BUSINESS TECHNOLOGY FINANCE

1 2 3
14 The songwriters 19 VIPKid’s virtual 24 Would you trust
who want to stop classrooms may a stock call that
the music run afoul of real-life came from a robot?
labor laws
15 For Asians, “Made in Asia” 26 In the event of nuclear
has new appeal war, two things will survive:
20 Google struggles to
Cockroaches and bitcoin
machete through the lies
4 17 Selling Europe’s soccer in its search results
fans American-style sports 27 Venezuela’s oil bonds
memorabilia might not be a bargain
22 Man vs. Machine:
QuickSee isn’t after your
optometrist’s job—yet

ECONOMICS POLITICS
4 5
28 A Chinese drone 32 “Merkel was 32 Angela Merkel’s
maker is taking a historical coalition teeters
transportation into figure as far
33 Cutting the health-care
Jetsons territory as Europe’s mandate to cut taxes:
concerned, Deft maneuver or daft
30 How mobile homes got screw-up?
too expensive for the
but her time
folks who desperately has come 35 Justin Trudeau loses
need them
and gone” a bit of his shine
 CONTENTS Bloomberg Businessweek November 27, 2017

PURSUITS How to Contact

FEATURES Bloomberg
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55 The Tate’s new Editorial

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46 The parade goes on at the Correction:

Great American Department “When One Degree No Longer Fits

All” (Focus on B-Schools, Nov. 20,
2017) incorrectly included “Business”
Store. No, not Amazon—Macy’s in the Wharton School’s name. The
Methodology for the “Top 30 U.S.
Schools” chart said it included alumni
from the classes of 2008-10; actually,
the classes included were 2009-11.
This didn’t affect survey results.

14 17 32 33

Bruce Springsteen Sergio Aguero Angela Merkel Claire McCaskill

Bloomberg Businessweek (USPS 080 900) November 27, 2017 (ISSN 0007-7135) H Issue no. 4548 Published weekly, except one week in January, February, April, July, and August, by
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  IN BRIEF

Europe
○ “Those who
wanted Brexit must
offer solutions.” ○ Aston Martin unveiled the
latest iteration of its best-
selling model, the Vantage,
based on the custom car it
designed for James Bond in
2015’s Spectre.
Asia
○ Alibaba Group paid
$2.9b
for a 36 percent stake in
Sun Art Retail Group, a
Wal-Mart Stores rival. Sun
Art operates 400 massive
stores in China under the
Auchan and RT-Mart brands.

Michel Barnier, the U.K.’s top Brexit negotiator, called for ideas to deal with
Northern Ireland, which may remain in the European Union system.

○ The Turkish lira dropped ○ Activist investors, including

to a record low after the Daniel Loeb’s Third Point and
country’s central bank David Einhorn’s Greenlight
went against President Capital, snapped up a
Recep Tayyip Erdogan chunk of Toshiba when the
8
and effectively raised struggling electronics maker
interest rates. sold shares to keep its stock
MORRIS/BL0OMBERG. EINHORN: CHRISTOPHER GOODNEY/BLOOMBERG. YELLEN: ANDREW HARRAR/BLOOMBERG. ZIMBABWE: PHILIMON BULAWAYO/REUTERS
VANTAGE: COURTESY ASTON MARTIN. PAI: ZACH GIBSON/BLOOMBERG. TURKEY, LIRA: ALAMY. MERKEL: JOHN MACDOUGALL/GETTY IMAGES. LOEB: DAVID PAUL

from being delisted. All told,

Toshiba raised $5.4 billion
from the sale.

○ Altice unveiled a plan to ○ President

sell cell towers and other
assets to help pay off Trump pledged
to redesignate
$58b
in debt. Investors had been
North Korea a
state sponsor of
concerned the French terrorism, which
telecommunications would further
company would sell more
stock to raise money. isolate the country.

○ German Chancellor Angela Merkel failed to forge a coalition government. Her The U.S. dropped the classification
conservative alliance had been negotiating for weeks with competing parties in 2008 to spur North Korea to give
when two rival factions walked away from the table.  32 up its nuclear ambitions.
By Kyle Stock Bloomberg Businessweek November 27, 2017

Americas
○ Money is ○ … meanwhile, in the U.S.,
Uber disclosed an October
pouring into the 2016 hack that compromised
Karachi Stock the personal data of
○ This Thanksgiving will be a little cheaper, thanks to
a glut of turkeys. Birds cost about 22 percent less per
pound, according to the U.S. Department of Agriculture.

Exchange, months
57m
Price per pound, 8- to 16-lb. turkey hen

after Pakistan November November

was added to customers and drivers. The $ 0

$1.30

emerging markets company, which concealed

the hack for more than a
indexes. year, said no Social Security
numbers or trip location 1.10

details were exposed.

A UBS report said it was the 0.90

“most crowded” country for cash
inflows, behind Brazil. 1/2015 10/2017

○ China’s Tencent Holdings ○ Days after a 210,000- ○ FCC Chairman ○ Efforts intensified to locate
topped gallon leak at the Keystone an Argentine submarine
pipeline in South Dakota, Ajit Pai that went missing along with

$500b
in market value as the
company reported strong
demand for its mobile games
and WeChat messaging
service.
a sister project, the
Keystone XL pipeline,
cleared its final bureaucratic
hurdle when Nebraska
regulators approved a
route for it.
proposed
abandoning
its crew of 44. Ships and
aircraft from at least seven
countries have joined the
9
net neutrality rules, hunt for the sub, which had
been scheduled to return to
which would allow Buenos Aires on Nov. 19.
internet service
providers to charge
for faster speeds
and block access
to certain sites.

○ Uber ○ Janet Yellen said she’ll

Technologies said
step down from the Board Africa
of Governors of the Federal
it’s ordered as Reserve System when her
successor as chair, Jerome ○ Glencore overhauled ○ Robert Mugabe stepped
many as 24,000 Powell, is sworn in at the leadership of its copper down as president of
self-driving end of February. Her term mining operation in the Zimbabwe, almost a week
as governor extends until Democratic Republic of after the military overthrew
vehicles from Jan. 31, 2024. Congo after the business his government. He’ll be
Volvo. Financial came under scrutiny in a replaced by Emmerson
Canadian bribery probe. Mnangagwa, the vice
terms of the deal Internally, the company said it president he fired on Nov. 6.
with Volvo parent found “material weakness” in
its financial controls.
Zhejiang Geely
Holding weren’t
disclosed …
  REMARKS

The Secret War

Against Fake News

10

Is Too Secret
  REMARKS Bloomberg Businessweek
○ Facebook, Google, and Twitter have
to be more transparent about the way
they work with data
○ By Paul M. Barrett
Facebook, Google, and Twitter have a problem with harmful
content. And the consequences of the twin online scourges
of political disinformation and terrorist incitement have been
on full display lately. During three congressional hearings in
Washington, lawmakers and the rest of us learned that as many
as 126 million Facebook users may have seen divisive content
posted by Russians seeking to interfere with the 2016 election.
Meanwhile, in New York, authorities said that an Uzbeki immi-
grant who killed eight people in a truck attack on Oct. 31 was
radicalized online by Islamic State videos. Five days later, tweets
amplified by Google News spread phony stories that the shooter
in the Texas church massacre had been a supporter of Hillary
Clinton and Senator Bernie Sanders (page 20).
These developments ought to provide a spur for the world’s
dominant search engine (Google) and its two leading social net-
works (Facebook and Twitter) to accept greater responsibil-
ity for addressing internet pollution. Senator Dianne Feinstein
(D-Calif.) laid out the options during a Nov. 1 hearing before
the Senate Intelligence Committee. Lecturing the three compa-
nies’ general counsels, the California Democrat said: “You’ve
created these platforms, and now they’re being misused. And
you have to be the ones to do something about it. Or we will.”
It would be better for all concerned—the companies, their
users, and society at large—if Google, Facebook, and Twitter
heeded Feinstein’s admonition and instituted serious reforms
addressing the propaganda and violent imagery their platforms
can be used to convey. They would preclude knotty free-speech
arguments about government restrictions on content and save
lawmakers from having to delve into technical realms where their
expertise is thin. (A new dimension to the connection between
Russia and U.S.-based social networks emerged on Nov. 5, when
multiple media outlets reported that hundreds of millions of
dollars in past investments in Facebook Inc. and Twitter Inc.
came indirectly from Kremlin-controlled financial institutions.)
On the topic of deleterious online material, the best evidence
that the internet companies can make meaningful progress
comes from their own recent records of improving algorithms,
providing better user warnings, and increasing human oversight
of automated systems. As the New York University Stern Center
for Business and Human Rights argues in a new report called
“Harmful Content,” the companies can—and should—do more.
Before going any further, let’s stipulate that the odds of sweep-
ing U.S. regulation in this area are minuscule. A Republican-
controlled, business-friendly Congress isn’t likely to go after
two of the country’s most successful companies—Google and
Facebook—or even Twitter which, while less financially robust,
ILLUSTRATION BY 731
is nevertheless a favorite outlet of the Tweeter-in-Chief.
The one area where Congress might act is political advertis-
ing. Senator John McCain (R-Ariz.) has co-sponsored a bipar-
tisan bill that would make online election ads subject to the
November 27, 2017
same disclosure requirements as conventional broadcast ads.
At the recent hearings, the three companies’ lawyers vowed
to adopt voluntary rules similar to those in the McCain bill—a
blatant and entirely healthy example of industry trying to get
out in front of threatened legislation. If the companies had
enforced rigorous transparency rules in 2016, they might have
stymied Russian operatives’ postings and tweets.
More broadly, the digital giants could prove their good
faith and lessen misuse of their platforms if they opened up
their corporate data operations—not, of course, the private
data of customers—to outsiders. “It’s difficult to impossible for
researchers to see” what’s going on within company systems,
“and as a result, we don’t know much, or we’re guessing,” says
Alice Marwick, an assistant professor of communication at the
University of North Carolina at Chapel Hill. “Only by ending the
opacity and secrecy around social media will we fully under-
stand what goes wrong,” says Wael Ghonim, a former Google
product manager and internet activist.
Radical transparency would clash with prevailing corporate
instincts—and would have to be tempered by careful protection
of user privacy—but it could open the industry to new ideas and
win it new levels of trust. Twitter, for example, has said that
some 36,000 Russian-controlled “bots” were tweeting during
the 2016 campaign. But Senator Mark Warner (D-Va.) suggested
during the Nov. 1 hearing that Twitter’s tally of automated
accounts was low. Warner cited independent estimates that up
to 15 percent of all Twitter accounts—potentially 49 million—are
controlled by software, not humans. More access to company
11
data would presumably address Warner’s skepticism and pos-
sibly help provide answers to what Twitter should do about
all of those bots.
Asked about the transparency idea, a Twitter spokesper-
son pointed to a recent company report that said: “Twitter is
committed to the open exchange of information.”
Facebook, Google, and Twitter make money by selling users’
attention to advertisers. The companies do most of their digital
business via algorithms—the complex instructions that tell com-
puters how to select and rank content. For all their subtlety,
though, algorithms sometimes elevate clearly false information.
Without pretending that algorithms can be perfected—they’re
human constructions, after all—it’s not too much to expect the
internet companies to improve them with maximum urgency.
Consider one recent example involving Google. In April the
company said on an in-house blog that 0.25 percent of searches—
meaning millions per day—had been “returning offensive or
clearly misleading content.” In one illustration in December 2016,
the very first result for the search, “Did the Holocaust happen?”
was a page from the neo-Nazi site Stormfront offering the “top
10 reasons why the Holocaust didn’t happen.” Alarmed by that
and similar incidents, Google launched an algorithm scrubbing
called Project Owl. In April, Google announced it had made false
information “less likely to appear.”
The company didn’t provide a new rate for misleading
content to compare with the 0.25 percent figure, but by one
admittedly anecdotal measure, Project Owl seems to have had
some effect. I Googled, “Did the Holocaust happen?” on Nov. 9.
A site devoted to “combating Holocaust denial” led the results;
Stormfront’s opposite message didn’t surface until the middle of
the fourth page. The drive for more refined algorithms needs to
be accelerated. A Google spokesperson said via email: “While
  VIEW Bloomberg Businessweek November 27, 2017

we’ve made good progress, we recognize there’s more to do.”
In some markets, Facebook has been experimenting with a
fact-checking function to keep its News Feed honest. Based on
user reports and other signals, the company says it sends stories
to third-party fact checkers such as PolitiFact. When they ques-
tion a story, Facebook notifies users it has been “disputed” and
discourages sharing. “We already do a lot when it comes to the
security and safety of our community,” a Facebook spokesperson
said via email. Now the fact-checking program and others like
it deserve to be expanded and imitated elsewhere.
When it comes to violent incitement, the search and social
network companies face a whack-a-mole problem: They’re con-
tinually taking down extremist videos, only to see copies re-
uploaded. In response, Facebook, Google’s YouTube video site,
and Twitter are experimenting with a technique called “hashing,”
which allows the companies to track the digital fingerprints of
copied videos so they can be automatically removed. YouTube
used hashing recently to take down tens of thousands of sermons
by Anwar al-Awlaki, an American-born cleric notorious for ter-
rorist recruiting who was killed in a U.S. drone strike in 2011.
In August, YouTube toughened its stance toward videos that
contain inflammatory religious or supremacist content but do
not qualify for removal. Such material now comes with a warning
and isn’t eligible for recommended status, likes, or comments.
Borderline videos also are harder to find via search and can’t
have ads sold next to them.
In a related experiment, a Google affiliate has developed a
tool called the Redirect Method that can detect a user’s possi-
ble extremist sympathies based on their search words. Once it
has identified such a person, the tool redirects them to videos
that show terrorist brutality in an unflattering light. Over the
course of a recent eight-week trial run, some 300,000 people
watched videos suggested to them by the Redirect Method for
a total of more than half a million minutes.
As these illustrations show, the digital platform compa-
nies are willing and able to improve, but they need to step
up the pace, breadth, and intensity of their efforts. Facebook
announced at the congressional hearings that by late 2018 it
would double to 20,000 the number of employees and contrac-
tors working on “security and safety.” Chief Executive Officer
Mark Zuckerberg told investors on Nov. 1 such expenses would
“impact our profitability.”
That’s easier for a CEO to say, of course, on a day when his
company releases blockbuster results. For its third quarter,
Facebook earned $4.7 billion, up 79 percent. “Protecting our
community is more important than maximizing our profits,”
Zuckerberg also said. But that’s a false dichotomy. In the long
run, the internet companies will retain users and advertisers
only if they avoid being swamped by objectionable content. The
path to profits points toward doing the right thing. 
Barrett, a former Bloomberg Businessweek writer, is deputy
director of the NYU Stern Center for Business and Human Rights.

12
To read Mohamed El-Erian on what
 VIEW a middling Uber rating means and
Timothy O’Brien on the real chaos in
Puerto Rico, go to Bloombergview.com

One Year Too
Many on Campus
○ Three-year bachelor
degrees could reduce debt
for U.S. students
The basic cause of America’s student-
loan crisis is no mystery: College tuition
and fees continue to soar while the
earnings of recent graduates remain
unchanged. It shouldn’t be surprising
that there’s also a straightforward way to
lower the cost of a college degree: Reduce
the amount of time it takes to earn one.
The U.S. four-year bachelor’s degree is
based on cultural convention, not peda-
gogical wisdom. In most European coun-
tries, as well as India, Singapore, and
Australia, most undergraduate programs
take three years to complete. Some U.S.
colleges allow enterprising students to
finish their requirements early, but that
option is available only to those who
enter college with sufficient credits from
advanced courses taken in high school—
and some elite schools are trying to limit
even this practice.
Defying industry inertia, a small
number of U.S. schools have started to
experiment with three-year degrees. This
fall, Purdue University, a public school in
Indiana that enrolls 31,000 undergradu-
ates, announced that option is open to all
incoming students pursuing liberal arts
degrees. By carrying a slightly heavier
course load and taking classes in the
summer, students can complete the same
number of credits required for a four-year
degree. The university provides dedicated
advisers to help three-year students struc-
ture their schedules. And they still have
time to participate in abbreviated study
abroad and internship programs.
The plan’s principal beneficiaries are
students, who will save $9,000 if they live
in-state and $18,400 if not. Purdue says the
discount is intended to stimulate demand,
allowing the university to expand its
student body and make up for the loss of
tuition revenue. Increasing the number
of students year-round also enables more
efficient use of campus facilities.
It’s not likely that other institutions
will soon follow Purdue’s example. With
applications to the country’s top four-year
schools far surpassing the number of avail-
able spots, colleges have little incentive to
provide a discounted option.
But getting a college education is
more than just a commercial transaction.
There’s a public interest in making higher
education more widely available to quali-
fied students. Government’s role may be
limited, but it can be helpful: tying eligi-
bility for state and federal student aid to
offering a three-year option, for example.
Not everyone needs a traditional
college education. As Secretary of
Education Betsy DeVos says, the U.S.
needs more pathways that allow
Americans without one to reach (or
remain in) the middle class. For those
who want a college degree, obtaining one
needn’t take so long. A three-year degree
is a simple, cost-effective way to set more
students up for future success. 
 LOOK AHEAD ○ Microsoft will hold its ○ Supermarket operator ○ General Motors hosts its investor
annual meeting on Nov. 29 in Kroger reports third-quarter conference for analysts and

1 Bellevue, Wash. earnings on Nov. 30 institutional investors on Nov. 30

B Why Your
U Favorite Radio
S Hits May
I
N Go Silent
E ○ Some songwriters want a bigger piece of stations’
revenue. O
Otherwise
h i they
h y could
ld withhold
i hh ld th
heir music

14
S J Bon
Jon B Jovi got his big break in the early 1980s

S
after spending an entire day waiting to pester
a
a disc jockey at a radio station on Long Island,
N.Y., to playp a demo of a song he’d written. The
album with h that song, Runaway, went on to sell more
t a 1 milllion copies and helped fuel the career of
than
o of the
one e most enduring rock artists of the past
f
four decad des. Now, Bon Jovi is again lobbying radio
officials, an nd this time the impact could be far larger.
He and abo out 75 other artists—including such staples
o the airw
of waves as Drake, Pharrell Williams, Steve

