Royal Mail delivery on profit brings privatisation ever closer

The results also helped the chief executive, Moya Greene, to take home more than £1m in a pay packet that makes her one of Britain’s best-paid public sector officials.

Royal Mail needed to transform its finances to allow the Government to start selling or floating at least part of the business by its scheduled date of autumn 2013. Yesterday’s numbers suggest it is en route to doing so, after the firm’s “universal service” letter division – where postmen deliver to 29 million homes a week – returned to profit. Last year’s £120m loss was converted into a £23m profit, on revenues of £7.2bn.

Performance-related pay helped Ms Greene to receive a £1.1m remuneration package. Weeks after Royal Mail hit Britons with a record increase in stamp prices she pocketed a £371,000 cash bonus on top of basic pay of £498,000, £371,000 in a “short-term incentive plan”, £38,000 in benefits and £200,000 in lieu of a pension scheme contribution.

Ms Greene steered Royal Mail’s return to the black despite a continuing decline in the number of letters in the average daily postbag, at 58 million during the year to April, down from 80 million at its peak in 2005. Britons are expected to send even less mail in the post this year, after May’s price hikes. First-class stamps now cost 60p, up from 46p, and second-class stamps increased from 36p to 50p. Even before that hike, Royal Mail said in the year to April parcels were the single biggest contributor to group revenues – partly thanks to the online shopping industry.

The numbers will help ministers to make Royal Mail more attractive to potential private-sector bidders. Sale preparations have ramped up in recent months: in March the Government said it would take over the firm’s giant pension fund, which saw £28bn of assets and £38bn in liabilities transferred to the state. Last year Royal Mail also axed 4,000 staff.

Ms Greene said: “We are cash positive for the first time in four years.”

Sony, Mubadala bid for EMI wins US approval

The Federal Trade Commission has approved a Sony-led consortium’s purchase of EMI Music Publishing, without having to make any divestitures, the FTC said on Friday.

US antitrust regulators gave the nod to the $2.2bn deal in a brief letter to the companies.

The agency is expected to issue a decision in coming months on a related and more controversial deal — Universal Music’s plan to buy EMI’s recorded music catalog from Citigroup Inc for $1.9bn.

In its letter, the FTC said that it had been looking at the transaction but upon review found no reason for further action.


“Accordingly, the investigation has been closed,” the FTC said in its letter to Sony Corp.


European antitrust regulators gave Sony approval to close its purchase of the EMI unit in April on condition it sell the worldwide publishing rights of artists, including Robbie Williams and Lenny Kravitz.

The consortium proposed a deal with Europe regulators in which they would sell the assets to satisfy concerns that the deal would break antitrust law.

Other assets to be sold are Virgin UK, Virgin Europe, Virgin US and Famous Music UK, and include artists such as Gary Barlow, Ozzy Osbourne, Ben Harper, Placebo and The Kooks.

Sony, with Blackstone Group, Abu Dhabi’s Mubadala Development Co, Raine Group and music and film mogul David Geffen, won the bidding for EMI Publishing last year in a deal that will put Sony on top in global music publishing.

Before the deal, Sony was the fourth biggest player in music publishing, behind Vivendi’s Universal Music Group, EMI and Warner Music.

The agreement will push it into first place, owning the rights to about 3 million songs, such as “New York, New York” and Adele’s recent smash “Rolling in the Deep”.

Citigroup is selling EMI after taking over the group when its previous owner, private equity group Terra Firma, defaulted on borrowings from the investment bank.

Kuwait’s Al-Hasawi closes in on Notts Forest deal

Kuwaiti businessman Fawaz Al-Hasawi said on Saturday that “exciting times” were ahead of Nottingham Forest as he prepares to complete the deal for the English Championship football club.

In a statement, he said he was currently completing due diligence and negotiations were progressing well. It did not give a value for the deal to buy the club.

Al-Hasawi, whose family made their fortune in the refrigeration business, said he looked forward to achieving “the highest levels of success” at the club which won the European Cup, now the Champions League, twice in the 1980s.

Al-Hasawi said: “The future on-field and off-field success of Nottingham Forest is at the heart of our plans which we will of course announce in due course.


“We understand this is a difficult time for the club and its supporters and look forward to working with you in achieving the highest levels of success.”


The acquisition of a football club would give Al-Hasawi automatic membership to an elite club of Gulf investors that own European football teams.

Abu Dhabi United Group Investment and Development Limited, led by Sheikh Mansour bin Zayed bin Sultan Al Nahyan, acquired Manchester City for a reported $321m in summer 2008.

Qatar Sports Investments bought a 70 percent stake in French football club Paris Saint-Germain (PSG) in June last year. The investment firm became the sole shareholder of the club after purchasing the remaining 30 percent stake in March.

Dubai’s Royal Emirates Group owns the Spanish La Liga side Getafe.

Etihad Cargo launches service to Dammam

Etihad Cargo has inaugurated a new weekly freighter operation from Abu Dhabi to the Saudi city of Dammam.

The new cargo service, which operates every Tuesday using an Airbus A300-600F freighter, has a capacity of 42 metric tonnes.

Etihad Airways already operates 16 weekly Airbus A319 and A320 passenger services between the two cities.

David Kerr, vice president of Etihad Cargo, said: “We are delighted to launch our first dedicated freighter service to Dammam, and believe that it will further strengthen the trade ties between the UAE and Saudi Arabia.


“It also complements our twice weekly trucking service to the Dammam Free Zone.”


Etihad Cargo is the fast growing cargo division of Etihad Airways, and operates services to a total of 87 destinations around the world.

The cargo division of the UAE flag carrier operates a fleet of six freighters, consisting of one Airbus A300-600F, two Airbus A330-200F, one MD-11F, one Boeing B777F and one Boeing B747-400F.

In April, the airline said it carried a record 31,700 tonnes of cargo in March, an increase of 20 percent on the same month in the previous year.

Total revenues for the month were up 14 percent on February and 19 percent on the corresponding period the previous year. In February, Etihad carried 27,900 tonnes of freight.

Bahraini Islamic banks merger approved

Shareholders at three Bahrain-based Islamic investment banks have approved plans for a merger, it has been announced.

Capivest, Elaf Bank and Capital Management House have the green light to merge after the extraordinary general meetings of the three banks approved the deal.

The merger will be effective after obtaining the final approval of the Central Bank of Bahrain and the Ministry of Industry and Commerce, a statement said.

Once implemented, the newly created entity will have shareholders’ equity of almost $350m and assets in excess of $400m.


The transaction is the first three-way merger to take place in Bahrain, the statement added.


