Valley Talk A Rose by Any Other Name … While few may consider it the top contender on the list of five potential names for a new Valley city, Camelot is apparently the choice of radio disk jockeys Kevin and Bean, co-hosts of a morning show on Los Angeles-based KROQ 106.7 FM. The rock jocks recently had Jeff Brain, president of Valley VOTE, on their show to discuss the names chosen by Brain’s group for a potential Nov. 5 ballot initiative. The two told Brain they were officially launching a campaign to get voters to choose Camelot over the other four choices: Mission San Fernando Valley, Mission Valley, Valley City and San Fernando Valley. “We’re going to get Camelot passed, dude,” said Bean. When asked later to explain their preferred choice, Kevin e-mailed this response to the Business Journal: “No longer do we have to picture the homeless guy at the bus stand on Sepulveda when we mention the San Fernando Valley. Now, it’s Camelot, and the homeless man is replaced in our mind with a brave knight in shining armor, homeless, at the bus stand. “Plus, it’s funny.” Monkey Business After making lots of realistic-looking corpses for HBO’s second-year show, “Six Feet Under,” Pacoima-based MastersFX had to switch gears last month when the series asked for an oversized, but lifelike, monkey. “We’re used to doing all these dead guys, so it was nice we got to do a monkey,” said Sean Taylor, the company’s vice president. The monkey was really a $30,000 suit to be worn by one of the show’s stars, but it had to be authentic, Taylor said. “You can’t do those things the way they used to in those Three Stooges movies It takes more time and money to pull one of these things off,” Taylor said. “You know how hot it gets in there? I just make them, not wear them.” Beam Me Up! Calabasas-based semiconductor maker Fulcrum Microsystems could have had William Shatner pitch its products, but it was not to be. Mike Zeile, Fulcrum’s vice president of marketing, reported that a producer approached him earlier this month about using the veteran actor in an infomercial for the company. “It’s infomercials that run on airlines between movies,” Zeile said. Though tempted by the offer to use the actor who portrayed “Star Trek’s” swashbuckling Capt. Kirk, Zeile said the price just wasn’t right for the 2-year-old startup. “But it was nice that he called.”

Business Finds a Friend in San Fernando New San Fernando City Administrator Jose Pulido puts streamlining development process at the top of his to-do list. By JACQUELINE FOX Staff Reporter Business owners in the city of San Fernando have long been frustrated with the snail-like pace at which city officials worked to bring new commercial development to the 2.4-square-mile municipality. Consequently, developers have either shunned the city, fearing they would be stalled by the lack of political support for their projects, or have found themselves embroiled in local politics midway through the application process. Just two years ago, San Fernando was set to finally see its centerpiece project, a downtown retail/entertainment center with a multiplex cinema and 200,000 square feet of retail, come to fruition. But infighting among city council members and challenges to the bidding process resulted in a pullout by the developer. Plans to transform a 36-acre swap meet site into a big-box retail center were also tabled. Things only got worse in 2001 when two new members were elected to the city council, creating a greater divide between those on the panel who favored big-box projects and those who pushed for smaller mom-and-pop business development. The internal wrangling led to the abrupt departure last year of City Administrator John Ornelas and two other top officials. Meanwhile, Jose Pulido was routinely driving the streets of his old stomping grounds on his days off from his post as the economic and community development manager for the city of Montebello. When he heard there was an opening for an interim administrator in the city where he had been raised and his parents still reside, he quickly filled out a letter of interest. Instead of considering him for the interim post, the council gave him the permanent job of city administrator on Sept. 12. Today, plans are in place for a beautification program on Maclay Avenue and surrounding neighborhoods. Escrow was set to close last week on the sale of the swap meet land to make way for the retail/industrial complex, and the city just received a $150,000 grant from the state to revitalize its downtown area. So, it is little surprise that Pulido is optimistic that the problems that have plagued the city in the past with respect to development have been mitigated. He says he’s committed to doing for the city what he and others did for Montebello, a city that also has a strong Latino tradition and a checkered history when it comes to economic development. Pulido spoke recently with Business Journal reporter Jacqueline Fox about his first six months in office, his relationship with the San Fernando City Council, the differences between San Fernando and Montebello, and his strategy for business development. Question: Why did you want the job of San Fernando city administrator? Answer: I don’t like to ever wonder “what if?” I’ve never really left San Fernando. My parents live here, I was raised here. I was happy in Montebello, but I would come here once a week and I’d look around and see so much potential. I’d think of all the things I saw get accomplished in Montebello and wonder if I couldn’t do the same for San Fernando. Q: In the past, the San Fernando City Council has had a reputation for being divided into two camps on the issue of economic development: one being pro-big box, the other favoring smaller projects. Is this still true? A: I can’t really speak for the council. But I think we all agree, from a staff perspective, there has to be a