Going Global

I read this article in the New York Times about the changing face of the music industry.

Whenever we think of the internet and the music industry, we think about illegal downloads. In fact, the internet has been the bane of the establishment since its inception. Metallica and Napster anyone?

But now, as CD sales drop and digital music sales increase through stores like I tunes etc, artistes have long realized the significance of this distribution channel. They have moved from selling physical CDs, to touring to finally realizing that the internet could be the next big stopping point for revenue.

But what’s taking place now is the emergence of a whole new business model based on the ease and connectivity of the internet. Bands will essentially become companies of their own. They will raise funds as funds are raised for a business, mostly through venture capital.

They will consult with consultants and outsource operations like tour organizing, publicity etc. and they will have a bigger share in the profits, with increased rights on musical inventory and intellectual property of their own work. Maybe the-Artist-formerly-known-as-Prince picked the wrong decade to get famous in.

If this trend takes hold we will see the emergence of more and more indie bands. They will receive more exposure and the music industry will become more competitive as a result and the influence of big record labels will reduce, bringing on a whole new market and industry through creative destruction.

GM has been on the verge of selling their Hummer brand to the Chinese Sichuan Tengzhong Heavy Industrial Machinery company. Thats quite a mouthful. I wonder why Chinese companies have such weird names. But i digress.

But GM's plans of downsizing and rightsizing itself while it shelters itself under a Chapter 11 bankruptcy may suffer a setback because it seems like the Chinese government is about to block the deal.

China has about 100 car manufaturers and the government does not want yet another one entering the market at a time when they are trying to aim for stability and cut competition in order to try and build a global giant capable of taking on the big ones.

Also, it seems the strategy is to focus on building a robust market based on fuel efficient and environmentally friendly vehicles, something a Hummer definitely is not (Hummers on average do a bout 15 miles per gallon, thats around 5 or so km's per litre).

China has also got a lot of stick in recent years about its pollution. And mass producing a brand like Hummer won't exactly help them in cleaning up this aspect of their image.

Hummer is estimated to be worth around $500million. GM is eager to unload its lossmaking units and have cleared the sale of Hummer, being in debt of about $172 Billion. Thats roughly twice the GDP of Sri Lanka.

The Chinese however have not completely overruled the deal. So we might yet see an iconic former US military vehicle being owned and manufactured by one of its key global rivals.

read more here and here.

The hot seat

On Saturday i was coming into Colombo from Wattala to attend a wedding with a few friends. There was a major traffic jam and we were consequently stuck on the road for quite some time. The reason being of course that His Excellency the President of Sri Lanka was on his way to receive some rare (read: probably obscure) honor for his efforts for providing us with freedom.

There are talks of new taxes being imposed. Apparently there is also a seatbelt fine. You get fined if you don't wear your seatbelt. From what i heard its somewhere like 2000 rupees per offense and repeat offenders get to go directly to the courts. Sri Lankans are notorious for not wearing seatbelts so this should net the government a handy sum if imposed and acted upon.

Im curious, is it cos i don't know of these things or is there really no mechanism that lets the public be aware of the rationale behind new legislation and policy stances? Ideally there should be reasearch studies out about frequencies and causes of road accidents to support the seatbelt tax. What i think happened was that some smart alec minister came up with a good 'suggestion' to find some fast cash without the public getting too pissed off. I mean hey, we can all keep our seatbelts on if we don't want to pay yeah. And most of the voter base doesn't really own cars anyway.

The Military

The army is expanding. I heard from the Armchair Warrior Grapevine that this is necessary to secure the area. More soldiers are apparently required to secure an area than to fight it. Maybe i can see the sense in that. Seeing as the LTTE seem to be regrouping now, but still it doesn't look like the taxes are going to subside becuse of this. Also, for the suparlative and the trivia fan, the Sri Lankan military apparently will be the 10th largest in the world if the expansion is carried out.

This also ties into the IDP issue; the government is insistent on holding them for at least 2 to 3 years while international pressure, for what its worth, keeps insisting they let them go. Reports of opressive paramilitary activities at IDP camps abounded and were pretty morbid. But living conditions have now improved according to the IDMC. The government insists it needs to 'weed out' possible tiger cadres hiding within around 300,000 IDPs in vaious camps in the North East and they have just released about 2000 people who have been camped for about two years now.

