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Quest Means Business
Oil Prices Prompts Airlines Profit Warning; Saudi Oil Action; US Lifts Sanction Threat; Fuel for Thought; US Markets Down; More Than Half Greek Bailout Goes to ECB; Italian Labor Reform; UK Inflation Rate Eases; European Markets Down; Irish Prime Minister Says Ireland Will Make Economic Comeback; Dollar Enjoys Run; The Millennials; Manning Signs With Denver
Aired March 20, 2012 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST: Reassurance from Riyadh, ill feeling from IATA.
(BEGIN VIDEO CLIP)
TONY TYLER, DIRECTOR GENERAL AND CEO, IATA: There is very little room for error, there. A small shock will send the industry into losses across the globe.
(END VIDEO CLIP)
QUEST: Oil prices are sparking worldwide concerns.
Tonight, also, "John Carter" a non-starter. Disney's expensive box office flop.
And half a million dollars. And all to find Amelia Earhart. The US State Department reopens an old mystery.
I'm Richard Quest, we have an hour together and, yes, I mean business.
Good evening. Tonight, from Riyadh to Washington to the corridors of the world's airlines, it is the price of oil that's prompting dramatic action and dire warnings.
On our program, we'll be looking at the process of oil as eleven crude-laden Saudi super tankers head to the United States. And their mission is to calm the markets. And tonight on this program, the head of IATA says one more shock could be one too many.
It is an industry hanging on by its fingernails. IATA's warning rising oil prices could tip airlines over the edge.
(RINGS BELL)
QUEST: The International Air Transport Association has cut its outlook for the industry. It now says that airlines worldwide will make half a billion dollars less than expected in profits. And the main culprit is oil.
(RINGS BELL)
QUEST: Brent is now $125 a barrel, more than $20 up from where airlines were planning for this year. If fuel prices don't come down, then bills will amount to more than a third of airline costs. IATA says it won't take much --
(RINGS BELL)
QUEST: -- to push the industry into the red and to have serious, heavy losses.
Two airlines have already made that clear: Lufthansa and Cathay Pacific both said that high fuel costs were a burden on the end of year's results. It took a toll.
Tony Tyler of IATA joined me earlier and said that airlines are barely hanging onto their profits. I asked him to explain the risks at these high levels.
(BEGIN VIDEOTAPE)
TYLER: Of course, if airlines make less money, that's a problem, but the other thing is, if fuel prices go up and stay up, what we will see is a double hit.
One is to the revenue line because economies will slow down if fuel prices are higher. And the other one, obviously, on the cost side. Airlines will have to pay more to the fuel companies to fill their planes.
QUEST: The $500 million reduction, and now you're talking about $2.5 billion for airline profits, as a margin, it is of a return on capital, and then on revenues, it is peanuts. Once again, airlines are in the position of almost you're better off putting the money in a mattress under the bed.
TYLER: Well, the problem with the industry is that it is very thin margins. Actually, we're forecasting a $3 billion profit for the industry for this year, and that's on revenues of $633 billion.
So, it's a 0.5 percent margin, and there is very little room for error there. A small shock will send the industry into -- into losses across the globe. And yes, it's a very difficult industry.
QUEST: So, we have rising oil prices, but you have better growth in the US, Europe is back from the brink. If you pull those strands together, what is the health of the industry?
TYLER: It's weak, but it's still -- at least it's still profitable. And as you rightly say, we're seeing better performance than expected from the US largely because of capacity discipline.
We're seeing Europe, as you say, back from the brink. At least for the moment, the fears of a complete meltdown because of the sovereign debt crisis have gone away.
We're seeing -- we hope we're seeing the signs of the bottoming out of air cargo, at least -- or rather, at a weak level, but nevertheless a bottoming out.
We're seeing purchasing managers' confidence slightly higher, and that's usually the forerunner to an improvement in the cargo business. So, we're hanging on by our fingernails, but it won't take -- it doesn't take much to put the industry back into losses.
QUEST: Are you now seriously worried of a trade war, a trade skirmish, whatever you want to call it, over the European ETS system, the Emissions Trading System? The other countries are determined, they're not going to put up with it.
TYLER: Well, that's right. The last thing we want, of course, is a trade war, but unfortunately, the unilateral approach of Europe to something that we all agree needs to be solved, but we need a global approach, does seem to have sparked off some very strong reactions from some pretty significant players in the aviation game: China, India, Russia, not to mention, of course, the United States and about 20 other countries that have all got together to resist this.
We just have to hope the measures they take don't affect the airlines. We need pressure put on at a national level, but we don't want airlines to become the pawns in a trade war, here.
