The Irish Independent reports that Taoiseach Brian Cowen yesterday rounded on the "bad news brigade" in the Opposition, as a row broke out over the timing of his Government's pre-election announcements.
With just 10 days to go in the Super Friday elections campaign, Mr Cowen announced a €69m investment in the meat-processing industry to create more than 800 new jobs by 2012.
But Fine Gael leader Enda Kenny said the voters should beware of government spin so close to polling day.
He said that promises were "meaningless", coming from a Government that has had "four budgets in the last 12 months trying to rectify the public finances". And he said that it was "delusionary" to expect the public "to swallow something like this, announcing grants in the closing stages of a European election".
But Mr Cowen dismissed the Opposition claims.
"The cynics are in fact those in the Opposition who seem to be so addicted to being part of the bad news brigade that they won't even allow us get any good news out at all,"he said."The Opposition leader is simply pouring cold water on the fact that we are making this sort of investment in what is primary industry for this country, and I don't share that as incessant negativity."
Labour Party leader Eamon Gilmore said the voting public needed to use the elections to send a message to the Government.
"We are saying to people to use June 5 to show Fianna Fail the red card,"he said.
The Taoiseach yesterday promised that the agricultural investment would have a "very strong" regional impact.
The Department of Agriculture is to invest €69m in 15 projects to upgrade the country's meat-processing capacity.
Private investment will bring the cash injection to around €170m.
Processing plants in counties Westmeath, Tipperary, Cork, Mayo, Monaghan, Meath, Longford, Wexford, Roscommon, Donegal, Waterford, Cavan and Kildare will benefit from the scheme, which will begin in 2010.
Money
"We have now come to the end of the process, decisions have been made and the money has already been allocated. It's been in the estimates so, therefore, the minister is making the announcement; it's totally a logical outcome,"said Mr Cowen.
Agriculture Minister Brendan Smith said there had been a huge investment in the traceability of meat products, which has ensured Irish beef can now be sold in premium markets."This is about ensuring that we can now meet the needs of the ever more discerning customer. We have to be competitive, we have to be innovative.
"In recent years, thankfully, we've been in a position to put huge resources into research and development, into innovation, it's no good doing research and development if that doesn't translate into jobs."
The beef and sheep meat industries have an annual turnover of €3bn and exports of €2bn. The investment announced yesterday is expected to increase sales and exports by €400m.
Mr Smith said the projects were necessary to ensure the industry could continue to fulfil demand from premium markets in Europe.
It was a positive announcement for everybody involved in the industry, including farmers, who would be offered better prices for their produce. "This is a good news day for the industry, for everybody involved in the industry, right through from the primary producer to the farmer to the person working in the plant," he added.
The Irish Independent also reports that a top expert from the International Monetary Fund who helped manage the rescue of failed banks in the US and Indonesia has recommended that the Irish banks be given the chance to recover some of their losses as part of the plans to set up the National Assets Management Agency (NAMA).
Decisions on Nama are expected to become more urgent this week as Anglo Irish Bank prepares to unveil the worst ever losses in the Irish financial industry tomorrow.
The bank is set to announce that more than half its "worst- case scenario" of €6bn in bad debts had to be set aside in the six months to March, with the total likely to exceed €3.5bn.
The six guaranteed banks will today provide details of their massive loan books to the steering committee which is working on the details of the NAMA scheme. The agency will concentrate first on the couple of dozen developers with loans of over €100m who make up the bulk of the problem debts.
Steven A Seelig, who is adviser at the Monetary and Capital Markets Department at the IMF, has been giving "invaluable" input to the committee, sources say. He believes something like NAMA would be the IMF's preferred option for the Irish situation.
Mr Seelig has recommended a scheme whereby the banks could recover several billion euro from NAMA on loans whose value has been recovered. He said this system worked well in the Indonesian banking crisis of 1997 -- one of the worst ever recorded.
There is a widespread view that NAMA will estimate the long-term value of the banks' €90bn development loans at around €70bn. Under this scheme, NAMA would then pay €63bn for the loans, with the banks able to get back the €7bn if it turned out the loans did have value.
"There is no loss to the Exchequer, because the money has been recovered, but it is a good way to align the interest of the banks with those of NAMA,"one source said.
