Autos

This Is What’s Going to Replace Your Boring Old Sedan

2015 Chevrolet Trax
2015 Chevrolet Trax Chevrolet

A new automotive segment is being hatched this Easter Week at the New York International Auto Show—the small SUV. Three new models aimed directly at millennials made their debuts: Chevrolet’s Trax, Jeep’s Renegade and Honda’s HR-V. “The small SUV is truly becoming the next big thing in the global auto market,” says Alan Bately, GM’s CEO for North America. Worldwide, the car manufacturers expect small SUVs to generate two million units in sales in 2015.

That’s more than enough sales to attract the likes of Fiat-Chrysler’s Jeep division, which unwrapped a gorgeous little Renegade. It’s the latest effort by the company to extend the Jeep brand, one of the hottest performers in the company, on a global scale. The Renegade has a passport, too. It was designed in Auburn Hills, MI. But the car will be manufactured in Fiat’s plant in Southern Italy, to take advantage of the company’s small car manufacturing skill as well as the available capacity.

Honda is adding the HR-V to its small vehicle lineup for a winter launch. It’s built on the same platform as the subcompact Fit.

The attraction of small SUVs, say manufacturers, is the combination of urban maneuverability, versatility, and improved fuel economy. “People are moving to smaller SUs because they like the SUV attributes like higher chair height for better command view of the road. They like the versatility between passengers and cargo,” says Jim Brown, Chevy’s product manager for small cars.

Named for a 2007 concept vehicle, the Trax was launched in late 2012 in Mexico and Canada as a 2013 model. About 90,000 have been sold in more than 60 global markets. In addition to the U.S., the 2015 Trax will also go on sale in China, adding the small SUV to Chevy’s two largest markets. Made in Korea, it will be in showrooms this December and likely cost in the mid $20,000s.

The development of the small SUV segment also demonstrates that millennials have entirely different criteria for purchasing cars than their parents did at the same age. To them, a small SUV is an all wheel drive iPad with room for their friends and their stuff. “A generation ago maybe there was more emphasis on horsepower, performance, those type of things,” says Cristi Landy, Chevy’s senior manager of strategy for small cars. “Now the most sacred possession for a lot of these people is their smartphone, so we’ve been able to integrate that technology into the vehicle very seamless fashion.”

The Trax will be available Siri Eyes Free, a 7-in.-diagonal color touch screen and additional USB ports. OnStar 4G LTE with a built-in Wi-Fi hotspot will allow passengers to connect multiple devices. And the driver can navigate with downloaded apps such as BrinGo, which will keep the cost of options down. Embedded music apps will include Pandora, Stitcher, and TunedIn. It will also have an engine, no doubt.

At Jeep, the new Renegade comes in urban and rural flavors, Latitude and Trailhawk, with a couple of powertrain and 4×4 options that can suit a variety of drivers, “whether it’s rigorous off-roading or just some social climbing in the city,” notes Jeep CEO Mike Manley. The 9-speed automatic transmission claims more than 30 mpg. Hewing to its off-road heritage, though, Renegade offers two “intelligent” 4×4 systems—Active Drive and Active Drive Low in the Trail Hawk version. The former allows seamless transfers between 2- and 4-wheel drive; the later is designed for ultra off-road travelers.

“Make no mistake, Renegade is pure Jeep,” Manley says, pointing out details such as the rounded headlamps and the seven-slot grill. The Renegade may have been conceived in America, but this Jeep also shows its Italian refinement. The design of the upper part of the SUV just screams Fiat. The curve of the windows, tilting toward the rear, the interior styling and the wide environmental view from inside all take cues from Renegade’s Italian in-laws, the Fiat Panda and 500.

Honda’s HR-V lacks any Continental legacy, nor can it claim much in the way of off-road chops. Then again that’s not what you’d expect from a Japanese utility vehicle. Instead, Honda is making a play for urban cool. The company says the HR-V will feature Honda’s Magic Seat, which morphs quickly into multiple configurations and allows the second row seat to go flat for added cargo space. It will be a complement to the Fit and a competitor to crossovers such as Nissan’s Juke and Kia’s Soul.

The manufacturers expect sales of small SUVs in the U.S. to increase 87% over the next three years, which is one reason they are rushing them to market. More importantly, these are vehicles perfectly suited to first time buyers. Get them now, goes the strategy, and you have a good shot at keeping them for decades.