balance. Communities need big-box projects to keep the revenue going, but we also want to make sure we do all we can to support existing businesses. So it’s a delicate balance as city administrator I have to strike. Having grown up here gives me a greater sense of respect for the situation, so I want to do everything I can to help the city grow in the right direction. For example, I want to get developers to buy and relocate residential properties along Maclay Avenue and replace them with commercial projects. But I also want smaller buildings. Big box has its place, but the arguments for or against them haven’t really surfaced because we haven’t had anything come before us. Q: Your predecessor left under somewhat inauspicious circumstances. How would you describe your relationship with the city council so far? A: The relationship I have with the council so far has been very professional. We are still establishing a relationship; it’s only been six months. But I can say that every member of the council wants to see certain projects get off the ground, so I will try to just anticipate certain concerns that may arise as time goes by. Q: Plans for the downtown mall area seem to remain in a constant state of wait-and-see. What’s the status of revitalization plans for that area? A: When I first came on board I had a chance to see some of what was accomplished and it became apparent to me that what we needed was a specific plan for growth. I realized that we need to codify planning changes so we can move forward, and we are working on those. Then in January we applied to the state for grants for the Downtown Rebound program. Funds for that program will go to eight or nine cities. We got $150,000 from the state and the city would put up about another $100,000. The grant will allow us to take a proactive look at long-term planning for the area so that we lay out a plan for changes and not have to alter those plans later on. Q: Roth Properties is hoping to break ground on the retail/commercial complex at the swap meet site. How realistic is it to think that project will get off the ground this year? A: Escrow on the property is supposed to close any day. We are optimistic that he will meet his needs. We are looking forward to the project without a doubt. (Roth Properties owner Randy Roth) has been very proactive in the way he’s worked with the owner of the property and the vendors at the swap meet. We have yet to meet with Roth and won’t really negotiate until escrow closes. So from the city’s perspective, the burden is on him to get to the next level. What we can do is we can expedite the permit process so we won’t be holding anything up unnecessarily for him or the vendors as they are moved to the new site. Q: The swap meet site notwithstanding, how interested are developers in the city of San Fernando? A: Let’s face it, we’re built out and we have limited funding to offer. At this point, we haven’t had any applications for requests for proposals from developers, so it’s been just developers coming in and seeing what’s going to happen with the Downtown Rebound program. Q: Describe, from a business perspective, the differences or similarities between Montebello and San Fernando. A: Montebello has considerably more money than San Fernando and is three times larger. But, from a business perspective, they share similarities. San Fernando is 89-percent Latino and Montebello is about 79 percent. Montebello went through what San Fernando is going through 20 years ago. It needed a master plan with a good mix of big-box retail and commercial development. So what we are doing here in San Fernando is laying the foundation for the future, which is what my predecessors in Montebello did when they began working on the Montebello Town Center project in the 1970s. What’s interesting to me is I get to use my experience in Montebello here as I start from ground zero, but I’ve also been able to come home. Q: What would the impact of Valley secession be on the city of San Fernando? A: There’s no question that smaller jurisdictions have the ability to make things happen a little more quickly. It’s just the nature of the organization of smaller cities. The accountability is more centralized. But I would only see us benefiting if the surrounding areas have better services. So from that perspective, would I want the Valley residents to have what we have here? Yes. If secession is what it takes to do that, then maybe it needs to move forward. PROFILE: Jose Pulido Age: 37 Title: City administrator, San Fernando Education: B.A. from UC Berkeley in social sciences, M.A. from UCLA School of Urban Planning Career-turning point: “When I submitted my letter of interest to the San Fernando City Council for this job.” Most admired people: Parents, Roberto and Francisca Pulido Personal: Married, three children

The Digest A ROUNDUP OF SAN FERNANDO VALLEY NEWS Shakeup at Youbet.com David Marshall, co-founder of Youbet.com Inc., has invested $750,000 in the company. At the same time, he has assumed the duties of chairman of the board and chief executive officer. Robert Fell, Caesar Kimmel and William Roedy have resigned from the board of directors and Ron Luniewski has resigned as co-CEO and a director. Phillip Hermann will relinquish his co-CEO title and become president and COO in addition to his current position of CFO. CalAmp Dumps Andersen California Amplifier Inc. has joined the growing list of companies that have dismissed Arthur Andersen LLP as their auditor. Andersen had audited CalAmp for more than 20 years, since the tech firm incorporated in 1981, but will be replaced by KPMG to audit the recently closed fiscal year 2002. The change will delay the full-year report until late May, but CalAmp did release unaudited numbers for the fourth quarter. Revenue was approximately $22.5 million and earnings are expected to be near 4 cents per share.

