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TECHNOLOGY B4 | WEATHER B6
Amazon Set to Escalate Movie Wars
Retailer in Talks With Digital Consortium Challenging iTunes
© 2014 Dow Jones & Company. All Rights Reserved.
THE WALL STREET JOURNAL.
**
Friday, October 10, 2014 | B1
Price Drop Tests Oil Drillers
Further Decline Risks Making Fracking Unprofitable; ‘Immense Amount of Pain’
BY RUSSELL GOLD
AND ERIN AILWORTH
Tumbling oil prices are starting to frighten energy companies
around the globe, especially
drillers in North America, where
crude is expensive to pump.
Global oil prices have fallen
about 8% in the past four weeks.
The European oil benchmark
closed Thursday at $90.05 a barrel, its lowest point in 29
months. The price of a barrel in
the U.S. closed at $85.77, its lowest since December 2012.
Weakening oil prices could
put a crimp in the U.S. energy
boom. At $90 a barrel and below,
many hydraulic-fracturing projects start to become uneconomic, according to a recent report by Goldman Sachs Group
Inc. While fracking costs run the
gamut, producers often break
even around $80 to $85.
“There could be an immense
amount of pain,” said energy
economist Phil Verleger. “As
prices fall, you will see companies slow down dramatically.”
Paul Sankey, an energy analyst with Wolfe Research LLC,
said the first drillers to react to
declining crude prices would be
some in the least productive
fringes of North Dakota’s Bakken
Shale. “We’re not quite there
yet,” he said, but a further drop
of $4 or $5 a barrel will force
companies to begin trimming
their capital budgets.
Shares of Continental Resources Inc. and Whiting Petroleum Corp., which are focused in
the Bakken, fell by more than 5%
each on Thursday. Shares of major shale-oil and gas developer
Chesapeake Energy Corp. fell
7%.
Jim Noe, executive vice president at Hercules Offshore Inc., a
Houston-based drilling-services
company with rigs in the Gulf of
Mexico, the Mideast, India and
West Africa, said companies such
as his are monitoring weak oil
prices closely. Hercules said its
business was affected by a slowdown in drilling activity in the
second quarter. Hercules’s stock
fell 6.3%.
The fundamental problem is
that the world is awash with oil,
but demand for energy is growing more slowly amid tepid economic growth around the globe,
especially in China.
Companies are always reluc-
tant to be the first to cut their
energy output, hoping that others flinch first. And hedging can
help companies weather temporary drops.
The overall U.S. economy, and
especially industries such as refining and air travel, would benefit from lower oil prices.
Some U.S. oil fields, including
the Eagle Ford Shale and Permian Basin in Texas, would remain attractive for drillers even
at much lower oil prices. An
analysis by Robert W. Baird &
Co. said prices could drop to $53
a barrel in certain parts of the
Eagle Ford and still be profitable
to drill.
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 Overheard: Fueling a trend in
gas mileage.................................... C10
Smile! Marketers Are Mining Selfies
Scanning for Clues
Ditto Labs scans
photos on sites
like Instagram to
glean insights for
advertisers.
FACES
Human faces can give
context. If a logo appears
above a face—such as
Smith ski goggles in this
picture—it can indicate the
person is wearing apparel.
Smiles help advertisers
understand sentiment.
PRODUCTS
CLOTHING
Ditto has started
classifying objects like
purses or sunglasses
and can sometimes
detect fabrics or
patterns in clothing.
iStock (phone); Ditto Labs (inset photo)
Now, though, companies that
closed their inversion deals before the new rules took effect
have advantages when it comes
to deal-making that U.S.-based
rivals don’t, deal makers say.
And even though it is now
harder for U.S. companies to initiate inversion deals, they can
still be targets of such deals, and,
as a result, become part of foreign companies and pay less in
taxes.
When a foreign-based company subsequently buys a U.S.
target, it can reap savings from
bringing the target under its
lower tax rate.
It may be able to free up that
company’s overseas cash without
paying U.S. taxes on the money.
It can also reduce the target’s
taxable U.S. income by loading
the company with debt, effectively converting the target’s
profit into deductible interest
payments that go to the lowertaxed foreign parent.
“Generally it makes sense for
any non-U.S. company that buys
an American company to put
debt on it because it will help reduce the tax rate,” said Conor
Hurley, a senior tax partner for
law firm Arthur Cox.