BON JOVI: EBET ROBERTS/GETTY IMAGES; PHOTO ILLUSTRATION BY 731; AZOFF: J. KEMPIN/GETTY IMAGES
M
Miller, and d Bruce Springsteen—have joined super-
m
manager IIrving Azoff ’s crusade to press radio sta-
t
tions to bo oost the royalties they pay writers when
t y play
they y ttheir songs. That figure hasn’t budged in
d
decades, an nd Azoff says artists may pull some of their
m
music o
off the
t air if their concerns aren’t addressed.
“ h isn’t about the guy in my position, but
“This
about my y buddies who are very good songwriters
who
h try to o make a living just songwriting,” says Bon
J
Jovi, whose e latest tour grossed more than $40 million
this yyear. “Who will champion them? There is no
charity y sho ow for the songwriter.”
For all tthe fuss about streaming services Spotify,
Y
YouTube, and
a Apple Music, radio is still the lifeblood
o the mussic business. It’s the most common way
of
November 27, 2017 m
music is liistened to in the U.S., where 240 million
p
people tun ne in every week, and stations generate
dited by
Ed y a
about $18
8 billion
b in radio advertising annually from
Jamess E. Ellis
s
n
news, talk
k, sports, and music.
ssweek.com
Business m U
Under the
t industry’s confusing business model,
 BUSINESS
radio companies pay about 4 percent of their
music-related advertising revenue to songwriters.
That’s a smaller share of the ad haul than Pandora,
Spotify, or YouTube pays artists. (Performers aren’t
compensated for radio airplay; instead they make
money from music sales, streaming, and touring.)
Enter Azoff, a former head of the MCA record
label and ex-chairman of concert promoter Live
Nation Entertainment Inc., who’s best known as the
manager for such mega-acts as Bon Jovi, the Eagles,
and Christina Aguilera. He and industry veteran
Randy Grimmett founded Global Music Rights,
which is demanding that radio stations pay its big-
name artist-songwriters a higher rate—somewhere
north of 20 percent.
Stations have responded with a lawsuit, accusing
Azoff of anticompetitive behavior. He countersued,
and the litigation is ongoing. The stations don’t
seem to want to settle, Azoff says, and if the suit
doesn’t go his way, he may have only one recourse:
taking Pharrell’s Happy off the radio, along with
other songs. “A radio music licensing cartel—that’s
what their behavior depicts,” he says of the current
industry setup. “When it smells like a cartel and acts
like a cartel, in my language, that’s a cartel.”
The Radio Music License Committee, which rep-
resents the industry’s 10,000 commercial stations
in licensing matters, has denied that characteriza-
tion in a court filing. “We would be comfortable with
maintaining the status quo,” says RMLC Executive
Director William Velez, who says the controversy has
been fueled “because of rate envy” over the higher
streaming royalties Pandora has agreed to pay artists.
Radio stations have fought artists’ efforts to
collect a greater share of their sales since before
World War II. At the time, the American Society of
Composers, Authors and Publishers (Ascap) repre-
sented all popular music played on the radio. When
Ascap announced in 1939 that it would raise its fees,
broadcasters responded by creating their own per-
forming rights organization, Broadcast Music Inc.
(BMI). The rate paid to writers, which stood at
7.5 percent before the formation of BMI, now sits
around 4 percent. For the past six decades, the rates
have been governed by a special court created under
a settlement with the U.S. Department of Justice.
Most artists have steered clear of a fight with the
radio industry, for fear of upsetting the most import-
ant promotional vehicle in the world’s largest music
market. Until as recently as the early 2000s, some
record labels paid stations to play their songs. Even
today, artists often play radio station concerts and
festivals for free and are even asked to pay for at
least a share of their airfare for such gigs.
“They built a billion-dollar business using my
music,” says Miller, the songwriter of classic rock
favorites including Fly Like an Eagle and The Joker.
Miller, who owns the rights to his biggest hits, has
always enjoyed steady play on classic rock stations
but could never make sense of the royalty checks
Bloomberg Businessweek November 27, 2017
he received. His radio paychecks stagnated even
as his record sales soared in the 1970s. He says he
debated bringing a lawsuit against the stations but
didn’t want to spend years in court. “I wish Irving
came around in 1967,” Miller says. “This is my first
chance at transparency.”
BMI and Ascap have also tried to raise royalty
rates. BMI said its statements to artists “clearly reflect
all performances including radio plays” and that it
details how it calculates royalties on its website.
○ Azoff
Ascap Chief Executive Officer Elizabeth Matthews says
its members receive “granular detail” about their pay-
ments and that the company has “a commitment to
being fair and equitable as well as fully transparent.”
Azoff says he was drawn to enter the radio fight
after seeing the checks paid to his artists decrease
over the years. Ascap and BMI would change the
advances and rates paid with little explanation, he
says. One quarter they would pay more for urban
artists, and another they’d pay more for pop stars
such as Adam Levine. In recent years, classic rock
acts got the short end of the stick.
“For classic guys, the checks were going down,”
Azoff says. “They were getting played more and paid
less.” Since most songwriters can’t tour—which is
the primary way of making money for artists in the
contemporary music business now that album sales
have cratered—getting higher radio rights is key.
15
Azoff has persuaded two radio groups, including
iHeartMedia Inc., to pay the higher fee. But most
stations won’t. He says GMR is girding for a legal
battle with the industry. “If we’re dragging up rights
for everyone, it certainly will help emerging writers,”
Azoff says. “We’re trying to make songwriting more
valued across the board.” —Lucas Shaw
THE BOTTOM LINE Radio remains the biggest venue for music
entertainment in the U.S., with 240 million listeners each month.
Some songwriters want a larger share of stations’ ad revenue.
Foreign Brands Lose
Gro u in Asia
nd
○ Local companies are quick to
exploit trends and changing tastes
Doing business in Asia was long considered easy
money for Western multinationals looking to boost
sales, with beverage makers, cigarette brands, and
fast-food giants capitalizing on rising incomes and
weak local rivals. A survey conducted by China Market
Research Group in 2011 showed that 85 percent of
Chinese consumers preferred buying foreign brands.
Those days are over. The preference for foreign
brands dropped to 40 percent in last year’s
  BUSINESS
survey, mirroring a trend seen in sales of tooth-
paste in India, laundry detergent in Vietnam, and
flavored water across the region. It suggests that
Asian labels are more price-competitive or better
at addressing local preferences, according to a
Nielsen report. That spells trouble for global con-
sumer titans at a time when the Asia-Pacific region’s
economic growth is projected to outpace the
world’s through 2019, helping to turn such brands
as Indonesia’s Luwak instant coffee and China’s
Pechoin moisturizer into rising stars.
“Multinationals underestimated local competi-
tion,” says Shaun Rein, managing director for China
Market Research Group. “Local players have moved
very fast on emerging trends that multinationals
have missed, like healthy [goods] and e-commerce.”
Rein says some Asian companies have proved
more nimble than many large global businesses,
which can take a long time to make strate-
gic decisions. “Local companies come up with
something, and it’s done,” he says.
As coffee becomes more popular in tea-loving
Asia, for example, capturing customers early is
crucial. Instant coffee by Indonesia’s PT Javaprima
Abadi—better known for selling beans plucked
from the feces of civet cats—more than doubled its
market share in the Asia-Pacific region from 2012 to
2016, to 4 percent, while Nestlé’s Nescafé stagnated
16
at about 43 percent, according to research firm
Euromonitor International.
In Indonesia’s $1.3 billion instant coffee market,
the gap is even more pronounced. Javaprima is the
market leader, having increased its share 11.5 per-
centage points, to 32.7 percent, from 2012 to 2016,
while Nestlé lost 1.4 percentage points, falling
to 16.3 percent. Nestlé declined to comment on the
Indonesian market. “Local players have improved
product quality and packaging and have picked up
on local digital tools a lot faster,” says Regan Leggett,
an executive director at Nielsen.
Javaprima is capitalizing on local trends, such
as demand by women and new coffee drinkers for
a smooth and creamy brew, according to director
Agus Susanto. “I like the taste of Kopi Luwak better
than Nescafé, which isn’t as flavorful,” says Dian
Octora, a 36-year-old homemaker in Bandung,
West Java. “Nescafé also makes my heart beat
much faster.”
Local brands also often win on price. A 540-gram
(19-ounce) pack of Nescafé White Coffee sells for
65,000 rupiah ($4.80) on Indonesia’s Tokopedia
e-commerce site, while 450 grams of Luwak’s White
Koffie sell for 23,000 rupiah.
Nestlé has sought to appeal to local tastes,
too. It’s rolled out ready-to-drink Nescafé cold
coffees in Asia and opened branded cafes at
some Chinese universities. In Vietnam it’s intro-
duced Nescafé Café Viêt, which offers consumers
a traditional Vietnamese coffee in a dry form sold
in convenient packets.
Bloomberg Businessweek November 27, 2017
“Coffee is getting more popular in Asia, and
consumers are asking for more choice,” says Wan
Ling Martello, who runs Nestlé’s Asia, Oceania, and
sub-Saharan Africa region. “That opens the door for
more competition, and we welcome that.” A more
competitive market has taken a toll. Nestlé’s revenue
from Asia, Oceania, and sub-Saharan Africa fell
2 percent, to 14.5 billion Swiss francs ($14.3 billion),
from 2014 to 2016—a period that included an instant
noodle recall in India.
Multinationals face similar growing competition
in cosmetics, another area where foreign brands
made big early inroads in Asia. France’s L’Oréal SA
is the No. 1 beauty group in China. But in the
Chinese skin-care market, which is forecast to
grow 25 percent by 2021, to $34 billion in sales,
the up-and-comer is Pechoin, a domestic brand
of creams and whiteners. China’s first lady, Peng
Liyuan, gave some of the brand’s products to
Tanzania’s first lady, Salma Kikwete, during a visit
in 2013. One result: Pechoin, owned by Shanghai
Pehchaolin Daily Chemical Co., saw its market
share quintuple from 2012 to 2016, to 4 percent,
according to Euromonitor.
A popular Pechoin marketing campaign on
Chinese messaging service WeChat this year showed
a woman hiding a gun in her traditional qipao dress
before strolling through the streets of Shanghai
 A Nescafé-branded
cafe in the Harajuku
district of Tokyo
DATA: INTERNATIONAL LICENSING INDUSTRY MERCHANDISERS’ ASSOCIATION; NESCAFE: KIYOSHI OTA/BLOOMBERG
in the early 1900s and chronicling the history
of the city. It ends with her shooting a dark-clad
figure surrounded by Dalí-esque melting clocks,
proclaiming, “My mission is to fight against time,”
and introducing Pechoin’s skin-care products.
The brand’s newfound popularity came partly
at the expense of the L’Oréal Paris label, which
lost more than a fifth of its market share from
2012 to 2016. Pechoin didn’t respond to requests
for comment. But Miao Yaoyang, Pechoin’s general
manager, in June told Wuhan-based Cosmetic
Observer magazine that the brand tries to show
the core value of herbs that are deeply rooted in
traditional Chinese life. “Culture is the deep moat of
the brand,” Miao said. “We want to make products
that focus on Chinese people.” —Corinne Gretler
THE BOTTOM LINE Last year, 40 percent of Chinese
consumers said they preferred foreign brands. That’s down from
85 percent in 2011, providing an opening for local companies.
 BUSINESS
Can Sports Licensing
Score Outside the U.S.?
Web retailer Fanatics Inc. has crushed the compe-
tition in the U.S. sports merchandise industry by
selling things fans didn’t realize they needed, such as
a $40 New York Yankees money clip or a $50 Green
Bay Packers bikini. Now, after securing a $1 billion
investment from Japan’s SoftBank Group Corp.
in September, the company is tackling a tougher
challenge: sparking an American-style hunger for
sports team gear among fans from Bristol to Beijing.
Jacksonville, Fla.-based Fanatics has licensing
deals with Nascar, the NFL, Premier League soccer
teams such as England’s Manchester United, and
others. It pairs them with fast-fashion-inspired logis-
tics that let it sell shirts and caps celebrating on-field
achievements minutes after the action ends.
That logistics savvy drew the attention of SoftBank
Chairman Masayoshi Son, who’s betting that the
American way of buying sports merchandise will
gain more favor overseas than American sports them-
selves. Fanatics founder Michael Rubin, who sold
sports gear startup GSI Commerce to EBay Inc. for
$2.4 billion in 2011, is targeting markets such as the
U.K. and China in his bid to quintuple annual sales, to
$10 billion, over the next five years. The global market
is worth $25.3 billion, according to the International
Licensing Industry Merchandisers’ Association.
Even though the American appetite for burgers
and craft beer flows across borders with ease,
selling sports gear to fans globally can mean rubbing
up against entrenched cultural norms. Most of
Britain’s Premier League clubs were formed in the
19th century as working-class social and cultural
hubs rather than businesses. Despite signing
multibillion-dollar broadcast rights deals, the clubs
have been more reluctant than U.S. sports franchises
to embrace commercial opportunities.
“British football fans have been conditioned in a
very different environment to U.S. sports fans,” says
Simon Chadwick, professor of sports enterprise at
the University of Salford in Manchester. “They’re
more guarded about the excesses you see in U.S.
sport, because the tribal norms are very different.”
Take pregame rituals. In the U.S., tailgating
parties give Fanatics the opportunity to hawk
branded grill covers ($65) and cornhole sets (as
much as $250). But in England, where soccer author-
ities have been battling hooliganism for decades, the
buildup to a game is less relaxed. Streets around
stadiums are heavily policed, and alcohol is banned
in the stands, so thousands of fans pack into local
pubs every Saturday lunchtime to sing and drink.
And although sports jerseys are an accepted form
Bloomberg Businessweek November 27, 2017
○ Fanatics is betting that
Europe and China want
team logo bikinis, too
of casual wear in the U.S., that’s not always the case ○ Licensed sports
merchandise sales
elsewhere. “In the U.K., if you wear your team’s in 2016
colors, a lot of people think you’re not dressing
up enough,” says Kit Walsh, a partner at Fermata U.S. $19.2b
Partners, who helps clubs such as Arsenal and
Liverpool market branded goods in the U.S.
Fanatics managers say American sports fans buy
more merchandise than their British counterparts
because they have access to a wider range of mem-
orabilia—a gap the company is determined to close
through smarter marketing. When Sergio Aguero
broke Manchester City’s all-time goal-scoring record
in Naples, Italy, in November, Fanatics immediately
released commemorative T-shirts, as well as a mug
and a scarf. That quick response helped double the
player’s merchandise sales that week.
Fanatics’ international sales amount to about
$200 million, but Steve Davis, president of the inter-
national division, wants business outside the U.S.
to make up about half the company’s $10 billion
17
revenue target in five years. He plans to open manu-
facturing facilities in Germany and China next year,
then in Japan and Australia in 2019.
China, where President Xi Jinping aims to build a
$750 billion sports industry by 2025, is a particular
focus for Fanatics. The company will need to culti-
vate a culture of buying licensed jerseys in a country
that’s still riddled with counterfeit products. To gain
a better understanding of the nuances of the market,
it plans to recruit managers locally.
The company will also be going up against the
Chinese state, which wants its domestic soccer league
to compete financially with the Premier League teams
that have deals with Fanatics. Chinese Super League
clubs, backed by the country’s biggest businesspeople
and state-controlled companies, spent a combined
$451 million signing players in 2016, international
governing body FIFA says. That’s attracting fans to
matches, too: Attendance has increased at an average
rate of more than 10 percent per season since 2014,
according to Euromonitor International. At that rate, Europe, ex-U.K. $2.9b
attendance will surpass the Premier League’s by 2020.
Fanatics says Chinese soccer’s rapid growth
should boost, rather than detract from, interest in
the Premier League—and in the gear the company
sells under license from the English teams. “There’s
Asia/Pacific $982m
a huge fan base in China that’s completely under-
served,” Davis says. “It’s the biggest and most pressing
U.K. $887m
opportunity for our partner clubs.” —Sam Chambers
Canada $700m
THE BOTTOM LINE U.S. e-tailer Fanatics is trying to replicate
its U.S. success by selling licensed sports gear globally. But logo Other $598m
mugs and event-based T-shirts are less common overseas.
LOOK AHEAD ○ Box earnings will test its shares’
fresh 52-week high. The stock is up
almost 50 percent over that period
Appendectomy?
Giving Birth?
That’s No Reason
To Cancel Class
○ American teachers say a
Chinese education startup is
taking advantage of them and
skirting labor laws
Misty Heitman, a teacher in Tennessee, worked
long hours to help support her family—really long.
The 42-year-old mother of six regularly got up
in the middle of the night to teach Chinese stu-
dents online for China’s hottest education startup,
VIPKid. While she was teaching one morning this
summer, her 9-year-old daughter, who’d been suf-
fering migraines, died in her sleep. Devastated,
Heitman canceled classes to mourn. “I kept can-
celing classes,” she says. “One night, I was going
to teach, but I just couldn’t.”
Heitman told VIPKid what happened, and the
company assured her she’d be OK as long as she didn’t
miss more classes. But she was terminated anyway,
via an automated email marking the days she’d been
out. She wrote about her firing in September on a
Facebook group page for VIPKid teachers, and her
colleagues began pressuring the company to do
better by her. “People got irate,” says Emily Weaver,
another U.S. teacher. “You fired somebody because
her daughter died? What happens to me if I get in a
car accident or something else happens?”
Like ride-hailing services Uber Technologies Inc.
and Lyft Inc., VIPKid says its teachers are indepen-
dent contractors. Its control over class prices, custom-
ers, curriculum, and cancellation policy, however,
○ Las Vegas hosts AWS re:Invent, ○ VMware earnings will offer an
Amazon.com’s annual conference idea of whether the Dell subsidiary
for its cloud customers can keep buying security companies
2
Migraines?
T
E
C
H
N
may suggest the teachers are treated more like
O
L
employees, meaning they qualify for the same pro-
tections as employees. When Heitman’s colleagues
19
began complaining on her behalf, their concerns
quickly reached the rest of the company’s workforce.
O
In Facebook groups and other forums, they began
talking about holding a strike to win better treatment
or perhaps voting on unionization. VIPKid reinstated
Heitman and apologized repeatedly; she says the
G
company did right by her in the end. But that’s no
longer enough for some of her peers, who say the
Beijing company is taking advantage of American
workers and skirting labor laws.
Y
While VIPKid isn’t the only company accused of
misclassifying workers to save money, painful stories
from put-upon teachers such as Heitman make the
powerful Chinese startup stand out. “I don’t know
how VIP is getting away with what they’re doing,” says
Weaver. “I love the company, and I love the work.
But I can’t believe anyone would call us indepen-
dent contractors.”
“Teachers who sign up to use VIPKid enter into
an independent contractor relationship with the
company and, as a result, enjoy a tremendous amount
of independence and control,” Joshua Lipshutz, an
attorney at Gibson Dunn & Crutcher who represents
VIPKid, said in a statement. He also said the compa-
ny’s practices comply with all U.S. regulations. VIPKid
declined to comment on specific cases.
This is a big moment for VIPKid, one of China’s
fastest-growing education companies. About November 27, 2017
30,000 teachers instruct more than 200,000 paying
students age 4 to 12. The one-on-one sessions run Edited by
Jeff Muskus
25 minutes each, and most students take two or
three a week. VIPKid’s revenue is on track to reach Businessweek.com
  TECHNOLOGY
5 billion yuan ($754 million) this year. It raised
$200 million in August, from investors including
leading Chinese internet company Tencent Holdings
Ltd., at a reported valuation of more than $1.5 billion.
VIPKid has raised about $325 million since its 2013
founding and eventually plans to go public.
Questions about the legal status of VIPKid’s
teachers could complicate an IPO. Their contrac-
tor classification means, among other things, that
they have to cover all the taxes typically paid by
employers. If the teachers are deemed employ-
ees, VIPKid could be compelled to start paying
those taxes and may be liable for those from pre-
vious years. Uber and Lyft drivers have sued the
ride-hailing companies to address similar issues,
as well as grievances about overtime and tips. (The
companies deny wrongdoing.)
“This is an increasingly pervasive problem,”
says David Weil, former administrator of the U.S.
Department of Labor’s Wage and Hour Division and
now dean of the Heller School for Social Policy and
Management at Brandeis University. “Companies
come up with a way to provide service by tapping
on a screen instead of making a phone call, and
they want to call their workers contractors. But
that’s not the case.” Weil says his information is
limited, but he believes the tutors at VIPKid are
“more likely than not employees” under the Fair
20
Labor Standards Act.
VIPKid may have been somewhat insulated from
these kinds of complaints because it’s provided
a reliable source of income to underpaid educa-
tors. For years, teachers have raved about the com-
pany’s curriculum, which pushes students to do
most of the rote learning on their own time and
then conduct higher-level discussions with their
instructors. Teachers typically specify which hours
during the day they will teach two weeks ahead of
time; parents then sign their children up for their
chosen tutors. VIPKid, for its part, has used its
supply of American teachers as a primary selling
point in advertising its services to Chinese parents.
Shannon Mabry, who runs an 11,000-member
Facebook group for VIPKid teachers, says most
remain happy with the company.
Heitman’s case, however, galvanized a wave
of online complaints from other teachers who’ve
found VIPKid to be far less flexible than adver-
tised. Teachers are allowed six cancellations per
six-month contract; in a Facebook group post, one
woman said she was hospitalized for migraines, filed
proof of her hospital stay with VIPKid, and was told
that was no reason to miss class. Another woman
said on Facebook that she taught two days after
an emergency appendectomy out of fear that the
company didn’t view her illness as serious enough
to warrant skipping classes. A third woman said
she taught classes from her hospital bed the day
she gave birth for fear of losing her job. VIPKid’s
average rating on Glassdoor, a website for workers
Bloomberg Businessweek November 27, 2017
to share their experiences at particular companies,
has fallen to 3.9 stars. Last year the average rating
hovered around a perfect 5 stars.
Linsey Stockman, who’s pregnant with her
second child and lives in Robeline, La., logged on
to teach on a recent Friday, only to discover her ○ VIPKid is on track
internet connection wasn’t working. Her provider this year to reach
revenue of
came the following Monday, took responsibility for
the problem, and fixed it. But VIPKid still termi-
nated Stockman, even after she says she sent them
$754m
documents verifying the reason she had missed
her scheduled classes. “I appealed the termina-
tion,” Stockman says. “They basically said, ‘Sorry,
it stands.’ ” —Peter Elstrom and David Ramli
THE BOTTOM LINE VIPKid has raised about $325 million in
four years and built its service on promises of flexibility, but its
teachers say they live in fear of missing classes.
Google Is Losing to
The ‘Evil Unicorns’
○ The company is trying to fight fake
news without making sweeping changes
“Evil unicorns” aren’t billion-dollar startups gone
bad. The term, coined by Google engineers, refers to
webpages full of lies about an obscure subject. When
there’s little other information about the subject
online, the lie-stuffed pages get pushed to the top
of search results, because the search engine doesn’t
have much else to show.
That’s what happened in October, after the mass
shooting in Las Vegas that killed 58 people and
injured more than 500. For hours, Google searches
about the massacre prominently displayed posts
coordinated to falsely identify a Democratic donor
critical of Donald Trump as the shooter. Something
similar happened in November after the mass shoot-
ing in Sutherland Springs, Texas. YouTube videos
and tweets mislabeled the shooter as “antifa,” an
antifascist protester often willing to use violence.
Again, Google featured these untrue pages high in
its search results.
While Google is accustomed to battling spammers
and click-bait publishers to maintain the integrity of
its search results, it’s done less to fight back against
the deliberate poisoning of its real-time news and
video catalogs. “We should have absolutely antici-
pated this but didn’t,” says Pandu Nayak, a Google
executive for search.
To combat the problem, Google is revamping the
breaking-news slot in its search results, more carefully
  TECHNOLOGY
curating its lists of “Top stories” and featured tweets.
Google says the overhaul includes video: Results for
YouTube searches related to news events will show
more material from outlets that Google has certi-
fied as trustworthy, and those outlets will get more
prominent placement in non-news searches, too.
But as long as the company remains determined not
to block questionable sources from its news results,
the changes may not be enough. “One of the chal-
lenges here is that these rumors pick up so fast,”
says Danny Sullivan, a journalist who Google hired
in October as its public liaison on search issues. “I
can’t tell whether there’s more of it happening than
in the past. It kind of feels like it.”
Similar problems have been building in non-news
searches for some time, with misleading blog posts
about, say, vaccination or climate change. In those
less time-sensitive cases, Google has tweaked its
results by hand to assign more weight to pages it
knows to be reliable. In cases of breaking news, it
says, things get a lot tougher. See, for example, a
string of phony election outcomes that appeared
prominently in Google search results last year or
search-result pages that were clearly manipulated
by Holocaust deniers. In April, Sullivan, who spent
years as the search engine’s foremost chronicler
and critic, said Google was facing its “biggest-ever
search-quality crisis.”
Google will need to take stronger measures
to block misinformation about breaking-news
events, says Nate Dame, a search specialist who
runs marketing firm Propecta. “There’s no system
for the algorithm to filter out truth and reality” at
a moment’s notice, he says.
Fake news has remained a problem partly
because Google has repeatedly added more real-
time information to its results. In 2014 the company
opened up its news results to non-news publica-
tions such as personal blogs, and a year later it cut a
deal with Twitter Inc. to show tweets high in query
results, part of a broader effort to turn search into a
hub of fresh information and direct answers.
So why not restrict timely results to verified
sources? Nayak says that could close off users from
information that hasn’t made it to major publica-
tions yet, such as the spots where a local musician
is scheduled to appear. The search division is also
reluctant to wade into the political mire that comes
with ranking mainstream news sources above par-
tisan cranks. Nayak says things like misidentifying
the Las Vegas shooter are rare, making dramati-
cally trimming Google news results unnecessary.
“It wasn’t this huge problem,” he says. (The man
whose life was upended by being falsely identified
as the shooter couldn’t be reached for comment.)
ILLUSTRATION BY TOMI UM
Google has begun teaming up with fact-checking
sites such as Snopes to watchdog its search results.
In the case of the Texas shooting, the fact checkers
helped Google sort its results in about a day. By then,
of course, far fewer people were searching for news
Bloomberg Businessweek November 27, 2017
about the massacre. Even a week later, YouTube’s top
search suggestions for the shooter’s name returned
videos from conspiracy theorists alongside videos
from CBS News. One, posted by someone with the
username The Patriotic Beast, claimed to have
“100 percent proof” the shooter is “far-leftist” and
“antifa.” The video racked up tens of thousands of
views on the day of the shooting, largely because of
high placement in Google search results. “If you like
this stuff,” a male voice says in the video, “make sure
to like or comment or subscribe. I do these things
21
all the time.”
Johanna Wright, YouTube vice president for
product management, says her team is working on
a sweeping change to the website’s search results that
will increase reliance on recognized news organiza-
tions. But Wright says YouTube doesn’t want to shut
out small-time posters, who may include citizen jour-
nalists such as those who helped publicize the Arab
Spring. Google also wants to keep YouTube stars
from migrating to Facebook or elsewhere. Keeping
them in news results can mean a lot of money to cre- “There’s no
ators paid by the ad view—a powerful incentive for system for the
the video creators to stick with YouTube.
Dame and others in the field say Google’s algorithm to
embrace of machine learning systems is part of the filter out truth
problem. These systems, which train software to and reality”
learn on its own, differ from the search algorithms
that weigh sites heavily on factors such as how many
links they’ve received. Because the systems learn
based on whatever data are available, they’re inher-
ently bad at judging their sources’ veracity.
Google is unlikely to turn its back on machine
learning, though. During an October interview,
Google Chief Executive Officer Sundar Pichai said
fake-news publishers and other bad actors are
likely to start taking advantage of artificial intelli-
gence themselves. The only way to keep ahead of
the evil unicorns, he suggested, was to keep making
AI more powerful. —Mark Bergen
THE BOTTOM LINE Google is weighting verified news sources
more heavily in its search results for breaking events, but it says
cutting out unverified sources entirely would be going too far.
 Man vs. Machine Optometry
QuickSee, a two-pound handheld device made by startup PlenOptika,
measures light shone into users’ corneas and lenses to calculate
measurements for corrective lenses in a matter of seconds.