Our GDP may sink. As defense ependiture reduces the contribution of government expenditure. Although development may pick it up. I read in the Times that there is a 50 million dollar resort of a number of boutique hotels coming up. Hopefully more development will happen and help us with our forex problems which brings us to,

The Economy

Economy wise we seem to have reached a firmer footing. According to this LBO article our balance of payments crisis which was formed by the CBs soft peg is somewhat over. It happened when they sold what dollars they had to buy back rupees to keep up the rupee exchange rates, perhaps helping temper the cost of war imports. What they also did though, was to print more rupees at the same time, defeating the purpose of the peg. Thereby needing even more dollars to fund the thing and avoid a major currency collapse.

I guess they were gambling it all on the war being over, and it's paid off. There has been some foreign inflow and the government has even pulled of a US bond sale which was oversubscribed by about a 100%. Assertions that the need for that IMF loan have lessened seem a bit credible now. There is investment coming in and development projects in line for the liberated territories especially. Although i am not clear as to how much corruption and inefficiency will stunt it.

Industry seems to be suffering with a lot of jobs being lost in the recent spate of downsizing that hit the garment field and other industries. Foreign remittances are also on the decline and many workers are having to return home.

There are signs that fuel prices may be on the rise, with LIOC lobbying for a price increase, the government has insisted it is not planning on raising prices but that is a regular government tactic to calm the people before they go ahead and increase the prices overnight. As was seen in the past.

Interest rates need to be lowered. There is a reluctance by most banks to do this, the current environment still being favourable for high interest rates, but lending has frozen somewhat and domestic demand needs to be stimulated. There are already efforts to get this underway.

What next?

Overall, I feel the outlook is lukewarm. Im not by nature an optimist. But i'm not too pessimistic about our future either. The end of the war is widely speculated to stimulate interest in investments especially in the North East and this will have spillover effects on the rest of the country as well.

If i am a little skeptical, it is with regard to the country's leadership and direction, will they handle the redevelopment efficiently? And also the environment of suppression of free expression that is prevailing right now is a cause for concern. We need a more independent media capable of pulling up those in charge without fear of repercussions. Someone needs to monitor the monitors afterall.

Yes. Again. And this time it seems, on a far bigger scale.

The Merchant Bank of Sri Lanka an 'investment bank' and a listed subsidiary of state-run Bank of Ceylon has taken over and is planning to 'restructure' Ceyliinco Group's Finance and Guarantee group of companies. According to this LBO report.

Meanwhile, all refunds from these companies have been stopped. Mainly to prevent 'influential' depositors getting their funds at the expense of others and a recovery plan will be revealed in 'two weeks' according to a media report released by MBSL.

Apparently there is a 'sufficent asset base' present and investors in F&G real Estate Co. will have to only sacrifice 'certain time period' to get their refunds. This from the MBSL chairman Janaka Ratnayake.

Now it doesnt exactly specify if full refunds will be available, but if you were an investor in that group, and if i was you, i'd start wondering a bit because the same report specifically states that the F&G groups assets were 13.5 billion while their liabilities were 12879 billion.

Yeah, have another look at those numbers. Now im not a big financial guy but even i know that a thousand to one difference between liabilities and assets will spell trouble. Even assuming most of these liabilities were not long term.

Mr. Ratnayake also said that F&G Real Estate Company Ltd had been offering interest rates of 42% per year for some customers and has been rolling over deposits. Now does that 'investment strategy' remind you of anything else? like for e.g. Bernard Maddof? The chap who pulled off a $50 Billion Ponzi scheme under the eyes of the likes of Alan Greenspan?

And if we thought Sakvithi was bad, he'll be chickenfeed in comparison to the potential destruction if the MBSL restructuring plan somehow fails and all this money is lost.

From Desperate Taxes For Desperate Times from the Democracy in America blog: THE states are facing their greatest revenue crunches since 1939, and they're run by legislators who—understandably—don't want to lose re-election by raising taxes on everyone. Thus, they're getting creative.

