Full-Time, Part-Time, Exec - Which Program Is Best?

By Eileen P. Gunn

Patrick Kilborn had wanted an M.B.A. from a top-tier business school for several years, but he didn't think he was likely to pursue one. It was mostly a question of logistics. He liked living in Salt Lake City and had no interest in leaving his job as a litigation consultant and expert trial witness on accounting issues. Moreover, the 34-year-old had a wife and four kids and couldn't imagine scraping by on student loans for two years.

Still, "in my line of work, a degree from a top school provides huge credibility," he says. Then the Wharton School of the University of Pennsylvania began offering a weekend executive M.B.A. program in San Francisco, and he saw his opportunity. For the past two years, he's spent every other Friday and Saturday at the Philadelphia school's outpost near Market Street, boning up on financial theories, marketing strategies and business-plan writing.

"There's a big difference between doing this when you're younger and doing it at my age now," says Mr. Kilborn. For younger, traditional M.B.A. students, the coursework might still be "mostly theory," but they can completely immerse themselves in it. In Mr. Kilborn's class, "everyone is doing it as they're learning it, and there's tremendous value in hearing how Cisco does something one way and eBay does it another." But group projects are squeezed in between afternoon meetings and family dinner, and he sometimes has a kid in tow when he heads off to school on Friday morning.

If you're thinking about getting an M.B.A., your options for how to do it are myriad. In addition to the traditional full-time regime, there are night, weekend and executive programs. You can accelerate your degree or stretch out a program five or six years. And you can attend class just down the road or fly across two states. "Just like there are AmEx cards for all different market segments, there are M.B.A.s for different markets, too," says Russell Winer, deputy dean of New York University's Leonard N. Stern School of Business.

Even most A-list schools offer more than one program, and they're quick to emphasize that regardless of which program you choose, you're handed "the exact same degree." So it really is a matter of finding the right fit for your career track, personal life and pocketbook. Some factors to help you decide:

Career Strategy

One of first things to ask yourself when looking at different types of programs: Are you a "career changer" or a "career enhancer"? Career changers are generally better off in a full-time program, while career enhancers -- who want to stay in their current tracks -- should consider part-time or executive programs that can be integrated with their jobs, say faculty from several schools.

"The full-time programs are meant to transform your professional and personal life," says Nedda Gilbert, who wrote "The Complete Book of Business Schools" (Princeton Review, 2002). "Think of them as a laboratory where you can indulge in learning and exploring without immediately worrying about the gain."

Full-timers can use internships to segue into new careers, and they often can take more varied elective classes, which helps them cultivate new areas of expertise. "Our full-timers have a choice of five real-estate electives, our part-timers have one and our executive M.B.A.s have zero," notes Andrew Shogan, associate dean for instruction at the Haas School of Business at the University of California, Berkeley.

Harder to quantify, but equally valuable, is the opportunity that full-timers get to knock around campus all day, joining student clubs and going to guest lectures and other activities that help them to explore their options.

James Oliver thought he wanted to be a consultant when he headed off to the University of North Carolina at Chapel Hill's Kenan-Flagler Business School. Then, while prepping for job interviews, he tried out the type of problem solving that consultants do. "After one or two, I realized I had no interest in the issues they deal with; I was bored. I figured I probably didn't want to be a consultant after all," he says.

At the other end of the spectrum, executive M.B.A.s are often entrepreneurs or senior managers. They're trying to transition from their chosen niches into more diverse roles, but after years in finance or product development they need help looking at business more broadly. Employers often subsidize the cost of their employees' tuitions or at minimum, let the school know they support the employee's interest in the program and will give them the time off needed for classes and travel.

"I have one EM.B.A. student who's 27 and owns 10 retail stores in Russia," says Daniel Nagy, associate dean for recruitment and admissions at Duke University's Fuqua School of Business. "He thinks he can have 100 stores in the next 10 years, but the company is outgrowing his capacity to run it. He's taking our program to catch up with his business."

And part timers? They're somewhere in the middle. Generally, they're closer in age and experience to full-timers, but they often have an enthusiasm for their careers that matches executive students'. At best, the classes are full of young, high-potential workers who don't want to step off the fast track to gain the M.B.A. credential.

"I like the idea of coming together from all over for the weekend for class and then going back to our lives and jobs," says Kathleen McDonald, a vice president of corporate development who commutes from Indianapolis to the University of Chicago Graduate School of Business's Weekend M.B.A. program. "Full-timers count on being important contacts for each other down the road, but I have a great network of people now."

At worst, however, part-time programs are the less-attractive stepsisters to traditional programs, full of students who want to change careers and would benefit more from a full-time experience if money and circumstances allowed. A survey by the Graduate Management Admission Council in McLean, Va., found that part-time M.B.A. grads are the least satisfied with their M.B.A. experience, with 59% rating their program outstanding or excellent, versus 68% of full-timers and 72% of executives.

"Expectation plays a huge role," says Daphne Atkinson, vice president of industry relations at GMAC. "A lot of people think they can live with the trade-offs of a part-time program and then don't like them in the end." For example, 80% of part-timers in the survey say career services mattered to them, but as one dean points out, "when they're on campus at night or on the weekend, that office is closed."

In and Out of the Classroom

One frustration part-timers and executives share is "wanting more time to focus on just learning," as Ms. McDonald puts it. But they make up for that lack of study time by letting work and school feed off of each other.

Michael Scherer, who graduated from Chicago's part-time program in 2001, says the company he worked for at the time "was one big case study for me." In one class on strategy, he learned why a business plan is important even in an established company, then noted there wasn't one in the business unit he was running. "I didn't know if we could reach our goals without a plan that everyone could follow." So he wrote one, "and it became the model for the company's other units."

Executive M.B.A.s, in particular, count on learning from each other as much as from the instructor and expect a sophisticated classroom experience. Patrick Janin, now based in Nice, France, was running the U.S. operations of Future Medical Systems in Glen Burnie, Md., when he enrolled in Georgetown University's McDonough School of Business's International Executive M.B.A. program at age 33. "After visiting a few schools, I didn't think the classmates in a full-time program would have enough experience to challenge me," says Mr. Janin, who's now president of FMS France. "But when I visited Georgetown, not a class went by without a teacher being challenged by a student."

Ms. McDonald believes that while her part-time classmates don't socialize nearly as much as full-timers do -- there are no football games on the quad when people have to catch afternoon flights back to Seattle and Houston -- they're better able and more willing to support one another. For example, with an undergrad degree in public policy, Ms. McDonald says her quantitative skills were lacking, but "I had several people say, 'Call me, I'll help you,' and who spent an hour working on problems with me."

Executive M.B.A. students aren't as competitive as full-timers. "We're not all going to be out looking for jobs and talking to campus recruiters at the same time," she says. "We can afford to be supportive."

Moreover, Mr. Nagy believes the demands of cramming a full M.B.A. course load into already crowded lives bond students together. "They know that if they pick up the slack in a team project for someone getting slammed at work this week, someone will do the same when they're dealing with some issue next week," he says.

