Main Street Meets Online EBay Culture By JEFF WEISS Contributing Reporter When EBay became a national phenomenon in the heady days of the late 1990s dot-com boom, many predicted that the company along with Amazon.com would make traditional retail stores obsolete. They were wrong. Instead, a new trend sweeping across the Valley melds retail and e-commerce as stores that operate as independent middlemen for the online auction house have sprung up in recent months, evidenced by last month’s opening of the Garage Seller in Encino. EBay’s premise is simple. You take whatever you don’t want and put it up for online auction, where a pool of ready bidders swoops up that unwanted copy of Styx’s Greatest Hits or your dusty collection of baseball cards. In exchange for this service, EBay takes a cut ranging from 50 cents to $20 of the final sale price. But the process can be difficult for someone who doesn’t own a digital camera or scanner or is simply not computer literate. Enter the Garage Seller and the increasing number of similar stores. “How it works is the seller brings in his product to us. We do a free appraisal and tell them how much they can expect to sell their product for,” said Garage Seller owner Peter Mehrian. “If they decide to leave it with us, we handle the product’s sale from then on. “We take anywhere from 2-10 pictures of it, research it, do the specs, write a complete description of what the item is, post it on EBay for a seven to ten day auction, and do everything to ensure that we get the maximum sale price,” Mehrian added. Follow-up Once the product is sold, these brick and mortar middlemen continue to handle the goods until they wind up in the buyer’s hands. “We do all the packaging and all the wrapping, then we Fedex or UPS it, giving the buyer a tracking number. Once the buyer gets the product we verify that everything is OK and we cut the check the following week,” Mehrian said. “The seller never even needs to return to us and we always give them a copy of the actual sold price. We offer full customer service insured and bonded. Once you leave a product with us it is guaranteed to get there in one piece.” In exchange for its service, the Garage Seller takes a sizable cut from the final sale price, charging a 38 percent flat fee up to the first $200. For products that sell for $201-$500, the Garage Seller takes 30 percent and for items above $500, the percentage drops to 20 percent. These prices include the EBay commission, the prices to post multiple pictures of the ads, and Paypal fees which range from 2.9-5 percent of the total sale price. Mehrian has been in the business for approximately a year and a half, but only now decided to take the leap into renting a storefront. “We’ve been working on this project for a year and a half, our main business is as distributors for OEM manufacturers. “The company came to us and was overstocked, so they asked us to help them sell their excess merchandise,” Mehrian said. “We couldn’t move it through our channels so we went ahead and posted it up on Ebay and it took off for us. We started doing it for friends and family. “It ended up being great for the seller, the buyer and us,” Mehrian added. EBay has taken a positive view of these middleman stores. “EBay doesn’t own or have any affiliation with any of these stores, they are completely independent, which is not unusual within the EBay universe,” EBay corporate spokesman Hani Durzy said. “That’s what EBay is all about, entrepreneurs using the EBay platform to create businesses,” he added. “People seem to have taken to this idea, and we look at it as a great thing for us because it takes a segment of society that had previously declined to list items on EBay and bring them into the EBay marketplace.” Both the Garage Seller and EBay seem to have benefited from this symbiotic relationship. After less than a full month in business, they are working nonstop to deal with the vast quantities of merchandise being brought in. “Business has been wonderful. We’re actually backed up right now,” Durzy said. “We’ve gotten a lot of celebrities in, that have brought in $20,000, 30,000, even 40,000 worth of merchandise. We have many luxury items posted on our web site.” Durzy acknowledged that there are still lots of homes without PCs or digital cameras or without the inclination to list items and that these stores give them an option that they might not have had before to use the online service. EBay’s popularity is soaring. The nine-year-old company reported first quarter profit nearly doubled to $200.1 million or $0.30 a share, up 92 percent from $104.2 million, or 16 cents, in the like period a year ago. Expansion planned The Garage Seller has bold plans to expand its concept around the Valley, expecting to have 10 stores in operation by the end of the year. The next expansions will be a Studio City store by the end of this month and a Woodland Hills/Tarzana location will open its doors by June. However, the Valley market will soon become much more crowded when the Auction Wagon, also an EBay middleman, opens up a Sherman Oaks location in coming months. In addition, iSoldIt, a Pasadena-based EBay drop-off store that is currently the highest volume company of its kind, also plans to open a Sherman Oaks location shortly. “We currently have an aggressive expansion plan underway. Our Sherman Oaks franchisee is in the process of looking for real estate and plans to open in Sherman Oaks by September,” Elise Wetzel president and founder of iSoldIt said. For now, the Garage Seller has been capitalizing on this nascent trend, appealing to customers who enjoy its convenience. “It was really convenient. It’s a hassle for me to do it myself. They do everything for you and take just a straight cut. There’s no hidden fee. I came in gave them everything and made the process simpler and they were very helpful. They answered my questions without me having to even ask them,” Studio City resident and Garage Seller customer Isabele Aboly said.