Isa Habib, vice chairman of Elaf Bank, said: “The aim of this merger is to establish a strong banking institution that is able to compete solidly in a changing market.”

He added: “The merger will bring instant diversification of assets and revenues. Also, the bank will be able to capture larger projects and will enable it to diversify its capital sources.”

Mohammed Abdulmalik, CEO of Capivest, said: “The three banks will gain numerous benefits from the merger; in particular, the merged bank will have a strong balance sheet from day one which will create a positive impact on our dynamic banking sector.”

Khalid Najibi, managing director of Capital Management House, added: “This fusion of competitive advantages in various markets makes us all excited and motivated to complete this merger and will work in the near future to announce the new brand identity of the bank which will reflect our client focus and future vision. We look forward to working side by side to achieve our shared goals.”

The three banks, Capivest, Elaf Bank and Capital Management House were advised by Kuwait Finance House – Bahrain as transaction advisor, Trowers Hamlins as legal counsel and Deloitte as independent valuer.

Abu Dhabi hotel revenues hit $98m in May

Abu Dhabi hotel revenues rose three percent to AED360m ($98m) in May, the emirate’s Tourism and Culture Authority said on Saturday.

The number of guests at Abu Dhabi hotels, hotel apartments and resorts grew 12 percent to 192,374, the authority said.

They spent 542,567 guestnights which represented an increase of seven percent over the corresponding period last year, official news agency WAm reported.

It said the UAE capital’s occupancy rate reached 63 percent, a decline of eight percent from May 2011 due to the increased supply of hotel properties coming to market.


The average length of stay at Abu Dhabi hotels also slipped by four percent to 2.82 guestnights.


Mubarak Al-Muhairi, the authority’s director general, said that it is adopting several initiatives to attract more tourists to the emirate this summer.

Amazon’s Hit Man

In November 1997, on a night of pounding rain in midtown Manhattan, Rupert Murdoch threw a party for Jane Friedman, the new chief executive officer of News Corp.’s (NWS) HarperCollins book division. The luminaries of the publishing business, such as Random House’s then-CEO Alberto Vitale and literary agent Lynn Nesbit, crowded into the Monkey Bar on 54th Street, with its red-leather booths and hand-painted murals of gamboling chimps. Trudging six blocks through the downpour from the Time Life Building, Laurence J. Kirshbaum, then the powerful head of Time Warner Book Group, brought a guest: a young online bookseller named Jeffrey P. Bezos, whose ambitions would eventually end up affecting the lives of everybody at the party. “It was one of those moments in your life where you remember everything,” Kirshbaum says. “In fact, I think Bezos still owes me an umbrella.”

How times have changed. Physical book sales have been flat for a decade and are starting to get eclipsed by e-books. Friedman left News Corp. in 2008. And Jeff Bezos, who once courted the publishing aristocracy of New York, now competes against them. Last May, Amazon (AMZN) hired Kirshbaum, 67, to run Amazon Publishing, a fledgling New York-based imprint whose lofty goal is to publish bestselling books by big-name authors—the bread and butter of New York’s book industry. In the high-rise offices of the big publishers, with their crowded bookshelves and resplendent views, the reaction to Amazon’s move is analogous to the screech of a small woodland creature being pursued by a jungle predator.

In interviews, Amazon executives cast their new effort as an experiment in the booming world of e-books, not a plan to displace the Big Six—Random House, Simon Schuster (CBS), HarperCollins, Penguin (PSO), Hachette (MMB), and Macmillan. “What we’re building is more like an in-house laboratory where authors and editors and marketers can test new ideas,” says Jeff Belle, vice-president of Amazon Publishing and Kirshbaum’s boss. “Success to us means working with authors who want to find new ways to connect with more readers.”

Talk like that hasn’t mollified publishers, and it’s easy to see why. They’re trying to protect a century-old business model—and their role as nurturers of literary culture—from encroachment by a company that consistently reimagines how industries can be run more efficiently. Book publishing, an inefficient industry if there ever was one, seems ripe for reimagining. According to a recent report by the Association of American Publishers, sales of adult paperbacks and hardcovers fell 18 percent between 2010 and 2011. Store chains such as Borders have been cartwheeling into bankruptcy, and independent shops are struggling to compete with the advantages enjoyed by online retailers, such as their freedom from collecting sales tax in many states. The lone bright spot is the rising sales of electronic books, but even that landscape is blighted: Fierce warfare for control of the new market, between Amazon.com, Apple (AAPL), Google (GOOG), and Barnes Noble (BKS), threatens to turn minor combatants into accidental casualties.

And now this. Amazon could be an unstoppable competitor to big publishing houses. If history is any guide, Bezos, who declined to comment for this story, doesn’t care whether he loses money on books for the larger cause of stocking the Kindle with exclusive content unavailable in Barnes Noble’s Nook or Apple’s iBookstores. He’s also got almost infinitely deep pockets for spending on advances to top authors. Even more awkwardly for publishers, Amazon is their largest retailer, so they are now in the position of having to compete against an important business partner. On the West Coast people cheerfully call this kind of arrangement coopetition. On the East Coast it’s usually referred to as getting stabbed in the back.

Over the last six months, Kirshbaum has been making slow, steady progress on behalf of Amazon. His division has signed authors such as Timothy Ferriss, the self-help guru, James Franco, the actor and budding novelist, and Bob Knight, the volcanic former basketball coach who will pen a business book, The Power of Negative Thinking. Even Nancy Pearl, the popular librarian and author of the Book Lust reading guides, announced she was partnering with Amazon in a project to publish 12 of her favorite novels that were no longer in print. In their biggest splash so far, Kirshbaum and Amazon paid an advance of more than $800,000 for a memoir by actress and director Penny Marshall, whose name hasn’t been mentioned so frequently in New York media circles since the days of Laverne Shirley. By pursuing authors directly, Amazon can cut out the middleman and pass on the savings to authors in the form of higher advances and royalties, and to readers in the form of lower book prices. Executives at the major publishing houses see all of this and conclude that Amazon aims to put them out of business.

In the middle of this stew of rancor and mistrust sits Kirshbaum. He was once the ultimate book industry insider, widely known and almost universally liked. He has a well-honed instinct for big, mass-culture books and was thinking about e-books—and losing money on them—long before almost anyone else in the industry. Many of his former peers now consider Kirshbaum a turncoat. In interviews, more than a dozen publishing executives said he had gone over to the dark side; some said they’d conveyed that sentiment to Kirshbaum directly. (None of the executives would speak on the record because Amazon is still a vitally important retail partner.) “I have a message I really believe in,” Kirshbaum says. “Which is that we’re trying to innovate in ways that can help everybody. We are trying to create a tide that will lift all boats.”
 