Mr Seelig is also on record as saying that only viable banks should be rescued. Anglo's results will put the bank's viability in question and it may need immediate funding from the taxpayer to meet legal limits on capital, and/or reductions in those limits now that it is nationalised.
The Government is considering whether Anglo should postpone repayment of €750m in debt. In theory, it need not repay until 2014, but normally creditors are able to get their money earlier if they wish.
The Irish Times reports that TDS AND Senators are facing an interruption to their long summer holidays after the Government signalled its willingness to recall the Oireachtas to facilitate the passage of legislation to set up the National Asset Management Agency (Nama).
Minister for Finance Brian Lenihan last night said he hoped to publish the legislation by July and would, if necessary, recall the House from its summer recess to ensure that the legislation was enacted.
While the Oireachtas is scheduled to rise in early July, the Government embarked on the Nama plan with the intentions to have the legislation through all stages of the House by then.
Interviewed last night on The Week In Politics programme on RTÉ television, Mr Lenihan said property and development loans held by the banks could not be transferred to Nama until the legislation was enacted. “There are enormous practical difficulties with Nama, and that is why we are taking our time in doing the preparatory work with the banks, in preparing the legislation which we intend to publish by July.
“We will call back the House over the summer, if necessary, to enact the legislation. It is important to get on with it in a measured way.”
There would be a continued “denial of reality” within the banking system if the Government did not press ahead with the Nama plan, the Minister added.
His remarks came ahead of today’s deadline for banks and building societies covered by the State guarantee to provide a breakdown of their property and development loan portfolios to the National Treasury Management Agency officials working on the Nama project.
The aim of this exercise is to provide an up-to-date picture of the deterioration in loan quality to facilitate preparations for the immediate transfer of troubled loans into Nama once the legislation is enacted. Each of the institutions were told last week to consolidate data on their loans.
First into this process will be Allied Irish Banks (AIB), Bank of Ireland and the Educational Building Society (EBS), each of which has incurred big losses on their property and development loans.
The nationalised Anglo Irish Bank is preparing this week to reveal impairment losses between €3.5 billion and €4 billion, a development which would trigger a need for significant new capital from the State.
The Irish Times also reports that preparations for the National Asset Management Agency (Nama) move a step forward today with the arrival of a deadline by which the six main lending institutions must set out an analysis of their development loan portfolios to officials working on the “bad bank” project.
Although the National Treasury Management Agency (NTMA) still has not seen drafts of the legislation under which Nama will be established, the scale and complexity of the task confronting the new organisation will become clearer when banks and building societies provide a detailed breakdown of their property loan exposures.
Dozens of bankers in large institutions such as Bank of Ireland and Allied Irish Banks (AIB) are said to have been engaged in the process of collating and consolidating data on their biggest debtors in preparation for the transfer of loans whenever the new agency is established.
With loans valued at up to €90 billion to be transferred to Nama, the collation of up-to-date data on the current position of even the top 50 or 75 borrowers is likely to generate voluminous paperwork.
Today’s deadline, described by Government and NTMA sources as a flexible timetable for the provision of key information, comes ahead of an appearance before an Oireachtas committee tomorrow of the NTMA official in charge of the Nama project.
Brendan McDonagh, interim head of Nama, is due to appear before the Finance and the Public Service Committee in Leinster House alongside economist Dr Peter Bacon, architect of the plan and special adviser to the team heading the preparations.
They are likely to be questioned about the data provided today by the lending institutions and about the extent of their preparations for the new body and the parameters of its mandate.
At a meeting of another Oireachtas committee 10 days ago, NTMA chief executive Dr Michael Somers said his agency was not adequately staffed to cope with the operation of Nama or bank restructuring.
Dr Somers prompted considerable debate about his attitude to the Nama plan when stating before the committee that he knew “very little” about the new organisation,“apart from what has appeared in the newspapers”.
The NTMA has tendered for international tax advisers who will be charged with assessing the tax implications in Ireland and abroad of the Nama plan.
The Irish Examiner reports that ONE51 expects earnings to fall by as much as 38% this year, and the company has told shareholders 2009 will be immensely challenging across all aspects of the wider economy and that these challenges will likely extend into 2010.
One51 chief executive Philip Lynch, in a letter to shareholders, said: "In light of the current adverse conditions and lack of visibility, we are being conservative with our guidance for 2009 at this point."
