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Entertainment and Lifestyle – Wall Street Observer

Wall Street Observer

Wall Street Observer

Economic pain from pandemic upends the lives of restaurant owners, entertainers

By Vanessa Johnston

FREDERICKSBURG, Va. (Reuters) – The reality has not yet sunk in for Pepe Diaz that the beloved deli he ran with his brother for more than 30 years is permanently shut.

“The camaraderie with all the students and the regular customers, I miss all that,” he said, outside Howard Deli in Washington.

Before the pandemic, the shop had been a lively neighborhood hangout. But sales plummeted without the foot traffic of students from Howard University and the local high school.

    Making matters worse, Diaz’s brother Kenny Gilmore suffered several strokes. With bills piling up, the brothers closed the deli in January.

“This had to be the worst. Everything else we weathered through,” Diaz said of the pandemic.

Howard Deli is not alone.

By the end of 2020, about 17% of all U.S. restaurants – about 110,000 – had closed long term or shuttered for good, according to the National Restaurant Association.

    Matt Strickland is determined that his business will not be next.

    The owner of Gourmeltz in Fredericksburg, Virginia, is continuing to operate his restaurant even though he said his license had been revoked by health officials for failing to comply with COVID-19 restrictions.

    “The people who are putting these mandates and regulations on us, they haven’t missed one paycheck. They haven’t suffered through this like we have,” said Strickland.

    Strickland said he has many supporters in the community. But health officials say they have received more than 50 complaints about Gourmeltz over its flouting of safety measures such as wearing masks, according to local media.

  The Spotsylvania County health department did not respond to a request for comment.

The economic pain goes well beyond the restaurant industry. The U.S. economy lost 22 million jobs at the height of the pandemic and is still 10 million jobs short of where it was a year ago.

    Before the pandemic, Sharon Clark spent 11 years as a full-time jazz singer, traveling to Russia, France and South Africa.

    So when a year’s worth of concerts were canceled in early 2020, she panicked.

    “For the first time in my whole 11 years, I was asking myself and asking God, ‘What am I going to do?'” said Clark, a single mother of a teenage daughter. “Who’s going to keep the cell phones on… who’s going to pay the cable bill?”

    Clark said she feels optimistic that her singing work will pick up by summer.

    “I’m going to sing until I can’t anymore. But I’m going to learn to do something else – just in case,” she said.

(Reporting by Vanessa Johnston; Editing by Lisa Shumaker)

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The cash-flush amateurs hunting game cards, handbags and art

By Elizabeth Howcroft and Tommy Wilkes

LONDON (Reuters) – Stocks, bonds and commodities? Old hat.

Once the preserve of the super-rich, or just the eccentric, all kinds of unusual investments from vintage handbags and shares in fine art to rare Pokemon cards are now the happy hunting ground for stuck-at-home punters.

Often armed with lockdown-era savings, such amateur investors are seeking higher returns beyond conventional markets where rocketing prices are prompting warnings of bubbles. They have in turn driven prices on some “alternative” assets up several hundred percent higher in the past year.

And just like the no-fee trading apps such as Robinhood that enabled hordes of small-time equity traders to rattle seasoned hedge funds during the recent “Gamestonks” episodes, digital platforms are empowering wannabe investors with as little as $20 to dabble in collectables.

Value can apparently lurk in all sorts of places.

Collectors’ cards based on Nintendo’s hit 1990s video game, Pokemon, have exploded in value in the past year.

One first-edition of its fire-flying character ‘Charizard’ has rocketed 800% in a year, after YouTube star Logan Paul paid $150,000 for one in October. Recent auctions have valued the card at $300,000.

Chicago-based Pokemon enthusiast Zack Browning, who purchased four of the cards in 2016 for less than $5,000 each, estimates his overall Pokemon collection is now worth $3 million-$5 million.