 
For years the marriage between Amazon.com and the big New York-based publishers was mostly a happy one. Amazon was expanding the overall market for books and giving publishers a new way to connect with readers. A few shrewd book-industry types even found a way to climb aboard the rocket ship. Jason Epstein, a veteran Random House editor, was an early consultant to Bezos and received stock in the company before it went public. Kirshbaum also saw Amazon’s promise early and bought shares in its 1997 initial public offering.

Back then, Bezos was cultivating friendly relations with publishers and trying to make his e-commerce company profitable. In 1999, when Businessweek asked him whether he would ever move from the business of selling books into the business of making them, Bezos demurred: “We’re really, really good at exactly one thing, which is helping customers discover things that they might want to buy online. And that’s enough.”

The rifts opened eight years later, during Amazon’s development of the Kindle e-reader. Representatives of Amazon streamed through the offices of New York publishers, urging them to accelerate the pace of digitizing their catalogs ahead of the device’s big launch. The book houses cooperated and even obediently kept the successive Kindle prototypes that Amazon showed them a secret from the outside world. Then Bezos got on stage at the W New York (HOT) hotel in Union Square in November 2007, and as part of the unveiling of the Kindle, proclaimed that he would sell New York Times bestsellers for $9.99.

Publishers were shocked, according to interviews with several industry executives. Amid all the collaborative preparations, they say, Amazon hadn’t divulged anything about its aggressive pricing plans. The worries escalated as Bezos appeared on talk shows, making promises to consumers to expect sub-$10 prices for popular digital books. Amazon itself was subsidizing the low prices and losing money on most of these titles, but publishers still had reason to be alarmed. Such a low price could set a new expectation in readers’ minds about how much books are worth and put enormous pressure on traditional brick-and-mortar booksellers selling print books at considerably higher prices.

Publishers could easily envision that the dawn of e-books might put those retailers out of business and give Amazon a monopoly on selling books. To imagine the implications of that outcome, they could and did talk to their music industry peers, who had allowed Apple to set the price of a digital song at 99¢ in the iTunes music store. That all but killed the compact disc, hastened the demise of music retailers such as Tower Records, and concentrated market power with Apple.

The discord between Amazon and book publishers spilled into the open in late 2009. Hachette and HarperCollins delayed the Kindle editions of memoirs by Edward M. Kennedy and Sarah Palin, hoping to direct readers to the pricier hardcovers. Inside their boardrooms, book publishers were considering a more dramatic response: demanding that they, not Amazon, set the price of titles for sale on the site.

In early 2010, a few weeks before Steve Jobs introduced the iPad, publishers met with Apple to hammer out prices for books on the forthcoming tablet. Publishers were happy to see the Kindle get some competition, and Apple needed happy publishers willing to sell their titles on the iPad. So Apple agreed to let the publishers set the prices for their e-books. The publishers decided they wanted the same arrangement—known in the business as “agency pricing”—with Amazon.

John Sargent, the plain-spoken chief executive of Macmillan Publishing, was the first to get on a plane to Seattle to inform Amazon of the decision and to threaten to withhold Macmillan’s books if Amazon did not agree to the new pricing model. Bezos and his colleagues reacted angrily by removing options to buy Macmillan’s books directly from Amazon. Amazon eventually relented, and e-book prices on bestsellers jumped from $9.99 to $12.99 or higher. (The publishers’ move has triggered ongoing antitrust investigations in Europe and Washington, D.C., over whether book publishers and Apple illegally colluded to raise e-book prices.)

Throughout the skirmish, Amazon was putting together its own publishing business—signing up books over which it, and not traditional publishers, would have total control on matters like pricing. At first, those efforts appeared nonthreatening. AmazonEncore, announced in May 2009, was set up to allow writers to digitally self-publish their work and to republish books that were no longer in print. A year later, Amazon introduced AmazonCrossing, an imprint to publish English-language translations of foreign-language books (one of them, The Hangman’s Daughter by Oliver Pötzsch, was translated from German and became a bestseller). Last year, Amazon announced a collection of Seattle-based imprints devoted to mysteries, thrillers, romance, and science fiction. None of those efforts in niche genres kept New York publishers and editors awake at night.

Then last March, Random House, the biggest book publisher in the U.S., announced that it too would sell e-books using agency pricing. Amazon could no longer run the best play out of its playbook—slash prices and sustain losses in the short term to gain market share over the long term. Sure enough, with no stark price disadvantage, the Nook e-reader store and Apple’s iBookstore for the iPad started to gain market share. “For the first time, a level playing field was going to get forced on Amazon,” says James Gray, a director at British bookseller John Smith Son and the former chief strategy officer of the Ingram Content Group, a major book distributor. Amazon execs “were basically spitting blood and nails.”

The next month, an Amazon recruiter sent an e-mail to several editors at big publishing houses, looking for someone to launch a new New York-based publishing imprint. “The imprint will be supported with a large budget, and its success will directly impact the success of Amazon’s overall business,” read the e-mail, which was obtained by Bloomberg Businessweek.

Kirshbaum, who left Warner Books in 2005 to become an agent, was helping Amazon’s Jeff Belle, in an unpaid capacity, to recruit editors for the new publishing effort. In the middle of that process, Belle asked Kirshbaum if he himself wanted to come aboard to lead the new effort. “Well, the thought had crossed my mind,” Kirshbaum replied.

The hire was announced in early May. Kirshbaum gave Amazon’s audacious goal, to recruit big-name authors, immediate credibility. “Larry Kirshbaum,” says Mike Shatzkin, a publishing consultant who writes a widely followed industry blog, “has gone from one of the most well-liked people in publishing to the one of the most reviled.”
 

 
Kirshbaum was born in Chicago in 1945. His father was a commodities trader at the Chicago Board of Trade, and his mom wrote jingles for an advertising agency. He attended the University of Michigan, where he was managing editor of the school newspaper (at Warner Books, he decorated his office with Michigan gear and would sing the fight song on request). After graduation, he worked as a reporter for Newsweek and in 1969 co-authored a book, Is the Library Burning?, on the campus protest movement, which was published by Random House. It now sells used for 8¢ on Amazon.

While hawking his book, Kirshbaum grew infatuated with publishing. He moved to New York and joined the marketing department at Random House, and in 1974 landed at the publisher that would become Warner Books, as marketing vice-president. He would spend more than three decades there and rise to become chairman and CEO, presiding over a golden age in which the company combined the literary sensibilities of its Little, Brown imprint with the mass-market muscle of Warner Books. Kirshbaum and his team paid big advances to publish books by the most prominent business figures in the world, including Bill Gates, Jack Welch, and Michael Eisner. They signed bestselling novelists such as David Baldacci, James Patterson, Nelson DeMille, Sandra Brown, and Nicholas Sparks. There were some breakout successes, like the treacly 1992 The Bridges of Madison County, and crass commercial calls, such as Madonna’s pornographic coffee table book, Sex, which was wrapped in plastic and sold for $50.

