tv Bloomberg Technology Bloomberg July 17, 2019 5:00pm-6:00pm EDT
emily: i am emily chang in san francisco, and this is "bloomberg technology." coming up in our next hour, netflix losing subscribers in the u.s. for the first time since 2011. what it means as the competition terms of the volume. plus, facebook's crypto crisis, facing a second lawmaker interrogation over the company's plan.
congresswoman maxine waters called for the social network to "stop development immediately. " says narrow link has successfully in place wires into its brain and enabled a control a computer. first, netflix tumbling after the streaming giant reported a loss of u.s. customers for the second quarter. netflix that it lost 130,000 customers in the united states as a result of higher prices and a weaker slate of shows. it is signed up 2.7 million subscribers globally, also missing projections. joining us now to discuss the underwhelming results, michael luca, who of's course covers the company.
michael, this is the first time the company has lost subscribers since they split the dvd and streaming business. what is the type line here? michael: you know, i hate for poor luca, because he actually tweeted that he is tired of talking about this, but i think poor growth probably leads to subscriber loss domestically, and i think they are probably bumping up against a ceiling of what they can charging continue to grow. i personally believe they will keep 80% of their domestic subscribers, as high as a $20 t 10hly charge, ut their las million subscribers are probably middle income house holds, and they notice when prices go up a couple of bucks, which they did in january, and i think you will see continued migrations as composition starts -- competition starts to materialize. more content leaving at the end of this year and the end of next year.
i think middle income households are probably going to have to think about whether they subscribe to one or two or three plans. the cord and cut maybe afford all of them, but the fact is that netflix did see a decline in domestic subs. that is what fuels international expansion. they are about to lower prices in india, so i do not see how pricere worth the $4.50 target most of my competitors have on the stock. tweet aboutid talk netflix and how you would be duking it out with michael pachter, so bring it. luca: the biggest question for analysts is -- is this a blip, or is this a long-term problem? forecastshey missed by quite a bit, but not as much as they did today, and they warned everybody at the end of the first quarter that this would be a light one.
is this again a one-time phenomenon in which you have this corrected today, or is it something where we cannot trust their forecast for q3, because netflix's response is going to say we are still in pays for the biggest year yet, but as we see in this quarter, their forecast cannot always be trusted. they miss on these a lot, so if they miss again next quarter, which will come around the same time that disney is introducing disney plus, that becomes a real problem for investors, especially if growth is slowing not only in the u.s. but also overseas, which has been the engine over the last few years. emily: let's say they will add 7 million subscribers, a huge jump from 2.6 million. we know that "stranger things" is back, they have highlighted "dead to me," they have highlighted murder mysteries. hit likedependent on a
a "stranger things," and does that make it challenging, because subscribers really ?epend on a huge hit luca: you know, it must. sorry, you go ahead. is right. think lucas i think they need a hit. i think they will see an increase in cells. the numbers on "stranger things" are really impressive. it is a really good show. they have a handful of really great conflict, -- content. i think they will hit their 7 million subs. we saw a preview of next year with this quarter, synnex." mode you will have a couple of quarters where they start -- with this quarter, netflix will have a couple of quarters where they start losing subs. lucas: i know they did not have a "stranger things" or "orange is the new black," but i was
looking at the reports, it is seems like they had something new coming on every day, a standup special, and m&a series, series, a movie. if it is only a handful of shows that swing it, that is a little concerning, just in terms of the volume and how much they are spending. that being said, they have a pretty good track record of coming up with a new big hit every few quarters, it is a keep that going, they will be fine, at they stildo do seem to have volume issue. emily: that is a good point. we talked about the hit shows. we have not talked about the shows that are truly not great. i have seen some of those. michael, how good of the business model is the to be throwing everything at the w model of very hbo few, more high-quality content, is that better? t, netflixy my coun
produces about 10 times as many shows as hbo, and they get about the same number of any nominations, so throwing stuff at the wall, throwing 10x at the wall, they will have their hits. i actually think subscriber growth will be based on one of two things, watercooler shows like "breaking bad," "ozark," and "stranger things," or "good enough" content was his high quantity of ok content, and that is the real acid test. do they have enough stuff that is good enough to keep us coming back? i think all the metrics they are iting us on the crap shows, tells you people are willing to watch whatever they are throwing at them, so you get 40 million people watching adam sandler, which shocks me, but it can happen. [laughter] emily: i thought it was pretty good. let's talk about international, because that is where the vast majority of new subscribers are going to come
from. 6.2 million of which will be outside of the united states. they talk a lot about india, introducing a cheaper, mobile-only plant in india. they said they can get another 100 million subscribers in india. where is the growth going to come from, if not the united states? lucas: i think in the short-term, you are still looking mostly at europe and latin america. brazil, united kingdom, france, germany, these are the biggest markets according to analyst reports. netflix of course is not break any of this out, which would be useful, both for analysts like michael and reporters like me. they are looking at asia. they have invested a lot of money and programming, and india in particular. this mobile programming is important, because they have been testing lower-priced plans in asia for a couple of months. this is the first time they have committed to rolling one out, which suggests either they think
it is going to grow, or it is doing it time they are at the region, because they are raising prices almost everywhere else. emily: michael, let's talk about the other parts of the story. you have disney, apple, warner media, all of these other companies trying to take netflix on. disney is offering cheaper and has a huge library of original disney classics that, you know, people keep coming back to come over 50 years! how big a threat is the competition? michael: you know, i think barry diller said it well couple of weeks ago. netflix has won. they are not going to go out of business. they are not going to lose a material number of subscribers. the question is -- can they grow into their valuation? and i don't think so. international is true. if they had 100,000 subscribers in each of the 200 countries they do business, that is 20 million a year. they can do that for another 10 years. can they continue to grow domestically? no.
