November 27, 2017

Hearty Tortilla Soup

Delightful Holiday Dinner Ideas For the Apocalypse

Survivalist foods go mainstream p40

Savory Roasted Beef

Teriyaki Style Chicken

PHOTOGRAPH BY IKE EDEANI FOR BLOOMBERG BUSINESSWEEK 6 Richard Plepler, chief executive officer of HBO 36 November 27, 2017 3 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 1 BUSINESS2 TECHNOLOGY 3 FINANCE

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

4 ECONOMICS 5 POLITICS

28 A Chinese drone 32 “Merkel was 32 Angela Merkel’s maker is taking a historical coalition teeters transportation into figure as far Jetsons territory 33 Cutting the health-care 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

How to Contact FEATURES PURSUITS Bloomberg Businessweek

Editorial 55 The Tate’s new 212 617-8120 Ad Sales 36 Debrief: Richard Plepler, leader wants a 212 617-2900 731 Lexington Ave., CEO of HBO, on life after fresh audience New York, NY 10022 Email bwreader Game of Thrones 58 Drinks: A star bartender @bloomberg.net says we’ve had enough Fax 212 617-9065 Subscription Customer 59 Fitness: Fitbit takes Service URL 40 The crisis is coming. Calamity on Apple’s smartwatch businessweekmag .com/service Reprints/Permissions is just around the corner. 800 290-5460 x100 or email businessweekreprints Do you have enough freeze- @theygsgroup.com dried chicken teriyaki? Letters to the Editor can be sent by email, fax, or regular mail. They should include the 60 Travel: What to do sender’s address, phone number(s), and email if you have only two address if available. days in Mumbai Connections with the subject of the letter should be disclosed. 62 Critic: Gourmets get We reserve the right to their own theme park edit for sense, style, 6 and space.

63 The One: LG’s laser Follow us on IRE MCCASKILL IRE smart home theater social media NCH/REX/SHUTTERSTOCK. projector Facebook facebook.com/ 64 Game Changers: bloomberg Humberto Leon and businessweek/ Twitter Carol Lim are bringing @BW fashion to the masses Instagram @bloomberg businessweek 46 The parade goes on at the Correction: “When One Degree No Longer Fits Great American Department 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

Cover and top left: 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 Bloomberg L.P. Periodicals postage paid at New York, N.Y., and at additional mailing offices. Executive, Editorial, Circulation,and Advertising Offices: Bloomberg Businessweek, 731 Lexington Photographs by Avenue, New York, NY 10022. POSTMASTER: Send address changes to Bloomberg Businessweek, P.O. Box 37528, Boone, IA 50037-0528. Canada Post Publication Mail Agreement Number Caroline Tompkins 41989020. Return undeliverable Canadian addresses to DHL Global Mail, 355 Admiral Blvd., Unit4, Mississauga, ON L5T 2N1. E-mail: bwkcustserv@cdsfulfillment.com. QST#1008327064. Registered for GST as Bloomberg L.P. GST #12829 9898 RT0001. Copyright 2017 Bloomberg L.P. All rights reserved. Title registered in the U.S. Patent Office. Single Copy Sales: Call for Bloomberg MACY’S: PHOTOGRAPH BY ILONA SZWARC FOR BLOOMBERG BUISINESSWEEK. MUMBAI: COURTESY TAJ MAJAL PALACE MUMBAI. SPRINGSTEEN: PATSY LY PATSY SPRINGSTEEN: MUMBAI. PALACE MAJAL TAJ COURTESY MUMBAI: BUISINESSWEEK. BLOOMBERG FOR SZWARC ILONA BY PHOTOGRAPH MACY’S: 800 298-9867 or e-mail: [email protected]. Educational Permissions: Copyright Clearance Center at [email protected]. Printed in the U.S.A. CPPAP NUMBER 0414N68830 Businessweek CLA SENATOR COURTESY MCCASKILL: PHOTO. JUTRCZENKA/PICTURE-ALLIANCE/DPA/AP VON BERND MERKEL: PHOTO. RICKETT/PA/AP MARTIN AGUERO:

 IN BRIEF

Europe Asia

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

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 from being delisted. All told,

VID PAUL PAUL VID 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 North Korea a state sponsor of in debt. Investors had been 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 VANTAGE: COURTESY ASTON MARTIN. PAI: ZACH GIBSON/BLOOMBERG. TURKEY, LIRA: ALAMY. MERKEL: JOHN MACDOUGALL/GETTY IMAGES. LOEB: DA LOEB: IMAGES. MACDOUGALL/GETTY JOHN MERKEL: LIRA: ALAMY. TURKEY, GIBSON/BLOOMBERG. ZACH PAI: MARTIN. ASTON COURTESY VANTAGE: MORRIS/BL0OMBERG. EINHORN: CHRISTOPHER GOODNEY/BLOOMBERG. YELLEN: ANDREW HARRAR/BLOOMBERG. ZIMBABWE: PHILIMON BULAWAYO/REUTERS PHILIMON ZIMBABWE: HARRAR/BLOOMBERG. ANDREW YELLEN: GOODNEY/BLOOMBERG. CHRISTOPHER EINHORN: MORRIS/BL0OMBERG. 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., ○ This Thanksgiving will be a little cheaper, thanks to Uber disclosed an October a glut of turkeys. Birds cost about 22 percent less per pouring into the 2016 hack that compromised pound, according to the U.S. Department of Agriculture. Karachi Stock the personal data of Exchange, months Price per pound, 8- to 16-lb. turkey hen after Pakistan 57m November November was added to customers and drivers. The $1.30 0 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 a sister project, the proposed its crew of 44. Ships and $500b Keystone XL pipeline, aircraft from at least seven 9 in market value as the cleared its final bureaucratic abandoning countries have joined the company reported strong hurdle when Nebraska net neutrality rules, hunt for the sub, which had demand for its mobile games regulators approved a been scheduled to return to and WeChat messaging route for it. which would allow Buenos Aires on Nov. 19. service. internet service providers to charge for faster speeds and block access to certain sites.

○ Uber ○ Janet Yellen said she’ll step down from the Board Africa Technologies said 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 ILLUSTRATION BY 731 tisan billthatwould tothetisan make ads subject onlineelection SenatorJohning. McCain (R-Ariz.) abipar- hasco-sponsored nevertheless afavoriteis outletoftheTweeter-in-Chief. Facebook—or even Twitterwhich, while financially less robust, ofthecountry’s and two mostsuccessful companies—Google controlled, isn’t Congress business-friendly likely togo after ing U.S. area regulation are inthis minuscule. ARepublican- “Harmful Content,” more. should—do thecompaniescan—and for BusinessandHuman Rightsarguesinanew report called of automated systems. theNew As providing human better userwarnings,andincreasing oversight comes from theirown recent records ofimproving algorithms, make progress can meaningful that theinternetcompanies indirectly fromcame institutions.) Kremlin-controlled financial dollars inpastinvestments inFacebook Inc. andTwitterInc. multiple mediaoutlets reported that hundreds ofmillions Russia andU.S.-based networks emerged social onNov. 5,when thin.(Aexpertise between is new dimensionto theconnection lawmakers from having todelve realms where intotechnical their arguments aboutgovernment oncontentandsave restrictions beusedtoconvey.can Theywould free-speech preclude knotty addressing thepropaganda andviolentimagery theirplatforms heeded Feinstein’s admonition andinstituted serious reforms Facebook, atlarge—if andTwitter Google, users, andsociety you have Orwe tobetheones dosomethingaboutit. will.” created theseplatforms,andno nies’ general said:“You’ve counsels,theCaliforniaDemocrat thethree compa- the SenateIntelligence Lecturing Committee. aNov. laidouttheoptionsduring (D-Calif.) before 1hearing foraddressing internetpollution.Senator DianneFeinsteinity works (Facebook andTwitter) toacceptgreater responsibil- November 27, net- leadingsocial anditstwo 2017dominant search engine(Google) Sanders(pageClinton andSenatorBernie 20). in theTexas church massacre ofHillary hadbeenasupporter News spreadamplified Google phony by thatthe shooter stories onlinebyradicalized Islamic videos.Five State days later, tweets 31was onOct. grant who attack killed eightpeopleinatruck Meanwhile, inNewYork, authorities saidthatanUzbeki immi posted by Russians seekingtointerfere withthe2016election. as 126millionFacebook usersmay have seendivisive content Washington, lawmakers andtherest ofuslearnedthat asmany on fulldisplay lately. Duringthree congressional hearingsin disinformation andterrorist have incitement of political been Bloomberg Businessweek onlinescourges Andtheconsequencescontent. ofthetwin andTwitterFacebook, have Google, aproblem withharmful Paul○ By Barrett M. data with work they to bemore transparent about the way ○ Facebook, andTwitter Google, have  REMARKS The onearea advertis where political is Congress might act Before going any further, let’s stipulatethattheoddsofsweep- On thetopic ofdeleterious onlinematerial, thebestevidence It would bebetter for allconcerned—thecompanies,their These developments ought to provide aspur for theworld’s w they’re being misused. And beingmisused. w they’re York University SternCenter - - instincts—and wouldinstincts—and have to betempered by careful protection managerproduct andinternetactivist. what goesstand wrong,” says Wael Ghonim,aformerGoogle around mediawillwe andsecrecy social fully under- opacity University Carolina ofNorth atChapelHill.“Only by endingthe professor atthe ofcommunication anassistant Alice Marwick, “and asaresult, we don’t know much, orwe’re guessing,” says researchers to see”what’s going onwithincompany systems, ofcustomers—todata outsiders. “It’s difficultto impossible for ofcourse,theprivate operations—not, their corporatedata oftheirplatformsfaith andlessenmisuse iftheyopenedup Russian operatives’stymied postingsandtweets. enforced rigorous transparency rulesin2016,they mighthave out infront ofthreatened Ifthecompanieshad legislation. andentirelyblatant healthy exampletoget trying ofindustry rulessimilartothoseintheMcCain bill—a to adoptvoluntary At therecent thethree lawyers hearings, companies’ vowed same disclosure requirements asconventional broadcast ads. be accelerated. A Google spokespersonbe accelerated. AGoogle saidviaemail: “While the fourth page. Thedrive for more refined algorithms needs to Stormfront’s opposite message didn’t surface untilthemiddleof A sitedevoted to“combating “Didthe HolocaustGoogled, happen?” I some effect. onNov. 9. measure,admittedly anecdotal Owl Project seems tohave had content tocompare with the0.25 percent figure, but one by information “lesslikely toappear.” Owl. Project announcedithadmadefalse InApril,called Google launched Google analgorithm and similarincidents, scrubbing 10 reasons why theHolocaust didn’t happen.” Alarmedby that was apage sit from theneo-Nazi the very first forthesearch,result “Didthe Holocaust happen?” clearly misleading content.” Inoneillustration inDecember2016, meaning millionsperday—had been“returning offensive or company that said onanin-house 0.25 blog percent ofsearches— internet companiestoimp afterall—it’shuman constructions, nottoomuch toexpect the Without pretending that algorithms beperfected—they’re can though, algorithms sometimeselevate clearly falseinformation. For andrankcontent. puters how toselect alltheirsubtlety, business viaalgorithms—the complex thattellcom- instructions attention to advertisers. Thecompaniesdomostoftheirdigital committed totheopenexchange ofinformation.” son pointedtoarecent company is report thatsaid:“Twitter all ofthosebots. sibly helpprovide answers towhat Twittershould doabout woulddata presumably address Warner’s skepticism andpos- controlled by nothumans. software, More tocompany access to 15 percentmillion—are ofallTwitteraccounts—potentially 49 accounts waslow. Warner thatup independentestimates cited during theNov. 1hearingthat Twitter’s tally ofautomated ButSenatorMark Warnerthe 2016campaign. (D-Va.) suggested some 36,000 Russian-controlled were “bots” during tweeting win itnew levels Twitter, oftrust. for example, hassaidthat of userprivacy—but tonewideasand itcouldopentheindustry Consider onerecentConsider example involving InApril the Google. Radical transparency wouldRadical clash withprevailing corporate More broadly, giantscould p thedigital The company didn’t provide anew rateformisleading andTwittermakeFacebook, moneyby Google, sellingusers’ Asked aboutthetransparency idea,aTwitter spokesper- rove rove Holocaust denial” ledtheresults; them withmaximum urgency. e Stormfront offeringthe“top rove rove their good 11  VIEW Bloomberg Businessweek November 27, 2017

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

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

14 S JBonon B Jovi got his big break in the early 1980s after spending an entire day waiting to pester a disc jockey at a radio station on Long Island, S pN.Y.,lay ato demo p of a song he’d written. The halbum that song, with Runaway, went on to sell more tha n 1 lmionill copies and helped fuel the career of oene most of th enduringe rock artists of the past fourdes. decaNow,d Bon Jovi is again lobbying radio nofficials,d this time an the impact could be far larger. oHeut and 75 other abo artists— including such staples owf theaves air asw Drake, Pharrell Williams, Steve Miller,d Bruce and Springsteen—have joined super- mIanagerrving Azoff’s I crusade to press radio sta- tionsoost tothe b oroyalties they pay writers when tyhe y playtyheir t songs. That figure hasn’t budged in dnecades,d Azoff a nsays artists may pull some of their music otofft he air if their concerns aren’t addressed. “T h is isn’t about the guy in my position, but yabout buddies my who are very good songwriters hwhoo make try t oa living just songwriting,” says Bon Jovi,e latest whos toure grossed more than $40 million yth is year.“Who will champion them? There is no ycharitow fory sh theo songwriter.” tForhe fussall t about streaming services Spotify, YouTube,and Apple a Music, radio is still the lifeblood ofs icthe business. mus It’s the most common way November 27, 2017 musicistened is li to in the U.S., where 240 million pneope inle everytun week, and stations generate Editedy by a8bout billion $18 inb radio advertising annually from Jamses E. Ellis nkews,, sports, talk and music.

Businessweek.com m Underthe industry’s t confusing business model, IMAGES KEMPIN/GETTY J. AZOFF: 731; BY ILLUSTRATION PHOTO IMAGES; ROBERTS/GETTY EBET JOVI: BON  BUSINESS Bloomberg Businessweek November 27, 2017

radio companies pay about 4 percent of their he received. His radio paychecks stagnated even music-related advertising revenue to songwriters. as his record sales soared in the 1970s. He says he That’s a smaller share of the ad haul than Pandora, debated bringing a lawsuit against the stations but Spotify, or YouTube pays artists. (Performers aren’t didn’t want to spend years in court. “I wish Irving compensated for radio airplay; instead they make came around in 1967,” Miller says. “This is my first money from music sales, streaming, and touring.) chance at transparency.” Enter Azoff, a former head of the MCA record BMI and Ascap have also tried to raise royalty label and ex-chairman of concert promoter Live rates. BMI said its statements to artists “clearly reflect Nation Entertainment Inc., who’s best known as the all performances including radio plays” and that it manager for such mega-acts as Bon Jovi, the Eagles, details how it calculates royalties on its website. ○ Azoff and Christina Aguilera. He and industry veteran Ascap Chief Executive Officer Elizabeth Matthews says Randy Grimmett founded Global Music Rights, its members receive “granular detail” about their pay- which is demanding that radio stations pay its big- ments and that the company has “a commitment to name artist-songwriters a higher rate—somewhere being fair and equitable as well as fully transparent.” north of 20 percent. Azoff says he was drawnto enter the radio fight Stations have responded with a lawsuit, accusing after seeing the checks paid to his artists decrease Azoff of anticompetitive behavior. He countersued, over the years. Ascap and BMI would change the and the litigation is ongoing. The stations don’t advances and rates paid with little explanation, he seem to want to settle, Azoff says, and if the suit says. One quarter they would pay more for urban doesn’t go his way, he may have only one recourse: artists, and another they’d pay more for pop stars taking Pharrell’s Happy off the radio, along with such as Adam Levine. In recent years, classic rock other songs. “A radio music licensing cartel—that’s acts got the short end of the stick. what their behavior depicts,” he says of the current “For classic guys, the checks were going down,” industry setup. “When it smells like a cartel and acts Azoff says. “They were getting played more and paid like a cartel, in my language, that’s a cartel.” less.” Since most songwriters can’t tour—which is The Radio Music License Committee, which rep- the primary way of making money for artists in the resents the industry’s 10,000 commercial stations contemporary music business now that album sales in licensing matters, has denied that characteriza- have cratered—getting higher radio rights is key. 15 tion in a court filing. “We would be comfortable with Azoff has persuaded two radio groups, including maintaining the status quo,” says RMLC Executive iHeartMedia Inc., to pay the higher fee. But most Director William Velez, who says the controversy has stations won’t. He says GMR is girding for a legal been fueled “because of rate envy” over the higher battle with the industry. “If we’re dragging up rights streaming royalties Pandora has agreed to pay artists. for everyone, it certainly will help emerging writers,” Radio stations have fought artists’ efforts to Azoff says. “We’re trying to make songwriting more collect a greater share of their sales since before valued across the board.” —Lucas Shaw