Sentinel’s New Owner Set To Boost Valley Coverage By JEFF WEISS Contributing Reporter A San Fernando Valley bureau will be established as part of the plans of the new owner of the Los Angeles Sentinel to improve the flagging fortunes of the publication that is the oldest and largest black-owned weekly newspaper in the West. The family of Danny J. Bakewell, which has purchased a controlling interest in the publication, also plans to set up news bureaus in Inglewood, Lynwood, Compton and Rancho Cucamonga to boost the paper’s 30,000 copy a week circulation. Bakewell also plans to add a business and an obituary section. “My new vision is best described by our new motto: voice of our community speaking for itself. I think it’s very important that we begin to connect the communities where black people have migrated to, the Valley being one of those,” Bakewell said. “At one time, the Valley was seen as ritzy with no black people, but the current reality is that there are tens of thousands of blacks in the Valley that would like to have a newspaper that respects and reports on the issues that are important to them in a way that is fair, just, and from their perspective.” An activist, real estate developer, and the leader of the Los Angeles Brotherhood Crusade, Bakewell has appointed himself the Sentinel’s, executive publisher, board chairman, and chief executive officer. Jennifer Thomas, the previous owner, will stay on as publisher and executive adviser. The paper was purchased for an undisclosed amount. “There has been a noticeable decline in circulation and the Sentinel has been struggling to locate their audience and maintain readers. I think it’s the result of shifting demographics and the south side’s dramatic demographic shift,” said Kent Kirkton, chairman of the Cal State Northridge journalism department. “It’s an African-American paper and the community has moved, so it’s been a challenge to reach them. In addition, young readers don’t read like they used to.” Loss of circulation The Sentinel was founded in 1933 by civil rights activist Leon Washington Jr. The paper peaked in circulation during the 1960s with about 56,000 copies sold. However, by the 1970s, circulation numbers and profits declined. Bakewell hopes that the addition of several news bureaus and the expansion of the newspaper’s content can infuse it with life. “I think a business section is important because we are a people that are very lodged in business. A business section is important because what our community needs is promotion and we need to know who’s doing what and who we can do business with,” Bakewell said. “We are going to feature African-Americans in the leadership business and promote where blacks can find businesses to do business with. We need to know who our business and community leaders are and what areas they are in. We are adding an obituary section as a matter of recognizing people who have made significant contributions and to celebrate the life of people passing on, rather than to mourn their loss.” Bakewell has built a real estate empire, with properties stretching from central Los Angeles to Pasadena and Compton. A long time activist, Bakewell built the Brotherhood Crusade into one of the nation’s most notable black charities. “We have lots of subscribers right now in the Valley. I go to wherever blacks have and need a cause,” Bakewell said. “The Sentinel is a natural extension of that kind of involvement with things that can promote the health and welfare of our community.”

Camera Ready Steve MacDonald, the newly appointed president of the controversial Entertainment Industry Development Corp., can draw from his city hall experience as Mayor James Hahn’s South Valley neighborhood service manager to streamline and make the film permitting agency more effective By SLAV KANDYBA Staff Reporter Steve MacDonald, when he takes his post as the newly appointed president of the Entertainment Industry Development Corp. (EIDC) on April 19, is expected to give a fresh start to an organization that has had a tumultuous year to say the least. Last August, former president Cody Cluff was indicted for allegedly spending $150,000 in public money on visits to strip clubs and other personal expenses. Since then, the nonprofit organization founded in 1995 to help film and commercial producers in Los Angeles obtain permits faster and more efficiently, has seen its board disassembled, its reputation tarnished and its value questioned. Nevertheless, through it all, the agency has dispensed permits. It has regrouped, with new faces and a renewed mission. A host of Hollywood studio executives, community leaders and others are members of the organization. MacDonald, 41, is currently Mayor James Hahn’s south Valley neighborhood service manager and was selected from a pool of 173 candidates. His experience includes being one of the founders of former L.A. Mayor Richard Riordan’s L.A. Business Team. Question: What are your responsibilities now as a neighborhood service manager for Mayor Hahn in the Valley? Answer: I came here in November, so that’s about five months. The first thing we did when I got here was do a survey of things to be done. I need to compile that and leave it with the mayor’s office. My job here is really to try and get the city department to get as much out of this location (the Marvin Braude Constituent Services Center in Van Nuys) as possible, to make it a one-stop shop. The next step is to do a survey of the customers, and hopefully that’s something that can be done in the future. I run the neighborhood service communities here, the Team L.A, where we bring different city departments together, and talk about trends. One of the things that we work hard to do here in south Valley is to make it as easy as possible for city employees