Browning, who embarked on his Pokemon investing career after studying finance at university, described the game card’s resurgence as “astounding and incredible”. He said that parts of the Pokemon market were more predictable than stock markets, which he said were overvalued.

‘PICK-ME-UPS’

Of course measuring profit or loss on a painting or gauging demand for such collectables is a lot harder than in equity or currency markets, given items often have little in common with each other and can be traded only occasionally, such as by auction.

But a luxury investment index published by compiler Knight Frank on Wednesday showed that although top-end assets such as fine art fell in value during the pandemic, “relatively affordable luxury pick-me-ups” did well.

While the AMR All-Art Index, based on auction prices, fell 11% last year, according to Knight Frank, Hermes’ iconic Birkin handbag first launched in the 1980s, rose 17%, ahead of fine wine and classic cars.

Andrew Shirley, who edits the Knight Frank report, said last year’s most expensive Birkin sold for $200,000, with Asian luxury collectors in Asia “very happy to bid on handbags online”.

For people unable to stump up $200,000 per item, there are platforms such as New York-based Otis which launched in 2019.

These platforms buy anything from a Pokemon card to a basketball jersey signed by basketball legend Kobe Bryant, securitise them and then offer investors shares in the items that they can buy and sell.

Last year, Otis offered customers the chance to buy shares in a work by British street artist Banksy at $20 a share. Those shares hit $34 earlier this month, a 70% gain that valued the piece at $722,000, Otis said.

Investors tend to be aged 25 to 45, with disposable incomes of $100,000-plus, Otis founder and Chief Executive Michael Karnjanaprakorn told Reuters.

He said the most expensive item on Otis is a 1986 Basketball card set by sports cards maker Fleer — sold two months ago at $10 a share, it has since surged 305% to over $40.

Reuters could not independently verify the price gains.

‘DON’T INVEST YOUR PENSION’

At another collectables platform, Rally, the number of users is doubling every 30 days, according to CEO George Leimer. He said “several hundred thousand” investors used the platform but declined to be more specific.

The platform has also seen sought-after Pokemon cards surge into six-figures, Leimer said.

“The drive behind this is very similar to what we are seeing in the rest of the retail investing world,” he said, pointing to the surge in popularity of Robinhood and other such apps.

But few seem to be banking profits; Leimer said the percentage of investors who withdrew their winnings rather than reinvest was in the “low single digits”.

As more punters flock to alternative assets, many warn of risks.

John-Paul Smith, a former senior equity strategist at Deutsche Bank, now dabbles in buying northern British art. He sees little difference between the behaviour of some “alternatives” investors and the equity frenzy.

“Banksy is pure momentum, it’s like a hot tech stock,” he said. “The psychology is similar in any market.”

But conceptually, it seems “less foolish” to buy unconventional assets today than at any time in the 30 years Smith says he has followed markets. Not only are stocks expensive, vast central bank and government stimulus will eventually spur inflation, he said.

He urges investors to differentiate between what might be a passion or a hobby and an investment. If they set out solely to profit, they probably won’t, given how esoteric each part of markets like art can be.

“I would not advise anybody (to) put their pension in,” he said, a stance also taken by Pokemon investor Browning.

(Additional reporting by Marc Jones; editing by Sujata Rao and Emelia Sithole-Matarise)

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Digital health checks vital to travel recovery, Heathrow says

By Sarah Young

LONDON (Reuters) – Digital health checks will be vital to a recovery in foreign travel from the COVID-19 pandemic, Britain’s Heathrow airport said on Wednesday, after a collapse in passenger numbers saw it plunge to a 2 billion pound ($2.8 billion) loss last year.

The UK government said on Monday trips abroad could restart in mid-May as its vaccination campaign kicks in, sparking a surge in holiday bookings.

It is also looking into a digital health passport or app to help ease restrictions, while conceding the benefits have to be weighed against potential risks to civil liberties.

But Heathrow chief executive John Holland-Kaye said digital technology, and international agreements, would be vital to reviving a travel industry on its knees.