The Nuts and Bolts

Just as the faculty, core curriculum and degree are the same for all programs within a given school, be prepared for the same application process, too, including interviews, essays and recommendations. One major difference: Some schools wave the Graduate Management Admissions Test or give it less weight for executive-M.B.A. applicants and look for a longer career history instead. Duke's Global Executive program asks for at least 10 years of experience, for example, and the average for its students is 14.

And then there's the price tag. The executive programs have by far the highest. NYU's, for example, is $100,000 versus $65,000 for the full-time degree. But they're the most inclusive, covering classes, books, class-day meals and some housing, as well as residencies (weeklong stints, often overseas, that supplement the classroom time).

Part-time and full-time programs are more comparable, though part-timers can sometimes take fewer classes and spread the cost over five or six years. Full-timers, for their part, often have to move and pay for student housing. And, NYU's Mr. Winer points out, "there's the opportunity cost of not working during those two years."

If you choose a program that really fits your stage of career and life, however, the cost, no matter how you slice it, is more likely to pay off in the long run.

-- Ms. Gunn is a free-lance writer in Brooklyn, N.Y.

How Small-School Grads Can Win Plum Positions

By Sarah E. Needleman

Six months before earning his M.B.A. in May, Louis Anderson landed a job with an employer that never set foot on his school's campus in remote Stockton, Calif.

Recruiters for his new company, accounting giant Deloitte & Touche LLP, were not among the 30 or so employers that visited the Eberhardt School of Business at the University of the Pacific during the 2002-2003 recruiting season. Yet, Mr. Anderson managed to secure a staff-accountant position in a branch office of the New York-based firm -- and without the help of his school's career center.

Mr. Anderson received his offer after learning that Deloitte had an office where he wanted to reside -- Honolulu -- and cold calling the firm. His accomplishment is especially noteworthy at a time when job opportunities have been scarce and some schools' career centers haven't been able to attract recruiters. A 2003 survey by the Graduate Management Admission Council in McLean, Va., shows that 18% of new M.B.A.s consider the quality of their school's career center poor.

M.B.A.s from small schools face a greater challenge in getting hired than those from well-known campuses. Their alma maters typically lack the name recognition that entices top employers, plus many small schools can't afford to hold job fairs. "Companies generally aren't willing to invest time visiting a school where they're likely to attract only one or two students who fit their candidate profile," says Margaret Roberts, director of employer development at Eberhardt. In addition, many schools that are affiliated with undergraduate programs or large universities open recruiting events to both M.B.A.s and undergraduates, so the competition can be stiff, says Ms. Roberts.

Beating the Odds

Overall, career experts say networking is the most effective way to job search. But you must create your own opportunities to make contacts when there are few organized on-campus networking events with employers. Therefore, you may want to consider the following job-search strategies used by three recent M.B.A.s from small schools who recently secured good positions. They know what's it's like to be asked: "You graduated from where?"

Reach out to alumni. Only a handful of company recruiters visit Hult International Business School in Cambridge, Mass., each year. It doesn't hold job fairs, either, leaving new M.B.A.s to generate their own job prospects. This prompted Jon Urruzuno, 29, to doggedly pursue a tip from a friend about an internship opportunity for the summer of 2002. The friend suggested Mr. Urruzuno investigate an employer whose chief executive is a Hult alumnus. Mr. Urruzuno did and soon landed an internship with the small media company, Hispanic News Press in Brookline, Mass. Afterward, he stayed in contact with the CEO, and this spring applied for the job of senior content analyst at the company. In July, he was offered the position, which pays an annual salary of between $60,000 and $70,000. His new boss, Javier Marin, admits that sharing an alma mater "certainly helped to speed up the decision-making process."

Cold-call employers. Last fall, Mr. Anderson identified a handful of desirable employers and, since none were expected to visit his school, he found out which ones had branch offices in Honolulu. Narrowing his list to six, he began dialing the firms. "I asked if I could speak to the person in charge of college recruiting," he says. Once connected, Mr. Anderson told recruiters he was a second-year M.B.A. from Eberhardt who wanted to know about potential opportunities. The employers instructed him to e-mail his resume and within days, Mr. Anderson was invited to four interviews, including one with Deloitte's Honolulu office that led to the offer he accepted. He'll start in October. Mr. Anderson, who is 23 years old, will earn an annual salary in the mid-$40,000 range.

Explore all avenues. Last winter, Laura Bullock, 27, found a job posting at her school's career site that she describes as perfect -- except that it was almost a year old. The M.B.A. from Clemson University's College of Business and Behavioral Science fit the requirements listed for the position of senior business analyst. She checked with her school's career center and learned that an alumnus worked at the company, a financial-services business in Greenville, S.C. She e-mailed the Clemson graduate to find out if the position was still vacant or if similar ones were available. The alumnus wasn't sure, but an updated ad for the job reappeared on the same site a few days later. Ms. Bullock applied and was invited to interview. She accepted the position in December and started working for the company part time until she finished her degree. Now a full-time employee, she earns a $50,000 annual salary and is eligible for an annual performance bonus.

Although Ms. Bullock admits her experience isn't common, she believes her success was due to her determination to pursue all possibilities.

-- Ms. Needleman is associate editor at CareerJournal.com.

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A New Winner - Wharton jumped to the top

By RONALD ALSOP | Staff Reporter of THE WALL STREET JOURNAL | September 17, 2003

The world's oldest business school took top honors in this year's Wall Street Journal/Harris Interactive ranking of corporate recruiters' favorite M.B.A. programs.

The University of Pennsylvania's Wharton School, founded in 1881, jumped to first place from fifth last year, largely on the strength of students' financial and analytical skills. Wharton unseated Dartmouth College's Tuck School of Business, which slipped to No. 2 after two consecutive years as the most popular M.B.A. program.

This year's survey reflected the new era of financial and ethical accountability. Recruiters repeatedly praised schools that produce principled graduates and accounting whizzes. The Wharton School is a leader in both areas, with a long history of business-ethics courses and research and some of the top professors in the accounting field. In fact, recruiters named Wharton the second-best school for accounting, after the University of Chicago.

Wharton continues to attract the premier investment-banking and management-consulting recruiters, even in this weak M.B.A. job market. "Our track record at Wharton is one of unparalleled success," says Frank Pometti, a management consultant at A.T. Kearney Inc. "It's critical as a consultant to understand what's driving a company's financial performance, and you never have to worry about a Wharton student getting it."

RECRUITERS' SCORECARD

See highlights from The Wall Street Journal/Harris Interactive survey of corporate recruiters on business schools. (Acrobat required)

BREAKDOWN

Read digests on the rest of the top 10, including profiles and a rundown of what recruiters have to say.

1. University of Pennsylvania
2. Dartmouth College
3. University of Michigan
4. Northwestern University
5. University of Chicago
6. Carnegie Mellon University
7. Columbia University
8. Harvard University
9. Yale University
10. Univ. of North Carolina at Chapel Hill

The Rating Criteria: See what criteria recruiters considered "very important."
Survey Methodology: How the schools were evaluated

While survey respondents praise Wharton as a superb training ground for ambitious leaders and strategic thinkers, some consider the school's culture too competitive and elitist. Virtually all of the recruiters, however, appreciate Wharton's academic prowess. It was among the top 10 nominees for excellence in every academic concentration in the Journal survey except for information technology.