He said that while One51 is not immune to this economic adjustment, the company remains confident it has the flexibility to continue to create value for shareholder over the medium term.
"We are guiding EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) before market to market adjustments to be €15 €20 lower for 2009 compared to last year’s €52.2m," he said in the letter to shareholders.
"We are pleased to report that the actual EBITDA result before exceptional items for 2008 was €52.2m on revenue of €433m. Our balance sheet remains strong with net assets at 31 December 2008 in excess of €500m. Net debt at year end was €213m and we have undrawn committed bank facilities of over €200m. Net cashflow from operating activities was strong, increasing to €45.6m from €24.5m in 2007," said Mr Lynch.
ONE51 in December forecasted an EBITDA of between €50-55m for 2008.
Mr Lynch said that offsetting the company’s strong operating performance are a number of non-cash adjustments that have arisen in respect of environmental services and our investment holdings.
"In environmental services, we have taken the prudent decision to mark down the book value of our Metal WEEE (Waste Electrical and Electronic Equipment) recycling operations by €27m which will be reflected as an exceptional item in the group profit and loss account for 2008," he said.
And he disclosed that in line with ONE51’s planned conversion to international financial reporting standards during 2009, the company has aligned its accounting policies in the 2008 financial statements to facilitate convergence later this year.
"As a consequence, our grey market and listed investments are fair valued to their respective market prices (mark to market) at 31 December 2008. The result of this is an exceptional charge of €39m to the profit and loss account and is a non-cash expense. Annual mark to market adjustments will be a recurring feature of the One51 financial statements going forward," Mr Lynch revealed.
The bulk of this €39m is believed to relate to ONE51’s failed takeover bid of Irish Continental Group (ICG) as part of the Moonduster consortium, owned by One51 and the Doyle Group.
This adventure has one silver lining as ONE51 will "be receiving a dividend from ICG of €3m via Moonduster on 29 May 2009".
ONE51said it will circulate its 2008 annual report next month, along with details of its annual general meeting, which will be held over the summer.
Its shares trade on a grey market and currently stand at €3, and Mr Lynch’s letter gave no indication of any intent to seek a full stock exchange listing.
The Financial Times reports that staff at the European Central Bank have called their first strike, in a protest over planned changes to their pension scheme.
A 90-minute warning strike will take place on June 3, just as the ECB’s 22-strong governing council arrives in Frankfurt for its monthly interest rate policy-setting meeting. The ECB said it would ensure that essential central banking activities were maintained during the protest action.
Staff at European institutions are generally regarded as enjoying good benefits as well as job security. But the strike marks a heightening of the tension between the ECB council and staff organisations over reforms to the bank’s pension scheme aimed at avoiding future funding gaps.
It highlights how institutions such as the ECB have been unable to escape the pressures created by longer lifespans and poor financial market returns.
The protest has been called by the International and European Public Services Organisation (Ipso), the ECB staff trade union, which has 460 members among the bank’s 1,500-strong staff.
Under changes to the ECB pension scheme, which the bank announced on Friday after their approval by the council this month, contributions will be increased both for staff and for the ECB.
There will also be changes in the way benefits are calculated, and reduced incentives for staff to leave before the normal retirement age of 65.
Adrian Petty, Ipso’s president, said the changes could reduce benefits by as much as 15 per cent.
Staff were also annoyed at having to pay the price for mistakes that had been made in running the scheme, he said. But Ipso’s main complaint was that the ECB had failed to enter into binding negotiations over the planned changes.
“The ECB has been able to implement more or less what it wanted to do, which is out of step for a modern European institution,”he said.
The ECB argued that staff retiring at 65 would not be worse off under the changes but the implicit subsidies provided for those who retired before that age would end.
It said the changes had been discussed for two years and had involved“extensive consultations with ECB staff representatives”.
The changes were necessary, the ECB said, because of the “changing demographic and economic environment, specifically the increase in longevity and decline in long-term interest rates”.
The Frankfurt-based ECB was founded as the central bank for the common European currency, the euro, launched in 1999.
Next week’s action is believed to mark the first strike in recent history at any large central bank.
Officials at the Federal Reserve last night could not recall any strikes in the history of the US central bank.
The central staff of the Bank of England have not been on strike since they were first unionised in 1975. Its printers, however, have conducted industrial action as long ago as 1912.