“It’s absolutely critical and that’s one of the main things that government needs to work on,” he said, when asked about a digital health app.

At present, paper checks on COVID-19 test results and passenger locator forms take 20 minutes per traveller at Heathrow, making travel near impossible should passenger numbers rise from current low levels.

Britain’s biggest airport said it was “very likely” people would be able to go on their summer holidays, but expects passenger numbers will take time to recover.

The airport, west of London, is forecasting 25 million passengers in the second half of the year, meaning it would be operating at about 50% capacity.

Heathrow, owned by Spain’s Ferrovial, the Qatar Investment Authority, China Investment Corp and others, last year lost its title as Europe’s busiest airport to Paris after its flight schedules shrank more than those of its rivals.

Passenger numbers plunged 73% to 22 million people last year, with half of those travelling during January and February, before the pandemic shut down global travel in March.

Heathrow said it had 3.9 billion pounds of liquidity, giving it sufficient resources to keep going with low levels of traffic until 2023, despite the 2 billion loss before tax for 2020.

The airport urged the government to provide business tax breaks for big airports, something only available to smaller airports so far, and to extend the furlough job support scheme to help it financially before the recovery takes off.

(Reporting by Sarah Young. Editing by James Davey and Mark Potter)

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China says ready to enhance exchanges with U.S. on trade, economic front

BEIJING (Reuters) – China is ready to enhance exchanges with the United States on the trade and economic fronts, Wang Wentao, the country’s new commerce minister, said on Wednesday.

He looks forward to working with U.S. colleagues to focus on cooperation and manage differences, Wang told reporters in a news conference.

(Reporting by Gabriel Crossley; Editing by Christian Schmollinger)

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Australia’s competition chief claims victory after Facebook standoff

By Byron Kaye and Colin Packham

CANBERRA (Reuters) – The architect of Australian media reforms being watched around the world claimed victory on Wednesday, even as critics said concessions to the laws forcing Big Tech to pay for news content have given Facebook and Google a get-out clause.

The Australian government made late changes to the laws after Facebook last week blocked news content in Australia, escalating a dispute over the proposed legislation and catching international attention.

The amended legislation is expected to pass the Senate this week, despite opposition from some minor opposition parties and independent politicians who argue it disadvantages smaller news companies.

Rod Sims, the chairman of the Australian Competition and Consumer Commission (ACCC), told Reuters the bargaining power imbalance he was tasked with correcting had been addressed.

“The changes the government’s done are things that either don’t matter much or are just to clarify things that, at least in Facebook’s mind, were unclear,” said Sims, who led the drafting of the legislation.

“Whatever they say, they need news. It keeps people on their platform longer – they make more money.”

With Australia’s reforms serving as a model for other nations to adopt, Facebook was also keen to claim a win.

Facebook Vice President of Global News Partnerships Campbell Brown stressed the company had retained the ability to decide if news appeared on its platform and could sidestep the forced negotiation for content payment under the original legislation.

In a key amendment to the legislation, Treasurer Josh Frydenberg was given the discretion to decide that either Facebook or Google need not be subject to the code, if they make a “significant contribution to the sustainability of the Australian news industry.”

The original legislation had required Facebook and Alphabet Inc’s Google to submit to arbitration if they could not reach a commercial deal with Australian news companies for their content, effectively allowing the government to set a price.

Facebook, which contends news accounts for just 4% of traffic on its site in Australia, said it would restore news on Australian pages in the coming days.

“This isn’t a must-carry regime,” said Sims. “We never said we’re forcing Facebook to keep showing news.”

SMALL MEDIA, BIG CONCERNS

While the Senate is expected to pass the legislation, with the main opposition Labor Party supporting the ruling Liberal Party, some politicians and media companies have expressed concern about the amendments.

“This changes the bill significantly,” independent senator Rex Patrick, who plans to vote against the amended bill, told Reuters.