Not every acquisition yields
huge tax benefits. Much depends
on whether the acquired company has or expects to have
Please turn to the next page
Composite
The federal government may
be trying to prevent U.S. corporations from buying companies
in order to relocate abroad for
tax purposes. But it hasn’t
stopped companies that have already completed such deals from
doing their own follow-on acquisitions of U.S. companies.
On Thursday, Endo International PLC said it was buying
Chesterbrook, Pa.-based Auxilium Pharmaceuticals Inc. in a
$2.6 billion cash-and-stock deal.
Up until earlier this year, Endo
was based in Malvern, Pa. But
through a deal to buy Canada’s
Paladin Labs Inc., the company
redomiciled to Dublin, with a
lower corporate tax rate.
Endo’s deal with Paladin
closed in February, before socalled inversion deals became a
hot-button issue that attracted
the government’s ire. In such
deals, a U.S. company buys a foreign rival, then relocates to a
foreign country with a lower tax
rate.
Last month, the Treasury Department tightened tax rules to
make the moves harder and less
lucrative. The new rules have
spooked chief executives who
were contemplating the structure, causing some to shelve
deals they were pursuing, deal
makers say.
SCENES
Whether a photo
was shot in a bar or
on a snowy
mountain can give
advertisers clues
about where and
how customers use
their products.
Users who post images
of things like beer or ski
equipment may be
flagged for those
interests. Marketers
also look for correlations
between interests, such
as which beverages
people drink while
eating Kraft Macaroni
and Cheese.
Tax-Inversion Players
Swoop In for Seconds
BY DANA MATTIOLI
LOGOS
About 3,000 logos can
be detected, such as the
Pabst beer can and
Marmot jacket here. An
advertiser may search
for photos featuring
rival brands to try to
steal customers.
The Wall Street Journal
Network
Households*
(millions)
ESPN
Decline in number of households since 2010
95.2
TNT
95.9
Nickelodeon
96.4
TBS Network
97.0
HLN
96.0
Weather Channel
96.8
Discovery Channel
96.9
CNN
96.7
USA
96.8
Food Network
97.4
–5%
–4%
*Sept. 2014 estimate Source: Nielsen
–3%
–2%
–1%
0
The Wall Street Journal
Pay TV’s New Worry:
‘Shaving’ the Cord
BY KEACH HAGEY
AND SHALINI RAMACHANDRAN
The biggest U.S. cable-TV
channels are experiencing a
troubling trend: Their reach into
American households is shrinking.
Over the past four years, the
top 40 most widely distributed
channels in 2010—household
names like CNN, ESPN and
USA—have lost an average of 3.2
million subscribers, or more
than 3% of their distribution, according to a Wall Street Journal
analysis of data from measurement firm Nielsen.
Some in the industry point to
consumers who are “cutting the
cord,” ditching their cable and
satellite-TV connections in favor
of more affordable online video
options like Netflix and Hulu.
But the numbers don’t add up.
Last year the pay-TV industry
lost 166,000 subscribers, according to research firm MoffettNathanson LLC. While that was
the first annual decline on record, it isn’t enough to account
for the subscriber declines of the
biggest cable channels.
Indeed, the data and interviews with a range of cable-TV
industry executives suggest that
something else is going on:
Many consumers aren’t so much
cutting the cord as shaving it.
A growing share of pay-TV
customers are signing up for
smaller, cheaper bundles of
channels that cost anywhere
from $10 to $50 a month and
don’t include popular channels
like TNT, USA, ESPN, CNN, Fox
News, Disney Channel and Discovery Channel, the industry executives say.
“What we are seeing is some
cord cutting and some cord
shaving,” said Stephen Hasker,
global president of Nielsen.
“Consumer time and attention is
shifting.”
Basic plans that include little
more than local broadcast stations now make up some 12% of
pay-TV subscriptions, up from
8% to 10% a few years ago, according to estimates by some industry executives. Some consumers are also turning to
cheaper, sports-free and familyoriented packages, executives
say.
“We think cord-shaving is a
reality going forward,” says
AT&T Inc.’s Chief Strategy Officer John Stankey.
The shift of consumers to
lower-priced plans is a worrying
sign for media companies, striking at the heart of how they
make money. TV channels are
paid by cable and satellite-TV
providers on a per-subscriber
basis. Over time, declines in sub-
3.2 million
The average number of
households lost by big
channels since 2010
scribers could dent these companies’ growth. Pay-TV providers
face significant risks, too. If
more people downgrade to
skinny tiers, it could pressure
revenue, analysts say.