LeBron James Is Lovin’ McDonald’s — in China

Brooklyn Nets v Miami Heat
LeBron James during a game at American Airlines Arena in Miami, March 12, 2014. Mike Ehrmann—Getty Images

The Miami Heat forward is taking center court in McDonald's plan to retool its strategy in the world's second-largest economy, where burgers have lost sales to noodles

China, meet McDonald’s new cultural emissary. LeBron James, meet China.

The fast food empire will feature the NBA star in its China-focused commercials later this year, using LeBron as a gambit to boost its sales by satisfying the Chinese love of American basketball.

McDonald’s new ad move is part of drive to lure more Chinese sales, the Wall Street Journal reports, where the company is redoing its China-based stores in Beijing, Shanghai and Guangzhou and overhauling its advertising campaign.

The moves come even as growth in China appears to be slowing, with overall economic growth in the country at 7.4% in the first quarter, its lowest level in 18 months.

Last year, China’s sales slowed 3.6% compared with 2012, as many of McDonald’s customers in China eat at cheaper local restaurants and noodle joints instead.

[WSJ]

 

Food and Beverage Industry

Big Comeback Planned for the All-American Drive-in Burger Joint

Wendy's hamburger has become more popular than McDonald's.
Paul Vernon / AP

The once-ubiquitous drive-in restaurant–you know, the kind with rollerskating waitresses–will be seen again very soon in all parts of the country, even in states where you wouldn’t want to eat outside for much of the year.

Sonic, the old-fashioned burger-and-shake chain known as “America’s Drive-in,” grew steadily in the early years of the new century. The company hit the 2,000-location market in 1999, and promptly leaped up to 3,000 drive-in locations by 2005. By late 2008, the 3,500th Sonic location opened in the U.S.

However, that’s where the expansion leveled off. Here we are, six years later, and the Sonic website lists the number of locations as simply “more than 3,500.”

It’s understandable that Sonic’s growth might slow substantially of late. The company’s franchise expansion stalled around the time of the Great Recession, when business slowed across a wide range of industries. Over the past five years or so, fast food lunch and dinner sales totals have generally plateaued, and a perception has taken hold that perhaps we’re reaching the point when American consumers just can’t handle any more fast food burger joints.

What’s more, Sonic stands out in the crowded field due to its drive-in feature, in which customers pull up into parking spots in their cars, place their order, and wait for one of the restaurant’s old-fashioned “carhop” staffers to delivery the food. It’s a charming custom, but the charm wears off when, say, it’s 20 degrees and there’s 18 inches of snow on the ground.

“The main difference that sets drive-ins and drive-thrus apart is that the demand for drive-ins is more heavily dependent on the weather,” Hester Jeon, an analyst with IBIS World, explained recently to Marketplace. “Sonic’s business dips pretty dramatically during the colder months.”

So another reason that Sonic’s growth slowed is that it was running out of warm-weather spots to open up more franchises. The company is based in Oklahoma, and its restaurants have traditionally been concentrated there and in Texas, Mississippi, Tennessee, and throughout the South—pretty much everywhere that spring starts early and the chill of fall sets in late.

Nonetheless, Sonic just announced huge plans for growth, with expansion in the U.S. expected to reach roughly the same pace it reached in the early ’00s. The numbers thrown around by Sonic are bold, and nice and round: 1,000 new locations over the next 10 years.

In light of the company’s already heavy presence in the South, how will Sonic do it? First, it’s targeting states with mild climates that don’t already have an abundance of Sonics, namely California. Over the next six years, the goal is to open 15 Sonics in southern California, specifically in greater Los Angeles and San Diego County, and another 15 elsewhere in California. By 2020, Sonic expects to have a total of 300 drive-in locations in the state.

Second, and most interestingly, Sonic isn’t shying away from cold-weather locations. Last summer, Sonic opened in its 44th state, an unlikely one for a drive-in chain: North Dakota.

What makes Sonic’s expansion to North Dakota and other spots with short summers feasible is the introduction of a new restaurant design prototype that features drive-in stalls and outdoor seating that most Sonics, but that also includes a decent-sized area for indoor seating—making the idea of eating at Sonic in January in North Dakota or upstate New York seem not totally nuts. “With locations up north, we had to think creatively about how to develop a location that works with inclement weather while still matching the iconic SONIC Drive-In look,” Bob Franke, Sonic senior vice president of franchise sales and international development, said in a press release for the opening of the North Dakota location. “The result is a new SONIC Drive-In prototype that gives our guests many options during their visit that won’t be disrupted by a little snow.”