Kirshbaum was also an early backer of electronic books. In 1995 he formed a group called Time Warner Electronic Publishing and started putting books on floppy disks. A few years later he got Time Warner (TWX) to invest more than $10 million to develop digital titles for an early e-reading device called the Rocketbook. That didn’t work either. “The world just wasn’t ready for it,” Kirshbaum says. “We didn’t have the Kindle.”

Kirshbaum left Warner Books at the end of 2005. He set up a literary agency, LJK Literary, and went on to represent Steve Forbes, Rafael Nadal, and economist Jeremy Rifkin. One common refrain from his current rivals is that he failed as a book agent. Kirshbaum allows that it was not a perfect fit. “I think I’m a publisher at heart,” he says. “I love the business.”

As he began to work on Amazon’s behalf last summer, agents, at least, were excited, because getting deep-pocketed Amazon into the game of bidding for books could translate into larger advances. “I want to do business with Larry wherever he is,” says agent Scott Waxman, who sold Amazon the Bob Knight book. “Do I think this is something that would make the Big Six publishers uncomfortable? Yes, with a big capital Y.”

Kirshbaum suggested in some conversations with publishing execs that perhaps Amazon could collaborate—it would handle e-books and let traditional houses print their paper copies. (On Jan. 24 his group announced such an agreement with Houghton Mifflin Harcourt, which will license Amazon’s books and distribute copies in print under its New Harvest imprint.) Friends suggested that Kirshbaum had been out of the business too long and didn’t realize that Amazon was now viewed in New York circles as predatory and pathologically secretive.

Kirshbaum acknowledges some friction with his former cohorts but downplays it, pointing to the industry’s similarly fearful reaction to Barnes Noble’s 2003 acquisition of the publisher Sterling for $115 million. Publishers thought their world was coming to end then, too. (The beleaguered retailer recently said it plans to sell Sterling.) Nancy Pearl, the librarian-author, knows the animosity is real and has experienced it firsthand. She says that when she announced her deal with Amazon this month, the ensuing criticism on Facebook and Twitter was so nasty that she stopped checking social media. “I suspected people would not be happy with this,” she says. “But I didn’t expect the vitriol.”
 

 
“Publishers are selling drinks on the Titanic,” says Joe Konrath. “They are doing so much to protect their paper industry that they are disregarding the needs of customers and are treating authors poorly.” Konrath was once a struggling mystery writer living outside Chicago with hundreds of rejections to his name, nine unpublished novels, and a tempestuous relationship with the publisher of two of his books, Hyperion. Then two years ago he started experimenting with uploading those books directly to the Kindle marketplace. Now, under the name J.A. Konrath, he says he’s making about $4,000 a day and collecting a 70 percent royalty on every book he sells.

When Kirshbaum started at Amazon, he found big-name authors who shared Konrath’s willingness to try a nontraditional approach. Tim Ferriss’s books, The 4-Hour Workweek and The 4-Hour Body, were published by Random House, and both appeared on the New York Times bestseller list. Amazon will publish his new book, The 4-Hour Chef, in September. “For me it was a choice between publishers embracing technology and a world-class technology company embracing publishing,” Ferris says. “The latter will give me more of a chance to improvise and experiment.”

It’s becoming clear what Amazon and its authors mean when they talk about experimentation. In November, Amazon introduced a free e-book lending library. Members of its Prime two-day shipping program who own a Kindle can select one book at a time and download it for free. Big publishers, who already didn’t like the $9.99 price, reacted badly to the proposed $0 price and declined to participate in the program. Amazon’s own books, of course, will be a part of the lending club. In the future, Amazon could also do things like preview chapters of its forthcoming books to sell individually as “Kindle Singles” or package an e-book together with an audio book and sell it at one price, so that readers can switch between the two formats as they’re on the move.

One unresolved challenge for Amazon will be to find a way to get its paper books into traditional bookstores. Amazon’s deal with Houghton Mifflin Harcourt will make print books available for stores that want them. But it’s difficult to imagine Wal-Mart Stores (WMT) and Costco Wholesale (COST), two of the biggest booksellers in the country, going out of their way to lend their archenemy a hand. Barnes Noble appears to be locked in an awkward standoff with Amazon over this issue. CEO William J. Lynch Jr. says Amazon must make its books available in the Nook format before he will carry them on his shelves. “Their strategy is to restrict content to their own retailing platform, which we think is a bad thing for consumers,” he says. Amazon executives say they’re ready to compromise on this issue but that Barnes Noble is not.

Kirshbaum’s rivals predict, perhaps wishfully, that Amazon is about to get an education in the burdens of book publishing. “They will understand there’s a reason publishers exist, and it’s not just to hike up prices,” says Morgan Entreken, the president of Grove/Atlantic. The late-night phone calls from neurotic authors, the frantic edits on awful manuscripts—this is a business that demands more handholding than Amazon generally seems comfortable with. Then again, Amazon can deliver a trampoline or a 20-pack of ramen in 24 hours, so it’s fairly comfortable with complexity.

Critics even whisper that Kirshbaum has, in fact, already failed, because he has yet to lure a true franchise novelist, a Stephen King. Jeff Belle, the Amazon vice-president, shrugs that off. “Larry just sat down in his chair in July, when there was literally no chair to sit in. He is starting up a new business, hiring a team, and acquiring books all at once.”

Bezos and his minions will, characteristically, gauge the success of their new publishing effort over the long term. They are likely positioning Amazon Publishing for a world that is still a few years away, in which a majority of books are distributed electronically. In that world there could be even fewer traditional bookstores than there are now, and Amazon may look a whole lot more appealing to prominent authors. And Larry Kirshbaum could once again be one of the most popular guys in New York.

Book Review: Thinking, Fast and Slow by Daniel Kahneman


Editor’s Rating:
Stars_8

A Nobel laureate’s new book cautions us not to trust our gut

Thinking, Fast and Slow
By Daniel Kahneman
Farrar, Straus and Giroux; 499 pp; $30

 

For the last decade or so a band of scholars has been trying to cast off the long-accepted “rational agent” theory of economic behavior—the one that says that people, in their economic lives, behave like calculating robots, making rational decisions when they buy a stock, take out a mortgage, or go to the track. These scholars have offered a trove of evidence that people, far from being the rational agents of textbook lore, are often inconsistent, emotional, and biased. Perhaps tellingly, the pioneers of this field were not economists. Daniel Kahneman and Amos Tversky were Israeli psychologists who noticed that real people often do not make decisions as economists say they do. Tversky died in 1996; six years later, Kahneman won the Nobel Prize for economics.