Some media executives say
losing a few million subscribers
to their channels doesn’t immediately raise alarms. They point
out that they have been able to
raise the fees they charge payTV operators for each subscriber
more than enough to offset the
declines. Media companies are
also optimistic about selling
their channels to new Web-based
TV services from companies like
Sony Corp.
But others are doing some
soul searching over how and
why this happened. Some executives say media companies have
been so eager to make content
available to streaming-video
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Symantec Is Latest to Call for a Split
BY DANNY YADRON
Symantec Corp. is the latest
technology company to decide
that bigger isn’t better.
The Mountain View, Calif.,
firm that helped pioneer commercial antivirus software said it
plans to split its cybersecurity
and information-management
businesses into two publicly
traded companies.
The announcement comes after eBay Inc. disclosed last month
it would spin off its PayPal unit,
and Hewlett-Packard Co. on
Monday said it would split into
two companies—one for personal
computers and printers, another
for corporate hardware and services. The planned moves reflect a
view that large companies are
hard to maneuver in a rapidly
shifting technology landscape.
Symantec’s security business,
which generated $4.2 billion in
revenue for the fiscal year ended
March 28, has been seen as losing ground to security upstarts
like FireEye Inc. and Palo Alto
Networks Inc. The company’s
smaller information business,
which helps companies store and
manage data, reported revenue of
$2.5 billion for the same year.
Symantec announced the
planned split after regular-trading hours, though it appeared to
have little impact on the stock.
Symantec shares rose 0.7% in after-hours trading, after falling 57
cents to $23.44 in 4 p.m. trading.
Bloomberg News
Most users of popular photosharing sites like Instagram,
Flickr and Pinterest know that
anyone can view their vacation
pictures if shared publicly.
But they may be surprised to
learn that a new crop of digital
marketing companies are searching, scanning, storing and repurposing these images to draw insights for big-brand advertisers.
Some companies, such as
Ditto Labs Inc., use software to
scan photos—the image of someone holding a Coca-Cola can, for
example—to identify logos,
whether the person in the image
is smiling, and the scene’s context. The data allow marketers
to send targeted ads or conduct
market research.
Others, such as Piqora Inc.,
store images for months on their
own servers to show marketers
what is trending in popularity.
Some have run afoul of the loose
rules on image-storing that the
services have in place.
The startups’ efforts are raising fresh privacy concerns about
how photo-sharing sites convey
the collection of personal data to
users. The trove is startling: Instagram says 20 billion photos
have already been shared on its
service, and users are adding
about 60 million a day.
The digital marketers gain access to photos publicly shared
on services like Instagram or
Pinterest through software code
for developers called an application programming interface, or
API. The photo-sharing services,
in turn, hope the brands will
eventually spend money to advertise on their sites.
Privacy watchdogs contend
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Shrinking Audience
These networks reached into the most American homes in 2010, but their
subscriber numbers have fallen since then.
Symantec, a commercial antivirus software pioneer, plans to complete its spinoff by the end of 2015.
The company currently has a
market capitalization of more
than $16 billion.
In an interview, Symantec
Chief Executive Michael Brown
said his company isn’t reacting to
the recent moves by other tech
companies. “For us, this started
months ago,” he said.
Mr. Brown said the planned
split would help the company
deal with the challenges of running a company involved in different businesses.
“This structure will help us reduce the complexity and grow
faster,” he said.
Symantec said it plans to complete the spinoff by the end of
2015. Mr. Brown will be the president and CEO of Symantec, while
John Gannon will be general
manager of the information-management business.
Symantec helped pioneer commercial antivirus software in the
late 1980s. Its Norton suite is still
a major moneymaker for the
company. It moved into the information-storage business in 2005,
acquiring Veritas Software Corp.
for $13.5 billion.
The past few years have been
tumultuous for Symantec. In
March it fired Chief Executive
Steve Bennett, the second time in
two years it had ousted a CEO.
Meantime, the company’s
P2JW283000-2-B00100-1--------XA
BY DOUGLAS MACMILLAN
AND ELIZABETH DWOSKIN
MEDIA B6
main product, antivirus software,
is under attack from more than
just hackers these days.
Security experts have argued
the product isn’t up to the task of
stopping the most advanced cyberattacks. Antivirus works by
keeping a list of malicious signatures, meant to block bad code
from being loaded onto computers. The problem is similar to
that of a human immune system:
If it hasn’t seen a virus before, it
doesn’t know to block it.
Symantec is working on new
security products that mimic offerings by FireEye that it expects
to introduce by next spring, the
company said.
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