World War II. At the time, the American Society of THE BOTTOM LINE Radio remains the biggest venue for music Composers, Authors and Publishers (Ascap) repre- entertainment in the U.S., with 240 million listeners each month. sented all popular music played on the radio. When Some songwriters want a larger share of stations’ ad revenue. 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 Foreign Brands Lose around 4 percent. For the past six decades, the rates have been governed by a special court created under Grou in Asia a settlement with the U.S. Department of Justice. n Most artists have steered clear of a fight with the d radio industry, for fear of upsetting the most import- ○ Local companies are quick to ant promotional vehicle in the world’s largest music exploit trends and changing tastes 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 Doing business in Asia was long considered easy festivals for free and are even asked to pay for at money for Western multinationals looking to boost least a share of their airfare for such gigs. sales, with beverage makers, cigarette brands, and “They built a billion-dollar business using my fast-food giants capitalizing on rising incomes and music,” says Miller, the songwriter of classic rock weak local rivals. A survey conducted by China Market favorites including Fly Like an Eagle and The Joker. Research Group in 2011 showed that 85 percent of Miller, who owns the rights to his biggest hits, has Chinese consumers preferred buying foreign brands. always enjoyed steady play on classic rock stations Those days are over. The preference for foreign but could never make sense of the royalty checks brands dropped to 40 percent in last year’s  BUSINESS Bloomberg Businessweek November 27, 2017

survey, mirroring a trend seen in sales of tooth- “Coffee is getting more popular in Asia, and paste in India, laundry detergent in Vietnam, and consumers are asking for more choice,” says Wan flavored water across the region. It suggests that Ling Martello, who runs Nestlé’s Asia, Oceania, and Asian labels are more price-competitive or better sub-Saharan Africa region. “That opens the door for at addressing local preferences, according to a more competition, and we welcome that.” A more Nielsen report. That spells trouble for global con- competitive market has taken a toll. Nestlé’s revenue sumer titans at a time when the Asia-Pacific region’s from Asia, Oceania, and sub-Saharan Africa fell economic growth is projected to outpace the 2 percent, to 14.5 billion Swiss francs ($14.3 billion), world’s through 2019, helping to turn such brands from 2014 to 2016—a period that included an instant as Indonesia’s Luwak instant coffee and China’s noodle recall in India. Pechoin moisturizer into rising stars. Multinationals face similar growing c ompetition “Multinationals underestimated local competi- in cosmetics, another area where foreign brands tion,” says Shaun Rein, managing director for China made big early inroads in Asia. France’s L’Oréal SA Market Research Group. “Local players have moved is the No. 1 beauty group in China. But in the very fast on emerging trends that multinationals Chinese skin-care market, which is forecast to have missed, like healthy [goods] and e-commerce.” grow 25 percent by 2021, to $34 billion in sales, Rein says some Asian companies have proved the up-and-comer is Pechoin, a domestic brand more nimble than many large global businesses, of creams and whiteners. China’s first lady, Peng which can take a long time to make strate- Liyuan, gave some of the brand’s products to gic decisions. “Local companies come up with Tanzania’s first lady, Salma Kikwete, during a visit s omething, and it’s done,” he says. in 2013. One result: Pechoin, owned by Shanghai As coffee becomes more popular in tea-loving Pehchaolin Daily Chemical Co., saw its market Asia, for example, capturing customers early is share quintuple from 2012 to 2016, to 4 percent, crucial. Instant coffee by Indonesia’s PT Javaprima according to Euromonitor. Abadi—better known for selling beans plucked A popular Pechoin marketing campaign on from the feces of civet cats—more than doubled its Chinese messaging service WeChat this year showed market share in the Asia-Pacific region from 2012 to a woman hiding a gun in her traditional qipao dress 2016, to 4 percent, while Nestlé’s Nescafé stagnated before strolling through the streets of Shanghai 16 at about 43 percent, according to research firm  A Nescafé-branded cafe in the Harajuku Euromonitor International. district of Tokyo 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 in the early 1900s and chronicling the history a smooth and creamy brew, according to director of the city. It ends with her shooting a dark-clad Agus Susanto. “I like the taste of Kopi Luwak better figuresurrounded by Dalí-esque melting clocks, than Nescafé, which isn’t as flavorful,” says Dian proclaiming, “My mission is to fight against time,” Octora, a 36-year-old homemaker in Bandung, and introducing Pechoin’s skin-care products. West Java. “Nescafé also makes my heart beat The brand’s newfound popularity came partly much faster.” at the expense of the L’Oréal Paris label, which Local brands also often win on price. A 540-gram lost more than a fifth of its market share from (19-ounce) pack of Nescafé White Coffee sells for 2012 to 2016. Pechoin didn’t respond to requests 65,000 rupiah ($4.80) on Indonesia’s Tokopedia for comment. But Miao Yaoyang, Pechoin’s general e-commerce site, while 450 grams of Luwak’s White manager, in June told Wuhan-based Cosmetic Koffie sell for 23,000 rupiah. Observer magazine that the brand tries to show Nestlé has sought to appeal to local tastes, the core value of herbs that are deeply rooted in too. It’s rolled out ready-to-drink Nescafé cold traditional Chinese life. “Culture is the deep moat of coffees in Asia and opened branded cafes at the brand,” Miao said. “We want to make products some Chinese universities. In Vietnam it’s intro- that focus on Chinese people.” —Corinne Gretler duced Nescafé Café Viêt, which offers consumers THE BOTTOM LINE Last year, 40 percent of Chinese a traditional Vietnamese coffee in a dry form sold consumers said they preferred foreign brands. That’s down from

in convenient packets. 85 percent in 2011, providing an opening for local companies. OTA/BLOOMBERG KIYOSHI NESCAFE: ASSOCIATION; MERCHANDISERS’ INDUSTRY LICENSING INTERNATIONAL DATA:  BUSINESS Bloomberg Businessweek November 27, 2017

Can Sports Licensing ○ Fanatics is betting that Europe and China want Score Outside the U.S.? team logo bikinis, too

Web retailer Fanatics Inc. has crushed the compe- of casual wear in the U.S., that’s not always the case ○ Licensed sports merchandise sales tition in the U.S. sports merchandise industry by elsewhere. “In the U.K., if you wear your team’s in 2016 selling things fans didn’t realize they needed, such as colors, a lot of people think you’re not dressing a $40 New York Yankees money clip or a $50 Green up enough,” says Kit Walsh, a partner at Fermata U.S. $19.2b Bay Packers bikini. Now, after securing a $1 billion Partners, who helps clubs such as Arsenal and investment from Japan’s SoftBank Group Corp. Liverpool market branded goods in the U.S. in September, the company is tackling a tougher Fanatics managers say American sports fans buy challenge: sparking an American-style hunger for more merchandise than their British counterparts sports team gear among fans from Bristol to Beijing. because they have access to a wider range of mem- Jacksonville, Fla.-based Fanatics has licensing orabilia—a gap the company is determined to close deals with Nascar, the NFL, Premier League soccer through smarter marketing. When Sergio Aguero teams such as England’s Manchester United, and broke Manchester City’s all-time goal-scoring record others. It pairs them with fast-fashion-inspired logis- in Naples, Italy, in November, Fanatics immediately tics that let it sell shirts and caps celebrating on-field released commemorative T-shirts, as well as a mug achievements minutes after the action ends. and a scarf. That quick response helped double the That logistics savvy drew the attention of SoftBank player’s merchandise sales that week. Chairman Masayoshi Son, who’s betting that the Fanatics’ international sales amount to about American way of buying sports merchandise will $200 million, but Steve Davis, president of the inter- gain more favor overseas than American sports them- national division, wants business outside the U.S. selves. Fanatics founder Michael Rubin, who sold to make up about half the company’s $10 billion 17 sports gear startup GSI Commerce to EBay Inc. for revenue target in five years. He plans to open manu- $2.4 billion in 2011, is targeting markets such as the facturing facilities in Germany and China next year, U.K. and China in his bid to quintuple annual sales, to then in Japan and Australia in 2019. $10 billion, over the next five years. The global market China, where President Xi Jinping aims to build a is worth $25.3 billion, according to the International $750 billion sports industry by 2025, is a particular Licensing Industry Merchandisers’ Association. focus for Fanatics. The company will need to culti- Even though the American appetite for burgers vate a culture of buying licensed jerseys in a country and craft beer flows across borders with ease, that’s still riddled with counterfeit products. To gain selling sports gear to fans globally can mean rubbing a better understanding of the nuances of the market, up against entrenched cultural norms. Most of it plans to recruit managers locally. Britain’s Premier League clubs were formed in the The company will also be going up against the 19th century as working-class social and cultural Chinese state, which wants its domestic soccer league hubs rather than businesses. Despite signing to compete financially with the Premier League teams multibillion-dollar broadcast rights deals, the clubs that have deals with Fanatics. Chinese Super League have been more reluctant than U.S. sports franchises clubs, backed by the country’s biggest businesspeople to embrace commercial opportunities. and state-controlled companies, spent a combined “British football fans have been conditioned in a $451 million signing players in 2016, international very different environment to U.S. sports fans,” says governing body FIFA says. That’s attracting fans to Simon Chadwick, professor of sports enterprise at matches, too: Attendance has increased at an average the University of Salford in Manchester. “They’re rate of more than 10 percent per season since 2014, more guarded about the excesses you see in U.S. according to Euromonitor International. At that rate, Europe, ex-U.K. $2.9b sport, because the tribal norms are very different.” attendance will surpass the Premier League’s by 2020. Take pregame rituals. In the U.S., tailgating Fanatics says Chinese soccer’s rapid growth parties give Fanatics the opportunity to hawk should boost, rather than detract from, interest in branded grill covers ($65) and cornhole sets (as the Premier League—and in the gear the company much as $250). But in England, where soccer author- sells under license from the English teams. “There’s ities have been battling hooliganism for decades, the a huge fan base in China that’s completely under- Asia/Pacific $982m buildup to a game is less relaxed. Streets around served,” Davis says. “It’s the biggest and most pressing U.K. $887m stadiums are heavily policed, and alcohol is banned opportunity for our partner clubs.” —Sam Chambers in the stands, so thousands of fans pack into local THE BOTTOM LINE U.S. e-tailer Fanatics is trying to replicate Canada $700m pubs every Saturday lunchtime to sing and drink. its U.S. success by selling licensed sports gear globally. But logo Other $598m And although sports jerseys are an accepted form mugs and event-based T-shirts are less common overseas.

LOOK AHEAD ○ Box earnings will test its shares’ ○ Las Vegas hosts AWS re:Invent, ○ VMware earnings will offer an fresh 52-week high. The stock is up Amazon.com’s annual conference idea of whether the Dell subsidiary almost 50 percent over that period for its cloud customers can keep buying security companies 2 Migraines? T Appendectomy? E Giving Birth? C That’s No Reason H To Cancel Class N O ○ American teachers say a may suggest the teachers are treated more like employees, meaning they qualify for the same pro- Chinese education startup is tections as employees. When Heitman’s colleagues 19 taking advantage of them and began complaining on her behalf, their concerns L quickly reached the rest of the company’s workforce. skirting labor laws In Facebook groups and other forums, they began talking about holding a strike to win better treatment or perhaps voting on unionization. VIPKid reinstated O Heitman and apologized repeatedly; she says the Misty Heitman, a teacher in Tennessee, worked company did right by her in the end. But that’s no long hours to help support her family—really long. longer enough for some of her peers, who say the The 42-year-old mother of six regularly got up Beijing company is taking advantage of American G in the middle of the night to teach Chinese stu- workers and skirting labor laws. dents online for China’s hottest education startup, While VIPKid isn’t the only company accused of VIPKid. While she was teaching one morning this misclassifying workers to save money, painful stories summer, her 9-year-old daughter, who’d been suf- from put-upon teachers such as Heitman make the Y fering migraines, died in her sleep. Devastated, powerful Chinese startup stand out. “I don’t know Heitman canceled classes to mourn. “I kept can- how VIP is getting away with what they’re doing,” says celing classes,” she says. “One night, I was going Weaver. “I love the company, and I love the work. to teach, but I just couldn’t.” But I can’t believe anyone would call us indepen- Heitman told VIPKid what happened, and the dent contractors.” company assured her she’d be OK as long as she didn’t “Teachers who sign up to use VIPKid enter into miss more classes. But she was terminated anyway, an independent contractor relationship with the via an automated email marking the days she’d been company and, as a result, enjoy a tremendous amount out. She wrote about her firing in September on a of independence and control,” Joshua Lipshutz, an Facebook group page for VIPKid teachers, and her attorney at Gibson Dunn & Crutcher who represents colleagues began pressuring the company to do VIPKid, said in a statement. He also said the compa- better by her. “People got irate,” says Emily Weaver, ny’s practices comply with all U.S. regulations. VIPKid another U.S. teacher. “You fired somebody because declined to comment on specific cases. her daughter died? What happens to me if I get in a This is a big moment for VIPKid, one of China’s car accident or something else happens?” fastest-growing education companies. About November 27, 2017 Like ride-hailing services Uber Technologies Inc. 30,000 teachers instruct more than 200,000 paying and Lyft Inc., VIPKid says its teachers are indepen- students age 4 to 12. The one-on-one sessions run Edited by Jeff Muskus dent contractors. Its control over class prices, custom- 25 minutes each, and most students take two or ers, curriculum, and cancellation policy, however, three a week. VIPKid’s revenue is on track to reach Businessweek.com  TECHNOLOGY Bloomberg Businessweek November 27, 2017

5 billion yuan ($754 million) this year. It raised to share their experiences at particular companies, $200 million in August, from investors including has fallen to 3.9 stars. Last year the average rating leading Chinese internet company Tencent Holdings hovered around a perfect 5 stars. Ltd., at a reported valuation of more than $1.5 billion. Linsey Stockman, who’s pregnant with her VIPKid has raised about $325 million since its 2013 second child and lives in Robeline, La., logged on founding and eventually plans to go public. to teach on a recent Friday, only to discover her ○ VIPKid is on track Questions about the legal status of VIPKid’s internet connection wasn’t working. Her provider this year to reach revenue of teachers could complicate an IPO. Their contrac- came the following Monday, took responsibility for tor classification means, among other things, that the problem, and fixed it. But VIPKid still termi- $754m they have to cover all the taxes typically paid by nated Stockman, even after she says she sent them employers. If the teachers are deemed employ- documents verifying the reason she had missed ees, VIPKid could be compelled to start paying her scheduled classes. “I appealed the termina- those taxes and may be liable for those from pre- tion,” Stockman says. “They basically said, ‘Sorry, vious years. Uber and Lyft drivers have sued the it stands.’ ” —Peter Elstrom and David Ramli ride-hailing companies to address similar issues, THE BOTTOM LINE VIPKid has raised about $325 million in as well as grievances about overtime and tips. (The four years and built its service on promises of flexibility, but its companies deny wrongdoing.) teachers say they live in fear of missing classes. “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 Google Is Losing to 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 The ‘Evil Unicorns’ limited, but he believes the tutors at VIPKid are “more likely than not employees” under the Fair 20 Labor Standards Act. ○ The company is trying to fight fake VIPKid may have been somewhat insulated from news without making sweeping changes 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- “Evil unicorns” aren’t billion-dollar startups gone pany’s curriculum, which pushes students to do bad. The term, coined by Google engineers, refers to most of the rote learning on their own time and webpages full of lies about an obscure subject. When then conduct higher-level discussions with their there’s little other information about the subject instructors. Teachers typically specify which hours online, the lie-stuffed pages get pushed to the top during the day they will teach two weeks ahead of of search results, because the search engine doesn’t time; parents then sign their children up for their have much else to show. chosen tutors. VIPKid, for its part, has used its That’s what happened in October, after the mass supply of American teachers as a primary selling shooting in Las Vegas that killed 58 people and point in advertising its services to Chinese parents. injured more than 500. For hours, Google searches Shannon Mabry, who runs an 11,000-member about the massacre prominently displayed posts Facebook group for VIPKid teachers, says most coordinated to falsely identify a Democratic donor remain happy with the company. critical of Donald Trump as the shooter. Something Heitman’s case, however, galvanized a wave similar happened in November after the mass shoot- of online complaints from other teachers who’ve ing in Sutherland Springs, Texas. YouTube videos found VIPKid to be far less flexible than adver- and tweets mislabeled the shooter as “antifa,” an tised. Teachers are allowed six cancellations per antifascist protester often willing to use violence. six-month contract; in a Facebook group post, one Again, Google featured these untrue pages high in woman said she was hospitalized for migraines, filed its search results. proof of her hospital stay with VIPKid, and was told While Google is accustomed to battling spammers that was no reason to miss class. Another woman and click-bait publishers to maintain the integrity of said on Facebook that she taught two days after its search results, it’s done less to fight back against an emergency appendectomy out of fear that the the deliberate poisoning of its real-time news and company didn’t view her illness as serious enough video catalogs. “We should have absolutely antici- to warrant skipping classes. A third woman said pated this but didn’t,” says Pandu Nayak, a Google she taught classes from her hospital bed the day executive for search. she gave birth for fear of losing her job. VIPKid’s To combat the problem, Google is revamping the average rating on Glassdoor, a website for workers breaking-news slot in its search results, more carefully  TECHNOLOGY Bloomberg Businessweek November 27, 2017

