TRIUMPHED OVER THE FOOD POLICE

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PLUS: THE HACKER WHO ALMOST KILLED HOLLYWOOD; HARRY REID’S LAS VEGAS PIPELINE PLAN;

SEARS-KMART: THE MARRIAGE FROM HELL; STEVE CASE’S NEW REVOLUTION; AND OSCARNOMICS

New York–In the February 2008 issue of Condé Nast Portfolio, staff writer Joe Keohane reports how CKE Restaurants, the parent company of fast-food chains Carl’s Jr., brainchild of the late Carl Karcher, and Hardee’s, is pushing gluttony to new extremes and changing America’s attitude toward eating (“Fat Profits,” p. 90). As its rivals offer health-conscious options like sliced apples, CKE is tempting consumers—and riling nutrition experts, Jay Leno, and Bill O’Reilly—with the fattiest fare imaginable and putting the message out to increasingly receptive consumers with ads that are often as controversial as the burgers themselves. “With its sheer audacity, its philosophy that no one ever went broke overestimating the American appetite, CKE functions as a sort of id for the larger chains, a direct line into the lizard brain of the male fast-food eater. It has envisioned a future even more gluttonous than the present, it has made money, and now others are taking notice,” Keohane writes, noting that CKE—a regional company that, with more than 3,000 locations, operates the country’s 11th- and 12th largest fast-food chains—is having a growing influence on the way fast food is perceived and marketed in America. He reports that while CKE’s signature behemoths—the Carl’s Jr. Double Six Dollar Burger and the Hardee’s Monster Thickburger, both introduced in 2004—out-calorie all comers, Burger King has narrowed the gap with its Triple Whopper With Cheese (2005) and Wendy’s has done so with the Baconator (2007). Conrad Lyon, a restaurant industry analyst for FTN Midwest Securities, says Hardee’s and Carl’s Jr. “were the ones that really just threw it in your face, so to speak, and did so in a somewhat egregious way.” Keohane reports that since 2000, CKE’s average sales per store have increased by 31 percent, a rate greater than any other burger chain’s, except for Sonic drive-ins, to which CKE is tied. And CKE’s stock soared, from about $2 in 2001 to more than $22 this past June, before slipping back to around $15 at the end of 2007. “There’s a certain kind of genius at work here, evidence of a well-thought-out defensive game. By not merely disclosing the fat and calorie content of its products but actively boasting about it, CKE effectively declaws the so-called food police, who act on the assumption that people only eat fast food because they don’t know it’s bad for them,” Keohane observes. “This frankness makes CKE less vulnerable to the sort of social, political, and even legal pressure that its rivals—particularly McDonald’s, which in 2004 offered pedometers with its Go Active Adult Happy Meal—feel so acutely. Far from shameful, it’s a point of manly pride to go to Hardee’s for lunch.”

Also in the February issue:

“The Pirates Can’t Be Stopped” (p. 98). In an exclusive interview, Daniel Roth meets and talks to “Ethan” (not his real name), the teenager who hacked into MediaDefender—the company charged with protecting such entertainment companies as Sony, Universal, and Activision from online piracy—and describes the most daring exploit yet in the escalating war between fans and corporate giants. Roth reports how Ethan figured out how to access the company’s computers, read MediaDefender’s email, and listen to its phone calls. Ethan also uncovered the salaries of the top engineers as well as names and contact information kept by C.E.O. and co-founder Randy Saaf, and the way the firm’s pirate-fighting software works. Ethan then passed on his expertise, he says, to a fellow hacker, who broke into one of MediaDefender’s servers and commandeered it so that it could be used for denial-of-service attacks. And it’s not just MediaDefender at play, Roth explains, noting how the Pirate Bay—known as the “international engine of illegal file sharing”—draws about 25 million unique visitors every month; dozens of new movies, games, and TV shows pop up each hour.  “This is not Napster,” says Harvey Weinstein, the movie mogul who heads the Weinstein Co., a MediaDefender client. “Online piracy has got to be stopped.” Roth reports that Ethan has moved on to other companies that aren’t in the entertainment industry. “No doubt, other kids are hunkering down over their keyboards to see if they can’t replicate the work,” Roth writes. “And some pirate is finding new ways to disseminate the material. Eventually, Hollywood will no longer be able to continue fighting its enemies at the expense of its customers. If they can’t beat them, they’ll finally have to join them.”

“The Marriage from Hell” (p. 84). Senior writer Jesse Eisinger examines why Eddie Lampert’s failing Sears-Kmart experiment could mean trouble for dealmakers everywhere. Eisinger reports how Lampert made his $4.5 billion fortune by investing in companies and turning them around. But the buyout cycle has ended, Eisinger notes, and Lampert, who has been compared to Warren Buffett, is now being forced to change his strategy. “Sears and its corporate cousin Kmart, which Lampert also owns, are being done in by competitive threats that even the skills of a man widely considered to be one of the most talented financial minds in American business can’t fend off,” Eisinger writes. “His fetish for data is leaving Sears in a paralysis of analysis, and his micromanaging is driving away executives and alienating suppliers.” Eisinger reports that Lampert’s main $15 billion fund—made up substantially of Sears stock—was down a stunning 25.7 percent through November, according to a person privy to the results. “Eddie doesn’t know what to do. He’s not a merchant. He hasn’t been a retailer. As a result, he tries a bunch of different ideas because he himself doesn’t have a vision,” says a former high-level executive of Sears holding, the parent company of Sears and Kmart. Eisinger reviews Lampert’s various efforts to save the deal and observes that it’s possible none of his experiments worked—or could have worked—remarking that perhaps nothing can stop the decline.

