Business Blog Posts

Pay-TV operator Starz, controlled by John Malone's Liberty Media, said on Thursday it had ended negotiations aimed at renewing a deal that expires February 28. After that date, Starz will stop providing its content, which includes exclusive rights to first-run Sony Corp and Walt Disney Co movies, for streaming on Netflix.

Netflix shares were down 8.7 percent at $213 in after-hours trade, from a close on the Nasdaq of $233.27.

The original online streaming rights are believed to have been agreed for around $30 million a year four years ago, people familiar with the deal have said. Many Wall Street analysts expected a new deal for around 10 times the cost of the original.

Starz, in a statement, called its decision "a result of our strategy to protect the premium nature of our brand by preserving the appropriate pricing and packaging" of its content.

The news came the same day that an unpopular Netflix price hike of as much as $6 per month took effect. The breakdown with Starz was a surprise because investors had expected the parties to reach a deal, said Brett Harriss, an analyst with Gabelli & Co.

"Netflix just effectively raised prices by 60 percent, and a big chunk of their content walked away," Harriss said.

Netflix spokesman Steve Swasey said the company was "confident we can take the money we had earmarked for Starz renewal next year, and spend it with other content providers to maintain or even improve the Netflix experience."

Starz is the exclusive distributor of first-run Sony and Disney movies on pay-TV in the United States under an agreement that allows it to distribute the programing wholesale on multiple platforms, including online streaming.

But Netflix -- which has grown faster than partners expected -- triggered a deal clause in the first quarter when it announced it now has more than 22.8 million subscribers in the United States, of which nearly two-thirds were streaming videos, sources told Reuters in June.

Under terms of the original contract, the trigger allowed Sony to ask Starz for better financial terms, the sources had said.

(Reporting by Lisa Richwine, editing by Matthew Lewis and Carol Bishopric)

Detroit automakers posted double-digit percentage gains from year-earlier sales, helped by stronger sales of newer small cars like the Chevrolet Cruze and more fuel-efficient SUVs including the Ford Escape.

But shares of both General Motors Co and Ford Motor Co closed lower, and analysts cautioned that the Detroit Three could face a payback in the months ahead as their major Japanese rivals fight to make up for lost ground.

Honda Motor Co and Toyota Motor Corp were the big losers in August, hurt by inventories that were depleted by the March earthquake in Japan. Toyota's U.S. sales fell 13 percent last month and Honda's tumbled 24 percent.

Executives said the industrywide sales pointed to an encouraging stability in demand for big-ticket purchase at a time of deep economic uncertainty.

Still, some analysts cautioned there was a risk the industry would be caught out if demand flattens over the remainder of the year.

GM reported a sales gain of 18 percent from year-earlier levels. Ford sales were up 11 percent. Chrysler had its best August sales in four years with a 31 percent sales increase.

"The auto sales numbers were comforting. The message here is that we're not facing a double dip. On the other hand, we're not sprinting ahead either," said Paul Ballew, chief economist with insurer Nationwide. "The industry is crawling."

GM shares closed down 4.2 percent at $23.03 on Thursday, while Ford shares closed down 2.4 percent at $10.85.

Sales for Nissan Motor Co rose 19 percent. Sales for Volkswagen AG were up 10 percent

The slow month for Toyota allowed Chrysler, controlled by Fiat, to overtake the Japanese company for the No. 3 spot in the U.S. market for the month.

U.S. consumer confidence sank in August as more Americans became worried about the threat of a renewed recession. The month began amid wrangling over the government debt ceiling and a sharp decline in the stock market.

"In our view, consumers are being cautious, yes, and rightly so, but they are not retrenching," said GM's head of U.S. sales, Don Johnson. "You have to remember that the sales we're seeing are very low by historical standards."

"PLAYING CHICKEN"

The Detroit automakers have benefited from the weakened sales position of Toyota and Honda in recent months, but that window will close as Toyota pushes back over the rest of the year with increased production and new discounts, Ballew said.