Thinking, Fast and Slow, Kahneman’s new and most accessible book, contains much that is familiar to those who have followed this debate within the world of economics, but it also has a lot to say about how we think, react, and reach—rather, jump to—conclusions in all spheres. What most interests Kahneman are the predictable ways that errors of judgment occur.

Synthesizing decades of his research, as well as that of colleagues, Kahneman lays out an architecture of human decision-making—a map of the mind that resembles a finely tuned machine with, alas, some notable trapdoors and faulty wiring.

Behavioralists, Kahneman included, have been cataloging people’s systematic mistakes and nonlogical patterns for years. A few of the examples he cites: 1. Framing. Test subjects are more likely to opt for surgery if told that the “survival” rate is 90 percent, rather than that the mortality rate is 10 percent. 2. The sunk-cost fallacy. People seek to avoid feelings of regret; thus, they invest more money and time in a project with dubious results rather than give it up and admit they were wrong. 3. Loss aversion. In experiments, most subjects would prefer to receive a sure $46 than have a 50 percent chance of making $100. A rational agent would take the bet. Remarkably, and for similar reasons, golfers putt better when missing would leave them a stroke behind.

As compelling as these examples are—repeatedly, we recognize our own biases—Kahneman’s greater achievement is to build a framework for how, or why, the mind reasons as it does. You may feel a spasm of doubt, as I did, when first introduced to his central contrivance—using two fictional “characters,” which he refers to as System 1 and System 2. Suspend your doubts for just a moment.

System 2 is your conscious, thinking mind. We conceive of this active consciousness as the principal actor, the “decider” in our lives. System 2 thinks slowly; it considers, evaluates, reasons. Its work requires mental effort—multiplying 24 by 17 or turning left at a busy intersection. We attribute most of our opinions and decisions to this thinking, reasonable fellow.

For Kahneman, however, the main protagonist is System 1. This is the agent of our automatic and effortless mental responses. System 1 can add single-digit numbers and fill in the phrase “bread and —.” It is equipped with a nuanced picture of the world, the product of retained memory and learned patterns of association (“Florida/old people”) that enable it to spew out a stream of reactions, judgments, opinions. System 1 can detect a note of anger in a voice on the telephone; it forms snap judgments about those we meet, Presidential candidates, investments that we might be considering.

The flaw in this remarkable machine is that System 1 works with as little or as much information as it has. If it can’t answer the question, “Is Ford (F) stock a good investment?” it supplies an answer based on related but not really relevant data, such as whether you like Ford’s cars.

System 1 simplifies, confirms—it looks for, and believes it sees, narrative coherence in an often random world. It does not perform complicated feats of logic or statistical evaluations. You hear about a terrorist incident and want to avoid all buses and trains; only if you slow down, employ the tools of System 2, do you realize that the risks of terrorism affecting you are very slight.

Willpower requires effort; it is a feature of System 2. In an experiment, 4-year-olds who were able to delay eating an Oreo scored higher, a decade later, on IQ tests. Kahneman suggests that the ability to switch to System 2 is a sign of an “active mind” and a predictor of success.

Contrivance though it is, this framework is remarkably effective in describing how we think; we believe we are creatures of our thinking selves, but many of our opinions merely ratify our automatic responses. In contrast to Malcolm Gladwell, Kahneman is telling us not to blink.

Kahneman is perhaps least persuasive in his treatment of the business world. Noting that even top performers in business—also sports—tend eventually to revert to the mean, he attributes success largely to luck. This confuses events that may not be predictable with those that are determined by chance. A high-achieving retail store, to cite one of his examples, is not lucky—it is well-situated. And if its sales later decline, that is not necessarily a sign that its prior success was random. Business has a self-correcting cycle that fosters mean reversion. Success attracts competitors.

Some readers will object that Kahneman’s is an overly Cartesian world, barren of human intuition. He recommends using formulae even for predicting the future value of wines. Thinking, Fast and Slow is nonetheless rife with lessons on how to overcome bias in daily life. Kahneman advises that you “recognize the signs that you are in a cognitive minefield, slow down, and ask for reinforcement from System 2.” The next time a relative pops off about the stock market or President Obama, I will wonder: Does he or she know? Or is this just their reflexive self? I will never think about thinking quite the same. It’s a monumental achievement.

U.S. Kids Using Media Almost 8 Hours a Day


Survey finds few parents set rules as use of ‘smart’ phones, computers soars



HealthDay/ScoutNews LLC

WEDNESDAY, Jan. 20 (HealthDay News) — The amount of time American children and teens spend watching TV, playing video games or surfing the Internet has increased dramatically, to almost eight hours a day, a new report finds.

In fact, over the past five years the amount of time the average 8- to 18-year-old spent with media is up by 1 hour, 17 minutes a day — from 6 hours, 21 minutes in 2004 to 7 hours, 38 minutes now.

“The thing that jumps out is the enormous amount of time kids spend consuming media,” said report co-author Victoria Rideout, vice president and director of the Program for the Study of Media and Health at the Kaiser Family Foundation.

“It’s more than seven and a half hours a day, seven days a week,” she said. “That’s more than 53 hours a week — more time than grownups spend in a full-time job.”

Anything that children spend that much time doing is something that needs to be studied, Rideout said. “Media use is neither inherently good or bad, but from a health perspective there are a lot of things to think about,” she said.

The Kaiser Family Foundation is to release the report at a special forum to be held Wednesday in Washington, D.C., which is to be attended by the chairman of the Federal Communications Commission, media executives and child development experts. The findings are based on a survey of more than 2,000 American children aged 8 to 18, conducted between October 2008 and May 2009.

According to the report, the steep rise in kids’ media use is tied to an explosion in the availability of mobile devices, such as cell phones and iPods. The number of children with cell phones has ballooned from 39 percent in 2004 to 66 percent today, and from 18 percent to 76 percent for those with MP3 players, according to the report.

Cell phones are now multimedia devices, so kids on the go actually spend more time listening to music, playing games, and watching TV on their phone (49 minutes daily) than they do talking on them (33 minutes a day), the report found.

At home, too, media is pervasive. In 64 percent of homes, the TV is on during meals. In 45 percent of homes the TV is on most of the time — even when no one is watching it, the survey found.

And when children go to their rooms, media still surrounds them, with 71 percent saying they have a TV in their bedroom and 50 percent saying they have a video game player, the researchers report.

