As economic and corporate pressure heats up this week, we saw some players back down.
Here with me to offer the detail is Morningstar markets editor Jeremy Glaser.
Jeremy, thanks for being here.
And this week really their bread and butter broke--the BlackBerry servers that push e-mail and push BlackBerry messages out to their users went down for days. About half of BlackBerry users, maybe even more, were impacted across the entire globe, and BlackBerry isn't really sure what happened. It took them days to get it back; they finally did on Thursday. It'll take a while for that backlog of e-mails to get delivered, but they don't know what happened, and they've apologized, but I mean other than that, it really cuts to the core of their business.
People still use BlackBerry today not because it's the flashiest but because they think it's the most secure, because enterprises are comfortable deploying it to lots of workers. And if they keep having these kind of technical problems, and people don't trust their e-mail systems anymore when their colleagues' iPhones are working great, that's not going to be great for future sales. I think they are already struggling. I think this is only going to make it more difficult for them.
Stipp: So, Jeremy, in the media space, there was a tussle this week between a movie studio and the movie theatres about how a movie, a recent release, is going to be distributed. What's the story there and what's the implication?
Glaser: Universal Studios had this grand plan that their new movie Tower Heist, which really looks like a great one, was going to be released on cable video-on-demand systems for $60 a pop three weeks after it was going to be available in the theatres. So you could see it in the theatre for the first three weeks, and after that, you'd be able to download it at somewhat of an exorbitant price, but you'd be able to get it in the comfort of your own home. And the movie theatres didn't take too kindly to this. They thought that people weren't going to come to the theatre itself if they were able to get it at home so quickly. They thought that price point was too low. And they really just were not excited about this at all and put a lot of pressure on Universal to pull this plan, which the studio finally did.
I think this just shows how difficult it is for these media companies to react in the ... new media world. A lot of these films are pirated and hit the Internet almost immediately after they're in the theatre. And people who really want to see it that way are getting it through illegal channels. It's very difficult for studios to make them legally available because you have lot of entrenched players--people like the movie theatres are pushing back against you. So trying to find ways to monetize your content is very challenging, and I think that the fact the movie theatres aren't allowing companies like Universal to experiment to just see if people really do want to pay $60 to see an Eddie Murphy movie [at home] three weeks after it's in the theatre is just going to make it more difficult to innovate. I think it is going to make it more difficult for these companies really to continue to thrive when we move to completely digital media.
Stipp: Well, Jeremy, I'll look forward to your review of Tower Heist next week, but in the meantime, we're sorting through some earnings this week. They were somewhat disappointing. Is the earnings growth that we've seen over the last few quarters finally cooling off?
Glaser: We had disappointing earnings from both Alcoa and JPMorgan this week. A lot of it shows that I think earnings are starting to slow down a bit. And part of this is because earnings have been so good. One of the real bright spots of the recovery has been corporate profitability, and we just were surprised quarter-after-quarter just how good results looked and how much better they were than expectations. That's just not sustainable. We're already near kind of record corporate profitability, and you don't think it's going to continue to go from there, given how weak a lot of the underlying economic indicators are right now. So I think it isn't shocking that we're seeing some pullback, and none of these misses were catastrophic. Basically things were about flat or things didn't grow quite as much as analysts had really hoped. So I think this isn't a sign of complete economic Armageddon, but I think it could be an indicator that this earnings season might be a little bit weaker than some of ... the previous earnings periods.
Stipp: In global news, Jeremy, we got some trade gap data this week with China. That trade gap grew. This is an area that a lot of market watchers are really focused on, and they are wondering, "Is China going to back down with its currency to get this more in balance?" What do you think the story is?
Glaser: The U.S. trade gap with China grew by over 7% in August, and it's not because the United States stopped exporting things to China. In fact, exports actually grew, but imports grew by a lot more, and this is probably partially because of the Chinese currency. It's artificially low because of Chinese government policies that make their exports look pretty attractive to the United States. And I think that in order to solve some of these imbalances, there is going to be a lot of pressure on the Chinese government to allow their currency to appreciate a lot faster than it has been, and I think we'll have to see who backs down first here.
I think the Chinese government long-term would like to see some internal consumption take a bigger part of their economy instead of being totally export-driven, but that's something they want to do on their terms and very, very slowly. But I think the United States and a lot of politicians want that to happen a little bit faster, so that the United States' export economy looks stronger, and it could be a way to get employment back in gear. So I think we are going to be hearing a lot about Chinese currency, and I think in particular it'll be interesting to see how this plays out on the global stage.
Stipp: Spin the globe over to Europe, a small player took on a pretty big role in news this week in the EU, and the debt crisis happening there. What was the story and what's the outcome?
Glaser: The world really did turn its eye to Slovakia this week, which is not something that happens terribly often. That's because Slovakia was the last member of the eurozone to vote on changes to the EFSF [European Financial Stability Facility] or the fund that was set up to help stem the sovereign debt crisis.
Slovakia's big problem--or maybe it's not their problem--is the fact that they are small country that's relatively poor--it's the poorest country in the eurozone. That made it a little bit more difficult politically for their leaders to sign off on this big bailout of countries that have more wealth than them, and countries that really played maybe fast and loose during their crisis, while [Slovakia] really buckled down and kept their debt load in check because they really wanted to become members of the eurozone.
I think certainly the fact that they did eventually pass it was a good sign, and it will give the fund the flexibility that it will need to help stem off some of the worst parts of the crisis, but it just shows how incredibly difficult it's going to be to get all the members of the Eurozone on the same page at the same time on these different measure that are going to be needed as we lurch from crisis to crisis in Europe.
So I think we're going to be talking about this for a long time. I think there are going to be more votes where Slovakia is going to be right on the edge and maybe not terribly excited to vote for. So hopefully, it's a good precedent that they are eventually going to go along with it after they make some noise, but it just shows some of the limits that Europe has on it for acting in a really decisive way.
Stipp: Well, Jeremy, one thing I know won't back down is your coverage on the week's events. Thanks for joining me.
Glaser: You're quite welcome, Jason.
Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.