"Give the Detroit automakers credit but some of the open space they've had here is going to go away," he said.

Morgan Stanley analyst Adam Jonas also said investors could be growing concerned that GM had not throttled back on production in the face of the risks to the U.S. economy.

"The market may be concerned that GM is 'playing chicken' with the macro environment and could get caught out with large production cuts and/or price discounting should the underlying market not recover as GM appears to have anticipated," Jonas said in a note.

At the end of the month, typically a crucial time for auto sales, Hurricane Irene hit the East Coast. Industry tracking firm Edmunds.com estimated that the storm cut overall sales by about 10,000 vehicles.

GM estimated that it had lost about 1,000 sales during the month.

Nissan estimated that the storm had cost it about 3,300 sales for its mainstream and Infiniti brands because of its relatively heavy exposure to sales in the Northeast.

"The economic news never impacted me during the month. What did impact me was losing the last weekend on the Eastern Seaboard," said Al Castignetti, who heads Nissan brand sales in the United States.

Industrywide sales rose almost 8 percent from a year earlier and were up 1 percent from July. On the annualized and adjusted basis tracked by forecasters, the sales rate for August was 12.12 million vehicles.

Industrywide spending on sales incentives was almost flat in August from a month earlier, analysts said.

Many analysts expect deeper discounts in the months ahead as Japanese automakers shore up inventories and look to make up for lost ground in the U.S. market.

The deeper discounts would come at a time when overall demand is expected to be flat or only up slightly. "We're not going to see things getting worse, but we're not going to see a major improvement either," said TrueCar.com analyst Jesse Toprak.

Toyota is introducing an all-new version of its top-selling Camry sedan. Toyota has cut prices on the 2012 Camry and it is offering zero-percent financing and cash incentives on the older model.

Toyota said it would start the selling this month, accelerating a launch that had been planned for October.

Honda said it had returned to full planned production at all of its U.S. factories by late August.

(Reporting by Bernie Woodall and Deepa Seetharaman, writing by Kevin Krolicki, editing by Matthew Lewis)

Initial claims for state unemployment benefits dropped 12,000 to a seasonally adjusted 409,000, the Labor Department said on Thursday.

While the figure still points to a jobs market struggling to find strength, it remains well short of a recession signal.

"Claims are essentially on a flat trend over the past month after adjusting for strike impacts, providing some comfort that July's improvement in economic reports was not followed by a deep dive in August," said Avery Shenfeld, chief economist at CIBC World Markets in Toronto.

U.S. stock index futures pared losses on the jobless claims data, while prices for government debt held at higher levels.

While the claims data has no bearing on August's nonfarm payrolls count to be released on Friday, it showed no evidence that businesses responded to the recent financial market turmoil by aggressively laying off workers.

Other reports suggested consumers also did not pull back in August. Some top U.S. retailers on Thursday reported better-than-expected sales last month, despite sagging consumer confidence and Hurricane Irene.

Nonfarm employment is expected to have increased 75,000 in August, according to a Reuters survey, dampened by a strike at Verizon Communications. Payrolls rose 117,000 in July.

About 45,000 Verizon workers went on strike during the survey period for August payrolls. Because they did not receive a paycheck that week, they would be counted as jobless in the government's payrolls count.

A Labor Department official said there were no special factors influencing last week's claims report. The Verizon strike helped to push up claims in the last two weeks.

The four-week moving average of claims, considered a better measure of labor market trends, rose 1,750 to 410,250 last week. The number of people still receiving benefits under regular state programs after an initial week of aid dropped 18,000 to 3.74 million in the week ended August 20.

A second report from the Labor Department underscored the economy's lingering weakness, with nonfarm productivity falling at a 0.7 percent annual rate in the second quarter -- the biggest decline since the fourth quarter of 2008. That was a downward revision to the previous estimate of a 0.3 percent fall and the second straight quarterly decline.