Technicolor Buys Out Its Videotape-Making Partner Media & Technology by Carlos Martinez Camarillo-based Technicolor Home Entertainment, a unit of Thomson Multimedia Inc., has agreed to buy out its majority partner in Southern Star Duplitek Pty. Ltd., an Australian videotape maker and digital video and compact disc manufacturer. The company would not reveal terms of the agreement, but Southern Star said proceeds from the deal could amount to $26.5 million. Thomson said a final price on the deal will be set sometime after Duplitek completes the accounting of its fiscal year, which closed March 31. Technicolor is a distributor of motion picture film, compact discs, DVDs and commercial quality videotape. Technicolor CEO Lanny Raimondo said the move paves the way for the company’s expansion into the Pacific Rim and Asia where Southern Star is well positioned. In 2001, Thomson reported $298 million in net income on revenues of $9.3 billion, compared to a year earlier when the company netted $368 million on revenues of $8.3 billion. Thomson acquired Technicolor in 2001 for $2.1 billion from Canadian broadcaster, Carlton Communications PLC. The acquisition comes as Technicolor faces charges of record piracy by the Recording Industry Association of America, which claims the company illegally copied and distributed pirated copies of CDs by artists like NSync, the Backstreet Boys, Celine Dion, Lauryn Hill, Will Smith, Julio Iglesias and Marc Anthony. The industry group filed suit in U.S. District Court in Los Angeles last month, claiming the company’s Camarillo plant illegally copied the artists’ work. Technicolor said in a written statement that the company will fight the charges. The RIAA said it has evidence to prove its allegations. The industry group represents several music industry giants, including Warner Music Group, Universal Music Group, BMG Entertainment and EMI Recorded Music. Studio to Expand Burbank-based Village Roadshow Ltd. and Warner Brothers Studios have agreed to expand their studio complex in Australia. A spokesman for Village Roadshow, an independent production company known for films like “Three Kings,” “The Matrix” and “Analyze This,” said the project will add two sound stages to the Warner Roadshow Studios complex located in the Australian state of Queensland. The $4.2 million project will increase the number of sound stages to eight along with more storage space for equipment and more space for production offices. The facility was built in 1999 as part of a joint venture between Village Roadshow and Warner Bros. Construction is scheduled to begin this month, with completion set for August. Salem Expects Growth in 2002 Edward G. Atsinger, CEO of Camarillo-based Salem Communications Corp., expects the company to grow in 2002 despite the sluggish economy. Atsinger said the company, which operates 80 radio stations in the U.S., including KRLA-AM in Glendale, is poised to improve its revenue due to an increase in advertising contracts. “We successfully renewed over 90 percent of our block programming contracts for 2002 at an average increase of approximately 5 percent over 2001,” he said, referring to special rates for advertising over a particular block of time. The company also operates the Salem Radio Network, a producer and distributor of religious and family-oriented programming. Last fall, Salem acquired five underperforming stations, including KEZY-AM in San Bernardino for $5 million, all of which have experienced revenue jumps with new formats, Atsinger said. The other stations acquired were KRLH-AM in San Bernardino for $5 million, KKFS-FM in Sacramento for $8.7 million and KIKN-AM in Port Angeles, Wash. for $500,000. “Taken as a whole, Salem is well-positioned for strong growth and we look forward to another record year,” he added. The company reported a 21-percent revenue increase in 2001 over a year earlier, but its net income declined by 67.4 percent during the same period. In 2001, the company reported net income of $4.4 million on $142 million in total revenue, compared to a year earlier when it reported $10.1 million in net income on $118 million in revenue. Atsinger cited the station acquisitions and the decline of ad revenue after the Sept. 11 terrorist attacks for the slide in net income. The company’s revenue increase came primarily from its broadcasting operations which reported a 14-percent increase. Last week, the company’s stock hovered around the $24 mark, with a 52-week high of $29.35 and a 52-week low of $14.65. General Dynamics Gets Defense Contract Thousand Oaks-based General Dynamics Government Systems Corp. has been awarded a $25 million contract with the U.S. Air Force to modify its existing Imagery Exploitation Support System, an imaging system for computer displays. The company said the contract calls for developing an unspecified number of enhancements to the system used for tactical weapons. The work is scheduled to be completed by December. Other details were unavailable. Carlos Martinez may be contacted at (818) 676-1750 ext. 17 or by e-mail at [email protected].