“The big players could successfully negotiate with Facebook or Google. The minister then doesn’t designate them, and all the little players miss out.”

Lee O’Connor, owner and editor of regional newspaper The Coonamble Times, agreed the amendments favoured big media groups.

“It’s the vagueness of the language that’s the main concern, and the minister’s discretion is part of that,” O’Connor said.

Frydenberg has said he will give Facebook and Google time to strike deals with Australian media companies before deciding whether to enforce his new powers.

CONTENT DEALS

The code was designed by the government and competition regulator to address a power imbalance between the social media giants and publishers when negotiating payment for news content displayed on the tech firms’ sites.

After first threatening to withdraw its search engine from Australia, Google has instead struck a series of deals with several publishers, including a global news deal with News Corp.

Television broadcaster and newspaper publisher Seven West Media on Tuesday said it had signed a letter of intent to reach a content supply deal with Facebook within 60 days.

Rival Nine Entertainment Co also revealed on Wednesday it was in negotiations with Facebook.

“At this stage, we’re still obviously proceeding with negotiations,” Nine chief executive Hugh Marks told analysts at a company briefing on Wednesday. “It is really positive for our business and positive particularly for the publishing business.”

(Reporting by Colin Packham and Byron Kaye; writing by Jonathan Barrett; editing by Jane Wardell)

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Facebook ‘refriends’ Australia after changes to media laws

By Byron Kaye and Colin Packham

CANBERRA (Reuters) – Facebook will restore Australian news pages, ending an unprecedented week-long blackout after wringing concessions from the government over a proposed law that will require tech giants to pay traditional media companies for their content.

Both sides claimed victory in the clash, which has drawn global attention as countries including Canada and Britain consider similar steps to rein in the dominant tech platforms and preserve media diversity.

While some analysts said Facebook had defended its lucrative model of collecting ad money for clicks on news it shows, others said the compromise – which includes a deal on how to resolve disputes – could pay off for the media industry, or at least for publishers with reach and political clout.

“Facebook has scored a big win,” said independent British technology analyst Richard Windsor, adding the concessions it made “virtually guarantee that it will be business as usual from here on.”

Australia and the social media group had been locked in a standoff after the government introduced legislation that challenged Facebook and Alphabet Inc’s Google’s dominance in the news content market.

Facebook blocked Australian users on Feb. 17 from sharing and viewing news content on its popular social media platform, drawing criticism from publishers and the government.

But after talks between Treasurer Josh Frydenberg and Facebook CEO Mark Zuckerberg, a concession deal was struck, with Australian news expected to return to the social media site in coming days.

“Facebook has refriended Australia, and Australian news will be restored to the Facebook platform,” Frydenberg told reporters in Canberra.

Frydenberg said Australia had been a “proxy battle for the world” as other jurisdictions engage with tech companies over a range of issues around news and content.

Australia will offer four amendments, which include a change to the proposed mandatory arbitration mechanism used when the tech giants cannot reach a deal with publishers over fair payment for displaying news content.

‘UNTESTED’

Facebook said it was satisfied with the revisions, which will need to be implemented in legislation currently before the parliament.

“Going forward, the government has clarified we will retain the ability to decide if news appears on Facebook so that we won’t automatically be subject to a forced negotiation,” Facebook Vice President of Global News Partnerships Campbell Brown said in a statement online.

The company would continue to invest in news globally but also “resist efforts by media conglomerates to advance regulatory frameworks that do not take account of the true value exchange between publishers and platforms like Facebook.”

Analysts said while the concessions marked some progress for tech platforms, the government and the media, there remained many uncertainties about how the law would work.

“Retaining unilateral control over which publishers they do cash deals with as well as control over if and how news appears on Facebook surely looks more attractive to Menlo Park than the alternative,” said Rasmus Nielsen, head of the Reuters Institute for the Study of Journalism, referring to Facebook headquarters.