(END VIDEOTAPE)
QUEST: Tony Tyler, the head of IATA, on ETS and oil. Saudi Arabia is promising to help keep a lid on prices by sending more tankers to the United States. The Oil Minister says production can be upped by up to 25 percent, if necessary, and that Iran is unlikely to close off the Strait of Hormuz, which is used by oil exporters.
According to Bloomberg, he told -- this is a quote and a half -- "If you believe that Hormuz will be closed, I will sell you the Empire State Building or the Egyptian Pyramids." The Saudi pledge has sent oil prices down. Brent is under $125, West Texas down $2 a barrel.
The US says Japan and ten other countries won't be subject to new sanctions after they cut the amount of oil they're buying from Iran. The Treasury Secretary, Tim Geithner, said despite the help offered by Saudi, oil is still a volatile issue.
(BEGIN VIDEO CLIP)
TIMOTHY GEITHNER, US TREASURY SECRETARY: We still face a challenging and very uncertain global economic environment with Europe still facing a long and very difficult crisis and the risks surrounding Iran, which are adding to upward pressure on oil prices.
In that context, the context of oil markets, I just want to welcome very much the statements made by the Saudi authorities over the last couple of days, that they will take further action to increase the supply of oil to global markets, a very constructive signal.
(END VIDEO CLIP)
QUEST: The Chinese government is raising fuel prices at the pump. John Netto is the president of M3 Capital Markets, joins me from New York. John, which is the most important factor in today's oil market, the Chinese government raising fuel prices, Tim Geithner's comments, or if you believe Hormuz will be closed, they'll sell you the Empire State and Egyptian Pyramids from the Saudi Oil Minister?
JOHN NETTO, PRESIDENT, M3 CAPITAL PARTNERS: I think the latter of the three is something that the market is addressing. If you look at Saudi capacity, the market, I believe, is quite incredulous to what the Saudis can do.
If we just go back merely 12 months ago, and we all recall the situation with Libya, it's generally said that the Saudis produce between 10 and 12 million barrels of oil per day. When Libya went offline, we were looking at between 1 and 1.5 million barrels per day. So, it took the Saudis close to four months to come online and able to replace that.
So, the Saudis have a vested interest in talking down the prices of oil. For one, showing that they do have that supply and keeping oil prices calm prevents the need for a drive towards our alternative energies.
In going back to 06, 07, and 08, it was this drive towards alternatives that could potentially keep the Saudis out of that market.
QUEST: Right.
NETTO: So, I think the latter is most important.
QUEST: So, where do you see oil prices heading? And what for you will be the principle catalyst for those movements?
NETTO: For me, I think oil's going to be largely determined by two factors. One, the geopolitical risk that exists in the Middle East -- issues like the Straits of Hormuz. And number two, what happens with the US dollar and the influence of the US dollar being on interest rates?
We saw a sell down today in the S&P, we saw a sell down in silver and in gold. And what's interesting, Richard, is that the rally in short-term rates in terms of 2015, with the euro dollars out there, the market is actually pricing in a rise in short-term interest rates.
QUEST: Right, but hang on. When you start -- just to take viewers with us in this discussion -- when you talk about the dollar and interest rates and how that -- that is because oil is priced in dollars and, therefore, there is an effect on that. But that has nothing to do, does it, with fundamental supply and demand?
NETTO: Well, there is a perception that the lower interest rates are, the most -- the more accommodative that that environment is to global growth. And there's a perception from the market right now that if interest rates increase too fast, that with growth being a major concern in China, the European, as Tony just talked about in a previous hit, that's a big issue there.
QUEST: OK. So, let's just -- let's just look at the numbers where you would expect to see oil. Do you have any forecast that you want to share with us of where you see oil, say, three months down the road, six months down the road?
NETTO: Sure. I think if we -- we want to look at oil in two perspectives. One, where the price of WTI will be, which is currently at about $106 a barrel. I think that the September or October contract can pull back to $98 to $100 a barrel.
And then, also what happens with the spread between Brent, which is, as you mention, at about $123 a barrel. There's about a $17 or $18 difference right there. I think that spread comes in, it compresses in Brent and crude -- in Brent and WTI both head down.
QUEST: All right, good. We'll talk to you more about that. Many thanks, John Netto joining me from New York. If you want to see just what's been happening with the markets --
(RINGS BELL)
QUEST: -- look at that. Down 49 points. It shows the fragility of what is happening. The news from China rattled investors in the United States. We're now down just 50 points. It's not a big loss, but it does show a minor consolidation underwrite.
As we continue, Greece's bailout money slips through its fingers. Quite literally, it comes in one door from the Europeans and goes out the other door to the Europeans. I'll explain in a moment. QUEST MEANS BUSINESS, good evening.