to call to report problems. Q: What are the first steps you’re going to take as a leader of the EIDC? A: Very similar to steps I’ve taken in other positions. I need to learn more about EIDC and I need to ask a lot of questions of different groups. This can be done relatively during the same period as I’m coming in. One of the groups I’ll be speaking with is the current staff these are the folks who through the controversy have been issuing thousands of permits. Day-in and day-out they’re doing a good job. Second group I need to get out to is production folks themselves. There are 200,000 employees and it’s a $30 billion industry. The third group is the community, and I need to put together the city officials and the community. Q: Exactly how familiar are you with the current membership of EIDC? A: I know many of them and I hope to get to know the folks I know already better. Some of the people I’ve worked with at previous jobs either through economic development efforts or building and safety efforts and the folks I’m looking forward to getting to know are some of the production folks from some of the larger studios and some of the independent folks as well. Q: What do you think the board was looking for when it unanimously approved to hire you over 172 other people? A: They wanted someone who is a doer. It’s important with so many stakeholder groups that it’s not someone who is a just a bulldozer who’s going to go through a certain path without recognizing the stakes that the various stakeholder groups have. I will need to realize that and forge a path that works. There are some solutions that can accomplish both objectives and those are what I hope to do. Q: As president of the EIDC, do you have any plans to get involved in the runaway production dilemma facing Hollywood? A: For the most part, I don’t think EIDC has a huge impact on the larger runaway production issue. Those are large scale trade exchange issues, such as the dollar to Canadian dollar exchange, and New England and Australia having tax incentives. I do believe there may be some projects that are on the fence, and those are the ones I hope to impact over time. We’re streamlining, working better with the neighborhoods, among other things. There may be things that EIDC can do over time. If EIDC comes up with continuing improvements, I think that will help those people on the fence. Q: On a local level what do you think can be done? A: The best thing that the EIDC can do at its core mission is to help the industry get their permits in an expeditious fashion. That will help more than anything else. There are other things the city can do, such as gross receipts tax reform, but it’s really about the core mission of EIDC possibly automating, to get permits online, come up with reasonable guidelines in neighborhoods. Those are the things that the EIDC can help with. Q: What do you know about the permit process and how it works today? A: When a production is considering this area, it’s the EIDC’s job to take this information and coordinate it with city departments. That’s the main function of EIDC. Before EIDC was created in 1995, they had a separate city department doing that. Q: How do you connect all the dots to be an effective EIDC president? A: The job takes three important components. One is the economic development or jobs component. The latest numbers state there are 200,000 jobs that are related to the entertainment industry I think that’s a huge economic engine. Having a view and appreciation (of it is important). I’ve worked really hard to help business because it’s important for revenue and a job-creating aspect to local government. The second component is operations. It’s important that EIDC work as efficiently as possible. I’m looking for ways to find improvements through some new ways of doing things. I’ve had a lot of experience on the operations end through my position at the mayor’s office. The third component, and it’s increasing, is the community component. The neighborhood councils (movement) has a lot of people involved. The EIDC needs to better communicate with these councils. I have some good experience at that because I’ve been involved with my neighborhood council in the Miracle Mile area. I think all of the components come together (for me) at EIDC at this time. Q: Describe your relationships with the Valley’s economic organizations. A: I know many of the folks through previous days being involved with Riordan. I know about groups like VICA and Economic Alliance. I need to learn more about the individual chambers. I think VICA and the Economic Alliance are cognizant of the entertainment industry in the Valley, and that’s already important. It’s important we have a number of entities. I know VICA has been involved in a runaway production study, done by Greg Lippe. Q: What was attractive about this position for you? A: I think it was a good fit for my experience. This combines many interests of mine. I raise my kids here. It combines many of the interesting things. It seemed like the time was right. I was working in Riordan’s office when (EIDC was created). When I worked at Mayor Riordan’s office, in the early 1990s, we had governors from out of state flying in trying to lure jobs. It’s important to realize the jobs that are here and we need to keep them here. SNAPSHOT: Steve MacDonald Title: President, Entertainment Industry Development Corp. (starting April 19) Born: Sept. 24, 1962 College: Bachelor’s degree in business from San Diego State University; Master’s in Business Administration, Pepperdine University. Most Admired Person: Father, Dale William “Bill” MacDonald. Career Turning Point: Coming into former Mayor Riordan’s office to help run the business team. Personal: Married to Sybil, daughter Amanda, 8, and Ryan, 5.