can they turn cash flow positive? no. not with the current model. prices, and igher honestly think if these guys and of being a no-growth company, they will trade at my $183 price target. i do not think anyone is taking subs away from netflix. i just think they will compete for wallet share, and new subs are going to choose the new programs if they have smoke is a not very much money. they will choose netflix that they had a lot of money, and they will choose is the amount that they have even more money. i think it is divided conquer. i think netflix wins overall the subscriber war, but i do not think they win the cash flow war. emily: all right. shares trading at $362 of these, 13%.hey are down michael packer of wedbush, lucas shaw, thank you. hours orsing after
revenue dropped for the fourth consecutive quarter, cloud revenue was up more than 3%. remember, iv and is billion-dollar acquisition of it hat last week and hopes will compete with cloud leaders like amazon and microsoft. ,oming up, all eyes on facebook and david marcus once again as he faces regulators once again on capitol hill. and if you like bloomberg news, check us out on the radio, check us out on the app, on bloomberg.com, and listen to us on sirius xm. this is bloomberg. ♪ oomberg. ♪
democratically-accountable institutions that are accountable to the american people. emily: that is new york congresswoman carol maloney, continuing a second day of facebook lashings on capitol hill, only today was the house's turn to take on the news of the libra. therency bizarre moment is when congressmencongressman brad sherman of california decided not to have a single weston and instead claimed that -- question and instead claimed that libra could be more dangerous than on 11. rep. sherman: the most innovative thing that happened this century was when osama bin laden came up with the innovative idea of flying to airplanes in the towers. that is the most consequential innovation, although this may do more to endanger america of an event that. emily: sherman also kept
referring to libra as "zuck's bucks." david, i have to get your response to his comments. was laughing irreversible, i do think you could say that 9/11 was the greatest innovation ever in the last century, ever, it is ridiculous. pose a libra could threat comparable to 9/11 makes no sense. the problem is that facebook is in a position right now where it has done so many things wrong, but when it is not proposing something that come in my opinion, is not particularly right or wrong, it is just an interesting that they are going to try and may or may not work, but because it involves money and people are worried about control of that, and there are a lot of businesses that are deeply engaged and sort of concerned, they are getting tremendous pushback. it isn't it fair, but it does not sound, from , like it is rational. even: well, to be fair,
the chair of the fed has raised concerns about money laundering, illicit activities, the use that this currency could hide illicit activities. kurt, you were at hearings today and yesterday. talk about the difference between what house leaders and senate leaders had to ask. mean, despite that one example that was pretty eye-opening, i actually thought the questions they were a lot more thoughtful than yesterday. i feel like yesterday in the senate, it was really just two hours of an excuse for people to shme in and the ba facebook for a lot of past misdeeds. there were a lot more members of the house who generally wanted to know what libra was all about. there were questions about facebook and whether it would be offering banking services, a lot of questions about the libre groupation, which is the that will oversee the new cryptocurrency, and i do feel
like there was more genuine interest from this group of politicians to going to figure out what is this thing and only what is it, but if it possible that this could be launched and actually work? emily: david, health fairs you think all the skepticism is against the backdrop that facebook is dealing with a lot of issues and has been for the last two plus years, and its record on trust is not great? david: i think it is totally legitimate and expected that there should be a lot of skepticism, and i do not think the questions being asked are inappropriate all, but all the congressman asking -- will you commit to putting this project on hold, letting us do it for you, only to a small test? many requests of that type, i think they are a little premature. look, they made a decision to announce this really early in its development. i think many of the questions really literally cannot be answered yet, because we do not even really know if the libra association, which they have
proposed to govern it, is really going to hang together and do anything meaningful. if it does, i think that will be a promising development terms of suggesting that this could be a manageable operation. it is legitimate that people should ask questions. facebook has invited skepticism because of their repeated malfeasance in many areas over the last few years, so i am not surprised. i am a little surprised that they announced it now, to be honest. emily: right. did they make a major miscalculation and availing this now when they are not even going to launch it in a year, if they plan to still do that? way, and asems that i understand it, there was substantial disagreement in the company about whether now is the time to do it. mark zuckerberg and david marcus, i am sure, both wanted to do it, and they prevailed. mark zuckerberg is always going to prevail at facebook. but it may be that the naysayers were right.