The Benefit

The QuickSee is as accurate as a more expensive desktop autorefractor.

PlenOptika plans to supply basic $2,500 models to markets where optometrists
are scarce and pricier versions to health-care providers in the U.S. and Europe.

Innovator Tasks
○ Shivang Dave PlenOptika says clinical studies
○ Age: 35 show QuickSee can deliver a
○ Co-founder and chief prescription measurement on its
executive officer of built-in screen as accurately as
PlenOptika a trained optometrist trying out
○ Location: Allston, Mass. different lenses on a patient looking
at an eye chart.

Origin
22
Dave and three fellow
Incentives
postdocs began Clifford Scott, president of the New
developing QuickSee England College of Optometry,
in 2011 with help from a says QuickSee’s precision gives it
partnership between MIT the potential to deliver “the best
and the government of prescription possible.”
Madrid. The co-creators
and their company have
received about $3.5 million Challenges
in grants, awards, and
angel investment. Scott says PlenOptika’s plans to
improve eye care in the developing
world will make profits tough.

The Verdict

No, says Scott—they’ll just allow eye doctors to

see more patients, adjusting to individual needs
based on lifestyle and other hard-to-quantify
Will QuickSee or factors, while they let the QuickSee fine-tune
devices like it replace prescriptions. “The technology is a great aid,”
optometrists? he says. “It’s not going to replace people. What
it is going to do is make them more efficient.”
GETTY IMAGES

—Michael Belfiore
 LOOK AHEAD ○ The Bank of England publishes ○ Some of Canada’s largest banks, ○ The OPEC cartel meets in Vienna.
results of its latest stress tests on including Royal Bank of Canada and Members will discuss extending last

3 U.K. banks Toronto-Dominion, report earnings year’s production cuts

The Robot That Put a

F Sell on Facebook
I An artificial intelligence analyst is far from
perfect, but it could help banks cut costs
N On Oct. 6 a note from Wells Fargo & Co.’s equity research, was recommending the stock with an

A
research department downgraded Facebook Inc.
to sell, making it one of only three brokerages with
such a dour rating. The analyst making the call was
unusual, too. Its name is Aiera, or artificially intel-
outperform rating.
“To suddenly put out a call by Aiera showing
a sell, we had to be prepared to respond to that
with clients,” says Sena, who built Aiera with Bryan

N ligent equity research analyst. Healey, director of AI at a startup called Lola who
Aiera is the creation of Ken Sena, a veteran inter- previously worked on Amazon.com Inc.’s Alexa
net analyst at Wells Fargo, who describes it as a digital assistant. “We were a little bit by the seat of
self-learning program that can do some parts of our pants in terms of releasing this information.”

C
his job better than he can. Aiera had read thou-
sands of stories about Russian-linked ads on
Facebook during last year’s U.S. presidential elec-
tion. Politicians were up in arms, and Congress
It’s worth mentioning that the Facebook call
proved a dud. The stock rose, and some inves-
tors dismissed the technology. “That was a disap-
pointment,” says Sena. Even so, he thinks Aiera is

E
called for hearings. Aiera’s algorithms picked up
on the bad vibe and thought it could trigger other
24
investors to sell. The rating was a little awkward
for Wells Fargo. Sena himself, based on his own
a warning to investment firms and banks that they
can’t ignore the artificial intelligence systems already
being exploited by the likes of Amazon and Google.
The technology is coming, and companies and

ILLUSTRATION BY CHARLOTTE POLLET

November 27, 2017

Edited by
Pat Regnier

Businessweek.com
 FINANCE
analysts will be better off if they start experiment-
ing and learning from it—even if automation could
destroy some lucrative Wall Street jobs. “There
are probably going to be people who find them-
selves training machine learning technologies that
may take their job away,” says Richard Johnson of
research company Greenwich Associates, who has
studied the impact of AI on Wall Street.
AI is new to equity research shops such as Wells
Fargo’s, but not to finance. Many hedge funds use
machine learning programs to sort through reams of
market data, constructing portfolios designed to take
advantage of the statistical trends they detect. Banks’
research and sales departments still rely mainly on
human judgment. Analysts produce buy, sell, and
hold recommendations on specific stocks, create
reports used by clients looking for fresh insights,
and often inform their thinking with access to corpo-
rate executives. It’s squishier and in some ways more
difficult than running a quant fund. Morgan Stanley
just started using AI to scour data during earnings
season, and there are startups helping banks auto-
matically turn data into trading ideas. But Wells
Fargo is the first major bank to use the techniques
to make public recommendations.
Aiera was born after Sena met Healey through a
machine learning conference Sena organized in 2016.
The two hit it off, and Healey started advising Sena on
AI, helping the analyst brief investors on the technol-
ogy. Machine learning lets software adapt to new data
without human programmers. As Sena and Healey
delved deeper into the field, a question bubbled up.
“I asked the question, well, can you automate what
I do?” Sena says. “And Bryan said, well, you have to
explain to me what you do.”
The system piggybacks on the thinking of count-
less humans. It scours the internet for stories, earn-
ings reports, social media posts, and analyst research
on more than 500 stocks and uses tools such as
natural language understanding to turn the words
into a measurement of sentiment. “Fear,” “anger,”
“joy,” “sadness,” and “surprise” are combined into
an overall sentiment score. Aiera then monitors
the market to see if the emotions it identified move
stock prices. If there’s a correlation, it stores that
and uses it to make predictions and churns out one-
paragraph summaries of the most relevant informa-
tion for each stock.
Aiera’s recommendations are for short-term
periods. As of early November, calls it made for
an eight-hour period had an overall accuracy rate
of 88 percent, while 58 percent of its recommen-
dations for eight days worked out, according to
Sena. The eight-hour calls do best because there
have been so many more of them to feed back into
the learning algorithm. Most of those recommenda-
tions are holds, which work out well partly because
nothing much happens to a stock in a few hours.
“Machine learning in finance is a tough
slog,” says Vasant Dhar, a professor at New York
Bloomberg Businessweek November 27, 2017
University who’s run an AI-powered hedge fund for
almost a decade. “It’s easy to fool yourself about
how these things work.”
The Facebook sell call had one virtue: It showed
Aiera is willing to be negative. Human analysts may
think twice before highlighting bad news and calling
to sell because they want to preserve access to exec-
utives. Sena says people should pay attention to the
fact that “you had an unbiased participant—even if
an artificial intelligence was behind it—coming out
and saying, look, this is relevant.”
When Sena described the plan to publish Aiera’s
calls to Wells Fargo’s compliance department, the
only relevant regulations it could find had to do
with robo-advisers that do automatic asset alloca-
tion. Those are supposed to tell clients when they
make important changes to their algorithms. The
trouble is Aiera is designed to change constantly
as new data flow through the system. The solu-
tion was to include a boldfaced disclaimer in every
report stressing that the system’s ratings weren’t
investment advice and should be read only to gain
a greater understanding of AI. That disclaimer has
crept higher with each note. Turning Aiera into a
real financial product will require additional work
by Wells Fargo and more relevant guidance from
regulators, Sena says.
Other analysts at Wells Fargo aren’t as enthusi-
25
astic as Sena about Aiera. Mike Mayo, a well-known
bank-stock analyst at the firm, wants to use it to
enhance his research, but he won’t let it publish
stock ratings on his companies. “As far as having
an Aibra, an artificially intelligent bank research
analyst, I don’t think that’s happening in the next
decade,” he says. Analysts lower on the totem pole
may have more to fear: Mayo says banks are in cost-
cutting mode and are looking at AI.
Mayo’s junior associate analyst spends about
three-quarters of his time checking news articles,
gathering other information, and manipulating
data—all tasks AI can automate. It’s more than half
of the time for more midlevel associates and about
one-third of a senior analyst’s day, Mayo reckons. ○ Wells Fargo’s
“Maybe you don’t need 50 junior analysts scour- artificial intelligence
ing through filings and stories,” says Johnson of “analyst” is able to
monitor more than
Greenwich Associates. He estimates 15 percent of
finance jobs are at risk from AI automation, with
research among the most exposed. Banks will likely
500
stocks
deploy machine learning to cover smaller, less-
followed companies, without hiring staff. But that
also points to how long a way Aiera still has to go.
Some of its reports include odd sentences about
other companies, as well as clichéd, generic invest-
ment advice. That happens mostly when there’s
not much news about a company—the very stocks
Johnson thinks would benefit from automated
coverage. —Alistair Barr and Julie Verhage
THE BOTTOM LINE An analyst on Wells Fargo’s stock research
team is experimenting with machine learning tools that could one
day replace a lot of well-paid human work.
  FINANCE
Can Bitcoin Outlast
An Apocalypse?
Wendy McElroy is ready for most doomsday
scenarios: A one-year supply of nonperishable food
is stacked in a cellar at her farm in rural Ontario. Her
blueprint for survival also depends upon a working
internet; part of her money, assuming she needs
some after civilization collapses, is in bitcoin.
Across the North American countryside, so-called
preppers such as McElroy are storing more and more
of their wealth in invisible wallets in cyberspace
instead of stockpiling gold bars and coins in their
bunkers and basement safes.
They won’t be able to access their virtual cash
the moment a catastrophe knocks out the power
grid or the web, but that hasn’t dissuaded them.
Even staunch survivalists are convinced bitcoin
will endure economic collapse, global pandemic,
climate change catastrophes, and nuclear war. “I
consider bitcoin to be a currency on the same level
as gold,” McElroy, who lives on the farm with her
husband, said by email. “It allows individuals to
26
become self-bankers. When I fully understood the
concepts and their significance, bitcoin became
a fascination.”
It’s counterintuitive that some of bitcoin’s most
ardent proponents are people motivated by the
belief that public infrastructure will collapse in times
of social and political distress (page 40). Bitcoin isn’t
yet widely accepted as a method of payment, and
steep transaction costs make it inconvenient to use
at vendors that do take it. But preppers have a dif-
ferent perspective on what they see as the money of
the future, which has surged elevenfold in the past
12 months, recently surpassing $8,000.
Used to send and receive funds online, bitcoin
is similar to payment networks such as PayPal
Holdings Inc. and Mastercard Inc., the difference
being that it runs on a decentralized network—
blockchain—that’s beyond the control of central
banks and regulators. It was born out of an anti-
establishment vision of a government-free society, a
key attraction for those seeking unhindered access
to their capital in case a massive societal shock shuts
down the banking system.
“Not too long ago people in the prepper com-
munity were actively warning against crypto, and
now they’re all investing in it,” says Tom Martin, a
truck driver from Port Angeles, Wash., who runs a
social media website for people interested in learn-
ing skills to survive disaster. “As long as the grid stays
up, people will keep using bitcoin.”
In addition to gold, silver, and stocks, Martin
invests in bitcoin and other cryptocurrencies. He
Bloomberg Businessweek November 27, 2017
○ Disaster preppers cool
on gold and start stockpiling
cryptocurrency
figures they’re easier to travel with, harder to steal,
and offer better protection than dollars in the event
of some kind of societal breakdown. He’s confident
that bitcoin can withstand even a complete blackout
through the strength of the underlying blockchain,
the anonymous public bookkeeping technology that
records every bitcoin transaction.
Discussions on the pros and cons of investing in
crypto have popped up on mysurvivalforum.com,
survivalistboards.com, and other survivalist forums
this year as bitcoin shot higher and higher. “Buy
bitcoin” is now a more popular search phrase
than “buy gold” on Google. The buzz is starting to
impinge on gold’s role as a store of value, especially
because, like the precious metal, there’s a finite
supply of bitcoin, which proponents say gives it
anti-inflationary qualities. Sales of gold coins from
the U.S. Mint slid to a decade low in the first nine
months of 2017.
“It’s definitely had some impact on the market,”
says Philip Newman, who does research on
precious-metal coin sales and is one of the found-
ers of research company Metals Focus Ltd. “People
see bitcoin prices going to the moon. No one thinks
gold is going to the moon.” Still, it’s hard to envision ○ Price in U.S. dollars
people walking around spending digital currency on One bitcoin
Spam, canned beans, or bottled water at a local super- Ounce of gold
market when they don’t have electricity at home to
charge their smartphones, let alone a working inter- $8k
net connection to access their digital wallets.
“I doubt bitcoin is a safe haven from an extreme-
risk environment,” says Charlie Morris, the London-
based chief investment officer at Newscape Capital 4
Group Ltd., which invests in cryptocurrencies.
“In that sense, bitcoin isn’t gold.” And given the
stratospheric rise in price of an asset that’s hard to
spend and with no intrinsic value, there’s always 0
the question of whether the bitcoin market is a 1/2/17 11/20/17
DATA COMPILED BY BLOOMBERG; NEWMAN: STAN HONDA/GETTY IMAGES
bubble about to burst.
Preppers expect whatever governing structure
emerges post-calamity will prioritize getting the
web back up and running, and that when it does,
those virtual tokens will be secure. “It may be dif-
ficult, if not impossible, to access for a while, but
once things start returning to some level of normal-
ity, then the blockchain will return as it was before
the disaster,” says Rob Harvey, a bitcoin investor
who prepares for natural and nuclear catastrophes
by learning and teaching survival skills, such as
making a fire. “The blockchain does not need a spe-
cific place or a specific person to survive—that’s a
strong survival tactic.”
 FINANCE
The libertarians who have pledged to move to
New Hampshire as part of the Free State Project
are also switching from precious metals. They like
bitcoin because it isn’t created by a government,
unlike conventional currency. “You can use bitcoin
for economic transactions in a way that gold was
never designed to do because it’s a physical thing—
it’s heavy,” says Matt Philips, the project’s presi-
dent. “A lot of people don’t know what the heck to
do with gold if you give it to them in exchange for
a cup of coffee.” —Eddie van der Walt
THE BOTTOM LINE Some disaster preppers are willing to
bet their nest eggs that virtual money will still be there after an
economic or societal collapse.
The Fate of
Venezuela’s Bonds
○ Global investors haven’t entirely
bailed on the state oil company
Venezuela is running out of cash. It’s in a state
of political and economic crisis as people face
shortages of food and medicine. In November the
government announced it would restructure its
debt with global investors, and credit-rating com-
panies declared the country’s debt —including
bonds issued by state-run oil company Petróleos
de Venezuela SA, or PDVSA—to be in default. The
country insists it will keep paying its obligations
while it comes up with a new plan, although nego-
tiating with creditors may be almost impossible
because U.S. sanctions bar citizens from interact-
ing with some top Venezuelan officials and from
buying new bonds from the country.
Amid the chaos, PDVSA bonds have fallen in
value, but investors still demand a lower yield to
hold them than they do for the debt of the gov-
ernment itself. The conventional thinking among
the optimists is that they’ll be able to wring value
out of PDVSA’s bonds in part because it has assets
scattered all over the world that investors could
ultimately take control of.
PDVSA bondholders may be in for a tougher time
than they think, according to Jay Newman, a former
hedge fund manager at Elliott Management Corp.,
which waged a 15-year fight against Argentina over
its defaulted bonds. Argentina finally settled with
Elliott for about $2.4 billion in 2016, roughly four
times the principal value of the hedge fund’s bond
claim and probably well beyond what it paid for
the notes. Now retired from the $34 billion firm,
Newman led Elliott’s efforts to collect on a court
order for full repayment. They included trying to
Bloomberg Businessweek November 27, 2017
lay claim to everything from government funds
allegedly embezzled into shell companies in Nevada
to Argentina’s rights to launch satellites from one of
Elon Musk’s rocket ships. At one point, the hedge
fund even managed to seize an Argentine naval
vessel docked in Ghana.
Newman says Venezuela has a loophole that
might be used to make the oil company’s debt
worthless. “PDVSA doesn’t own the oil,” he says.
“It’s some amalgamation of production assets,
trucks, offices, and rusted pipe.” Venezuela could
effectively write off PDVSA’s billions in debt, he
says, by transferring the company’s valuable
oil-drilling concessions, operating team, and infra-
structure to a new entity.
If Venezuela took that step, there might not be
much investors could do in response. While the
bonds were issued under New York rules, which
means creditors have the right to take PDVSA to
court in the U.S., there would be little left to squeeze
from the newly insolvent oil company.
Newman isn’t the only pessimist. The govern-
ment may choose to transfer PDVSA’s assets to itself
and then offer to exchange PDVSA debt for govern-
ment debt in an effort to discourage creditors from
○ Newman
holding out for a better deal, Adam Lerrick, a vis-
iting scholar at the American Enterprise Institute,
wrote in a report in October. Those who do hold out
27
would have “a claim on an empty box,” he wrote.
Newman estimates that PDVSA’s foreign assets
are probably worth about $3 billion, a tiny amount
relative to the company’s $30 billion in debt and
therefore not a huge loss for the government if
investors get their hands on them. Which, by the
way, isn’t easy to do. “Good luck to people who
want to chase assets,” he says. “It’s a very expen-
sive, time-consuming, and difficult process that’s
fraught with pitfalls.”
Ultimately, it was Elliott’s deft legal maneuver-
ing and persistence that ensured the hedge fund’s
success against Argentina. The firm blocked the
nation’s access to capital markets and got a court
order preventing holders of the country’s restruc-
tured debt from getting paid, providing motivation
for President Mauricio Macri to settle soon after he
started his term in late 2015. For now, Venezuela
seems willing to tolerate the widespread condem-
nation it’s received because of the anti-democratic
turn of President Nicolás Maduro, who’s solidified
power in recent months. The country is depen-
dent on oil revenue, which some investors may
see as a reason it would try to keep PDVSA in credi-
tors’ good graces. But Newman notes that under the
right circumstances investors are often forgiving:
Argentina sold almost $3 billion of 100-year bonds
just 16 months after settling with Elliott.
—Katia Porzecanski
THE BOTTOM LINE Bond investors may have less leverage
over Venezuela’s PDVSA than they think, says the former hedge
fund manager who won a long fight with Argentina’s government.
 LOOK AHEAD ○ On Nov. 28, the OECD ○ Revised third-quarter
releases the latest edition of its GDP numbers for the U.S. are
4 economic outlook due out on Nov. 29
E How Guangzhou
C ○ The manufacturing hub
is incubating flying cars and
O
automated pharmacies
N
On a sunny afternoon in early November, several
dozen software engineers and designers are anx-
O
iously preparing for a test flight of the EHang 184,
a compact metal and glass pod outfitted with eight
propellers. The self-steering, single-passenger craft
could begin buzzing through the skies of Dubai as
M
early as next year, says Hu Huazhi, the 40-year-old
chain-smoking founder, chairman, and chief exec-
utive officer of EHang, a Guangzhou-based maker
of drones. The rulers of the Arab city-state want
I
one-quarter of all transport to be autonomous by
2030 and are in talks with EHang about supplying
28
a fleet of air taxis.
Earning bragging rights for building one of the
C
world’s first flying cars is not just a corporate goal.
“Our company’s development is also an integral
component of the Guangzhou government’s plan”
to move up the technology ladder, says Hu as he
S
shows visitors around the company’s offices and
flight command center, which are housed inside
an abandoned amusement park devoted to the
wonders of space travel.
Some 19 miles away, at a factory complex owned
by Guangzhou Automobile Group Co. (GAC), rows
of orange-and-black German-made industrial robots
pivot and plunge as they assemble and solder
Trumpchi-brand SUVs, with few workers in sight.
With the blessing and support of local officials, the
state-owned carmaker is building a $6.5 billion indus-
trial park nearby to produce connected new-energy
vehicles. “The economic structural transformation
you see here is not only for the benefit of enterprises—
we also have a responsibility to the country,” says GAC
President Feng Xingya in an interview at company
headquarters. “We are trying to achieve innovation-
driven development, and we must carry out the gov-
ernment’s policy to succeed.”
Guangzhou, a sprawling port city on the Pearl
River that’s home to stodgy state-owned enter-
November 27, 2017 prises (SOEs) as well as scrappy textile and elec-
tronics producers, is starting to look like the poster
Edited by child for China’s effort to transform its economy.
Cristina Lindblad
“Made in China 2025,” an initiative unveiled by
Businessweek.com President Xi Jinping’s administration two years
○ Readings on the health of the
manufacturing sectors of the euro
zone countries come out on Dec. 1
ago, directs cities and companies to shift out of low-
cost, labor-intensive manufacturing and into higher
value-added production. State planners want com-
panies to become globally competitive in estab-
lished industries such as autos, as well as dominate
new ones like drones and artificial intelligence.
“China wants to raise productivity in every part
of the economy. And that includes improving the
quality of human talent, how capital is used, and
how technology is developed,” says Scott Kennedy,
director of the Project on Chinese Business and
Political Economy at the Center for Strategic and
International Studies (CSIS) in Washington. “They
think that doesn’t happen naturally. The govern-
ment has to put their finger on the scale to make
that transition happen in a way that is productive
for the country.”
Made in China sets ambitious targets for things like
the deployment of Chinese-made robots and domes-
tic content in the production of advanced electron-
ics. The job of delivering on those goals falls largely
to provinces and cities across the country. As China’s
third-largest municipality by gross domestic product
and an important manufacturing base, Guangzhou
was destined to play a starring role in the imple-
mentation of Beijing’s blueprint. Earlier this year
the city unveiled a plan that aims for trillions of yuan
in revenue from information technology, artificial
intelligence, biomedicine, advanced manufacturing,
shipping, new energy, and other industries by 2021.
City officials have traveled to Singapore, Chicago, and
Silicon Valley this year to tout Guangzhou’s attrac-
tions as a business and manufacturing hub.
Companies are heeding the call. Foxconn
Technology Group started construction in March
on an $8.8 billion LCD manufacturing facility. And in
April, Cisco Systems Inc. held a groundbreaking cer-
emony for a multibillion-dollar “smart city project”
and an internet research and development center.
Guangzhou’s efforts should get a lift from
Beijing’s push to create a “Greater Bay Area” by
linking the nearby territories of Hong Kong and
Macau with Guangdong province. Guangzhou, the
provincial capital, is supposed to serve as an admin-
istrative and logistics hub for neighboring Pearl
River Delta manufacturing cities such as Foshan
and Zhongshan. While the idea predates Xi’s rule, it
appears to have fresh momentum. “Guangzhou will
take full advantage of the Guangdong-Hong Kong-
Macau Greater Bay Area to strengthen cooperation
with cities involved in this national-level develop-
ment blueprint,” said Guangzhou Party Secretary
  ECONOMICS
Does ‘Made in China’
Ren Xuefeng, speaking at the 19th Communist Party
Congress in Beijing in October.
To speed the transition, the Guangzhou
government is offering companies an array of incen-
tives, including subsidies, low-interest loans, and
tax exemptions. Municipal authorities have set up
four 10 billion-yuan ($1.5 billion) funds to support
new industries and upgrades at old ones and are
doling out one-time payments to factories that auto-
mate. The land where Guangzhou Auto is building its
vehicle factory was provided free of charge, accord-
ing to Feng. “The rapid development of GAC could
not be achieved without preferential policies from
Guangzhou, Guangdong province, and the central
government,” he says. “This is the most supportive
environment we have ever experienced.”
China’s determination to become a force in arti-
ficial intelligence has thrust the mainland’s start-
ups into a global competition for tech talent. To
boost recruitment efforts, IFlytek Co., which spe-
cializes in voice recognition, opened an office in
Silicon Valley this year. Based in Hefei, Anhui prov-
ince’s capital, IFlytek is getting support from author-
ities in Guangzhou, where it’s just opened its South
China headquarters; the city offers tens of millions
of yuan to support R&D projects set up by gradu-
ates with Ph.D.s from top universities around the
world. “If the government provides human resource
subsidies that can help reduce the burden on enter-
prises and make it easier to lure talent, this allows
us to move even more quickly with our R&D,” says
Du Lan, a senior vice president at IFlytek.
Ironically, Guangzhou may benefit from the
larger role that state-owned enterprises play in
the local economy: They account for 40 percent
of the city’s industrial assets, compared with just
17 percent in Shenzhen, a Pearl River Delta city
that’s become a tech hub, according to Bloomberg
Intelligence estimates. Xi wants state companies
to become “bigger and stronger,” as reiterated
in the 19th Party Congress. To upgrade its SOEs,
Guangzhou is encouraging them to enter into
ventures with private companies, so they can tap
into their technical know-how. IFlytek, for instance,
is collaborating with Guangzhou Pharmaceutical
Holdings Ltd., a more than century-old company,
on a network of health centers that will rely partly
QILAI SHEN/BLOOMBERG
on artificial intelligence for diagnosis and treatment.
Midea Group Co., a privately owned maker of
appliances that this year acquired German robot
maker Kuka AG for $4 billion, is also cooperating
with Guangzhou Pharmaceutical. “We will first
Bloomberg Businessweek November 27, 2017
introduce fully automated drugstores where med-
icines can be picked and sorted all by machines,”
said Midea Chairman and CEO Paul Fang in an
interview with Bloomberg Television. “Everything
we do today, from industrial automation to robot
making, all closely link to AI. More and more AI
technologies have been and will be used in our
business and products.”
The plans of Guangzhou and other Chinese cities
to dominate emerging industries could go awry, if
no-strings-attached financial support leads to the
same overcapacity problems that devastated the
global solar panel industry years earlier. Solar panel
29
prices have fallen more than 70 percent since 2010,  Readying the single-
passenger EHang 184
according to the Solar Energy Industries Association. for a test flight
Companies such as Suniva Inc. in the U.S. and
SolarWorld AG in Germany cited competition from
low-cost Chinese rivals as the main reason they were
forced to file for bankruptcy this year.
Already at least 98 billion yuan in investments in
electric-car factories have been announced, raising
China’s annual capacity to 2.9 million units—six
times the number of plug-ins sold in the country
last year, according to data compiled by Bloomberg.
Says CSIS’s Kennedy: “The worry that people have
is China Inc. on steroids is going to kill profits, not
only for companies but for industries as a whole.”
—Dexter Roberts, with Tom Mackenzie, Haze Fan,
and Rachel Chang
THE BOTTOM LINE The city of Guangzhou and its
surroundings are becoming a test bed for President Xi’s
ambitious industrial policy.
  ECONOMICS
Just Don’t Call
Them Trailers
○ Many left homeless by storms can’t
afford the models the industry is peddling
Hurricane victims emerging from ravaged trailer
parks are discovering that the U.S. mobile home
market has left them behind. In Florida and Texas,
buyers looking to rebuild their lives after hurricanes
Harvey and Irma are swarming dealerships, but
many leave disappointed.
The industry, led by Warren Buffett’s Clayton
Homes Inc., is peddling such pricey interior-
designer touches as breakfast bars and his-and-her
bathroom sinks. These extras, plus manufacturers’
increased costs for labor and materials, have pushed
average prices for new double-wides up more than
20 percent in five years, making them too expen-
sive for many of the newly homeless.  tists, doctors, executives, and others, spent upward
Judy Goff, a hardware store clerk whose circa 1975
double-wide in Naples, Fla., was blown to bits by
30
Irma, pulled into a LeeCorp Homes Inc. sales lot in
October and wandered through models with kitchen
islands and vaulted ceilings. In the salesman’s office,
she got the total price, including a carport, taxes,
and removal of her destroyed trailer: $140,000. She
was only insured for $28,000. “I don’t have that kind
of money,” says Goff, 73, as she stands amid the
wreckage of her old home, whose walls and ceiling
were stripped away, leaving her leather furniture
and a lifetime of possessions to bake in the sun.
“That was all I had.”
About 22 million Americans live in “manufac-
tured homes,” a classification that dates to 1976,
when federal law set standards for what used to
be called mobile homes. Sales of new units are
growing 15 percent annually as the base of buyers
expands from rural areas to suburbs and retirement
enclaves. Tile backsplashes and kitchen pantries
fatten profits and attract buyers who couldn’t afford
similar extravagances in conventional houses. The
industry, which makes 80 percent of new homes
that sell for less than $150,000, was struggling to
keep up with demand even before the hurricanes.
Manufacturers that closed plants after the housing
crash say they’re having difficulty adding capacity
because of a shortage of skilled labor. Dealerships
such as LeeCorp, among the biggest in southwestern
Florida, have backlogs as long as six months.
“I get that higher-end countertops and kitchen
islands are where the better margins are, but that’s
also going to put homes out of reach for a lot of
buyers,” says Doug Ryan, director of affordable
Bloomberg Businessweek November 27, 2017
homeownership at the Washington nonprofit
Prosperity Now. “The storm is revealing a whole
lot of problems in the low-cost housing market.”
Irma and Harvey damaged almost 1.8 million
homes, causing uninsured flood losses of as much as
$57 billion, according to CoreLogic Inc., a real estate
data firm. At homeless shelters in the Naples area,
the waiting list for beds has doubled, especially for
single mothers and their children, many of whom
are living in tents in the woods or in cars, says Vann
Ellison, chief executive officer of St. Matthew’s House,
a nonprofit focused on the homeless. “When their
properties are damaged in a place like this, it’s next ○ Production of
to impossible to bounce back,” he says. Many have manufactured homes
had to walk away from damaged mobile homes they
can’t repair or replace, Ellison says. 80k
Phil Lee, the 74-year-old founder of LeeCorp,
has been riding a wave of retiring baby boomers
who want affordable luxury. Driving a reporter in
his black BMW SUV through Bayside Estates in Fort 40
Myers Beach, where many of the fanciest homes
he sells are installed, Lee points out units with
pitched roofs that look almost indistinguishable
from conventional stick-built homes, facing canals 0
with boats tied outside. Their owners, former den- 2012 2016
of $150,000 to buy aging units just to clear the way
for something more luxurious. On a palm-lined
street flanked by ranks of 1970s-era trailers, Lee
sees profit. “There’s no end to replacing these
homes,” he says. “You get a hurricane in there,
and it really accelerates things.”
Terms like “mobile home” or “trailer” are now
verboten in an industry striving to break free of
its downscale origins. Buffett’s Clayton Homes,
which produces almost half of all new manufac-
tured housing in the U.S. and competes with such
companies as Cavco Industries Inc. and Champion
Home Builders Inc., still builds lower-price units,
but there’s barely a sign of them on its website,
which is mostly devoted to high-price models. The
2,000-square-foot Bordeaux features a separate tub
SCOTT MCINTYRE/BLOOMBERG (2); DATA: INSTITUTE FOR BUILDING TECHNOLOGY AND SAFETY
and shower, a computer station, and a mud room,
with prices starting at $121,000 and ranging as high
as $238,000, not including delivery and installation
costs. Clayton declined to comment.
 LeeCorp, a dealer in
southwestern Florida,
has a long backlog on
manufactured homes

