ENTERTAINMENT

YAHOO MUSIC PRICING SPARKS TUMBLE IN APPLE, NAPSTER

Yahoo, owner of the most-visited Internet site, introduced a cheaper music download service, sparking a plunge in the shares of competitors including Apple Computer, Napster, and RealNetworks.

Yahoo Music Unlimited began yesterday with an introductory price of $4.99 a month for an annual subscription or $6.99 on a month-by-month basis. That’s less than half what RealNetworks and Napster charge.

More than 1 million songs will initially be offered, Sunnyvale, Calif.-based Yahoo said late Tuesday. Investors are concerned Yahoo’s service threatens Napster and RealNetworks’ subscription music businesses. The two companies may have to cut prices to match Yahoo, which has a $49 billion market value compared with less than $1 billion for Napster and RealNetworks.

Apple, which offers songs at 99 cents each, may also lose sales to Yahoo’s 79-cents-a-song offer to subscribers. Yahoo charges 99 cents to non-subscribers. “It’s the same music for a significantly lower price,” said Steven Frankel, an Adams Harkness analyst in Boston. “This is intense price competition.” He rates RealNetworks “buy” and Napster “reduce.” RealNetworks shares fell $1.54, or 21%, to $5.76 at 4 p.m. New York time in Nasdaq Stock Market composite trading. Napster, operator of “Napster to Go” for portable music players, fell $1.70, or 27%, to $4.65. Apple fell 81 cents, or 2.2%, to $35.61 and Yahoo rose 82 cents to $34.88.

– Bloomberg News

DISNEY 2Q NET RISES 30% ON ‘INCREDIBLES’

Walt Disney Company said second-quarter profit rose 30%, boosted by home-video sales of “The Incredibles.”

Net income rose to $698 million, or 33 cents a share, compared with $537 million, or 26 cents, a year earlier, Burbank, Calif. based Disney said today in a statement. Revenue rose 8.9% to $7.83 billion in the quarter ended April 2.

Sales of “The Incredibles,” the best-selling DVD this year, helped boost profit 65% at Disney’s film division. The results, the first since the president, Robert Iger, 54, was named in March to replace Michael Eisner as chief executive officer, were helped by more visitors who paid higher prices at the Walt Disney World theme park in Florida.

“‘The Incredibles’ was what drove this quarter,” said Vijay Jayant, an analyst at Lehman Brothers in New York who rates the shares “equal weight/neutral” and doesn’t own them.

Excluding a 2 cent gain for restructuring Euro Disney SCA debt and a 1 cent cost for writing down an investment in its MovieBeam video on demand venture, profit was 32 cents a share. Analysts surveyed by Thomson Financial estimated profit of 32 cents a share. Analysts expected sales of $7.81 billion in the first earnings report since President Robert Iger, 54, was named in March to replace Michael Eisner as chief executive officer.

Disney released earnings ahead of schedule yesterday because an internal communication went out early, Disney spokeswoman Zenia Mucha said.

– Bloomberg News

REGULATORY

TYCO PROBING COMPLIANCE WITH FOREIGN CORRUPT PRACTICES ACT

Tyco International has hired outside counsel to perform a company-wide review of its compliance with the Foreign Corrupt Practices Act, a law meant to stop American companies from bribing foreign officials.

Tyco has its headquarters in Bermuda, but now operates out of West Windsor, N.J.

The industrial conglomerate said in its quarterly report filed with the Securities and Exchange Commission that it would make periodic progress reports to the Justice Department and the SEC and present its findings after the review is completed.

Tyco said in late March it reported to both agencies the investigative steps and remedial measures it has taken in response to a number of recent allegations of improper payments.

The company said it can’t currently determine the outcome of these matters or estimate the range of potential loss or extent of risk, if any, they pose.

In 2003, the company faced an allegation that a non-American unit made improper payments from 1999 through 2003. Tyco didn’t name the unit, but it said it had revenue totaling $40 million in 2004.