(COMMERCIAL BREAK)
QUEST: Europe's debt crisis is making another revolution. It is a carousal that goes round and round, and the money somewhat in an "Alice in Wonderland" fashion, just goes from one European institution to another. See what I mean.
Greece has now received nearly $10 billion of bailout money from the IMF and the EU. So, the money came into Greece, and then immediately sent more than half of it straight back to the European Central Bank, one of the official lenders which wasn't bound, of course, by the debt restructuring.
As the $19 billion issue matures, the ECB and the national central banks, as this -- the maturity of the bonds take place, the ECB and the national central banks get $6 billion. So, the money from the IMF and EU came in, and then it went straight out again to the ECB. Those private creditors got absolutely nothing. Wind "Alice in Wonderland."
The -- if you go Italy, now, the Italian prime minister has been meeting the unions' labor law and reviewing a key ECB mandate. Mario Monti has been meeting with the unions trying to push reforms, although he says he will continue and will push them through regardless if a deal is not reached.
The UK inflation rate CPI, that's consumer, has fallen to 3.4 percent. Inflation now, of course, at that level gives a slight boost ahead of the budget. It is down on January. It is still above the Bank of England's 2 percent rate that they look for, so letters will probably have to be written eventually to the chancellor. But at least it is moving in the right direction.
The markets moving on down. Down in London, down in Paris, down in Frankfurt, and a lesser loss in Zurich, the SMI.
Ireland's prime minister says his country's recovery is back on track. He's on an extended St. Patrick's Day visit to Washington. Enda Kenny, the Taoiseach, assured President Obama that Ireland will make an economic comeback.
Brianna Keilar is now with us from the White House. Why -- Brianna, why would -- I mean, shamrocks aside, and it's an annual visit, but why would the president really be that concerned about the economic fortunes of Ireland?
BRIANNA KEILAR, CNN WHITE HOUSE CORRESPONDENT: Well, certainly it all comes down to the European debt crisis. This is seen right now, Richard, as a huge issue for the US.
And when you talk, maybe, with average Americans, they don't necessarily realize how big of a deal this is, but I can tell you that the Obama administration looks at this as one of the major sort of unknowns, something that's out of its control that could really affect the economic recovery here in the US that is starting to show positive -- or that has been showing consistently though modest positive signs.
So, certainly, President Obama was very interested in talking with Enda Kelly (sic) about the economy. They're in Ireland, and in the eurozone in general, Richard.
QUEST: And when they made their statements and the Taoiseach did have to talk about the referendum, this referendum that, of course, they're the only ones having a referendum so far on the fiscal compact. Again, the president obviously concerned to know that Ireland isn't about to throw the baby out with the bath water.
KEILAR: No, certainly. And President Obama made himself very clear that he was sort of urging the -- some leadership on this and for the Irish people to approve this referendum that has been seen as really, by many people, as a proxy for Ireland's commitment to the euro. Here's what they said in the Oval Office today.
(BEGIN VIDEO CLIP)
ENDA KENNY, PRIME MINISTER OF IRELAND: The conversation around the table of Europe in the last ten months has shifted from one of being just austerity to being one of good budgetary discipline, but also will clearly the agenda for growth and jobs will now be central to every European Council meeting.
I gave the president an outline of my views in respect of the fiscal compact treaty and how I would expect the Irish people in their pragmatism and understanding of what the future holds to vote strongly in favor of the treaty.
(END VIDEO CLIP)
KEILAR: So, Kenny, there, reassuring President Obama that he expects the Irish people to vote yes on this referendum.
And as I said, Richard, this is of huge concern, certainly at the top levels of government if it doesn't really resonate with American voters, especially in this very tough election year for President Obama as he looks towards Europe and also towards Iran as some of the big factors outside of his control that could really affect the economy here, and the economy is going to be the number one issue in his reelection.
QUEST: Brianna Keilar in gorgeous-looking Washington, a nice spring day, it looks as if spring has sprung where you are. We thank you for joining us.
KEILAR: It has.
QUEST: Excellent, excellent, excellent. Now, when we come back in just a moment, it's our Millennials, and their priorities are simple: they come first. At work, they are the ultimate multitaskers, adapting the environment to suit them.
And while we wait for the Millennials, a look at the foreign exchange markets. The dollar enjoys a nice little run on concerns over China's economy, up slightly against the euro. It's put on a bit of weight against sterling. The Australian dollar's taken a battering, and the US gained 1.25 percent against it.
(COMMERCIAL BREAK)
QUEST: The Millennials, the generation born in the 1980s, have been told since birth they are special, can achieve anything. As we follow Joe Braidwood to the Consumer Electronics Show, we're going to be focusing on whether he can promote himself above the pack.