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 about the massacre. Even a week later, YouTube’s top results by hand to assign more weight to pages it search suggestions for the shooter’s name returned knows to be reliable. In cases of breaking news, it videos from conspiracy theorists alongside videos says, things get a lot tougher. See, for example, a from CBS News. One, posted by someone with the string of phony election outcomes that appeared username The Patriotic Beast, claimed to have prominently in Google search results last year or “100 percent proof” the shooter is “far-leftist” and search-result pages that were clearly manipulated “antifa.” The video racked up tens of thousands of by Holocaust deniers. In April, Sullivan, who spent views on the day of the shooting, largely because of years as the search engine’s foremost chronicler high placement in Google search results. “If you like and critic, said Google was facing its “biggest-ever this stuff,” a male voice says in the video, “make sure search-quality crisis.” to like or comment or subscribe. I do these things 21 Google will need to take stronger measures all the time.” to block misinformation about breaking-news Johanna Wright, YouTube vice president for events, says Nate Dame, a search specialist who product management, says her team is working on runs marketing firm Propecta. “There’s no system a sweeping change to the website’s search results that for the algorithm to filter out truth and reality” at will increase reliance on recognized news organiza- a moment’s notice, he says. tions. But Wright says YouTube doesn’t want to shut Fake news has remained a problem partly out small-time posters, who may include citizen jour- because Google has repeatedly added more real- nalists such as those who helped publicize the Arab time information to its results. In 2014 the company Spring. Google also wants to keep YouTube stars opened up its news results to non-news publica- from migrating to Facebook or elsewhere. Keeping tions such as personal blogs, and a year later it cut a them in news results can mean a lot of money to cre- “There’s no deal with Twitter Inc. to show tweets high in query ators paid by the ad view—a powerful incentive for system for the results, part of a broader effort to turn search into a the video creators to stick with YouTube. hub of fresh information and direct answers. Dame and others in the field say Google’s algorithm to So why not restrict timely results to verified embrace of machine learning systems is part of the filter out truth sources? Nayak says that could close off users from problem. These systems, which train software to and reality” information that hasn’t made it to major publica- learn on its own, differ from the search algorithms tions yet, such as the spots where a local musician that weigh sites heavily on factors such as how many is scheduled to appear. The search division is also links they’ve received. Because the systems learn reluctant to wade into the political mire that comes based on whatever data are available, they’re inher- with ranking mainstream news sources above par- ently bad at judging their sources’ veracity. tisan cranks. Nayak says things like misidentifying Google is unlikely to turn its back on machine the Las Vegas shooter are rare, making dramati- learning, though. During an October interview, cally trimming Google news results unnecessary. Google Chief Executive Officer Sundar Pichai said “It wasn’t this huge problem,” he says. (The man fake-news publishers and other bad actors are whose life was upended by being falsely identified likely to start taking advantage of artificial intelli- as the shooter couldn’t be reached for comment.) gence themselves. The only way to keep ahead of Google has begun teaming up with fact-checking the evil unicorns, he suggested, was to keep making sites such as Snopes to watchdog its search results. AI more powerful. —Mark Bergen In the case of the Texas shooting, the fact checkers THE BOTTOM LINE Google is weighting verified news sources helped Google sort its results in about a day. By then, more heavily in its search results for breaking events, but it says

ILLUSTRATION BY TOMI UM TOMI BY ILLUSTRATION of course, far fewer people were searching for news 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 Incentives Dave and three fellow 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.” —Michael Belfiore GETTY IMAGES

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 N perfect, but it could help banks cut costs On Oct. 6 a note from Wells Fargo & Co.’s equity research, was recommending the stock with an research department downgraded Facebook Inc. outperform rating. to sell, making it one of only three brokerages with “To suddenly put out a call by Aiera showing A such a dour rating. The analyst making the call was a sell, we had to be prepared to respond to that unusual, too. Its name is Aiera, or artificially intel- with clients,” says Sena, who built Aiera with Bryan 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 N 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.” his job better than he can. Aiera had read thou- It’s worth mentioning that the Facebook call sands of stories about Russian-linked ads on proved a dud. The stock rose, and some inves- C Facebook during last year’s U.S. presidential elec- tors dismissed the technology. “That was a disap- tion. Politicians were up in arms, and Congress pointment,” says Sena. Even so, he thinks Aiera is called for hearings. Aiera’s algorithms picked up a warning to investment firms and banks that they on the bad vibe and thought it could trigger other can’t ignore the artificial intelligence systems already 24 E investors to sell. The rating was a little awkward being exploited by the likes of Amazon and Google. for Wells Fargo. Sena himself, based on his own The technology is coming, and companies and

November 27, 2017

Edited by Pat Regnier

Businessweek.com POLLET CHARLOTTE BY ILLUSTRATION  FINANCE Bloomberg Businessweek November 27, 2017

analysts will be better off if they start experiment- University who’s run an AI-powered hedge fund for ing and learning from it—even if automation could almost a decade. “It’s easy to fool yourself about destroy some lucrative Wall Street jobs. “There how these things work.” are probably going to be people who find them- The Facebook sell call had one virtue: It showed selves training machine learning technologies that Aiera is willing to be negative. Human analysts may may take their job away,” says Richard Johnson of think twice before highlighting bad news and calling research company Greenwich Associates, who has to sell because they want to preserve access to exec- studied the impact of AI on Wall Street. utives. Sena says people should pay attention to the AI is new to equity research shops such as Wells fact that “you had an unbiased participant—even if Fargo’s, but not to finance. Many hedge funds use an artificial intelligence was behind it—coming out machine learning programs to sort through reams of and saying, look, this is relevant.” market data, constructing portfolios designed to take When Sena described the plan to publish Aiera’s advantage of the statistical trends they detect. Banks’ calls to Wells Fargo’s compliance department, the research and sales departments still rely mainly on only relevant regulations it could find had to do human judgment. Analysts produce buy, sell, and with robo- advisers that do automatic asset alloca- hold recommendations on specific stocks, create tion. Those are supposed to tell clients when they reports used by clients looking for fresh insights, make important changes to their algorithms. The and often inform their thinking with access to corpo- trouble is Aiera is designed to change constantly rate executives. It’s squishier and in some ways more as new data flow through the system. The solu- difficult than running a quant fund. Morgan Stanley tion was to include a boldfaced disclaimer in every just started using AI to scour data during earnings report stressing that the system’s ratings weren’t season, and there are startups helping banks auto- investment advice and should be read only to gain matically turn data into trading ideas. But Wells a greater understanding of AI. That disclaimer has Fargo is the first major bank to use the techniques crept higher with each note. Turning Aiera into a to make public recommendations. real financial product will require additional work Aiera was born after Sena met Healey through a by Wells Fargo and more relevant guidance from machine learning conference Sena organized in 2016. regulators, Sena says. The two hit it off, and Healey started advising Sena on Other analysts at Wells Fargo aren’t as enthusi- 25 AI, helping the analyst brief investors on the technol- astic as Sena about Aiera. Mike Mayo, a well-known ogy. Machine learning lets software adapt to new data bank-stock analyst at the firm, wants to use it to without human programmers. As Sena and Healey enhance his research, but he won’t let it publish delved deeper into the field, a question bubbled up. stock ratings on his companies. “As far as having “I asked the question, well, can you automate what an Aibra, an artificially intelligent bank research I do?” Sena says. “And Bryan said, well, you have to analyst, I don’t think that’s happening in the next explain to me what you do.” decade,” he says. Analysts lower on the totem pole The system piggybacks on the thinking of count- may have more to fear: Mayo says banks are in cost- less humans. It scours the internet for stories, earn- cutting mode and are looking at AI. ings reports, social media posts, and analyst research Mayo’s junior associate analyst spends about on more than 500 stocks and uses tools such as three-quarters of his time checking news articles, natural language understanding to turn the words gathering other information, and manipulating into a measurement of sentiment. “Fear,” “anger,” data—all tasks AI can automate. It’s more than half “joy,” “sadness,” and “surprise” are combined into of the time for more midlevel associates and about an overall sentiment score. Aiera then monitors one-third of a senior analyst’s day, Mayo reckons. ○ Wells Fargo’s the market to see if the emotions it identified move “Maybe you don’t need 50 junior analysts scour- artificial intelligence stock prices. If there’s a correlation, it stores that ing through filings and stories,” says Johnson of “analyst” is able to monitor more than and uses it to make predictions and churns out one- Greenwich Associates. He estimates 15 percent of paragraph summaries of the most relevant informa- finance jobs are at risk from AI automation, with 500 tion for each stock. research among the most exposed. Banks will likely stocks Aiera’s recommendations are for short-term deploy machine learning to cover smaller, less- periods. As of early November, calls it made for followed companies, without hiring staff. But that an eight-hour period had an overall accuracy rate also points to how long a way Aiera still has to go. of 88 percent, while 58 percent of its recommen- Some of its reports include odd sentences about dations for eight days worked out, according to other companies, as well as clichéd, generic invest- Sena. The eight-hour calls do best because there ment advice. That happens mostly when there’s have been so many more of them to feed back into not much news about a company—the very stocks the learning algorithm. Most of those recommenda- Johnson thinks would benefit from automated tions are holds, which work out well partly because coverage. —Alistair Barr and Julie Verhage nothing much happens to a stock in a few hours. THE BOTTOM LINE An analyst on Wells Fargo’s stock research “Machine learning in finance is a tough team is experimenting with machine learning tools that could one slog,” says Vasant Dhar, a professor at New York day replace a lot of well-paid human work.  FINANCE Bloomberg Businessweek November 27, 2017 Can Bitcoin Outlast ○ Disaster preppers cool on gold and start stockpiling An Apocalypse? cryptocurrency

Wendy McElroy is ready for most doomsday figures they’re easier to travel with, harder to steal, scenarios: A one-year supply of nonperishable food and offer better protection than dollars in the event is stacked in a cellar at her farm in rural Ontario. Her of some kind of societal breakdown. He’s confident blueprint for survival also depends upon a working that bitcoin can withstand even a complete blackout internet; part of her money, assuming she needs through the strength of the underlying blockchain, some after civilization collapses, is in bitcoin. the anonymous public bookkeeping technology that Across the North American countryside, so-called records every bitcoin transaction. preppers such as McElroy are storing more and more Discussions on the pros and cons of investing in of their wealth in invisible wallets in cyberspace crypto have popped up on mysurvivalforum.com, instead of stockpiling gold bars and coins in their survivalistboards.com, and other survivalist forums bunkers and basement safes. this year as bitcoin shot higher and higher. “Buy They won’t be able to access their virtual cash bitcoin” is now a more popular search phrase the moment a catastrophe knocks out the power than “buy gold” on Google. The buzz is starting to grid or the web, but that hasn’t dissuaded them. impinge on gold’s role as a store of value, especially Even staunch survivalists are convinced bitcoin because, like the precious metal, there’s a finite will endure economic collapse, global pandemic, supply of bitcoin, which proponents say gives it climate change catastrophes, and nuclear war. “I anti-inflationary qualities. Sales of gold coins from consider bitcoin to be a currency on the same level the U.S. Mint slid to a decade low in the first nine as gold,” McElroy, who lives on the farm with her months of 2017. husband, said by email. “It allows individuals to “It’s definitely had some impact on the market,” 26 become self-bankers. When I fully understood the says Philip Newman, who does research on concepts and their significance, bitcoin became precious-metal coin sales and is one of the found- a fascination.” ers of research company Metals Focus Ltd. “People It’s counterintuitive that some of bitcoin’s most see bitcoin prices going to the moon. No one thinks ardent proponents are people motivated by the gold is going to the moon.” Still, it’s hard to envision ○ Price in U.S. dollars belief that public infrastructure will collapse in times people walking around spending digital currency on One bitcoin of social and political distress (page 40). Bitcoin isn’t Spam, canned beans, or bottled water at a local super- Ounce of gold yet widely accepted as a method of payment, and market when they don’t have electricity at home to steep transaction costs make it inconvenient to use charge their smartphones, let alone a working inter- $8k at vendors that do take it. But preppers have a dif- net connection to access their digital wallets. ferent perspective on what they see as the money of “I doubt bitcoin is a safe haven from an extreme- the future, which has surged elevenfold in the past risk environment,” says Charlie Morris, the London- 12 months, recently surpassing $8,000. based chief investment officer at Newscape Capital 4 Used to send and receive funds online, bitcoin Group Ltd., which invests in cryptocurrencies. is similar to payment networks such as PayPal “In that sense, bitcoin isn’t gold.” And given the Holdings Inc. and Mastercard Inc., the difference stratospheric rise in price of an asset that’s hard to being that it runs on a decentralized network— spend and with no intrinsic value, there’s always 0 blockchain—that’s beyond the control of central the question of whether the bitcoin market is a 1/2/17 11/20/17 banks and regulators. It was born out of an anti- bubble about to burst. establishment vision of a government-free society, a Preppers expect whatever governing structure key attraction for those seeking unhindered access emerges post-calamity will prioritize getting the to their capital in case a massive societal shock shuts web back up and running, and that when it does, down the banking system. those virtual tokens will be secure. “It may be dif- “Not too long ago people in the prepper com- ficult, if not impossible, to access for a while, but munity were actively warning against crypto, and once things start returning to some level of normal- now they’re all investing in it,” says Tom Martin, a ity, then the blockchain will return as it was before truck driver from Port Angeles, Wash., who runs a the disaster,” says Rob Harvey, a bitcoin investor social media website for people interested in learn- who prepares for natural and nuclear catastrophes ing skills to survive disaster. “As long as the grid stays by learning and teaching survival skills, such as up, people will keep using bitcoin.” making a fire. “The blockchain does not need a spe- In addition to gold, silver, and stocks, Martin cific place or a specific person to survive—that’s a

invests in bitcoin and other cryptocurrencies. He strong survival tactic.” IMAGES HONDA/GETTY STAN NEWMAN: BLOOMBERG; BY COMPILED DATA  FINANCE Bloomberg Businessweek November 27, 2017

The libertarians who have pledged to move to lay claim to everything from government funds New Hampshire as part of the Free State Project allegedly embezzled into shell companies in Nevada are also switching from precious metals. They like to Argentina’s rights to launch satellites from one of bitcoin because it isn’t created by a government, Elon Musk’s rocket ships. At one point, the hedge unlike conventional currency. “You can use bitcoin fund even managed to seize an Argentine naval for economic transactions in a way that gold was vessel docked in Ghana. never designed to do because it’s a physical thing— Newman says Venezuela has a loophole that it’s heavy,” says Matt Philips, the project’s presi- might be used to make the oil company’s debt dent. “A lot of people don’t know what the heck to worthless. “PDVSA doesn’t own the oil,” he says. do with gold if you give it to them in exchange for “It’s some amalgamation of production assets, a cup of coffee.” Eddie— van der Walt trucks, offices, and rusted pipe.” Venezuela could effectively write off PDVSA’s billions in debt, he THE BOTTOM LINE Some disaster preppers are willing to bet their nest eggs that virtual money will still be there after an says, by transferring the company’s valuable economic or societal collapse. 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 The Fate of means creditors have the right to take PDVSA to court in the U.S., there would be little left to squeeze Venezuela’s Bonds from the newly insolvent oil company. Newman isn’t the only pessimist. The govern- ment may choose to transfer PDVSA’s assets to itself ○ Global investors haven’t entirely and then offer to exchange PDVSA debt for govern- bailed on the state oil company 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, Venezuela is running out of cash. It’s in a state wrote in a report in October. Those who do hold out 27 of political and economic crisis as people face would have “a claim on an empty box,” he wrote. shortages of food and medicine. In November the Newman estimates that PDVSA’s foreign assets government announced it would restructure its are probably worth about $3 billion, a tiny amount debt with global investors, and credit-rating com- relative to the company’s $30 billion in debt and panies declared the country’s debt—including therefore not a huge loss for the government if bonds issued by state-run oil company Petróleos investors get their hands on them. Which, by the de Venezuela SA, or PDVSA—to be in default. The way, isn’t easy to do. “Good luck to people who country insists it will keep paying its obligations want to chase assets,” he says. “It’s a very expen- while it comes up with a new plan, although nego- sive, time-consuming, and difficult process that’s tiating with creditors may be almost impossible fraught with pitfalls.” because U.S. sanctions bar citizens from interact- Ultimately, it was Elliott’s deft legal maneuver- ing with some top Venezuelan officials and from ing and persistence that ensured the hedge fund’s buying new bonds from the country. success against Argentina. The firm blocked the Amid the chaos, PDVSA bonds have fallen in nation’s access to capital markets and got a court value, but investors still demand a lower yield to order preventing holders of the country’s restruc- hold them than they do for the debt of the gov- tured debt from getting paid, providing motivation ernment itself. The conventional thinking among for President Mauricio Macri to settle soon after he the optimists is that they’ll be able to wring value started his term in late 2015. For now, Venezuela out of PDVSA’s bonds in part because it has assets seems willing to tolerate the widespread condem- scattered all over the world that investors could nation it’s received because of the anti-democratic ultimately take control of. turn of President Nicolás Maduro, who’s solidified PDVSA bondholders may be in for a tougher time power in recent months. The country is depen- than they think, according to Jay Newman, a former dent on oil revenue, which some investors may hedge fund manager at Elliott Management Corp., see as a reason it would try to keep PDVSA in credi- which waged a 15-year fight against Argentina over tors’ good graces. But Newman notes that under the its defaulted bonds. Argentina finally settled with right circumstances investors are often forgiving: Elliott for about $2.4 billion in 2016, roughly four Argentina sold almost $3 billion of 100-year bonds times the principal value of the hedge fund’s bond just 16 months after settling with Elliott. claim and probably well beyond what it paid for —Katia Porzecanski the notes. Now retired from the $34 billion firm, THE BOTTOM LINE Bond investors may have less leverage Newman led Elliott’s efforts to collect on a court over Venezuela’s PDVSA than they think, says the former hedge order for full repayment. They included trying to fund manager who won a long fight with Argentina’s government. LOOK AHEAD ○ On Nov. 28, the OECD ○ Revised third-quarter ○ Readings on the health of the releases the latest edition of its GDP numbers for the U.S. are manufacturing sectors of the euro 4 economic outlook due out on Nov. 29 zone countries come out on Dec. 1 E How Guangzhou