The FT also reports that China’s official foreign exchange manager is still buying record amounts of US government bonds, in spite of Beijing’s increasingly vocal fear of a dollar collapse, according to officials and analysts.
Senior Chinese officials, including Wen Jiabao, the premier, have repeatedly signalled concern that US policies could lead to a collapse in the dollar and global inflation.
But Chinese and western officials in Beijing said China was caught in a “dollar trap” and has little choice but to keep pouring the bulk of its growing reserves into the US Treasury, which remains the only market big enough and liquid enough to support its huge purchases.
In March alone, China’s direct holdings of US Treasury securities rose $23.7bn to reach a new record of $768bn, according to preliminary US data, allowing China to retain its title as the biggest creditor of the US government.
“Because of the sheer size of its reserves Safe [China’s State Administration of Foreign Exchange] will immediately disrupt any other market it tries to shift into in a big way and could also collapse the value of its existing reserves if it sold too many dollars,”said a western official, who spoke on condition of anonymity.
The composition of China’s reserves is a state secret but dollar assets are estimated to comprise as much as 70 per cent of the $1,953bn total and China owns nearly a quarter of the US debt held by foreigners, according to US Treasury data.
The collapse of Fannie Mae and Freddie Mac, the US mortgage financiers, last summer prompted Safe to adjust its strategy and start buying far more short-term US government securities, instead of longer-maturity bonds and notes.
This approach is widespread in the market because of expectations that the US will have to raise interest rates in the medium term to deal with rising inflation, as a result of all the money that it is printing.
But Safehas not fundamentally changed its strategy of allocating the bulk of its burgeoning foreign exchange reserves to US Treasury securities, a western adviser familiar with Safe thinking told the Financial Times.
He said Safe traders were “very negative” on sterling because of expectations of renewed weakness of the UK currency but Safe was neutral on the euro and bullish on the Australian dollar.
The pound ended last week at its strongest since December, shrugging off a warning over the UK’s soaring public debt from Standard & Poor’s, a rating agency.
The US dollar fell to its lowest level of the year against major currencies last week. Treasury yields spiked to six-month highs as investors focused on the willingness of creditors to fund a deficit that was expected to be about 13 per cent of gross domestic product this year.
China’s determination to keep buying US government debt is helping Washington fund its soaring budget deficit and there is no indication that Beijing will shy away from continued purchases, the Obama administration’s budget chief told a congressional sub-committee last week.
As its reserves soared in recent years, Safe began trying to diversify away from the dollar, It has been adding to its gold stocks and taking small equity stakes in publicly listed companies all over the world.
Over the long term, Beijing hopes to reduce the size of its enormous reserves and cut exposure to US Treasury bonds by encouraging state-owned enterprises to use foreign exchange to acquire competitors abroad.
Chinese outbound foreign direct investment nearly doubled from 2007 to $52.2bn last year. Beijing announced a plan last week to ease restrictions on domestic companies to make it easier to buy and borrow foreign exchange for offshore investment.
The New York Times reports that as job losses rise, growing numbers of American homeowners with once solid credit are falling behind on their mortgages, amplifying a wave of foreclosures.
In the latest phase of the nation’s real estate disaster, the locus of trouble has shifted from subprime loans — those extended to home buyers with troubled credit — to the far more numerous prime loans issued to those with decent financial histories.
With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.
“We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin.“Foreclosures were bad last year? It’s going to get worse.”
Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers’ introductory interest rates expired and were reset higher.
“We’re right in the middle of this third wave, and it’s intensifying,”said Mark Zandi, chief economist at Moody’s Economy.com.“That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.”
Those sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly typified the crisis.
Economy.com expects that 60 percent of the mortgage defaults this year will be set off primarily by unemployment, up from 29 percent last year.
Robert and Kay Richards live in the center of this trend. In 2006, they took a 30-year, fixed-rate mortgage — a prime loan — borrowing $172,000 to buy a prefabricated house. They erected the building on land they owned in the northern Minnesota town of Babbitt, clearing the terrain of pine trees with their own hands.
Mr. Richards worked as a truck driver, hauling timber from a nearby mill. His wife oversaw the books. Together, they brought in about $70,000 a year — enough to make their monthly mortgage payments of $1,300 while raising their two boys, now 11 and 16.