The result for diners is that even if they live in an area of the country where drive-in dining wouldn’t be comfortable for the majority of the year, they’ll be fairly likely to see a Sonic pop up in their neck of the woods in the near future. “The Northern states are ripe with expansion opportunities for Sonic, given the brand’s relatively small footprint in the area combined with high customer awareness and pent-up demand,” Franke said earlier this year. Over the next handful of years, 13 new Sonics are planned in the vicinity of Buffalo and Rochester, N.Y., and by 2018 another 14 should open in the greater Seattle area.

Music Industry

Record Labels Suing Pandora Over Oldies

Major labels say Pandora is violating their copyrights to a slew of pre-1972 oldies like the Beatles, Rolling Stones and Aretha Franklin. While federal copyright laws don't protect the older tunes, record labels argue that the music is protected by some states

Sony, Warner and several other major record labels are suing Pandora for copyright infringement, accusing the Internet radio mogul of playing pre-1972 songs by artists like Buddy Holly and the Rolling Stones without licenses.

The record companies argue that while the pre-1972 songs Pandora plays aren’t covered by federal copyright protection, they are protected by common law in states like New York, where the case was filed Thursday, the New York Times reports. The labels control the rights to a litany of major artists like the Beatles, Aretha Franklin, Bob Dylan, James Brown and others.

The record labels claim that Pandora is unjustly profiting from their artists, denying them tens of millions of dollars each year from Pandora and other streaming services.

“This case presents a classic attempt by Pandora to reap where it has not sown,” the labels say in the suit.

María Elena Holly, the widow of Buddy Holly, said in a statement: “Just because Buddy and the other ’50s musicians recorded songs before 1972 doesn’t mean their songs have no value. These companies’ failure to pay the rock ’n’ roll pioneers is an injustice and it needs to change.”

Pandora plays songs according to user-preferred categories like “Motown” or “60s Oldies.” The company said it was confident in its legal position.

[NYT]

Here’s How You Help the Poor Without Soaking the Rich

AFGHANISTAN-SOCIETY-TULIPS
Afghan children Malik, 8, and Popal, 11, wait at a roadside with wild tulips for sale to potential customers driving through the Shamali plains, north of Kabul. SHAH MARAI—AFP/Getty Images

We have to clear our minds of a fallacy about poverty alleviation: Helping the poor does not mean welfare. This isn’t to say that we don’t need welfare. Ignoring the unfortunate who can’t put enough food on the table or afford proper education or healthcare is not just cruel, it’s bad economics. The impoverished make either good consumers or productive workers.

But government aid can only reduce the suffering of the poor; it usually can’t make them escape poverty permanently. We know that from watching what has happened in the developing world over the past half century. Those countries that have tried to use wide-scale state programs to alleviate poverty—such as India—have not achieved results as quickly as nations that did not, such as Singapore and South Korea. (See my recent piece on this subject.) Generally, the high-performance economies of East Asia didn’t fight poverty by playing Robin Hood—soaking the rich and handing out cash to the poor. There is no reason why we’d have to do that today.

Instead we have to give the downtrodden better jobs, more opportunities, more tools to improve their incomes and fairer treatment in economic policy.
That means we must improve the climate for investment. I’m pretty sure you didn’t expect me to write that when you started reading. There is a widespread assumption that what’s good for companies is bad for the little guy. But if Asia’s example teaches us anything, it’s that there are two ways to end poverty: (1) create jobs and (2) create more jobs. The only way to do that is to convince businessmen to invest more.

That’s why it is imperative to make investing easier. We should press ahead with free-trade agreements like the Trans-Pacific Partnership to bring down barriers between countries and encourage exports and cross-border investment. Though CEOs complain far too much about regulation—the sub-prime mortgage disaster, the recent General Motors recall, or Beijing’s putrid air all show that we need to keep a close eye on business—we should also streamline regulatory procedures, standardize it across countries and thus make it less onerous to follow.

We also need to improve infrastructure like transportation systems to bring down the costs of doing business. I think it is a national embarrassment for the U.S. to allow the Highway Trust Fund to run out of money at a time when the country needs both jobs and better roads. The environment for investment shouldn’t just improve for Walmart and Apple, but also entrepreneurs and small companies. In many parts of the world—in certain European countries, for example, and China—there’s too much red tape involved in starting a company, and not enough finance available.

We also need to invest in the workforce. U.S. Senator Marco Rubio, in an attack on a proposed minimum-wage hike, said that “I want people to make a lot more than $9—$9 is not enough.” He’s right, but that just won’t magically happen on its own. To get people’s paychecks up, workers have to possess better skills. We are simply not doing enough to improve schools, teachers and job training programs. We should also be doing more to make higher education more affordable.