C ○ The manufacturing hub ago, directs cities and companies to shift out of low- cost, labor-intensive manufacturing and into higher is incubating flying cars and value-added production. State planners want com- automated pharmacies panies to become globally competitive in estab- O 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 N On a sunny afternoon in early November, several quality of human talent, how capital is used, and dozen software engineers and designers are anx- how technology is developed,” says Scott Kennedy, iously preparing for a test flight of the EHang 184, director of the Project on Chinese Business and a compact metal and glass pod outfitted with eight Political Economy at the Center for Strategic and O propellers. The self-steering, single- passenger craft International Studies (CSIS) in Washington. “They could begin buzzing through the skies of Dubai as think that doesn’t happen naturally. The govern- early as next year, says Hu Huazhi, the 40- year-old ment has to put their finger on the scale to make chain-smoking founder, chairman, and chief exec- that transition happen in a way that is productive M utive officer of EHang, a Guangzhou-based maker for the country.” of drones. The rulers of the Arab city-state want Made in China sets ambitious targets for things like one-quarter of all transport to be autonomous by the deployment of Chinese-made robots and domes- 2030 and are in talks with EHang about supplying tic content in the production of advanced electron- 28 I a fleet of air taxis. ics. The job of delivering on those goals falls largely Earning bragging rights for building one of the to provinces and cities across the country. As China’s world’s first flying cars is not just a corporate goal. third- largest municipality by gross domestic product “Our company’s development is also an integral and an important manufacturing base, Guangzhou C component of the Guangzhou government’s plan” was destined to play a starring role in the imple- to move up the technology ladder, says Hu as he mentation of Beijing’s blueprint. Earlier this year shows visitors around the company’s offices and the city unveiled a plan that aims for trillions of yuan flight command center, which are housed inside in revenue from information technology, artificial S an abandoned amusement park devoted to the intelligence, biomedicine, advanced manufacturing, wonders of space travel. shipping, new energy, and other industries by 2021. Some 19 miles away, at a factory complex owned City officials have traveled to Singapore, Chicago, and by Guangzhou Automobile Group Co. (GAC), rows Silicon Valley this year to tout Guangzhou’s attrac- of orange-and-black German-made industrial robots tions as a business and manufacturing hub. pivot and plunge as they assemble and solder Companies are heeding the call. Foxconn Trumpchi-brand SUVs, with few workers in sight. Technology Group started construction in March With the blessing and support of local officials, the on an $8.8 billion LCD manufacturing facility. And in state-owned carmaker is building a $6.5 billion indus- April, Cisco Systems Inc. held a groundbreaking cer- trial park nearby to produce connected new-energy emony for a multibillion-dollar “smart city project” vehicles. “The economic structural transformation and an internet research and development center. you see here is not only for the benefit of enterprises— Guangzhou’s efforts should get a lift from we also have a responsibility to the country,” says GAC Beijing’s push to create a “Greater Bay Area” by President Feng Xingya in an interview at company linking the nearby territories of Hong Kong and headquarters. “We are trying to achieve innovation- Macau with Guangdong province. Guangzhou, the driven development, and we must carry out the gov- provincial capital, is supposed to serve as an admin- ernment’s policy to succeed.” istrative and logistics hub for neighboring Pearl Guangzhou, a sprawling port city on the Pearl River Delta manufacturing cities such as Foshan River that’s home to stodgy state-owned enter- and Zhongshan. While the idea predates Xi’s rule, it November 27, 2017 prises (SOEs) as well as scrappy textile and elec- appears to have fresh momentum. “Guangzhou will tronics producers, is starting to look like the poster take full advantage of the Guangdong-Hong Kong- Edited by child for China’s effort to transform its economy. Macau Greater Bay Area to strengthen cooperation Cristina Lindblad “Made in China 2025,” an initiative unveiled by with cities involved in this national-level develop- Businessweek.com President Xi Jinping’s administration two years ment blueprint,” said Guangzhou Party Secretary Does

QILAI SHEN/BLOOMBERG with Guangzhou Pharmaceutical. “We Pharmaceutical. with Guangzhou willfirst maker Kuka AG for$4 alsocooperatingbillion, is yearappliances acquired thatthis robot German intelligence andtreatment. on artificial fordiagnosis ofhealth centersthatwillrelyon anetwork partly Holdings Ltd., amore than collaborating Pharmaceutical is withGuangzhou know-how.into theirtechnical for instance, IFlytek, ventures tap withprivate sotheycan companies, encouragingthemtoenterinto is Guangzhou To Congress. upgradeitsSOEs,in the19th Party andstronger,”to become“bigger asreiterated Intelligence estimates. Xiwants state companies that’s becomeatechhub, according toBloomberg 17 percent inShenzhen,aPearl River city Delta industrialassets,comparedof thecity’s withjust economy:the local Theyaccountfor40 percent aseniorvicepresident atIFlytek. Du Lan, us tomove even more quickly withourR&D,” says andmake allowsprises this iteasiertolure talent, helpreducesubsidies that can theburden onenter- world. “Ifthegovernment provides human resource ates withPh.D.s from topuniversities around the setupby R&Dprojects tosupport of yuan gradu offers tens ofmillions China headquarters; thecity where inGuangzhou, ities it’s justopeneditsSouth ince’s getting is IFlytek from support author- capital, Silicon Valley year. this BasedinHefei, Anhui prov- invoicecializes recognition, openedanoffice in Co., IFlytek boost recruitmentwhich spe- efforts, Toups into aglobalcompetitionfor tech talent. intelligenceficial hasthrustthemainland’s start- November 27, 2017 environment we have ever experienced.” government,” themostsupportive hesays. is “This Guangdong Guangzhou, not beachieved without preferential from policies ing toFeng. rapiddevelopment ofGAC “The could was providedvehicle factory free ofcharge, accord- mate. Thelandwhere Auto Guangzhou buildingits is paymentsdoling outone-time thatauto- tofactories new industriesandupgradesatoldonesare four 10 billion-yuan ($1.5 billion)fundsto support exemptions.tax Municipal authorities have setup tives, includingsubsidies,low-interest loans,and government offering companiesanarray is ofincen- Bloomberg Businessweek inOctober.Congress inBeijing Ren Xuefeng, Party atthe19thCommunist speaking  ECONOMICS larger role play enterprises that state-owned in Midea GroupMidea Co., aprivately owned maker of Ironically, may Guangzhou benefitfrom the China’s determinationtobecomeaforce inarti- To speedthetransition,Guangzhou province, andthecentral century-old company,century-old ‘Made in China’ ‘Made in - ambitious industrial policy. surroundings are becoming a test bed for President Xi’s and Rachel Chang — only asawhole.” forcompaniesbutindustries China Inc.onsteroids goingis is tokillprofits, not Says CSIS’s Kennedy: worry thatpeoplehave “The last year, according compiled by todata Bloomberg. times thenumber ofplug-ins soldinthecountry China’s to2.9 million units—six annual capacity have factories beenannounced, raising electric-car this year.forced tofileforbankruptcy low-cost Chineserivals asthemainreason they were SolarWorld AG inGermany cited competition from suchasSuniva Inc.intheU.S.Companies and according Association. totheSolarEnergyIndustries haveprices percent fallenmore since2010, than70 years earlier.global solarpanelindustry Solarpanel problems thesame overcapacity thatdevastated support leads financial to the no-strings-attached couldgo awry,to dominateemergingindustries if andproducts.”business havetechnologies beenandwillbeusedinour making, allclosely linkto AI.More andmore AI we dotoday, from industrialautomation torobot withBloombergTelevision.interview “Everything ChairmanandCEOPaulsaid Midea Fang inan bepicked allby can andsorted machines,”icines introduce fully automated drugstores where med- THE BOTTOM LINE Dexter Roberts, with Tom Mackenzie, Haze Fan, Already ininvestmentsbillion yuan at in least98 cities and otherChinese The plansofGuangzhou The cityof Guangzhou andits for atest flight EHang184 passenger Readying thesingle- 29  ECONOMICS Bloomberg Businessweek November 27, 2017

homeownership at the Washington nonprofit Prosperity Now. “The storm is revealing a whole Just Don’t Call 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 Them Trailers $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 ○ Many left homeless by storms can’t single mothers and their children, many of whom afford the models the industry is peddling 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 Hurricane victims emerging from ravaged trailer properties are damaged in a place like this, it’s next ○ Production of parks are discovering that the U.S. mobile home to impossible to bounce back,” he says. Many have manufactured homes market has left them behind. In Florida and Texas, had to walk away from damaged mobile homes they buyers looking to rebuild their lives after hurricanes can’t repair or replace, Ellison says. 80k Harvey and Irma are swarming dealerships, but Phil Lee, the 74-year-old founder of LeeCorp, many leave disappointed. has been riding a wave of retiring baby boomers The industry, led by Warren Buffett’s Clayton who want affordable luxury. Driving a reporter in Homes Inc., is peddling such pricey interior- his black BMW SUV through Bayside Estates in Fort 40 designer touches as breakfast bars and his-and-her Myers Beach, where many of the fanciest homes bathroom sinks. These extras, plus manufacturers’ he sells are installed, Lee points out units with increased costs for labor and materials, have pushed pitched roofs that look almost indistinguishable average prices for new double-wides up more than from conventional stick-built homes, facing canals 0 20 percent in five years, making them too expen- with boats tied outside. Their owners, former den- 2012 2016 sive for many of the newly homeless. tists, doctors, executives, and others, spent upward Judy Goff, a hardware store clerk whose circa 1975 of $150,000 to buy aging units just to clear the way double-wide in Naples, Fla., was blown to bits by for something more luxurious. On a palm-lined 30 Irma, pulled into a LeeCorp Homes Inc. sales lot in street flanked by ranks of 1970s-era trailers, Lee October and wandered through models with kitchen sees profit. “There’s no end to replacing these islands and vaulted ceilings. In the salesman’s office, homes,” he says. “You get a hurricane in there, she got the total price, including a carport, taxes, and it really accelerates things.” and removal of her destroyed trailer: $140,000. She Terms like “mobile home” or “trailer” are now was only insured for $28,000. “I don’t have that kind verboten in an industry striving to break free of of money,” says Goff, 73, as she stands amid the its downscale origins. Buffett’s Clayton Homes, wreckage of her old home, whose walls and ceiling which produces almost half of all new manufac- were stripped away, leaving her leather furniture tured housing in the U.S. and competes with such and a lifetime of possessions to bake in the sun. companies as Cavco Industries Inc. and Champion “That was all I had.” Home Builders Inc., still builds lower-price units, About 22 million Americans live in “manufac- but there’s barely a sign of them on its website, tured homes,” a classification that dates to 1976, which is mostly devoted to high-price models. The when federal law set standards for what used to 2,000-square-foot Bordeaux features a separate tub be called mobile homes. Sales of new units are and shower, a computer station, and a mud room, growing 15 percent annually as the base of buyers with prices starting at $121,000 and ranging as high expands from rural areas to suburbs and retirement as $238,000, not including delivery and installation enclaves. Tile backsplashes and kitchen pantries costs. Clayton declined to comment. 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  LeeCorp, a dealer in southwestern Florida, also going to put homes out of reach for a lot of has a long backlog on

buyers,” says Doug Ryan, director of affordable manufactured homes SAFETY AND TECHNOLOGY BUILDING FOR INSTITUTE DATA: (2); MCINTYRE/BLOOMBERG SCOTT 31

While the cost of manufactured homes has surged, The single-wides at LeeCorp start in the $60,000- Goff’s double-wide pay for the bottom fifth of earners is stagnating. plus range. The most expensive double-wides, in Naples, Fla., was destroyed by Irma Even after a modest pickup over the past two years, some with custom bathrooms and walk-in closets, those households have seen their average income sell for more than $250,000. The half-dozen models fall 9 percent since 2000, to $12,943 in 2016, based on the lot are staged to be alluring, with plush on inflation-adjusted Census Bureau data. couches, true-crime novels, and beach-house Financing and insuring units can be expensive, knicknacks. The showpiece is “the Islander.” Built especially for decades-old trailers that are depreci- by Florida-based Jacobsen Homes, it has quartz ating and set up on rented land and for borrowers countertops in the kitchen, a glass and tile shower with poor credit. Last year, 64 percent were pur- with a bench, custom cabinetry with slow-close chased with high-rate loans, compared with just doors, and a deck. 7.2 percent for traditional single-family homes, Goff—who just wants to replace the wrecked according to the Housing Assistance Council, a 1,200-square-foot trailer she bought 17 years ago Washington nonprofit. “Consumers are not offered for $46,000, including the cost of land—says she feels as much choice as in the conventional market,” boxed in. Her mobile home community won’t allow says Lance George, the council’s research direc- single-wide homes or older used models as replace- tor. “This is a captive audience.” ments. And every home must have a carport. She’s At the LeeCorp dealership in Estero, Fla., sales willing to give up such upgrades as the higher-end have surged 40 percent since Irma. Josh Hentges, a countertops, but that probably won’t be enough. 36-year-old salesman with bags under his eyes and Between her Social Security check and income from a couple days of stubble, says he’s frequently fin- her job at Ace Hardware Corp., she earns only about ishing paperwork in the office late into the night. $23,000 a year. “I just want a home that’s equal to The company doesn’t offer its own financing, but what I had,” she says. “My home was a beauty.” customers find loans from area banks. “Before the —Prashant Gopal, with Jeanna Smialek storm, one out of five people walking in were serious THE BOTTOM LINE Average prices for new double-wide trailers buyers,” says Hentges. “Now, it’s four out of five— are up more than 20 percent in five years, as the industry, led by people walking in have to have a house.” Warren Buffett’s Clayton Homes, has moved upscale. 32 Businessweek.com November 27, 2017 David Rocks, and Matthew Philips, Jillian Goodman O C Edited by S T P L 5 I I

OKAED○ LOOK AHEAD ble thejigsaw neededto form a ofsmallerparties Germany’s toassem- she parliament, has struggled Union Social lost65 Christian seats intheBundestag, andthe conservative Democrats blocofChristian her. Following September’s inwhich her election, it’s hard to imagineGermany, orEurope, without presencea stable ontheglobalstage forsolongthat to lookasifshe may notbeableto“do it”afterall. onNov.collapse ofcoalitiontalks 19, it’s beginning after inSeptember anarrow andthe victory election leader ofthefreecellor asthedefacto world. But andpunditsto hailGermany’sticians motherly chan- “Americaand his First”agenda—spurred many poli- approach have—after ofDonaldTrump the election since 2015. Thatpragmatic million-plus refugees who have cometoGermany when addressing thequestion ofintegrating the looking weaker than ever talks, the German chancellor is ○ After the collapse of coalition Angela Merkel doit” can “we usedtotellGermans First elected chancellor in2005, MerkelFirst elected hasbeen nominee for Fed chair hearing for JayPowell, Trump’s The Senate holdsaconfirmation attitude andherliberal Without A World Merkel ○ Following talks amongIran, Russia, restart inGeneva and Turkey, U.N. peacetalks onSyria euro intact, winning fans abroad. But her decision winningfansabroad. Butherdecision euro intact, be very different from Merkel mark 1,” Mody says. be adifferent kindofleader. “Merkel mark 2 would Merkel now is sobadly weakened thatshe would Even ifshe crisis. remainscurrency aschancellor, finishing abookabout Merkel’s handlingofEurope’s Ashoka Mody, aformerWorld just Bankeconomist concerned, buthertimehascomeandgone,” says as chancellorhasbecomeareal possibility. aworldpared foranotherelection, withoutMerkel power astobeforced andshe says out, she’s pre Although there are asmany ways forhertostay in hasfailedto produceelection agovernment. first timesincebefore World German War IIthata of immigrationaswell aseconomic brokecoalition talks down over thevexing question herdozenglobal summitsduring years inpower, negotiator, honedatcountlessEuropean Union and have inrecent swept years. otherdemocracies that fragmentation andpolitical forces ofpopulism nomic strength, Germany vulnerable to is thesame government,majority proving forallitseco- that, the global financial crisis andhelped keep thecrisis the globalfinancial steered Germany relatively through unscathed In herthree terms aschancellor, Merkel, 63, “Merkel was figure ahistoric asfarEurope’s Despite Merkel’s legendary skills asabackroom could happenasearlyNov. 30 floor vote ontheGOPtaxbill,which ○ Senate leadersplantoholda concerns—the -