Any deals that Facebook strikes are likely to benefit the bottom line of News Corp and a few other big Australian publishers, added Nielsen, but whether smaller outlets win such deals remains to be seen.

Tama Leaver, professor of internet studies at Australia’s Curtin University, said Facebook’s negotiating tactics had dented its reputation, although it was too early to say how the proposed law would work.

“It’s like a gun that sits in the Treasurer’s desk that hasn’t been used or tested,” said Leaver.

COOLING-OFF PERIOD

The amendments include an additional two-month mediation period before the government-appointed arbitrator intervenes, giving the parties more time to reach a private deal.

It also inserts a rule that an internet company’s existing media deals be taken into account before the rules take effect, a measure that Frydenberg said would encourage internet companies to strike deals with smaller outlets.

The so-called Media Bargaining Code has been designed by the government and competition regulator to address a power imbalance between the social media giants and publishers when negotiating payment for news content used on the tech firms’ sites.

Media companies have argued that they should be compensated for the links that drive audiences, and advertising dollars, to the internet companies’ platforms.

A spokesman for Australian publisher and broadcaster Nine Entertainment Co Ltd welcomed the government’s compromise, which it said moved “Facebook back into the negotiations with Australian media organisations.”

Major television broadcaster and newspaper publisher Seven West Media Ltd said it had signed a letter of intent to strike a content supply deal with Facebook within 60 days.

A representative of News Corp, which has a major presence in Australia’s news industry and last week announced a global licensing deal with Google, was not immediately available for comment.

Frydenberg said Google had welcomed the changes. A Google spokesman declined to comment.

Google also previously threatened to withdraw its search engine from Australia but later struck a series of deals with publishers.

The government will introduce the amendments to Australia’s parliament on Tuesday, Frydenberg said. The country’s two houses of parliament will need to approve the amended proposal before it becomes law.

(Reporting by Colin Packham and Byron Kaye; additional reporting by Renju Jose, Kate Holton and Douglas Busvine; Writing by Jonathan Barrett; Editing by Sam Holmes and Mark Potter)

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Stuck in port, Royal Caribbean posts $1 billion quarterly loss

(Reuters) – Royal Caribbean Group reported a billion-dollar net loss for the fourth straight quarter on Monday, as the cruise operator continued to be affected by a coronavirus-triggered halt to voyages.

Cruise operators have been shoring up cash reserves by issuing new shares, selling assets or raising billions of dollars in debt over the last few months as the virus outbreak brought the industry to a virtual standstill.

With its ships not sailing, the company’s total revenue for the reported quarter plunged to $34.1 million from $2.52 billion last year. Analysts had expected a revenue of $35.6 million, according to Refinitiv IBES data.

As of December end, Royal Caribbean had about $4.4 billion in liquidity, up from about $3.7 billion at the end of the third quarter, after it raised $1 billion in a stock offering during the fourth quarter.

The operator of “Oasis of the Seas” and “Symphony of the Seas” cruises posted a net attributable loss of $1.37 billion, or $6.09 per share, in the quarter ended Dec. 31, compared with a profit of $273.1 million, or $1.30 per share, a year earlier.

(Reporting by Praveen Paramasivam in Bengaluru; Editing by Shounak Dasgupta)

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Packaged food giants push direct online sales to gauge consumer tastes

By Siddharth Cavale and Nivedita Balu

(Reuters) – Packaged food giants including Kraft Heinz, General Mills and Kellogg are pushing sales of their products to consumers directly via their own online channels, in a quest to gather more data about shoppers’ purchasing habits.

Velveeta-cheese maker Kraft Heinz saw its e-commerce sales double in 2020, now representing more than 5% of its global sales, Chief Executive Miguel Patricio said at the virtual Consumer Analyst Group of New York (CAGNY) conference this week.

The company sells Heinz baked beans and tomato soup by subscription or in bundles directly to consumers on a “Heinz To Home” website in the United Kingdom, Australia and Europe.