While overall U.S. spending on education is among the highest in the world, it still lags in important ways. Take a look at this data comparing education spending across countries. U.S. public expenditure on education has remained more or less stable, at 5.1% of GDP in 2010, but that’s lower than a lot of other developed countries, from Sweden to New Zealand. What is also interesting is how the cost of education is pushed onto the private sector in the U.S. much more than in most other countries.

Spending is also heading in the wrong direction. The U.S. Census Bureau calculated that in fiscal 2011, expenditure per student dropped for the first time since statistics have been kept.

Clearly, the U.S. spends so much money on education already that we should be getting more bang for our buck. Reform is crucial to put all those billions to better use. But slicing spending isn’t the answer, either. The latest budget from U.S. Congressman Paul Ryan streamlines some U.S. education programs he considers wasteful and recommends measures that would add to the financial burden of going to college for some families. Meanwhile, he’s leaving the military budget generally unscathed. Do Ryan and his colleagues believe the Pentagon isn’t wasteful? Apparently not enough to put the military on a diet.

The fact is we have the money to do more for education. U.S. federal spending is about $3.5 trillion—roughly the size of the entire economy of Germany. The problem is how we choose to spend it.

We also must restore performance-based pay. The idea that people should benefit from their hard work is a cardinal belief of capitalism, but there is ample evidence that it hasn’t held true for quite a while. Productivity growth has far outpaced wage increases in the U.S. going back to the 1970s.

This appears to be a global phenomenon. The International Labor Organization (ILO) looked at 36 countries and figured that average labor productivity has increased more than twice as much as average wages since 1999. Some have disputed this argument, but we can’t deny that wages are going nowhere. According to the Bureau of Labor Statistics, real weekly earnings in the U.S. in March were a mere $1.82 higher than a year earlier. Generally, workers are losing ground to capital globally. The ILO has shown that wages’ share in GDP has decreased in recent decades, meaning that the regular worker isn’t benefiting as he should from economic growth.

There are many factors behind this trend, including the formation of an international labor market. But globalization itself isn’t the problem—it’s how the benefits are being allocated. Corporate management doesn’t seem to care so much about shareholder value when paying themselves. Professor Steven Kaplan noted that in 2010 the average CEO of a major U.S. company earned more than $10 million, or about 200 times more than the typical household.

Companies also have the money to raise wages: They just choose not to give it to their employees. Rating agency Moody’s recently reported that U.S. non-financial companies are sitting on $1.64 trillion in cash. Companies also spent $476 billion buying back their stock in 2013, 19% more than the year before.

The question is: How get management and shareholders to disgorge more corporate profits to their employees? There isn’t an easy answer. William Galston, former advisor to President Bill Clinton, once suggested tax rates should be linked to a company’s worker compensation strategy (though that strikes me as a bit too intrusive). The ILO recommends we support stronger collective bargaining to allow workers to fight for their fair share of corporate profits.

But the crux of the problem is the idea of shareholder value. How do we convince shareholders and management that higher wages are positive for the long-term prospects of their corporations? Maybe we should consider altering the way we tax capital gains. Rather than breaking them down into two main categories—short and long term—it might help to decrease the rate the longer the asset is held. That would encourage longer-term shareholding, and perhaps make owners more interested in the long-term outlook for the companies in which they hold shares. I also think we should rebalance tax rates between capital and labor. I understand the principle that low capital-gains taxes reward people for wise investments. But what about rewarding people who work hard at their jobs every day? The Organization for Economic Co-operation and Development noted in a report this month that the tax burden on wage earners has increased in most of its member states in recent years.

These are just suggestions, and I’m interested in hearing more of them. The basic point is that we have to take steps to improve both the outlook for corporations and the many ordinary employees who work for them. The game should be win-win, not zero-sum.

Technology & Media

Microsoft’s Brand New CEO Needs to Do Much More

Satya Nadella
Microsoft CEO Satya Nadella speaks at the Build conference on April 2, 2014 Harry McCracken / TIME

fortunelogo-blue
This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published atFortune.com.

How does a CEO grab attention when he’s the follow-up act to a brash, voluble leader like Steve Ballmer? For Satya Nadella, who hardly seems prone to the same kind of sweat-soaked stage performance of his predecessor, the answer lay in a bold strategic gesture: Get Microsoft Office onto the iPad.