And then, can Milli Bongela successfully redefine the traditional workday as she juggles her many roles in Capetown. They are The Millennials.
(BEGIN VIDEOTAPE)
UNIDENTIFIED CORRESPONDENT: They are young and confident, educated and ambitious. Born in the 1980s, they are the new generation entering the workforce, and their thirst for success knows no bounds. They're The Millennials.
Last week on the program, in London, 26-year-old Joe Braidwood reveals his work-work balance.
JOE BRAIDWOOD, CHIEF MARKETING OFFICER, SWIFTKEY: To me, there's no real distinction between when I'm not working and when I am working. It's wherever I am.
UNIDENTIFIED CORRESPONDENT: And in Johannesburg, Milli Bongela told us how she manages her ambitions.
MILISUTHANDO BONGELA, BLOGGER AND BOTIQUE OWNER: I don't have to have the biggest house or the biggest car. I don't have to have a lot. I don't want it all. I just want enough. That's all.
UNIDENTIFIED CORRESPONDENT: Milli's Millennial philosophy on life means she always has a spring in her step. Today, she's in colorful Cape Town, meeting with her business partner, Doreen.
BONGELA: Are they selling?
DOREEN SOUTHWOOD, BUSINESS PARTNER: Yes.
BONGELA: Good.
UNIDENTIFIED CORRESPONDENT: But this isn't a shopping spree. Milli is here to look at a new studio space for their store, MeMeMe, a space where their creations can come to life.
BONGELA: I love the lights. I love the lights.
The Jo Bookshop is going to collaborate with the Cape Town shop in maintaining it, because they're going to make the range, the MeMeMe range from here as well, as well, as well as the Doreen Southwood range.
Milli and Doreen first opened their boutique in Johannesburg two years ago. Before that, Milli sold the clothes in her apartment, a sort of pop- up market which she called Pulchritude.
BONGELA: Once a month on a Thursday, I'd serve champagne and women -- a group -- a room full of about 15 women going crazy over clothes.
And one of them, after a couple of months of coming to Pulchritude and buying every single month, came to me and said, "Milli, if you ever want to open a proper store one day, let me know."
UNIDENTIFIED CORRESPONDENT: A few weeks later, Milli had signed on the dotted line. Today, her talent goes beyond her store responsibilities. She's fully involved in new designs, materials, and photography.
BONGELA: You have such a good eye for the model. Such a great eye for models, fantastic. Now I wonder if the ones you choose -- (inaudible).
UNIDENTIFIED CORRESPONDENT: Despite the million things she takes on, Milli is modest about her workload.
BONGELA: I think we work differently. I don't think we necessarily work harder. I mean, in terms of physical toil, I definitely don't toil physically as much as my mother and my father had to.
UNIDENTIFIED CORRESPONDENT: Now, she's living her life the Millennial way, redefining what it means to work and reaping the rewards
BONGELA: Most of my other friends are all slaving at work from 9:00 to 5:00, and I sometimes wake up really early, but sometimes I wake up at 12:00 in the day because of how I've structured my life. And it's only recently that I've got to understand that, actually, Milli, this is exactly what you work for.
UNIDENTIFIED CORRESPONDENT: Joe Braidwood is sitting comfortably at high altitude. He's taking his work with him and making his way to Las Vegas. From his window seat, Sin City makes its mark.
BRAIDWOOD: We just got to Las Vegas, and we're booked into a suite, which we haven't found yet, but it's quite exciting to be paying next to nothing for it. It apparently has a view over the lights of the Las Vegas Strip.
UNIDENTIFIED CORRESPONDENT: But it wasn't the view or the lights that brought him here. He's come for the world's largest consumer electronic show, where companies come to showcase their electronic wares.
BRAIDWOOD: It's the largest gathering of people in the world that work in consumer electronics, and we feel that it's a great way to meet people to keep up with our contacts, such as Google and Amazon, who we work with the app space.
So, this is the central hall at the Las Vegas Convention Center, the sort of nerve center to this year's CES.
UNIDENTIFIED CORRESPONDENT: For this Millennial, this loud and overcrowded exhibition will be a challenge. He knows that to be seen here, he needs to stand out and break through the noise. After all, this is his opportunity to stay ahead of the competition.
BRAIDWOOD: These are 55-inch Olens 3D TVs. They are dazzlingly bright.
It's not just about the act of being there in the flesh, but it's about trying to pursue leads and trying to really make sure that you have the right mixture of good timing and a great pitch, and ultimately, it's as important today.
UNIDENTIFIED CORRESPONDENT: A chance to introduce his product to big brand.
BRAIDWOOD: What I'm hoping to do now is go and check out Motorola, which is down here next to Microsoft, because they've got a tablet there that should have our app on it.