While the cost of manufactured homes has surged,
pay for the bottom fifth of earners is stagnating.
Even after a modest pickup over the past two years,
those households have seen their average income
fall 9 percent since 2000, to $12,943 in 2016, based
on inflation-adjusted Census Bureau data.
Financing and insuring units can be expensive,
especially for decades-old trailers that are depreci-
ating and set up on rented land and for borrowers
with poor credit. Last year, 64 percent were pur-
chased with high-rate loans, compared with just
7.2 percent for traditional single-family homes,
according to the Housing Assistance Council, a
Washington nonprofit. “Consumers are not offered
as much choice as in the conventional market,”
says Lance George, the council’s research direc-
tor. “This is a captive audience.”
At the LeeCorp dealership in Estero, Fla., sales
have surged 40 percent since Irma. Josh Hentges, a
36-year-old salesman with bags under his eyes and
a couple days of stubble, says he’s frequently fin-
ishing paperwork in the office late into the night.
The company doesn’t offer its own financing, but
customers find loans from area banks. “Before the
storm, one out of five people walking in were serious
buyers,” says Hentges. “Now, it’s four out of five—
people walking in have to have a house.”
31
The single-wides at LeeCorp start in the $60,000-  Goff’s double-wide
plus range. The most expensive double-wides, in Naples, Fla., was
destroyed by Irma
some with custom bathrooms and walk-in closets,
sell for more than $250,000. The half-dozen models
on the lot are staged to be alluring, with plush
couches, true-crime novels, and beach-house
knicknacks. The showpiece is “the Islander.” Built
by Florida-based Jacobsen Homes, it has quartz
countertops in the kitchen, a glass and tile shower
with a bench, custom cabinetry with slow-close
doors, and a deck.
Goff—who just wants to replace the wrecked
1,200-square-foot trailer she bought 17 years ago
for $46,000, including the cost of land—says she feels
boxed in. Her mobile home community won’t allow
single-wide homes or older used models as replace-
ments. And every home must have a carport. She’s
willing to give up such upgrades as the higher-end
countertops, but that probably won’t be enough.
Between her Social Security check and income from
her job at Ace Hardware Corp., she earns only about
$23,000 a year. “I just want a home that’s equal to
what I had,” she says. “My home was a beauty.”
—Prashant Gopal, with Jeanna Smialek
THE BOTTOM LINE Average prices for new double-wide trailers
are up more than 20 percent in five years, as the industry, led by
Warren Buffett’s Clayton Homes, has moved upscale.
 LOOK AHEAD ○ The Senate holds a confirmation ○ Following talks among Iran, Russia,
hearing for Jay Powell, Trump’s and Turkey, U.N. peace talks on Syria
5 nominee for Fed chair restart in Geneva
P A World
O
L
I Without
T
I
32
C Merkel
S ○ After the collapse of coalition
talks, the German chancellor is
looking weaker than ever
Angela Merkel used to tell Germans “we can do it”
when addressing the question of integrating the
million-plus refugees who have come to Germany
since 2015. That pragmatic attitude and her liberal
approach have—after the election of Donald Trump
and his “America First” agenda—spurred many poli-
ticians and pundits to hail Germany’s motherly chan-
cellor as the de facto leader of the free world. But
after a narrow election victory in September and the
collapse of coalition talks on Nov. 19, it’s beginning
to look as if she may not be able to “do it” after all.
First elected chancellor in 2005, Merkel has been
a stable presence on the global stage for so long that
November 27, 2017 it’s hard to imagine Germany, or Europe, without
Edited by her. Following September’s election, in which her
Matthew Philips, conservative bloc of Christian Democrats and the
David Rocks, and Christian Social Union lost 65 seats in the Bundestag,
Jillian Goodman
Germany’s parliament, she has struggled to assem-
Businessweek.com ble the jigsaw of smaller parties needed to form a
○ Senate leaders plan to hold a
floor vote on the GOP tax bill, which
could happen as early as Nov. 30
majority government, proving that, for all its eco-
nomic strength, Germany is vulnerable to the same
forces of populism and political fragmentation that
have swept other democracies in recent years.
Despite Merkel’s legendary skills as a backroom
negotiator, honed at countless European Union and
global summits during her dozen years in power,
coalition talks broke down over the vexing question
of immigration as well as economic concerns—the
first time since before World War II that a German
election has failed to produce a government.
Although there are as many ways for her to stay in
power as to be forced out, and she says she’s pre-
pared for another election, a world without Merkel
as chancellor has become a real possibility.
“Merkel was a historic figure as far as Europe’s
concerned, but her time has come and gone,” says
Ashoka Mody, a former World Bank economist just
finishing a book about Merkel’s handling of Europe’s
currency crisis. Even if she remains as chancellor,
Merkel is now so badly weakened that she would
WOLFGANG RATTAY/REUTERS
be a different kind of leader. “Merkel mark 2 would
be very different from Merkel mark 1,” Mody says.
In her three terms as chancellor, Merkel, 63,
steered Germany relatively unscathed through
the global financial crisis and helped keep the
euro intact, winning fans abroad. But her decision
 POLITICS
to embrace the flood of refugees from Syria and
other troubled parts of the world cost her support
at home. Germany’s next chancellor—whether
Merkel or someone else—will be faced with fixing a
growth model that led to too much inequality, too
many people feeling abandoned, and seemingly
limitless immigration. The populist Alternative for
Germany (AfD) won 12.6 percent in September’s
vote, enough to make it the first hard-right party to
enter the Bundestag since the 1950s. The primary
question facing the next German leader will be how
to limit the AfD’s rise.
Merkel’s declining influence is “very bad news
for the European Union,” Le Monde wrote in a
gloomy editorial on the collapse of talks in Berlin.
The French daily newspaper pointed to the wider
roller-coaster narrative of European populism this
year. Hopes that the center might hold, raised after
Emmanuel Macron won the French presidency with
an unashamedly pro-Europe, liberal message, have
now been “suspended,” the paper wrote.
Macron had been counting on Merkel’s support
to secure sweeping change to the EU, proposing
deeper cooperation on defense, taxes, immigration,
and—crucially—a common budget for the 19-nation
euro area. That’s looking much more difficult as
the compromises he needs from Merkel would be
politically costly for any chancellor. Other than
Merkel, “no one here has the grasp or the popular
trust to enable Germany to make the concessions
needed,” says Jan Techau, director of the Richard C.
Holbrooke Forum at the American Academy in
Berlin. One objection the Free Democratic Party
had when it walked out of coalition talks at mid-
night on Nov. 19 was that it wants a commitment
to change EU rules so member states could exit
the euro without leaving the wider bloc—a politi-
cal nonstarter for Merkel.
She’s also been central in corralling the EU on
relations with Vladimir Putin’s Russia. A Russian
speaker who grew up in communist East Germany,
she took the lead in persuading Austria, Greece,
Italy, and other reluctant EU members to impose
economic sanctions on Russia in 2014 aimed at pun-
ishing the Kremlin for its destabilization of Ukraine.
The sanctions have cost both sides, and Merkel has
consistently supported them as they come up for
renewal every six months. Losing her voice would
create “a target-rich environment for Putin” to
get them lifted without first pulling his troops and
weaponry out of eastern Ukraine, says Frederick
Kempe, president of the Atlantic Council, a think
tank in Washington. “After Merkel we will have a
more inward-looking Germany,” he says. “Macron
has stepped up, but let’s not kid ourselves: On the
economy and on geopolitical issues, nobody in
Europe can fill Germany’s shoes.”
Merkel has earned her share of critics, and
there’s another way to look at the coming end of
her era. Hers was “a visionless leadership,” says
Bloomberg Businessweek November 27, 2017
Josef Janning, who heads the Berlin office of the
European Council on Foreign Relations. For all her
strength in crisis management, she has rarely led
by principle or sought to shape the future. Even
Merkel’s decision to welcome, rather than fight, the
sudden flood of refugees was a tactical calculation—
there was little she could do to stop it, and Germans
at first responded enthusiastically—rather than a
moral choice or strategic plan, Janning says.
At international summits, Germany punched  An election campaign
poster of Merkel is
above its weight because of Merkel’s perceived sta- seen, peeling apart
bility and authority. But she never committed the after heavy rains on
resources necessary to take the lead in reshaping Sept. 30, one week
after Germany’s
the world, in part because she knew Germans don’t general election
want that role, Janning says. If she goes, it’s unlikely
anyone will pick up where she left off. The political
concessions needed to keep supporting the kind of
rules-based order Merkel promoted can’t be made
when societies are as fragmented as they are and
leaders must constantly appeal to their domestic
bases. After September’s election, in which both
of the traditionally dominant, centrist parties lost
share to smaller fringe ones, that became true for
Germany, too. “If Merkel is no longer around, it will
just become clearer that we are actually living in a
leaderless world,” Janning says. And no one—not a
new German leader, not Macron, not anyone else—
would be able to change that. —Marc Champion
33
THE BOTTOM LINE Without Merkel’s leadership, Europe may
struggle to combat the forces of populism and isolationism
unleashed by Brexit and the rise of Donald Trump.
The GOP Tax Plan’s
Obamacare Surprise
○ Senate Republicans want to end the
coverage mandate to fund their tax cut
The mandate to buy health insurance is the broccoli
of Obamacare—the part you have to accept if you
want the goodies, like affordable coverage of people
with costly pre-existing conditions. Now Senate
Republicans are saying you don’t have to eat your
broccoli anymore. They eliminate the penalty for lack
of coverage in their version of the $1.5 trillion tax cut
bill, which they aim to vote on after Thanksgiving.
Could removing the penalty, which effectively
kills the individual mandate, possibly make sense?
Health-care economists describe the mandate as a
necessary evil. Without it, they say, healthy people
will roll the dice and choose to go uncovered, leaving
insurance pools made up of sicker, older people who
are costlier to cover. But the impact of the require-
ment is regressive. Well-off families generally get
  POLITICS
health insurance through their employers, so those
who pay the tax for noncoverage tend to be poorer,
some working two or three jobs to make ends meet.
For Senate Republicans, killing the individual
mandate is a beautiful twofer. First, it’s a way to
limit the red ink from their tax package. The Joint
Committee on Taxation estimates ending the mandate
would save $318 billion over 10 years, because the
people who dropped coverage wouldn’t get subsi-
dies. Savings would continue after 2027. That’s crucial
because under the Byrd rule, a measure can pass the
Senate with a simple majority only if it doesn’t add to
deficits beyond 10 years. Second, gutting the mandate
would partially fulfill Republicans’ long-standing
objective of getting rid of Obamacare entirely.
The downside for Republicans is that the repeal
gambit has breathed new life into the pro-Obamacare
coalition, which argues that Republicans are financ-
ing tax cuts for the rich by reducing the number of
people with health insurance. “Adding ACA repeal
to the corporate tax giveaway has fanned the flames
of resistance into a roaring inferno,” says Ben Wikler,
the Washington director of MoveOn.org, a liberal
activist group. The Congressional Budget Office said
on Nov. 8 that repealing the mandate would increase
the number of uninsured Americans by 13 million
and raise premiums by 10 percent “in most years”
of the next decade.
34
Within hours of Senate Republicans’ announcing
their intentions to kill the mandate, a coalition of
trade groups for doctors, hospitals, and insurers
urged them not to, warning that doing so would
raise premiums. In Virginia, a CNN exit poll showed
health care was voters’ top issue by more than 2 to 1.
Democrat Ralph Northam won voters most concerned
about health care 77 percent to 23 percent en route to
his decisive election as their next governor.
This leaves Republicans in an awkward spot. While
they crave the savings that come from repealing the
mandate, they don’t love the reason why—namely,
Net Effect
Repealing the individual mandate will cut government spending
by reducing the number of people with subsidized insurance
Estimated number of people Estimated decline in annual
under the age of 65 who budget deficits from
will lose health insurance repealing the individual
coverage mandate
12m $0b
6 -30
0 -60
2018 2027 2018 2027
Bloomberg Businessweek November 27, 2017
millions fewer people would be insured. That’s some-
thing they’ve always insisted wouldn’t happen. As
recently as July, two White House officials wrote a
Washington Post op-ed ridiculing the notion that mil-
lions of people “value their insurance so little that
they will simply drop coverage next year following
the repeal of the individual and employer mandates.”
Republicans are trying to have it both ways. Utah
Senator Orrin Hatch, chairman of the Senate Finance
Committee, said that dropping the mandate wouldn’t
cut Medicaid. The CBO predicts that of the 13 million
people who drop coverage, 5 million will be current
Medicaid recipients. Senator Claire McCaskill, a
Missouri Democrat, balked. “Where do you think
the $300 billion is coming from?” she asked Hatch.
“Is there a fairy that’s dropping it on the Senate?”
It’s not just the Republicans who have a compli-
cated relationship with the mandate. Democrats need
it to make Obamacare hang together, yet they know
it’s unpopular and regressive. Seventy-nine percent of
the 6.7 million households that paid the mandate tax
for 2015 had incomes under $50,000, and 37 percent
made below $25,000, according to Internal Revenue
Service data. Republicans tweak Obamacare’s defend- “Where do
ers by arguing that if financially hard-pressed families
you think the
want to drop their policies—and lose the government
subsidies that go with them—that’s their right. $300 billion
Democrats say the mandate gets people to do is coming
something that’s in their best interest and keeps emer- from? Is there
gency rooms from being swamped by uninsured sick
a fairy that’s
people. (Republicans used to make this argument.)
But the mandate is also a way to get healthy fami- dropping it on
lies to subsidize less-healthy ones, rather than just the Senate?”
cover their own risks. That’s what makes it unpopu-
lar. “That’s sort of the trap,” says Christopher Pope, a
senior fellow at the conservative Manhattan Institute.
Also, the mandate probably isn’t as effective as
Democrats have argued. In its Nov. 8 report, the CBO
said that for its next estimate, it’s changing its model
for how people behave. While results won’t be ready
until after Congress wants to finish the tax bill, it
said, the effects “would probably be smaller than the
numbers reported in this document.” In other words,
it won’t reduce coverage as much—or save as much
money. It could be that Obamacare needs to rely less
on the stick (mandates) and more on the carrot (sub-
sidies that hold down the cost of premiums).
A new CBO estimate that played down the impact
of mandate repeal could work out quite nicely for
the Republicans. They could point to the Joint
Committee on Taxation’s current high estimate
for savings to pay for the tax cut, and then next
year’s lower estimate of coverage losses from the
CBO to claim that eliminating the mandate wasn’t
so harmful after all. “Politics is a funny business,”
says Pope. “You use whatever weapon you can grab
hold of.” —Peter Coy and Sahil Kapur
DATA: CVO
THE BOTTOM LINE By dropping Obamacare’s individual
mandate, Senate Republicans can raise billions to pay for their
tax cuts—and undercut a key part of the health-care law.
  POLITICS
Is Trudeau
Losing
His Mojo?
○ Midway through his first term, the e
prime minister faces a real political test
So far, Canada has largely avoided the kind of pop-
ulist upheaval that put Donald Trump in the White
House, undercut Chancellor Angela Merkel, and gave
rise to Brexit. Much of the credit for this lands on
Justin Trudeau, the buoyant 45-year-old heartthrob
prime minister with a penchant for selfies and quirky
socks who champions free trade and welcomes ref-
ugees. He’s cultivated an image of a tolerant, open,
progressive Canada that, incidentally, boasts the
strongest economic growth in the Group of Seven.
Outside Canada, it looks enviable: a charismatic
leader with a powerful majority government and a
solid economy. But internally, the shine is fading.
Two years into Trudeau’s first term, a polling aggre-
gator run by the Canadian Broadcasting Corp. shows
his support at 37.9 percent, down eight points from a
year ago—still strong in Canada’s three-party system.
He campaigned as a friendly Everyguy, but scandals
within Trudeau’s administration have sullied that
image. His finance minister, Bill Morneau, is under
fire for holding substantial shares in his family’s busi-
ness through a shell company. Although that’s not
technically against the rules, Morneau says he’s sold
his shares. A bid for tax reform that would’ve hit
high-earning professionals blew up, and Trudeau’s
chief fundraiser, Stephen Bronfman, is linked in the
Paradise Papers to an offshore trust. Trudeau himself
was dinged for a secret vacation last Christmas at the
Aga Khan’s private island.
Traditional fault lines of Canadian federalism are
also reemerging. Some western regions feel under-
represented in Canada’s eastern-centric government.
In French-speaking Quebec, identity politics continue
to run deep; and across the nation, federal-provincial
battles are heating up over health care, climate, and
marijuana legalization. Voters’ patience also is being
tested as Trudeau’s government has failed to deliver
on such lofty pledges as sweeping electoral reform.
Meanwhile, his rivals for the 2019 election are in
TIZIANA FABI/AFP/GETTY IMAGES
place: One is a social democrat pledging steep busi-
ness tax hikes; the other, a conservative who backed
Brexit. Both are younger than Trudeau, who won
power in part because he was a fresh face. “We’re not
immune” to sweeping upheaval, warns David Green,
director of the Vancouver School of Economics at
Bloomberg Businessweek November 27, 2017
the University of British Columbia. “We’re lucky.”
Green’s research finds that Canadian wage
growth, driven largely by oil, has helped avoid U.S.-
style anxiety and antiglobalization sentiment. But no
Group of 20 nation is more reliant on the U.S. as a
share of total trade, meaning none is more exposed
to Trump’s attempts at rebalancing. The latest round
of trilateral North American Free Trade Agreement
talks, concluded Nov. 21 Mexico City, yielded little
progress and no hope of a quick deal. And while the
latest quarterly data indicates that Canada’s economy
is expanding at a rate of 4.5 percent, projections for
the next seven quarters go no higher than 2 percent,
according to a Bloomberg compilation of forecasts.
A Nanos Research poll conducted for Bloomberg
News shows discontent with Trudeau’s handling
of the economy is highest in the prairies, of which
Alberta—the heart of Canada’s oil sector and its con-
servative movement—is the biggest part. The sense
of alienation there is “typical of what we’ve seen in
Europe and the U.S., where a lot of it is first driven
by the economy when it’s down, and then they start
looking at things that make it harder to improve,”
says Jack Mintz, a professor and Palmer chair in
public policy at the University of Calgary.
Alberta is Canada’s richest province by almost
any measure; its workers earn the highest average
wages and pay some of the lowest tax rates, and
35
its economy leads the nation on a per capita basis.
After the price of oil plummeted in 2014, however,
job cuts and capital spending clawbacks set voters on
edge. Trudeau’s carbon price proposal and mounting
delays in pipeline construction don’t help. Attempting
to court the middle class, Trudeau cut taxes start-
ing in 2016 on those earning from about $35,000 to
$70,000 and raised them on incomes greater than
$157,000. He expanded unemployment benefits,
particularly in regions affected by the oil downturn,
and created the Canada Child Benefit, which gives
as much as $417 per month for each child to most
families and costs a fourteenth of the federal budget.
Economic anxiety in Canada is mitigated by a
social safety net far more sprawling than that of ○ Trudeau’s
support stands at
the U.S. The budget deficit, though small by world
standards, is a real concern. The Nanos poll found
40 percent of Canadians want Trudeau to cut the
37.9%
down eight points
deficit, twice as many as want new social spending. from a year ago
Trudeau is already shifting his approach. In an
October mini-budget update, the government allo-
cated about two-thirds of a growth-fueled budget
windfall to reducing the deficit, with the remaining
third largely for social programs, including funding
for the working poor. “I mean, my God,” Morneau,
Trudeau’s embattled finance minister, said at the
time. “If we don’t find a way to make those people
feel less anxious, what outcome do you think we’re
going to have?” —Josh Wingrove
THE BOTTOM LINE Although Prime Minister Trudeau has
managed to project a global image of a stable and prosperous
Canada, the picture isn’t as rosy at home.