A slowdown in productivity usually suggests that businesses have to add new workers to meet production, but against the backdrop of an economy growing at a near stall-speed, it implies businesses might have to cut costs to protect profits.

The report showed unit labor cost growth much stronger than previously estimated.

Unit labor costs grew at a more sturdy 3.3 percent rate in the second quarter rather than 2.2 percent.

However, the revised pace is still slower than the 6.2 percent rate in the first quarter, indicating wage pressures remain too well contained to stoke a broader rise in inflation.

Economists had expected the growth in second-quarter unit labor costs to be revised up to a 2.4 percent rate.

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)

The Labor Department releases at 1230 GMT (8:30 a.m. ET) first-time claims for jobless benefits for the week ended August 27. Economists forecast a total of 410,000 new filings compared with 417,000 in the prior week.

Goldman Sachs (GS.N) and two other firms agreed with the New York banking regulator to end the practice known as robo-signing, in which bank employees signed foreclosure documents without reviewing case files as required by law, the Wall Street Journal said.

Revised Q2 productivity and unit labor costs figures will be announced at 1230 GMT. Economists forecast productivity to drop 0.5 percent, versus a 0.3 percent fall in the preliminary Q2 report. Unit labor costs are expected to rise 2.4 percent compared with a 2.2 percent increase in the preliminary Q2 report.

July construction spending data is due at 1400 GMT. Economists in a Reuters survey forecast a rise of 0.2 percent.

IBM (IBM.N) is buying Toronto-based risk analytics software firm Algorithmics for $387 million in cash to enhance its financial services capabilities.

The U.S. government on Wednesday sued to block AT&T Inc's (T.N) $39 billion purchase of T-Mobile USA, citing concerns it will harm competition in the wireless market and lead to higher prices.

At 1400 GMT, the Institute for Supply Management releases its August manufacturing index. Economists in a Reuters survey expect a reading of 48.5 versus 50.9 in July.

Slumping export demand slowed factory activity in some of Asia's biggest economies in August, although China fared better thanks to solid domestic growth, a series of surveys released on Thursday showed.

Resource-related stocks will be in focus as crude oil prices fell 0.5 percent and key base metals prices were down 1.0 to 2.3 percent.

The FTSEurofirst 300 .FTEU3 index of top European shares fell 0.5 percent on Thursday after rising 5.2 percent over the previous three sessions. The index fell 10.6 percent in August.

U.S. stocks closed out the worst month in more than a year on an up note on Wednesday, with sharp gains in the last several days still not enough to repair the damage from a U.S. credit downgrade and fears of a slide back into recession.

The Dow Jones industrial average .DJI finished up 53.58 points, or 0.46 percent, at 11,613.53. The Standard & Poor's 500 Index .SPX was up 5.97 points, or 0.49 percent, at 1,218.89. The Nasdaq Composite Index .IXIC was up 3.35 points, or 0.13 percent, at 2,579.46.

(Reporting by Atul Prakash; Editing by David Holmes)

BNY Mellon, one of the largest trust and custody banks, did not elaborate on why Kelly, 57, was stepping down. The bank did say the decision was a mutual agreement with the bank's board. A biography still posted on BNY Mellon's website noted that Kelly "was named one of America's Best CEO's for 2009" by Institutional Investor magazine.

Gerald Hassell, BNY Mellon's 59-year-old president, is taking over as chairman and chief executive. He has been with BNY Mellon and before that Bank of New York for three decades.

BNY Mellon is looking to cut costs as low interest rates have cut into its earnings growth, and it has been struggling with lawsuits alleging it overcharged pension funds for foreign exchange trades.

"This is an extreme surprise," said Gerard Cassidy, analyst at RBC Capital Markets.

"The company is currently facing two major issues, the planned downsizing and the ongoing foreign exchange litigation. We don't know how or if his departure was related to them," Cassidy added.