“Is Bruce Wasserstein Finally Right?” (p. 116). Contributing editor Karl Taro Greenfeld reports how Lazard C.E.O. Bruce Wasserstein was dismissed as a relic of the 1980s and mocked for his role in Carl Icahn’s failed Time Warner bid. Now Wasserstein is what he always wanted to be: the envy of Wall Street. “In just six years, he has maneuvered Lazard into the sweet spot on troubled Wall Street, and his private equity fund, Wasserstein & Co., has made some savvy high-profile media investments,” Greenfeld writes. “In fact, it seems nobody has made more money from investment banking since 1993 than Bruce Wasserstein. His success at Lazard could keep a generation of bankers behind their desks instead of jumping to the nearest quant fund, where, until recently, they could have become stupidly rich.” Greenfeld examines Wasserstein’s takeover of Lazard, in which he outfoxed Lazard heir Michel David-Weill by redistributing Lazard’s working capital in order to better compensate new hires.  The takeover, he notes, exemplifies Wasserstein’s ability to seize opportunities and exploit weaknesses. “He took power very well,” David-Weill tells Greenfeld. “He was afraid of sharing power and tried his very best—and succeeded—in expelling me. That is his nature. He is a man of solitary power.” Wasserstein dismisses the notion that he is a relic, that his skill set is more appropriate to ’80s boardroom wars. “That’s wishful thinking by my competitors. All that signifies is that people don’t understand what is going on.... That’s more sour-grapy.”

“When Harry Met Vegas” (p. 58). Senate Majority Leader Harry Reid is a darling of national environmentalists, but in his home state of Nevada, where runaway growth portends a ruinous water crisis, senior writer Peter Waldman reports how Reid is an enabler for developers and pit miners—and a desert ecosystem is at stake. Waldman explains how, with Las Vegas’ main water source, Lake Mead, drying up, Reid co-sponsored a law granting the Southern Nevada Water Authority a free right-of-way on federal land to pipe groundwater into Las Vegas from central Nevada, hundreds of miles away. The $3 billion plumbing plan would tap the Great Basin aquifer, a vast underground sink that runs from Death Valley into western Utah. “As the Great Basin’s groundwater is drained, desert springs and seeps will dry up, endemic plants and wildlife will die off, and farms and ranches will wither away, according to several scientists who have studied the plan. Eventually, the aquifer, which took millennia to fill, will run out,” Waldman writes. “Whatever Las Vegas wants, Las Vegas gets, and Harry Reid makes sure that happens,” says Janine Blaeloch, founder of The Western Lands Project, a Seattle nonprofit that has closely monitored the senator’s sell-off of government land. Reid’s oldest son, Rory, chairman of the Clark County Board of Commissioners and vice chairman of the Southern Nevada Water Authority, tells Waldman it’s nonsense that he or his dad coddles developers; the region’s growth is driven by “huge economic forces” that politicians can’t easily control. Southern Nevada needs the Great Basin’s water, he says, to ease its dangerous reliance on dwindling Lake Mead. “If not this, what?” Rory asks. In a written statement to Condé Nast Portfolio, Reid said he is proud of his land bills for setting aside 2.5 million acres of wilderness in Nevada over the past eight years, adding that those laws have “created transparent and limited processes to guide the growth.” As for the pipeline, Reid acknowledged that population growth and drought are posing “difficult choices” for Nevada. Federal and state regulators are reviewing the pipeline plan, he wrote, and “will have final say on its development.”

Plus:

“The Next President, Revealed” (p. 47). Contributing editor John Cassidy reports how economic formulas are proving better predictors of election results than opinion polls. “Built on the basis of data gathered from elections going back many decades, these models take variables relevant to the election—such as economic statistics, polling figures, and how long the incumbent party has held the presidency—and use them to determine which party will win the White House,” Cassidy explains. “The key line this time around: With the housing bust and credit crunch, the ailing economy could prove as damaging to the Republicans as the war in Iraq.” After examining several economic models, Cassidy declares, “I hereby predict that the Democrats will carry the election. But please don’t hold me to that forecast, much less bet on it. In case the economy rebounds strongly from the credit crunch in the next six months and the situation in Iraq improves, providing a boost to President Bush’s approval rating, I reserve the right to change my mind.”

“The Revolution (May Take a While)” (p. 104). Former AOL chief Steve Case talks to contributing editor Kevin Maney about his attempt as a health-care exec and why Facebook isn’t going to be the next AOL. Case is trying to build his new company Revolution—funded almost entirely from his own fortune, estimated at about $900 million—into a global megabrand. He hopes that the component called Revolution Health will transform America’s health-care system and that another, dubbed Revolution Money, will drive what is potentially the biggest change into credit cards since they were introduced almost 60 years ago. “Revolution is not supposed to be another venture capital or private equity firm, both of which tend to have pragmatic, relatively short-term horizons,” Case says. “It’s a 10- or 20-year journey. AOL didn’t happen overnight either. For years, we were trying to explain why we thought email would resonate.” Case declares Google is the most likely contender for the new AOL.

“Oscarnomics” (p. 71). Sophia Banay reports on the film world’s best and worst financial performances of 2007. “Overall, it wasn’t a pretty picture. Ticket sales barely inched up, and the writers strike dampened the mood, even threatening to dull the glitter of the Academy Awards. Meanwhile, though, box office receipts rose 6 percent to $9 billion, largely because of three megahits: Spider-Man 3, Shrek the Third, and Transformers. Their combined take came to $976.5 million, more than 10 percent of total ticket sales for the year,” Banay reports. The envelope, please: Most Bang for the Budget goes to … Transformers. Best Job of Beating Expectations … Superbad. Most Creative Financing … I’m Not There.

On Portfolio.com:
The February issue of the magazine, plus additional content, including Paul Ingrassia reporting from the Detroit auto show as well as Matt Cooper reporting on the presidential primaries can be found at Portfolio.com.

 
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