Some scholastic stars, however, didn't fare well in the Journal ranking because recruiters care about more than the quality of the faculty and curriculum. They also highly value such attributes as students' communication and interpersonal skills and the level of service they receive from the career-services office.

Stanford University, for example, ranked 30th overall, even though recruiters placed it among the top 10 schools for five academic specialties. Stanford did move up significantly in the overall ranking, jumping from 39th place last year. Several recruiters noted improvements at Stanford's career-management office since Andy Chan took over as director, and they also observed more humility among students hungry for jobs. But Stanford clearly still suffers from the negative reputation it acquired during the booming 1990s when many students snubbed traditional recruiters in favor of sexier dot-coms and other technology start-ups.

This year's ranking is based on an online survey of 2,191 recruiters between November 2002 and March 2003. Respondents could rate only schools they know well through their recent recruiting experiences. Each respondent rated one to three business schools on 26 attributes, including students' analytical and problem-solving skills, personal ethics and integrity, leadership potential, and fit with the corporate culture.

In addition, a school's final score and ranking took into account its "mass appeal," based on how many survey respondents recruited from its M.B.A. program. Mass appeal reflects the size of a school's recruiter network, an important factor for students seeking a broad range of career opportunities.

For the second year, big business schools like Wharton made a much stronger showing than small M.B.A. programs. Seven of the top 10 schools offer large M.B.A. programs, and half of the top 10 are part of the Ivy League.

QUESTION OF THE DAY

How important is an M.B.A. to a successful career in business?
In addition to Wharton, two other Ivy League schools moved up in this year's ranking. Columbia University's business school advanced three spots to No. 7. "Columbia students tend to be interesting and well-rounded, and there's an international flavor to the M.B.A. program," says Mr. Pometti. "You want people who can relate to consulting clients in any situation, including multicultural settings." The largest Ivy League M.B.A. program, Harvard Business School, moved up one notch to eighth place, but it still stirs mixed feelings with many recruiters, who repeatedly cite students' arrogance as its chief shortcoming.

Mass Appeal

Some big schools ranked higher because they scored well on mass appeal. The weak job market also has clearly affected recruiters' feelings about some of the large M.B.A. programs. Recruiters who visited the bigger schools, particularly the most prestigious programs, reported greater success in hiring students and more considerate treatment from both the graduates and the career-services office during the 2002-03 academic year.

But one large school -- the University of Texas at Austin -- dropped out of the top 10 this year for the first time. Some recruiters cited inconsistent performance from Texas graduates they had hired recently.

The biggest decliners in this year's ranking include New York University, Escuela Superior de Administracion y Direccion de Empresas (ESADE) and the University of Illinois at Urbana-Champaign. Many recruiters commented that student quality is "uneven" at NYU's Stern School of Business and that they sometimes feel as if they are interviewing "Columbia rejects." As for Spain's ESADE and Illinois, recruiters called for more student work experience and a stronger international perspective at both schools.

FIND OUT MORE

See how all the schools ranked in a broad spectrum of categories in "The Wall Street Journal Guide to the Top Business Schools, 2004," a Wall Street Journal Book, published by Free Press and available at WSJbooks.com.

Schools making the biggest advances in the ranking: Brigham Young University, Vanderbilt University, and Instituto Tecnologico y de Estudios Superiores de Monterrey (ITESM). Brigham Young's Marriott School of Management stood out for its students' integrity in this era of corporate scandals. "Our recruiters return to Brigham Young year in and year out because of the school's high ethical standards," says Roger McCarty, corporate strategy development leader for Dow Chemical Co.

Recruiters singled out Vanderbilt's Owen Graduate School of Management for its finance program and its graduates' strong character and team orientation. And Mexico's ITESM, which topped the list of international schools in this year's ranking, earned kudos for its students' strategic thinking and analytical skills, as well as its global vision. "I've been working with ITESM graduates for the past 10 years," says Francisco Trevino Reyes, administration manager at the New Zealand Milk Distribution Center in Monterrey, Mexico. "Believe me, you can rely on the quality of their work, decision making, ethical values and leadership."

Top International Schools

This year, for the first time, The Wall Street Journal and Harris Interactive created a separate ranking of the top 10 international schools. It includes the six foreign schools from the overall top 50, plus four others that received at least 20 recruiter ratings -- the minimum number required -- but didn't score high enough to make the main ranking. Two Mexican schools top the international ranking, while Europe places six schools on the list. Two Canadian M.B.A. programs round out the international leaders.

Surprisingly, INSEAD dropped out of the top 50 and ranked only ninth among the international schools. Some recruiters complained that graduates of the French school lack depth of knowledge because they complete the degree in just one year instead of the usual two years. The students also "are too arrogant," a survey respondent said. "They're not as good as they think they are." Another well-known international program -- IMD International in Lausanne, Switzerland -- also fell out of the ranking this year. An extremely small school with only about 90 full-time M.B.A. students, it failed to receive the minimum number of recruiter ratings to be eligible for this year's rankings.

Other schools that dropped out of the top 50 altogether in 2003: the University of Western Ontario, University of Toronto, University of California at Davis, University of Wisconsin, Boston College and University of California at Irvine.

This year's newcomers to the top 50 include the University of Pittsburgh, University of Florida, American University, University of Denver, Boston University, Texas A&M University and HEC School of Management. In addition, the University of Minnesota returned to the ranking after a one-year absence.

Pittsburgh's Katz Graduate School of Business placed highest among the schools making their debut in The Wall Street Journal ranking. Unlike INSEAD, Pitt is popular with some recruiters because of its fast-track one-year M.B.A. degree. "Pitt's one-year program is more indicative of the fast rate of learning required in the workplace, where you don't have two years to get up to speed," says Lawrence Lane, a finance supervisor at Ford Motor Co. "Pitt is also a good fit with the Ford culture of teamwork."

On a regional basis, U.S. business schools in the East and Midwest claimed 14 of the top 20 spots. Four Southern schools were among the 20, but Western schools fared poorly again. No Western schools made the top 20 in the first ranking, and the only one to do so in 2002 and 2003 was the University of California at Berkeley, in 14th place this year.

Private universities, as usual, dominate the rankings. But public business schools, led by the University of Michigan and the University of North Carolina at Chapel Hill, represent 40% of the top 50. "We like North Carolina because the students have a solid professionalism and sense of leadership -- they're very confident and assured," says Zohar Porat, who works in strategic marketing at Eli Lilly & Co. "They're also delightful people, and that's unusual for M.B.A.s."

-- Mr. Alsop, a Wall Street Journal news editor, served as editor of the new book "The Wall Street Journal Guide to the Top Business Schools 2004" and as contributing editor of this report.

Write to Ronald Alsop at ron.alsop@wsj.com

Expand Your Mind

TheBrain not only aids in organizing your thoughts but could also stimulate new ideas and connections.
April 12, 2004

When you chat with someone who says, "My brain right this minute is 105 megabytes and there are 52,365 thoughts in there," you can (a) run a mile, or (b) figure you're talking to someone who might have something useful to say and stick around. Luckily I chose the latter.

