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MARCH 22, 2004
Edited by Ira Sager Talk Show "If class warfare is being waged in America, my class is clearly winning." -- Warren Buffett, in his annual letter to Berkshire Hathaway shareholders, about recent tax cuts Starbucks Waltzes Into Music Here's a deal: Sip on a mocha latte, listen to any of 250,000 songs, then order up the ones you like on your own CD to go. Where? At Starbucks (SBUX ). BusinessWeek has learned that, on Mar. 16, the Seattle coffee giant will unveil an in-store music service for customers to do just that using tablet PCs to make their choices. The first musical Starbucks opens in Santa Monica, Calif., and the service will expand to 2,500 stores in the next two years. Starbucks already offers a limited selection of CDs, and five years ago it bought retailer HearMusic. But the in-store service is its biggest new venture since it pushed overseas in the mid-'90s. "This is not a test," says Chairman Howard Schultz. "We're going for it." The company foresees a lucrative business among its customer base of middle-aged javaholics, many of whom don't even go to music stores, let alone burn their own CDs. Prices will be comparable to Apple's (AAPL ) iTunes service: $6.99 for five songs, the minimum purchase. Later, to appeal to a younger set, Starbucks will offer wireless downloads to laptops or portable players. Music executives love the idea. "They are bridging the gap between the virtual and physical worlds, creating another way to recommend music to people and target a specific buyer," says Jimmy Iovine, who heads the Interscope, Geffen, and A&M labels. Several music retailers are planning a similar setup, so Starbucks won't have the field to itself forever. And its baristas must learn to keep both CD burners and espresso machines running smoothly. But Schultz's bet is that music will make Starbucks, as singer Norah Jones might say, a place that feels like home. By Stanley Holmes   No Mickey Mouse Payoff For Eisner  No wonder it's called the Magic Kingdom. If embattled Walt Disney (DIS
) CEO Michael Eisner quits before his contract expires, or if he gets fired, he could walk away with $374 million in cash and option gains.For starters, Eisner would be entitled to his $1 million-a-year salary through the end of his contract in 2006. There's also his 2004 bonus, and a $6 million bonus for each of the next four years. If his 2004 bonus is near the $6.25 million he got in 2003, that's more than $33 million in cash. Then add in his pension, which is worth a further $4.2 million. But the big money would come from 21 million options he got in 1996, on which the board accelerated the vesting four years ago. If Disney stock rises 8% a year, those options could be worth $337 million when they expire in 2008 and 2011. And if Eisner stays until his contract is up? He still gets $12 million in bonuses and the option gains, plus a paid consulting gig and all his perks, such as using the Disney jet. With Eisner no longer chairman, Disney is renegotiating his contract. It says Eisner will get "no greater economic benefit." No word yet on whether a pay cut is on the table. By Louis Lavelle  Microsoft Versus Linux For months, rumors have swirled on the Web alleging that Microsoft (MSFT ) helped finance SCO Group's (SCOX ) suit against IBM (IBM ) and two companies that use Linux software. BusinessWeek has learned that the software giant did not put up the money but did play matchmaker for SCO and BayStar Capital, which poured $50 million into SCO last October. BayStar managing partner Lawrence Goldfarb says that senior executives at Microsoft called him to ask if he would consider investing in SCO. Goldfarb would not identify the execs. He says Microsoft didn't put any money into BayStar or the SCO investment. The hedge fund manages about $400 million, with most of that in life sciences. Goldfarb says he made the SCO investment partly because he thought there could be a good business based on its intellectual property. The money did help SCO fund its lawsuits. SCO claims that portions of Linux, which threatens Microsoft's Windows monopoly, violate SCO's copyrights. Microsoft also bought two licenses from SCO worth more than $12 million, according to insiders. Microsoft says it has no financial dealings with BayStar. The company declined to comment when asked whether any execs called BayStar to suggest investing in SCO. By Jim Kerstetter, with Jay Greene Going Up? Mike DiFranza's advertising brainstorm is ending one of the last ad-free zones in America: elevators. Realizing that