WOLFGANG RATTAY/REUTERS  POLITICS Bloomberg Businessweek November 27, 2017

to embrace the flood of refugees from Syria and Josef Janning, who heads the Berlin office of the other troubled parts of the world cost her support European Council on Foreign Relations. For all her at home. Germany’s next chancellor—whether strength in crisis management, she has rarely led Merkel or someone else—will be faced with fixing a by principle or sought to shape the future. Even growth model that led to too much inequality, too Merkel’s decision to welcome, rather than fight, the many people feeling abandoned, and seemingly sudden flood of refugees was a tactical calculation— limitless immigration. The populist Alternative for there was little she could do to stop it, and Germans Germany (AfD) won 12.6 percent in September’s at first responded enthusiastically—rather than a vote, enough to make it the first hard-right party to moral choice or strategic plan, Janning says. enter the Bundestag since the 1950s. The primary At international summits, Germany punched  An election campaign poster of Merkel is question facing the next German leader will be how above its weight because of Merkel’s perceived sta- seen, peeling apart to limit the AfD’s rise. bility and authority. But she never committed the after heavy rains on Merkel’s declining influence is “very bad news resources necessary to take the lead in reshaping Sept. 30, one week after Germany’s for the European Union,” Le Monde wrote in a the world, in part because she knew Germans don’t general election gloomy editorial on the collapse of talks in Berlin. want that role, Janning says. If she goes, it’s unlikely The French daily newspaper pointed to the wider anyone will pick up where she left off. The political roller-coaster narrative of European populism this concessions needed to keep supporting the kind of year. Hopes that the center might hold, raised after rules-based order Merkel promoted can’t be made Emmanuel Macron won the French presidency with when societies are as fragmented as they are and an unashamedly pro-Europe, liberal message, have leaders must constantly appeal to their domestic now been “suspended,” the paper wrote. bases. After September’s election, in which both Macron had been counting on Merkel’s support of the traditionally dominant, centrist parties lost to secure sweeping change to the EU, proposing share to smaller fringe ones, that became true for deeper cooperation on defense, taxes, immigration, Germany, too. “If Merkel is no longer around, it will and—crucially—a common budget for the 19-nation just become clearer that we are actually living in a euro area. That’s looking much more difficult as leaderless world,” Janning says. And no one—not a the compromises he needs from Merkel would be new German leader, not Macron, not anyone else— politically costly for any chancellor. Other than would be able to change that. —Marc Champion 33 Merkel, “no one here has the grasp or the popular THE BOTTOM LINE Without Merkel’s leadership, Europe may trust to enable Germany to make the concessions struggle to combat the forces of populism and isolationism needed,” says Jan Techau, director of the Richard C. unleashed by Brexit and the rise of Donald Trump. 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 GOP Tax Plan’s the euro without leaving the wider bloc—a politi- cal nonstarter for Merkel. Obamacare Surprise 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, ○ Senate Republicans want to end the she took the lead in persuading Austria, Greece, coverage mandate to fund their tax cut 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 mandate to buy health insurance is the broccoli The sanctions have cost both sides, and Merkel has of Obamacare—the part you have to accept if you consistently supported them as they come up for want the goodies, like affordable coverage of people renewal every six months. Losing her voice would with costly pre-existing conditions. Now Senate create “a target-rich environment for Putin” to Republicans are saying you don’t have to eat your get them lifted without first pulling his troops and broccoli anymore. They eliminate the penalty for lack weaponry out of eastern Ukraine, says Frederick of coverage in their version of the $1.5 trillion tax cut Kempe, president of the Atlantic Council, a think bill, which they aim to vote on after Thanksgiving. tank in Washington. “After Merkel we will have a Could removing the penalty, which effectively more inward-looking Germany,” he says. “Macron kills the individual mandate, possibly make sense? has stepped up, but let’s not kid ourselves: On the Health-care economists describe the mandate as a economy and on geopolitical issues, nobody in necessary evil. Without it, they say, healthy people Europe can fill Germany’s shoes.” will roll the dice and choose to go uncovered, leaving Merkel has earned her share of critics, and insurance pools made up of sicker, older people who there’s another way to look at the coming end of are costlier to cover. But the impact of the require- her era. Hers was “a visionless leadership,” says ment is regressive. Well-off families generally get  POLITICS Bloomberg Businessweek November 27, 2017

health insurance through their employers, so those millions fewer people would be insured. That’s some- who pay the tax for noncoverage tend to be poorer, thing they’ve always insisted wouldn’t happen. As some working two or three jobs to make ends meet. recently as July, two White House officials wrote a For Senate Republicans, killing the individual Washington Post op-ed ridiculing the notion that mil- mandate is a beautiful twofer. First, it’s a way to lions of people “value their insurance so little that limit the red ink from their tax package. The Joint they will simply drop coverage next year following Committee on Taxation estimates ending the mandate the repeal of the individual and employer mandates.” would save $318 billion over 10 years, because the Republicans are trying to have it both ways. Utah people who dropped coverage wouldn’t get subsi- Senator Orrin Hatch, chairman of the Senate Finance dies. Savings would continue after 2027. That’s crucial Committee, said that dropping the mandate wouldn’t because under the Byrd rule, a measure can pass the cut Medicaid. The CBO predicts that of the 13 million Senate with a simple majority only if it doesn’t add to people who drop coverage, 5 million will be current deficits beyond 10 years. Second, gutting the mandate Medicaid recipients. Senator Claire McCaskill, a would partially fulfill Republicans’ long-standing Missouri Democrat, balked. “Where do you think objective of getting rid of Obamacare entirely. the $300 billion is coming from?” she asked Hatch. The downside for Republicans is that the repeal “Is there a fairy that’s dropping it on the Senate?” gambit has breathed new life into the pro-Obamacare It’s not just the Republicans who have a compli- coalition, which argues that Republicans are financ- cated relationship with the mandate. Democrats need ing tax cuts for the rich by reducing the number of it to make Obamacare hang together, yet they know people with health insurance. “Adding ACA repeal it’s unpopular and regressive. Seventy-nine percent of to the corporate tax giveaway has fanned the flames the 6.7 million households that paid the mandate tax of resistance into a roaring inferno,” says Ben Wikler, for 2015 had incomes under $50,000, and 37 percent the Washington director of MoveOn.org, a liberal made below $25,000, according to Internal Revenue activist group. The Congressional Budget Office said Service data. Republicans tweak Obamacare’s defend- “Where do on Nov. 8 that repealing the mandate would increase ers by arguing that if financially hard-pressed families you think the the number of uninsured Americans by 13 million want to drop their policies—and lose the government and raise premiums by 10 percent “in most years” subsidies that go with them—that’s their right. $300 billion of the next decade. Democrats say the mandate gets people to do is coming 34 Within hours of Senate Republicans’ announcing something that’s in their best interest and keeps emer- from? Is there their intentions to kill the mandate, a coalition of gency rooms from being swamped by uninsured sick a fairy that’s trade groups for doctors, hospitals, and insurers people. (Republicans used to make this argument.) urged them not to, warning that doing so would But the mandate is also a way to get healthy fami- dropping it on raise premiums. In Virginia, a CNN exit poll showed lies to subsidize less-healthy ones, rather than just the Senate?” health care was voters’ top issue by more than 2 to 1. cover their own risks. That’s what makes it unpopu- Democrat Ralph Northam won voters most concerned lar. “That’s sort of the trap,” says Christopher Pope, a about health care 77 percent to 23 percent en route to senior fellow at the conservative Manhattan Institute. his decisive election as their next governor. Also, the mandate probably isn’t as effective as This leaves Republicans in an awkward spot. While Democrats have argued. In its Nov. 8 report, the CBO they crave the savings that come from repealing the said that for its next estimate, it’s changing its model mandate, they don’t love the reason why—namely, 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 Net Effect numbers reported in this document.” In other words, Repealing the individual mandate will cut government spending it won’t reduce coverage as much—or save as much by reducing the number of people with subsidized insurance money. It could be that Obamacare needs to rely less on the stick (mandates) and more on the carrot (sub- Estimated number of people Estimated decline in annual under the age of 65 who budget deficits from sidies that hold down the cost of premiums). will lose health insurance repealing the individual A new CBO estimate that played down the impact coverage mandate of mandate repeal could work out quite nicely for the Republicans. They could point to the Joint 12m $ 0b 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 6 -30 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

0 -60 THE BOTTOM LINE By dropping Obamacare’s individual mandate, Senate Republicans can raise billions to pay for their

2018 2027 2018 2027 tax cuts—and undercut a key part of the health-care law. DATA: CVO TIZIANA FABI/AFP/GETTY IMAGES director oftheVancouver at Schoolof Economics immune” to sweeping upheaval, warns David Green, power because hewas afresh inpart face.“We’re not Brexit. are Both younger thanTrudeau, who won hikes; tax theother,ness aconservative who backed pledgingsteepbusi- democrat asocial Oneis place: pledges reform. assweepingon suchlofty electoral tested asTrudeau’s government hasfailedto deliver Voters’ legalization. marijuana being patience alsois arebattles upover heating climate,and care, health to rundeep;andacross thenation, continue politics Quebec,identity In French-speaking represented inCanada’s government. eastern-centric also reemerging. Somewestern regions feelunder- Aga Khan’s private island. was dinged at for the asecret lastChristmas vacation Paradise Papersto anoffshore trust. 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He’s cultivated animage open, ofatolerant, socks who championsfree tradeandwelcomes ref- and withapenchantforselfies quirky minister prime Justin Trudeau, thebuoyant 45-year-old heartthrob toBrexit.rise Much landson ofthecredit forthis House, undercut ChancellorAngela Merkel, andgave upheavalulist thatputDonaldTrump intheWhite So far, Canadahaslargely avoided thekindofpop- test political areal faces minister Bloombergprime Businessweek the term, first his through ○ Midway His Mojo? Losing Is Trudeau  POLITICS Meanwhile, rivals are his forthe2019election in Traditional fault are ofCanadianfederalism lines Outside Canada,itlooksenviable: acharismatic federal-provincial e family’s busi- going tohave?” — anxious,whatfeel less outcomedoyou think we’re time. “Ifwe don’t finda way to make thosepeople Trudeau’s embattled financeminister, said at the for theworking poor. “Imean,my God,” Morneau, third largely programs, includingfunding forsocial withthe windfall to reducingremaining thedeficit, ofagrowth-fueled abouttwo-thirds budgetcated mini-budgetOctober update,thegovernment allo- twice asmany as want newspending. social deficit, 40 percent ofCanadians want Trudeau to cutthe arealstandards, concern.TheNanospollfound is the U.S. thoughsmall Thebudget by deficit, world netfarmore sprawling safety social thanthat of ofthefederalbudget.families andcostsafourteenth as much as$417 permonthforeachchildtomost which givesand created theCanadaChildBenefit, particularly in regions affected by theoildownturn, $157,000. He expanded unemployment benefits, $70,000 themonincomesgreater andraised than froming in2016onthoseearning about$35,000 to themiddleclass,Trudeauto court cuttaxes start- delays don’t inpipelineconstruction help. Attempting edge. Trudeau’s priceproposal carbon andmounting spendingclawbacks setvotersjob cutsandcapital on After ofoilplummetedin2014, theprice however, basis. its economy thenationonapercapita leads wages andpay someofthelowest and rates, tax any measure; itsworkers earnthehighestaverage attheUniversity ofCalgary.public policy says Jack Mintz,aprofessor andPalmerchairin looking atthingsthatmake itharder toimp by theeconomy when it’s down, andthentheystart Europe andtheU.S., where firstdriven alotofitis ofwhat we’veof alienation there “typical seenin is servative movement—is Thesense thebiggest part. ofCanada’s heart Alberta—the anditscon- oilsector of theeconomy highestintheprairies,ofwhich is News shows withTrudeau’s discontent handling according toaBloombergcompilationofforecasts. the next sevenpercent, go quarters nohigherthan2 expandingis percent, for atarateof4.5 projections thatCanada’s indicates quarterly data latest economy progress andnohopeofaquick deal.Andwhile the concludedNov.talks, 21Mexico City, yieldedlittle Free American Tradeof trilateral North Agreement to Trump’s attempts at rebalancing. Thelatest round share more trade,meaningnoneis exposed oftotal Group more of20nationis reliant ontheU.S. asa Butno sentiment. andantiglobalization anxiety style growth, driven largely by oil,hashelpedavoid U.S.- “We’rethe University Columbia. ofBritish lucky.” Canada, thepicture isn’t asrosy at home. managed toproject aglobal imageof astable andprosperous THE BOTTOM LINE Trudeau already is shiftingapproach. his Inan mitigatedby inCanadais a Economic anxiety Canada’s is Alberta province richest by almost A NanosResearch forBloomberg pollconducted Green’s research findsthatCanadianwage Although PrimeMinister Trudeau has Josh Wingrove Josh rove,” from ayear ago down eight points 37.9% support stands at ○ Trudeau’s 35  DEBRIEF November 27, 2017 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 Photograph network talks to Bloomberg Businessweek by Ike Edeani 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. never believed that because The Crown is a Describe what you’re doing. good show on Netflix, that somehow diminishes Fortunately, we have a lot of momentum with talent. We have this Westworld or Big Little Lies or True Detective. It embarrassment of riches where every Friday in our company we know doesn’t. It just means there’s an additive amount of something exciting from the creative world that we didn’t know about of quality out in the landscape. Our job is to play on Monday. I sometimes say we’re a bit like a great art gallery, and we our game, continue to deliver on what we do. want the best artists to hang their work inside. If you want to use the art I say, over and over again, our North Star is: metaphor, you have the grandmasters, you have contemporary paint- Let’s make sure that we’re guaranteeing that the ers, you have emerging artists. We want all of those people to think of consumer is not only getting the best quality HBO first and to bring their great work inside the company. of content inside the HBO offer but that we’re When I was growing up, HBO was one of the few premium outlets making our product available whenever, however, where you could go to expect consistently high-quality programming. and wherever our consumer, current and future, During the 25 years you’ve been there, and the last five years in par- wants it. That’s why we built a multilateral distri- ticular, the marketplace has added Netflix, Hulu, Amazon, and other bution strategy, and that’s why we’re continuing to “over the top” providers. Are you concerned that you’re going to stop stick to the core values of the way we think about getting first dibs on certain projects? the creative process, which is coming in here and First of all, I’ve never thought that this was a zero-sum game. I’ve doing great work. The line at our door today in

 DEBRIEF Bloomberg Businessweek November 27, 2017

the fall of 2017, is longer than it was five years ago and If you look at viewership, 79 percent of consumers are much longer than it was 10 years ago. For us, the metric is watching movies on their linear channels; and somewhere quality, and if we adhere to that, talent recognizes it, and it around 72 percent across all platforms. Movies continue to becomes a virtuous cycle. be incredibly popular. Even people who have seen a movie in When you talk about HBO now, there’s two phrases that a theater are watching it a second time or even a third time on come up quite frequently: “multilateral distribution” and HBO. That’s a big additive piece of our offering. We’re start- “traditional ecosystem.” ing to market our movie advantage more aggressively than We are going to grow multilaterally—digitally and among we have in the past, just to remind the consumer how many our traditional partners. We looked at the market and real- great movies are on HBO in addition to the library. You can ized we were totally underpenetrating both. We knew that go back and watch The Wire. You can go back and watch the cord-cutter audience was growing. When we made the Sopranos. You can go back and watch Sex and the City. If you decision to build our stand-alone streaming service at missed Big Little Lies, go back and watch it. If you missed True the beginning of 2013, there were only probably 5 million Detective, go back and watch it. Catch up, get familiar with the broadband-only homes. When we stood on the stage in product and the show. Come back to the next season or the March 2015 in Cupertino [Calif.] to announce that HBO would next offering. On Demand is a tremendous advantage. It came stream exclusively on Apple, there were probably eight-and- to HBO first. All of our streaming services add to the beauty. a-half to 10 million. Today, it’s close to 20 million broadband- For consumers, it’s a huge advantage for variable options. only households. Back in 2007, when you were named co-president in charge On the other hand, we also knew we were underpenetrated of programming, The Sopranos was ending, Sex and the in our traditional ecosystem. So our job was to design deals City was gone, and people in Hollywood were saying that that incentivized our traditional partners, because we saw a HBO was over. lot of growth in that market, and to make sure we provided There was some truth to it. I think we had become a little an option to our consumers so that they could get HBO if hubristic. We rode that Sopranos-Sex-and-the-City tiger, and they had a broadband-only service. Both. we thought we had the secret sauce. And I think we lost a We knew it wasn’t going to be cannibalistic. There are little bit of our insurgent voice, which we had brought to the some people who prefer a traditional bundle—maybe it’s a dance for so many years. skinnier bundle and doesn’t have 180 channels in it. But for The job of my colleagues and myself was to refocus on HBO, skinnier bundles have been a good thing, because if that insurgent voice, to trust the writers who were coming 38 you take the average price of a cable or a satellite or a telco in with new ideas. I remember saying over and over again subscription down from $100 to, say, $65 or $70, that means in 2007, “There’ll never be another Sopranos. What there’ll HBO—which has always been a la carte—is a much more be is the next terrific show. And let’s just go back to our digestible purchase. Skinny bundles allowed the cable, sat- essence, which was trusting the voice of great artists and ellite, and telcos to package us more effectively. auteurs who have a vision for what they want that show Opportunistically for us, we’ve been able to parallel- to be.” And in came Alan Ball with True Blood, and Lena process and to grow digital. One has not been at the expense Dunham with Girls, and Armando Iannucci with Veep, and of the other. As I like to say, nobody is doing us a favor when Mike Judge and Alec Berg with Silicon Valley. And these they sell HBO, whether it’s digitally or whether it’s in the two guys, of course, who had never done television before, traditional ecosystem. They’re selling HBO because it’s a David Benioff and Dan Weiss, who had this idea to adapt great product and it helps make their bundles stickier—and George R.R. Martin’s books. because they know their consumers want it. Time Warner CEO Jeff Bewkes has been a mentor of yours You just needed to explain what was inside the HBO and a friend. How much did you learn from him? package to what we called the undecided voter, the per- Jeff had my job from 1995 all the way to 2002, and I had suadable voter—because people didn’t know. You needed the privilege of working for him and next to him. He did a to explain to them that there’s a library of thousands of few things very well that I learned a lot from. One of them hours of programming. That we have four Hollywood movie was, he was a great cheerleader, and I watched him pick up studios in addition to our terrific original programming. And the phone over and over again and call different colleagues you needed to remind people that HBO GO meant that you and say “Well done, couldn’t have done that without your could get HBO on whatever device you wanted. input.” Sometimes I would watch him do it, and I didn’t even As our partners began to market that more effectively know he had been aware that this particular individual had and efficiently, we began to see tremendous subscriber done what they did. But he made it his business to know growth. You saw our third-quarter numbers, which was that that was the case. When you create that kind of esprit 12 percent subscriber revenue growth. We’re on track to de corps inside your company, it’s infectious, it’s invaluable, have our biggest year of subscription revenue growth in the and he was terrific at that. history of the company, so I think we’ve been proven right. The other thing Jeff did is he made big bets. Remember, So much of the media focuses on the original programming, when we chose to do From the Earth to the Moon in 1996, Game of Thrones, the stuff that’s created exclusively, the it was an $80 million miniseries, and you know, telling the stuff that wins awards. But the penetration numbers in terms story of the Apollo space program, that wasn’t a given. But it of movies is still so high and so much of the driver. Are you brought Tom Hanks into the family, it created a certain idea surprised that some people don’t seem to be aware of the that we would take on big, bold projects. That brought about full package that HBO has? Band of Brothers, where Tom and Steven Spielberg came  DEBRIEF Bloomberg Businessweek November 27, 2017