Jerry Michalski is clearly a brainy guy. But in this case he's talking about his Personal Brain, a file built with organizing software called TheBrain (www.thebrain.com). In fact, Jerry's Personal Brain is so big that the company that makes the software had to build a special version when he reached, with 32,767 thoughts, the limits of the program. The founder of the company and inventor of the software, Harlan Hugh, hadn't expected someone to build such a big brain. "I've been using it so much, and for so long, that I got more thoughts than he counted on," says Jerry.

I'm a huge fan of graphical ways of displaying and organizing information, but I'd initially baulked at TheBrain because it takes a slightly different tack. Whereas most visual displays of data soar above the information, putting everything into perspective, TheBrain works by placing whatever bit you're interested in at the center of the display (the "thought"), showing only the links and thoughts close to it. TheBrain, in short, tries to imitate your brain, in the way that it focuses on the matter in hand, and couldn't care less about all the big-picture stuff.

Of course, visual mind maps are not for everyone. Some people swear by them as a way to organize data, brainstorm, or just save their Internet bookmarks. Others prefer to organize themselves by lists, their calendar, even their e-mail inbox. As Jerry himself acknowledges of TheBrain, "It's not for everyone. People have different cognitive abilities." The key, he says, is to "give people tools that match their style" so that, first, they have a way to arrange stuff, and secondly, to express them to other people.

And this, perhaps, is where TheBrain has an edge. It starts with a thought -- a little box in the centre of the screen -- which you can turn into more or less anything you like -- a file, a Web page, a link to a Web page, a term ("mind maps"), an idea ("mind maps are cool"), an umbrella term ("cool ideas that don't always work"). You can then link to it -- you can add a thought that follows it ("a child thought," in the lingo) or a thought that comes before it ("a parent"). This is a kind of hierarchy which lends itself to organizing your computer files, your Web links or your CD collection.

But then TheBrain takes a leap. If you click on a thought, it will come to the center of the window. Suddenly everything else moves into position around it. This is similar to the way your brain focuses on a problem, say the issue of mind maps, bringing it to the fore and forgetting, for the moment, anything but the thoughts directly connected to it (world hunger takes a back seat, mind maps' connection to subway maps comes to the fore).

And here, Jerry says, is where the value of TheBrain really kicks in: Making links to other bits and pieces -- what are called jumps -- that you didn't see a connection with before. Jerry, for example, found himself creating a jump between two separate business-oriented thoughts: vicious circles and virtuous circles. "In business, I realized, one person's vicious circle is another person's virtuous circle. This hadn't dawned on me before, because we tend to think of these things in isolation."

Jerry, of course, is an extreme case. With a brain as big as his, both in his head and in his computer, TheBrain becomes a memory bank, a repository of information and ideas that he can browse as a way to remind himself of things and to stimulate fresh ideas and connections. But it needn't be that flashy: You could just as easily use it as a better way to store Internet bookmarks; TheBrain lets you drag the link directly from your browser, creating a new thought in the process.

Starting that way might help you find out whether TheBrain is for you (there's a free month-long trial, then it costs $80). The trick is to give in to it entirely for as long as you're testing it, throwing everything you can in there. Like me, you might start to see better inside your own brain

Making Them Pay

Online businesses are finally figuring out how to make money by charging for content. Here are their secrets.

By MICHAEL TOTTY | Staff Reporter of THE WALL STREET JOURNAL | March 22, 2004; Page R1

Information wants to be free.

For years, this has been the mantra of the Internet, and the reason most Web sites have refused to even think about charging for information. It has been seen as the height of folly to try to build a business selling information, as opposed to stuff, online.


Well, maybe information doesn't want to be free, after all. Millions of consumers are showing that they will shell out for sporting events and business news, as well as information about nutrition, their ancestors, former schoolmates and potential dates. And a host of online companies are finally figuring out what works and what doesn't when it comes to convincing consumers to loosen the purse strings.

So what are their secrets?

Among them: Offer customers something they're passionate about and they can't otherwise get free of charge, like Boston Red Sox games when you live in San Francisco. Or something that's important or valuable to their lives, like the detailed product reviews provided by ConsumerReports.org, the online counterpart of the popular magazine.

What's more, successful online-content companies take advantage of the power of Internet technology -- easily searchable databases and the connection to millions of other consumers. Online dating services, such as InterActiveCorp's Match.com, make available millions of personal ads just like a print publication, but what gets people to open their wallets is the ability to hook up with a potential date. On the sites, visitors can browse all the ads for free, and the ads have all of each person's information, including a photo -- except for name and contact info. So to be able to send an e-mail to a prospect, you have to subscribe.

"People are not paying a lot for just information," says Chris Charron, a research director at Forrester Research Inc. in Cambridge, Mass. "They're not paying for content for content's sake." Adds Craig Sherman, chief marketing and revenue officer at MyFamily.com Inc., which operates popular genealogy Web sites: "To be able to charge, you need a service that's radically easier, faster and more fun than if it were free."

Whatever the draw, sales of online content continue to increase. The Online Publishers Association, a New York-based trade group, estimates that U.S. consumers alone spent about $1.6 billion on online content last year, up from $1.3 billion in 2002. In the United Kingdom, 58% of the members of the local Association of Online Publishers charge for content, and about half of the remainder have said they plan to begin charging in the next year.

Online personals and dating services represent the largest category in the U.S., with nearly 30% of the total, while the personal-growth group -- which includes dieting sites -- was the fastest growing, more than doubling in revenue last year, according to the New York-based publishers group.

"Like any publishing business, there's going to be some percentage [of revenue] that comes from subscription and some from advertising," says Michael Zimbalist, the group's president. "I think there's a lot of opportunity for continued growth."

However, individual sites need to get a few big things right, and a lot of little ones as well. Here are some secrets used by online-content companies to make subscriptions work:

• Give consumers something they can't get elsewhere.


Network-television news ought to be tough to sell online: There are plenty of alternatives -- other networks, 24-hour cable news and no-cost online news sources -- that have the advantage of being ubiquitous, easy to use and free. Yet ABCNews.com, which in 2002 began requiring customers to pay for all its video content, has seen revenue -- about half from subscriptions -- grow more than 15% a year; in 2003, the site was profitable for the first full year, a spokeswoman says.

What the site offers subscribers is the ability to view ABC News programming that either isn't available elsewhere or at times or places that television viewing isn't an option. In addition to archived video from its most popular news programs -- "World News Tonight" and "Nightline," including the latter's first show, broadcast in 1981 -- the Walt Disney Co. subsidiary serves up specially produced features that include a daily online politics show, outtakes from interviews for "Good Morning America," "20/20" and "Primetime," and "ABC News Live," a round-the-clock news program that's available only online.

Web surfers might be able to get all kinds of news content for free, says Bernard Gershon, senior vice president and general manager at ABCNews.com, but "you can't get high-quality news and video content on a PC unless you pay."