Office, of course, had long been Microsoft’s great cash cow fenced off from the green pastures of the tablet market. Some believed it was the reason Microsoft started making Surface tablets after decades of not manufacturing personal computing devices. That expensive experiment hasn’t exactly delivered a hit. Surface sales are growing, but its 2% market share lags those of Samsung, Amazon’s Kindle Fire, and of course the iPad.

With Nadella taking the reins from Ballmer, Microsoft has the chance to begin a new era — distinct from the Ballmer years that saw modest growth and a move into enterprise software, and even more remote from the Gates years when Microsoft ruled PC software with an iron fist. Nadella’s Microsoft appears to be a company that aims to compete in markets rather than control them.

MORE: Nadella: Microsoft needs a ‘data culture’

Nadella’s experience is aligned with the same technologies that promise future growth — cloud computing, multi-platforms, mobility, big data — the antithesis of the proprietary software that Microsoft built its historical success on. That’s why the Office 365 for iPad announcement was notable. It wasn’t so much two longtime enemies sharing revenue. It was Microsoft risking its own mobile platform by expanding to another, bigger platform. It was a Microsoft open like never before.

The announcement was also Nadella’s first big public appearance, a product launch cum CEO debut. The move was a risky one: It could telegraph that Microsoft was capitulating to Apple, running its prized wares on its old rival’s device while paying a 30% share of revenue for the privilege. Increasingly, Nadella is instead being seen as a leader who can finally usher the company out of the PC era and into the cloud economy.

Last month, when Microsoft announced that Office apps would be available for the iPad, the news stirred a ripple of notice. Analysis was mixed. The New York Times wondered if it wasn’t the right move too late. Techcrunch found it to be worth the wait. Someone at Forbesdismissed it as a non-game changer.

After a few weeks in the App Store, Office for iPad is proving the early skeptics wrong. More than 12 million people downloaded Office Apps in the first week. Today, Word, Excel, and Powerpoint are the three most popular free apps in the iPad App Store (excluding games, which shows that tablets may be better for idleness than productivity). The basic apps are free for bare-bones functionality, but a subscription to Office 365 opens up more features.

For investors, the arrival of Office for iPad is unlikely to translate into material earnings, at least any time soon. It may open Microsoft to businesses that prefer tablets over traditional PCs, but it could also cannibalize the company’s older, high-margin markets. Desktop and laptop sales have been declining since the iPad’s introduction, although recent months have shown signs those declines are stabilizing.

MORE: For Microsoft’s Nadella, signs of leadership potential

If the move has little short-term benefit for Microsoft, its symbolic value is higher. CEOs of prominent companies like Microsoft often set the tone of a company, and in some ways Microsoft now appears to have lost the cloud hanging over it when Ballmer was there. Ballmer, of course, also worked to push Microsoft into a more open direction, but somehow Nadella’s presence makes it seem like it may finally be happening.

Office, of course, is only one part of Microsoft’s business. It’s the prime contributor to the company’s business division, along with Sharepoint and Exchange. That division makes up a third of Microsoft’s revenue and three-fifths of its operating income. But growth in the division has been flat — revenue rose only 2.5% in Microsoft’s last fiscal year (ended June 2013) and declined 6% in the last six months of 2013.

Microsoft is seeing faster revenue growth in its server and online services divisions, although these segments have much lower margins. (The online division has been a perennial money loser.) So while the Office move is seen as a symbolic victory for Nadella’s Microsoft, the company is still weighed down by many of the same old issues: an enterprise software market and the aging business in PC operating software.

Office for iPad is a strong start to Nadella’s follow-up act to Ballmer. But it will need to be followed by a lot more creative, bold moves to change Microsoft into the dynamic, future-oriented company that investors are hoping it can become.

5 Fundamental Truths for Tech Companies

Google
Justin Lane—EPA

Maybe that correction in technology stocks wasn’t such a bad thing after all. As tech companies have started the quarterly ritual of reporting earnings, the early indications are that, while many are still growing, they aren’t growing enough to meet the outsize expectations the market had built up.

So far, the flagship tech companies that have posted earnings bore few big surprises or disappointments. While several companies posted solid results, it wasn’t enough for the more hyped, overvalued stocks like Google. Others, like Intel, that were left out of last year’s tech rally performed much better.

It’s almost enough to make a fundamental investor believe the market hasn’t quite lost its head. There are several more weeks to earnings season to come, but if this week is any indication of what’s ahead, there are several trends emerging.