Please Start the Recovery Without Me From The Newsroom by Michael Hart Here we are, out of the first quarter of 2002 and on our way into the second. Since late last year, experts have told you this would be about the time you could expect the economy to bottom out and the recovery to begin, building momentum right on through to the end of the year. And that’s what you’re feeling, right? Sure, some of the signs are there. We’ve learned in the last week that national unemployment rates are beginning to edge down. Of course, local jobless rates are hard to trust right now because, thanks to state unemployment compensation maximum levels that went up Jan. 1, many of those out of work waited until then to file their claims, so real numbers are hard to extrapolate. Business at most retail stores and restaurants appears to be back to normal six months after Sept. 11, leading us to believe there won’t be any lasting impact from that day’s tragedies. Car sales continue to moderate even after all those zero-interest deals ran out. Month after month, it seems, Valley realtors have all the business they want if not enough houses to sell as the Southland Regional Association of Realtors just keeps pumping out press releases announcing record-breaking sales figures and prices. Even if sales at every Valley company haven’t regained their levels of, say, a year ago and first-quarter earnings reports are still crammed with unhappy news, the attitude of many people is, “There’s light at the end of the tunnel.” Right? Not so fast. There are still a few things that can go wrong. First, for every news story you read about film production picking up or a local company venturing out into the market with an IPO, there are several more stories about the Nortel Networks and the Ciscos of the world continuing to experience slow sales that have implications for their high-tech suppliers here in the Valley. Talk to the CEOs of Ixia Inc. or MRV Communications and they struggle to sound enthusiastic about their prospects for the rest of this year. If high-tech companies are still supposed to be the economic engines of the San Fernando Valley in the future, business investment on the part of players in the world beyond the Santa Monica Mountains will have to pick up. Second, whatever happened to last year’s outrage over the high price of gasoline? I remember a time a few months ago when people were postponing trips, talking car pools and adding surcharges because the price of a gallon of gas had jumped from a dollar to $1.30 and on to $1.60 and then $2. Then, just as quickly, the price was back at a dollar and all was right with the world. Well, gas has snuck back to $1.60 and $1.70 and that old gas-pump rage is nowhere to be found. Maybe, you say, we’ve learned to live with it. But keep in mind there hasn’t been a real recession in more than a quarter of a century that oil, its scarcity and its price didn’t play a part in. Finally, if you’ve been around long enough to remember the early 1990s, the confidence you feel in the value of your house should have a little edge to it. If you remember, prices don’t go up forever. Eventually, that bubble does burst. At some point, housing prices outstrip the incomes required to pay them. Maybe, you say, but this is nowhere close to the situation in the Valley 10 or 15 years ago. True, but perhaps never before have so many taken advantage of such low interest rates to borrow so much money on so many homes to fuel the one part of the economy that has not flagged over the past year: the consumer sector. Maybe you do see that famous light at the end of the tunnel, but it still might be too early to relax. Michael Hart is editor of the San Fernando Valley Business Journal He can be reached at [email protected].