--------------------------------------------------------------------------------
Net Charges
Total paid subscribers of selected online services, in thousands
SITE PARENT BUSINESS JUNE-02 DEC-03
AmericanGreetings.com* American Greetings Corp. Greeting cards 1,400 2,100
ConsumerInfo.com** Experian Personal credit reports 737 1,600
Ancestry.com MyFamily.com Inc. Genealogy 774 1,500
ConsumerReports.org Consumers Union of U.S. Inc. Consumer guide 880 1,300
Real.com RealNetworks Inc. News, sports, entertainment 750 1,300
Match.com InterActive Corp. Personals 604 939
WSJ.com Dow Jones & Co. Business News 646 689
Everquest.com Sony Corp. Games 430 430
GameSpy.com GameSpy Industries Games N/A 275
*Includes BlueMountain.com and Egreetings.com
**Includes CreditExpert.com and FreeCreditReport.com
Source: Intermarket Group LP and the companies

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Newspapers face similar challenges charging their online customers. A few overseas papers, including the Spanish national daily El Pais and Hong Kong's English-language South China Morning Post, require a subscription for their online editions. But nearly all U.S. papers provide their Web content free of charge, with one notable exception: The Wall Street Journal Online.

From the start, the publishers of the Online Journal believed that subscribers would be willing to pay to get access to the paper's business and financial reporting over the Internet, just as they shell out a premium for its print edition. Since it was launched in 1996, the Online Journal's circulation has climbed steadily, to 689,000 at the end of last year from 574,000 in April 2001.

• If you're going to put up a wall, make sure it's in the right place.


Even sites that charge for content still offer up lots of material for free. Some newspapers and magazines, for instance, let visitors view headlines or the first few paragraphs, but require payment to see the whole article, while others give away some pieces but not others. But what to give away and what to charge for? Where should a company place the "wall" separating the free and paid parts of the site?

MyFamily, based in Provo, Utah, caters to family-history buffs. Subscribers to its Ancestry.com site pay as much as $240 a year for access to its database of birth, death and marriage records, census data and newspaper clippings. Most of the information comes from public records and is theoretically available to anyone who wants to spend time in libraries or courthouses digging it up. But MyFamily makes it available to anyone with a computer.

When the company went online in the late 1990s, charging for content was widely seen as a losing strategy. Much of its attention was lavished on its free site, which offered e-mail, photo-storage and other family-friendly content and which was designed to bring in lots of visitors and advertising dollars. After the dot-com bust and the collapse of online advertising, it was the subscription-supported Ancestry.com site that was bringing in the dollars, and MyFamily shifted its focus to emphasize for-fee services. The move has paid off: Today the closely held company has annual revenue approaching $100 million, has been profitable since the third quarter of 2001 and boasts 1.5 million paid subscribers.

Still, roughly a third of the three billion records on Ancestry.com continue to be available to anyone who signs up. So visitors can view hundreds of millions of names in family trees that have been created by Ancestry members. But paying subscribers can also view official documents, such as copies of actual reports from the 1880 or 1930 census, or search 200 newspapers from the U.S., Canada and the U.K. published from the late 18th century through the 1990s. "When you find the really juicy thing you're looking for, we charge," MyFamily's Mr. Sherman says.

The logic: There are hundreds of no-cost genealogy sites on the Web, so MyFamily gives away any information that can be found elsewhere for free. What it charges for are the billions of documents that the company has digitized, placed into easy-to-search databases and posted on its site.

• After putting up the wall, make it easy for visitors to climb over.


One of the hardest tasks for online publishers is to get visitors -- even those who take the time to register -- to take the next step and sign up to pay. Even at the most successful sites, paid subscribers represent only a fraction of total visitors; MyFamily's 1.5 million subscribers come from a pool of more than 33 million registered users. Classmates.com, which helps members connect with old school chums, has about 38 million members, but only about 1.8 million subscribers.

To help visitors leap over the paid-content wall, many sites let potential subscribers sample the paid offerings before buying. At MyFamily, visitors can sign up for a 14-day free trial of the subscription service, during which they can tap every record in its database.

RealNetworks Inc.'s SuperPass gives people access to a host of audio and video selections, including audio feeds from National Basketball Association games, video news broadcasts from ABC and CNN, and radio programs from more than 60 digital stations. Like MyFamily, RealNetworks also extends a 14-day free trial, which allows unlimited access to its full line of programming. (Its Rhapsody music service, which RealNetworks acquired last year, offers a seven-day trial.) In addition, visitors can sample 30-second to two-minute clips of individual broadcasts.

"Rather than getting consumers to imagine what [the service] might be like, we're letting them actually sample, and they can see for themselves what it's like," says Richard Wolpert, RealNetworks' chief strategy officer.

• Setting prices: Start low, aim higher.


Once you get visitors to agree to pay, how much do you charge?

With most goods, setting prices is fairly easy: Just see what your competitors are charging. But in the online world, where most of the competition is giving away content or where there are few, if any, rivals, settling on the right price isn't so easy.

Some sites that started out with relatively low prices are finding that they can raise rates as they become more established. The Wall Street Journal Online initially charged $49 a year for an online-only subscription, compared with $164 a year for the print edition. The cost rose to $59 in 1998 and to $79 recently, without causing a notable flight of subscribers.

Many sites offer several pricing levels. At MyFamily, for instance, subscribers can choose from an array of options, ranging from a basic "starter collection" for about $8 a month or $40 a year, to a "premier collection" of historical newspapers, census, immigration and birth, death and marriage records, and historical journals, for about $30 a month or $200 a year.

Others have more-limited pricing choices. Classmates.com, one of the largest online subscription services, makes it possible for members to track down old friends from high school, college, the military and former workplaces. Members can submit their personal information and search for basic information about the site's 35 million members. But they have to subscribe to get access to more details about an individual to initiate contact. Until recently the site had only one pricing tier, a $39 annual subscription, but in September it introduced a $59 two-year subscription, and it plans to add later this year a 30-day offering as well as a free trial.

"It's not like a retail business where there's a cost of goods," says Michael Smith, Classmates.com's chief executive. Instead, he says, pricing is based on what customers are willing to pay -- and that depends on being able to connect with more and more former classmates. "As the database grows, and there are more people there, people are willing to pay more," Mr. Smith says.

• Bundle Up.


Despite all the attention given to the success of such companies as Apple Computer Inc. at selling songs for 99 cents each, single-payment sales of online content remain a rarity and monthly or annual subscriptions remain the rule. Less than 12% of the companies surveyed by the New York-based online publishers group offer single-payment options.

Instead, many content sellers are bundling their offerings together to give subscribers the sense that they're getting more for their money. It's a lesson from the cable-television industry: Consumers who would find it too inconvenient and too expensive to subscribe to one channel at a time are willing to pay for a package that contains a wide selection of choices.

RealNetworks, which creates no material of its own, bundles sporting events, news broadcasts and radio programs for a single $9.95-a-month fee. As part of its broadband service, Time Warner Inc.'s AOL unit delivers Time Inc. titles such as People, Entertainment Weekly and Fortune, as well as video from ABCNews.com, the National Football League and Nascar. In addition to AOL and RealNetworks, ABC distributes its offerings through such Internet-service providers as SBC Communications Inc. and BellSouth Corp.