Internet companies are growing fast, just not fast enough. At Google, revenue excluding traffic acquisitions costs rose 23%. That’s a far cry from Facebook’s recent 63% growth but it’s still pretty impressive. According to RBC Capital, only two other large companies have maintained growth above 20% for 16 straight quarters: Amazon and Priceline. Being as big as Google and growing that fast is a tough act to keep up.

But for investors who have strongly associated Internet giants with growth, Google’s feat doesn’t impress much. The stock slid 4% Thursday after Google fell short of revenue and profit expectations. The growth simply wasn’t good enough to justify the stock’s lofty price. Even after its recent slump, Google shares are up 36% in the past year, pricing it at 29 times revenue.

Mobile is driving down ad prices, and it’s starting to be a problem. If there was one worrisome part of Google’s report, it was the decline in cost per clicks, the price charged for ads. CPC’s fell 9% at Google, a decline that has been accelerating for the past few quarters. In fact, Google’s CPC’s have been negative for a couple of years, around the time mobile ads began supplanting ads on the desktop Web.

Mobile is an opportunity and a problem for Google. It’s where the users are going, but it’s also, according to Google, a key reason why CPCs are in decline. Google may also be seeing lower CPCs from emerging markets and ads outside its own sites. The company plans to offer more detailed data on CPCs in coming quarters. Facebook has had better rates with its targeted ads in mobile feeds, but most other companies are struggling to see mobile ads pay.

The market is getting competitive for IT services. IBM’s stock dropped 3% after it said revenue fell 4% last quarter to $22.5 billion. For years, IBM was a stalwart leader in the market for managing IT services for other companies. But rivals like HP and Dell are getting aggressive on costs, and cloud computing is cutting IT costs in general, and it’s all taking its toll on IBM.

Revenue at IBM’s IT and outsourcing business fell 3%, its consulting division was flat and its server and storage business declined 23%. Software was a bright spot, rising 2%. IBM is still vowing to reach $20 in earnings per share next year, although some analysts noted earnings growth is coming from a lower tax rate and an aggressive buyback program.

Old school tech still has the ability to impress. Intel shares reached their highest level Thursday in nearly two years as it delivered earnings slightly above Wall Street estimates, but showed the company is making a slow but sure move into chips powering tablets and mobile devices. That makes for a 23% rebound in Intel’s stock since last September.

Bulls and bears have been arguing over whether Intel can make the transition without eating into costs, which have been weighing on margins in recent quarters. Intel’s manufacturing prowess may be able to lower costs in the long run, while also pushing into new markets like sensor chips for the Internet of Things. So while Intel is still struggling in its legacy market for PC chips, it fighting for footing in growing markets.

Growth in Asian giants is outpacing US peers. For all of Marissa Mayer’s attempts to turn around Yahoo’s core business, investors still scour its earnings announcements for information on another company: Alibaba. Yahoo’s earnings from equity interests in Alibaba and Yahoo Japan rose to $301 million last quarter from $218 million a year ago.

China-based Alibaba was by far the big contributor to Yahoo’s equity earnings. Alibaba’s operating income rose 66% in its most recently reported quarter. Yahoo’s operating profit, by contrast fell 84%. And yet Yahoo’s stock has risen 6% since reporting earnings. Wags have joked that investors like Yahoo as a hedge fund better than an Internet company, and numbers like that show the truth behind the humor.

Video Games

5 Reasons the Latest PlayStation 4 and Xbox One Sales Figures Don’t Mean What You Think They Do

Sony's PlayStation 4 (upper-left) and Microsoft's Xbox One (lower-right). Sony, Microsoft

It's not as simple as 7 million PS4 units minus 5 million Xbox One units equals a 2-million sales shortfall.

Two million. That’s the global gully, valley or chasm — you pick — dividing Sony’s PlayStation 4 from Microsoft’s Xbox One in unit sales as we round the bend from March to April. That’s a lot of units in the short term, or it’s a drop in the bucket thinking longer-term, where bestselling platforms like Sony’s PlayStation 2 and Nintendo’s Wii went on to push more than 100 million and 155 million units, respectively. [Update: Sony's 7 million units are sold-through, or to consumers, while Microsoft's 5 million are sold-in, or to retailers -- not a distinction of consequence to my points below.]

It’s vogue to say console sales don’t matter, but those who do are just telegraphing fatigue with the irrational (and unintelligible, and often downright cruel) conversations that erupt on message boards like so much digital effluvium. (Fandom is as fandom does.) But there’s a very sound, perfectly rational reason to care who’s winning hearts and wallets in the monthly numbers, especially if it’s by wide margins. And it’s this: they determine where the games go.