 DEBRIEF
Richard ‘We’re a bit like a
Plepler great art gallery, and
CEO, HBO
we want the best
artists to hang their
work inside’
36
The quarter-century veteran of the
network talks to Bloomberg Businessweek
Editor Megan Murphy about creativity,
multiplatform growth, sexual harassment,
and what’s next after Game of Thrones
HBO is now entering, as you call it, a “golden age” for the brand.
Describe what you’re doing.
Fortunately, we have a lot of momentum with talent. We have this
embarrassment of riches where every Friday in our company we know
of something exciting from the creative world that we didn’t know about
on Monday. I sometimes say we’re a bit like a great art gallery, and we
want the best artists to hang their work inside. If you want to use the art
metaphor, you have the grandmasters, you have contemporary paint-
ers, you have emerging artists. We want all of those people to think of
HBO first and to bring their great work inside the company.
When I was growing up, HBO was one of the few premium outlets
where you could go to expect consistently high-quality programming.
During the 25 years you’ve been there, and the last five years in par-
ticular, the marketplace has added Netflix, Hulu, Amazon, and other
“over the top” providers. Are you concerned that you’re going to stop
getting first dibs on certain projects?
First of all, I’ve never thought that this was a zero-sum game. I’ve
November 27, 2017
Photograph
by Ike Edeani
never believed that because The Crown is a
good show on Netflix, that somehow diminishes
Westworld or Big Little Lies or True Detective. It
doesn’t. It just means there’s an additive amount
of quality out in the landscape. Our job is to play
our game, continue to deliver on what we do.
I say, over and over again, our North Star is:
Let’s make sure that we’re guaranteeing that the
consumer is not only getting the best quality
of content inside the HBO offer but that we’re
making our product available whenever, however,
and wherever our consumer, current and future,
wants it. That’s why we built a multilateral distri-
bution strategy, and that’s why we’re continuing to
stick to the core values of the way we think about
the creative process, which is coming in here and
doing great work. The line at our door today in
  DEBRIEF Bloomberg Businessweek
the fall of 2017, is longer than it was five years ago and
much longer than it was 10 years ago. For us, the metric is
quality, and if we adhere to that, talent recognizes it, and it
becomes a virtuous cycle.
When you talk about HBO now, there’s two phrases that
come up quite frequently: “multilateral distribution” and
“traditional ecosystem.”
We are going to grow multilaterally—digitally and among
our traditional partners. We looked at the market and real-
ized we were totally underpenetrating both. We knew that
the cord-cutter audience was growing. When we made the
decision to build our stand-alone streaming service at
the beginning of 2013, there were only probably 5 million
broadband-only homes. When we stood on the stage in
March 2015 in Cupertino [Calif.] to announce that HBO would
stream exclusively on Apple, there were probably eight-and-
a-half to 10 million. Today, it’s close to 20 million broadband-
only households.
On the other hand, we also knew we were underpenetrated
in our traditional ecosystem. So our job was to design deals
that incentivized our traditional partners, because we saw a
lot of growth in that market, and to make sure we provided
an option to our consumers so that they could get HBO if
they had a broadband-only service. Both.
We knew it wasn’t going to be cannibalistic. There are
some people who prefer a traditional bundle—maybe it’s a
skinnier bundle and doesn’t have 180 channels in it. But for
HBO, skinnier bundles have been a good thing, because if
38
you take the average price of a cable or a satellite or a telco
subscription down from $100 to, say, $65 or $70, that means
HBO—which has always been a la carte—is a much more
digestible purchase. Skinny bundles allowed the cable, sat-
ellite, and telcos to package us more effectively.
Opportunistically for us, we’ve been able to parallel-
process and to grow digital. One has not been at the expense
of the other. As I like to say, nobody is doing us a favor when
they sell HBO, whether it’s digitally or whether it’s in the
traditional ecosystem. They’re selling HBO because it’s a
great product and it helps make their bundles stickier—and
because they know their consumers want it.
You just needed to explain what was inside the HBO
package to what we called the undecided voter, the per-
suadable voter—because people didn’t know. You needed
to explain to them that there’s a library of thousands of
hours of programming. That we have four Hollywood movie
studios in addition to our terrific original programming. And
you needed to remind people that HBO GO meant that you
could get HBO on whatever device you wanted.
As our partners began to market that more effectively
and efficiently, we began to see tremendous subscriber
growth. You saw our third-quarter numbers, which was
12 percent subscriber revenue growth. We’re on track to
have our biggest year of subscription revenue growth in the
history of the company, so I think we’ve been proven right.
So much of the media focuses on the original programming,
Game of Thrones, the stuff that’s created exclusively, the
stuff that wins awards. But the penetration numbers in terms
of movies is still so high and so much of the driver. Are you
surprised that some people don’t seem to be aware of the
full package that HBO has?
November 27, 2017
If you look at viewership, 79 percent of consumers are
watching movies on their linear channels; and somewhere
around 72 percent across all platforms. Movies continue to
be incredibly popular. Even people who have seen a movie in
a theater are watching it a second time or even a third time on
HBO. That’s a big additive piece of our offering. We’re start-
ing to market our movie advantage more aggressively than
we have in the past, just to remind the consumer how many
great movies are on HBO in addition to the library. You can
go back and watch The Wire. You can go back and watch
Sopranos. You can go back and watch Sex and the City. If you
missed Big Little Lies, go back and watch it. If you missed True
Detective, go back and watch it. Catch up, get familiar with the
product and the show. Come back to the next season or the
next offering. On Demand is a tremendous advantage. It came
to HBO first. All of our streaming services add to the beauty.
For consumers, it’s a huge advantage for variable options.
Back in 2007, when you were named co-president in charge
of programming, The Sopranos was ending, Sex and the
City was gone, and people in Hollywood were saying that
HBO was over.
There was some truth to it. I think we had become a little
hubristic. We rode that Sopranos-Sex-and-the-City tiger, and
we thought we had the secret sauce. And I think we lost a
little bit of our insurgent voice, which we had brought to the
dance for so many years.
The job of my colleagues and myself was to refocus on
that insurgent voice, to trust the writers who were coming
in with new ideas. I remember saying over and over again
in 2007, “There’ll never be another Sopranos. What there’ll
be is the next terrific show. And let’s just go back to our
essence, which was trusting the voice of great artists and
auteurs who have a vision for what they want that show
to be.” And in came Alan Ball with True Blood, and Lena
Dunham with Girls, and Armando Iannucci with Veep, and
Mike Judge and Alec Berg with Silicon Valley. And these
two guys, of course, who had never done television before,
David Benioff and Dan Weiss, who had this idea to adapt
George R.R. Martin’s books.
Time Warner CEO Jeff Bewkes has been a mentor of yours
and a friend. How much did you learn from him?
Jeff had my job from 1995 all the way to 2002, and I had
the privilege of working for him and next to him. He did a
few things very well that I learned a lot from. One of them
was, he was a great cheerleader, and I watched him pick up
the phone over and over again and call different colleagues
and say “Well done, couldn’t have done that without your
input.” Sometimes I would watch him do it, and I didn’t even
know he had been aware that this particular individual had
done what they did. But he made it his business to know
that that was the case. When you create that kind of esprit
de corps inside your company, it’s infectious, it’s invaluable,
and he was terrific at that.
The other thing Jeff did is he made big bets. Remember,
when we chose to do From the Earth to the Moon in 1996,
it was an $80 million miniseries, and you know, telling the
story of the Apollo space program, that wasn’t a given. But it
brought Tom Hanks into the family, it created a certain idea
that we would take on big, bold projects. That brought about
Band of Brothers, where Tom and Steven Spielberg came
 DEBRIEF Bloomberg Businessweek
“Whether it’s five prequel
ideas from different artists
on Thrones ... or the next
season of True Detective ...  its way back after the Freddie Gray murder. You see the
the next great idea is waiting
out there.”
in and we did this miniseries based on Stephen Ambrose’s
book. Those were big bets. Band of Brothers did $120 million,
unheard of at that time. It ended up creating tremendous
brand elevation for HBO.
We’ve seen a wave of harassment claims across the media
industry and politics involving people HBO has collaborated
with, including Harvey Weinstein and Louis C.K. What’s been
your reaction to it? What are you doing at HBO? Is this a
game-changing moment for women in this industry?
If there’s a silver lining in any of this, it’s that it will be a
demarcation point for zero tolerance for willful ignorance or
turning a blind eye to questionable activities. That’s a good
thing, because I think there was probably a lot of willful igno-
rance going on in different environments because a lot of
people had commented on the behavior of some of the people
who you named for a long time, and people just didn’t look
too closely. That ended with all the revelations about Harvey
Weinstein. I’m proud to say that under my tenure, my prede-
cessor Bill Nelson’s tenure, it’s been zero tolerance, nothing
but zero tolerance.
Have you been surprised by just how powerful some of these
women were that kept these stories secret for so long?
Two things have surprised me. The horrific extent of
some of the behavior; and that people felt so intimidated
and fearful that even women in positions of power, who were
successful by any metric, felt compunction about raising
their voices. They deserve an enormous collective thanks
for being brave enough to come forward. It’s changed the
landscape forever.
How do issues such as the partisan divide and disenfran-
chisement inform choices HBO makes over content and the
diversity of voices out there?
I worked for Chris Dodd when he was senator from
Connecticut. He used to tell a fantastic story. After Franklin
Roosevelt died, people were watching the funeral train go
by. One person was crying. Another asked, “Did you know
the president?” The answer: “No, but he knew me.”
Chris always thought about that line as the core value of
what it meant to be a United States senator. Do your con-
stituents feel that you know them? And that really translates
to, do you see them? Are you listening? Those of us who
are privileged to have a small role in popular culture have an
opportunity to tell stories that can help people see what dif-
ferent lives look like. Still be entertaining, still be engaged. It
doesn’t need to be didactic, but you can do something that
opens up people’s eyes.
November 27, 2017
Take a show like Insecure, Issa Rae’s wonderful show
about growing up African American in Los Angeles. She is
opening a world up to people who probably had no idea what
it felt like to be in that demographic at this moment in history.
She’s telling a story. That’s very important. Sonja Sohn just
did this wonderful documentary for us called Baltimore Rising
about the city’s extraordinary resilience and grit in making
dignity of the city in all its dimensions as citizens try to find
their voice and their equilibrium again.
Those are things that we value. Look, we’re not here to
educate. We’re here to entertain, and we are, first and fore-
most, an entertainment network. But in doing so, you can
occasionally do something that is illuminating at the same
time that it’s entertaining. Because we have such a broad
canvas to paint on, we have an opportunity to do that.
The president is frequently described as entertaining. Is
he illuminating? In your opinion, is he part of the problem
in terms of the culture of divisiveness?
David Brooks wrote a wonderful column a while ago. He
said that there are three different reflexive go-to places in
American history. One is religious. One is tribal. And one
is ideals. He argued, Isn’t it much better when we go to
our ideals? This isn’t about whether we should support tax
reform. This isn’t about where do you stand on [Trans-Pacific
Partnership]. This isn’t about whether we are handling the
Iraq situation with the right level of judgment. That’s not
what this conversation’s about. This conversation is about
39
making sure we don’t turn into a tribal country where we
demonize people who disagree with us and we turn com-
plicated subjects into Manichean ones, where there’s good
and evil and you’re on one side or the other. When you work
through difficult problems, there are no easy solutions. Real,
quality decision-making requires a little bit of compromise,
and it requires your ability to be in the other person’s shoes.
Wherever you are on the political spectrum, go to the best
ideals of what the Constitution and the Bill of Rights empha-
size about the core values of the country.
You probably hate it when people ask what you and HBO
are going to do now that Game of Thrones is coming
to an end.
I don’t hate the question at all because what I said earlier
has the virtue of truth, which is, the line at our door is huge.
Whether it’s five prequel ideas from different artists on
Thrones. Whether it’s Succession, Jesse Armstrong’s fan-
tastic show about the media business. Or the next season of
True Detective, the next season of Big Little Lies, whether it’s
Lovecraft Country, Misha Green’s extraordinary script, which
is a kind of horror genre film set in the 1950s, or Watchmen,
Damon Lindelof’s new idea loosely based on the movie but
with Damon’s extraordinary take. I’m not concerned about it
at all, because the enormity of talent that wants to work at
HBO is larger today than ever. So the thing that’s so excit-
ing, if you’re in our chairs, is that you see that line forming.
That’s what gives us the confidence to know that the next
great show and the next great idea is waiting out there.
Our job is to make sure we pick right and choose right
and work with the right people, but that’s actually a high-
class problem because of the talent that we have who are
excited about being part of the network. 
 Bloomberg Businessweek