Small Caps Are Paying Big Returns, at Least for Now By SHELLY GARCIA Senior Reporter By and large, Wall Street’s recent enthusiasm for small cap stocks has been good news for the San Fernando Valley’s publicly traded companies. On the back burner for most investors through the stock price run-up of the late 1990s, these lower profile companies are getting far more attention from the Street, a focus that is helping to increase their valuations. A sample of 20 Valley businesses included in the Russell 2000 Small Cap Index advanced nearly 3 percent in the first quarter of 2002, just slightly behind the 4-percent increase in valuations for all the Russell index companies in the quarter. Like the broader market, the gains were even more dramatic in consumer-related businesses, and far less impressive in the technology sectors, which saw steep drops in valuations, no matter what the company size. “Small caps were a better bargain,” said Brad Lawson, senior research analyst with Frank Russell Co., which compiles the Russell indexes of stock performance. “The other part is that when the economy comes out of a recession, small caps do better than large caps.” Small caps, typically defined as stocks with market capitalizations no greater than $1 billion and no smaller than $250 million, were largely ignored through the bull market of the late 1990s, when stock prices soared for multinational, blue-chip companies and promising technology growth stocks. Small caps now seem cheap by comparison, and investors are buying them betting that their values will increase. At the same time, many of these small cap issues tend to be simpler businesses without a great deal of diversity. They tend to rebound more quickly because improvements in sales go directly to the bottom line, whereas large cap companies with highly diversified, global operations may not see a turnaround until the economy makes a full recovery. As a result, the first quarter of the year brought better returns to small caps than it did to large companies, with yields advancing 4 percent on the Russell index and 7 percent on the S & P; 600 index of small cap companies. In contrast, the Russell 1000 Index, representing the country’s largest businesses, grew by a mere 0.7 percent in the first quarter, the S & P; 500 was flat and the Nasdaq Composite fell 6 percent. Only the Dow Jones Industrial Average matched the small cap performance with a 4-percent increase in the first quarter. Included in the Russell 2000 Index, which has a greater number of Valley companies than does the S & P;, were 11 local businesses that gained an average of $4.62 in share price, or about a 16-percent increase in value. Among the best-performing Valley stocks in the first quarter of the year were Unova Inc., up $2.40 or 44.9 percent in the quarter; Pinnacle Entertainment Inc., with a 34.3-percent increase in its share price to $8.06; Ryland Group Inc., up 24.7 percent to $90.20 in the quarter; Digital Insight Corp., up 19.5 percent to $27.55; and K-Swiss Inc., with a 26.8-percent increase in its stock price to $41.98 in the period. But the rising tide of valuations for small caps has not carried all companies along with it. Seven more Valley companies included in the Russell index saw their share prices slide an average of $3.02. Those stocks lost an average of 14 percent of their value since Jan. 1. The share prices of the remaining two companies included in the Russell Index were virtually unchanged in the first quarter. “It’s definitely a function of the sector,” said David Blitzer, chief investment strategist for Standard & Poor’s. Investors are distinguishing between small cap growth stocks, usually technology companies, and value stocks, and showing a decided preference for the value side of the equation. “Growth stocks are more likely to be bought with expectations for high growth in the future as opposed to, ‘Oh my gosh, I can’t believe it’s as cheap as it was,'” Blitzer said. “And when you get a market going through turmoil, value is what people go bottom fishing for.” Within the Russell 2000, so-called consumer discretionary businesses were up 9.2 percent. Technology was down 10.2 percent for the quarter. Perhaps not surprisingly, technology stocks were among the Valley’s worst performers as well. MRV Communications Inc. lost 38.4 percent of its value, with share prices plummeting to $2.82 per share; Ixia shares declined $3.77 or 30.7 percent; and Optical Communication Products Inc. lost $1.18 per share or 29.5 percent of its value in the first quarter of the year. To some, such volatility in the small cap market means that the recent trend favoring those stocks is just that a trend unlikely to be sustained as market cycles shift. “(Small caps) don’t trade much, so any marginal, tiny interest in a company can result in a big price change,” said Michael R. Murphy, managing director of US Bancorp Piper Jaffray. “I think what’s happened over the last few months there has been what I would describe as a temporary blip in these small caps. As soon as things return to the more normal, long-term dynamics focused on large, liquid and what I would describe as usually favored types of names, these companies will continue to flounder.” A recent Piper Jaffray analysis of small cap performance found that these stocks do not outperform large cap stocks in the long term for several reasons, but perhaps most important among them is the fact that small caps do not trade in enough volume to interest analysts in covering them. Along with an increased concentration of funds in the hands of institutional investors, these dynamics make it more difficult for small caps to continue to increase their valuations. Because fewer analysts cover these stocks, the opinion of a single pundit can push the share price dramatically up or down, as can one large trade by an investor close to the company. “For some of these stocks, it could be because the brother-in-law of the founder decided to sell 10,000 shares,” Murphy said. “It looks big on a percentage basis, and everyone scrambles to wonder why, and it’s no big deal.” Others, however, say that there is a long history of small caps leading the market following recessions, and these companies are likely to continue to increase in value over the coming year. “If someone is an aggressive investor, then you ought to put some money on small caps,” said Blitzer. “This is a spot, when it’s hot, it’s incredibly hot. When it’s cold, it’s not going to cost you a whole lot.”

