P2JW283000-2-B00100-1--------XA CMYK Composite CL,CN,CX,DL,DM,DX,EE,EU,FL,HO,KC,MW,NC,NE,NY,PH,PN,RM,SA,SC,SL,SW,TU,WB,WE BG,BM,BP,CC,CH,CK,CP,CT,DN,DR,FW,HL,HW,KS,LA,LG,LK,MI,ML,NM,PA,PI,PV,TD,TS,UT,WO TECHNOLOGY B4 | WEATHER B6 Amazon Set to Escalate Movie Wars Retailer in Talks With Digital Consortium Challenging iTunes © 2014 Dow Jones & Company. All Rights Reserved. THE WALL STREET JOURNAL. ** Friday, October 10, 2014 | B1 Price Drop Tests Oil Drillers Further Decline Risks Making Fracking Unprofitable; ‘Immense Amount of Pain’ BY RUSSELL GOLD AND ERIN AILWORTH Tumbling oil prices are starting to frighten energy companies around the globe, especially drillers in North America, where crude is expensive to pump. Global oil prices have fallen about 8% in the past four weeks. The European oil benchmark closed Thursday at $90.05 a barrel, its lowest point in 29 months. The price of a barrel in the U.S. closed at $85.77, its lowest since December 2012. Weakening oil prices could put a crimp in the U.S. energy boom. At $90 a barrel and below, many hydraulic-fracturing projects start to become uneconomic, according to a recent report by Goldman Sachs Group Inc. While fracking costs run the gamut, producers often break even around $80 to $85. “There could be an immense amount of pain,” said energy economist Phil Verleger. “As prices fall, you will see companies slow down dramatically.” Paul Sankey, an energy analyst with Wolfe Research LLC, said the first drillers to react to declining crude prices would be some in the least productive fringes of North Dakota’s Bakken Shale. “We’re not quite there yet,” he said, but a further drop of $4 or $5 a barrel will force companies to begin trimming their capital budgets. Shares of Continental Resources Inc. and Whiting Petroleum Corp., which are focused in the Bakken, fell by more than 5% each on Thursday. Shares of major shale-oil and gas developer Chesapeake Energy Corp. fell 7%. Jim Noe, executive vice president at Hercules Offshore Inc., a Houston-based drilling-services company with rigs in the Gulf of Mexico, the Mideast, India and West Africa, said companies such as his are monitoring weak oil prices closely. Hercules said its business was affected by a slowdown in drilling activity in the second quarter. Hercules’s stock fell 6.3%. The fundamental problem is that the world is awash with oil, but demand for energy is growing more slowly amid tepid economic growth around the globe, especially in China. Companies are always reluc- tant to be the first to cut their energy output, hoping that others flinch first. And hedging can help companies weather temporary drops. The overall U.S. economy, and especially industries such as refining and air travel, would benefit from lower oil prices. Some U.S. oil fields, including the Eagle Ford Shale and Permian Basin in Texas, would remain attractive for drillers even at much lower oil prices. An analysis by Robert W. Baird & Co. said prices could drop to $53 a barrel in certain parts of the Eagle Ford and still be profitable to drill. Please turn to the next page  Overheard: Fueling a trend in gas mileage.................................... C10 Smile! Marketers Are Mining Selfies Scanning for Clues Ditto Labs scans photos on sites like Instagram to glean insights for advertisers. FACES Human faces can give context. If a logo appears above a face—such as Smith ski goggles in this picture—it can indicate the person is wearing apparel. Smiles help advertisers understand sentiment. PRODUCTS CLOTHING Ditto has started classifying objects like purses or sunglasses and can sometimes detect fabrics or patterns in clothing. iStock (phone); Ditto Labs (inset photo) Now, though, companies that closed their inversion deals before the new rules took effect have advantages when it comes to deal-making that U.S.-based rivals don’t, deal makers say. And even though it is now harder for U.S. companies to initiate inversion deals, they can still be targets of such deals, and, as a result, become part of foreign companies and pay less in taxes. When a foreign-based company subsequently buys a U.S. target, it can reap savings from bringing the target under its lower tax rate. It may be able to free up that company’s overseas cash without paying U.S. taxes on the money. It can also reduce the target’s taxable U.S. income by loading the company with debt, effectively converting the target’s profit into deductible interest payments that go to the lowertaxed foreign parent. “Generally it makes sense for any non-U.S. company that buys an American company to put debt on it because it will help reduce the tax rate,” said Conor Hurley, a senior tax partner for law firm Arthur Cox. Not every acquisition yields huge tax benefits. Much depends on whether the acquired company has or expects to have Please turn to the next page Composite The federal government may be trying to prevent U.S. corporations from buying companies in order to relocate abroad for tax purposes. But it hasn’t stopped companies that have already completed such deals from doing their own follow-on acquisitions of U.S. companies. On Thursday, Endo International PLC said it was buying Chesterbrook, Pa.