The Feeling Is Mutual

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When co-op managers from around the country met in Seattle last October, they devoted one convention day to a collective busman’s holiday, boarding buses for an organized tour of Seattle-area cooperatives.

They strolled the aisles at a local PCC market, surveying shelves of health foods and learning how a neighborhood buying club grew to become a chain of natural foods markets that sells a half million dollars per day worth of organic everything. They bused over to REI’s monumental flagship store and marveled at how a huge national chain with 122 stores and $2 billion in sales could have evolved from an idea cooked up 75 years ago by a few Seattle mountaineers. They clustered in front of the sedate Capitol Hill offices of People’s Memorial, and heard the story of the nation’s largest funeral cooperative, which has 80,000 members.

While Seattle is best known for Fortune 500 corporations like Boeing and Microsoft, these visitors experienced the city as a cooperative Mecca, the epicenter of a historic movement that is a quiet but crucial facet of the Northwest culture and economy.

“If you’re into cooperatives, you want to come to Seattle to see what they’re about,” observes David Woo, a Philadelphia cooperative activist who got his start selling outdoor equipment at REI in Philadelphia.

In addition to the nation’s largest consumer and funeral co-ops, Seattle and Washington state are also home to the nation’s largest health cooperative, one of the largest credit unions, along with dozens of rural electrical co-ops, farmer co-ops, grocery co-ops and more.

“There’s something in the water out there in Seattle,” suggests Liz Bailey, a vice president of the National Cooperative Business Association, which hosted the October convention. “Something that breeds the cooperative spirit.”

The NCBA is a national organization that represents several hundred cooperatives, including several of Seattle’s, most of which defy the popular stereotypes attached to cooperatives.

“When most people think of co-ops, they think of counterculture hippies and ‘Kumbaya,’” Woo observes, strolling through REI. “But Seattle demonstrates that those stereotypes are ridiculous.”

These days, when many Americans despair over Wall Street’s astronomical salaries and ravenous corporate tactics, co-ops serve as a reminder that there are other ways to do business in the American marketplace.

A recent study at the University of Wisconsin identified more than 29,000 cooperatives across the United States, holding a staggering $3.1 trillion in assets and generating $500 billion in annual sales. They employ 856,000 people who earn $25 billion a year in wages. Most of these are consumer co-ops like REI, PCC Natural Markets and the rural electrical cooperatives. But there are also more than 700 purchasing co-ops like Ace Hardware and True Value, whose independent hardware store owners cooperate to buy goods in bulk, enabling them to compete with the big-box stores.

About 1,500 producer co-ops are owned by independent farmers who market their produce cooperatively. Darigold, the marketing subsidiary of Seattle’s Northwest Dairy Association and a household brand name across the region, is wholly owned by 542 dairy farmers who account for nearly a quarter of U.S. exports of cheese and other dairy products. (See page 48.)

While they may vary dramatically in their missions and membership, these diverse businesses share one crucial characteristic: They are owned by their members—buyers, sellers or, less frequently, workers. There are no sole proprietors, no stockholders demanding higher profits and annual dividends. The customers, or the producers, also share ownership of the business, electing its board and shaping its policies, and in some way sharing its profits.

Some, like Seattle’s Group Health Cooperative, are legally organized as nonprofits. Most, however, are for-profit businesses. Either way, cooperatives are not charities; if they lose money, they fail.

Cooperatives also share another important characteristic: They are responses to something that doesn’t work quite right in the free market.

“Cooperatives are born out of adversity,” says Diane Gasaway, a former banker who now directs the Northwest Cooperative Development Center. “They are formed to serve a need that the conventional marketplace isn’t serving.” Economists call this a market failure. Electrical co-ops were formed to bring power to rural areas that private utilities wouldn’t serve. REI was formed to make available high-quality outdoor gear that wasn’t available at Sears. Credit unions cropped up as a response to bank failures, many of them during the 1930s.

Darigold was created in 1918 as a way to market a highly perishable product that has to be processed daily. “It’s essential that dairy farmers have a stable market for their products,” Darigold CEO Jim Wegner explains. And that requires cooperation among farmers who might otherwise be competitors.

Cooperation isn’t always easy, says Gasaway, whose organization helps groups start new cooperatives around the region. “You need the impetus of the market failure to start. And that need has to be compelling enough to keep people at the table, because it’s hard to play in the same sandbox as other people.”