Recording Sites On Sale Block By SLAV KANDYBA Staff Reporter Recording studios clustered in the East Valley are being sold or are closing at unprecedented levels in response to the lackluster performance of the music industry in the past several years. While several of the owners say they are finding that record producers and artists are interested in buying the studios to continue using them to work on music, some of the facilities have been sold to developers. “There are more for sale than there ever have been at one time,” said Ellis Sorkin, owner of Studio Referral Service, a Calabasas-based firm that helps artists and producers find studio space for rent, lease or purchase. Sorkin, who has helped connect studio owners and musicians and music engineers for 24 years, said he has seen a dramatic jump in the past six months to a year with about 10 studios on the market out of some 50 that were operating in the area as of the end of last month. Several studios have already either closed or changed ownership in the Valley, he said. Among those are Master Control in Burbank and the Bakery in North Hollywood. The number of studios closing their doors for good is growing, Sorkin said, although he said “business has picked up a little bit” recently. And although current owners are trying to market the studios to music business professionals, some of the studios have already ended up in the hands of developers. SoundChamber in North Hollywood was sold to R & B; artist Raphael Saadiq, while Canoga Park’s Rumbo which was sold last year went to a developer who was looking to build either a condominium or a nursing home on the site, said Adam Beilenson, co-owner of Paramount and Ameraycan studios. “The real estate is attractive,” Beilenson said. One studio for sale, including property and recording equipment, is Third Stone Recording, owned by Paul Ricchiutti. Ricchiutti said he didn’t think it made sense from a business standpoint to continue to stay in business. His business, however, caters to a niche within the recording industry rock musicians who make music on vintage equipment. “It really doesn’t make sense for me to keep my money in this business,” Ricchiutti said. “There’s very little satisfaction.” He blames an industry that has more engineers than artists and said he firmly believes “in the future, it will be independent labels that will be operating studios.” Ricchiutti’s 5,000-square-foot studio features “vintage” equipment, more suited for rock musicians who use analog equipment, as opposed to digital equipment that is preferred in just about all mainstream genres of music today. Ironically, Ricchiutti once was a designer of professional audio equipment and maintained consoles and recorders. He began accumulating the gear, set it up at a friend’s place and eventually installed it at Third Stone. “Any money I’ll make here out of this venture is from real estate investment,” Ricchiutti said. “My gear is all paid for and it still has quite a bit of value.” With all of the disappointment in his speech, Ricchiutti remained objective about the value of recording studios. They are still in demand, he said, “as all the people I had come through” are in the music business, he said, “not people trying to lease an office building.” “I had to think of capitalization,” Ricchiutti said. “The reality is that rates are always going down, and equipment prices are going up. It’s not the smartest way of investing money.” Cut in budgets Eric Bettelli, publisher of the Music Connection, a Studio City-based magazine for musicians and songwriters said there is not enough business in the industry to keep it going. “The budgets are not what they used to be.” Bettelli’s account manager Brian Stewart said he has noticed an increase in classified and display advertising in the Music Connection from studio owners. Stewart said the ads are an indication the record industry is off. He said some of the larger studios are advertising services such as music gear repair, which is not what they had done before. That’s in addition to a surge in the number of ads for studios large or small available for lease or purchase, Stewart said. “At the moment, we have probably about 40 percent of larger studios that are restructuring or up for sale,” Stewart said. At “smaller studios it’s up about 20 percent” over a two-to-three year period. Part of the reason for the increase in the studios on the market is digital technology. It has dropped in price over the past several years and an increasing number of musicians are finishing professional-quality records out of their home studios, said Sorkin. Recording studios are not facing extinction, however, according to Beilenson. “We’re doing fairly well,” Beilenson said about his Ameraycan and Paramount studios. The two studios offer services, however, that many smaller studios can’t match. His 10,000-square-foot facilities are considered “comparable to most higher-end” facilities, Beilenson said. For that reason, he often finds them in demand by producers and audio engineers who put the finishes touches on the work of marquee pop artists, including Neptunes and Macy Gray. And even with all of the bad news, Music Connection’s Stewart is staying optimistic about the studios’ presence in the Valley. “A lot of people know that the room itself is an instrument,” Stewart said. “That’s why studios will never go away.” Beilenson echoed: “The larger commercial studios will survive the question is how many.”