emily: meantime, kurt, alexandria ocasio-cortez, aoc, as she knows, called facebook a surveillance company, and while the hearing in which facebook was present yesterday had perhaps less fireworks, the broader implications for facebook are huge, a potential breakup call, calling attention to the idea that facebook could be a monopoly. paint the bigger picture for us here about everything that facebook is up against. kurt: well, it is pretty simple, right? we were already had a conversation about whether facebook had too much power, and now they say not only do they want to enter a new market, but they want to enter one essence of it as finance, as sensitive as having access to people's money. there is a lot of concern that -- or do we let a company that we already think might be too morend too powerful has
say over how people kind of do their personal life and how they spend their money? so aoc did mention that. she kind of slipped it in there, actually, it was a subtle thing, but it did not go unnoticed. i think your idea is one that is shared by many not only here in washington but other places around the country and the world that just think facebook is too big, and letting them do a cryptocurrency is a step too far. emily: certainly a provocative description, david your when you think of facebook, google, apple, all the companies that were questions for the hearings, which do you believe presents the most compelling case for a breakup or presents the most problematic situation in general? visit facebook, or is it one of the other? david: i do believe facebook presents the most problematic challenges. i am not a particular advocate of breakups myself, although i absolutely believe it is fair and inevitable and right that some form of restraint,
governmental oversight, needs to be created. unfortunately, it would be better if it were global, but we do not have global mechanisms that are capable of doing that, so it has of late we will see it in nations like our own, singapore, india, and elsewhere, the eu, of course. i think facebook has invited this by really failing to govern what became a rampantly growing system with all kinds of misbehavior that they, for some reason, when not able to anticipate and did not build any mechanisms to manage, and now they are paying the price. i think there are huge, legitimate questions about google and amazon also. companies -- these have a global scale and reach that is unprecedented. emily: we will have more on this this hour. omy's david kirkpatrick, bloomberg technology's or wagner, thank you both. -- kurt wagner, thank you both. does consistency make the happiest city on earth?
emily: cities around the world are trying to transform themselves into so-called "smart cities," and dubai is promising it will be the happiest one on earth. it is making the city become a more efficient city through the use of tech, ai, and blockchain. the tech will create free time for residents and visitors, the city claims. we sit down with the smart dubai director to talk about progress. i believe a city where the residents and visitors of a vast city are happier citizens. today when we talk about technology, for us, it is the secret to happiness. if this technology will not by me time, will not give me a peace in my mind, for sure it is not the right technology for
us. >> so i am going to win back time, essentially? dr. bin bishr: absolutely. almost 40 hours will be saved when we finish this project. >> so we like to deal with efficiency in numbers. now anda sense between 2021 about what you are saying, because part of technology is about efficiency. how much? 10 billion.r: but from the previous share of services that smart dubai needs to present for the government entities, for every one, we take five. >> i am trusting you with my data. what is the biggest risk for to buy with this data? we have seen lots of major scandals with regard to hacking. what are you doing to prepare for the risks?
dr. bin bishr: when it comes to hacking, for us in dubai, we measure we have all the criteria's, policies, standards, the tools that would allow us to stop this kind of hacking, but the biggest for us is that individuals and corporate do not understand the value of the data, whether it be sharing or data, tothis stop our economy from growing and benefiting from this new talk of economy. emily: smart dubai's general binctor their doctore, dr. aisa bishr. coming up, tesla has changed prices again. how it is renewing concerns over model 3 demand, next. and one step closer to connecting your brain to computers. first, they will have to move beyond mice. we will talk about the start of's plan to achieve symbiosis with ai.