The cooperative impulse—the idea that people can solve economic problems by working together—is as old as civilization. But the legal and business concept is usually traced to the Rochdale Cooperative in the English Midlands, where weavers and other craftspeople founded a cooperative store in 1844 as an alternative to the predatory pricing of company stores. That concept crossed the Atlantic Ocean with European immigrants who formed cooperatives to defend against monopolistic banks and railroads.

In Washington, those populist impulses led to the establishment of the Washington State Grange and the Peoples Party, rooted in Puget Sound farms and in the logging camps and mills at the turn of the century. Many of those pioneers were avowed socialists and labor radicals, but others were nonideological farmers and workers trying to defend themselves against the chronic economic cycles of the era.

The cooperative explosion occurred in the 1930s, when bank failures and the Great Depression left people looking for alternative ways to buy, produce or market their goods. REI, People’s Memorial, BECU and many producer and electrical co-ops were founded in the mid-1930s. The seeds were sown for Group Health around 1937, and it went into business 10 years later.

For the likes of REI and Group Health, the growth rate has been phenomenal—and sometimes controversial. True believers suspect that the cooperative mission diminishes in inverse proportion to the size of the membership and the flow of money. “When members no longer feel like owners, you’re too big,” says Derek Hoshiko, who has organized small cooperatives in the Seattle area. “They begin competing with other communities. I’m a member of REI, but I don’t really feel like an owner there.”

That impulse is understandable to anyone who subscribes to the social or environmental values often attached to cooperatives, says Gasaway. But cooperatives are real businesses that deal with all or most of the same economic realities as the conventional business across the street. Contrary to many assumptions, she says, most cooperatives have to make a profit, which is subject to income taxes. Those taxes may be lower than for the corporation next door, because co-ops return much of their profits to members, who generally pay individual taxes on that income.

For profit or not, cooperatives have worked their way into every corner of regional and national economies—from retail to farming to electricity and health care.

And what next? Gasaway’s organization has helped a group of home health care workers organize a cooperative in Bellingham. Think about it, she says: You have a huge generation of aging Baby Boomers, many of them with money to spend, who will be needing care, and many of them would rather get it at home. Home health care workers require substantial skills, but are poorly paid, averaging about $11 an hour. As a result, they’re hard to get and hard to keep. You have a fast-growing demand for care, and a shortage of people to provide it—a classic market failure.

“Cooperatives could provide more consistency to caregivers, patients and their families,” Gasaway says. “And you can do this because you’re not paying a third party; there are no CEOs and stockholders raking income off the top.”

Today, the idea of a home health care co-op may seem farfetched. But no doubt that’s what people thought 75 years ago about a group of Seattle mountaineers who thought a little co-op might be a good way to acquire some good climbing gear.

 

A Co-Op Sampler

Some cooperatives based in and around Seattle

REI (Recreational Equipment Inc.): Launched by Seattle mountaineers in 1935 as a way to obtain quality climbing equipment, REI has become the nation’s largest consumer cooperative, with 3.5 million members and $1.8 billion in sales through 122 stores in 29 states. This year, REI paid out $165 million in dividends to members and employees.

Darigold: It’s the brand name used by the Seattle-based Northwest Dairy Association, which is one of the nation’s largest producer co-ops, with sales of milk, cheese, butter and other dairy products exceeding $2 billion per year. Founded in 1918, Darigold is owned by more than 500 independent dairy farmers, who compete with other co-ops and conventional dairies around the country. (See Executive Q&A, page 48.)

Group Health Cooperative: Established in 1947, Seattle-based GHC is the nation’s largest consumer-governed health care organization, boasting more than 600,000 members in Washington and northern Idaho. With nearly 10,000 staff, including 1,100 physicians, Group Health is frequently cited as a potential model for a future national health care system.

BECU: Credit unions are classic cooperatives, wholly owned by their members. Founded in 1935, BECU (formerly Boeing Employees Credit Union) is the state’s largest and the nation's fourth largest, with 800,000 members and $10.8 billion in assets in 2011.

PCC natural markets: The largest consumer-owned natural food co-op in the nation, with nine stores in the Seattle area, PCC (for Puget Consumers Coopeartive) claims more than 45,000 member-owners, $161 million in sales and net income of $2.3 million in 2011.