Countrywide’s Commercial Market Success Not Assured REAL ESTATE By Shelly Garcia I would have thought that the entry of Countrywide Financial Corp. the third largest residential loan originator in the country, into the commercial real estate lending arena would get a lot of attention in the industry. But the Calabasas company’s announcement barely moved the needle in commercial real estate lending circles. Not that the real estate community doesn’t acknowledge Countrywide’s stature as a dominant lender who wouldn’t, especially in the San Fernando Valley where its presence, if for no other reason that its size as a tenant and property owner, is well known. But it turns out commercial real estate lending has little relation to residential lending, and Countrywide has a way to go to build a body of expertise if it is to recreate its success in this new channel. “This is not an easy business to break into,” said Shelley Magoffin, president of Dwyer-Curlett & Co., a commercial mortgage banking firm in L.A. “And as big as they are on the residential side, the businesses are very distinct.” Countrywide earlier this month said it had formed a new division, Countrywide Commercial Real Estate Finance Inc., staffed by a team from Coastal Capital Partners LLC in Sausalito. Four former principals of Coastal Capital, including Stewart Ward, Boyd Fellows, Chris Tokarski and Warren de Haan joined as executive vice presidents along with seven other employees of Coastal. The division, organized as a subsidiary of Countrywide Capital Markets Inc., is expected to originate and bundle loans for sale to the securities markets in much the same fashion that the company operates its residential lending unit, which makes, bundles and then sells its home loans. But there are differences in the potential buyers for these two types of loans, and whereas the home lending market operates with just a few variables, the commercial lending segment is much more complex. “The commercial sector is just not as uniform as the residential sector,” said Cary Bronstein, president of The Bronstein Co. Inc., a Tarzana-based commercial appraisal company. “You have a wide variety of property issues that tend to foster a little more of a niche environment for lending.” Home loans take into consideration the value of the property and the assets and credit-worthiness of the buyer. On the commercial side, there are many more types of loans and many more elements that come to bear. If it’s a shopping center, for instance, the considerations include not just the credit-worthiness of the buyer, but the credit ratings of the tenants and the leases they hold. How long do they run? Are they at market rate or below? Does the buyer have enough liquidity to withstand a downturn in the market? “It’s a completely different type of lender that underwrites a bridge loan versus a permanent loan,” said Gary Mozer, CEO at George Smith Partners Inc., a real estate financing and consulting company in L.A. “So the skill sets are completely different.” Commercial lenders know their properties intimately, physically visiting the sites and examining every last detail. Home lenders review standard tables for comparable sales to assign values. Then too the whole competitive arena is different for commercial lending. Countrywide and others have set up numerous branch locations and broker networks to service the residential mortgage business. Commercial lenders operate through networks of longtime relationships with rating agencies, those who buy loans, etc. None of that means that Countrywide can’t crack the commercial market, only that it has a big job ahead if it is to do that. And the company’s formidable name recognition along with its proven track record in the residential lending business are likely to eventually help in the effort to build a commercial lending presence as well. It’s just that how long it may take and how dominant the company can hope to become are wide open questions. David Blenko, president of Haverford Capital, commercial lenders in El Segundo, pointed out that Countrywide is going up against some powerful names including Goldman Sachs and Wells Fargo, with large distribution networks already in place. “But,” he said, “they’re smart guys, so I’m sure they have a plan.” Glendale Redux It’s hard to know what’s going to happen to the Glendale Town Center project. In the past few weeks, developer Rick Caruso whose company Caruso Affiliated Holdings has been negotiating for the center for years, angrily stormed out of a Glendale City Council meeting only to quietly resume negotiations for the center about a week later. The sticking point is the need to change the zoning on the project site, which currently does not allow for residential use. Depending on how some of the city’s charter and procedures are interpreted, such a change might require unanimous approval of the city council or it might only require that four out of the five council members approve the change. When one interpretation seemed to indicate that the zoning change would not pass, Caruso threw his hands up and seemed to call it quits, but the fact is that the project still has a number of other approvals to go through before the zoning change is considered, and it seems Caruso has decided to continue to move through the process, including getting the environmental impact report certified and the design approved. On April 13, a joint meeting with the Glendale Redevelopment Agency and the City Council will present a comprehensive review of the cost of the project, which has caused a great deal of confusion on the part of city council members and residents. The Glendale Redevelopment Agency’s portion of the project, which includes such items as the land that will be given over to the development, totals $77.1 million. Caruso is expected to foot about $133.5 million of the cost, and contributions by the anchor tenant selected and others are projected to total another $53.6 million. But as different stages of the project were discussed, they each carried different expenses, and the total cost was never presented to the community. “It’s gotten very confusing, and it’s become a very contentious point with the project,” said Jeanne Armstrong, GRA director of development services. Then on April 20 another meeting is scheduled to seek approvals of the EIR and other issues surrounding the development. Senior Reporter Shelly Garcia can be reached at (818) 316-3123 or at [email protected].

