The Wall Street Journal Education Program
Weekly Review & Quiz
Covering front-page articles from March 10 -16, 2007
Professor Guide with Summaries Spring 2007
Developed by: Scott R. Homan Ph.D., Purdue University
Questions 1 – 12 from The First Section, Section A
Google Gains on Goal of Controlling And Targeting TV Commercials
By KEVIN J. DELANEY and PETER GRANT
March 10, 2007;PageA1
http://online.wsj.com/article/SB117349709482933055.html
Google Inc. has established a toehold in pursuing of one its next big ambitions: controlling which television ads viewers see and tailoring them to consumers' interests.
The Mountain View, Calif., company honed the highly profitable Internet model of search advertising -- that is, selling ads targeted directly at consumers based on the terms they enter into Web search engines. Last year, the eight-year-old company racked up more than $10 billion of revenue by brokering online ads for itself and its partners.
Now, Google has begun a test run serving up TV commercials to cable subscribers in Concord, Calif., people familiar with the matter say. The pilot project to bring its approach to cable boxes represents a foray into the $54 billion U.S. market for TV advertising -- much bigger game than Google's online turf.
Google since last year has been steering TV commercials to subscribers of cable provider Astound Broadband, a unit of WaveDivision Holdings LLC, according to four people familiar with the matter. When Astound's customers watch TV, some commercials spots they see have been sold to advertisers by Google and delivered to the cable company so they appear in the normal breaks in programming as other ads do.
While the effort is in its early stages, it underscores how Google could bring changes to how TV commercials are sold and delivered to viewers. Other Internet companies are also pursuing an entree into TV advertising, and any major Google success could eventually challenge the traditional TV and advertising powers.
If the system is successful, Google could eventually try to establish itself as a middleman for purchasing TV spots, furthering its stated goal of offering advertisers one-stop-shopping across virtually all media. There is no assurance, though, that Google can repeat its success in online-search advertising -- a field in which it had little serious competition -- in the crowded, highly competitive arena of conventional media.
Google Chief Executive Eric Schmidt in January told analysts the company is experimenting with TV advertising, without offering specifics. But he said the company intends to use its technology to better target TV commercials to viewers. Rather than every household seeing the same commercial, Google in theory might tap databases with information about the demographics of an individual's neighborhood and examine the content of the program being watched at a given moment to better select which ads to beam through the TV. So, for example, a household in an area with lots of children might be more likely to see commercials for minivans than for sports cars.
While federal privacy law restricts what cable companies can do with "personally identifiable information," the theory is that consumers will be better served seeing ads more relevant to them and will perhaps agree to share information about their habits and interests with Google. Such data eventually might allow Google or others to more specifically tailor ads to individual households -- such as showing ads for dog food to viewers who own dogs.
"Advertisers in particular will pay much higher rates for ads that are targeted than ones that are untargeted," Mr. Schmidt noted.
The Concord effort, being conducted with a small group of advertisers, is aimed at testing the computer and network infrastructure needed for Google to broker and deliver commercials to cable systems more widely. In the test, advertisers are buying commercial placements through an auction system, people familiar with the matter say. But it is at an early enough stage that the buys are being handled manually by Google salespeople, rather than through a full-fledged automated auction like the one Google uses to sell ads online, one of the people says.
At this stage, the commercials aren't targeted to specific households in Concord, which isn't far from Google's Northern California headquarters, people familiar with the matter say. And the company likely won't on its own tap information about a specific household's buying patterns or other behaviors in order to choose the commercials because of the privacy concerns, one of the people says.
A spokeswoman for WaveDivision couldn't be reached for comment, but an executive with Astound, which has more than 25,000 subscribers, confirmed the test with Google is taking place.
"As we have stated publicly, we think we can add value to TV advertising by making this important medium more relevant for users, measurable and more accountable for existing and new advertisers," a Google spokesman said. "As part of this, we are currently running a small, early phase trial working closely with a small number of partners and advertisers."
Google's interest in TV commercials comes as the cable industry itself is turning to advertising as a promising source of revenue. One reason: Technology developments are starting to make it possible to target ads to specific households, as Google envisions. The Internet and cable players all want to play a role.