Just Ad

40

Packing dehydrated strawberries at the Wise plant in Salt Lake City


Add Water
(If There Is Any)
Survival foods migrate from
armed bunkers to fill the
suburban garage By Amanda Little
Photographs
by Michael Friberg
O
n Monday, Sept. 25,
five days after Hurricane
Maria pounded Puerto Rico,
Aaron Jackson got a LinkedIn notification
on his phone from Michael Lee, supply
chain and inventory manager for the
Federal Emergency Management Agency.
“Contact me right away,” it read, followed
by a number. Jackson was at Blue Lemon,
a fast-casual restaurant in Sandy, Utah,
outside Salt Lake City, eating dinner with
his family. He stepped outside and dialed.
Lee needed help, fast: FEMA was
running low on food rations. In the
previous four weeks, the agency had
supplied millions of meals to the
Texans and South Floridians displaced
by hurricanes Harvey and Irma. Maria
had created a third disaster zone with
more complex logistics, having knocked
out Puerto Rico’s electricity, gutted its
roads, and destroyed its markets and
ports. Restoring food security on the
island could take months. Lee had to
procure millions of servings of just-
add-water meals to sustain the victims.
Could Jackson provide at least 2 million
and begin deliveries immediately?
November 27, 2017
41
Jackson is the 42-year-old chief execu-
tive officer of Wise Co., a leading brand
in survival foods, that is, Mylar pouches
of freeze-dried meals such as Savory
Stroganoff and Loaded Baked Potato
Casserole designed to remain edible on
shelves for a quarter century. Over the past
several years, the prepper phenomenon—
people geared for imminent disaster—has
come out of the backwoods via shows
like the National Geographic Channel’s
Doomsday Prepper and media reports of
the very rich and very worried buying
and fortifying luxury bunkers. Jackson’s
 Bloomberg Businessweek
been positioning Wise to feed the trend.
During the call, he felt a rush of conflicting
emotions—not so much from the prospect
of getting a fat government contract while
legions of people suffer, but because the
windfall could derail his business strategy.
A 2-million-serving order will increase his
sales for 2017 about 15 percent but stretch
his supply more than he’s comfortable
with; his answer to Lee was not an easy yes.
Jackson has filled many emergency
orders, including supplies for Ebola
victims in Liberia and for people in the
Philippines devastated by 2013’s earth-
quake. Carnival Cruise Line has stocked
Wise pouches at its Caribbean ports to
feed employees when storms rock the
region. Just a few days before the FEMA
call, the Salvation Army purchased
100,000 servings of Wise products for
Florida shelters near areas affected by
Hurricane Irma.
But these last-minute orders aren’t
how Jackson wants to define his core
business. Since 2013, when he came on
as CEO, he’s been trying to move the
company beyond the volatile disaster-
response industry. “I’m not going to
42
turn down an incredible opportunity,”
he says, “but I’m also not after sporadic
clients. I want predictability. I want Mr.
and Mrs. Smith in Everytown U.S.A. The
Walmarts, the Home Depots—those are
my golden geese. If a big order from
FEMA interrupts our supply to staple
customers, that’s a risk I shouldn’t take.”
For someone working in an indus-
try defined by worst-case-scenario
extremism, Jackson is notably moder-
ate in appearance and philosophy. Tall,
tidy, and well-coiffed, he looks like Clark
Kent—but a Kent who’d be content never
to don his cape and is facing middle-age
metabolic slowdown. When I meet him
at Wise’s headquarters in Salt Lake City,
he’s wearing a quilted jacket, pressed
khakis, and polished shoes that match his
belt. He drives a BMW 5 Series sedan and
looks like a man who’s comfortable on a
golf course, which he is, having played
competitively in his youth.
Jackson’s lived in Utah since high
school, when his family moved there from
a suburb of Los Angeles. After graduat-
ing from the University of Utah, he spent
the first 15 years of his career selling
chicken nuggets and Honey Bunches of
Oats, among other kitchen-table icons,
first at Tyson Foods Inc., where he special-
ized in frozen cutlet products, and then
Wise emergency supply tubs, ready to ship
at Post Consumer Brands cereals, where
he became a vice president for sales and
marketing. Now he’s relying on his corpo-
rate experience to suburbanize survival-
ism—a goal that seems at once respectable,
preposterous, and, suddenly, attainable.
J
ackson first connected
with Wise in 2012, when a
headhunter tried to recruit
him from Post to run the fast-growing
startup. He declined the offer, but com-
menced some research. “My aha! came
in mid-2012 when I read that more than
half of American homes have first-aid
kits on hand, along with fire extinguish-
ers and flashlights. I realized then they
haven’t added the food component. I
saw incredible growth potential.” When
the headhunter extended the offer again
a few months later, Jackson accepted
the job of CEO and cautiously started
to shift the marketing focus to his ideal
customer, one who looks less like Ted
Kaczynski and more like himself, his
wife, who’s an attorney, and their two
tweens: someone who isn’t entirely con-
vinced that humanity is hurtling toward
annihilation but who’s willing to stock
the pantry with a Mylar-fortified food
supply just in case. “This is the food
equivalent of life insurance—staples that
every American household in this age of
uncertainty should have,” he says.
Jackson hired a young designer who’d
been at the surf company Quiksilver to
revamp the packaging. “We’d been selling
our products in large, black plastic tubs.
We needed something that doesn’t scream
doomsday, so we moved to clean white
boxes, contemporary fonts, high-quality
food images—packaging that makes sense
on a Target shelf,” Jackson says. As orders
came in from big-box stores, he added a
manufacturing facility a 15-minute drive
from the office (production had previ-
ously been outsourced) that can produce
25 million pouches a year.
In the past four months, the spate
of natural disasters combined with
the specter of nuclear war with North
Korea has pushed up Wise’s total sales
40 percent from the previous four-month
period. Concerned suburbanites as well
as disaster responders have contributed
to the increase. The factory has made it
possible for Jackson to meet both sudden
surges and steady growth in demand. He
ultimately managed to ship the 2 million
servings to FEMA in a matter of weeks,
with only a brief disruption to his regular
customers’ supply.
In four years, Wise’s annual retail
sales have more than doubled, to about
$75 million. Using his network of former
clients, Jackson persuaded Wal-Mart
Stores, Target, Home Depot, and Bed
Bath & Beyond to carry Wise products.
In 2014 he also persuaded Home Shopping
Network to feature the company’s wares;
the TV network has become its biggest dis-
tributor. But at this point, only 2 percent
of Americans have bought into survival
foods, according to industry analysis.
Wise’s two main competitors, Emergency
Essentials LLC and Mountain House are,
like all companies in the industry, pri-
vately held and don’t report sales data,
but Jackson estimates that survival food
sales total about $400 million annually.
Jackson sees the survival food industry
today where the organics industry was in
the 1950s before Americans got nervous
about pesticides—poised to explode. Still,
Darren Seifer, a food and beverage analyst
at NPD Group, cautions the industry could
just as easily “remain on the fringe, gath-
ering dust on pantry shelves.”
Bloomberg Businessweek November 27, 2017

T
he pot-pie room at supply for a family of four that goes for Wise has tweaked this decades-old
Wise’s factory in downtown $7,999. Each serving is about 300 calo- formula only a little: Fresh ingredients
Salt Lake City is a large space ries and costs less than $1—a per-calorie are rapidly blast-frozen at tempera-
with white walls and cement floors, filled cost on par with prices at a McDonald’s. tures as low as –112F to prevent the for-
with stainless-steel equipment. Machines Jackson’s technology isn’t new. mation of ice crystals that could affect
hum and chuff as conveyors move mate- Wise practices a 21st century version of food texture and nutrition. The food is
rials between them. A funnel the size of a something the Incas started in roughly then placed in a heated vacuum chamber
back-alley dumpster dominates the room, 1200 A.D., when they placed meat that causes the ice to sublimate, chang-
drawing the eye like an industrial inter- strips on high-altitude stone platforms ing directly from a solid to a gas without
pretation of Marcel Duchamp’s Fountain. to freeze overnight and then dry in passing through a liquid phase. When
Inside it is a grayish blend of freeze-dried the sun to make charqui, a proto-beef the foods are rehydrated, pores left from
potato chunks, carrot pieces, celery and jerky. Modern freeze-drying methods the vanished ice quickly reabsorb water.
onion slivers, peas, and whey protein. were created during World War II to pre- The process takes almost double the
When no one’s looking, I dig my gloved serve blood serum so it could be shipped energy used for canning, but can retain
hands into the pallid, pebbly stuff, sifting internationally to treat the wounded. more than 90 percent of the food’s nutri-
through it like a pile of shells at the beach. The current processes arose in the late ents and preserve it for far longer. The
It’s oddly weightless—hundreds of gallons 1970s when concerns over the oil crisis higher the fat content of a food, the faster
of vegetables with the heft of confetti. and stagflation motivated millions of it spoils. In pursuit of rich taste and lon-
The mixture slowly flows down from the Americans to cache food. gevity, Jackson has worked with food
funnel base through a chute to another
device that weighs and divides it. The por-
tions then travel to a machine emitting
clouds of beige powder as it dispenses
shots of dehydrated milk, celery salt,
powdered garlic, and chicken bouillon.
The seasoned kibble is then deposited
and sealed, one 7-ounce portion every
few seconds, inside Mylar bags along with
43
pods of oxygen-absorbing sachets of iron
filings, clay, and salt. The bags are labeled,
“chicken flavored pot pie.”
This is the first stop on my tour with
Jackson through half a dozen rooms. We
also visit the “hearty tortilla soup” and
“maple pancake breakfast” rooms, where
thousands more gold and silver Mylar
pouches roll off conveyors into bins.
In each room, technicians in white lab
coats bring to mind Oompa Loompas
as they pull levers, toggle switches, and
examine packages for flaws. At one point,
to demonstrate a bag’s airtightness, a
stocky technician in boots puts a pouch
on the floor and jumps on it.
The scene evokes Willy Wonka’s
factory in part because the workers are
achieving Wonkian ends. As a kid, I spent
hours imagining the sensations of Roald
Dahl’s three-course chewing gum inven-
tion “made of tomato soup, roast beef
and baked potato, and blueberry pie.”
This, too, is an attempt to create an all-
in-one meal that bears little resemblance
to the foods it conjures—a product that
when combined with a serving of hot
water simulates a home-cooked dinner.
Wiping a film of beige powder from
his safety glasses, Jackson displays his
range of products, from a small, 72-hour
“survival kit” for $19.99, to a one-year An employee checks sealed Mylar bags
 Bloomberg Businessweek November 27, 2017

scientists to develop ingredient combi-
nations and airtight, light-resistant pack-
aging that extends storage times for most
Wise meals to 25 years, from 7 to 15 years.
Wise also sells water storage and filtration
kits for rehydration in the event a house-
hold’s water supply is cut off.
worse than not being able to feed my
kids,” he says, “and the chances of dis-
ruptions in our food supply are by all
accounts becoming more likely.”
To me, this smacked of paranoia. My
brother, cousin, and stepbrother repre-
sent a skewed sample: All are guys, all
own guns, and two like to hunt in their
entirety, or even the majority, of Wise’s
exploding market. “Five years ago, our
market was more than 95 percent men.
Today, we’re reaching about 50 percent
women,” Jackson says, “many of them
moms—‘guardian moms,’ we call them—
worried about a stable food supply for
their kids.”

I
first heard about Wise
a few years ago from a cousin, a
former police officer in Zionsville,
Ind., who kept a supply of its products
in his basement that could sustain his
family for six months. Then my step-
brother, an executive who lives in down-
town Washington, invested in a stash of
drinking water and long-storage food.
And my brother, a climate scientist with
the Nature Conservancy, began build-
ing a supply in the basement of his West
Virginia cabin. “I can’t imagine anything
free time with compound bows and
arrows. Each possesses at least a flicker
of the fatalist prepper sensibility that
Wise was built in 2006 to serve. Like
most survival food companies, including
Emergency Essentials, Wise was founded
in Utah and began marketing its products
to the Mormon community preparing for
the end of times, a practice encouraged
by the Church of Jesus Christ of Latter-
day Saints. ( Jackson isn’t Mormon.) But
Mormons—and for that matter, male
preppers—no longer represent the
The company’s first customers a
decade ago were anxious about infla-
tion, economic collapse, and terrorist
attacks; today, the major concern is envi-
ronmental instability. “It’s not just the
freak events. We get calls from people
saying, ‘I live in Miami, and flooding is
now routine. I’m worried Florida is going
to be under water in two years,’ ” he says.
“Or from people in upstate New York who
experienced a 1-in-a-1,000-year blizzard
and couldn’t get out of their driveway
for two weeks. People who lived through

The Survival Three manufacturers dominate the market for foods with a shelf life of at least
25 years. We compared their takes on chili to help you decide which brand
Foods Taste Test deserves a place in your bunker. —Kate Krader

44
Product Taste Bowl User Depressing
appeal friendliness factor

Wise Company Chili Mac Bland and slightly sweet, with Recognizable Pour into a Like gloppy
a chemical-y aftertaste. The as a saucy vessel, add SpaghettiOs
$1.10 per serving, 240 calories most chili-like aspect of it is the macaroni boiling water, with different
brick-red color. What looks like, dish; better stir. Requires pasta.
The most cost-efficient of the but doesn’t taste like, beef is than it tastes. cleanup.
brands, Wise specializes in textured vegetable protein; pinto
starter kits. Inside are packages beans and elbow macaroni are
with appealing pictures of the mushy if you cook according to
food and no-nonsense directions package directions.
on how to prepare it.

Mountain House Chili Mac with Beef As if you’d brought a personal It could Just add You’d be
chef into your secure house. be in a boiling happy to
$2 per serving, 230 calories Large, al dente elbow macaroni commercial. water to the eat this
mixed with ground beef and heatproof just about
For the Burning Man survivalist kidney beans in a tasty, well- package. anywhere.
set, Mountain House offers spiced sauce. And it’s still in
attractive packaging (happy good shape an hour or two later.
campers around a makeshift fire)
and ease.

Emergency Essentials Chili with Beef Crumbles We reconstituted a separate Like a soupy More like Bring salt
package of beef crumbles and chili that cooking, to the
$3.20 per serving, 390 calories added it to the chili. This badly might be this has to apocalypse.
needs salt and is slightly wet, but someone’s be stirred
the well-cooked kidney beans secret recipe. over heat for
Covering all manner of products, give it a solid flavor. 15 minutes.
from butter powder to shelf-
stable bacon, Emergency
Essentials cooking kits have a
DIY focus.

Dehydrated chicken in a funnel at the plant
the California drought, the forest fires of
Texas and the Northwest, and who think
maybe the government won’t come to
their rescue when a disaster hits.”
When he started at Wise, Jackson’s
biggest concern was a lack of repeat cus-
tomers: Most people, presumably, won’t
use up their disaster stores. The surprise
has been how many of his customers
return. “Up to 40 percent of my monthly
sales volume is from repeat consum-
ers,” he says. Some buy the products
for friends and family as gifts. He pumps
up his marketing campaigns around
Black Friday and, in the last two years,
average monthly sales for November and
December have been 20 percent higher
than average monthly sales for the rest
of the year. And more customers are
defining their “emergency” uses of the
food in new ways. “If you’re a mother
or father of a couple kids and you’re
trying to put together a meal before
soccer practice—that’s an emergency
in its own right. They’re running short
on time, low on groceries, so they grab a
pouch of lasagna, add water, and have a
rib-sticking dinner for four in minutes.”
In Miami, some colleges have to stay
prepared for food disruptions because
trucks are pulled off the road and stu-
dents are required to stay in their dorms
when winds get above 39 miles an hour.
Michael Ross, resident district manager
of the University of Miami’s dining ser-
vices, has purchased 64,000 serv-
ings of Wise products in the past
three years to feed dorm-bound stu-
dents. His team found Wise in 2013 at a
disaster-preparedness trade show and
chose the brand after taste testing it
against others. Ross used to stock up
on less shelf-stable fare when storms
were predicted, but if the storms
turned, much of the inventory would
go to waste. “This we can pull out and
dust off whenever we need it,” he says.
“The students are amazed. Many have
said it’s better than the food they make
for themselves and ask to take it home.”
Recognizing the blurring of conve-
nience and emergency, Jackson offers
his same product in camping pouches
and sells a line of freeze-dried snacks.
This accounts for about 5 percent of
Wise’s products, which represent a
roughly $60 million category, he says.
Drafting on the post-food trend, Wise
also created a nutrient-fortified protein
shake. Silicon Valley’s Soylent raised
$25 million last year to extend the reach
of its product, a just-add-water vegan
powder—baby formula for adults—which
has been imitated by Custom Body Fuel,
People Chow, Ample Foods, and a half-
dozen other new meal-replacement
brands that claim to be nutritionally
complete and save consumers time and
money while reducing their carbon foot-
print. But the majority of Wise’s sales
remain the $129.99 black square tubs
(the new packaging is catching up with
old inventory) containing an advertised
13,600 calories to keep a family of four
fed for a week. If you’re the sole survi-
vor, it’ll last four.
A
t the end of my visit
to Salt Lake City, I whip up a
batch of rehydrated pot pie.
The result is a tawny gruel. I hesitate,
stifle a gag reflex, channel my inner
Violet Beauregarde, and swallow. The
stuff tastes pleasantly of the chicken cas-
serole that was a staple of my childhood.
But when I try to imagine consuming
the contents of the Mylar pouch in the
aftermath of a hurricane, or in a world
November 27, 2017
torn by battles over dwindling, climate
change-threatened food supplies, it’s too
easy. I lose my enthusiasm.
Am I succumbing to my brother’s para-
noia or beginning to think pragmatically?
I wonder. Wildfires and hurricanes aren’t
the only reasons behind the spread of
the survivalist mindset. According to a
United Nations Intergovernmental Panel
on Climate Change report, warming tem-
peratures will reduce global agriculture
yields more than 2 percent every decade,
given current trends, as the world’s pop-
ulation surges to 9 billion. Food prices
could almost double by 2050. If they do,
regional and international conflicts over
limited affordable food would likely esca-
late—further increasing the odds against
food security.
“This isn’t about the zombie apoc-
alypse anymore—natural disasters are
the new normal,” says Daisy Luther, the
blogger behind the website the Organic
Prepper and a survivalist in the more
typical vein. She thinks we should all
follow the adage, “eat what you store,
store what you eat,” and has guns to
protect her daughters—and their stock-
45
piles—from the lazy hordes who didn’t
plan ahead. “Being prepared is now just
acting responsibly, especially for moms,”
she says. She sells freeze-dried and sur-
vival products through her online Prepper
Market, but in truth, she has a touch
of scorn for the parvenu Wise-buying
prepper-lite. “Those just-add-water meals
can work in a pinch, but they’re not tasty
or healthy long-term,” she admonishes.
“You need more than just products, you
need knowledge about how to prepare
and season freeze-dried foods. You need
a culture of preparedness.” Luther, like
Jackson, sees a movement arising from
the reasonable concerns of citizens who
recognize that we’re up against increasing
environmental threats on the one hand
and diminishing government safety nets
on the other.
“Luck favors the prepared,” Jackson
says more than once during my visit. I
still have yet to invest in this luck, but I’ve
begun to consider it. I live in Nashville in
a flood-prone region that was hammered
by rains when Harvey swept inland. My
friends and neighbors might actually
welcome those 72-hour survival kits Wise
promotes after Black Friday if I give them
as holiday gifts. We can stuff them in the
corners of our pantries and hope like hell
we never have to add water. 
 Bloomberg Businessweek

SHOP
AMERICA’S GO-TO DEPA
HAS A PLAN TO SUR
46

BY SUSAN BERFIELD

A closed Macy’s in Hagerstown, Md.