Listening Post From its operations in Woodland Hills, Cisco Music thrives worldwide amid the chaos in the recording industry by providing a place for artists lost in the shuffle of corporate downsizing By JEFF WEISS Contributing Reporter As external pressures from Internet downloading wreak havoc upon the music industry, record labels have downsized operations in the hopes of increasing profitability. Attempting to reduce costs, major labels have jettisoned many notable artists that no longer fit into the record company’s plans. With the industry in flux, Woodland Hills-based music distributor, manufacturer and licenser Cisco Music sees opportunity, in the form of a ready pool of talented artists without representation. Having previously focused on international distribution, Cisco has recently begun making its first forays into the domestic music scene. David Fonn, president and controlling owner of Cisco, first came to the company when it was struggling and known as Pacific Eastern Sound. A Taiwanese immigrant, Fonn had spent almost all of his working career up to then in the movie business and had little knowledge about the music industry. “I graduated from college with a degree in civil engineering in Taiwan. I got in the movie business in Taiwan. I had the great opportunity to join Warner Bros.,” Fonn said. “In that time, American pictures were very popular in the far east market. I worked there for 15 years.” After leaving Warner Bros, Fonn became the vice-president of 20th Century Fox’s Taiwan office. After eight years at Fox, Fonn and his family decided to move to the United States in the hopes of finally putting his civil engineering degree to use. “When I came here I did real estate construction until 1979. The American economy was very bad under President Carter. Interest rates were high and construction wasn’t faring well because most house buyers couldn’t qualify for a loan, Fonn said. “I quit the real estate business and stayed home for a little while. Then Pacific Eastern asked me to manage the office. I figured I’d work there for one year, hoping that the real estate business would pick up. I’ve been here for 24 years.” Rescuing the company In the middle of the 1980s, business at Cisco reached a nadir when the Japanese side of the business soured. Cisco operates eight record stores in Japan that saw large declines in profit, leading to Cisco’s accumulation of $2 million in debt and being on the verge of bankruptcy. “At one time Cisco was very unstable because the Japanese side of the business had soured and it affected it here. I invested in the company and helped it stay stable and I became a personal guarantor for the company. I didn’t purchase the majority control of the company until 1998.” Currently, Fonn owns 55 percent of Cisco music’s Woodland Hills operation and its offices in London, Jamaica, New York and Taiwan. Fonn’s daughter, Abey Fonn, Cisco’s vice president owns 5 percent. The remaining 40 percent is owned by Cisco Music in Japan. David Fonn also owns 16 percent of Cisco Japan. “Basically, we support all of the product that Cisco Japan needs from the United States. Cisco Tokyo has retail shops and we very recently have established a new company called Soundscape,” Fonn said. “We take music from the United States and provide it for Japan. There are eight Cisco Music stores in Japan. The product here supports not only our own stores, but we have a distribution division where we distribute products to other chain stores such as Tower Records and HMV.” Despite the constant threat of downloading, Cisco’s Japanese locations have been able to survive because of their emphasis on specialization. While Tower Records sells everything under one roof, Cisco’s Japanese stores have different themes, each catering to a certain musical taste. “We have a store in Japan called Cisco Reggae shop that exclusively sells Reggae. We purchase the music from local Jamaican distributors at our Cisco Jamaica office and ship it to the Japanese location,” Abey Fonn said. “Most of the stores have DJ booths where people can go and listen to live music and hear what’s up with the trends. Another store sells only techno. Another sells House and yet another sells hip hop. They all have their own specialties.” However, Cisco Music doesn’t merely serve as a middleman to provide its Japanese locations with new music. Cisco manufactures CDs and licenses artists, as well as being a music distributor. While only 7 percent of Cisco’s sales are domestic, Fonn plans to expand Cisco’s role in the United States in the coming years. “We plan to increase our domestic business. We used to just do design for export only. But in the last few years most of the major companies have laid off a lot of artists and the companies have shrank smaller and smaller,” Fonn said. “Those artists and labels need someone to present their product in the U.S. I thought that this was a good opportunity for Cisco to do domestic. It used to be that the major companies controlled all of the labels. Now they have less of a share of the market. We have the know-how and I thought now was the right time.” Getting around piracy In order to combat the avalanche of illegal downloading that has devastated the record industry, Cisco has focused primarily on music formats that are not conducive to piracy. “The Internet has hurt our business, but we’ve overcome it by diversifying. We also have a division called The Audiophile Division. It is classical or jazz and done on 180 gram virgin vinyl, not recycled vinyl. These are very special and well-cared-for finished products,” Abey Fonn said. “When people invest in this type of music they don’t want to hear it downloaded. Half of the people who buy this branch of music don’t even own a computer.” Don MacInnis, president of record manufacturing company Record Technology Incorporated praised Cisco’s abilities to succeed in a difficult marketplace. “Certainly, they’ve managed to be successful in a very tough market. Pre-recorded music sales are stagnant at best and for a lot of people they’re down,” MacInnis said. “Through the talent that Cisco possesses, they have been able to continue to thrive in a tough market. Our relationship with them is very good because of their business acumen and their