Children in homes where the TV is left on watch an hour and a half more; with a TV in the bedroom they watch an hour more, the report noted.

The survey also found that few American parents place any rules on how much time their children spend with media. Only 28 percent of kids cited parental rules on TV watching and only 30 percent were subject to rules on video game use. In addition, only 36 percent of parents limited kids’ computer time.

In homes where parents did set limits, children spend about three hours less consumed by media, the report found.

Spending time with media appeared to take a toll on school performance. The researchers found that 47 percent of kids who are heavy media users (more than 16 hours a day) got only “fair” or “poor” academic grades, compared with 23 percent of light-media users (less than three hours a day).

There were also big racial/ethnic differences in media consumption, with black and Hispanic children spending more time per day with media than white children — about four and a half hours more, on average. This disparity has only gotten larger since 2004, according to the report.

Surfing the Internet — especially social networking sites such as FaceBook, playing games and watching videos on YouTube and other sites — has also increased the time kids spend on media by almost an hour a day, the researchers added.

About 74 percent of teens now have a social-networking page on Face Book or similar site, they noted.

Except for going to the movies or reading, all other daily media use has gone up during the last five years, the report found. Listening to music has increased 47 minutes daily, watching TV has gone up by 38 minutes, computer time has increased 27 minutes and time spent playing video games had gone up 24 minutes a day.

Children spend about four and one-half hours daily in front of the TV, about two and one-half hours listening to music, an hour and a half on the computer, about an hour and a quarter playing video games, and just 38 minutes reading.

Youngsters aren’t just doing one of these activities one at a time, either — they’re multitasking, which also adds to daily media consumption. Among adolescents, 43 percent said they typically use one other medium while listening to music, 40 percent while on the computer and 39 percent while watching TV, according to the report.

Other findings in the report include:

  • Fewer children are reading magazines and newspapers, but reading this type of media online has increased.
  • Almost 50 percent use media while doing homework.
  • Girls spend more time on social networking sites, listening to music and reading than boys.
  • Boys spend more time than girls playing video games, computer games or visiting YouTube or other video sites.
  • Media use goes up dramatically when kids hit 11.
  • Teens spend about an hour and a half texting each day.

Rideout noted that problems with media include obesity from inactivity, and potential harm for viewing sexual or violent content. There are also issues regarding multitasking, she said. “We don’t know if that is something that’s a good thing or a bad thing for young people.”

There may also be impacts from media use on sleep, attention and school performance, she said.

Douglas A. Gentile, director of the Media Research Lab at Iowa State University, agreed there are many potential dangers from this much media involvement.

One problem is not what the children are doing with all this time, but what they are not doing, Gentile said. “The more time we spend not being active, just being passive, we are losing skills that need practice, whether that’s reading or math or social skills,” he said.

Using media to connect with others — rather than in the “real world” — may also be affecting the kind of social interaction children learn, he said. “It’s not the same type of social interaction they have when they are face-to-face with someone,” he said. “It may not be isolating so much, as socially distorting.”

Media multitasking may also be harmful, Gentile said. “The research is getting clearer that multitasking really damages productivity. It damages the quality of work and it damages how much you can get done.”

But parents can change things. “Parents are in a really powerful position. They do not have to give up the fight,” Gentile said. “When they do put limits on how much time and what types of content kids can watch, that’s a powerful protective factor for kids. Those kids get better grades, those kids get in fewer physical fights.”

“We are raising a generation of kids who may have a problem maintaining sustained and focused attention, because they are so used to being distracted,” Gentile said.

Another expert agreed that parents need to set rules about media use.

Jennifer Manganello, an assistant professor in the department of health policy, management, behavior in the School of Public Health at the State University of New York at Albany, said “this latest report provides important, new information regarding media use by youth in the United States.”

“The fact that many of the youth who participated in the study say they have no rules regarding media use suggests we can do more to get information to parents about recommended practices to help decrease time spent with media, such as removing a TV from the bedroom,” she said.

More information

For more information on children and the media, visit the American Psychological Association.

SOURCES: Vicky Rideout, vice president and director, Program for the Study of Media and Health, Kaiser Family Foundation; Douglas A. Gentile, Ph.D., assistant professor, psychology, and director, Media Research Lab, Iowa State University, Ames; Jennifer Manganello, Ph.D., M.P.H., assistant professor, department of health policy, management, behavior, School of Public Health, State University of New York at Albany, Rensselaer, N.Y.; Jan. 20, 2010, Generation M2: Media in the Lives of 8- to 18-Year-Olds

Copyright © 2010 ScoutNews, LLC. All rights reserved.

Lego Is for Girls

Walk into one of Lego’s 74 red-and-yellow retail stores around the world, or even down the toy aisles of your local Target (TGT), and two things are immediately clear: Lego, the Danish maker of plastic toy bricks, is everywhere, and it’s not for everybody. Rows of classic building kits for police helicopters, rockets, and trains soon give way to contemporary releases such as Lego Alien Conquest, a daffy War of the Worlds scenario with spaceships and laser cannons, and Lego Ninjago, a “spinjitzu” warrior-themed product line heavy on martial arts and supernatural powers. Humbled before the Lego Star Wars sets there’s invariably a baffled parent on a cell phone: Am I meant to get the one with clone troopers or the Mandalorians? Is it General Grievous who has the double light-saber?

Linger for a few more minutes and you’ll notice not just the staggering array of Lego offerings—545 in the last year—but an absence. “They might as well have a No Girls Allowed sign,” says Peggy Orenstein, author of Cinderella Ate My Daughter, a fierce, funny investigation of the toy industry’s multibillion-dollar exploitation of the “princess phase,” which consumes girls at age 3 or 4. Orenstein is right. After overreaching and cratering in the early Aughts, the Lego Group deliberately focused on boys, and the short-term effectiveness of this strategy is undeniable. Revenue has increased 105 percent since 2006, according to the privately held company’s 2010 annual report, and Lego topped $1 billion in U.S. sales for the first time last year. It’s on track to do that again in 2011. “They’re killing it now,” says Gerrick Johnson, equities analyst at BMO Capital Markets, who has followed the company’s impact on listed toymakers such as Mattel (MAT) and Hasbro (HAS) for a decade. Lego, he says, “is the hottest toy company in the boy segment, and maybe the hottest in toys overall.”

There’s now arguably a “Lego phase” for school-age boys that’s as consuming as the princess phase. But unlike tiaras and pink chiffon, Lego play develops spatial, mathematical, and fine motor skills, and lets kids build almost anything they can imagine, often leading to hours of quiet, independent play. Which is why Lego’s focus on boys has left many parents—especially moms like Orenstein—frustrated that their daughters are missing out. “The last time I was in a Lego store, there was this little pink ghetto over in one corner,” Orenstein says. “And I thought, really? This is the best you can do?”