But their truck driving business collapsed last year when the mill closed. Mr. Richards has since worked occasional stints for local trucking companies. His wife has failed to find clerical work.
“Every month that goes by, you get a little further behind,” Mr. Richards said.
Last June, they missed their first payment, and they have since slipped $10,000 into arrears. They are trying to persuade their bank to cut their payments ahead of a foreclosure sale.
From November to February, the number of prime mortgages that were delinquent at least 90 days, were in foreclosure or had deteriorated to the point that the lender took possession of the home increased more than 473,000, exceeding 1.5 million, according to a New York Times analysis of data provided by First American CoreLogic, a real estate research group. Those loans totaled more than $224 billion.
During the same period, subprime mortgages in those three categories increased by fewer than 14,000, reaching 1.65 million. The number of similarly troubled Alt-A loans — those given to people with slightly tainted credit — rose 159,000, to 836,000.
Over all, more than four million loans worth $717 billion were in the three distressed categories in February, a jump of more than 60 percent in dollar terms compared with a year earlier.
Under a program announced in February by the Obama administration, the government is to spend $75 billion on incentives for mortgage servicing companies that reduce payments for troubled homeowners. The Treasury Department says the program will spare as many as four million homeowners from foreclosure.
But three months after the program was announced, a Treasury spokeswoman, Jenni Engebretsen, estimated the number of loans that have been modified at “more than 10,000 but fewer than 55,000.”
In the first two months of the year alone, another 313,000 mortgages landed in foreclosure or became delinquent at least 90 days, according to First American CoreLogic.
“I don’t think there’s any chance of government measures making more than a small dent,” said Alan Ruskin, chief international strategist at RBS Greenwich Capital.
Last year, foreclosures expanded sharply as the economy shed an average of 256,000 jobs each month. Since then, the job market has deteriorated further, with an average of 665,000 jobs vanishing each month.
Each foreclosure costs lenders $50,000, according to data cited in a 2006 study by the Federal Reserve Bank of Chicago, so an additional two million foreclosures could mean $100 billion in lender losses.
The government’s recent stress tests of banks concluded that the nation’s 19 largest could be forced to write off as much as a fresh $600 billion by the end of 2010, bringing their total losses to $1 trillion. The Federal Reserve concluded that these banks needed to raise another $75 billion.
Many economists pronounce that assessment reasonable, while cautioning that it could become inadequate if foreclosures continue to accelerate.
“The margin for error is not that big,”said Brian Bethune, chief United States financial economist for HIS Global Insight.“It’s kind of like, ‘Let’s keep our fingers crossed that we’ve seen the worst.’ ”
Among prime borrowers, foreclosure rates have been growing fastest in states with particularly high unemployment. In California, for example, the unemployment rate rose to 11.2 percent from 6.4 percent for the year that ended in March, while the foreclosure rate for prime mortgages nearly tripled, reaching 1.81 percent.
Even states seemingly removed from the real estate bubble are seeing foreclosures accelerate as the recession grinds on.
In Minnesota, three of every five people seeking foreclosure counseling now have a prime loan, according to the nonprofit Minnesota Home Ownership Center.
In Woodbury, Minn., Rick and Christine Sellman are struggling to persuade their bank to reduce their $2,200 monthly mortgage on their five-bedroom home.
Mr. Sellman, a construction worker, found some work putting in asphalt driveways last summer, but he is now receiving unemployment. Ms. Sellman’s scrapbooking businesses shut down last summer. Since then, they have slipped $19,000 behind on their mortgage.
“We were always up on our house payments,” Ms. Sellman said.“You work so hard to keep what you have, and because of circumstances beyond our control now, there’s nothing we can do about it.”
The NYT also reports that for anyone with a crazy idea for a Web business, the way to make it pay was once obvious: get a lot of visitors and sell ads. Since 2004, venture investors have put $5.1 billion into 828 Web start-up companies, and most of them are supported by ads, according to the National Venture Capital Association.
Now advertisers have cut back their online spending. So Web start-ups are searching for new ways to make money, like selling real, or virtual, goods or asking customers to buy subscriptions.
And venture capitalists who envision a sale of the company in the public markets are encouraging these efforts. Roger Lee, a partner at Battery Ventures who invests in digital media start-ups, said he considers only companies with one or two revenue streams in addition to advertising.