Take a show like Insecure, Issa Rae’s wonderful show “Whether it’s five prequel about growing up African American in Los Angeles. She is opening a world up to people who probably had no idea what ideas from different artists 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 on Thrones ... or the next did this wonderful documentary for us called Baltimore Rising about the city’s extraordinary resilience and grit in making season of True Detective ... its way back after the Freddie Gray murder. You see the the next great idea is waiting dignity of the city in all its dimensions as citizens try to find their voice and their equilibrium again. out there.” 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 in and we did this miniseries based on Stephen Ambrose’s time that it’s entertaining. Because we have such a broad book. Those were big bets. Band of Brothers did $120 million, canvas to paint on, we have an opportunity to do that. unheard of at that time. It ended up creating tremendous The president is frequently described as entertaining. Is brand elevation for HBO. he illuminating? In your opinion, is he part of the problem We’ve seen a wave of harassment claims across the media in terms of the culture of divisiveness? industry and politics involving people HBO has collaborated David Brooks wrote a wonderful column a while ago. He with, including Harvey Weinstein and Louis C.K. What’s been said that there are three different reflexive go-to places in your reaction to it? What are you doing at HBO? Is this a American history. One is religious. One is tribal. And one game-changing moment for women in this industry? is ideals. He argued, Isn’t it much better when we go to If there’s a silver lining in any of this, it’s that it will be a our ideals? This isn’t about whether we should support tax demarcation point for zero tolerance for willful ignorance or reform. This isn’t about where do you stand on [Trans-Pacific turning a blind eye to questionable activities. That’s a good Partnership]. This isn’t about whether we are handling the thing, because I think there was probably a lot of willful igno- Iraq situation with the right level of judgment. That’s not rance going on in different environments because a lot of what this conversation’s about. This conversation is about people had commented on the behavior of some of the people making sure we don’t turn into a tribal country where we 39 who you named for a long time, and people just didn’t look demonize people who disagree with us and we turn com- too closely. That ended with all the revelations about Harvey plicated subjects into Manichean ones, where there’s good Weinstein. I’m proud to say that under my tenure, my prede- and evil and you’re on one side or the other. When you work cessor Bill Nelson’s tenure, it’s been zero tolerance, nothing through difficult problems, there are no easy solutions. Real, but zero tolerance. quality decision-making requires a little bit of compromise, Have you been surprised by just how powerful some of these and it requires your ability to be in the other person’s shoes. women were that kept these stories secret for so long? Wherever you are on the political spectrum, go to the best Two things have surprised me. The horrific extent of ideals of what the Constitution and the Bill of Rights empha- some of the behavior; and that people felt so intimidated size about the core values of the country. and fearful that even women in positions of power, who were You probably hate it when people ask what you and HBO successful by any metric, felt compunction about raising are going to do now that Game of Thrones is coming their voices. They deserve an enormous collective thanks to an end. for being brave enough to come forward. It’s changed the I don’t hate the question at all because what I said earlier landscape forever. has the virtue of truth, which is, the line at our door is huge. How do issues such as the partisan divide and disenfran- Whether it’s five prequel ideas from different artists on chisement inform choices HBO makes over content and the Thrones. Whether it’s Succession, Jesse Armstrong’s fan- diversity of voices out there? tastic show about the media business. Or the next season of I worked for Chris Dodd when he was senator from True Detective, the next season of Big Little Lies, whether it’s Connecticut. He used to tell a fantastic story. After Franklin Lovecraft Country, Misha Green’s extraordinary script, which Roosevelt died, people were watching the funeral train go is a kind of horror genre film set in the 1950s, or Watchmen, by. One person was crying. Another asked, “Did you know Damon Lindelof’s new idea loosely based on the movie but the president?” The answer: “No, but he knew me.” with Damon’s extraordinary take. I’m not concerned about it Chris always thought about that line as the core value of at all, because the enormity of talent that wants to work at what it meant to be a United States senator. Do your con- HBO is larger today than ever. So the thing that’s so excit- stituents feel that you know them? And that really translates ing, if you’re in our chairs, is that you see that line forming. to, do you see them? Are you listening? Those of us who That’s what gives us the confidence to know that the next are privileged to have a small role in popular culture have an great show and the next great idea is waiting out there. opportunity to tell stories that can help people see what dif- Our job is to make sure we pick right and choose right ferent lives look like. Still be entertaining, still be engaged. It and work with the right people, but that’s actually a high- doesn’t need to be didactic, but you can do something that class problem because of the talent that we have who are opens up people’s eyes. excited about being part of the network.  Bloomberg Businessweek Just Ad

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Packing dehydrated strawberries at the Wise plant in Salt Lake City Add Water November 27, 2017 (If There Is Any) Survival foods migrate from armed bunkers to fill the suburban garage By Amanda Little Photographs by Michael Friberg

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

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 TSalt 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- worse than not being able to feed my entirety, or even the majority, of Wise’s nations and airtight, light-resistant pack- kids,” he says, “and the chances of dis- exploding market. “Five years ago, our aging that extends storage times for most ruptions in our food supply are by all market was more than 95 percent men. Wise meals to 25 years, from 7 to 15 years. accounts becoming more likely.” Today, we’re reaching about 50 percent Wise also sells water storage and filtration To me, this smacked of paranoia. My women,” Jackson says, “many of them kits for rehydration in the event a house- brother, cousin, and stepbrother repre- moms—‘guardian moms,’ we call them— hold’s water supply is cut off. sent a skewed sample: All are guys, all worried about a stable food supply for own guns, and two like to hunt in their their kids.” first heard about Wise free time with compound bows and The company’s first customers a a few years ago from a cousin, a arrows. Each possesses at least a flicker decade ago were anxious about infla- I former police officer in Zionsville, of the fatalist prepper sensibility that tion, economic collapse, and terrorist Ind., who kept a supply of its products Wise was built in 2006 to serve. Like attacks; today, the major concern is envi- in his basement that could sustain his most survival food companies, including ronmental instability. “It’s not just the family for six months. Then my step- Emergency Essentials, Wise was founded freak events. We get calls from people brother, an executive who lives in down- in Utah and began marketing its products saying, ‘I live in Miami, and flooding is town Washington, invested in a stash of to the Mormon community preparing for now routine. I’m worried Florida is going drinking water and long-storage food. the end of times, a practice encouraged to be under water in two years,’ ” he says. And my brother, a climate scientist with by the Church of Jesus Christ of Latter- “Or from people in upstate New York who the Nature Conservancy, began build- day Saints. ( Jackson isn’t Mormon.) But experienced a 1-in-a-1,000-year blizzard ing a supply in the basement of his West Mormons—and for that matter, male and couldn’t get out of their driveway Virginia cabin. “I can’t imagine anything preppers—no longer represent the for two weeks. People who lived through

Three manufacturers dominate the market for foods with a shelf life of at least The Survival 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. 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 Dehydrated chicken in a funnel at the plant could almost double by 2050. If they do, regional and international conflicts over the California drought, the forest fires of turned, much of the inventory would limited affordable food would likely esca- Texas and the Northwest, and who think go to waste. “This we can pull out and late—further increasing the odds against maybe the government won’t come to dust off whenever we need it,” he says. food security. their rescue when a disaster hits.” “The students are amazed. Many have “This isn’t about the zombie apoc- When he started at Wise, Jackson’s said it’s better than the food they make alypse anymore—natural disasters are biggest concern was a lack of repeat cus- for themselves and ask to take it home.” the new normal,” says Daisy Luther, the tomers: Most people, presumably, won’t Recognizing the blurring of conve- blogger behind the website the Organic use up their disaster stores. The surprise nience and emergency, Jackson offers Prepper and a survivalist in the more has been how many of his customers his same product in camping pouches typical vein. She thinks we should all return. “Up to 40 percent of my monthly and sells a line of freeze-dried snacks. follow the adage, “eat what you store, sales volume is from repeat consum- This accounts for about 5 percent of store what you eat,” and has guns to ers,” he says. Some buy the products Wise’s products, which represent a protect her daughters—and their stock- 45 for friends and family as gifts. He pumps roughly $60 million category, he says. piles—from the lazy hordes who didn’t up his marketing campaigns around Drafting on the post-food trend, Wise plan ahead. “Being prepared is now just Black Friday and, in the last two years, also created a nutrient-fortified protein acting responsibly, especially for moms,” average monthly sales for November and shake. Silicon Valley’s Soylent raised she says. She sells freeze-dried and sur- December have been 20 percent higher $25 million last year to extend the reach vival products through her online Prepper than average monthly sales for the rest of its product, a just-add-water vegan Market, but in truth, she has a touch of the year. And more customers are powder —baby formula for adults—which of scorn for the parvenu Wise-buying defining their “emergency” uses of the has been imitated by Custom Body Fuel, prepper-lite. “Those just-add-water meals food in new ways. “If you’re a mother People Chow, Ample Foods, and a half- can work in a pinch, but they’re not tasty or father of a couple kids and you’re dozen other new meal-replacement or healthy long-term,” she admonishes. trying to put together a meal before brands that claim to be nutritionally “You need more than just products, you soccer practice—that’s an emergency complete and save consumers time and need knowledge about how to prepare in its own right. They’re running short money while reducing their carbon foot- and season freeze-dried foods. You need on time, low on groceries, so they grab a print. But the majority of Wise’s sales a culture of preparedness.” Luther, like pouch of lasagna, add water, and have a remain the $129.99 black square tubs Jackson, sees a movement arising from rib-sticking dinner for four in minutes.” (the new packaging is catching up with the reasonable concerns of citizens who In Miami, some colleges have to stay old inventory) containing an advertised recognize that we’re up against increasing prepared for food disruptions because 13,600 calories to keep a family of four environmental threats on the one hand trucks are pulled off the road and stu- fed for a week. If you’re the sole survi- and diminishing government safety nets dents are required to stay in their dorms vor, it’ll last four. on the other. when winds get above 39 miles an hour. “Luck favors the prepared,” Jackson Michael Ross, resident district manager t the end of my visit says more than once during my visit. I of the University of Miami’s dining ser- to Salt Lake City, I whip up a still have yet to invest in this luck, but I’ve vices, has purchased 64,000 serv- A batch of rehydrated pot pie. begun to consider it. I live in Nashville in ings of Wise products in the past The result is a tawny gruel. I hesitate, a flood-prone region that was hammered three years to feed dorm-bound stu- stifle a gag reflex, channel my inner by rains when Harvey swept inland. My dents. His team found Wise in 2013 at a Violet Beauregarde, and swallow. The friends and neighbors might actually disaster-preparedness trade show and stuff tastes pleasantly of the chicken cas- welcome those 72-hour survival kits Wise chose the brand after taste testing it serole that was a staple of my childhood. promotes after Black Friday if I give them against others. Ross used to stock up But when I try to imagine consuming as holiday gifts. We can stuff them in the on less shelf-stable fare when storms the contents of the Mylar pouch in the corners of our pantries and hope like hell were predicted, but if the storms aftermath of a hurricane, or in a world 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 November 27, 2017