UNIDENTIFIED CORRESPONDENT: And more importantly, cement his own brand.
UNIDENTIFIED MALE: What are you looking for?
BRAIDWOOD: It's called SwiftKey Tablet X.
There's such fierce competition out there, and being able to actually get face-to-face with some of these people and talk to them about what you're doing is so much more powerful than an e-mail in a massive inbox full of e-mail or a phone call that might not get picked up.
Lots of people just sitting around and making important business phone calls, like that chap over there.
UNIDENTIFIED CORRESPONDENT: Throughout his time at the conference, Joe tweets and Facebooks on the go. Tonight, he may be selling his own digital communication, but this Millennial knows there's no substitute for the real thing.
BRAIDWOOD: We're in this digital-connected world. Cutting through that and actually getting face-to-face time with someone who's in a decision-making capacity and being able to really show your enthusiasm for the product face-to-face is invaluable.
UNIDENTIFIED CORRESPONDENT: That may be so. Still, Joe is living his life the Millennial way, working smart and playing hard.
Next week on The Millennials.
MICHAEL BURBACH AS DEMETRIUS, "A MIDSUMMER NIGHT'S DREAM": Relent, sweet Hermia: and Lysander, yield thy crazed title to my certain right.
UNIDENTIFIED CORRESPONDENT: In New York, Michael Burbach takes on Shakespeare and the working world.
And in Santiago, Chile, networking in a foreign language, David works the Salsa floor looking for business opportunities.
(END VIDEOTAPE)
QUEST: And you can join the conversation on Twitter or Facebook on our Millennials. Let us know what you think. It's hash tag #cnnmills or facebook.com/cnnquest. And if you would like to be considered to be one of our Millennials, then just send me a tweet or a Twitter. It's at the @RichardQuest or cnn.com/quest.
(RINGS BELL)
QUEST: News to CNN, news just in. Peyton Manning, the legendary NFL quarterback, has announced a deal with the Denver Broncos. Manning was a free agent after leaving the Indianapolis Colts a few weeks ago.
His signing raises questions about the future of Denver's current starting quarterback, Tim Tebow, who you remember became something -- Tebow, I beg your pardon -- who became something of a sensation for a brief period at the end of last season. And these are live pictures coming to you. We'll bring you the story and the details when we have heard more to be said.
When we come back in a moment, I'll update you on the 7.6 magnitude earthquake that struck in Mexico. We're closely monitoring the situation, in a moment.
(COMMERCIAL BREAK)
QUEST: Hello. I'm Richard Quest. More QUEST MEANS BUSINESS in just a moment. This is CNN, and on this network it is the news that always comes first.
And an extremely strong earthquake has struck southern Mexico near Acapulco. No deaths or serious damage have been reported yet. Jenny Harrison is at the World Weather Center to update us.
Jenny, I was listening to you earlier talking about the area, if you like, of the shake, and how far that was felt. What do we know at the moment?
JENNY HARRISON, CNN WEATHER ANCHOR: Well, right now, Richard, we've had the latest actual update from the USGS. And, of course, this is the thing with these earthquakes, this is the third report we've had now regarding the initial 7.9 earthquake.
Since then it was downgraded to 7.6. And the latest information is coming from the USGS, has it now to 7.4 magnitude quake, and also a little bit deeper. They're now saying 20 kilometers down below the Earth's surface.
Right next to it you can see the red dot. That's telling us, of course, I did report this last hour that in actual fact there has been one aftershock reported. And so far, that is a 5.1 magnitude quake. But, again, we don't know the exact depth of that quake because that came in initially at 10 kilometers. That is just the parameters that are set on the instruments in the area.
You can see the shaking here right the way around the center. If we zoom a bit closer you'll see that that is where the really to potentially very strong shaking has been felt. Now this means that in this area as many as 278,000 people actually felt the shaking to be that strong.
When we zoom out again, you can see just how far the shaking was felt in total. This light blue area. And that's actually over 32 million people. The structures around the center of this actual earthquake, around the epicenter, are a mixture of vulnerable buildings and also some that are built to quake standards.
But when you zoom in and you see the tiny, tiny towns there, the nearest one is actually this one here. This is only about 25 kilometers to the west of the epicenter. And this is a population of around 55,000 people.
So we'll monitor this for more aftershocks in the hours to come. Already we've had one an hour later, and that a 5.1 -- Richard.
QUEST: Jenny, come back to us the moment there is more to report on this. And we will certainly see a full weather forecast before the top of the hour. Jenny Harrison at the World Weather Center.
(BEGIN VIDEO CLIP FROM "JOHN CARTER")
UNIDENTIFIED MALE: Let them be crushed.