“Current troubles in the advertising economy are forcing people, out of necessity, to ask really hard questions about how do I build a profitable business,” he said.
The latest example they can point to is OpenTable, a restaurant reservation site that makes money selling its software to restaurants and charging them $1 for each diner seated. Last week it became the first venture-backed Web company to go public in two years.
It was a very successful offering. The stock was offered at $20 on Thursday, 43 percent higher than investment bankers’ original price estimates. It closed Friday at $28.71, a 44 percent gain.
Others are learning the lesson. When Ben Elowitz formed Wetpaint in 2005, it was intended to let anyone create a Web site free. The venture capitalists he talked to said Wetpaint should get as many visitors to the sites as possible so it could offer advertisers a big audience.
Wetpaint typically offers advertisers space on a few Web sites with a few hundred thousand visitors. But last fall, many of their advertisers raised their sights to publishers with more than five million readers, Mr. Elowitz said. Rates for leftover ad space fell to 25 cents per thousand views from $1.
Some tense board meetings followed. “Toward the end of the year, we came around to say we’re not going to depend on one revenue line,” he said. “The online advertising market looked like it would be the biggest star on the landscape, and even that star has dimmed.”
Now, Wetpaint charges its big company customers, like HBO and Fox, a fee in exchange for providing extra services like site promotion and moderating reader forums.
Smaller customers can pay to keep their sites free of ads. Wetpaint plans to add more paid services, including additional storage for big files and personalized domain names. It is also considering selling virtual goods on its sites.
The market consultants at eMarketer say that while ad growth online has slowed from its 20 percent to 30 percent growth rates, it still grew 10.6 percent last year and is expected to expand 4.5 percent this year. And while advertisers are expected to spend less on display, classified and e-mail ads, they will spend more on search and video ads.
Some technology investors say there is no reason to panic. “Pre-October, most business plans were ad-based models, and all of a sudden the entire world decided they were virtual goods or subscription models, and I just find those overreactions crazy,” said David Sze, a partner at Greylock Partners who has invested in ad-supported sites like Facebook and Digg.“Sure, the ad industry will shrink, but I believe you will see continued growth in ad dollars going to the Internet over time.”
New companies, however, can find it hard to attract tens of millions of visitors, as Facebook and Digg have. And without them, the advertisers may not follow.
Pandora, an online radio site, tried subscriptions when it started in 2005.
“That lasted all of three weeks,” said Tim Westergren, Pandora’s founder. “It was pretty clear there was no future in that and the only real option was to go free.” Pandora now has 10 million listeners a month and advertisers like Hewlett-Packard and Best Buy.
Ads are not enough, though. Last week, Pandora began an optional subscription service. For $3 a month, listeners see and hear no ads and receive a desktop application and faster streaming.
“This is the ultimate debate: What is the nexus of what users want and what the economics will allow?”Mr. Westergren said. “Certain services offered too much and couldn’t afford it, and others charged too much for features people weren’t willing to pay for. There has to be a middle ground, and we’re still looking for it.”
Pandora’s new model, which is often called “freemium” — a mix of free and premium — is becoming the most popular among Web start-ups.
Xobni, which makes a tool that simplifies searching in Outlook e-mail, is free but plans to unveil premium paid versions this summer that offer more features. Xobni does not run ads.
“Ads are an inefficient business model, making indirect revenue as a result of behavior and advertising to people who don’t want to see them or for whom they’re irrelevant,”said Jeff Bonforte, Xobni’s chief executive.“Premium is a very direct and efficient model.”
When YuChiang Cheng co-founded World Golf Tour, an online golf game with high-definition graphics, he wanted to make money from every player.
Only 5 percent of World Golf Tour’s 250,000 players pay for things like $1 putters in the virtual pro shop or an $18 tournament entry fee, but it gets two-thirds of its revenue from such purchases. The other third comes from ads, including banner ads and tournament sponsorships.
Other Web companies stick with selling real things. In February, when Pankaj Shah started an online magazine, Tonic, he decided to do it without ads. Tonic runs articles with feel-good themes and sells things like $65 organic cotton T-shirts by Donna Karan.
“I didn’t believe in the longevity of the advertising model for media, with rates falling and budgets getting cut,” Mr. Shah said. “Selling a T-shirt or bracelet for $45 makes up for a lot of click-throughs on Cialis ads.”