Several of the largest cable operators have also had discussions with Google about teaming up to do some form of TV advertising. Google has broached the subject with Comcast Corp., the country's largest cable operator, with more than 23 million subscribers, as part of broader negotiations focusing on whether Google will continue as the search engine on Comcast's broadband portal, Comcast.net. Their current deal expires at the end of this year.
1. Google has established a toehold in pursuing of one its next big ambitions: controlling which ______and tailoring them to consumers' interests.
a. radio commercials listeners hear
b. satellite radio commercials listeners hear
c. billboard ads viewers see
d. television ads viewers see Correct
2. The cable industry is turning to ______as a promising source of revenue.
a. pay per view for children
b. advertising Correct
c. rural subscribers
d. eliminating illegal hookups
The Texas Wind Powers A Big Energy Gamble
By JEFFREY BALL
March 13, 2007;PageA1
http://online.wsj.com/article/SB117347331863532510.html
SILVERTON, Texas -- Deep in the heart of Texas, multinational giants are gambling on a new supply of energy. The prize isn't oil. It's wind.
In this pancake-flat country, where the wind blows so relentlessly that the sagebrush and mesquite are permanently bent, Royal Dutch Shell Group, BP PLC and a wind-development company owned by Goldman Sachs Group Inc. are racing to lease vast expanses of ranchland. In a bet on wind power's long-term viability, they're planning to erect what would be some of the biggest wind farms in the world, with thousands of wind turbines costing some $2 million apiece.
HEATING UP
But generating power from wind isn't profitable without government tax breaks, which in the past have been offered and taken away. The big proposed projects in Texas, like those elsewhere in the country, are dependent on regulators approving transmission lines to connect remote and windy regions to major power markets. If the new lines aren't built, the projects are doomed. Such uncertainty has dashed hopes for fossil-fuel alternatives before, creating a boom-and-bust cycle not unlike the one that typifies the oil industry itself.
Energy companies investing in wind power are expecting governments to toughen rules relating to traditional energy sources, part of long-term efforts to reduce global-warming emissions and reliance on Middle East oil. As a result, they're hoping renewable energy will become a profitable niche, not merely one that allows them to burnish their green credentials.
3. Deep in the heart of Texas, multinational giants are gambling on a new supply of ______energy.
a. nuclear
b. brown oil
c. coal
d. wind Correct
4. The big proposed projects in Texas, like those elsewhere in the country, are dependent on regulators approving ______.
a. tax breaks
b. tax cuts
c. federal energy bonds
d. transmission lines to connect remote regions to major power markets Correct
How Five New Players Aid Movement to Limit CEO Pay
By JOANN S. LUBLIN and PHRED DVORAK
March 13, 2007;PageA1
http://online.wsj.com/article/SB117372189493934353.html
Meredith Miller, a low-key state official with a lot of clout, is helping rev up the movement to limit executive pay. Charged with helping protect Connecticut's $24-billion public-employee pension fund, she recently prodded financial powerhouses such as Morgan Stanley into making changes to their compensation practices.
Ms. Miller, 51 years old, is part of an unusual new movement that has turned executive-pay activism into a potent mainstream force, and not just the redoubt of gadflies. It now counts as members academics, mutual-fund trustees, foreign institutional investors, union leaders and politicians.
EXECUTIVE PAY
Last year, mutual-fund companies withheld votes to re-elect directors at Pfizer Inc. and Home Depot Inc., whose chief executives enjoyed big pay packages despite their companies' poor share performance; both have since resigned. This year through March 9, investors had submitted 266 shareholder proposals related to executive pay, almost double the year-earlier period, according to proxy adviser Institutional Shareholder Services.
Rep. Barney Frank, meanwhile, held a hearing last week on a bill that would require companies to give shareholders an advisory vote on executive-pay deals. Mr. Frank, chairman of the House Financial Services Committee and a Massachusetts Democrat, previously introduced legislation to give shareholders a veto. He says he made the change to gain congressional Republican support and improve the chances that President Bush will sign the bill.
"Heck, even the president says there's a problem," says Mr. Frank, referring to a speech given by President Bush in January urging boards to guard against oversized CEO paychecks.