(END VIDEO CLIP)
QUEST: In 2012, in 3D, get ready for one of the biggest flops in box office history. Never has so much money been spent for so little filmic effect.
Well, Disney, of course, that's not the trailer they would've wanted you to hear. But Disney's warning that "John Carter" will lose more than $200 million, a 3D film about a Civil War veteran transported to Mars, well, apparently it's not a winning formula for today's cinema connoisseurs.
And Disney's film division is now reporting a second-quarter operating loss, taken a charge against earnings of up to $120 million. Paul Dergarabedian is the president of the Hollywood.com's box office division. Paul, joins me now from Los Angeles.
Is this is a real loss? Or is this once again Hollywood funny financing where nobody really loses except maybe the shareholders?
PAUL DERGARABEDIAN, PRESIDENT, HOLLYWOOD.COM BOX OFFICE DIVISION: Well, that's a really good question. I think a lot of this is hype. I mean, surrounding this movie, before it opened, all anyone talked about was the $250 million budget. And that's not really what you want to focus on when a movie is about to open.
And the film only opened with $30.6 million in North America, and around $79 million worldwide when it opened. So it wasn't a big number for a film that cost this much. But Disney is a big enough company that they can absorb a loss like this.
But I think it just hurts the credibility of the financiers and people who put that kind of money into this big of a movie that wasn't even going to be released in the summer, which is the time when you would release a big budget blockbuster.
It just didn't work.
QUEST: OK. Now but to anybody else, I mean, from those times when I have looked at film financing stories, there are always some people that manage to make money out of the film. Those who take the money off the top, those who skim it in the middle. And it's usually the investor at the bottom who sort of loses out.
Disney is going to lose out heavily on this.
DERGARABEDIAN: Yes, it's -- you know, if you think about it, 250 million, that was just the production cost, Richard. That wasn't even including the marketing and advertising, which probably was another $100- 125 million.
So for a film like that, you really have to make a lot of money at the box office because, remember, half of that money goes to the theaters, and half goes back to Disney. That doesn't leave a lot on the table.
Now, of course, VOD and future broadcast rights and that kind of thing could bring in additional dollars. But a strong initial box office is needed to make those ancillary markets strong.
And this isn't a movie that's going to play that well in secondary markets.
QUEST: So, Paul, finally, what is the moral of the tale? I mean, we're going to show in a second or two other great movie flops that were very expensive. But what, for you, is the moral of this tale? Is it hubris?
DERGARABEDIAN: Well, a little bit of it is. I think the real moral of this story is, don't spend that kind of money on a movie unless you really believe you're going to make a billion dollars worldwide.
You don't want to spend $250 million on a film. And if you are, you had better split that risk with another company so you don't take such a big write-down when it doesn't work.
QUEST: Paul, thank you for putting that into perspective. You will most certainly.
DERGARABEDIAN: Thank you, Richard.
QUEST: . have seen some of these other flops, maybe not all of them, that we're now going to show. Because Disney's "John Carter" isn't alone in the Hollywood hall of shame. Here is a reminder of those films that investors have been trying to forget.
(BEGIN VIDEOTAPE)
DENNIS HOPPER, ACTOR: But it is our destiny!
QUEST (voice-over): It was nicknamed "Mad Max at Sea," and looked like one giant wardrobe malfunction. It was the epic price tag, not Kevin Costner, that was the real star of 1995's "Waterworld."
UNIDENTIFIED MALE: Pure dirt. So what's the word?
QUEST: Shooting the bulk of the movie at sea was ambitious. It sent the budget soaring to $175 million. Only eventually did the studio make the money back.
KEVIN COSTNER, ACTOR: Because I've sailed farther than most have dreamed, and I've never seen it.
QUEST: Star power wasn't enough to make "Hudson Hawk" a hit in '91, starring Bruce Willis, this was a movie that really did.
UNIDENTIFIED FEMALE: Are you going to die?
QUEST: . "die hard." It was almost universally panned, and lost TriStar Pictures $45 million.
FORREST WHITAKER, ACTOR: Our satellites recorded those images.
UNIDENTIFIED MALE: What is this species?
JOHN TRAVOLTA, ACTOR: Well, according to the (INAUDIBLE) historians, the species is called "dog."
QUEST: Shot in the year 2000, set in the year 3000, the sci-fi flick "Battlefield Earth" is already long forgotten. This turkey was based on a novel by the Scientology founder L. Ron Hubbard.
It cost $44 million to produce. It made back just half of that. Even the film's script-writer hated it. He said seeing it just once at the premiere was seeing it one time too many.
ELIZABETH TAYLOR, ACTOR: You come here then running over with wine and self-pity to conquer Caesar.