elevator riders are a captive -- and usually bored -- audience, he launched Captivate Network, which shows ads on flat-screen TVs in elevators. In six daily trips of one minute each, a rider can soak up 24 hours of elevator ads annually, says DiFranza. The Westford (Mass.) startup charges companies such as General Motors (GM ) and American Express (AXP ) up to $125,000 monthly for repeating 10-second ads in 450 buildings across the U.S. It has contracts for 650 more buildings. Now what's worse, ads or Muzak? By Kathleen Kerwin Spitzer Pays His Union Dues Anyone who doubts that New York Attorney General Eliot Spitzer has his eye on the governor's mansion should have seen him glad-handing union chiefs at the annual AFL-CIO gathering in Miami Beach on Mar. 9. At a reception, Teamsters President James Hoffa gave the AG a rousing welcome. "I give you the next governor ...of New York," he roared. Spitzer replied: "I can't say too much about that introduction or I'll get in trouble -- but it sure does sound good." Sounds like the perfect entrée for a little fund-raising. By Aaron Bernstein Kenneth S. Rogoff: Irritable Debt Syndrome?  Some nations, says Kenneth S. Rogoff, are intolerant of debt the same way some people can't stomach milk. Because of weak banking, political, and legal institutions, borrowing only makes things worse for these countries. But, says the ex-chief economist of the International Monetary Fund, they are hungriest for new loans -- like "a lactose-intolerant individual addicted to milk."Since returning to Harvard University last fall, Rogoff, 50, has stepped up his call for rich countries to reduce lending to nations such as Argentina, Brazil, and Turkey. Argentina, he says, is the worst debt offender. The land of the tango is in default on about $90 billion in bonds owned by private creditors. On Mar. 9, it agreed to pay $3.1 billion to the IMF. Rogoff has a knack for catchy phrases. He once accused World Bank chief ex-chief economist Joseph Stiglitz, an IMF critic, of living in the "gamma quadrant" -- his way of calling him a space cadet. By Peter Coy A New Vision For Lower Manhattan  Last year, Polish-born architect Daniel Libeskind, 57, won the competition to redesign New York's World Trade Center, where ground-breaking is set for this fall. Libeskind, the son of Holocaust survivors, also designed the acclaimed Jewish Museum in Berlin. He came to the U.S. as a child and grew up in the Bronx. On Mar. 4, he sat down with Editor-in-Chief Stephen B. Shepard as part of the Captains of Industry series at New York's 92nd Street Y. Here are excerpts:Where were you on September 11 when the Towers fell? I was in Berlin. It was the first day the Jewish Museum opened. I said, "I'm returning to New York and Lower Manhattan." I wanted to contribute in some way to the rebuilding. How did you come up with your plan for the site? I was working on something rather different until I came to the site. I asked the Port Authority if I could go down to the bedrock. When I went down and touched the floor level I had a complete new vision. It wasn't gradual. It was through a physical connection with the space and the light. I called my studio in Berlin and said, "Drop everything that you've been doing." How is it working with so many constituencies on this project? Because this project has been born in a democratic, participatory process, it's very healthy. At the end, that will be reflected in the spirit of this project. I don't believe in some edict from some king or general, "Build me that!" and then it happens. Those projects are never good ones. Is there a link between the Jewish Museum and the World Trade Center? They are both not merely about concrete and steel and glass. They are about spiritual, cultural longing. They have to be about existence, meaning, and memory. Business On The Web Is Warming Up It's time to give Net companies their due. According to a BusinessWeek survey, 141, or 59%, of 238 public Web companies made money in the fourth quarter of 2003. That's up from 41% a year ago. Why? A 38% fourth-quarter gain in online ads, 25% growth in e-shopping last Christmas, and mergers that cleared away some money-losers. The numbers will be even better in 2004. About a dozen more companies are expected to begin making money, including Web travel agency Orbitz (ORBZ ). Plus profit makers such as Salesforce.com have filed to go public, with Google expected to follow. Web profits, once rare, are now the rule. For a look at our list of Net companies, click here By Timothy J. Mullaney 
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