For ABCNews.com, which also enables customers to pay $4.95 a month for only its service, letting other Internet companies bundle its product gives it a bigger potential audience and allows it to tailor special programming for different groups of subscribers -- AOL subscribers, for instance, can have "ABC This Week" anchor George Stephanopoulos answer questions on video. "As part of a bundle, it's a more compelling proposition," Mr. Gershon says.

• Hang on to your subscribers by giving them more for their money.


Customer churn is a problem in any subscription business, but the online world is especially volatile. David Strassel, a partner in San Diego-based Intermarket Group, which publishes a survey of subscription-based content, estimates the typical online subscriber stays around for only about 10 months. Turnover can be particularly acute for some subscription-based services, like dieting or dating, where customers sign up with a particular goal in mind.

"I've been 20 years in the direct-marketing business," Mr. Smith, the Classmates chief executive, says. "Churn is always higher than you want it to be."

EDiets.com Inc., which provides nutritional information and personalized diet programs, sells a basic 13-week subscription for $65, and the average membership lasts only about five months. Alison C. Tanner, eDiets' chief strategist, says that isn't bad: It compares favorably with the two-month average of many offline, classroom-based diet programs, and even a short-term membership is profitable because customer-acquisition costs are low.

Still, the company has added new services that aim in part to give subscribers a reason to stay longer. In 2002 it launched a companion site, eFitness.com, which for an additional $1 a week provides a customized workout plan and provides animated exercise suggestions. Subscribers who add the eFitness option so far stay on average about a month longer than those who sign up for the dieting option alone. Between 30% and 40% of eDiets' 200,000 current subscribers have signed up for the eFitness option.

"We're not just about weight loss," Ms. Tanner says, adding that the site increasingly emphasizes general nutrition and fitness in addition to losing weight. "We think that concept has legs."

• Get subscribers to upgrade.


So you've figured out how to hang on to your subscribers; now the challenge is how to squeeze additional revenue from them.

EDiets has added a recipe club for an additional $2 a month. When visitors subscribe, they are given the option of adding the fitness or recipe programs, and pitches to upgrade are included in eDiets newsletters that regularly go out to subscribers.

MyFamily is even more aggressive in promoting its upgraded subscription services. When a subscriber signs up, a MyFamily representative will call to thank the customer -- and to remind him or her of the company's other offerings. Customers are also called when their subscriptions are up for renewal, giving the company another opportunity to pitch service upgrades. Although they're relatively expensive, Mr. Sherman says the calls generate an average of $100 in additional sales.

How to Get Past Spam Filters

By MICHAEL TOTTY | Staff Reporter of THE WALL STREET JOURNAL | March 22, 2004

The deluge of unwanted e-mail messages is a big problem for everybody. But it's what we're all doing to fight those messages that's a big problem for Carlson Cos.

The travel and hospitality company, which owns the Radisson hotel chain and cruise line, sends out a half-dozen newsletters each month, alerting customers to special promotions and communicating with members of its loyalty programs. Nearly a million customers have said they want to receive the messages, but thanks to filters used by consumers and their Internet providers to block spam, "the consumer may not know we're trying to communicate with them," says Michael Williams, director of cross-brand customer relations for Minneapolis-based Carlson's consumer group.

E-mail is a cheap and effective way for online marketers to reach out to prospective customers -- if only they can get past all the barriers consumers have raised to keep out all the spam. About 20% of legitimate marketing messages -- defined as those that recipients have agreed in some fashion to receive -- were blocked or otherwise not delivered to customers' in boxes in last year's fourth quarter, according to Return Path Inc., which helps marketers ensure that their messages get past the spam cops. That was up from 15% a year earlier.

More Filters

"It's been a huge problem for most of the last year," says Jim Nail, a senior analyst at Forrester Research Inc. in Cambridge, Mass. "As spam volumes have been growing, the ISPs have been putting in more filtering to keep these unwanted messages out of people's in boxes, and inevitably some legitimate messages get stopped."

In March of 2003, for instance, Yahoo Inc. launched an enhanced version of its SpamGuard proprietary antispam technology, which allows users to identify the messages they consider to be spam. The new filter captured twice as much spam last month as Yahoo caught in February of last year. (Spam messages aren't blocked, however; they're sent into a separate folder that recipients can view if they want.)

A bigger problem is all the antispam software consumers are adding to their own machines. By one count, there are more than 170 different spam filters on the market, adding a hodgepodge of additional hurdles for marketers. While one filter might object to the word "free," another could have a problem with "mortgage" -- and a marketer has to figure out ways to navigate both.

Still, the tech industry thrives on being able to turn one person's problem into another's business opportunity. So most of the companies that provide marketers with mass e-mail services now tout their ability to improve "deliverability" of their clients' messages.

Blacklist Monitors

Return Path, based in New York, supplies both technology and consulting services to marketers and their e-mail service providers aimed at getting their messages into consumers' in boxes. It screens communications for "spammy" content, tracks messages to make sure that they're delivered and monitors antispam blacklists -- formal and informal registries used by many ISPs to identify spammers -- to make sure clients haven't been added improperly.

The first step, says Matt Blumberg, Return Path's chairman and chief executive, is for marketers to make sure their e-mail system itself doesn't set off antispam software. One technique is to enable a feature on e-mail servers called "reverse DNS," for domain name server, which converts a numerical Internet address into a host name, like wsj.com. Spammers often use fake Internet addresses, but by activating reverse DNS, a legitimate marketer can show it's who it says it is.

"If your server tells me you're eBay, then you're eBay," Mr. Blumberg says. "If it doesn't tell me anything, you're probably a spammer."

TheStreet.com goes a step further. The New York-based financial-information site sends out 16 subscription newsletters in addition to its marketing messages, costing from $79 to as much as $30,000 a year, and it doesn't want unhappy customers who don't receive what they've paid for. So it uses different servers for its newsletters and for its marketing messages to ensure that if its marketing e-mails get tagged as spam, it won't affect delivery of its subscription products.

A Dry Run

Next, companies should test their messages. Carlson, the travel company, began in mid-2003 using Return Path services delivered by its e-mail provider, Responsys Inc. of Palo Alto, Calif., and its bounce rate for messages from its hotel group -- the share of undelivered messages -- dropped to about 6% from more than 16% in January last year.

Before launching a new campaign, Carlson's marketers design the planned e-mail using the accumulated wisdom of past efforts: Avoid the use of large font sizes, and if they must be used, place them in a graphic image, which isn't captured by spam filters, instead of in text. Also, limit the use of the common Web-page programming, HTML, which can catch the attention of viewers but also draws greater scrutiny from spam detectors.

Then Carlson runs the planned message through Responsys' own spam filter (which it licenses from Return Path, which in turn uses the open-source SpamAssassin). This tests the message against 1,500 different spam-related rules and flags any features that could trigger common spam blockers -- excessive use of the word "free," for instance. It then assigns a score: An e-mail with a score above 10 is more likely to be blocked, while a score lower than 5 is considered safe. Land in between, and you might run afoul of some Internet providers, but not others.