QUEST: Then finally, the ultimate Hollywood horror story, "Cleopatra." Still the most expensive film ever made, adjusted for inflation.
RICHARD BURTON, ACTOR: I want to be free of you, from wanting you, from being afraid.
QUEST: In 1963, it meant to cost $2 million. Delays set the budget soaring to $44 million. Today that's worth $327 million. Suddenly "John Carter" looks cheap.
(END VIDEOTAPE)
QUEST: So that puts it all into perspective.
Apple's iPad 3 is hot right, and I don't mean hot in the shops. It might be too physically hot. In a moment we speak to a U.S. consumer watchdog about reports the gadget is overheating.
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QUEST: Apple forums are filling up with complaints that the latest iPad is too hot. And we don't mean that in a good way. The U.S. watchdog Consumer Reports says its own tests show the new iPad reaches up to 116 degrees. Apple is denying there is a problem.
Apple says that the iPad operates well within its thermal specifications, and customers should contact their local store if they have problems. "Well within our thermal specifications," Paul Reynolds from Consumer Reports joins me now from New York.
"Well within thermal specifications," what does that mean to you, Paul?
PAUL REYNOLDS, CONSUMER REPORTS: Well, I'm not sure what it means. I can't speak for Apple. What I can say is what our tests showed, which is that the new iPad does run significantly warmer than the iPad 2, which is a lot of what the fuss on the forums and so on is about.
So we've set out to confirm whether or not that is the case. That is the case, what we can say is these temperatures, while they might make you a little bit uncomfortable, they're not cause for serious concern.
QUEST: So, if they're not cause for concern, and they're not dangerous, unless, of course, I suppose, you sort of lie on top of it and maybe -- but that's up to other people, and it's not for that, what do we take from these hot temperatures, do you think? What messages do we take?
REYNOLDS: I think what we take is, if you're a serious gamer, it's important to know how we tested these devices, we ran a pretty demanding game called "Infinity Blade II," which is pretty demanding on the processor and the battery of these devices. We ran that for 45 minutes.
And what it means is if you are using those games, you might want to adjust how you hold the device, or you might want to use it with the stand as we did so that there is plenty of air getting underneath the device, and it's not getting to hot. You may need to adjust your hands a little bit to avoid discomfort.
But it's not a serious problem for most people.
QUEST: Right. I remember years ago -- I'm old enough to remember years ago there was a warning, you might remember it yourself, laptops. Remember, we used to be warned, do not put laptops in your lap if you're a male because the heat from the process there in the battery could have fertility issues.
Do you remember those warnings?
REYNOLDS: Absolutely. And in fact, laptops is an interesting example here, because laptops ran very hot -- or some of them ran very hot for quite a while. We used to measure them. Now we don't do that anymore partly because they have addressed that through engineering.
And what we're seeing now with the new Apple iPad is a very powerful processor, a bigger battery, in a way it's not a huge surprise that that might raise the temperature of the device a little bit.
QUEST: Good to have you on the program talking sense about the Apple iPad when there is so much hype.
Never mind the hype, we've got the hot, Paul Reynolds joining us from Consumer Reports.
And incidentally, I've been tweeting on exactly that, this point, and I've put a copy of a tinyurl to -- don't ask me how I managed to do it with my technological skills, but I did. Anyway, @RichardQuest is where you can join and follow me. And it's also where you can read the report from Consumer Reports. And you might want to have your own views, @RichardQuest is my tweet address.
In a moment, one aviation's greatest mysteries, it's the case of the disappearance of Amelia Earhart. Now an interesting case that's not closed yet. And certainly not if Hillary Clinton has anything to say about it.
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QUEST: One of the great unsolved mysteries of our time, the fate of Amelia Earhart. Seventy-five years after she vanished over the Pacific, her story still captivates millions. And now that includes the person who can perhaps do something about it, U.S. Secretary of State Hillary Clinton. Lisa Sylvester is with us from Washington, joins us now.
So Mrs. Clinton has decided that the Earhart mystery deserves further investigation.
LISA SYLVESTER, CNN CORRESPONDENT: That is right, Richard. She is actually quite the fan of Amelia Earhart. You know, Amelia Earhart was trying to be the first person to go around the globe following the equator. That was back in 1937. And she was more than halfway through her trip when her plane went down.
Now over the years there have been lots and lots of theories. But a new one may be the best guess yet, that she and her navigator were able to land on the reef of an atoll in Kiribati, that's in the South Pacific.
The International Group for the Historic Aircraft Recovery have conducted excavations on this island and they have found very interesting clues. They have found empty bottles of ointment that is consistent with the timeframe, essentially a woman's compact.