Over the years, Lego has had five strategic initiatives aimed at girls. Some failed because they misapprehended gender differences in how kids play. Others, while modestly profitable, didn’t integrate properly with Lego’s core products. Now, after four years of research, design, and exhaustive testing, Lego believes it has a breakthrough. On Dec. 26 in the U.K. and Jan. 1 in the U.S., Lego will roll out Lego Friends, aimed at girls 5 and up. (French Lego retailers are going rogue and plan to bring out Lego Friends on Dec. 15.) In Lego’s larger markets, like the U.S., Lego determined it was better to introduce the new line after the holidays, when Wal-Mart Stores (WMT), for example, would give the line dedicated shelf space it wouldn’t during the holiday sales rush. The company’s confidence is evident in the launch—a full line of 23 different products backed by a $40 million global marketing push. “This is the most significant strategic launch we’ve done in a decade,” says Lego Group Chief Executive Officer Jørgen Vig Knudstorp. “We want to reach the other 50 percent of the world’s children.”

 
Legos come from a small town called Billund, the closest thing Denmark has to the middle of nowhere. It’s a pleasant enough destination (albeit one abashed Danes hasten to point out isn’t master-planned, as most of their towns are). If not for Lego, it would be just a couple of intersections, or rather rotaries, without stoplights. Because of Lego, Billund boasts the country’s second-busiest airport, a well-appointed bakery, and a few boutiques. The population roughly doubles to about 6,500 each day during Lego business hours.

In Billund’s center, the 1924 home of Lego founder Ole Kirk Christiansen has been renovated into a museum. The Idea House, as it’s known, highlights Lego’s quaint beginnings (wooden yo-yos and a pull-string wooden duck were among its first toys in the 1930s), as well as its values. Christiansen’s motto—det bedste er ikke for godt, “only the best is good enough”—is why Lego still uses more expensive plastic than rivals such as Montreal-based Mega Bloks, which sells bricks, on average, at 40 percent of the price. It also explains why, according to a 2010 survey by the Reputation Institute, Lego is the No. 1 admired brand in Europe, No. 2 in the U.S. and Canada, and No. 5 globally.

The Idea House nods to Lego’s success in video games (Lego Star Wars), programmable robots (Mindstorms), board games (Creationary), iPhone apps (Lego Photo, which renders snapshots in Lego), and even board games that work with an iPhone app (the Life of George, which is shaping up as a hot holiday gift). Yet Lego’s core technology hasn’t changed since 1958: snug stud-and-tube bricks that snap together and hold fast—and somehow come apart easily. Lego’s competitive edge is precision; the tolerance, in engineering terms, of its Lego-branded studs is 1/50th of a millimeter, 10 times finer than a hair. Lego has its own term for its click-fit: clutch power. How clutch power is achieved is as closely guarded as the Coke (KO) recipe.

Among the “10 characteristics for Lego” set forth in 1963 by the founder’s son, Godtfred, is: “For girls and for boys.” Today, girls and boys play equally with Duplo, Lego’s bigger bricks for toddlers. But starting at the princess phase, Lego’s smaller, more intricate kits skew “boy.”

To develop Lego Friends, Knudstorp relaunched the same extensive field research—more cultural anthropology than focus groups—that the company conducted in 2005 and 2006 to restore its brand. It recruited top product designers and sales strategists from within the company, had them join forces with outside consultants, and dispatched them in small teams to shadow girls and interview their families over a period of months in Germany, Korea, the U.K., and the U.S.

The research techniques and findings have been controversial at Lego from the moment it became clear that if the company were serious about appealing to girls, it would have to do something about its boxy minifigure, its 4-centimeter plastic man with swiveling legs, a yellow jug-head, and a painted-on face. “Let’s be honest: Girls hate him,” says Mads Nipper, the executive vice-president for products and markets, Lego’s equivalent of a chief marketing officer. In terms of Lego iconography, the minifigure is second only to the original studded brick. It’s as hallowed as a 1 5/8th-inch piece of plastic can ever be.

 
The ultimate decision about how much tweaking might be done to the beloved minifigure rested with Knudstorp. Just 36 when he was promoted in 2004, Knudstorp is only the fourth CEO of Lego Group, and the first from outside the founding family. Six-foot-three but not imposing, Knudstorp wears small circular specs and blue Lego cuff links, and has rushes of enthusiasm more typical of an American than a Danish executive. His passion for Lego Friends comes partly, he says, “from casual observation: I have two wonderful daughters next to my two sons, and they are in a very narrow age range, 4 to 10, so I have a little home study. They all love to build, but certainly they play in very different ways.”

Knudstorp completed two master’s degrees (in economics and business administration, with coursework at MIT’s Sloan School of Management and Harvard) and a doctorate (economics) back in Copenhagen before going to work for McKinsey, the global consulting firm. At 30 he was one of the oldest associates at McKinsey’s Paris office; three years later he ran its recruiting for all of Europe. Three years after that, following a six-month stint as interim chief financial officer, he took charge of a Lego Group in crisis; according to its own financial records the company was losing nearly $1 million per day. During his first months in charge, Knudstorp says, “Hundreds of consumers were writing to us saying, ‘please don’t die.’ ”

To get Lego back on track, he outsourced the Legoland theme parks, selling the resorts, with Blackstone Group (BX), a Lego partner, to Merlin Entertainments Group for $800 million in 2005. That same year, Knudstorp supervised the restructuring of the company’s financial governance so it would be less vulnerable to credit crunches. The Lego Group has a corporate parent, Kirkbi, an investment firm that owns 75 percent of the company (and 28 percent of Merlin); the other 25 percent is held by the Lego Foundation, administered by the Christiansen family. And Knudstorp reduced the number of elements Lego designers could draw upon to create new kits from 12,900 to 7,000. Each new element introduced requires new, expensive molds, plus changes in the global supply chain. He pushed Lego designers to be more creative with the existing parts.

Arguably nothing he’s done has meant more to Lego than sponsoring the research teams that embedded with families to understand how Lego kids live and play. “If I’m honest, I didn’t know what the strategy was,” Knudstorp confesses of his first couple years as CEO. “Lego had done what so many companies had done, which is to stretch the brand, and I wasn’t sure if [the crisis] was because Lego had stretched too far, or if it was just a very hard strategy to execute. At first I actually said, let’s not talk about strategy, let’s talk about an action plan, to address the debt, to get the cash flow. But after that we did spend a lot of time on strategy, finding out what is Lego’s true identity. Things like, why do you exist? What makes you unique?”