-based Auxilium Pharmaceuticals Inc. in a $2.6 billion cash-and-stock deal. Up until earlier this year, Endo was based in Malvern, Pa. But through a deal to buy Canada’s Paladin Labs Inc., the company redomiciled to Dublin, with a lower corporate tax rate. Endo’s deal with Paladin closed in February, before socalled inversion deals became a hot-button issue that attracted the government’s ire. In such deals, a U.S. company buys a foreign rival, then relocates to a foreign country with a lower tax rate. Last month, the Treasury Department tightened tax rules to make the moves harder and less lucrative. The new rules have spooked chief executives who were contemplating the structure, causing some to shelve deals they were pursuing, deal makers say. SCENES Whether a photo was shot in a bar or on a snowy mountain can give advertisers clues about where and how customers use their products. Users who post images of things like beer or ski equipment may be ﬂagged for those interests. Marketers also look for correlations between interests, such as which beverages people drink while eating Kraft Macaroni and Cheese. Tax-Inversion Players Swoop In for Seconds BY DANA MATTIOLI LOGOS About 3,000 logos can be detected, such as the Pabst beer can and Marmot jacket here. An advertiser may search for photos featuring rival brands to try to steal customers. The Wall Street Journal Network Households* (millions) ESPN Decline in number of households since 2010 95.2 TNT 95.9 Nickelodeon 96.4 TBS Network 97.0 HLN 96.0 Weather Channel 96.8 Discovery Channel 96.9 CNN 96.7 USA 96.8 Food Network 97.4 –5% –4% *Sept. 2014 estimate Source: Nielsen –3% –2% –1% 0 The Wall Street Journal Pay TV’s New Worry: ‘Shaving’ the Cord BY KEACH HAGEY AND SHALINI RAMACHANDRAN The biggest U.S. cable-TV channels are experiencing a troubling trend: Their reach into American households is shrinking. Over the past four years, the top 40 most widely distributed channels in 2010—household names like CNN, ESPN and USA—have lost an average of 3.2 million subscribers, or more than 3% of their distribution, according to a Wall Street Journal analysis of data from measurement firm Nielsen. Some in the industry point to consumers who are “cutting the cord,” ditching their cable and satellite-TV connections in favor of more affordable online video options like Netflix and Hulu. But the numbers don’t add up. Last year the pay-TV industry lost 166,000 subscribers, according to research firm MoffettNathanson LLC. While that was the first annual decline on record, it isn’t enough to account for the subscriber declines of the biggest cable channels. Indeed, the data and interviews with a range of cable-TV industry executives suggest that something else is going on: Many consumers aren’t so much cutting the cord as shaving it. A growing share of pay-TV customers are signing up for smaller, cheaper bundles of channels that cost anywhere from $10 to $50 a month and don’t include popular channels like TNT, USA, ESPN, CNN, Fox News, Disney Channel and Discovery Channel, the industry executives say. “What we are seeing is some cord cutting and some cord shaving,” said Stephen Hasker, global president of Nielsen. “Consumer time and attention is shifting.” Basic plans that include little more than local broadcast stations now make up some 12% of pay-TV subscriptions, up from 8% to 10% a few years ago, according to estimates by some industry executives. Some consumers are also turning to cheaper, sports-free and familyoriented packages, executives say. “We think cord-shaving is a reality going forward,” says AT&T Inc.’s Chief Strategy Officer John Stankey. The shift of consumers to lower-priced plans is a worrying sign for media companies, striking at the heart of how they make money. TV channels are paid by cable and satellite-TV providers on a per-subscriber basis. Over time, declines in sub- 3.2 million The average number of households lost by big channels since 2010 scribers could dent these companies’ growth. Pay-TV providers face significant risks, too. If more people downgrade to skinny tiers, it could pressure revenue, analysts say. Some media executives say losing a few million subscribers to their channels doesn’t immediately raise alarms. They point out that they have been able to raise the fees they charge payTV operators for each subscriber more than enough to offset the declines. Media companies are also optimistic about selling their channels to new Web-based TV services from companies like Sony Corp. But others are doing some soul searching over how and why