And now there is a black and white photo, it was taken three months after she vanished by a British cadet. He was in the area. He took this picture. And what he was actually taking picture of was an old shipwreck that was also in the photo, back from 1929.
And if you look closely on the opposite side of the photo, there is something that is sticking out of the water, and that has given them new hope that perhaps, just perhaps that this might be something, that this might be a clue.
Now forensic imaging experts have taken a look at this. And the State Department actually provided those experts. They've looked at this picture and they agreed that it could be part of the plane's landing gear.
Now there's nothing conclusive at this point. But there is enough evidence there, enough to have, as you've mentioned, Secretary of State Hillary Clinton excited, and as I've said, she has been quite the fan since her mother first told her the aviator's story when she was a child.
QUEST: And word on why Mrs. Clinton? I mean, besides being another successful woman who has risen to the top of her profession and therefore may feel an affinity and it's a mystery, but any other reason why Mrs. Clinton might be willing to put money after this?
SYLVESTER: You know, this is actually going to be a privately-funded expedition. And in fact, this summer there will be a special high-tech search team, they're going to travel to that area and examine the water using a small robotic submarine.
But specifically to Mrs. Clinton, one of the things that she said which I thought was interesting is that when she was a child she actually wanted to be an astronaut. And so she wrote a letter to NASA and said, what do I need to do to become an astronaut? And they said, you know what, we don't have any women astronauts and we're not going to have any anytime soon.
And so what Mrs. Clinton said -- Secretary of State Clinton said, she really admired and respected Earhart for breaking all of these barriers back in her day, back in the 1930s. So she is lending her support.
I mean, at this point the State Department, their effort is basically lending support, for instance, those forensic imaging specialists -- Richard.
QUEST: Lisa, you need to come back to us the moment there is more to report on this story. Fascinating, we'll follow it closely on QUEST MEANS BUSINESS. Many thanks indeed.
Jenny Harrison now at the World Weather Center. Actually, not so much weather duty, Jenny, it's aftershocks and it's what's happening in Mexico. The core question we need to know, we don't have any idea, is damage and injuries. Do we have any information?
HARRISON: You know, the only information we really have from that, Richard, is that which comes back from the USGS. But let's just zoom in closely so we can see -- well, they can see, actually.
There's the main quote, which we now know is 7.4. Now because the number, the magnitude has been downgraded to 7.4, or downsized, I should say, really. The USGS have also downsized the number of people who felt the very strong shaking. Those now, 182,000 people.
But this whole, let's just put the (INAUDIBLE) then we can see -- thank you. And then you can see, this is the area we're talking about, that felt strong to very strong shaking. Now this particular area, the structures are, for the most part, really quite vulnerable: a lot of mud buildings, but also with the sort of concrete pillars or beams within them.
So very vulnerable for certainly an earthquake of this magnitude. And what they say on the USGS Web site is that the damage expected is moderate to heavy. So that is all that we know. If we zoom in a bit closer, we can actually see some of the towns.
And this is the one closest. This is 25 kilometers to the west of the main epicenter of the quake. And as I said, let's just pull out again (INAUDIBLE), sorry, but let's pull out again. We can see (INAUDIBLE) there have been two aftershocks: a 5.1 and a 5.3. So we're just going to keep you updated with more information that comes in.
If we just switch across to my weather computer, thank you, you can see the number of aftershocks they expect to feel with a quake of this magnitude. Now this, of course, (INAUDIBLE) at 7.6, it is now 7.4. The numbers won't be hugely different.
So already we've had two in that sort of 5 to 5.4 category. And in terms of how many quakes we feel each year, within the bracket of 7 to 7.9, actually as many as 15. So that may be surprising for many of you.
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QUEST: Jenny Harrison at the World Weather Center, who has duties ahead of us on the earthquake. Many thanks.
We'll have a "Profitable Moment" in a moment.
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QUEST: Tonight's "Profitable Moment," the world's airlines are rarely out of trouble. We talk about it on this program. If it's not terrorism or economic growth or labor unrest, it's the price of their lifeblood, which is the commodity oil.
And the 30 percent rise has eaten away at airline profitability. Globally the industry is running on the slimmest of margins, just half a percent of revenues, which, frankly, is pathetic by way of return.
And what is worse, if prices rise further, then according (INAUDIBLE) the industry already hanging on its fingernails won't take much to lose its grip and slide into losses.
There's not much that can be done. Planes need fuel to fly, the power over the price rests with others, which is why with so much that trigger a sharp shock in the most vital of commodities, none of us can afford to be complacent when it comes to the price of oil.
It hits you, it hits me, it hits us all eventually.
And that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest in London. Whatever you're up in the hours ahead, I do hope it's profitable. This is CNN, the news is next.
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