Broadcast News: Any Company Can Run Its Own Show By SHELLY GARCIA Senior Reporter In coming months, local auto body shops will be able to get video broadcasts of industry news, educational programs and product information transmitted directly to their locations using nothing but a low-cost PC and television monitor. The pilot program is at the forefront of a relatively new mode of wireless communication designed to provide customized broadcast programming without the need for satellite uplinks or cable hookups. If it catches on, the system just may catapult Sequoia Broadband Inc., a 14-month-old company in Sherman Oaks, to the center of an emerging communications model delivering broadband television and video-on-demand services through PCs. “You can run a whole television station from one laptop,” said Kenneth S. Lockhart, president and CEO of Sequoia. “We’re going after people who are not broadcasters and helping them set up TV networks.” Sequoia’s two co-founders, Lockhart and Chief Technology Officer Andy G. Lean, formerly worked on similar software development at an IBM unit. When IBM closed the unit to refocus its new media efforts, the two raised about $500,000 from seed money and the proceeds of a convertible debt issue to pursue the business independently. In January, Sequoia secured another $2.5 million investment from Freedom Rider, a spinoff of a Hong Kong technology investing company, a nest egg it is hoped will see the company through the third quarter of this year, when Sequoia hopes to lock in enough business to support itself. In addition to training and disseminating information to remote locations, the platform can also be used to air advertising messages customized for multiple locations. Department store retailers, for example, have traditionally run videotape programming showing runway models wearing a manufacturer’s latest line of clothing accompanied by a narrative that discusses the season’s trends, or a cooking demonstration that shows the use of specific kinds of appliances or cookware to help promote sales. In-store videos, however, must rely on clerks to continually rewind the tapes. And typically that’s left TV monitors to air grainy static for long periods instead of the programs for which they’re intended. “We do away with the distribution of videotapes and CDs,” Lockhart said. “It’s very difficult for the retailer to get compliance when they’re relying on store employees. They’re only 40-percent successful in getting what they want played.” Unlike video, the broadband delivery can also customize the content to each individual location. In chain beauty salons, for instance, broadcasts that air in waiting areas can feature information about the salon’s services along with advertising from neighboring retailers, like coffee houses, who want to take advantage of the wait time to boost sales. Because it can be customized, each location can carry distinct advertising messages from the stores in the individual strip mall locale. For retailers, the difference between a reliable playback system and one that is not can mean the difference between added revenue and lost income. “It ends up making astounding revenue streams because they charge their vendors for putting this on,” Lockhart said. “But if they’re going to count on it for a revenue stream, the first thing they’re looking for is a guarantee that it works.” If video is unreliable, cable and satellite transmission is extremely expensive and requires a high degree of technological know-how. Companies using the Sequoia software can buy it outright for an average investment of about $250,000 and host it themselves, if they have the expertise, or they can subscribe to Sequoia’s hosting system for a monthly fee of $150 to $200 per location. “For service providers and enterprises, it’s not uncommon for them to spend $1 million for software that goes throughout their organization,” Lockhart said. Despite the potential use for the systems and presumed demand, Sequoia did not find a very receptive financial community in its search for funding. “It was torture,” said Lockhart of the search for financing that took about nine months and several dozen pitches. “Even though we’re not a dot-com, because our technology is using the same types of networks, we got lumped in with Internet and streaming video companies,” Lockhart said. “What was hard to do was explain to people we are not offering something a hundred other companies were offering who just went out of business.” Sequoia ultimately sold Freedom Rider, a spinoff of New World Infrastructure Ltd. in Hong Kong, on the idea because it was interested in using the technology for several media projects in its own home country and in the People’s Republic of China. Such delivery systems take personalized advertising a step further than traditional marketing that relies on the demographics of the audience alone by placing the messages in environments where customers are likely to be most receptive to them. “Getting people meaningful content at a meaningful location is the next area,” said Peter Lee, a media industry consultant based in Calabasas. A consumer who sees a message about a sweater on the Internet or TV, for instance, may not be moved to make the purchase, Lee explained. But that same shopper who sees the message while walking down an aisle in the store where that sweater is available may well take action. “Now all of a sudden (an advertiser) gets better coverage, better demographics and better return (for their ad dollars),” Lee said. With its pilot program about to get underway, Sequoia is actively marketing its technology and hopes to have a signed contract by the end of the year. If all goes as planned, the company expects to be self-sustaining in 2003. From there, Lockhart said, the potential is enormous. “What we envision is that TV service and the ability to deliver TV as part of your communications will become as ubiquitous as the telephone,” he said.