During ’05 and ’06, the Lego “anthros,” as the research teams have been called, discovered some underappreciated cultural gaps. The idea of creative play as conducive to learning, or even formal education, is an article of faith at Lego that goes back to its founder, who defended his decision to become a toymaker during the Great Depression by pointing out that all animals use play to develop their brains. In Japan, however, Lego found that study and play were more clearly delineated. Few Japanese parents bought Lego, as they do in Germany or the U.S., because they were “toys with vitamins in them,” as Lego senior director Søren Holm only half-jokingly puts it.

American boys, meanwhile, turned out to be the least free of any group Lego tracked. British and German boys are far more likely to play unsupervised in yards and wooded areas and even have greater latitude in decorating their bedroom walls. Among slightly older American boys, 9 to 12, building with Lego represented a rare chance to be left alone. (On one subject, boys of all ages and nationalities agreed: A castle without a dragon is worse than no castle at all.)

Lego won’t say how much it spent on its anthropology, but research went on for months and shattered many of the assumptions that had led the company astray. You could say a worn-out sneaker saved Lego. “We asked an 11-year-old German boy, ‘what is your favorite possession?’ And he pointed to his shoes. But it wasn’t the brand of shoe that made them special,” says Holm, who heads up the Lego Concept Lab, its internal skunkworks. “When we asked him why these were so important to him, he showed us how they were worn on the side and bottom, and explained that his friends could tell from how they were worn down that he had mastered a certain style of riding, even a specific trick.”

The skate maneuvers had taken hours and hours to perfect, defying the consensus that modern kids don’t have the attention span to stick with painstaking challenges, especially during playtime. To compete with the plug-and-play quality of computer games, Lego had been dumbing down its building sets, aiming for faster “builds” and instant gratification. From the German skateboarder onward, Lego saw it had drawn the wrong lessons from computer games. Instead of focusing on their immediacy, the company now noticed how kids responded to the scoring, ranking, and levels of play—opportunities to demonstrate mastery. So while it didn’t take a genius or months of research to realize it might be a good idea to bring back the police station or fire engine that are at the heart of Lego’s most popular product line (Lego City), the “anthros” informed how the hook-and-ladder or motorcycle cop should be designed, packaged, and rolled out.

Encouraged by what it had learned about boys, Lego sent its team back out to scrutinize girls, starting in 2007. The company was surprised to learn that in their eyes, Lego suffered from an aesthetic deficit. “The greatest concern for girls really was beauty,” says Hanne Groth, Lego’s market research manager. Beauty, on the face of it, is an unsurprising virtue for a girl-friendly toy, but based on the ways girls played, Groth says, it came, as “mastery” had for boys, to stand for fairly specific needs: harmony (a pleasing, everything-in-its-right-place sense of order); friendlier colors; and a high level of detail.

“It was an education,” recalls Fenella Blaize Holden, an under-30 British designer, on the process of getting Lego Friends made. “No one could understand, why do we need more than one handbag? So I’d have to say, well, is one sword enough for the knights, or is it better to have a dagger, too? And then they’d come around.”

Lego confirmed that girls favor role-play, but they also love to build—just not the same way as boys. Whereas boys tend to be “linear”—building rapidly, even against the clock, to finish a kit so it looks just like what’s on the box—girls prefer “stops along the way,” and to begin storytelling and rearranging. Lego has bagged the pieces in Lego Friends boxes so that girls can begin playing various scenarios without finishing the whole model. Lego Friends also introduces six new Lego colors—including Easter-egg-like shades of azure and lavender. (Bright pink was already in the Lego palette.)

Then there are the lady figures. Twenty-nine mini-doll figures will be introduced in 2012, all 5 millimeters taller and curvier than the standard dwarf minifig. There are five main characters. Like American Girl Dolls, which are sold with their own book-length biographies, these five come with names and backstories. Their adventures have a backdrop: Heartlake City, which has a salon, a horse academy, a veterinary clinic, and a café. “We had nine nationalities on the team to make certain the underlying experience would work in many cultures,” says Nanna Ulrich Gudum, senior creative director.

The key difference between girls and the ladyfig and boys and the minifig was that many more girls projected themselves onto the ladyfig—she became an avatar. Boys tend to play with minifigs in the third person. “The girls needed a figure they could identify with, that looks like them,” says Rosario Costa, a Lego design director. The Lego team knew they were on to something when girls told them, “I want to shrink down and be there.”

The Lego Friends team is aware of the paradox at the heart of its work: To break down old stereotypes about how girls play, it risks reinforcing others. “If it takes color-coding or ponies and hairdressers to get girls playing with Lego, I’ll put up with it, at least for now, because it’s just so good for little girls’ brains,” says Lise Eliot. A neuroscientist at the Rosalind Franklin University of Medicine and Science in Chicago, Eliot is the author of Pink Brain Blue Brain, a 2009 survey of hundreds of scientific papers on gender differences in children. “Especially on television, the advertising explicitly shows who should be playing with a toy, and kids pick up on those cues,” Eliot says. “There is no reason to think Lego is more intrinsically appealing to boys.”

Maybe not, but even Knudstorp acknowledges that Lego’s girl problem will be hard to conquer. Lego sponsors a series of clubs called First Lego League to get kids interested in science. Recently, Knudstorp attended a Lego robotics contest and spoke to a Berkeley (Calif.) professor whose daughter excelled. “We’re seeing lots of girls perform extremely well, but her mother said to me, she won’t say that she’s a ‘Lego kid’ because that’s a boy thing,” Knudstorp says. “I don’t have any illusions that the girls business will be bigger than the boys business, but at least for those who are looking for it, we have something to offer.”

In the U.S., Wal-Mart, Toys “R” Us, and Target all plan to carry Lego Friends. Target’s Stephanie Lucy, vice-president and merchandise manager for toys and sports goods, says the Minneapolis-based department store will introduce Lego Friends on an end-cap (at the end of an aisle), then shelve it with other girl-oriented toys, not with the rest of the Lego—all currently in the boy section. As long as girls find it, Lucy says, “I believe it will do very well.”

Grown-up Lego hobbyists, who gather frequently for weekend conferences, have their own acronym, AFOL, for Adult Fans of Lego. AFOLs will also factor in Lego Friends’ performance. “Oh, we’re going to buy Lego Friends,” says Joe Meno, “but we’re going to buy it for all the wrong reasons.” Meno is co-author of the new book The Cult of Lego and editor of the BrickJournal, a glossy fanzine. “We want the sets for the new colors. One of the colors is ideal for a Perry the Platypus I want to build.” The lady minifig, he predicts, “I’ll probably toss aside.” Stupid boys.