EBay Spins off PayPal: Top Stories for Tuesday

JUST IN – Activist investor Carl Icahn has won: eBay and PayPal are breaking up and will be traded as two separate companies. The spinoff, which cuts eBay pretty much in half in valuation and employees, should be completed in the second half of 2015. PayPal was long the most lucrative and promising part of the company, after eBay acquired it 12 years ago and grew it into an online payment giant while online auctions lost their novelty. But PayPal has lately lost some of its luster too and has let other actors such as Apple, Square and Alibaba innovate faster in its own space.

Carl Icahn had been vocal in advocating the spinoff, against the opinion of eBay CEO John Donahoe, but the fight appeared settled in the spring without Icahn getting his way. He did today. Eventually, eBay “got to the same place that Carl said early on,” Donahoe told the New York Times.

Mr. Donahoe allowed that “the pace of change accelerated over the past six months” in the payments sector, citing the emergence of Apple Pay and Alibaba’s initial public offering. (...) He added that spinning out PayPal had another important benefit: attracting a new leader. “How do I get the best C.E.O. going forward?” he said. (Read the full story.)

That would be Daniel Schulman, a senior executive who has led the online payment strategy at American Express and who will join PayPal first as president, then CEO. (He's already updated his LinkedIn profile, we're impressed.) Donahoe will leave eBay after the split is final but remain on one or both boards. Devin Wenig, president of the eBay Marketplaces unit, will run the online retailer, reports Re/code's Kara Swisher. She writes:

As part of the separation, eBay and PayPal will sign arm’s length commercial operating agreements to work together, with payments on both sides for various referrals and services. That’s no surprise since about 30 percent of PayPal’s business is still on eBay, although that is down from 50 percent only a few years ago. Donahoe said eBay projected it would get to 15 percent quickly. Thus, the split. (Read the full story.)

There's a worthy parallel here comparing eBay's strategy – slimming down because, in Donahoe's words, "there is now value in focus, agility and being able to move quickly" – with the one pushed on another past-its-prime giant, Yahoo!, encouraged to merge with AOL and find its strength in sheer size. Time will tell which strategy will pay off.

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CROUCHING HOLLYWOOD, HIDDEN NETFLIX – After taking on cable and TV networks, Netflix is now playing in Hollywood's backyard. Netflix and the Weinstein Company will together release the sequel to "Crouching Tiger, Hidden Dragon" next year, simultaneously in select iMax theaters and streaming on Netflix worldwide. (I know, a sequel? After an ending like that?! Don't get me started.) The film, to be released Aug 28, 2015, will not be shown in "regular" movie theaters.

Netflix intends to release several other movies in the same way. Obvious advantage: showing Hollywood it's time to adopt a more modern distribution model, while getting a few new subscribers enticed by the exclusive content. For now, Netflix is going around the studios and the major theater chains by contracting with two smaller, independent players. Downside: a smaller budget to produce and much smaller revenue opportunities. Within those constraints, the IP is well chosen: "Crouching Tiger, Hidden Dragon" is the most successful Chinese language film in US box office history, a small production of $23.5 million back in 2000 that grossed 7 times that in the US alone.

The obvious, immediate losers are movie theaters. Netflix chief content officer Ted Sarandos attempts to soothe them in saying they are "two different experiences, like going to a football game and watching a football game on TV.” But really, movie theaters would be like going to a football game only if they included plenty of social opportunities pre and post-film, live superstars within feet of the audience and a reason to all wear the same color and swear our undying devotion to a director. They'll have to step up their game.

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IN OTHER NEWS – Microsoft is having a big press event today where we should get our first look at its next operating system, Windows 9. Yes, Windows 8 is already more than two years old. This would be the first major software release under new CEO Satya Nadella. Here's what you may expect.

Instagram co-founder Kevin Systrom is joining Walmart's board. There he'll join Yahoo CEO Marissa Mayer on the technology and e-commerce committee to help advise the retailer in its digital transformation.

The crowds of prodemocracy protesters have swelled again in Hong Kong and could climb into the hundreds of thousands as the People's Republic of China celebrates tomorrow its 65th anniversary.

Bloomberg's C. Thompson has a great "theory why Segarra drove New York Fed crazy." (Segarra is the federal examiner I told you about last week, who took on the Fed on its poor regulation of Goldman Sachs and lost her job in the process.) "It’s now human nature to play nice. Above all, be nice. It will be referred to as being 'professional' or being 'collegial,'" he writes. "We’d always thought that risking screwing something up because of a preoccupation with hurting someone’s feelings was being unprofessional." Read on.

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Photo: Brian Cantoni/Flickr, Creative Commons