Business Day Live | March 2, 2012 An interview with the chief executive of Yelp as the company goes public; James B. Stewart on the inside story behind NBC's 'The Voice'; Examining pay at banks. Please visit nyti.ms in order to embed this video. Watch more videos at nytimes.com From: ...
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The company Yelp, a website known for its user-created restaurant reviews is going public today. I'm Louise Story reporting for Business Day Live. Yelp's initial public offering was priced at $15.00 a share last night, valuing the company at nearly $900,000,000.00. I'm joined by DealBook's Evelyn Rusli who has been covering this story. Hi, Evelyn. Good morning. So, there have been a number of technology IPOs in the last few months and of course we're waiting to see what will happen with Facebook, what does Yelp's tell us? Well, the second half of 2011 was very choppy, we saw some of the recent offerings really pullback in their stock prices, recently that stabilized. Now, Yelp going public today and having a very strong debut, it rose as much as 70% in the first hour of trading or... This morning... It started trading, exactly; it's a very positive signal for the market, it should be an indications that investors, IPO investors are willing to take on more risks, and so that should bid well for other tech offerings later this year. We're joined now by Jeremy Stoppelman, Yelp's CEO from the floor of the New York Stock Exchange. Hi, Jeremy. Hello there, I'm here. I know it's a big day for the company down there but let's get down to business and my question is, how are you gonna ward off competition? Aren't companies like Google (GOOG) creeping in to the online review space? You know what Yelp's got that's very unique to the space is that it's community-built out in 71 different markets were the ones that have really gotten that right, and as a result, the community generates an enormous amount of content that no one else has; we have unparalleled breath and depth; so, tons of reviews, we have 25 million reviews generating about a million every single month so that's an advantage where in you're trying to solve the problem of what's a great local business, you need that word of mouth information, and the best place to get that, the one that has the most useful information most of the time is Yelp. Hi, Jeremy. It's Evelyn Rusli here from the New York Times (NYT) . It's an exciting day for you guys, what do you do think about in terms of timing for today? We were coming off a very volatile second half of 2011, what were some of the factors that you know was weighing on your decision to go public today? You know, there's a saying that a good business can go public whenever it wants to and so we really didn't think about the macro environment, we were just focused on what's the right time for the company, when the story really start to make sense for public company investors, when did we feel like we had revenue dialed and at the size that we thought was appropriate markets, and so the time is right, the time is now, it's good opportunity to take in capital and continue to grow this business internationally on mobile and beyond. And Jeremy, one of the questions I always ask founders that go public is, you know, how does this change the game? And often times they say it doesn't, it's just another point in their long timeline but it has to change the dynamics so what are you thinking about in terms of employee retention, how do you plan to move forward now that you guys will be scrutinized on a quarterly by quarterly basis? I think as managers, if we're doing our jobs then nothing should change, we should continue doing our business, this is just one chapter that is in a, you know, in an overall book, we're just writing the story, we're at the beginning, there's enormous upside, it's a huge market, a hundred billion dollars annually spent on local advertising, about 20 billion dollars spent on yellow pages, we're scratching the surface, we just have 24,000 advertising at this point, like they're generating 83 million dollars in revenue but there's huge upside; we're just getting started, there's millions of local businesses that we can reach out and have a relationship with. And any idea when you guys will be profitable? In the fourth quarter, we were already adjusted even to break even so that shows that there's leverage in the model and it's starting to work; we're not burning a lot of capital, as a result we are investing heavily in our sales force as well as overseas so we'll continue to invest for growth but the company has leverage in the model that's starting to reveal itself. Well, thank you, Jeremy so much for joining us and thanks, Evelyn. We welcome back Jim Stewart who writes the Common Sense column for the Times. This week, he takes us behind the scenes at NBC, a network that has been struggling with television ratings; the network has been boosted recently by the reality show The Voice, for those of you who may not have seen that recently, we have a clip of the show. I've really been waiting for something to come along and excite me as much as you did, and you did that to the point where at the end, I just wanted to grab a mic and get up there and sing it with you 'cause I love that school... Jim, I always sort of thought that I was behind the scenes by watching 30 Rock, but tell us what you found out when you went behind the scenes of the NBC program this week. Well, first of all, this is really a seismic shift in the entertainment landscape; a new number one show, The Voice displaced the long title hoklder, American Idol, but these things don't happen by accident, and this is a huge opportunity for NBC, it's also a huge challenge, it's all the more surprising 'cause they were so far behind, and to me it was so much fun to get in there to see the decisions that really led to this, it takes a lot of risk-taking, it takes a lot of money, and in the end, it really takes a lot of luck. So, NBC, they have a new owner, Comcast (CMCSA) , they were sold last year, is it more of a push for profits there than they've had in the past? Well, I think, you know, Steve Burke who was the COO at Comcast (CMCSA) is now the Chief Executive of NBC is really putting all those energies there; I think it's better with a big financial push but even more than that is a reputational push, I mean, also, you know, let's face it, cable companies face a very challenging future given the evolution of entertainment, and this is a really, really big bet on content creation by Comcast (CMCSA) so this is vitally important that they succeed and The Voice is really their first big opportunity and their first big test since Comcast (CMCSA) took over. So, let me ask you, you talk about all these different NBC executives looking at the television ratings and I had to scratch my head a little, you know, because we are in the 21st century (CTRY) and a lot of people -young and old- are watching videos online on the internet, and so do you think these ratings even mean anything anymore? Well, their still the benchmark, I mean, the people in the entertainment industry obsess over them, and I think