These activists sometimes form loose networks to share strategies and lobby for each others' causes. A few are uncomfortable with the "activist" label. John A. Hill, chairman of the board of trustees at mutual-fund giant Putnam Funds, says he joined the debate partly because he didn't "want to cede the terrain" to traditional activists with little business background.
Some are driven by professional motives, others by political ones. Uniting them all is distaste for large exit packages given to ousted chief executives and recent revelations about rigged stock options. Executives who collect sky-high pay despite poor corporate performance are a particular target. Unlike the public grandstanding common to some activists in the past, this crowd prefers to work behind the scenes, often through persuasion rather than confrontation.
Recent regulatory changes reflect the movement's clout, and have also helped stoke its fires. Under new federal disclosure rules, companies have to give investors more information about executive pay, perks and retirement benefits in their proxy statements. The tallies, which are slowly being released, could be eye-popping.
It's hard to say whether the new activism will curb pay. Past efforts have fallen short, sometimes because companies found new ways to compensate executives, and sometimes because regulations had the perverse effect of pushing pay higher. Mark Reilly, a partner at 3C Compensation Consulting Consortium, estimates that under the new disclosure rules, nearly half of the 500 biggest public companies will reveal CEO pay packages of around $100 million -- including 2006 compensation, stock-option exercises and accumulated pension benefits.
5. Meredith Miller, a low-key state official with a lot of clout, is helping rev up the movement to limit_____.
a. minimum wage
b. social security benefits
c. executive pay Correct
d. health insurance costs
6. Under new federal disclosure rules, companies have to give investors ____.
a. more information about profits and losses
b. more information about executive vacation schedules and destinations
c. less information about executive pay, perks and retirement benefits
d. more information about executive pay, perks and retirement benefits Correct
For Booming Biotech Firms, A New Threat: Generics
By ANNA WILDE MATHEWS in Washington and LEILA ABBOUD in Zagreb, Croatia
March 14, 2007;PageA1
http://online.wsj.com/article/SB117383624848536301.html
The future of the biotechnology industry may lie in a steel-and-glass research center a few miles from the red-roofed medieval buildings of the Croatian capital, Zagreb.
Inside, scientists at U.S. generics maker Barr Pharmaceuticals Inc. are working on copycat versions of some of biotech's biggest hits, drugs that cost the American health-care system billions of dollars a year. Their goal is to sell them someday in the U.S.
It's a critical turning point for the biotech industry. Companies such as Amgen Inc. and Genentech Inc. have recorded spectacular growth over the past decade. One reason for their lofty stock prices: Unlike the pills from traditional drug makers, biotech drugs almost never face competition from generics even after their patents expire.
That's likely to change. Europe has already cleared the way for copycat biotech drugs, and the U.S. Congress, now in the control of Democrats, is gearing up to do the same. Powerful Democrats such as Hillary Clinton and Charles Schumer of New York in the Senate and Henry Waxman of California in the House have proposed bills that have the biotech industry up in arms. The bills would give the Food and Drug Administration authority to approve biotech copies without the full testing required of originals.
"I don't think it's whether it will happen, it's a question of when it happens," says Barr Chief Executive Bruce Downey.
Biotech companies are fighting to stall the legislation, warning that knockoff medicines could pose serious risks unless the FDA requires extensive testing before approval. "These products are not identical, and cannot be identical, scientifically and commercially," says Kevin Sharer, the chief executive of Amgen.
Biotech executives also say that if the door is thrown wide open to generics, research into cancer and other diseases would be hurt and the economies of biotech centers such as the San Francisco Bay area would suffer a blow. The Waxman bill "would have a devastating impact on the industry," says Genzyme Corp. CEO Henri Termeer. Global spending on biotech drugs totaled more than $60 billion last year, according to an estimate from IMS Health, double the 2002 figure.
Traditional drug companies mostly make "small-molecule" drugs, typically in the form of pills. Most can be cooked up by mixing chemicals in a series of well-defined steps. Biotech drugs, also called biologics, are proteins manufactured in living cells. Scientists typically splice genetic material into bacterial, yeast or mammalian cells, which then produce the proteins. A single molecule of these proteins may weigh 100 times as much as a single molecule of the active ingredient in Prozac.