– Associated Press

SEC’S THOMSEN TO REPLACE CUTLER AS ENFORCEMENT HEAD, SOURCES SAY

Securities and Exchange Commission Chairman William Donaldson will promote Linda Thomsen, a former federal prosecutor, to lead the agency’s enforcement division, people familiar with his decision said.

Ms. Thomsen, 50, will replace Stephen Cutler, 43, who leaves the agency this week. She’ll be the first woman to oversee enforcement at the SEC, which she joined in 1995 as a trial attorney. The SEC may announce her appointment as soon as today, said the sources who asked not to be named.

“It’s a landmark appointment for the Bush administration, and she has experience in a broad range of cases, so she has the confidence of the commissioners,” said James Doty, a former SEC general counsel now at Baker Botts in Washington. “This will mean stability and continuity at the agency.”

Ms. Thomsen has been Mr. Cutler’s deputy since January 2002. A graduate of Smith College and Harvard Law School, Ms. Thomsen oversaw the SEC’s investigation of Enron Corp., the energy trader that went bankrupt in 2001.

– Bloomberg News

RETAIL

FEDERATED 1ST-QTR PROFIT RISES ON PRIVATE LABEL SALES

Federated Department Stores, which is buying May Department Stores, said first-quarter profit rose 27%, exceeding analysts’ estimates, on sales of private-label merchandise and fewer markdowns.

Net income climbed to $123 million, or 71 cents a share, from $97 million, or 53 cents, a year earlier. Sales rose 2.5% to $3.61 billion, the Cincinnati-based company said yesterday in a statement.

Federated increased sales of private-label goods, such as INC and Charter Club apparel, helping widen margins. The company cut inventory by 2.4% and offered fewer discounted items as same-store sales rose 2.6% in the quarter. The chief executive, Terry Lundgren, converted 400 regional stores to Macy’s and expenses fell compared with a year ago when Federated spent $15 million on store closings.

“They have the right product at the right time on the shelves more so than their competitors,” said Larry Leeds, a money manager at Buckingham Capital Management in New York, which owned 695,000 shares of Federated as of December.

Shares of Federated declined 62 cents to $63.28 at 4:12 p.m. in New York Stock Exchange composite trading. Earlier in the day they fell as much as 2.9% after the company confirmed that it expects second-quarter same-store sales to rise a more modest 1%.

– Bloomberg News

IN THE COURTS

SCRUSHY RESTS HIS DEFENSE CASE WITHOUT TESTIFYING

HealthSouth Corporation founder Richard Scrushy rested his defense at his accounting fraud trial without taking the witness stand to deny charges that he inflated profit by $2.7 billion from 1996 to 2002. Mr. Scrushy, 52, denies wrongdoing and blames the fraud on 15 executives who pleaded guilty, including five former chief financial officers who testified against him. Defense lawyers rested their case in the 16th week of the trial in federal court in Birmingham, Ala., after calling 21 witnesses. Mr. Scrushy’s decision means he won’t face cross-examination by U.S. prosecutors who say he inflated shares of HealthSouth stock to meet the expectations of Wall Street analysts. Former WorldCom Chief Executive Officer Bernard Ebbers took the stand in his own defense and was convicted of fraud in New York on March 15. “At this time the defense rests,” a Scrushy attorney, Jim Parkman, told U.S. District Judge Karon Bowdre yesterday.

Ms. Bowdre told jurors that prosecutors, who earlier presented 35 witnesses, must decide if they will present any rebuttal witnesses. The judge has not yet scheduled closing arguments.

Mr. Scrushy is accused of conspiracy, money laundering, securities fraud, mail fraud, wire fraud, and making false statements to investors. He is the first chief executive accused of violating the Sarbanes-Oxley Act corporate-governance law, which makes it a crime to certify false financial reports. Mr. Scrushy faces dozens of years in prison and forfeiture of $279 million in assets.

– Bloomberg News