great integrity. They are probably the most reliable account that we have. They are reliable in continuing to give us orders and to be able to pay for their products always on terms without fail.” Cisco’s prospects seem brighter than most predictions for music companies. Business for 2004 has exceeded expectations and profits have grown each year since 1993. Domestic revenues were $7 million last year, with $40 million taken in worldwide. “One of the reasons why we’ve survived in the business for as long as we have is because we always try to maintain our integrity. We still do a big business in vinyl and SAC format. We’re trying to keep our company’s and our artists intact,” Abey Fonn said. “We’ve gotten a lot of mainstream artists like Joan Baez and Jennifer Warnes, who are still good artists but are no longer with the major labels. We want to expand domestically and continue being a profitable business.” SPOTLIGHT: Cisco Music Year Founded: 1980 Employees in 1980: 4 Employees in 2004: 140 (global) Revenues in 1980: $800,000 (domestic) $3 million (global) Revenues in 2003: $7 million (domestic) $40 million (global) Goal: To continue improving Japanese Web sales, licensing more products from the United States and to continue to expand domestically and find new formats and opportunities within the music business. Driving Force: Changes in the music industry that cause artists to be without representation and sign with Cisco.

BTAC Set to Send Tax Reform Proposals to Council By SLAV KANDYBA Staff Reporter Fourth District Councilmember Tom LaBonge and his staff walked on Riverside Drive in Toluca Lake last week and stopped at Shears Pleasure Barber Shop and Trader Joe’s to thank their owners for paying city taxes. This week, some of LaBonge’s colleagues will have an opportunity to begin chipping away and revamp that tax system, which has not seen revision in a half-century. At the council’s disposal will be recommendations from a committee that was created by the City Council specifically to draft tax reform proposals. Convened in 1999 and scheduled to be disbanded in June, the committee is scheduled to share its findings with the Council this week. “There’s basically four scenarios and they’re trying to take all the ideas and create logical progressions,” said Norman Huberman, a contractor law instructor at the West Valley Occupation Center and member of the Business Tax Advisory Committee. Tax reform has had overwhelming support and no known opposition in the Valley. Among business organizations, the Valley Industry and Commerce Association, Valley Economic Development Center, United Chambers of Commerce and ValleyVOTE have given their support to one of BTAC’s latest proposals. After years of deliberations, meetings and discussions, BTAC has boiled the proposals down into the mixed bag that pulls from ideas generated by a research firm, committee members, councilmembers and community members at large. “We’ll either recommend them (all) or a hybrid,” said Mel Kohn, chairman of BTAC and a CPA with Kirsch, Kohn and Bridge LLP. One of the proposals would change the city’s tax categories from 59 to five, and make them based on profitability, said Councilmember Wendy Greuel, who has been involved with the tax reform push and who wants the new tax system to be compliant with the North American Industry Code System, which the federal government uses. Currently, taxes are levied on gross receipts, which do not reflect a business’ profitability enough, Greuel said. She said she wants the new system to be “as simple and equitable” and have it as a “strategic investment in economic development” of the City and the Valley. BTAC members shaped the proposals based on recommendations made by MBIA MuniServices, a Fresno-based firm that specializes in municipality “revenue enhancement.” Although MBIA’s 169-page report released in January was returned by BTAC for more analysis, BTAC’s new proposals are essentially a reworked version with modifications. Told that it could not reduce or increase the tax base, which now stands at $360 million per year, MBIA came up with scenarios that were included in the report, said MBIA’s Director of Marketing Beverly Raine. “We came forward with recommendations based on the parameters we were given,” she said. On April 12, BTAC will discuss whether its own modified proposal will fly. In early March, ValleyVOTE endorsed this proposal, saying that it is “intended to reduce the overall business tax collections by at least 15 percent by 2010.” Essentially based on what’s referred to as the Greuel-Garcetti Amendment, BTAC’s proposal, if passed by the City Council, would install a gross receipts tax system with five tax rate categories, NAICS-based assignment based on industry ratio of net receipts to gross receipts, and other features. BTAC members and Greuel said they believe the new taxes will be “equitable.” Kohn said he felt MBIA’s recommendations were solid because they were done “without politics” and in a “political vacuum.” When BTAC’s recommendations finally enter the political arena of the City Council this week, an ad hoc committee composed of councilmembers Tony Cardenas, Greig Smith and Wendy Greuel will decide about what to present before the entire council. At that point, BTAC’s job will be done, Kohn said, culminating with a white paper and a disbanding before June. While there are plans to do away with the business tax eventually, they are being prolonged because of the state’s poor financial situation, Greuel said. If passed, the new tax system would be in place beginning with the 2006 fiscal year. Under the new model, every business now taxed at a higher rate than what it’s now taxed under will be brought to the new rate in five equal steps, according to BTAC documents. Meanwhile, small and medium businesses, which comprise about half of the tax base, will have an option of paying a flat tax of about $145 up to a certain number of gross receipts. But before that happens, BTAC and councilmembers say businesses that do not pay taxes on scheduled deadlines are standing in the way of productive tax reform. Kohn sees compliance and reform as going hand-in-hand one step further: “If we increase compliance, the increased revenue will help fund tax reform recommendations.”