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 C 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 Macy’s iconic Herald Square store, back in the day that he’s on the edge of a cliff. Sales in Macy’s established stores have been declining 1970 or so: Burdines, Bullock’s, I. Magnin & Co., and Lazarus, to every quarter for the past 11. On Nov. 9 the company reported name a few. The company bought Macy’s in 1994 and a decade a 3.6 percent drop in same-store sales for the third quarter from later took its name and rebranded its other department stores the previous year and blamed the hurricanes in Florida and with the Macy’s name, too. There went Stern’s and Abraham Texas. Executives said that if the holiday season proves as good & Straus. Only Bloomingdale’s retained its identity. Lundgren, as they hope, Macy’s will meet its meager goal for the year: no who took over as CEO in 2003, made one more big purchase more than a 3 percent reduction in sales. Over the past three that doubled the size of the company: In 2005 he bought May years, revenue has fallen from $27.5 billion to $24.6 billion, profits Department Stores Co., which owned Marshall Field’s & Co. and 48 have been cut by almost half, and the company’s market value Filene’s, as well as some smaller chains. They all got the Macy’s is down by about two-thirds. name, too, and Lundgren got to be head of what he called the Blame Amazon.com, blame Apple, blame Everlane and Great American Department Store. “Today sets us on a broader Zara and T.J. Maxx. In one way or another, they’ve taken some mission of reinventing the department store in the United States,” of Macy’s customers by offering no service instead of poor he said at the time. service, gadgets instead of clothes, reasonable prices instead Back-office efficiencies, vendor synergies, and national of weekly discounts, scarcity rather than glut, as well as con- marketing budgets may have excited investors, but none of venience, speed, and the sheen of good taste. Most of all, that mattered much to customers. A few years later, Lundgren they feel modern, without the whiff of decline around them. attempted to “localize” merchandise in stores that he’d A few months after his chief financial officer, Karen Hoguet, essentially just centralized and personalize stores whose told the Wall Street Journal, “Don’t count us out, we’re not decades-old identities he’d just erased. He called the strat- dead,” Gennette agreed to talk about what he’s done so far to egy “My Macy’s.” revive Macy’s, the largest department-store chain in the U.S. “One of the five greatest retail mistakes in history was He met us at Stella 34 Trattoria on the sixth floor of Macy’s Macy’s buying all that it did,” says Nick Egelanian, president of Herald Square, still the single biggest store in the world, a SiteWorks Retail Real Estate Services, a retail consulting firm. bewildering 1.2 million square feet of selling space spread “Macy’s bought department stores that were already failing. among 10 floors and extending over almost an entire city They were buyers when they should have been sellers. If they block. The restaurant, part of a $400 million Lundgren-era were going to buy, then they had to reinvent, but they didn’t.” renovation, opened in 2013 in what was once a storage area. In the middle of last year, Macy’s decided to close 100 of its On a late Thursday morning in mid-October, it’s the busiest 730 stores, eliminating 3,900 jobs. (After a disappointing 2016 part of the store, a place where it’s possible to imagine a pros- holiday season, Macy’s said it would cut 6,200 more jobs.) About perous future for Macy’s. half of the 70 stores it’s shut down this year are within 10 miles “It may be smaller, it may be more virtual,” Gennette says as of another Macy’s. Those might seem obvious choices, but the he sips from a glass of water. “But I’m committed to bricks”—that company had to make another, counterintuitive calculation as is, stores—“and it’s our job to figure out what to do with them.” it selected locations to shutter. When a store disappears, online revenue also shrinks: At traditional retailers, online and offline The original R.H. Macy & Co. was a dry goods emporium that sales tend to be correlated. For example, customers can pick opened in downtown Manhattan not long before the Civil War. up online orders at stores, and once they’re inside, they might But—skipping over many decades of convoluted corporate end up with more than they came for. Some shoppers will seek history—what’s now known as Macy’s was once Federated out another Macy’s if the nearest one is closed, but most don’t. Department Stores Inc., which had acquired many of the depart- “Almost at the ZIP code level, you can predict what you can ment stores that might sound familiar to people born before retain when you close a store and what you can’t,” Gennette PREVIOUS SPREAD: KRISTOFFER TRIPPLAAR/SIPA; THIS SPREAD, FROM LEFT: EWING GALLOWAY/UIG/EVERETT COLLECTION; STEVEN SWAIN Actual salespeople. Actual stores have Whatdodepartment tion is: thatAmazondoesn’t? paste, too, andhave italldelivered days. intwo Sothe ques- Amazon,andthere you called buytooth- that placeis can But today stillvaluable. tress andpajamasinthesameplace—is store—to beabletobuyamat- The premise ofadepartment they counted245. tokeepwould ifMacy’s were be critical over, tosomehow start saidthatwhenHoguet executives considered which locations retailer stillmay have too many stores. At thesameconference, Inc. to potentially redevelop Yet additional locations. 50 the full ofanalysts who agree thatitshould beahighpriority. the CFO, saidatarecent retail Morgan conference Stanley ing there, too. “It’s for allofus,” avery highpriority Hoguet, sell Herald Square butwants to find ways to dosomemonetiz- mid- November was$6.2 billion. Thecompany says itwon’t billion; Macy’s entire valuealmost $4 onthestock market in store, thoughmaybe wants tomake similararrangements foritsdowntown Chicago Macy’s keeps theground Thecompany floorandbasement. thetopsix floorsoftheMacy’s buildinginSeattle, leasing while million. Inanironywent for $250 lostonnoone,Amazon.com is Themen’swill beoffices. store inSanFrancisco’s Union Square a Marshall Field’s, andsince2006ithadbeenaMacy’s. Soonit One hundred years ago thestore was aDayton’s, thenitbecame millioninMarch.of itsdowntown flagship for$59 Minneapolis Wallis Street jargon for “soldcash.” off for Thecompany got rid says. Macy’s hasretained about 12 percent ofsalessofar. A Macy’s inLynchburg, Va., thatclosedthisyear Bloomberg Businessweek IN HISTORY WAS MACY’S BUYING … DEPARTMENT Macy’s has a partnership withBrookfieldMacy’s hasapartnership Asset Management Then there’s Herald Square. It’s estimatedto beworth storesSome ofthewell-situated are being“monetized,” which “ONE OF THE FIVE GREATEST RETAIL MISTAKES STORES THAT WERE ALREADY FAILING” with adifferent tenant. Because buyersBecause atstores s ally, asAmazondoes.” market percent business,hecan 50 ofhis topeopleindividu files onthe10percent customers who accountfor ofhis over newsletter.retail strategy get can personalpro- “IfGennette customers ontheiriPads,” says Robin who a publishes Lewis, engagewho can andhave personalinformationabouttheir own cellphones. Macy’s could get Train started: salespeopleto putaway their wants “customers tofeeltreasured.” Shesuggests aneasyway betough. Newlin But, can says,direct comparisons Nordstrom are smallerthanMacy’s fashion, andoffermore so high-end of efficiency,” Newlin says. Nordstrom andSaksFifth Avenue whofessionals knewtheircustomersgot trashed inthename “The salespro- almostobsolete. professional became salesstaff the company centralized itsmerchandising over theyears, its says who KateNewlin, hasherown abrandconsultant As firm. has worked very hard to killtheirpointof helpful. Experts have noshortage ofsuggestions here. “Macy’s may and hastobepleasant stillbeprofound, buttheinteraction Backstage, in2015. That’s six years afterinitially considering feel like theygot lucky. Merchandise turnsover forcustomersto andthe pointis fast, they offerpieces,notfulllines,and is predictable. much designer madetoomuch, adepart Ross Stores buymerchandise when theyspotan off-price.online andhasbeenamongthemostprofitable: success oftheonekindretailer that’s not suited to selling she’s inthedecade cial beenwiththecompany. website andjustran itsfirstfashion- trousers, pointsoutthatthestore an of-the-moment plaidsleeveless topandmatchingwide-leg says. Instead, Macy’s was focused onprice.Jones, who’s wearing ago we wouldn’t have toldyou we were focusedonfashion,” she mately what willdecide clothesMacy’s should sell.“Two years fewer itemsinthestores. CassandraJones theone who ulti- is ratherthanmore.chandise Eventuallypercent there couldbe30 way fordecades. shoppers helpthemselves. can Sephorahasoperated this impulse brands,suchasSmashbox andUrban Decay, where Macy’sin interaction, hasputtogether ofs asection atMacy’s. Andforthoseinarushof beauty oruninterested is, ontheirphone,”find someone who says Dvir, Nata head aren’tour associates [customers]will trainedineverything, nolongeris trainedto selljustonebrand,forexample. “If are staff beingreplaced department atMacy’s. Thecosmetics In theage retail, thedesire ofdigital forhuman connection “Macy’s needsto into turnitsassociates Apple geniuses Macy’s opened its first off-price department, calledMacy’s openeditsfirstoff-price department, tomimicthe trying space,Macy’s is In someofitsempty itselfby mer- less todistinguish offering alsotrying Macy’s is frustrating department-store salesmethods Some typically uch asT.J. Maxx,Marshalls, and ment store boughttoomuch— now onits offersan“ItList” focused television commer- difference—sales help,” November 27, 2017 opportunity—a opportunity—a o-called o-called - 49 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 are already shopping in the store, and those stores are located 40 years after T.J. Maxx was founded. “Coulda, shoulda, in “what you might call ‘challenged malls,’ ” says Gennette, woulda,” says Michelle Israel, the newly promoted head of where Macy’s has little to lose and potentially much to gain. Backstage. “Every opportunity is different. The store within Backstage, which offers new kinds of merchandise, such as a store is different than our competitors’.” She’ll oversee 45 hair-care products, home décor, and toys, as well as different locations by the end of 2017; seven of those are free-standing, apparel brands, isn’t taking away from regular sales, he says. the rest will be housed inside Macy’s department stores. It’s adding to them, typically by 7 percent throughout the store. The company has plans to expand further in 2018. So does “Backstage is probably driving revenue, but they have to be Nordstrom Rack, which has 232 locations, and T.J. Maxx, the careful about what metrics they use to measure success,” says fastest- growing retailer in the world, with almost 1,200. Chris Petersen, a strategic retail consultant and blogger. “They Israel is bright-faced and energetic and uses the word “fun” might be getting more revenue, but at what cost to margins? a lot. Backstage is supposed to be “a gateway” to Macy’s for Revenue doesn’t pay the bills, margins do.” So far, Macy’s younger shoppers, a fun and lighthearted place with fun prod- margins have stayed close to 40 percent. ucts and faster fashion. “It’s, ‘I need this right now,’ ” she says. Taken together, T.J. Maxx, Nordstrom Rack, Zara, and H&M “It’s like, ‘I have a date in an hour.’ It’s, ‘I hate what I’m wearing will have opened about 750 stores globally this year in the three right now. Can you help me? My plane is leaving tonight.’ ” businesses that account for most of department stores’ sales: For now, though, Backstage mostly attracts customers who apparel, housewares, and cosmetics. “They won’t stop opening November 27, 2017

DAVISON PAXON CO. LASALLE & KOCH, TOLEDO, OHIO R. H. MACY’S CO.

MACY’S INC.

MACY’S BLOOMINGDALE’S

FEDERATED DEPARTMENT STORES SOHILLIT-RIKESO LAZARUS

SANGER-HARRIS

ALLIED STORES

51

ROBINSONS-MAY

THE MAY CO.

STROUSS

2017

at that pace until they put department stores out of business,” an Apple Store, the first department store to do so, and also says Egelanian, the consultant. “Those brands are eating what’s brought in specially designed Brookstone gadgets such as the left of the carcass. That’s stark, but it’s what’s going on.” Grill Alert Bluetooth Cooking Thermometer ($69.99). As depart- ment-store stunts go, those are tame. Back in the 1930s, Saks Gennette says that about a year ago, he assembled a task force had an indoor ski slope powdered with Borax. called What’s New, What’s Next. The group has eight execu- Brands wear out, department stores vanish, malls become tives, several with backgrounds in technology and consumer offices and apartments, technology disrupts: That’s the products. “It’s a dedicated team that is reimagining the future nature of commerce. But even if Macy’s is indeed doomed— for retail,” he says. “They’re in the thick of reimagining how and Gennette, of course, is adamant that it’s not—the final, this brand would fit into the future of retail.” When asked to everything-must-go clearance sale is a ways off. The chain still elaborate, he says, “I’ll get back to you.” draws in some 41 million shoppers a year, and Herald Square He does tell us that a hint of this future would be coming is the fourth-most-popular tourist destination in New York to Herald Square soon. That turned out to be a 1,000-square- City. It’s looking up to Nordstrom and its reputed sales staff foot Samsung “digital playground,” with phones and tablets and down to T.J. Maxx and its no-frills model. “The middle is as well as TVs that serve as frames, connected smart refrig- a good place to be,” he says. The middle, maybe; the average, erators, and virtual-reality chairs (sign a waiver, and you can probably not. So far, Macy’s is making small changes, hoping

DATA: MACYS.COM, NEWS REPORTS, HISTORIC DOCUMENTS, DOCUMENTS, HISTORIC REPORTS, NEWS MACYS.COM, DATA: GOVERNMENTS LOCAL THEDEPARTMENTSTOREMUSEUM.ORG, SOCIETIES HISTORICAL AND ride a virtual roller coaster). Last year, Herald Square hosted for rebirth by a thousand measures. 

Great Expectations P

As controversy engulfs art museums around the world, Maria Balshaw turns up U the temperature at Britain’s Tate galleries By James Tarmy Photograph by Nick Ballon R 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 November 27, 2017

he normally staid world of museum exhibitions has been and £110 million budget, it’s far from agile. But Balshaw’s top upended over the past two years by a series of protests priority doesn’t need to wait: She simply wants to bring art to T that have made global headlines. In 2016, Greenpeace even more human beings. And then more after that. “By 2027, shut down an exhibition at the British Museum sponsored by BP let’s say, I would hope that the Tate is part of the life experi- Plc, the fossil fuel giant. In March climate activists in Paris staged ence and cultural activities of a much wider demographic of dramatic protests demanding that the Louvre abandon its finan- people,” she says. “The Tate has expanded the landscape for cial agreement with Total SA, another oil and gas behemoth. art in this country. Now it needs to ensure that that expanded That same month, a group of artists in New York attempted landscape is shared with the widest community of people pos- to remove a painting depicting the open casket of Emmett sible. That’s the social return on the public’s investment.” Her Till, a 14-year-old black boy who was lynched in Mississippi in bet, she says, is that a more diverse range of artists will bring 1955, from the Whitney Museum of American Art, because it in a more diverse public. “I don’t think we should underesti- was painted by a white woman. Meanwhile, anti-gay protests mate the curiosity in our wider audience.” closed a gender-diversity exhibition at Santander Bank’s cul- Paul Owens, the director of arts consultant BOP, says tural center in Porto Alegre, Brazil. Balshaw’s predecessor, fundraising juggernaut Nick Serota, Call it a symptom of regional strife or simply the growing had a strategy that “depended on very wealthy people.” He pains of an increasingly global society, but for Maria Balshaw, adds: “In major cities, where you have a rampaging inequal- who became director of Britain’s Tate museum in June, an ity, cultural institutions are trying to answer the question: How energized, politically active public presents an opportunity. do they address other people in society?” “The goal I have for the Tate is one where an artistic vision is Whether by accident or design, Balshaw has a résumé held alongside, and absolutely permeates, a sense of our social tailor-made for the times: Her first job after leaving academia mission,” she says on a recent afternoon, sitting in the sixth- was to research the impact of art programs in schools. After floor restaurant at London’s Tate Modern. a subsequent stint as a regional director of development for The cavernous brick monolith looming over the Thames is the Arts Council England, she was hired as the director of the one of two Tates in the city. Liverpool has another outpost, University of Manchester’s Whitworth Art Gallery in 2006. and St. Ives, a popular seaside retreat in Cornwall, England, It was at the Whitworth that Balshaw began to flex her has yet another, which reopened in October after an overhaul muscle, giving female artists such as Cornelia Parker huge solo that cost £20 million ($26 million). shows and championing exhibitions that examined cultural con- Balshaw, 47, has taken the helm at arguably the most fertile flict. She spearheaded one timed to the bicentenary of Britain’s 56 point in the museum’s history: Last year the Tate branches abolition of slavery, “Trade and Empire: Remembering Slavery,” together hosted 8.4 million global visitors, a figure that would which combined 18th century watercolors that depicted slaves represent 15 percent of the U.K.’s total population. According to working in sugar colonies alongside contemporary pieces by an Art Newspaper survey, the Tate Modern is the world’s most black artists. popular modern and contemporary art museum. In 2011, Balshaw took on the additional role of director at Now that the renovation of the Tate St. Ives, housed in a the Manchester Art Gallery. There, she pushed exhibitions with 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 The Tate Modern 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 MODERN, BRITAIN, LIVERPOOL: COURTESY TATE PHOTOGRAPHY. TATE ST. IVES: HUFTON+CROW IVES: ST. TATE PHOTOGRAPHY. TATE COURTESY LIVERPOOL: BRITAIN, MODERN, ART Bloomberg Pursuits November 27, 2017

a political bent, such as a multimedia show by the conceptual with a $372 million addition. “It’s important to remember that artist Jeremy Deller that explored the impact of the British 20 years ago, London was not the center of the art world,” Industrial Revolution on popular culture. The lead image of the Balshaw says. “We just accept it as if it’s always been like this.” exhibition was possibly Deller’s most famous: a 1973 photo of But with that stupendous growth came the absence of any- the glam rocker Adrian Street, covered in makeup and draped thing that would ruffle the feathers of the museum’s myriad in a bejeweled cape, vamping next to his coal miner father, supporters. Only about a third of the Tate’s funding comes who wears a look of comic terror. from the government; it generates the rest through corpo- “She has this incredible ability to bring people and communi- rate and private donations and ticket sales to special exhibi- ties from all walks of life together through art,” says Raqib Shaw, tions. (Bloomberg LP, which owns Bloomberg Businessweek, an artist who had a solo exhibition at the Whitworth. “Her proj- is a major donor to the Tate.) And so, over the past decade ects are accessible, immersive, and thought-provoking.” or two, the Tate Modern has put on inoffensive blockbust- When it was announced in January that she’d be replacing ers such as the exhibition of Matisse cutouts in 2014. The Tate Serota, the Tate’s director of three decades, it was a surprise to Britain has had wild successes as well, like the recent David many in the international art world, but a logical choice to most Hockney retrospective, seen by a record half million visi- people who knew her. “It was absolutely the most perfect pro- tors. Another magnificent show, “Turner and the Masters,” gression,” says Samantha Lackey, who is senior curator of pro- compared English Romantic painter J.M.W. Turner’s art with grams at the Whitworth and who was hired by Balshaw. paintings by Rembrandt, Titian, and Canaletto. This sort of The organization Balshaw inherits at the Tate—with its perma- programming, while popular, sparks discussion of art history nent collection of more than 70,000 artworks, a staff number- rather than a raw examination of current affairs. ing more than 900 employees, and at least a dozen exhibitions Balshaw’s willingness to break from that model might rock going on at any given moment—is a dramatic departure from the boat. But the trustees who appointed her seem to be ready Manchester. “It has an enormous brand,” says Gail Lord, the for a change. Several shows, including “Queer British Art” at the president of Lord Cultural Resources Inc., an international con- Tate Britain (which closed on Oct. 1) and “Soul of a Nation: Art sultant that’s done work for the Tate. “They now have an awful in the Age of Black Power” at the Tate Modern (which closed on lot of real estate. The real challenge will be to make it work and Oct. 22), demonstrate that leadership had already begun to pivot get significant numbers of more people engaged.” toward more “woke” programming even before it hired Balshaw. The museum was founded in the late 19th century by Henry She’s thought of some quick strategies to expand her audi- Tate, a sugar baron who, after his donation of pre- Raphaelite art ence. She mentions extending museum hours: “Fifteen years 57 was rejected by the National Gallery, led a campaign to build a ago, when my children were under 5, I would have given any new museum for British art. He opened the first gallery, over- amount of money in the world to find somewhere that was looking the Thames a short walk from the houses of Parliament, open and had something interesting going on before 6 a.m.” in 1897. When Serota took over its single building in the 1970s, And she’s hoping to encourage an event-based culture, citing through sheer force of will he raised the funds to open the Tate a gay pride celebration in the context of “Queer British Art” as Liverpool (1988) and the Tate St. Ives (1993) and to purchase an example. If she can prove that a more diverse crowd wants the derelict power station in Bankside, across the river from St. to learn from exciting, controversial work, she expects all the Paul’s Cathedral, that would become the Tate Modern (2000). museum’s various supporters will get in line. Sixteen years later he expanded that building by 60 percent “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 St. Ives

The Tate Liverpool DRINKS Bloomberg Pursuits 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, 58 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 The Cutoff 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, The barman who founded Manhattan’s venues they originally positioned came out in October. PDT speak-easy has a message: We’re themselves against. drinking too much. By Jim Meehan 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 In the mid-aughts, America was on the tail end of its obsession alcohol content of the gin that mitigates the sweetness. Then with the Cosmopolitan and on the cusp of a classic cocktail there are the effects of alcohol itself; you won’t find a study renaissance. The country was reacquainting itself with the gin that advocates for anything more than moderate drinking. martini and the Old-Fashioned, drinks in heavy rotation on the I know that in these roller-coaster times, it’s easy to feel hit TV series Mad Men, which premiered in 2007. out of control. The stock market might be surging, but it’s an That same year, I opened a speak-easy-style bar in the East anxiety-provoking ride. And paying attention to daily politics Village called PDT (short for “Please Don’t Tell”). And then is a white-knuckle endeavor. But for those exact reasons, now the global financial markets crashed. As the glut of capital that is a time for vigilance and poise. fueled sprawling clubs and lavish restaurants in Manhattan The moral of my story isn’t that you should never drink dried up, customers’ focus shifted from decadent décor to the alcohol. The widespread availability of high-quality spirits, quality of what was on their plates and in their glasses. and cocktails served by passionate professionals, makes this Looking back, PDT’s early success was surely due in part to one of history’s most exciting times to drink. Just do it a little the crisis, as New Yorkers sought more intimate spaces to ride less. Seek out drinks prepared with top-notch liquor and have out the recession. In turbulent times, people also tend to drink two instead of five. When you return to the bar, help us out to calm their nerves. (Much as they do during the holidays.) and bring someone who’s never tried a great cocktail and The problem is that even after the markets rebounded, people share the craft. Instead of the troubling binge-drinking trends kept drinking. About 12.6 percent of adults reported “high- we’re seeing today, I’d love to see more people respect alcohol

risk” drinking in 2012 and 2013, compared with 9.7 percent as the rare treat it is. Now that would be icing on the cake.  BUSINESSWEEK BLOOMBERG FOR MCCLURE JOANNA BY PHOTOGRAPH FITNESS Bloomberg Pursuits November 27, 2017