Simple housekeeping can help ensure that a company's messages get delivered. Many Internet providers have set limits on large number of e-mails to unknown or unassigned e-mail addresses -- spammers often use so-called dictionary attacks to create likely, though fictional, addresses, like jane.smith@yahoo.com -- and "a lot of mail bounced from addresses that are no longer used is a red flag for spam fighters," Mr. Blumberg says. So it pays for companies to regularly cull their mailing lists of abandoned or out-of-date e-mail addresses.

How Insurance Spat Further Frayed U.S.- French Ties

By John Carreyrou and Glenn R. Simpson | 16 April 2004 | The Wall Street Journal


When Executive Life collapsed in the early 1990s, the big California insurer became an emblem of the excesses of the junk-bond era. Today, it has morphed into a symbol of something else: the tattered Franco-American relationship.

In a highly humiliating move, the French government was recently forced to plead guilty in U.S. District Court in California to fraud in connection with French bank Credit Lyonnais's 12-year-old acquisition of the U.S. insurer. It was a costly admission: The plea negotiated with American prosecutors came with a $770 million fine -- the biggest criminal settlement in U.S. history.

Credit Lyonnais admitted it had circumvented laws barring it from owning a U.S. insurer by using a consortium of French investors to buy Executive Life and its ailing bond portfolio. When the bonds rebounded, the bank and French billionaire Francois Pinault reaped a $2.54 billion profit. France itself also was tarnished because a French government agency admitted it had helped cover up the fraud.

The case has tracked the steep decline in French-American relations during the Bush administration. Initially seen as an obscure affair, the dispute became so charged that it aggravated the rift between Paris and Washington opened by last year's diplomatic clash over Iraq. At one point, a congressman accused French investors of feasting on "wine and brie" with their gains from the Executive Life deal.

Now, the Executive Life scandal is entering a second stage in which the financial stakes are even larger. In a civil lawsuit that goes to trial next February, California's insurance regulator is seeking up to $5 billion from France, Credit Lyonnais and Mr. Pinault, the majority owner of Gucci. The French vow to fight the civil suit, but their guilty pleas in the criminal proceeding and the exclusion from the settlement of key individuals may leave them vulnerable to a big verdict from a U.S. jury.

The stakes for Mr. Pinault are huge. The California Department of Insurance is seeking around $2 billion from him. An unfavorable verdict could force him to liquidate chunks of his empire, which also includes auction house Christie's and French retailer Pinault-Printemps-Redoute SA.

The criminal case "was a shadow-box," says George J. Terwilliger III, an American lawyer representing the French government. "It's all about the civil case." He believes the plea agreement minimizes French liability in the civil case because it didn't contain an admission of defrauding the state of California.

Mr. Pinault's lawyers play down the likelihood of the tycoon losing the civil case and having to sell any of his assets. They say he will prove that the California Department of Insurance knew what Credit Lyonnais was doing and chose to turn a blind eye to it so that Executive Life could be saved.

The twisted tale has highlighted the very different legal cultures of the U.S., which strives to keep the courts free of political interference, and France, whose leaders often intervene in sensitive cases despite a nominal separation of powers. Paris repeatedly tried to get the case solved at a political rather than a judicial level, and insisted that any settlement involve Mr. Pinault, a close friend of French President Jacques Chirac.

The French refuse "to understand what they are up against," says Gary Fontana, a private lawyer for the California regulator who is handling the civil suit on a contingency basis. "They have been in clinical denial and still are." The French camp dismisses Mr. Fontana as a greedy trial lawyer and his client's lawsuit as an extortion attempt.

The criminal phase of the case battered the already strained friendship between France and the U.S. French government officials say they grew convinced that the Bush administration was using the case to punish France for opposing the war in Iraq. For Paris, the sting is especially sharp because a big chunk of the settlement is being paid by French taxpayers, who already financed Credit Lyonnais's huge state bailout in the mid-1990s.

The affair began in 1991 when high-flying Executive Life collapsed under the stewardship of Frederick Carr, an associate of fallen junk-bond king Michael Milken. Mr. Carr invested the premiums of Executive Life policyholders in junk bonds, whose value plunged when the U.S. economy tanked.

The insurer's troubles caught the eye of Credit Lyonnais, then owned by the French state. One of the world's largest banks at the time, Credit Lyonnais thought the bonds would rebound and result in a windfall. So when the California Department of Insurance, which oversees the state's insurance industry, auctioned off Executive Life and its bond portfolio to salvage the insurer, Credit Lyonnais wanted to buy them.

But several U.S. laws forbade the French bank from doing so. At the time, the Glass-Steagall Act barred banks from owning nonbank entities such as insurance companies. California law also made it illegal for a bank controlled by a foreign government to own an insurance company in the state. Knowingly violating those laws would amount to criminal fraud, carrying heavy fines and even jail sentences, and could get Credit Lyonnais expelled from the U.S.

To get around these restrictions, Credit Lyonnais arranged for a consortium of other French investors to do the deal. But, under secret agreements allegedly hidden from U.S. regulators, Credit Lyonnais was the true buyer, according to court documents. Later, it resold the insurance company and part of the bonds to Mr. Pinault, the documents show.

Credit Lyonnais's subterfuge became known in late 1998 when a French whistleblower tipped off the Department of Insurance, according to lawyers involved in the case. The Federal Reserve Bank of New York and the U.S. Attorney's office in Los Angeles launched investigations. The Los Angeles probe was spearheaded by a dogged assistant U.S. attorney named Jeffrey Isaacs.

The whistleblower, whose identity remains secret, agreed to be a witness in the separate civil lawsuit filed by the Department of Insurance. The department's hulking 6-foot 6-inch attorney, Mr. Fontana, became the French camp's biggest nemesis. He argued relentlessly that Credit Lyonnais and Mr. Pinault earned their huge profits at the expense of Executive Life policyholders.

By 2001, Mr. Isaacs, the assistant U.S. attorney, had developed a criminal case against Credit Lyonnais and a French government agency called Consortium de Realisation, or CDR, set up in 1995 to assume Credit Lyonnais's liabilities. CDR, in Mr. Isaacs's view, had covered up the fraud after finding out about it. But Paris shrugged off the case. It couldn't understand why U.S. prosecutors would get worked up about what it saw as a minor transgression, say lawyers for the French government and for Credit Lyonnais.

France argued that the defendants shouldn't be penalized for lightly bending U.S. laws, especially since one of them, the Glass-Steagall Act, was later repealed. It also contended that Credit Lyonnais's acquisition of Executive Life spared California a much greater calamity -- the insurer's bankruptcy. But those arguments didn't persuade U.S. prosecutors, who considered the act of lying to regulators and later covering it up as grave crimes.

As Mr. Isaacs got the case into high gear in 2002, U.S. Reps. Doug Ose and Jerry Lewis, both California Republicans, took a keen interest. Some of their constituents were Executive Life policyholders.

"French billionaires pocketed roughly $2 billion at the expense of American policyholders and are now dining on wine and brie, cruising the French Riviera in their fancy yachts and living in big mansions while the American victims of this case are selling their homes and finding it hard to pay the bills," Rep. Ose declared at a congressional hearing in October 2002.

The congressional committee invited several disabled Executive Life policyholders to the hearing. They told heart-rending tales of poverty. In reality, the disabled represented 1.5% of Executive Life's 330,000 policyholders, lawyers for both sides say. The rest were mostly affluent Californians. Moreover, most of the policyholders recouped much of their losses from an insurance-industry protection fund.