Wii U owners are struggling with this unfortunate reality as we speak (and will increasingly as we roll forward), unable to play multi-platform games like Battlefield 4, Madden NFL 25, Tomb Raider, Metal Gear Solid V, Destiny, Batman: Arkham Knight, and Assassin’s Creed Unity. It’s not necessarily because the Wii U isn’t capable of running downscaled versions of some or all of those games, but because the sales base isn’t there (and doesn’t seem likely to get there soon) to justify spending time and money on ports.

But let’s focus on the PS4 and Xbox One, in view of the latest sales claims, and delve beneath the surface of reductive analyses like “7 million minus 5 million equals 2 million!” That’s an oversimplification, of course, for at least the following five reasons.

You can buy the PlayStation 4 in 72 “countries and regions.” You can buy the Xbox One in 13.

Everyone misses this, and it’s easy to see why, since you have to scour the fine print to find it. It’s not clear what the nature of Microsoft’s problem is, exactly — whether it’s manufacturing or regulatory or who knows — but the Xbox One was originally supposed to launch in Belgium, Denmark, Finland, the Netherlands, Norway, Russia, Sweden and Switzerland alongside the 13 countries in this list back in November. Microsoft scrapped those plans at the last minute, and so to date, the Xbox One exists in just 13.

Not all “countries and regions” are equal when you’re talking about potential audience size, of course, and Microsoft’s going to have its biggest bases covered by the time fall 2014 rolls around, raising its total markets figure to 39. In other words, the gulf between 72 and 13 is huge, but 72 and 39 — because we’re talking most of the key remaining ingredients added in that 39 — not so much.

Still, the clock’s ticking. If you’re a game developer, you want to be, as lyricist Howard Ashman put it, “where the people are.” Microsoft’s challenge at this point is as much (or more) about ramping up Xbox One availability as it is landing crucial third-party exclusives or thinking about price drops.

$100 is $100 (even when it’s not $100).

Show me a significantly more expensive game platform that trounced its competition in the long run. Don’t say Sony’s PlayStation 3, because a few million ahead at the end of the marathon’s hardly trouncing. Don’t say the PC because it’s a wildly different animal, and as gaming platforms go, it’s certainly seen better days. Of course, the PS3 had to drop in price dramatically to catch back up to the Xbox 360, and it did, managing to catch and just barely inch past Microsoft’s console in global sales toward the end.

Nintendo’s Wii left everything in the dust during its prime sales years, I’d argue as much, if not chiefly, because of its lower price tag. Microsoft’s Xbox One is $100 more expensive than Sony’s PlayStation 4, and all the shell-game price discounts and bundles and temporary retailer price overrides in the world won’t change the “much more expensive” public perception until Microsoft makes an Xbox One price drop official (perhaps by offering a version without Kinect). Forget all the blather about which platform’s more technically capable (answer: both!), if the Xbox One had launched at $400, we’d be having a very different sales conversation right now.

The point being this: Price is a big deal, and it’s almost surely hurting the Xbox One, as we knew it would. But you could also argue Microsoft selling 5 million Xbox One units at that higher price point is as much an achievement as Sony selling 7 million PS4 units at its lower one.

It’s impossible (for us) to know whether production constraints are impacting these numbers.

All we have are vague claims from Sony and Microsoft and anecdotal evidence provided by retailers, but production constraints could be masking demand (and almost certainly are if we factor regional availability, as noted above).

Sony knows precisely how impacted it is. So does Microsoft. But all they’re sharing are unverifiable vagaries about production issues. And so we’re left to speculate. Maybe Sony’s PlayStation 4 would’ve sold thousands or hundreds of thousands or millions more. Maybe that’s just marketing spin. But the possibility alone means we should be wary of reading these numbers as reflective of actual consumer demand.

Both the PS4 and Xbox One are performing sales feats of derring-do.

Both the PS4 and Xbox One are selling at unprecedented levels. As NPD noted in its March 2014 sales rundown last night, if you add both systems together through their preliminary five months of availability, you’re talking twice the sales of the PS3 and Xbox 360 for the same period. What’s more, if you run the same figure for retail software sales, combined PS4 and Xbox One software is up some 60 percent. You’d be mad to read those kinds of generation-on-generation numbers as bad in any way for either company.

Titanfall wasn’t supposed to change March 2014′s sales figures, but it did anyway.