they're still, though very unscientific, probably the best indicators that we have. Nobody has figured out exactly how to track all the different ways people are watching, they know they are doing it, it's changing the nature of television, you know, tremendously, but these ratings still seem to be the best proxy for total viewership, total reach and total impact for advertisers especially in this much sought after 1849 demographic. And what about NBC the rest of the line? I mean, they have this reality show, The Voice but, you know, one show does not a network make, what else do they have going on? No, both The Voice and the Superbowl have helped NBC get out of last place by a few tenths of a point if one show is not gonna do it, and this will be fascinating to watch, how they use the platform of The Voice to try the rest of their lineup. Now, they put this show, Smash, on right afterwards which is about the behind the scenes, Making of a Broadway Musical, and it's accredically acclaimed, it's beautiful, it's beautifully produced, it's very expensive but the critics say well, it's a very narrow show, this is not another voice, what can The Voice do for it, and then will they have opportunities to move other shows after that platform so it will be very, very interesting to see how NBC takes advantage of this gift that just landed in their lives. Well, Jim, we'll stay tuned. Thank you so much for joining us. Thank you. As we reported earlier this week, the (New York's, Dave Controller?) released his annual report on Wall Street compensation. Banks have gotten used to people playing close attention to their pay because back when the received the government bailout, they had to report their bonuses to the treasury department. I'm joined now by Columbia University, Professor Robert Jackson who was one of the lead people at treasury overseeing pay. Hi, Robert. Hi. So let me ask you, you know it's almost 4 years after the financial crisis, has Wall Street changed it ways? Well, this controller report does provide some sign, that cash compensation for the average banker is down on Wall Street but this report gives us only a limited picture of compensation because it only includes cash bonuses and as we know increasingly, bonuses are paid in stock on Wall Street, we only get a limited picture from this report but at the moment, it does seem that banker pays a decrease. I gotta ask you, when you were plowing through all those different documents with the pay from places like City Group, and AIG (AIG) . What was the biggest surprise when you were down there in Washington? I think what surprised me the most was the extent to which the boards of directors of these large banks didn't really have a grasp of what was happening at the lower levels of the company... Like the traders... Yeah, exactly. The sales people. What we found was that it was very difficult for boards of directors to get their arms around how those folks are getting paid, and sometimes we'd ask very basic questions about the bonus structures for people who are taking a pretty substantial risk and it was very hard for the... Because of the traders, I mean sometimes a trader could put on 100 million-dollar, a multi-billion dollar trade, and you'r saying the boards weren't really looking at their pay packages. That's absolutely right, I mean, in the Wall Street in the past, those bonuses were really left to management, then to give you one big example that was out in th media great deal, Andrew (ANDW) Hall of City Group, formerly with City Group, I should say was somebody who was putting on very substantial risk, and his bonus was more or less unregulated by the on he board.... The board wasn't looking at it. So, you've been doing a lot of research since you left the treasury department, looking at Goldman Sachs' bonuses and their pay practices going back many years, what have you found? Well, what I've been studying recently is whether or not bankers who receive stock as compensation actually hold on to those shares over the long term, giving them reason to increase the front value. Now, Goldman is one of the best governed firms on Wall Street and they have sort of a best case scenario for the extent to which bankers will hold on to stock that we pay them in to give them reason to increase from value. But I find it even there, the bankers at Goldman do unload, do cell a huge amount of the stock that they're granted as compensation. So, the bank gives him the stock so that their incentives are aligned with the company so they want the company to do well, and you're saying they've been massively unloading it. That's right, well, what I would say is that in response to receiving new shares, the bankers are inclined and allowed to cell old ones and even at Goldman which is really your best case scenario for that type of an arrangement, you have a great deal of unloading, and I would expect that at other banks, it's far worst. Now, what about the federal reserve, they've been looking at pay policies and they have to write some rules, where do those rules stand? Yeah, there's a new section under the Dodd-Frank Bill that empowers the federal reserve and the SCC among others to enact new rules that limit banker pay and one of the disappointing things about the rules, they were released last April is that they don't do anything to stop bankers from engaging in this kind of unloading so... Dumping their shares. That's right, and even basic things that you think would very clearly be restricted, for example, bankers hedging the stock of their own companies, even that's not restricted. Hedging means, if they also bet against the stock so that they cover their risks? Exactly, so if a banker's given new shares, they're still allowed to take bets against... So the feds' have not addressed hedging, they did not address selling of shares by executives, they just left that out of the rules completely? That's right. Now, to be fair, the banks themselves, to give an example, Goldman has restricted hedging on it's executives for many, many years, and other leading banks have taken that step but what's striking to me is that in this way, the feds' rules are even behind the banks' own practices on compensation. So, they're kinda leaving it to the industry as, you know, has long been a practice among regulators. I think that's right and I think we learned during the financial crisis why that's not a good idea. So, is anyone else still under the thumb of the treasury department or have they all, you know, have all the banks escaped the watch of the treasury? Most of the large banks are now out of treasury's fair view so we had the office of the special master and we still do have an office of the special master that keeps an eye on compensation at, for example, AIG (AIG) , but the other large banks like Citigroup (C) and Bank of America (BAC) have repaid their front-lines. They're free to do what they want. They are, yes. Thank you so much for joining us. I'm glad to be here. That's all for today, please stay with us online at nytimes.com for our continuing coverage of this and other stories. I'm Louise Story reporting for Business Day Live. Thanks for watching.