People’s Memorial Funeral Cooperative: Since its founding in 1939, People’s Memorial has grown to become the nation’s oldest and largest co-op of its kind. Based on Capitol Hill, it has about 80,000 members and handles nearly 10 percent of funerals in the Seattle-King County area. About 95 percent of its funeral arrangements are simple cremations, with an average cost of about $850.

Peninsula Light Co.: “PenLight” is the state’s second-largest electric cooperative, delivering federal hydropower to some 31,000 homes across 112 square miles in the Gig Harbor area. Most of Washington’s electrical cooperatives are in rural Eastern Washington.

Tree Top: Owned since 1960 by Eastern Washington apple growers, the well-known juice cooperative processes more than 300,000 tons of apples and other fruits per year. Sales in 2011 were $370 million, returning 19 percent on members’ investments.

The Amazing Rise of Amazon Studios

The Amazing Rise of Amazon Studios

A few years ago, no one was streaming new content from the retail giant. Roy Price has changed that dynamic.
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When the 89th Academy Awards celebration begins on February 26, Roy Price is sure to be in the audience. If early predictions are accurate, he will be anticipating an award or two for Manchester by the Sea, a film that’s been the smash hit at all four major North American film festivals this season.
 
A huge comeback for writer/director Kenneth Lonergan, Manchester by the Sea stars Casey Affleck as a lost soul forced to contemplate adopting his reluctant teenage nephew. With Manchester receiving six Academy Award nominations, Roy Price could be a happy man on Oscar night. And Amazon.com shareholders, who have seen Amazon’s stock price rise 340 percent in the past six years, would likely be giving a standing ovation. 
 
Price, 49, who until recently lived in Seattle’s Laurelhurst neighborhood, is chief of Amazon Studios — the arm of the Jeff Bezos empire committed to revolutionizing entertainment. Based partly in Seattle but mostly in a new 85,000-square-foot Santa Monica production facility, Price’s team of renowned Hollywood execs and industry veterans has been responsible for more than 100 prestige movies and blockbuster shows. They now make and acquire original films and TV series, which are streamed via the company’s on-demand video service. 
 
Amazon is likely second only to Netflix in total streaming customers. And Manchester by the Sea is its first big Oscar contender. Even if Oscar snubs Amazon, its Hollywood profile is at an all-time high. Back in 1998, when Amazon began selling DVDs, Hollywood studios actually refused to make DVDs of their films available for sale online. Now, Hollywood returns Amazon’s calls, and Price can hire talent like directors Woody Allen, Steven Soderbergh and Spike Lee, and Manchester producer Matt Damon.
 
It’s a coup for Price, who started planning this Hollywood invasion in 2000, when he quit Disney after six years as animated-series VP to become a digital media consultant. He then joined Amazon in 2004, launching its video-on-demand service in 2008. When archrival Netflix started making its own shows, like the popular and critically acclaimed House of Cards, Price got the green light to launch Amazon Studios in 2010.
 
Netflix spends about $6 billion a year on 1,000-plus hours of original programming. Amazon’s production is ramping up sharply — in the second half of this year it said it was spending twice as much as  in the same period last year — but its attitude toward releasing actual numbers on its business is a lot like the secretary who defies Javier Bardem’s nosy killer character in No Country for Old Men: “Did you not hear me? We can’t give out no information!”
 
Regardless, Price is happily gobsmacked at how fast Amazon Studios has taken off. “Our first show, Garry Trudeau’s Alpha House, came out three years ago,” says Price, who has a mind sharp as a bear trap and a jaunty, quirky personal manner. 
 
Alpha House earned some applause, though no Emmys — something that changed in Amazon Studios’ second year, when it nabbed five Emmy Awards to Netflix’s four. Amazon’s first hits — Transparent, a noble, exquisitely trendy comedy-drama about a transsexual dad, and Mozart in the Jungle, about a madcap orchestra conductor (Gael García Bernal) and a young oboist (Lola Kirke) — won four Golden Globes in the past two years, plus an abundance of the industry’s most prestigious other prizes. 
 
Price plays everything close to the vest, but these days he doesn’t conceal his glee. In his first time at bat in the Oscar race, he has hit what could be a home run with Manchester by the Sea.
 
“We only came out with one movie last year,” Price remarks. “We’ll have 15 this year.”
 