Anyone paying attention to point number one (as well as Sony’s and Microsoft’s prior global sales figures) knew Titanfall wasn’t going to eliminate the Xbox One’s sales deficit. Imagine Microsoft selling 2 million consoles over the course of 30 days — that’s just wishful thinking unless you’re the Wii and it’s 2007 (or 2008) again. Titanfall‘s a core online-only game for a very specific sort of player. That it took the number one software sales spot for March 2014 despite the PS4′s unit sales lead speaks volumes in an industry where hardware paves the roads and sets up the shipping lines, but where it’s software that ultimately carries the lion’s share of your profits.

Autos

Mazda Recalls 109,000 Older Suvs for Rust Problem

Views From The Tokyo Auto Salon 2013
The Mazda Motor Corp. logo is displayed at the Tokyo Auto Salon at Makuhari Messe in Chiba, Japan Bloomberg—Getty Images

(DETROIT) — Mazda is recalling 109,000 Tribute SUVs in cold-weather states to fix rusting frame parts.

The recall covers SUVs from the 2001 through 2004 model years. Mazda says in documents filed with U.S. safety regulators that the frame can rust and a wheel control arm can separate from it. That could result in a loss of steering control.

The SUVs were originally sold or registered in 20 states and Washington, D.C., where salt is used to clear snow and ice from roads.

Dealers will install a reinforcement brace to fix the problem. Mazda says it will notify owners by letter when parts are available.

The same problem caused a recall of nearly 386,000 older Ford Escapes earlier this month. The Escape and Tribute are nearly identical vehicles.

Autos

It’s Time to Ditch the Booth Babes

CHINA-AUTO-SALES
STR—AFP/Getty Images

It’s the holiest time of the year. No, not Easter or Passover. It’s the New York International Auto Show, an occasion to worship true gods: horsepower, sheet metal, chrome. If you’re a business journalist working in New York, there’s nothing like attending the press days ahead of the auto show’s public opening. Walking into the cavernous exhibition hall is a lot like walking into Chartres with its spectral light and thick solemnity—except way better because you don’t have to feel guilty about all the terrible things you’ve done and, for the most part, there’s no organ music.

I make the arduous pilgrimage to the far west side of Manhattan every year for the show and always end up, a few hours later, stumbling out dilated and deliriously happy. You might call it auto-erotic-euphoria. But this year was different. As I strolled around the show floor, taking in the ludicrously cute new Jeep and admiring Mercedes’ heavy metal, I found myself feeling uneasy, rather than blissful. Unlike years past, my flânerie wasn’t taking me to my happy place.

The problem, I suddenly realized, wasn’t Land Rover’s anodyne and deeply disappointing Discovery Sport. It was that a fixture of the auto show has become nauseatingly passé. It’s well beyond time that auto shows—and, really, trade shows of any kind including the Consumer Electronics Show and Comic Con—dump their tradition of employing young women in tight dresses and high high-heels to hang around “the product” like a tablecloth in a Flemish still life.

We need to ban the “booth babes.” The auto companies are increasingly being run by some of the smartest, most interesting executives in business (of any kind). It’s time they ditch this outmoded practice and do it as fast as they presumably blurt out that electric cars are a great idea in mixed company. If nothing else, the auto makers can look at the bottom line. Some trustworthy-seeming marketing experts have figured out these women don’t actually help sell anything.

And another thing: It’s awkward. For me. Here I am wandering around, casting a lecherous gaze at this motorcycle or that coupe and I suddenly find myself making eye contact with an exploited model. First of all, the muscles in my face aren’t developed enough to be able to configure themselves to telegraph a message of “I’m not lusting after you, pardon me for looking at you that way. I was lusting after that inanimate object six inches to your left.” More importantly, the practice takes attention away from the point of the show: the cars, which every year get more impressive and more technologically stunning.

I know what some booth babe enthusiasts are going to say: trade shows provide a much-needed employment stimulus to New York City’s struggling acting and modeling community. (This year, I heard one of the guys unfolding tables for a cocktail reception gripe, “This isn’t where I thought drama camp would take me.”) And it’s true that many of the hard-working models act as ambassadors during the show, answering questions and giving succinct history lessons on this or that particular brand. I’m sympathetic.

So I have a proposal. Why not repurpose a segment of the show floor nobody cares about—like, say, the weirdly huge cargo van area in the basement that must only be popular with serial killers from New Jersey—and instead put on a couple of the Theban plays gratis? That way the unemployed actors and actresses can benefit economically from the influx of car lovers like me into the city and the auto show itself can simply be—as it should always—a feast of the moveable.

Your browser, Internet Explorer 8 or below, is out of date. It has known security flaws and may not display all features of this and other websites.

Learn how to update your browser