Breakup Fans, Foes Interpret State Report Differently The Secession Question By JACQUELINE FOX Staff Reporter Secessionists say a report by State Controller Kathleen Connell bolsters their case that smaller is cheaper and their breakaway plan is fiscally sound. “This is a green light,” said Richard Close, chairman of Valley VOTE, the group leading the secession drive. Opponents, on the other hand, say Connell’s report will be used to convince voters a new city would be broke as soon as it forms. They and city officials intend to use the information as ammunition in their attempt to kill the drive for a Valley split, expected to appear on a Nov. 5 ballot. Connell was asked by Los Angeles Mayor James Hahn to review the Comprehensive Fiscal Analysis (CFA) prepared by the Local Agency Formation Commission (LAFCO), detailing financial terms for a new Valley city, including a proposed three-year budget and beginning cash reserves. In her report, Connell wrote that the new city would have a workable budget, but only about $12 million in reserves by its third year in operation, substantially less than the $35 million state guidelines recommend for cities of that size. In addition, she said, LAFCO’s report underestimates by $4 million the amount a new Valley city would need to cover its share of existing municipal bond indebtedness. Close, also a LAFCO alternate commissioner, said Valley VOTE’s consultants have prepared their own budget, which shows the new city would have plenty of available cash. That proposal, said Close, will be submitted to LAFCO in the next few days. “The controller did not and couldn’t really consider the budget that was submitted by our consultants because she was supposed to only look at the CFA,” said Close. “But we will be submitting a budget that shows a surplus of about $200 million, which is sufficient to reduce the business license tax, increase services for police and fire, and create sufficient reserves.” Connell also said the stranded costs and annual so-called “alimony” Los Angeles claims the Valley would owe it is closer to the $61 million secession advocates have in mind than the $300 million Los Angeles does. Further confusing the issue for Connell, according to Close, is the fact the CFA budget is based on existing operational costs for the city of Los Angeles, not a proposed Valley city of only 1.4 million. “The CFA budget is based upon what it costs L.A. to operate, with all its issues, and I believe that it’s a given that it operates at an extremely expensive level,” said Close. “So, for those people who argue that bigger is cheaper, we can prove them wrong.” Sam Stevens, co-founder of One Los Angeles, which opposes secession, said she thinks the controller’s findings reflect an accurate and “neutral” test of how financially healthy a separate Valley city would be. Her group has already included portions of Connell’s findings in one of its fliers, which says “the only way the new city can pay its bills and avoid going broke is to reduce services and raise taxes and fees.” Stevens said the findings should be enough to keep LAFCO from putting a ballot initiative together. “LAFCO is supposed to only move forward if the Valley would be fiscally viable, and what we’ve read in the controller’s report shows us that it isn’t,” said Stevens. “What it shows us is that we wouldn’t have enough of a reserve to allow for fluctuations in the economy. So I don’t know how LAFCO can say this is viable, and how the proponents of a new city plan to show the voters that this is what’s in their best interest when a neutral and, I think, credible (agency) has said otherwise.” Close said the facts will become clearer once LAFCO’s terms and conditions are made public. “They (One Los Angeles) want a status quo to tie in with downtown politicians,” said Close. “Their credibility is very low. The public will look at all the information, including the fact that LAFCO has a proposal for an alternate budget.” Hahn spokeswoman Julie Wong agreed that Connell’s findings should be taken seriously. “The controller was very clear in her analysis of the CFA, particularly with respect to the issue of a reserve fund,” said Wong. “That’s something the new city should be very concerned about, and the (voters) should want to know.” One LAFCO staff member took a very different, not altogether surprising, view of the controller’s report, considering the degree of autonomy typically afforded the agency. “It’s just an opinion, and we don’t have to do anything with that opinion,” said Sandor Winger, LAFCO’s deputy executive officer. Wong said, “We asked for the information, we think that it is important and we will make sure we get that information to the voters.”