Sales on the site are “giving us valuable insights into consumer behavior, enabling us to quickly test and learn from innovations,” Kraft’s head of international business, Rafael de Oliveira, said at the conference.

Kraft would continue to use the site as a channel to generate strong sales in developed markets, he said.

The company also counts sales of its products through marketplaces such as on Amazon.com and Walmart.com as part of its e-commerce sales.

U.S. shoppers spent on average $1,271 buying groceries online last year, 45% more than they did in 2019 as the pandemic spurred shopping online, according to market research firm Earnest Research. In contrast, the average dollars spent in stores rose only about 7% to $3,849.

PepsiCo sells products including Doritos, Quaker oats and Gatorade directly to consumers through two websites, pantryshop.com and snacks.com, both launched in 2020.

Chief Financial Officer Hugh Johnston said that more than 45% of the company’s capital investments over the next few years would be dedicated toward manufacturing capacity, automation, and a “ramping up of investments in our e-commerce channel.”

As major online retailers including Amazon.com and Walmart.com continue to gather valuable data on shoppers, many packaged food manufacturers are keen to gather their own data on shoppers, too.

“COVID (has) simply accelerated our digital growth and has provided us with yet another source of data and insight,” Monica McGurk, chief growth officer at breakfast cereal maker Kellogg Co., told the conference.

Kellogg, producer of Corn Flakes as well as Pringles chips, said on Wednesday it had launched a direct-to-consumer website focused on digestive wellness. The group plans to sell its new Mwell Microbiome Powder for gut health via the site to gather data on customer interest before it launches the product more widely.

E-commerce sales have doubled in the past year and now represent about 8.5% of the group’s $13.77 billion in annual sales, Kellogg said.

Pillsbury dough-maker General Mills also sees the benefits of tracking consumer habits more closely.

“We’re aggressively investing in data and analytics. We are gathering unparalleled insights from the first-party data we collect through our brand websites,” General Mills’ Chief Executive Jeffrey Harmening said at the conference.

On its Bettycrocker.com website, General Mills provides hundreds of recipes using Betty Crocker cake mixes and frosting. The site leads people to the closest store or an online retailer where they can purchase the products, thereby generating data for General Mills on what a particular customer from a certain zip code is buying. The company does not sell the food products directly on its website.

Consumers, however, may have to shell out more if they shop directly from brand websites.

Prices on the two PepsiCo sites, for example, were generally higher than those on Walmart.com or Amazon.com, Reuters checks show. On Walmart.com, for example, a 10 oz pack of Doritos Nacho Cheese was on sale for $2.50 compared to $4.29 on Pepsico’s website.

Kraft Heinz offers tins of soup, beans, pasta and baby food bundled into packs ranging from six to 25 items and costing between 10 and 20 pounds ($14.01-$28.03) on its UK website. It told Reuters the relatively higher prices of items and bundling of packs than on some other online marketplaces was to be able to eke out a margin after including delivery costs.

“Longer term, we see real value in this channel to be an insight and data channel for us,” Jean-Philippe Nier, head of e-commerce for Kraft Heinz’s business in the UK and Ireland, told Reuters. People are more prepared to order directly from manufacturers than they were before. The time is now.”

Graphic: Direct online sales to cross $20 billion in 2021 – https://graphics.reuters.com/PACKAGEDFOODS-ECOMMERCE/rlgpdexngvo/chart.png

($1 = 0.7137 pounds)

(Reporting by Siddharth Cavale and Nivedita Balu in Bengaluru; Editing by Vanessa O’Connell and Susan Fenton)

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Valentino is sued for $207 million after shutting Manhattan boutique over pandemic

By Jonathan Stempel

NEW YORK (Reuters) – Valentino SpA was sued on Friday for $207.1 million by the landlord of its former American flagship on Manhattan’s Fifth Avenue, which said the Italian fashion company had no right to break its lease and leave the store in disrepair.