Tax Reforms Focus On Entertainment By SLAV KANDYBA Staff Reporter Brad Smaulson has leased equipment to producers of television commercials for more than 20 years, but these days, he is afraid he may share the fate of his friends in the business and he is blaming the city’s tax system. After a Spanish-language commercials producer told the sole proprietor of Granada Hills-based L.A. Video Assist, which provides monitors and other equipment for playback, that he was considering taking production out of the Valley and the city, Smaulson started doing some research and began writing people. One person he reached via e-mail was Steve Caplan, the external affairs manager for the Association of Independent Commercial Producers. Interestingly enough, Caplan has been heavily involved with tax reform, having appeared in several trade publications to voice his support for it. While Smaulson and Caplan don’t directly work with each other, they share in the desire to see the system changed. With several proposals for tax reform being finalized by the Business Tax Advisory Committee (BTAC) and scheduled to be presented to the City Council as early as April 12, Smaulson and Caplan stand together. They have a stake in seeing a change in city taxation on the entertainment business done in the Valley and other parts of L.A. The BTAC proposals include several elements that would directly affect the Valley’s numerous production houses and businesses that serve them, as well as individuals such as screenwriters and musicians. One variant of the proposal calls for the elimination of all taxes on “creative talent,” the name applied to people who work in the entertainment business out of their homes, such as screenwriters or songwriters. Under the current tax system, screenwriters and others are taxed as businesses, under a city tax code that has not seen reform for about 40 years, said Norman Huberman, a BTAC member and part-time teacher who joined Councilmember Tom LaBonge and others as they walked along a Toluca Lake street on April 8 to demonstrate how laptop computers can be used to verify if businesses have paid their taxes. Another Valley councilmember, Wendy Greuel, has an interest in tax reform as it applies to the entertainment industry. She was a Dreamworks SKG executive before being elected into public office. “Right now, if you’re a writer and write scripts at home, you don’t have any deductions,” Greuel said. “We’ve created an atmosphere of fear for those people.” Tax cap When BTAC meets April 12 to vote on its final recommendations to the Council, it will also finalize its recommendations to move up the dollar amount for how much production companies spend on a production before they are charged taxes. Under the current cap, productions that are $4.5 million pay the maximum tax, which is $12,700, according to the BTAC entertainment subcommittee report. Although there are no specific numbers, BTAC will likely recommend the cap be raised to approximately the $20 million range, Greuel said. That figure will better suit the production companies which quickly run up taxes because they are involved in multiple projects, and combined with a simplified tax structure which is in a larger tax reform scheme will help stem runaway production and actually draw business back to the Los Angeles and the Valley. “People have allowed it to be trashed,” Huberman, a BTAC member who also sits on the entertainment subcommittee, said of the city’s economic environment for entertainment business. He pointed out tax breaks overseas and said it is important for the city to do the same in order to compete. While runaway production is well documented to have drawn business away from the Valley and the city, some businesses are staying put because their employees like southern California and may have personal ties. Thus, many of them are looking at the “bottom line” before opting to pack their bags and leave for places like New Zealand or Australia to film. Tax reform fund If the elimination of the tax on creative talent is approved, the City Council will be asked to release $2 million to help implement the process in fiscal year 2006. Another $2 million will be asked of the governing body to change the production cap scale in the municipal code. If the spending is approved by the council, it would be taken from a $6 million trust fund set up specifically to implement tax reform, not the city’s general fund. While Smaulson’s L.A. Video Assist has an indirect stake in seeing that the tax reform is passed, it is a stake nevertheless. He explained there is a close camaraderie between him and other business owners who work his end of the entertainment industry. Thus, if he gets more work than he can handle, he makes sure to pass it on to his friends really, competitors with no reservations. In fact, he thinks the passing of work is a good indication that things are going well and he hopes it continues. “I don’t want to be a statistic,” he said. “I don’t want to be out of business.”