And while he is all smiles about Amazon’s entry into the movie world, his ambitions for TV are just as energetic. He spent a reported $70 million for an eight-episode series from Mad Men creator Matt Weiner and $160 million for 16 episodes of a David O. Russell drama starring Robert De Niro and Julianne Moore.
 
Amazon hasn’t said yet when the programs will air. 
 
Amazon’s successes are catching the attention of media watchers.
 
“As soon as Amazon entered the awards race, that scrappy media player zoomed to the front of the pack,” says Tom O’Neil, editor of the Gold Derby awards-prediction website. “Transparent won Best Comedy Actor for Jeffrey Tambor at the Emmy Awards in 2015, the first time a streaming service won a top Emmy category. Amazon not only proved it was a serious player, but it’s playing for the long haul ahead.”
 
Amazon is betting big money — O’Neil estimates about $2 million — on the Emmy and Oscar races. In December, as part of the studio’s marketing campaign, Damon and Bezos hosted a party under a big tent at Bezos’s Beverly Hills mansion, stocked for the occasion with the best scotch, plenty of shrimp and lots of stars.
 
Bezos spoke to Anne Thompson of the independent-film website IndieWire, who reports, “[Bezos] wants to build a brand that means taste and class, and the person he leans on for advice is pal Harvey Weinstein.” Weinstein is the legendary Hollywood mogul whose films have earned more than 300 Oscar nominations. The Hollywood Reporter notes that not since Weinstein’s 1999 battle for Shakespeare in Love against Steven Spielberg’s Saving Private Ryan has there been a dramatic, bragging-rights Oscar contest like Amazon’s Manchester vs. Netflix’s 13th, a hot Oscar contender in the documentary category, which would be Netflix’s fourth Oscar nomination.
 
“Amazon is following the same strategy HBO pursued at the Emmys back when it was the New Media Kid in Town,” O’Neil explains. “In the 1980s, HBO craved the approval of its peers and so campaigned aggressively to win Emmys. … Now, HBO is The Establishment and it’s facing hungry new foes like Amazon.”
 
To O’Neil’s point, HBO, which dominated the Oscars and Emmys for two decades, didn’t make the Oscar documentary semifinalist list of 15 contenders this year. Netflix, with 13th, and Amazon, which acquired the U.S. rights to Gleason, did. Clearly, back in 2000, Price guessed right about the future of internet entertainment.
 
In 2008, Amazon’s digital video sales generated revenues comparable to that of a neighborhood Blockbuster store. How on Earth did Roy Price turn this modest digital store into a rocket ship to Emmy and Oscar acclaim?
 
It helps that he is Hollywood royalty. Price’s mom, Katherine Crawford, was an actress who appeared on the 1970s Seattle-set show Here Come the Brides. His dad, Frank Price, ran Columbia and Universal studios, and his namesake maternal grandpa, Roy Huggins, created and produced breakthrough TV shows like The Fugitive, The Rockford Files and Maverick
 
Perpetually clad in jeans and a black leather jacket, Price can swim with Hollywood sharks, speak their upbeat lingo and still talk digital business jargon with the nerdiest of nerds. His parents tried to steer him away from too much show biz, but after graduating from exclusive East Coast schools (Phillips Academy Andover and Harvard University), he went to USC’s Gould School of Law, worked as an assistant for an agent who grew up to run Hollywood’s top talent agency, CAA, and went into the family business.
 
He is irreverent, puckish and infinitely bolder than most Hollywood execs, who live in fear of making a mistake and getting fired. Price takes entertainment seriously — he actually rewrote the story of Bosch, Amazon’s adaptation of the Michael Connelly crime novels, but he isn’t self-important. The Disney film The Barefoot Executive, about a chimpanzee that’s adept at picking TV hits, is one of his favorites.
 
“That is an awesome, awesome movie,” says Price, who loves monkeying with Hollywood tradition. “You’re not going to find the most interesting new show on TV by being easily put off by risk. You have to be sort of bold. In today’s competitive environment, the conservative path is the riskiest path.” 
 
Price doesn’t seem to need a chimp to pick hits. Like his forebears, he is a maverick with an analytical streak. His grandpa’s show, The Fugitive, which became a $387 million movie, broke all the rules of its day. “Every network passed on The Fugitive at least once,” he says. “You couldn’t have a guy wanted for murder as your protagonist! The whole concept was offensive! But it was a huge hit, and the offbeat protagonist has become very popular.” 
 