The complaint followed a judge’s Jan. 27 dismissal of Valentino’s own lawsuit seeking to void its 16-year lease because the coronavirus pandemic had made operating the store, two blocks south of Trump Tower, impossible.

According to the landlord, 693 Fifth Owner LLC, Valentino owes all rent due through the lease’s July 2029 expiration despite abandoning the store in December.

Valentino must also pay $12.9 million to repair store damage, including to Venetian Terrazzo marble panels now defaced with paint and holes, the landlord said.

Neither Valentino nor its lawyers immediately responded to requests for comment. The lawsuit was filed in Manhattan Supreme Court, a New York state court.

In seeking to end its lease, Valentino said the pandemic left it unable to operate the store “consistent with the luxury, prestigious, high-quality reputation” of its neighborhood.

But in dismissing Valentino’s lawsuit, Justice Andrew Borrok of the Manhattan court said the lease gave the landlord broad protections from nonpayment of rent.

“The fact that the COVID 19 pandemic was not specifically enumerated by the parties does not change the result,” he wrote.

Valentino is appealing Borrok’s decision.

Manhattan retailers have struggled during the pandemic with reduced traffic from tourists and office workers, and early forced store closures.

Last month, the Real Estate Board of New York said rents sought for Manhattan retail space fell throughout the borough, including an 8% drop in the stretch including Valentino’s store.

“The building owner tried to work with Valentino during the pandemic with the understanding that these are difficult times,” the landlord’s lawyer Robert Cyruli said. “We look forward to presenting our case for damages in court.”

(This story adds dropped word in first paragraph)

(Reporting by Jonathan Stempel in New York; Editing by Richard Chang)

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Internet groups, U.S. Chamber sue Maryland over digital advertising tax

By David Shepardson

WASHINGTON (Reuters) – A group representing Amazon.com Inc, Facebook Inc and Alphabet Inc joined the U.S. Chamber of Commerce and others in filing suit on Thursday to challenge Maryland’s first-in-the nation new digital advertising tax.

The Chamber, the largest U.S. business group; the Internet Association, which represents dozens of tech companies; the Computer & Communications Industry Association; and NetChoice filed suit in U.S. District Court in Maryland seeking an injunction to block the new tax adopted last week by the state legislature over the veto of Republican Governor Larry Hogan.

The suit calls the law “a punitive assault on digital, but not print, advertising. It is illegal in myriad ways and should be declared unlawful and enjoined.”

State lawmakers estimate the tax could raise as much as $250 million a year after it takes effect. Other states are also considering taxing digital advertising.

Maryland State Senate President Bill Ferguson said in a statement it was “disappointing to see these companies spend millions on high-powered attorneys instead of paying their fair share.”

The suit argues the act will reduce “resources to support the creation and availability of high-quality ad-supported content, leaving the online field overrun by low-quality ‘junk’ content.”

The suit also challenges the tax’s “punitive character, including its severity (up to 10% of gross revenues) (and) its focus on extraterritorial conduct.”

The law covers companies with global digital ad revenues of at least $100 million. Supporters have said it is aimed at the largest platforms like Amazon, Facebook, and Alphabet’s Google.

Facebook spokesman Daniel Roberts said the company “pays millions of dollars in taxes to Maryland and supports small businesses in the state in a variety of ways, so we are disappointed that the General Assembly would pass such a punitive law.”

The state attorney general’s office warned last year there was “some risk” a court could declare the measure unconstitutional.

The suit also argued Maryland’s tax “exacerbates a foreign policy dispute with France and other European countries and makes it impossible for the federal government to speak with one voice on a matter of foreign policy.”

France and other countries view digital service taxes as a way to raise revenue from the local operations of big tech companies which they say profit enormously from their markets while making only limited contributions to public coffers.

(Reporting by David Shepardson; Editing by Sonya Hepinstall)

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