this happened. Some executives say media companies have been so eager to make content available to streaming-video Please turn to page B4 Symantec Is Latest to Call for a Split BY DANNY YADRON Symantec Corp. is the latest technology company to decide that bigger isn’t better. The Mountain View, Calif., firm that helped pioneer commercial antivirus software said it plans to split its cybersecurity and information-management businesses into two publicly traded companies. The announcement comes after eBay Inc. disclosed last month it would spin off its PayPal unit, and Hewlett-Packard Co. on Monday said it would split into two companies—one for personal computers and printers, another for corporate hardware and services. The planned moves reflect a view that large companies are hard to maneuver in a rapidly shifting technology landscape. Symantec’s security business, which generated $4.2 billion in revenue for the fiscal year ended March 28, has been seen as losing ground to security upstarts like FireEye Inc. and Palo Alto Networks Inc. The company’s smaller information business, which helps companies store and manage data, reported revenue of $2.5 billion for the same year. Symantec announced the planned split after regular-trading hours, though it appeared to have little impact on the stock. Symantec shares rose 0.7% in after-hours trading, after falling 57 cents to $23.44 in 4 p.m. trading. Bloomberg News Most users of popular photosharing sites like Instagram, Flickr and Pinterest know that anyone can view their vacation pictures if shared publicly. But they may be surprised to learn that a new crop of digital marketing companies are searching, scanning, storing and repurposing these images to draw insights for big-brand advertisers. Some companies, such as Ditto Labs Inc., use software to scan photos—the image of someone holding a Coca-Cola can, for example—to identify logos, whether the person in the image is smiling, and the scene’s context. The data allow marketers to send targeted ads or conduct market research. Others, such as Piqora Inc., store images for months on their own servers to show marketers what is trending in popularity. Some have run afoul of the loose rules on image-storing that the services have in place. The startups’ efforts are raising fresh privacy concerns about how photo-sharing sites convey the collection of personal data to users. The trove is startling: Instagram says 20 billion photos have already been shared on its service, and users are adding about 60 million a day. The digital marketers gain access to photos publicly shared on services like Instagram or Pinterest through software code for developers called an application programming interface, or API. The photo-sharing services, in turn, hope the brands will eventually spend money to advertise on their sites. Privacy watchdogs contend Please turn to the next page Shrinking Audience These networks reached into the most American homes in 2010, but their subscriber numbers have fallen since then. Symantec, a commercial antivirus software pioneer, plans to complete its spinoff by the end of 2015. The company currently has a market capitalization of more than $16 billion. In an interview, Symantec Chief Executive Michael Brown said his company isn’t reacting to the recent moves by other tech companies. “For us, this started months ago,” he said. Mr. Brown said the planned split would help the company deal with the challenges of running a company involved in different businesses. “This structure will help us reduce the complexity and grow faster,” he said. Symantec said it plans to complete the spinoff by the end of 2015. Mr. Brown will be the president and CEO of Symantec, while John Gannon will be general manager of the information-management business. Symantec helped pioneer commercial antivirus software in the late 1980s. Its Norton suite is still a major moneymaker for the company. It moved into the information-storage business in 2005, acquiring Veritas Software Corp. for $13.5 billion. The past few years have been tumultuous for Symantec. In March it fired Chief Executive Steve Bennett, the second time in two years it had ousted a CEO. Meantime, the company’s P2JW283000-2-B00100-1--------XA BY DOUGLAS MACMILLAN AND ELIZABETH DWOSKIN MEDIA B6 main product, antivirus software, is under attack from more than just hackers these days. Security experts have argued the product isn’t up to the task of stopping the most advanced cyberattacks. Antivirus works by keeping a list of malicious signatures, meant to block bad code from being loaded onto computers. The problem is similar to that of a human immune system: If it hasn’t seen a virus before, it doesn’t know to block it. Symantec is working on new security products that mimic offerings by FireEye that it expects to introduce by next spring, the company said. MAGENTA BLACK CYAN YELLOW