Offbeat protagonists are the foundation of Price’s empire: trans dads, madcap maestros, Nazis running half of America in Philip K. Dick’s The Man in the High Castle, and a Vietnam-era writer who sells out his talent in Woody Allen’s Crisis in Six Scenes. As with The Fugitive, he notes, “Every studio passed on Transparent.”  
 
Price also doesn’t fret about industry headlines, which note that shows by Netflix, FX, HBO and Hulu often get more viewers than Amazon. Though he’s in competition with traditional studios for viewers in theaters, on TV and on devices, he’s in a different position because Amazon’s business model is unique. He needs to grow viewership, but he doesn’t make money from ads whose prices are based on viewership ratings, which (natch!) Amazon won’t disclose.
 
Instead, he must grow membership in Amazon Prime, a service that costs Amazon customers $99 a year (or $10.99 a month), for which they get free two-day shipping on products purchased through Amazon and streaming of all the Amazon shows they can watch. Analysts say Price drove much of Amazon’s 53 percent growth in Prime membership in 2015 to an estimated 54 million (it’s now over 60 million). Prime members effectively subsidize all the shows Price is busy creating, whether or not they watch anything.
 
“Their strong belief is the more time you spend in the Amazon ecosystem, the more money you spend with Amazon,” media analyst Richard Greenfield told The Los Angeles Times last year. “The key for Amazon is how do they get you to spend more time in that ecosystem — and it’s with having a deep catalog of movies, TV and music.”
 
Much more important than ratings, then, is converting casual customers into Amazon Prime members — who buy three times as much from Amazon as non-Prime customers — and breaking through the noise of the vast landscape of entertainment options.
 
“You’ve got to make it interesting and worthwhile and buzzworthy to stand out in a crowded market,” says Price. “What you’re really looking for is that really ambitious, completely addictive, binge-worthy show that’s in the top 20 or 10 — or one — that people are talking about. In 1977, you could get a lot out of a show that simply retained the audience of a previous show. But today, it’s on demand — they have to demand it. So you’ve got to earn that.”
 
Audience habits are changing at warp speed, something Price and his boss, Bezos, who devotes serious time to Amazon Studios, are obviously factoring into their plans. Most Hollywood programmers live or die by ratings and first-weekend grosses. Bezos and Price play a longer game. Their goal is to retain audiences for years, not weekends, and they have the benefit of the world’s largest database of consumer behavior. 
 
Instead of relying on Nielsen polls of viewers, who can lie about what they watch and are increasingly hard to reach as people ditch their land lines, Amazon and its tech rivals can tell exactly what its customers are watching, and algorithms tell an informative story about particular products they might like. Netflix mined data showing its customers loved the original British House of Cards and Kevin Spacey before shelling out $100 million for the United States version, but Amazon has even more customers and data (just not more streaming customers—yet). These tech game changers are making Hollywood nimbler, less irrationally traditional, more customer-driven. Cable companies give you mostly channels you don’t want; Amazon, ever more cleverly, gives you what you do want. 
 
The key question is whether the ability of Amazon and Netflix to observe individual customer behavior gives them an advantage over broadcasters’ Nielsen survey data, says Michael D. Smith, a Carnegie-Mellon University information tech and marketing expert, “and so far, the answer seems to be ‘yes.’ As Amazon and Netflix emerge as competitors, it will be interesting to see whether Amazon’s ability to observe both retail purchase data and video views gives it an advantage over Netflix’s video-only data — and the jury is still out on that one.”
 
There’s also no telling what else Bezos will take over. But it’s worth remembering that the bestselling bio about him is called The Everything Store and his original name for Amazon was “Relentless.com.”
 
An Oscar could provide an altogether different type of boost in visibility. Guests at December’s Manchester by the Sea Oscar campaign bash say Price and Bezos’s hunger for the gold doll was absolutely palpable. Yet many — maybe most — people have no idea Amazon is in the movie and TV business. So if a $2 million Oscar campaign can catch the eye of 300 Academy voters, it could produce recognition for a movie that might then be watched by one billion people.
 
Even for the famously frugal Bezos, whose Amazon executives fly coach, that kind of return is definitely worth a $2 million investment.