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 That cautious optimism also describes how I came away from who spend a lot of time, money, and psychic energy on endur- the Ionic after spending a month running, swimming, and sleep- ance competitions, athletic ambitions are worn on the wrist. ing the smartwatch through its paces. This version has potential: That’s why investment bankers and executives helped It’s far less reliant on the app than previous models, allowing make the Timex Ironman one of the best-selling watches in more functionality directly on your wrist. I can set an alarm on the world—a Rolex communicates wealth, but that $100 digital the watch rather than choose my wake-up time on the app and 59 wristwatch says you’re serious about training in and out of the wait for it to sync. The look is more distinctive than that of its office. I consider myself part of this demographic, not so much predecessor, which had a similarly square shape but required for my performance level as for my willingness to spend trou- you to pop it out of the casing to charge it. bling amounts of money on workout clothes, event fees, and Notably, the Ionic caters to the fickle habits of today’s daily the airline tickets to get there. athlete, with a menu of exercise-tracking measurements that And gear. Especially gear. I’ve been a Fitbit user since I bought start with running, biking, and swimming. It’s also waterproof the Flex (an early model that looked like a bracelet) in 2013. I and counts laps automatically. And there are options for tread- then early-adopted the Charge (a bit bulkier, but with a larger mills and weights, helpful for keeping track of your timing and screen), and finally the Blaze, Fitbit’s first real smartwatch, in heart rate when you’re traveling and relegated to a hotel gym. January 2016. So far, I’ve resisted the Apple Watch. The hype is A much-improved holdover from previous versions is the a turnoff for me, but the bigger issueis its battery life—18 hours, Coach app, which leads you through a series of high-intensity compared with almost five days for the Fitbit. workouts, including 7- and 14-minute ones designed to get your This fall, the San Francisco-based brand released its most heart rate up and kick the rust out. It even shows clips that ambitious gadget to date: the Ionic, a sleek watch meant to demonstrate various exercises, which is good, because I didn’t replace the bulky GPS-enabled devices marathoners obsessively know what a “typewriter pushup” was. check during training runs and races. That feature, says Fitbit’s director for product market- I was especially intrigued by the notion of ditching the Garmin ing, Michael Polin, is where the possibilities for this device I’ve worn in tandem with my Fitbit for several years. The Fitbit become clear. An update will give the watch the ability to was my daily watch, dutifully tracking my steps and calories and learn your strengths and adapt, steadily increasing the chal- sleep, but it lacked Garmin’s GPS and heart-rate monitor. As a lenges in a workout. practical matter, that meant I wore one on each wrist when I At $299, the Ionic is less expensive—but only slightly—than the was running, a look that signaled I was trying a little too hard. Apple Watch Series 3, suggesting a coming arms race to develop A more robust smartwatch would be a nice-to-have for me, the best apps. It’s hard to bet against Apple when it comes to but it’s a must-have for Fitbit Inc. Since the initial public offer- design and ease of use. The Ionic’s download times for music— ing in 2015, the stock price has plummeted from $47 a share to played through wireless headphones—are still long. And Strava, about $6. Investors remain worried about competition from the workout-tracking social network, comes preloaded, but an Apple Inc. and Samsung Electronics Co., which Bloomberg even richer interface that gives more data about runs and rides, Intelligence analysts describe as “dominant players with accom- along with those in Strava, would be welcome. panying mobile ecosystems.” But they all take solace in a fast- Polin says users should think of the watch as a platform that’s growing market: According to International Data Corp., sales easy to build on. “The idea is that it’s better for you a year in than of wearables may reach as much as $34 billion by 2020, up it was when you first got it,” he says. “I think of the hardware as

PHOTOGRAPH BY JANELLE JONES FOR BLOOMBERG BUSINESSWEEK; PROP STYLING BY GOZDE EKER GOZDE BY STYLING PROP BUSINESSWEEK; BLOOMBERG FOR JONES JANELLE BY PHOTOGRAPH from $20 billion this year. 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 brunch at its restaurant, Mahal Palace are the only Frangipani (rooms from $121; hotel names you need to tridenthotels.com). know—and helpfully, they’re If the Oberoi is all brains, complete opposites. The beauty defines the Taj Mahal former, in a decades-old sky- Palace (rooms from $124; scraper with a prime location taj.tajhotels.com). Its 1903 on Marine Drive, stands out building is a paragon of for its world-class service: British colonial design, Expect pillowcases embroi- located conveniently near dered with your name. The the Gateway of India arch monochromatic rooms are monument. Free yoga classes spacious and functional are held by the pool each and a bit bland except for morning, and important the views of the skyline, Indian art lines the corridors. which locals call the Queen’s The rooms are small but Necklace (rooms from $149; exquisitely decorated; some oberoihotels.com). Guests even overlook the Gateway can enjoy the same view itself. Simply put, if the only from the slick rooftop pool taste you get of India is the at the Oberoi’s sister hotel, Taj, your appetite for local the Trident, right next door. flavor will still be satisfied. It’s a slightly less formal and less luxurious property, but it has a more modern

look and a popular Sunday XINHUA/ ELEPHANTA: PICTURES. SHOHAT/FLASH90/REDUX NATI INDIA: OF GATEWAY PHOTOGRAPHS: CANTEEN BOMBAY PHILLIPS, PALACE, MAHAL TAJ COURTESY PICTURES. EYEVINE/REDUX TRAVEL 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 Temples on Elephanta Island call the city? Its name was officially changed to t EAT Mumbai in 1995, but locals still call it Bombay. After bringing ambitious – Indian food to New York Since India went cashless in November 2016, tipping City at Tabla, chef Floyd has become trickier: Have Cardoz returned to Mumbai waiters add 10 percent to to open Bombay Canteen your restaurant bill before they swipe your card, or ask 61 (thebombaycanteen.com), hotel front desk attendants a casual but buzzy ode to add gratuities when you to India’s lesser-known check out. – regional dishes. Order If you’re concerned about the red snapper ceviche safety, stick to UberX and in herby kokum broth above—the drivers will be better vetted. and the Kashmiri lamb, a – heady, fall-apart stew redo- Mumbaikars eat dinner on lent of turmeric and garlic. the later side—9 p.m. is normal. (They’re not known For a business dinner, for punctuality, either.) the Table (thetable.in) is – more glamorous than Coconut water is high in electrolytes, making it a Vintage prints and objets d’art at Phillips stuffy. The menu’s upscale 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 Red snapper ceviche at Bombay Canteen open, fair-trade workshop. 62 video showing shadows ofprehistoric humans. complete flamesanda360-degree withhologram hearth nary future. Inthefire inthemiddleofanimagi- Istand exhibit, our relationship withsuchthingsasfire, wine,and the sea, park’s “rides,” multimedia experiences artistic to dedicated orgetarch cans pulledintooneofthe made oftomato-sauce topreserve. trying is of pigEataly ofcowsferent types andarare black-and-white-striped variety The animals,aswell-groomed ashouse pets,includeninedif- ifyouvisit wander outside theshopping area into theorchards. nearby farms,and there’s livestock which onlocation, you can overhead produce fresh His solarpanelinstallation. is from apples kinds),thenboasts abouthaving (1,200 Europe’s largest ing bikes, Farinetti can’t helphimself:“Isn’t this have wooden baskets tohelpyou shop. atthegleam- Gesturing one ofthehundreds ofnewoversize which Bianchitricycles, lessly andletitallsinkin,orfollow apath,eitheronfootor restaurants,stalls, andworkshops. You walk around can aim- consumers (andmake abuckatit). Farinetti’s next to bringfarmerscloserto mission step inhis foodandkitchenware. megastores ofItalian high-end FICOis one that recently Angeles. openedinLos Thinkofthemas stretchwhose from franchises NewYork toTokyo, including He’s theever- and exhibits by FICO’s very own Willy Wonka, Farinetti. Oscar around thethemepark’s farmland, offoodstands, 25acres November 27, 2017 before theNov.15 opening.We are herded just andforeign visiting journalists local colloquially means“cool” or“attractive.”) Farmingtranslates toItalian Factory, butalso which roughlyFabbrica Contadina, Italiana (Theacronymor FICOforshort. for stands food culture at Bologna’s World, FICOEataly November, vastswathsofItaly’s you tap can andnearby hillsidevillages.picturesque city Rome tohunt down theflavors inthe nestled train fromlong hopped onthetwo-hour sciutto, andbalsamicvinegar. Foodies have BloombergPursuits pro- Parmesan, oftortellini, the birthplace inItaly’s located EmiliaRomagnais region, one”—for itswealth andedibledelicacies, nicknamed Bologna, CRITIC these delightsonyour this own. Starting But the main attraction is thefood. You is But themainattraction watch olive can oil poseforpictures underanInstagram-friendly Guests can He waves frantically at anentire wall made ofbiodiverse Farinetti usthrough leads agreat hall,dottedwith L-shaped evenAnd coolitis, toapackofjaded But now, you nolonger needto find optimistic andhyperoptimistic la grassa Pasta’s Magic Kingdom Italy’s sidestreetsandheads Can FICOEatalyWorld touriststoskip persuade —“the fat active founder ofEataly, By AlessandraBy Migliaccio fico ?” spend there, orifshe’d need three.  her itinerary. Sheasked days whether two would beenoughto andshe didn’tcoming tovisit, ask whether toincludeFICO on appetite. Recently afriendfrom New York told meshe was Farinetti seemstohave doneagood jobwhetting theworld’s streets andrevel inItaly’s imperfections. Farinetti’s farmers,IthinkI’d optimistic prefer to step into those tions. Andthough many lookconsiderably lesschirpy than Some tote groceries, probably boughtinlessglamorous loca- heading homefordinner. Someare onbikes, butnotBianchis. about 25minutes lat But theimpersonalmassiveness hard ofitis toobscure. design tothegleamingfruitsandvegetables. Andit’s delicious! It’sIKEA. allvery sleek andcool,from thearchitecture and atisters theendofopenspace, however, ofagiantfoodie is money.that prints Theimpression reg- asonereaches thecash intoamultiplatform toturnanything brand ability Americans’ are Othersare charmingenoughfordatenight. great forfamilies. But theshopping andrestaurants are andsome anenticement, beingmadeathome. watchpasta afterall,theycan project; Primori says she expects FICOto break evenmillion ayear. at $94 million ofthemforeigners. FICOChiefExecutive2 OfficerTiziana he seesFICOas“a chancetomake bothhere it, andabroad.” SfogliAmo, says startup ofpasta theco-owner Michele Fucili, hair salonthatwillmassage biodynamic lemonintoyour locks. traight to the superstore? traight tothesuperstore? As I head out to catch thefasttrainbacktoRome,As Iheadouttocatch which is But Ilive inItaly, andthat may skew my Sofar, viewpoint. Farinetti says hewasinspired and toDisneyland by visits his So far, I’ve Italians spoken toseemlukewarm aboutthe Farinetti says heaimstohave ayear, about6millionvisitors where thetrain—a tiny people-mover that of preservatives. world It’s tasty amagical, “liberated his salami,”and try which free is prosciutto are beingcutby Massimo Pezzani wooden counter where slices delicate of (It’scheese. aminute.) athrill Istopata stages required toage prosciutto and and beerwhile you observe thevarious wines beingmade,orsiplocal and pasta gelato makers, machinery abookshop, anda makers) andGranarolo (cheeseproducers) to from bigonessuch asItaly’s (coffee- Lavazza involved, Therebusinesses areBologna. 150 owned ofbuilding is by themunicipality supermarket group,an Italian co-op andthe to ship thingshome. ally runsontime.There’s even apostoffice Italy’smimics Frecciarossa fasttrains—actu- e, Ipeerdown Bologna’s streets atpeople The parkaventure is and Eataly between

ILLUSTRATION BY GAURAB THAKALI THE ONE Bloomberg Pursuits November 27, 2017

LG Laser Smart Home Theater Projector A small but mighty television replacement. Photograph by Yasu+Junko

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THE CHARACTERISTICS THE COMPETITION THE CASE LG’s newest home projector is a compact little As consumers’ TV-watching habits evolve, the It’s easy to go from broadcast TV to Netflix and device—just 4.6 pounds and about the size of a home-projector market has expanded—and back again with the “magic” remote control, loaf of bread. But the $1,500 gadget, released in innovated—accordingly. Options now include which uses an array of buttons and a laser- May by the 70-year-old Korean conglomerate, the pocket-size ASUS ZenBeam E1, which pointer-style cursor to navigate around the produces crisp, bright, full HD-quality images retails for $269 but uses LED bulbs that, at screen. Built-in speakers produce a slight 3 watts at up to 140 inches. The heart of the projector 150 lumens, demand a very dark room. LG’s of sound, but the projector pairs readily with is the LG WebOS interface, an integral feature laser-illuminated model has a maximum Bluetooth audio systems and even allows you to of the company’s smart TVs that uses a brightness of 2,000 lumens, and the lamp has fine-tune sound and image synchronization— Wi-Fi or ethernet connection to conveniently an expected life of 20,000 hours. The projector often an issue with wireless audio. These features access Netflix, Amazon Prime, Hulu, and other does need to be about 14 feet from the wall to aren’t rare in home projectors, but finding them streaming services. The projector has two HDMI get the full widescreen effect, a far cry from in a single small package at this price uniquely and two USB inputs to connect to laptops and Sony’s top-of-the-line VPL-VZ1000ES ultra- qualifies it to be the one that finally replaces their ilk, as well as a coaxial cable jack for those short-throw projector, which requires as little your TV altogether. LG laser smart home theater who haven’t cut the cord. as 6 inches of space but costs $25,000. projector, $1,500; lg.com 64 Leon included KenzoLeon logo sweatshirts in their parents were initially skeptical when Limand andmixedfabrics Thelabel’s prints. corporate Kenzo, infine thenknown pieces forelegant VuittonHennessy Louis SEhired theduotolead stores inNewYork, and Tokyo. L.A., Itsoon expandedof designers. toseven influential 2002 by together gathering itemsfrom avariety Opening Ceremony, thecultboutique in started was since.Theirfirstproject professional partners They metasunder Lim’s family from is South Korea, Leon’s from ChinaandPeru. of highfashion consumers. toyoung, streetwise inside insiders—andintheprocess openedthestuffy world that untilaboutsixyears ago wasknown only tofashion’s most tobuildanutterly hipretail empiresensibility outofabrand they would go eat.” voracious usedthis They’ve would seewhat they were wearing, where “As we toourfavorite listened bands,we asteenagers,of magazines” Limsays. “We were bothreally avid readers atrainedthat designer. neitheris phenomenon, you needto know luxury brand, into apopular made Kenzo SA, aParis-based haveLim andHumberto Leon TO UNDERSTAND HOW CAROL In 2011 luxury conglomerateLVMHIn 2011 Moët grewBoth Angeles upinLos asfirst-generation Americans— Humberto Leon and Carol Lim graduates at UC Berkeley andhave been

The fashionworld outsiders creatinganew definition ofluxury. GAME CHANGER Leon’s speak Japanese, Their mothers are best Lim’s daughtersspeak Mandarin, Cantonese, lobr usis November 27, 2017 Bloomberg Pursuits cooking companions friends andfrequent b. 1975, LosAngeles English andKorean; (both ofthem) and English - - ships at Instagram Inc.: “They addanelementofsurprise Inc.:“They ships atInstagram to life. Sayscollections Eva Chen,head offashion partner- with afilmmaker, or to bring themusician avant-garde artist, to finish,” often endinginsomekindofcollaborative project lines,” says. Leon “It’s alengthy process thatgoes from start work withmy designteamtopush shapes, silhouettes, and process. “We explore ideasby drawing anddraping, andI By ArianneCohen By make you want tobuyclothes. and delight resonate andstay withyou.” And differentiate ourselves ina way that will surprise Lim: “We’re lookingtoseehow constantly we can a family reunion. It’s justtheway we think.” Says find apiecethat can toabarbecueor youwear that you have can anexpressive fashion show and ing should bedemocratic,” says. Leon “We feel ion’s exclusive side.“We have always felt that cloth- fantastic.” theydothatis and delighttoeverything ing, butthey’re deeply involved inKenzo’s design Above fash- committedtoresisting all,they’re Lim and Leon mayLim andLeon nothave fashion train- planned fornext year. expansions across AsiaandEurope Seoul, andMadrid,withfurther year, inParis, includingones brand is addingbrand 22stores is this over 50to under30, andthe customer hasdropped from the average age oftheKenzo first collection. Sincethen,first collection.

ILLUSTRATION BY SAM KERR