Valley Forum: Has Runaway Film Production Hurt You? According to a recent UCLA forecast on entertainment and the Los Angeles economy, runaway film production cost the industry almost 18,000 jobs in 2001. So, the San Fernando Valley Business Journal asks: How has the runaway film production issue affected your business? Talaat Captan President Air Hollywood San Fernando We are losing an average of 30 to 35 percent of production (that is) going to Canada, Australia and Mexico. We are fighting, not the production companies, but the currency exchange. In the U.S., you spend one dollar; in Canada, you get twice as much in value. The government of Canada is very much involved in keeping the production appealing and they continue to offer special deals to production companies. In addition, our unions are driving our production out of town. Hillard Fitzkee President Total Digital Productions Glendale The real problem is not really the individual employees, but the production companies who haven’t managed their companies well. We produce movies for the Spanish film market, in addition to commercials and talking head shows. Producing films in other countries are most cost-effective, depending on the country and its economy. It’s less expensive in other countries due to labor costs. George Taweel Partner TLC Entertainment Studio City It has dramatically affected our business in a negative way. However, this is a complicated issue. U.S. audience concentration in any one medium, especially in television, has fragmented and therefore lowers the license fees producers receive for their products. Vertical integration has all but eradicated the once lucrative ancillary profit centers that were available for producers to make up the deficits for initial production. Economic incentives that other countries, cities and states offer lower production costs and pull shows away from California. Some unions in other territories outside the U.S. are able to offer talent buyout provisions or more favorable residual formulae for certain services and therefore lower the overall cost of exploitation for a project. Foreign government subsidies, tax rebates, treaties and other incentives pull production away. And finally, the talent base and quality of talent in other locations has risen in many instances to where they are now fairly competitive with what we have here in Southern California. Lyn Henderson President L.A. Animation Burbank The runaway film issue did not affect our company. Our company is an independent production company and produces animated products, mainly in children’s entertainment, television and film series. We export most of our films and therefore enhance the U.S. economy. Mike Thompson Vice President ICS Services Inc. Glendale It would not affect our company at all. Our business cleans film before going into the international market; our business has nothing to do with the production aspects. I believe industries such as the catering services, multiple lighting companies, rental facilities, local commerce and financial institutions are affected.

The Briefing – THE BOSS’ MANAGEMENT STRATEGY Countrywide Credit Industries is reaping the benefits of the current and continuing refinancing boom. With low interest rates and more customers, the company’s 2001 net income jumped 18.5 percent over the previous year. Thus, Countrywide President Stanford L. Kurland faced the tough challenge of managing a company growing and diversifying quickly. Over the last four years, Kurland has pursued a diversification program that has moved the company into new markets, making it less vulnerable to interest rate changes. Kurland discussed these and other challenges with Business Journal reporter Carlos Martinez. “Countrywide’s challenge is to emerge from the 2001 refinance boom, avoiding any adverse effects experienced during the 1998 (refinance) boom. Our goal was to demonstrate Countrywide’s ability to sustain earnings growth in a post-finance environment. “In recent years, we have initiated a strategy that anticipates, moderates and offsets the cyclical throes of our core mortgage business. Countrywide is positioned to provide greater earnings stability through various interest rate environments. “These initiatives including banking, insurance, capital markets and global ventures accounted for 22 percent of our pre-tax earnings last year and are poised to meet our goal of 50 percent of earnings by 2006. As Countrywide continues to evolve, the mortgage-centric businesses are positioned to perform more strongly and steadily this year than they have in previous post-boom periods. “Housing is leading the nation’s economic recovery and the traditional peak season for home sales is just beginning. This could be a record year for home purchases and all Countrywide production divisions have well-developed plans for increasing market share. “As more consumers adopted the Web as the preferred sales channel, Countrywide learned many critical lessons. Countrywide has worked diligently to simplify the loan application process over the Web (and) the response to these efforts is evident in the tremendous growth within Countrywide’s e-commerce sector. “Currently, e-commerce fundings represent nearly 50 percent of Countrywide’s total loan fundings.”