Assemblyman Tom Ammiano, a freshman from San Francisco, made a proposal intended to increase revenue, and, no doubt, appetite: legalizing and taxing marijuana, a major—if technically illegal—crop in the state. "We’re all jonesing now for money," Mr Ammiano said. "And there’s this enormous industry out there."

In general, sin taxes are the most regressive—and popular—taxes that legislatures can enact. A marijuana tax would be less regressive than a cigarette tax, given the demographics of each drug's smokers. In some quarters it would be extremely popular. And the money it would cost to collect the tax would be a pittance compared to the money saved by police no longer making marijuana arrests. So is this enough of a crisis to give it a try?

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Hmmm.. a commenter later goes to point out that in the longer term, health hazards of pot (yes it is almost as equally hazardous as cigarettes) will nullify any short term gain, especially given that this may boost consumption. Plus he raises a very interesting point that got me almost to laugh out loud, but wasn't really all that funny; Big Marijuana.

If weed is legalized, prety soon it will be capitalized, compartmentalized, segmented and marketed. All the fun will be lost and Runaway Jury 2 would be suing Big M.

How about it's effects in Sri Lanka then? obviously if it is capitalized worldwide we would be washed up in a wave of big companies if we legalized it over here, but what if it wasn't legalized in the US and we decided to do so as a measure to bring in some revenue to the government and make some people more happier than they already are? But it wont work;

First of all, pot smoking is frowned upon in Sri Lankan society rather more than in Western societies so support will not be there.

Also, a regime that focusses on 'mathata thitha' as one of its main marketing angles will never pass it through.

But what if we ignore these things and assumed it was passed it through anyway? would we reap any economic benefits?

Pot smoking will be legalized and massive corruption in the drug trade will stop

Local pot industry will boom due to lack of international entrants and small scale farmers will profit. Expertise will be home grown and we will be well poised to take advantage of a global pot industry, if it ever does materialize and we'd be able to add marijuana as a fourth major export crop.

Heavy taxes may be imposed to bring in additional revenue for 'nation building' without stunting industry growth

Tourism would benefit
Living conditions will improve and growth will increase.

People will chill out even more than they already do probably and perhaps this will have a detrimental effect on other industries, they don't call it a drug for nothing. Added to that the apparent health hazards. Although i think it's hardly got much on the hazards of Kassippu consumption.

Face it. 2008 was a culmination in a cyclical period of right royal self screw-age that the American business world just went through. Fortune lists the 21 dumbest moments in business in 2008.

Among the dumb stuff highlighted was the Paulson plan, Henry Paulson, Henry Paulson and Henry Paulson. The big 3 'big' automaker's CEOs, jet flights, hybrids also made the list.

The housing bubble, voluntary homeowner rescue plans that called for banks to run a loss (like they weren’t running enough already) to save the housing market kind of made it to the list as well along with

the people who 'displaced' blame at 'speculators' for artificially increasing the price of oil and followed up with blaming 'collapsing demand' for its sudden drop. But i suppose no one really knows wtf happened in the oil markets, really.

The whole Steve Ballmer (Microsoft) and Jerry Yang(Yahoo) thingummy figured heavy on the dumb list. Stevie for escaping by the skin of his nose by overvaluing yahoo and Jerry for missing out on pay day numero uno.

If you've not heard of Bernard L. Madoff then you should be ashamed of calling yourself a part of the great nation that spawned the likes of Sakvithi, cos this guy carried out one of the biggest scams in history. and he did it for decades too. His simple model for tricking the likes of Greenspan? The returns for your older investors are the new investments that come in. Rotation baby, it’s the new twist.

Something that i thought was not dumb at all was the Apple i-phone application. Here you had developers making millions by devising little games and selling em for $10 each to i phone users and one smart sonofagun thinks up a screensaver that is just a giant red ruby swirling on screen, calls it 'I Am Rich' and retails it for $999.99. How smart is that? eight people actually bought it (the i-phone retails for just $200) before Aple pulled it out. But i say why pull it out? i mean what brilliance! If you're rich, own an i-phone and want people to know. This app is for you! Niche marketing much?

Anyways I couldn’t resist giving a coupla slight spoilers but there are more good ones in here. With special appearances by everybody’s favorite two presidential candidates

Go check it out.