The bank's shares have fallen by nearly a third this year, underperforming competitor State Street Corp (STT.N) whose shares have fallen by about 23 percent. On Wednesday before the announcement, BNY Mellon's shares closed down 0.72 percent to $20.67. In after hours trading, shares fell another 1.3 percent.

Kelly joined Mellon Financial Corp in 2006, after having served was Chief Financial Officer of Wachovia, which was later acquired by Wells Fargo & Co (WFC.N) When Bank of New York took over Mellon in 2007, Kelly became Chairman and CEO of the combined company.

He has considered leaving the bank before. In 2009, he was in conversations to become the next chief executive of Bank of America Corp, (BAC.N) but a deal never happened out.

UNSUSTAINABLE EXPENSE GROWTH

Another key bank executive left earlier this year -- Ronald O'Hanley, who headed BNY Asset Management, moved over Fidelity to head their asset management and corporate services unit.

BNY Mellon, like other trust and custody banks, manages cash for companies and handles back-office processing of securities and banking transactions for fund managers, among its other businesses. The bank does not have retail branches, but it did have $26.3 trillion of assets under custody and administration as of June 30, and $1.3 trillion of assets under management.

Low interest rates have squeezed profit growth which hamper a number of their businesses. The company said earlier in August that it plans to cut about 1,500 jobs, or 3 percent of its workforce, to stem rising expenses. Kelly said at the time that although revenue was rising, "expenses have been growing unsustainably faster."

The bank has also faces multiple accusations of having overcharged pension funds for foreign exchange trades by failing to charge the funds the rates that the banks paid, and instead forcing them to pay the highest rates of the day.

Recent market volatility also gave BNY Mellon more deposits than it felt it could comfortably invest, forcing it to charge extra to customers that boosted deposits dramatically over the summer.

Kelly earned $19.4 million in 2010, making him among the best paid CEOs of a public U.S. company.

(Reporting by Svea Herbst in Boston and Dan Wilchins in New York, additional reporting by Brenton Cordeiro in Bangalore; Editing by Bernard Orr)

MSCI's all-country world stock index .MIWD00000PUS was down 0.1 percent, having registered a nearly 9 percent gain since its early August low.

The index is down 6 percent on the year, however, and global stocks in August fell more than 7.5 percent, their biggest monthly decline since May 2010.

Investors entered the month in one of the most bearish moods in recent times. Reuters asset allocation polls on Wednesday showed leading fund companies were holding less than 50 percent of their mixed-asset portfolios in stocks. <ASSET/WRAP>

Sentiment has been battered over the summer by signs of a deteriorating global economic environment and by the euro zone's inability to contain its debt crisis.

A raft of economic data was due over the next two days -- culminating in the monthly U.S. jobless report on Friday -- that should give investors guidance as to how far the global economy has slipped.

China saw a modest improvement in factory activity in August, according to a purchasing managers' survey released on Thursday, but early euro zone data was showing weakness.

"The China PMI data gave some immediate relief to the market, but the U.S. data, particularly the employment numbers, are still to come," said Yutaka Shiraki, senior equity strategist at Mitsubishi UFJ Morgan Stanley Securities.

The improved China data pushed oil prices to a one-month high, with Brent crude trading above $115 a barrel as it raised expectations that growth in the world's largest energy consumer could offset a slowdown in major developed economies.

The pan-European FTSEurofirst 300 .FTEU3 was down around 0.2 percent. It lost 11 percent in August, its biggest monthly percentage drop since October 2008 after the collapse of investment bank Lehman Brothers.

Japan's Nikkei .N225 earlier closed up 1.18 percent.

EURO WEAKER

The euro eased against the dollar, taking its cue from lower stock markets.

The yen stayed under pressure on dollar buying by Japanese accounts, lifting the dollar to around the 77 yen level and soothing jitters that another round of intervention by Tokyo authorities may soon be on the way.