By early 2003, Presidents Bush and Chirac were on a collision course over whether to go to war in Iraq. Around that time, Mr. Isaacs's boss, Los Angeles U.S. Attorney Debra Yang, informed France of her plans to indict Credit Lyonnais and CDR.

Jean-David Levitte, the French ambassador to the U.S., tried to convey back home the need to solve the case before it escalated, one lawyer who worked with him says. But Paris continued to downplay it. France "couldn't accept that there was not a political solution," this lawyer says. A spokeswoman for the French embassy in Washington declined to comment.

In July 2003, Mr. Isaacs obtained secret indictments on charges of fraud against Credit Lyonnais, CDR and several French bankers and businessmen from a grand jury. If the indictments were unsealed, the New York Fed would likely strip Credit Lyonnais of its U.S. banking license, crippling its business just as it was being acquired by domestic rival Credit Agricole to form one of Europe's biggest banks. CDR's indictment also meant the French state would be a defendant in a U.S. criminal trial.

The French went to the bargaining table. After weeks of talks, Credit Lyonnais and CDR agreed in early September 2003 to guilty pleas on some charges, plus $575 million in penalties. The criminal case appeared over.

But Mr. Pinault, the French tycoon, had been left out of the settlement and remained exposed to prosecution. Furious, he publicly called on France's parliament to investigate in an opinion piece in a French newspaper.

(MORE)

Mr. Fontana, the lawyer handling the civil case for the Department of Insurance, had his own reason to dislike the deal: It included former Credit Lyonnais Chairman Jean Peyrelevade. Without a major defendant from inside the bank such as Mr. Peyrelevade going to trial, evidence developed by prosecutors showing the bank covered up the fraud wouldn't enter the public record. Mr. Fontana needed that evidence for his civil suit. So, he says in an interview, he sent Mr. Isaacs a memo obtained in his research. The document, initialed by Mr. Peyrelevade, allegedly proved that Mr. Peyrelevade knew of the fraud as early as 1994.

As Mr. Fontana hoped, the memo's disclosure prompted Mr. Isaacs to exclude Mr. Peyrelevade from the settlement. Mr. Pinault seized on that to lobby Paris to kill the deal. No settlement would be airtight, the tycoon argued, unless it included everyone on the French side, according to people familiar with the matter.

The billionaire's friendship with President Chirac gave weight to his lobbying, according to a French government official. The two have been close ever since Mr. Pinault rescued a bankrupt sawmill in Mr. Chirac's parliamentary district in 1981.

Mr. Pinault's efforts to scuttle the deal got a boost in early October. The French justice ministry received a request from U.S. prosecutors to arrest and extradite four French nationals indicted in the case. The move infuriated Paris. "The U.S. attorney in California is treating the French state like the Cali [drug] cartel," fumed a high-ranking French finance ministry official.

Paris pulled out of the criminal settlement. By then, French politicians and commentators were accusing the U.S. of bullying and trying to extort France. "We'd like to speak with responsible people," bristled French Finance Minister Francis Mer, according to a press account of a public statement.

In what was widely interpreted by the French press as a reprisal, word leaked that French prosecutors had opened a probe into allegations that a consortium involving Halliburton Co. paid bribes in connection with a Nigerian gas contract when U.S. Vice President Dick Cheney ran the company. Halliburton has denied wrongdoing.

France also launched a campaign to get the case solved politically. Justice Minister Dominique Perben paid a visit to U.S. Attorney General John Ashcroft. Mr. Mer, the finance minister, who has since left office, buttonholed U.S. Treasury Secretary John Snow three times on the subject, including once at a secret meeting in a Paris hotel, according to U.S. and French officials. Each time, word came back that the matter was in the hands of Ms. Yang, the U.S. attorney -- and Washington wouldn't interfere.

Francois Perol, a deputy to Mr. Mer, led a last-ditch French delegation to Los Angeles to negotiate directly with Ms. Yang. Mr. Perol joked to Ms. Yang that she had become a celebrity in France because her picture had appeared in all the papers, and he offered to send her a book of her press clippings, says a person familiar with the matter.

The ice was broken, but the talks faltered over Mr. Pinault. Ms. Yang had agreed to let the billionaire avoid a guilty plea. But she wanted him to pay a big fine as punishment for allegedly knowing about Credit Lyonnais's deception and never reporting it. Mr. Pinault balked, and the French went home empty-handed.

On Dec. 10, 2003, Mr. Pinault finally came around to Ms. Yang's terms -- a $185 million fine -- hours before she was due to unseal the July indictments. The next day, Paris announced it had obtained a settlement that protected all French parties -- except Mr. Peyrelevade, the former Credit Lyonnais chairman.

Opposition leaders accused Mr. Chirac of playing favorites with his friend Mr. Pinault. And Mr. Peyrelevade, who maintains his innocence, says in an interview, "I was abandoned at the last minute by the French government, namely by the finance minister."

Mr. Chirac has said publicly that France acted with only one goal in mind: to protect the state and taxpayers. In a radio interview, Francois-Henri Pinault, Mr. Pinault's son and CEO of their family investment company, called the suggestion that Paris favored his father "shocking and insulting to the president." He added: "We're not living in a banana republic."

The mistrust between Paris and the U.S. attorney's office in California was so thick that when it came time to ratify the Dec. 10 settlement in court early this year, Mr. Isaacs and Ms. Yang vowed to hold up the deal until the last penny owed by the French state was in the bank. The French government refused to pay until it was sure a U.S. judge approved the deal.

The deadlock was broken on Jan. 21, when the Bank of France opened in the middle of the night to wire $375 million to the U.S. Treasury. Across the world in a Los Angeles courthouse, U.S. prosecutors and regulators and the French camp's lawyers frantically worked their cellphones to check that the money had arrived. Word finally came around 3:30 a.m. Paris time.

With Mr. Peyrelevade now facing a criminal trial, the Department of Insurance is poised to get more evidence for its civil suit. France, Credit Lyonnais and Mr. Pinault say the civil suit is without merit and promise to fight it vigorously. But CDR's and Credit Lyonnais's guilty pleas to several counts of fraud in the criminal case, and the evidence that may emerge from Mr. Peyrelevade's trial, could undermine much of their defense. A loss in the civil case would mean another major hit to the French taxpayer.

Mr. Fontana, meanwhile, the private lawyer representing the Department of Insurance in the civil suit, stands to make a fortune. He says the French state and Credit Lyonnais have never made any offers to settle the civil case. Mr. Pinault's camp says there have been talks about settling his part of the case, but Mr. Fontana says he laughed off the offers as too low. The civil trial is set for Feb. 15, 2005.

---


A Costly Deal

Breakdown of the $770 million fine paid by the French to settle the
Executive Life criminal case, in millions of dollars

French government ............. $375
Credit Lyonnais ............... $200
Francois Pinault .............. $185
MAAF* ......................... $10

*French insurer that Credit Lyonnais allegedly used to hide its ownership
of Executive Life and its junk bonds.

Source: U.S. Attorney for the Central District of California