 November 27, 2017

TODAY
RTMENT STORE SAYS IT
VIVE THE CARNAGE
47

AND LINDSEY RUPP

 Bloomberg Businessweek
C
an you get me out of the line faster? Can you
do that? Why, when I go to Herald Square, do
I have this glorious experience, and when I go
to this other store I don’t? Why doesn’t your
app show me where I can go get that item that
I’ve already put into my basket? I just want
to feel the fabric. I just want to try it on. How do I get a sales
associate faster? Where are your sales associates? Why does
your restroom feel like it’s from 10 years ago, or 20 years ago?”
That’s Jeff Gennette, who’s been with Macy’s for three
decades, was promoted to chief executive officer this spring,
and has heard all your complaints about his stores, assum-
ing you still shop there. He’s cautious about offering opin-
ions, less of a public figure than his voluble predecessor, Terry
Lundgren, and calm as he faces what’s become known on Wall
Street as the retail apocalypse. With a few exceptions, stores
everywhere are hurting—especially department stores such as
Macy’s. Gennette has one of those increasingly familiar cor-
porate career arcs: He worked himself to the top only to find
that he’s on the edge of a cliff.
Sales in Macy’s established stores have been declining
every quarter for the past 11. On Nov. 9 the company reported
a 3.6 percent drop in same-store sales for the third quarter from
the previous year and blamed the hurricanes in Florida and
Texas. Executives said that if the holiday season proves as good
as they hope, Macy’s will meet its meager goal for the year: no
more than a 3 percent reduction in sales. Over the past three
years, revenue has fallen from $27.5 billion to $24.6 billion, profits
48
have been cut by almost half, and the company’s market value
is down by about two-thirds.
Blame Amazon.com, blame Apple, blame Everlane and
Zara and T.J. Maxx. In one way or another, they’ve taken some
of Macy’s customers by offering no service instead of poor
service, gadgets instead of clothes, reasonable prices instead
of weekly discounts, scarcity rather than glut, as well as con-
venience, speed, and the sheen of good taste. Most of all,
they feel modern, without the whiff of decline around them.
A few months after his chief financial officer, Karen Hoguet,
told the Wall Street Journal, “Don’t count us out, we’re not
dead,” Gennette agreed to talk about what he’s done so far to
revive Macy’s, the largest department-store chain in the U.S.
He met us at Stella 34 Trattoria on the sixth floor of Macy’s
Herald Square, still the single biggest store in the world, a
bewildering 1.2 million square feet of selling space spread
among 10 floors and extending over almost an entire city
block. The restaurant, part of a $400 million Lundgren-era
renovation, opened in 2013 in what was once a storage area.
On a late Thursday morning in mid-October, it’s the busiest
part of the store, a place where it’s possible to imagine a pros-
perous future for Macy’s.
“It may be smaller, it may be more virtual,” Gennette says as
he sips from a glass of water. “But I’m committed to bricks”—that
is, stores—“and it’s our job to figure out what to do with them.”
The original R.H. Macy & Co. was a dry goods emporium that
opened in downtown Manhattan not long before the Civil War.
But—skipping over many decades of convoluted corporate
history—what’s now known as Macy’s was once Federated
Department Stores Inc., which had acquired many of the depart-
ment stores that might sound familiar to people born before
November 27, 2017
Macy’s iconic Herald Square store, back in the day
1970 or so: Burdines, Bullock’s, I. Magnin & Co., and Lazarus, to
name a few. The company bought Macy’s in 1994 and a decade
later took its name and rebranded its other department stores
with the Macy’s name, too. There went Stern’s and Abraham
& Straus. Only Bloomingdale’s retained its identity. Lundgren,
who took over as CEO in 2003, made one more big purchase
that doubled the size of the company: In 2005 he bought May
Department Stores Co., which owned Marshall Field’s & Co. and
Filene’s, as well as some smaller chains. They all got the Macy’s
name, too, and Lundgren got to be head of what he called the
Great American Department Store. “Today sets us on a broader
mission of reinventing the department store in the United States,”
he said at the time.
Back-office efficiencies, vendor synergies, and national
marketing budgets may have excited investors, but none of
that mattered much to customers. A few years later, Lundgren
attempted to “localize” merchandise in stores that he’d
essentially just centralized and personalize stores whose
decades-old identities he’d just erased. He called the strat-
egy “My Macy’s.”
“One of the five greatest retail mistakes in history was
Macy’s buying all that it did,” says Nick Egelanian, president of
SiteWorks Retail Real Estate Services, a retail consulting firm.
“Macy’s bought department stores that were already failing.
They were buyers when they should have been sellers. If they
were going to buy, then they had to reinvent, but they didn’t.”
In the middle of last year, Macy’s decided to close 100 of its
730 stores, eliminating 3,900 jobs. (After a disappointing 2016
holiday season, Macy’s said it would cut 6,200 more jobs.) About
half of the 70 stores it’s shut down this year are within 10 miles
of another Macy’s. Those might seem obvious choices, but the
company had to make another, counterintuitive calculation as
it selected locations to shutter. When a store disappears, online
revenue also shrinks: At traditional retailers, online and offline
sales tend to be correlated. For example, customers can pick
up online orders at stores, and once they’re inside, they might
end up with more than they came for. Some shoppers will seek
out another Macy’s if the nearest one is closed, but most don’t.
“Almost at the ZIP code level, you can predict what you can
retain when you close a store and what you can’t,” Gennette
 Bloomberg Businessweek
A Macy’s in Lynchburg, Va., that closed this year
says. Macy’s has retained about 12 percent of sales so far.
Some of the well-situated stores are being “monetized,” which
is Wall Street jargon for “sold off for cash.” The company got rid
of its downtown Minneapolis flagship for $59 million in March.
One hundred years ago the store was a Dayton’s, then it became
a Marshall Field’s, and since 2006 it had been a Macy’s. Soon it
will be offices. The men’s store in San Francisco’s Union Square
went for $250 million. In an irony lost on no one, Amazon.com is
leasing the top six floors of the Macy’s building in Seattle, while
Macy’s keeps the ground floor and basement. The company
wants to make similar arrangements for its downtown Chicago
store, though maybe with a different tenant.
Then there’s Herald Square. It’s estimated to be worth
PREVIOUS SPREAD: KRISTOFFER TRIPPLAAR/SIPA; THIS SPREAD, FROM LEFT: EWING GALLOWAY/UIG/EVERETT COLLECTION; STEVEN SWAIN
almost $4 billion; Macy’s entire value on the stock market in
mid-November was $6.2 billion. The company says it won’t
sell Herald Square but wants to find ways to do some monetiz-
ing there, too. “It’s a very high priority for all of us,” Hoguet,
the CFO, said at a recent Morgan Stanley retail conference
full of analysts who agree that it should be a high priority.
Macy’s has a partnership with Brookfield Asset Management
Inc. to potentially redevelop 50 additional locations. Yet the
retailer still may have too many stores. At the same conference,
Hoguet said that when executives considered which locations
would be critical to keep if Macy’s were to somehow start over,
they counted 245.
The premise of a department store—to be able to buy a mat-
tress and pajamas in the same place—is still valuable. But today
that place is called Amazon, and there you can buy tooth-
paste, too, and have it all delivered in two days. So the ques-
tion is: What do department stores have that Amazon doesn’t?
Actual salespeople.
“ONE OF THE FIVE GREATEST RETAIL MISTAKES
IN HISTORY WAS MACY’S BUYING … DEPARTMENT
STORES THAT WERE ALREADY FAILING”
November 27, 2017
In the age of digital retail, the desire for human connection
may still be profound, but the interaction has to be pleasant and
helpful. Experts have no shortage of suggestions here. “Macy’s
has worked very hard to kill their point of difference—sales help,”
says Kate Newlin, a brand consultant who has her own firm. As
the company centralized its merchandising over the years, its
professional sales staff became almost obsolete. “The sales pro-
fessionals who knew their customers got trashed in the name
of efficiency,” Newlin says. Nordstrom and Saks Fifth Avenue
are smaller than Macy’s and offer more high-end fashion, so
direct comparisons can be tough. But, Newlin says, Nordstrom
wants “customers to feel treasured.” She suggests an easy way
Macy’s could get started: Train salespeople to put away their
own cellphones.
“Macy’s needs to turn its associates into Apple geniuses
who can engage and have personal information about their
customers on their iPads,” says Robin Lewis, who publishes a
retail strategy newsletter. “If Gennette can get personal pro-
files on the 10 percent of his customers who account for over
50 percent of his business, he can market to people individu-
ally, as Amazon does.”
Some typically frustrating department-store sales methods
are being replaced at Macy’s. The cosmetics department staff
is no longer trained to sell just one brand, for example. “If
our associates aren’t trained in everything, [customers] will
find someone who is, on their phone,” says Nata Dvir, head
of beauty at Macy’s. And for those in a rush or uninterested
in interaction, Macy’s has put together a section of so-called
49
impulse brands, such as Smashbox and Urban Decay, where
shoppers can help themselves. Sephora has operated this
way for decades.
Macy’s is also trying to distinguish itself by offering less mer-
chandise rather than more. Eventually there could be 30 percent
fewer items in the stores. Cassandra Jones is the one who ulti-
mately will decide what clothes Macy’s should sell. “Two years
ago we wouldn’t have told you we were focused on fashion,” she
says. Instead, Macy’s was focused on price. Jones, who’s wearing
an of-the-moment plaid sleeveless top and matching wide-leg
trousers, points out that the store now offers an “It List” on its
website and just ran its first fashion-focused television commer-
cial in the decade she’s been with the company.
In some of its empty space, Macy’s is trying to mimic the
success of the one kind of retailer that’s not suited to selling
online and has been among the most profitable: off-price.
Because buyers at stores such as T.J. Maxx, Marshalls, and
Ross Stores buy merchandise when they spot an opportunity—a
designer made too much, a department store bought too much—
they offer pieces, not full lines, and not much is predictable.
Merchandise turns over fast, and the point is for customers to
feel like they got lucky.
Macy’s opened its first off-price department, called
Backstage, in 2015. That’s six years after initially considering
 Bloomberg Businessweek

WHERE MACY’S CAME FROM

Region where the store was founded
 Midwest  Northeast  South  West and Pacific

O’CONNOR, MOFFATT & CO., SAN FRANCISCO

BAMBERGER’S, NEWARK, N.J.

DAVISON & DOUGLAS CO., ATLANTA

R.H. MACY & CO., NEW YORK

H. HACKFELD & CO., HONOLULU LIBERTY HOUSE

I. MAGNIN & CO., LOS ANGELES

BULLOCK’S, LOS ANGELES
RICH’S, ATLANTA

GOLDSMITH’S, MEMPHIS
RIKE’S, DAYTON

BLOOMINGDALE BROS., NEW YORK

FILENE’S, BOSTON

WECHSLER & ABRAHAM, BROOKLYN, N.Y. ABRAHAM & STRAUS

JOHN SHILLITO & CO., CINCINNATI
F&R LAZARUS & CO., COLUMBUS
FOLEY’S, HOUSTON

SANGER BROTHERS, DALLAS

BURDINES, MIAMI
A. HARRIS AND CO., DALLAS

JOSEPH HORNE CO., PITTSBURGH

MAAS BROTHERS, FLORIDA

THE BON MARCHE, SEATTLE

JORDAN MARSH & CO., BOSTON

D.M. READ CO., BRIDGEPORT, CONN.

STERN BROTHERS & CO., BUFFALO

WILLIAM H. BLOCK CO., INDIANAPOLIS

THE EMPORIUM, SAN FRANCISCO

THE BROADWAY, LOS ANGELES

WEINSTOCK’S, SACRAMENTO, CALIF.

ZIONS COOPERATIVE MERCANTILE INSTITUTION, UTAH

STRAWBRIDGE & CLOTHIER, PHILADELPHIA

WANAMAKER’S, PHILADELPHIA
50 J.W. ROBINSON CO., LOS ANGELES

HECHT’S, BALTIMORE

MEIER & FRANK CO., PORTLAND, ORE.

G. FOX & CO., HARTFORD

THE LEADER, BALTIMORE
BERNHEIMER’S, BALTIMORE

A. HAMBURGER & SONS, LOS ANGELES

HOLCOMB, MAY & DEAN, LEADVILLE, COLO. MAY DEPARTMENT STORES CO.
FAMOUS-BARR
FAMOUS DEPARTMENT STORE, ST. LOUIS
WILLIAM BARR DRY GOODS CO., ST. LOUIS

KAUFMANN’S, PITTSBURGH
STROUSS-HIRSHBERG CO., YOUNGSTOWN, OHIO
L.S. AYRES & CO., INDIANAPOLIS

THE JONES STORE CO., KANSAS CITY, MO.

MARSHALL FIELD’S, CHICAGO

DAYTON’S, MINNEAPOLIS

1830
THE J.L. HUDSON CO., DETROIT

the idea, 30 years after Nordstrom Rack started, and almost
40 years after T.J. Maxx was founded. “Coulda, shoulda,
woulda,” says Michelle Israel, the newly promoted head of
Backstage. “Every opportunity is different. The store within
a store is different than our competitors’.” She’ll oversee 45
locations by the end of 2017; seven of those are free-standing,
the rest will be housed inside Macy’s department stores.
The company has plans to expand further in 2018. So does
Nordstrom Rack, which has 232 locations, and T.J. Maxx, the
fastest-growing retailer in the world, with almost 1,200.
Israel is bright-faced and energetic and uses the word “fun”
a lot. Backstage is supposed to be “a gateway” to Macy’s for
younger shoppers, a fun and lighthearted place with fun prod-
ucts and faster fashion. “It’s, ‘I need this right now,’ ” she says.
“It’s like, ‘I have a date in an hour.’ It’s, ‘I hate what I’m wearing
right now. Can you help me? My plane is leaving tonight.’ ”
For now, though, Backstage mostly attracts customers who
are already shopping in the store, and those stores are located
in “what you might call ‘challenged malls,’ ” says Gennette,
where Macy’s has little to lose and potentially much to gain.
Backstage, which offers new kinds of merchandise, such as
hair-care products, home décor, and toys, as well as different
apparel brands, isn’t taking away from regular sales, he says.
It’s adding to them, typically by 7 percent throughout the store.
“Backstage is probably driving revenue, but they have to be
careful about what metrics they use to measure success,” says
Chris Petersen, a strategic retail consultant and blogger. “They
might be getting more revenue, but at what cost to margins?
Revenue doesn’t pay the bills, margins do.” So far, Macy’s
margins have stayed close to 40 percent.
Taken together, T.J. Maxx, Nordstrom Rack, Zara, and H&M
will have opened about 750 stores globally this year in the three
businesses that account for most of department stores’ sales:
apparel, housewares, and cosmetics. “They won’t stop opening

R. H. MACY’S CO.
DAVISON PAXON CO.
LASALLE & KOCH, TOLEDO, OHIO
FEDERATED DEPARTMENT STORES
SANGER-HARRIS
ALLIED STORES
THE MAY CO.
STROUSS
at that pace until they put department stores out of business,”
says Egelanian, the consultant. “Those brands are eating what’s
left of the carcass. That’s stark, but it’s what’s going on.”
Gennette says that about a year ago, he assembled a task force
THEDEPARTMENTSTOREMUSEUM.ORG, LOCAL GOVERNMENTS
called What’s New, What’s Next. The group has eight execu-
DATA: MACYS.COM, NEWS REPORTS, HISTORIC DOCUMENTS,
tives, several with backgrounds in technology and consumer
products. “It’s a dedicated team that is reimagining the future
for retail,” he says. “They’re in the thick of reimagining how
this brand would fit into the future of retail.” When asked to
elaborate, he says, “I’ll get back to you.”
He does tell us that a hint of this future would be coming
AND HISTORICAL SOCIETIES
to Herald Square soon. That turned out to be a 1,000-square-
foot Samsung “digital playground,” with phones and tablets
as well as TVs that serve as frames, connected smart refrig-
erators, and virtual-reality chairs (sign a waiver, and you can
ride a virtual roller coaster). Last year, Herald Square hosted
November 27, 2017
MACY’S
INC.
MACY’S
BLOOMINGDALE’S
SHILLITO
S O-RIKES
LAZARUS
51
ROBINSONS-MAY
2017
an Apple Store, the first department store to do so, and also
brought in specially designed Brookstone gadgets such as the
Grill Alert Bluetooth Cooking Thermometer ($69.99). As depart-
ment-store stunts go, those are tame. Back in the 1930s, Saks
had an indoor ski slope powdered with Borax.
Brands wear out, department stores vanish, malls become
offices and apartments, technology disrupts: That’s the
nature of commerce. But even if Macy’s is indeed doomed—
and Gennette, of course, is adamant that it’s not—the final,
everything-must-go clearance sale is a ways off. The chain still
draws in some 41 million shoppers a year, and Herald Square
is the fourth-most-popular tourist destination in New York
City. It’s looking up to Nordstrom and its reputed sales staff
and down to T.J. Maxx and its no-frills model. “The middle is
a good place to be,” he says. The middle, maybe; the average,
probably not. So far, Macy’s is making small changes, hoping
for rebirth by a thousand measures. 
Great Expectations P
As controversy engulfs art museums
around the world, Maria Balshaw turns up
the temperature at Britain’s Tate galleries
U
R
By James Tarmy
Photograph by Nick Ballon

S
U
I
T
S
58
The celebrity bartender
who wants you to
drink less

59
One smartwatch to rule
your wrist

60
Do Mumbai in two days

62
A theme park for
Italian food

63
LG’s laser smart home
theater projector

64
The duo democratizing
high fashion

Bloomberg
Businessweek

November 27, 2017

Edited by
Chris Rovzar
 ART Bloomberg Pursuits
T
he normally staid world of museum exhibitions has been
upended over the past two years by a series of protests
that have made global headlines. In 2016, Greenpeace
shut down an exhibition at the British Museum sponsored by BP
Plc, the fossil fuel giant. In March climate activists in Paris staged
dramatic protests demanding that the Louvre abandon its finan-
cial agreement with Total SA, another oil and gas behemoth.
That same month, a group of artists in New York attempted
to remove a painting depicting the open casket of Emmett
Till, a 14-year-old black boy who was lynched in Mississippi in
1955, from the Whitney Museum of American Art, because it
was painted by a white woman. Meanwhile, anti-gay protests
closed a gender-diversity exhibition at Santander Bank’s cul-
tural center in Porto Alegre, Brazil.
Call it a symptom of regional strife or simply the growing
pains of an increasingly global society, but for Maria Balshaw,
who became director of Britain’s Tate museum in June, an
energized, politically active public presents an opportunity.
“The goal I have for the Tate is one where an artistic vision is
held alongside, and absolutely permeates, a sense of our social
mission,” she says on a recent afternoon, sitting in the sixth-
floor restaurant at London’s Tate Modern.
The cavernous brick monolith looming over the Thames is
one of two Tates in the city. Liverpool has another outpost,
and St. Ives, a popular seaside retreat in Cornwall, England,
has yet another, which reopened in October after an overhaul
that cost £20 million ($26 million).
Balshaw, 47, has taken the helm at arguably the most fertile
56
point in the museum’s history: Last year the Tate branches
together hosted 8.4 million global visitors, a figure that would
represent 15 percent of the U.K.’s total population. According to
an Art Newspaper survey, the Tate Modern is the world’s most
popular modern and contemporary art museum.
Now that the renovation of the Tate St. Ives, housed in a
former gasworks, is complete, Balshaw is free from major
capital campaigns and can devote her considerable resources to
the exhibitions that she—and the public—cares about most. “We
have a responsibility to balance that social, ethical, and artistic
vision together,” she says. The museum generally plans its pro-
gramming five years in advance, and, with its various locations
The Tate Britain
November 27, 2017
and £110 million budget, it’s far from agile. But Balshaw’s top
priority doesn’t need to wait: She simply wants to bring art to
even more human beings. And then more after that. “By 2027,
let’s say, I would hope that the Tate is part of the life experi-
ence and cultural activities of a much wider demographic of
people,” she says. “The Tate has expanded the landscape for
art in this country. Now it needs to ensure that that expanded
landscape is shared with the widest community of people pos-
sible. That’s the social return on the public’s investment.” Her
bet, she says, is that a more diverse range of artists will bring
in a more diverse public. “I don’t think we should underesti-
mate the curiosity in our wider audience.”
Paul Owens, the director of arts consultant BOP, says
Balshaw’s predecessor, fundraising juggernaut Nick Serota,
had a strategy that “depended on very wealthy people.” He
adds: “In major cities, where you have a rampaging inequal-
ity, cultural institutions are trying to answer the question: How
do they address other people in society?”
Whether by accident or design, Balshaw has a résumé
tailor-made for the times: Her first job after leaving academia
was to research the impact of art programs in schools. After
a subsequent stint as a regional director of development for
the Arts Council England, she was hired as the director of the
University of Manchester’s Whitworth Art Gallery in 2006.
It was at the Whitworth that Balshaw began to flex her
muscle, giving female artists such as Cornelia Parker huge solo
shows and championing exhibitions that examined cultural con-
flict. She spearheaded one timed to the bicentenary of Britain’s
abolition of slavery, “Trade and Empire: Remembering Slavery,”
which combined 18th century watercolors that depicted slaves
working in sugar colonies alongside contemporary pieces by
black artists.
In 2011, Balshaw took on the additional role of director at
the Manchester Art Gallery. There, she pushed exhibitions with
The Tate Modern
MODERN, BRITAIN, LIVERPOOL: COURTESY TATE PHOTOGRAPHY. TATE ST. IVES: HUFTON+CROW
ART Bloomberg Pursuits
a political bent, such as a multimedia show by the conceptual
artist Jeremy Deller that explored the impact of the British
Industrial Revolution on popular culture. The lead image of the
exhibition was possibly Deller’s most famous: a 1973 photo of
the glam rocker Adrian Street, covered in makeup and draped
in a bejeweled cape, vamping next to his coal miner father,
who wears a look of comic terror.
“She has this incredible ability to bring people and communi-
ties from all walks of life together through art,” says Raqib Shaw,
an artist who had a solo exhibition at the Whitworth. “Her proj-
ects are accessible, immersive, and thought-provoking.”
When it was announced in January that she’d be replacing
Serota, the Tate’s director of three decades, it was a surprise to
many in the international art world, but a logical choice to most
people who knew her. “It was absolutely the most perfect pro-
gression,” says Samantha Lackey, who is senior curator of pro-
grams at the Whitworth and who was hired by Balshaw.
The organization Balshaw inherits at the Tate—with its perma-
nent collection of more than 70,000 artworks, a staff number-
ing more than 900 employees, and at least a dozen exhibitions
going on at any given moment—is a dramatic departure from
Manchester. “It has an enormous brand,” says Gail Lord, the
president of Lord Cultural Resources Inc., an international con-
sultant that’s done work for the Tate. “They now have an awful
lot of real estate. The real challenge will be to make it work and
get significant numbers of more people engaged.”
The museum was founded in the late 19th century by Henry
Tate, a sugar baron who, after his donation of pre-Raphaelite art
was rejected by the National Gallery, led a campaign to build a
new museum for British art. He opened the first gallery, over-
looking the Thames a short walk from the houses of Parliament,
in 1897. When Serota took over its single building in the 1970s,
through sheer force of will he raised the funds to open the Tate
Liverpool (1988) and the Tate St. Ives (1993) and to purchase
the derelict power station in Bankside, across the river from St.
Paul’s Cathedral, that would become the Tate Modern (2000).
Sixteen years later he expanded that building by 60 percent
The Tate St. Ives
November 27, 2017
with a $372 million addition. “It’s important to remember that
20 years ago, London was not the center of the art world,”
Balshaw says. “We just accept it as if it’s always been like this.”
But with that stupendous growth came the absence of any-
thing that would ruffle the feathers of the museum’s myriad
supporters. Only about a third of the Tate’s funding comes
from the government; it generates the rest through corpo-
rate and private donations and ticket sales to special exhibi-
tions. (Bloomberg LP, which owns Bloomberg Businessweek,
is a major donor to the Tate.) And so, over the past decade
or two, the Tate Modern has put on inoffensive blockbust-
ers such as the exhibition of Matisse cutouts in 2014. The Tate
Britain has had wild successes as well, like the recent David
Hockney retrospective, seen by a record half million visi-
tors. Another magnificent show, “Turner and the Masters,”
compared English Romantic painter J.M.W. Turner’s art with
paintings by Rembrandt, Titian, and Canaletto. This sort of
programming, while popular, sparks discussion of art history
rather than a raw examination of current affairs.
Balshaw’s willingness to break from that model might rock
the boat. But the trustees who appointed her seem to be ready
for a change. Several shows, including “Queer British Art” at the
Tate Britain (which closed on Oct. 1) and “Soul of a Nation: Art
in the Age of Black Power” at the Tate Modern (which closed on
Oct. 22), demonstrate that leadership had already begun to pivot
toward more “woke” programming even before it hired Balshaw.
She’s thought of some quick strategies to expand her audi-
ence. She mentions extending museum hours: “Fifteen years
57
ago, when my children were under 5, I would have given any
amount of money in the world to find somewhere that was
open and had something interesting going on before 6 a.m.”
And she’s hoping to encourage an event-based culture, citing
a gay pride celebration in the context of “Queer British Art” as
an example. If she can prove that a more diverse crowd wants
to learn from exciting, controversial work, she expects all the
museum’s various supporters will get in line.
“We don’t get money from the public purse just because
someone fancies it,” she says. “We’re funded because we
make a difference.” 
The Tate Liverpool
 DRINKS Bloomberg Pursuits
58
The Cutoff
The barman who founded Manhattan’s
PDT speak-easy has a message: We’re
drinking too much. By Jim Meehan
In the mid-aughts, America was on the tail end of its obsession
with the Cosmopolitan and on the cusp of a classic cocktail
renaissance. The country was reacquainting itself with the gin
martini and the Old-Fashioned, drinks in heavy rotation on the
hit TV series Mad Men, which premiered in 2007.
That same year, I opened a speak-easy-style bar in the East
Village called PDT (short for “Please Don’t Tell”). And then
the global financial markets crashed. As the glut of capital that
fueled sprawling clubs and lavish restaurants in Manhattan
dried up, customers’ focus shifted from decadent décor to the
quality of what was on their plates and in their glasses.
Looking back, PDT’s early success was surely due in part to
the crisis, as New Yorkers sought more intimate spaces to ride
out the recession. In turbulent times, people also tend to drink
to calm their nerves. (Much as they do during the holidays.)
The problem is that even after the markets rebounded, people
kept drinking. About 12.6 percent of adults reported “high-
risk” drinking in 2012 and 2013, compared with 9.7 percent
November 27, 2017
in 2001 and 2002, according to a study in JAMA Psychiatry.
As the shelves at cocktail bars and liquor shops get more
crowded, what’s been lost is the idea of moderation that,
ironically, brought many of these places and drinks back into
fashion. People couldn’t afford to overindulge in $12 cock-
tails every night of the week in 2007. But having spent the
past 15 years bartending and trying to establish drinks’ posi-
tion among the high culinary arts, I’ve come to accept the
hard truth that they should serve a role similar to pastries: a
delight more than a nourishment. Imagine dining at a restau-
rant renowned for its desserts. You don’t order three of them.
One big issue is what we’re drinking. As the country redis-
covered classic cocktails, alcohol itself got stronger. Today,
cask-strength bourbons and Scotches (around 125 proof ),
navy-strength gins and rums (around 114 proof ), and mezcal
straight off the still (around 100 proof ) are all the rage. And
that’s when we’re not drinking heady wines that commonly
come in at 17 percent alcohol by volume, or double IPAs.
Once we went to high-proof Flavortown—a term coined by
Jack Daniel’s-swilling TV chef Guy Fieri—many imbibers decided
they didn’t want to leave. After years of chugging light beer six-
packs or saccharine Alabama Slammers, drinkers began putting
complex, boozy cocktails such as the Negroni on a pedestal.
People assume that overindulgence is good for me as a bar
operator. That’s not true. My primary responsibility is to look
after the well-being of my guests. On behalf of the ones who
suffer the next day and into the future, as well as guests affected
in real time by the behavior of nearby out-of-control drinkers,
I’m alarmed at the amount some of my customers consume.
I’m not saying alcohol is bad for
you. I love the character of the cock- Meehan is the co-founder
of the New York bar PDT,
tails, beer, and wine I serve, along which will open an outpost
with their palliative effect as a social in Hong Kong in 2018. With
lubricant. Yet I’m astonished to see PDT, he won the first-ever
James Beard Association
cocktail bars—which were once civ- Outstanding Bar Program
ilized escapes from noisy dives and award. Meehan’s Bartender
clubs—start to resemble the vulgar Manual, his second
cocktail-focused book,
venues they originally positioned came out in October.
themselves against.
And that doesn’t even take into account the sugar in
our drinks: That ounce of Campari and sweet vermouth in
a Negroni is just as deleterious to your health as the high
alcohol content of the gin that mitigates the sweetness. Then
there are the effects of alcohol itself; you won’t find a study
that advocates for anything more than moderate drinking.
I know that in these roller-coaster times, it’s easy to feel
PHOTOGRAPH BY JOANNA MCCLURE FOR BLOOMBERG BUSINESSWEEK
out of control. The stock market might be surging, but it’s an
anxiety-provoking ride. And paying attention to daily politics
is a white-knuckle endeavor. But for those exact reasons, now
is a time for vigilance and poise.
The moral of my story isn’t that you should never drink
alcohol. The widespread availability of high-quality spirits,
and cocktails served by passionate professionals, makes this
one of history’s most exciting times to drink. Just do it a little
less. Seek out drinks prepared with top-notch liquor and have
two instead of five. When you return to the bar, help us out
and bring someone who’s never tried a great cocktail and
share the craft. Instead of the troubling binge-drinking trends
we’re seeing today, I’d love to see more people respect alcohol
as the rare treat it is. Now that would be icing on the cake. 
 FITNESS Bloomberg Pursuits
Strength in Numbers
The ambitious Ionic puts Fitbit back in the smartwatch arms race. By Jason Kelly
Among the high-achieving, mostly urban-dwelling professionals
who spend a lot of time, money, and psychic energy on endur-
ance competitions, athletic ambitions are worn on the wrist.
That’s why investment bankers and executives helped
make the Timex Ironman one of the best-selling watches in
the world—a Rolex communicates wealth, but that $100 digital
wristwatch says you’re serious about training in and out of the
office. I consider myself part of this demographic, not so much
for my performance level as for my willingness to spend trou-
bling amounts of money on workout clothes, event fees, and
the airline tickets to get there.
And gear. Especially gear. I’ve been a Fitbit user since I bought
the Flex (an early model that looked like a bracelet) in 2013. I
then early-adopted the Charge (a bit bulkier, but with a larger
screen), and finally the Blaze, Fitbit’s first real smartwatch, in
January 2016. So far, I’ve resisted the Apple Watch. The hype is
a turnoff for me, but the bigger issue is its battery life—18 hours,
compared with almost five days for the Fitbit.
This fall, the San Francisco-based brand released its most
PHOTOGRAPH BY JANELLE JONES FOR BLOOMBERG BUSINESSWEEK; PROP STYLING BY GOZDE EKER
ambitious gadget to date: the Ionic, a sleek watch meant to
replace the bulky GPS-enabled devices marathoners obsessively
check during training runs and races.
I was especially intrigued by the notion of ditching the Garmin
I’ve worn in tandem with my Fitbit for several years. The Fitbit
was my daily watch, dutifully tracking my steps and calories and
sleep, but it lacked Garmin’s GPS and heart-rate monitor. As a
practical matter, that meant I wore one on each wrist when I
was running, a look that signaled I was trying a little too hard.
A more robust smartwatch would be a nice-to-have for me,
but it’s a must-have for Fitbit Inc. Since the initial public offer-
ing in 2015, the stock price has plummeted from $47 a share to
about $6. Investors remain worried about competition from
Apple Inc. and Samsung Electronics Co., which Bloomberg
Intelligence analysts describe as “dominant players with accom-
panying mobile ecosystems.” But they all take solace in a fast-
growing market: According to International Data Corp., sales
of wearables may reach as much as $34 billion by 2020, up
from $20 billion this year.
November 27, 2017
That cautious optimism also describes how I came away from
the Ionic after spending a month running, swimming, and sleep-
ing the smartwatch through its paces. This version has potential:
It’s far less reliant on the app than previous models, allowing
more functionality directly on your wrist. I can set an alarm on
the watch rather than choose my wake-up time on the app and
59
wait for it to sync. The look is more distinctive than that of its
predecessor, which had a similarly square shape but required
you to pop it out of the casing to charge it.
Notably, the Ionic caters to the fickle habits of today’s daily
athlete, with a menu of exercise-tracking measurements that
start with running, biking, and swimming. It’s also waterproof
and counts laps automatically. And there are options for tread-
mills and weights, helpful for keeping track of your timing and
heart rate when you’re traveling and relegated to a hotel gym.
A much-improved holdover from previous versions is the
Coach app, which leads you through a series of high-intensity
workouts, including 7- and 14-minute ones designed to get your
heart rate up and kick the rust out. It even shows clips that
demonstrate various exercises, which is good, because I didn’t
know what a “typewriter pushup” was.
That feature, says Fitbit’s director for product market-
ing, Michael Polin, is where the possibilities for this device
become clear. An update will give the watch the ability to
learn your strengths and adapt, steadily increasing the chal-
lenges in a workout. 
At $299, the Ionic is less expensive—but only slightly—than the
Apple Watch Series 3, suggesting a coming arms race to develop
the best apps. It’s hard to bet against Apple when it comes to
design and ease of use. The Ionic’s download times for music—
played through wireless headphones—are still long. And Strava,
the workout-tracking social network, comes preloaded, but an
even richer interface that gives more data about runs and rides,
along with those in Strava, would be welcome.
Polin says users should think of the watch as a platform that’s
easy to build on. “The idea is that it’s better for you a year in than
it was when you first got it,” he says. “I think of the hardware as
being an enabler.” As if fitness addicts like me need another. 
 TRAVEL Bloomberg Pursuits November 27, 2017