The Swiss franc -- seen as a safe-haven currency -- was firm against the euro, but lost ground against the dollar with investors wary of any intervention by the Swiss National Bank.

On bond markets, peripheral euro zone debt was set to come under scrutiny. Spain was returning to the market to sell a new 5-year bond after an Italian auction this week saw relatively weak demand.

Spain's Treasury is looking to sell 3-4 billion euros of the paper at its first auction since August 4. Regular buying of Spanish and Italian bonds in recent weeks by the European Central Bank has kept yields on their 10-year benchmark bonds around 5 percent.

(Editing by Susan Fenton)

The government is asking a federal judge in Washington, D.C., to stop the deal, and will have to prove that it would mean higher prices and less competition.

"This will be the Obama administration's line in the sand. This will be their signature antitrust event," said University of Baltimore law school professor Robert Lande.

AT&T has said it will fight the case, and its general counsel said it plans to seek an expedited hearing from the judge. Even so, experts say, the company could decide that it is not worth the expense and uncertainty to go to trial.

An AT&T spokeswoman declined to comment.

Two big communications deals, MCI's proposed takeover of Sprint in 1999 and EchoStar Communications Corp's deal to buy Hughes Electronic Corp's DirecTV in 2001 fell apart after the Justice Department challenged the deals.

"A preliminary question is whether AT&T will go to court. It's certainly not uncommon for companies to look at this and decide that the game isn't worth the gamble," said David Smutny, an antitrust lawyer with Orrick, Herrington & Sutcliffe.

The case was assigned to U.S. District Judge Ellen Segal Huvelle, who also oversaw the EchoStar-Hughes antitrust court challenge. Huvelle was appointed to the bench in 1999 by then President Bill Clinton.

In pre-trial proceedings in that case, Huvelle had harsh words for the way both companies responded to regulators' information requests, calling them "sluggish."

LENGTHY AND COMPLICATED

Any trial in the AT&T case would be lengthy and complicated, with experts predicting that both sides would put on a parade of witnesses including consumers, economists, and possibly competitors or state regulators.

In its complaint, the Justice Department argued that AT&T has overwhelming power in the national market -- it is one of four major carriers -- and that the market for mobile telecommunications would be highly concentrated in 96 of 100 U.S. cell phone market areas.

AT&T is likely to argue that the deal would create efficiencies in terms of price, quality and innovation -- and maybe even jobs, said Lande, the Baltimore professor.

"Very few efficiency defenses work," said Lande, who praised the Justice Department for bringing the action. "They make promises that these efficiencies could happen, but showing that in court is very difficult."

While most antitrust attorneys declined to say how they thought the case would be decided, Howard University law professor Andy Gavil said he thought the judge would block the deal. "Having read the complaint, I don't see a basis for a negotiated settlement," said Gavil, who testified to Congress on the deal.

Two other veteran Washington antitrust attorneys, who declined to be identified because of potential conflicts involving their law firms and companies in the case, told Reuters they think the deal will be stopped, either because the court blocks it or because AT&T drops its bid.

If the case goes to trial, there may be no quick end. The losing side is likely to appeal.

"You could have a situation here where the combined litigation and regulatory process could extend for several months or years," said Maury Mechanick, a telecommunications attorney at law firm White & Case.

"From a business practicality perspective, is that a delay that AT&T and T-Mobile can tolerate?" said Mechanick. "That's ultimately a judgment that they will have to make."

The case is USA v. AT&T Inc et al, U.S. District Court for the District of Columbia, No. 11-cv-1560.

For the DOJ: Sharis Pozen, Joseph Wayland, Gene Kimmelman, Patricia Brink, Laury Bobbish, Claude Scott and Lawrence Frankel.

For Defendants: Not immediately available.

(Reporting by Carlyn Kolker and Diane Bartz)

Follow us on Twitter: @ReutersLegal