The Gateway of India arch

Make
The Most of
Mumbai
Even a brief visit to this thrumming
megalopolis offers rich wonders
By Nikki Ekstein

For business travelers popping in and out of Mumbai

quickly, the city’s kaleidoscopic colors, vibrant cultural
history, and frenetic traffic can seem impenetrable. How to
scratch the surface of a city of more than 20 million people?
Strategic planning, that’s how. Even a couple of days are
60
enough to see different facets of this evolving gem, where
upward mobility for locals has spurred one of the world’s
fastest-growing luxury economies. Here’s a guide to the
best places to eat, shop, sleep, and explore.

Inside the Rajput Suite u STAY

at the Taj Mahal Palace
The Oberoi and the Taj
Mahal Palace are the only
hotel names you need to
know—and helpfully, they’re
complete opposites. The
former, in a decades-old sky-
scraper with a prime location
brunch at its restaurant,
Frangipani (rooms from $121;
tridenthotels.com).
If the Oberoi is all brains,
beauty defines the Taj Mahal
Palace (rooms from $124;
taj.tajhotels.com). Its 1903

PHOTOGRAPHS: GATEWAY OF INDIA: NATI SHOHAT/FLASH90/REDUX PICTURES. ELEPHANTA: XINHUA/

on Marine Drive, stands out building is a paragon of
for its world-class service: British colonial design,

EYEVINE/REDUX PICTURES. COURTESY TAJ MAHAL PALACE, PHILLIPS, BOMBAY CANTEEN

Expect pillowcases embroi-
dered with your name. The
monochromatic rooms are
spacious and functional
and a bit bland except for
the views of the skyline,
which locals call the Queen’s
Necklace (rooms from $149;
oberoihotels.com). Guests
can enjoy the same view
from the slick rooftop pool
at the Oberoi’s sister hotel,
the Trident, right next door.
It’s a slightly less formal and
less luxurious property,
but it has a more modern
look and a popular Sunday
located conveniently near
the Gateway of India arch
monument. Free yoga classes
are held by the pool each
morning, and important
Indian art lines the corridors.
The rooms are small but
exquisitely decorated; some
even overlook the Gateway
itself. Simply put, if the only
taste you get of India is the
Taj, your appetite for local
flavor will still be satisfied.
TRAVEL
Temples on Elephanta Island
t EAT
After bringing ambitious
Indian food to New York
City at Tabla, chef Floyd
Cardoz returned to Mumbai
to open Bombay Canteen
(thebombaycanteen.com),
a casual but buzzy ode
to India’s lesser-known
regional dishes. Order
the red snapper ceviche
in herby kokum broth
and the Kashmiri lamb, a
heady, fall-apart stew redo-
lent of turmeric and garlic.
For a business dinner,
the Table (thetable.in) is
more glamorous than
stuffy. The menu’s upscale
Red snapper ceviche at Bombay Canteen
Bloomberg Pursuits November 27, 2017
u SEE
If you’ve got a free day, take the ferry
to Elephanta Island ($2, round-trip).
The Unesco World Heritage site is a
network of basalt caves, each filled
with reliefs—some 20 feet tall—that
date back 1,500 years to the cult
of Shiva. The hourlong boat ride is
a peaceful respite, and the 120-stair
pathway to the temple provides a
short workout in the company of
playful monkeys.
NEED TO KNOW
Confused about what to
call the city? Its name
was officially changed to
Mumbai in 1995, but locals
still call it Bombay.
–
Since India went cashless
in November 2016, tipping
has become trickier: Have
waiters add 10 percent to
your restaurant bill before
they swipe your card, or ask 61
hotel front desk attendants
to add gratuities when you
check out.
–
If you’re concerned about
safety, stick to UberX and
above—the drivers will be
better vetted.
–
Mumbaikars eat dinner on
the later side—9 p.m. is
normal. (They’re not known
for punctuality, either.)
–
Coconut water is high in
electrolytes, making it a Vintage prints and objets d’art at Phillips
great cure for jet lag. Get
it fresh from the vendors American bent is unique q SHOP
along Marine Drive. in Mumbai, with dishes Old Mumbai is best explored on foot.
such as sweet-and-sour Start in Lion Gate, an historic dockyard
Brussels sprouts and yellowfin tuna neighborhood, where D. Popli & Sons
tataki, all executed by a chef who (91-22-2202-1694) creates custom jewelry
trained under Thomas Keller. Join locals with uncut gemstones. Next door, the
at the workers’ canteen Shree Thaker kaleidoscopic Essajees (essajees.com)
Bhojanalay (91-22-2208-8035). The unas- has antiques big and small salvaged
suming, family-owned restaurant spe- from maharajah palaces. Around the
cializes in expertly prepared Gujarati corner, Phillips (phillipsantiques.com) is
thalis, all-you-can-eat sampler platters. an art lover’s heaven stocked with folk
Round out the day with cocktails at Aer, figurines and vintage photos. Nearby,
the rooftop bar at the Four Seasons the Kala Ghoda area has two great con-
(fourseasons.com). It’s a popular place temporary boutiques: Nicobar Design
for guest bartenders from around the Studio (nicobar.com) sells clothing
world, with views of the entire city. and housewares with rotating design
themes, and Obataimu (obataimu.com)
offers avant-garde items made in its
open, fair-trade workshop.
 CRITIC Bloomberg Pursuits
Pasta’s Magic Kingdom
Can FICO Eataly World persuade tourists to skip
Italy’s side streets and head straight to the superstore?
By Alessandra Migliaccio
Bologna, nicknamed la grassa—“the fat
one”—for its wealth and edible delicacies,
is located in Italy’s Emilia Romagna region,
the birthplace of tortellini, Parmesan, pro-
sciutto, and balsamic vinegar. Foodies have
long hopped on the two-hour train from
Rome to hunt down the flavors nestled in the
picturesque city and nearby hillside villages.
But now, you no longer need to find
these delights on your own. Starting this
November, you can tap vast swaths of Italy’s
food culture at Bologna’s FICO Eataly World,
or FICO for short. (The acronym stands for
Fabbrica Italiana Contadina, which roughly
translates to Italian Farming Factory, but also
colloquially means “cool” or “attractive.”)
And cool it is, even to a pack of jaded
62
local and foreign journalists visiting just
before the Nov. 15 opening. We are herded
around the theme park’s 25 acres of food stands, farmland,
and exhibits by FICO’s very own Willy Wonka, Oscar Farinetti.
He’s the ever-optimistic and hyperactive founder of Eataly,
whose franchises stretch from New York to Tokyo, including
one that recently opened in Los Angeles. Think of them as
high-end megastores of Italian food and kitchenware. FICO is
Farinetti’s next step in his mission to bring farmers closer to
consumers (and make a buck at it).
Farinetti leads us through a great L-shaped hall, dotted with
stalls, restaurants, and workshops. You can walk around aim-
lessly and let it all sink in, or follow a path, either on foot or on
one of the hundreds of new oversize Bianchi tricycles, which
have wooden baskets to help you shop. Gesturing at the gleam-
ing bikes, Farinetti can’t help himself: “Isn’t this fico?”
He waves frantically at an entire wall made of biodiverse
apples (1,200 kinds), then boasts about having Europe’s largest
overhead solar panel installation. His produce is fresh from
nearby farms, and there’s livestock on location, which you can
visit if you wander outside the shopping area into the orchards.
The animals, as well-groomed as house pets, include nine dif-
ferent types of cows and a rare black-and-white-striped variety
of pig Eataly is trying to preserve.
Guests can pose for pictures under an Instagram-friendly
arch made of tomato-sauce cans or get pulled into one of the
park’s “rides,” artistic multimedia experiences dedicated to
our relationship with such things as fire, sea, wine, and the
future. In the fire exhibit, I stand in the middle of an imagi-
nary hearth complete with hologram flames and a 360-degree
video showing shadows of prehistoric humans.
But the main attraction is the food. You can watch olive oil
November 27, 2017
and pasta being made, or sip local wines
and beer while you observe the various
stages required to age prosciutto and
cheese. (It’s a thrill a minute.) I stop at a
wooden counter where delicate slices of
prosciutto are being cut by Massimo Pezzani
and try his “liberated salami,” which is free
of preservatives. It’s a magical, tasty world
where the train—a tiny people-mover that
mimics Italy’s Frecciarossa fast trains—actu-
ally runs on time. There’s even a post office
to ship things home.
The park is a venture between Eataly and
an Italian supermarket co-op group, and the
building is owned by the municipality of
Bologna. There are 150 businesses involved,
from big ones such as Italy’s Lavazza (coffee-
makers) and Granarolo (cheese producers) to
gelato machinery makers, a bookshop, and a
hair salon that will massage biodynamic lemon into your locks.
Michele Fucili, the co-owner of pasta startup SfogliAmo, says
he sees FICO as “a chance to make it, both here and abroad.”
Farinetti says he aims to have about 6 million visitors a year,
2 million of them foreigners. FICO Chief Executive Officer Tiziana
Primori says she expects FICO to break even at $94 million a year.
So far, Italians I’ve spoken to seem lukewarm about the
project; after all, they can watch pasta being made at home.
But the shopping and restaurants are an enticement, and some
are charming enough for date night. Others are great for families.
Farinetti says he was inspired by his visits to Disneyland and
Americans’ ability to turn anything into a multiplatform brand
that prints money. The impression as one reaches the cash reg-
isters at the end of the open space, however, is of a giant foodie
IKEA. It’s all very sleek and cool, from the architecture and
design to the gleaming fruits and vegetables. And it’s delicious!
But the impersonal massiveness of it is hard to obscure.
As I head out to catch the fast train back to Rome, which is
about 25 minutes late, I peer down Bologna’s streets at people
heading home for dinner. Some are on bikes, but not Bianchis.
Some tote groceries, probably bought in less glamorous loca-
tions. And though many look considerably less chirpy than
Farinetti’s optimistic farmers, I think I’d prefer to step into those
ILLUSTRATION BY GAURAB THAKALI
streets and revel in Italy’s imperfections.
But I live in Italy, and that may skew my viewpoint. So far,
Farinetti seems to have done a good job whetting the world’s
appetite. Recently a friend from New York told me she was
coming to visit, and she didn’t ask whether to include FICO on
her itinerary. She asked whether two days would be enough to
spend there, or if she’d need three. 
THE ONE
LG Laser Smart Home
Theater Projector
A small but mighty television
replacement. Photograph by
Yasu+Junko
THE CHARACTERISTICS
LG’s newest home projector is a compact little
device—just 4.6 pounds and about the size of a
loaf of bread. But the $1,500 gadget, released in
May by the 70-year-old Korean conglomerate,
produces crisp, bright, full HD-quality images
at up to 140 inches. The heart of the projector
is the LG WebOS interface, an integral feature
of the company’s smart TVs that uses a
Wi-Fi or ethernet connection to conveniently
access Netflix, Amazon Prime, Hulu, and other
streaming services. The projector has two HDMI
and two USB inputs to connect to laptops and
their ilk, as well as a coaxial cable jack for those
who haven’t cut the cord.
Bloomberg Pursuits
THE COMPETITION
As consumers’ TV-watching habits evolve, the
home-projector market has expanded—and
innovated—accordingly. Options now include
the pocket-size ASUS ZenBeam E1, which
retails for $269 but uses LED bulbs that, at
150 lumens, demand a very dark room. LG’s
laser-illuminated model has a maximum
brightness of 2,000 lumens, and the lamp has
an expected life of 20,000 hours. The projector
does need to be about 14 feet from the wall to
get the full widescreen effect, a far cry from
Sony’s top-of-the-line VPL-VZ1000ES ultra-
short-throw projector, which requires as little
as 6 inches of space but costs $25,000.
November 27, 2017
63
THE CASE
It’s easy to go from broadcast TV to Netflix and
back again with the “magic” remote control,
which uses an array of buttons and a laser-
pointer-style cursor to navigate around the
screen. Built-in speakers produce a slight 3 watts
of sound, but the projector pairs readily with
Bluetooth audio systems and even allows you to
fine-tune sound and image synchronization—
often an issue with wireless audio. These features
aren’t rare in home projectors, but finding them
in a single small package at this price uniquely
qualifies it to be the one that finally replaces
your TV altogether. LG laser smart home theater
projector, $1,500; lg.com
 Bloomberg Pursuits November 27, 2017

GAME CHANGER

Humberto Leon and Carol Lim

The fashion world outsiders creating a new
definition of luxury. By Arianne Cohen

64

TO UNDERSTAND HOW CAROL first collection. Since then,

Lim and Humberto Leon have the average age of the Kenzo
made Kenzo SA, a Paris-based customer has dropped from
luxury brand, into a popular over 50 to under 30, and the
phenomenon, you need to know brand is adding 22 stores this
that neither is a trained designer. year, including ones in Paris,
“We were both really avid readers Seoul, and Madrid, with further
of magazines” as teenagers, Lim says. expansions across Asia and Europe
“As we listened to our favorite bands, we planned for next year.
would see what they were wearing, where Lim and Leon may not have fashion train-
they would go eat.” They’ve used this voracious ing, but they’re deeply involved in Kenzo’s design
sensibility to build an utterly hip retail empire out of a brand process. “We explore ideas by drawing and draping, and I
that until about six years ago was known only to fashion’s most work with my design team to push silhouettes, shapes, and
inside insiders—and in the process opened the stuffy world lines,” Leon says. “It’s a lengthy process that goes from start
of high fashion to young, streetwise consumers. to finish,” often ending in some kind of collaborative project
Both grew up in Los Angeles as first-generation Americans— with a filmmaker, avant-garde artist, or musician to bring the
Lim’s family is from South Korea, Leon’s from China and Peru. collections to life. Says Eva Chen, head of fashion partner-
They met as undergraduates at UC Berkeley and have been ships at Instagram Inc.: “They add an element of surprise
professional partners since. Their first project was and delight to everything they do that is fantastic.”
Opening Ceremony, the cult boutique started in Above all, they’re committed to resisting fash-
2002 by gathering together items from a variety b. 1975, Los Angeles ion’s exclusive side. “We have always felt that cloth-
(both of them)
of designers. It soon expanded to seven influential - ing should be democratic,” Leon says. “We feel
stores in New York, L.A., and Tokyo. Lim’s daughters speak that you can have an expressive fashion show and
In 2011 luxury conglomerate LVMH Moët English and Korean; find a piece that you can wear to a barbecue or to
ILLUSTRATION BY SAM KERR

Leon’s speak Japanese,

Hennessy Louis Vuitton SE hired the duo to lead Mandarin, Cantonese, a family reunion. It’s just the way we think.” Says
Kenzo, then known for elegant pieces in fine and English Lim: “We’re constantly looking to see how we can
fabrics and mixed prints. The label’s corporate - differentiate ourselves in a way that will surprise
Their mothers are best
parents were initially skeptical when Lim and friends and frequent and delight and resonate and stay with you.” And
Leon included Kenzo logo sweatshirts in their cooking companions make you want to buy clothes.