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emily: this is "bloomberg technology." tesla on the defense following more frustration the company is cutting prices on the model three. the latest issues captured in a story from bloomberg. you would think most would be happy about a price cut, but you profiled a guy who literally bought his model three literally beforefore, maybe a day the price was cut thousands of dollars. tell us what happened. >> he bought a model three fully loaded, the performance edition, $68,000 at the very end of last month because his dealer told
him the tax credit was going down in july. then comes this month and elon cuts the price of the car by $6,000. if he would have bought it this month, even if you factor in that the tax credit changed, he still would have saved $4500, so he is fuming mad. emily: talk about how this is renewing concerns about demand with a model three. it is in part potentially tied to the tax credit, but what about demand in general? >> elon musk has high expectations for sales of this model, so he has had a series of price cuts throughout the years, which has confused and frustrated consumers. the gentleman i profiled talked about how this is the third tesla he has bought, and one of the reasons is because of the price certainty. he says unlike other dealers who are bargaining on price, he felt confident the guy buying a car behind him would not get a better deal than he did.
that is not what happened this time, so he says this shakes his faith in tesla. emily: meantime, the prices in china -- what is happening there as the company bills its shanghai factory? >> they are trying to build it up, and that factory is critical to elon meeting his sales goal of 500 million cars this year. that is a very hard goal, a stretch goal, you might call it. analysts don't see it happening, but if they don't get it up and running in china, there's no hope. emily: thanks for bringing us that report. musk is not the only venture making headlines this week. after tenet years of secrecy, its firstthe public view of a venture he says will merge the human brain with ai -- years of secrecy. it can record brain activity via thousands of electrodes
surgically implanted into the animal's brain. the goal is in planting the devices in humans, allowing them to potentially control phones and computers and even trade thoughts with each other digitally. of course, it will be a long way to get there, but musk says the company is not far off. >> we hope to have this aspirational he at the end of next year. this is not far. emily: first of all, this involves drilling holes into the skull and implanting wires. tell us exactly how this works. elon, itas always with is a bit of an adventure. i got to go to the neural link neuralinkhink -- offices. basically, they drilled this in the mouth, and
they have what is essentially a small computer chip at the top theseey call it a thread, wires packed with electrodes that actually go into the brain. with humans, it would be the same thing. with the first human patients, they want to drill for holes into your skull, and then you would have a device that the senses would connect to the device behind your ear and the device behind your ear would just talk to you like an iphone app and read your thoughts. write, arewires, you about a quarter of the width of a human hair, but how do they know what the rat is thinking or what they are recording the rat is thinking is indeed what the rat is thinking? >> that part is actually pretty well-known. neuroscience, people have been monitoring animal brains, human brains in all kinds of different ways for many decades, so what
they are tracking is these electrical impulses that happened in your brain. a little bit like a computer .hip to some degree your neuron reaches what they call this action potential where it gets enough potential and fires. that is what they are tracking, these electrodes that are sitting in your skull reading the electronic activity. we have done this enough that we can translate what we see in that electrical activity the is software into something interesting on the other end. emily: the real bombshell was that musk said they have been able to get a monkey via this procedure controlling a computer. tell us about that. >> kiev, there have been all these roommates that the -- yeah , there have been all these rumors that neuralink had been experiments.
elon being elon just kind of let the monkey out of the bag. the whole theater standing shocked.on was i'm sure they were planning to let this out down the road. there were these huge questions like you can do this to a rodent, but what happens when you get to a primate, when you get to a human? we know now they are farther along than we thought and to be doing this after two and a half years is actually pretty impressive. emily: how realistic is it to think they could get approval for human trials early next year? >> i think elon called that aspirational. aspirational in elon's terms is even more dramatic for other people. it is a huge bar because not only do you have to prove these things considered your hand for a long he would of time, which has been a huge question -- what has slowed down a lot of the
sciences that your brain moves and disrupts these probes, but then you can do something therapeutic. can you were saying, we read the signals and know what is going on, but can you actually translate that into something that helps someone who is paralyzed or that has parkinson's or has lost their site? this is a huge open question where you would have to do trials and find out. if they get to fda trials next year, that would be quite a miracle, i think. talk about the vision here that musk has, fascinating but frightening, as always with elon musk, that humans have some sort of symbiosis with ai, coming from the same guy who said we should all be afraid of .n ai of apocalypse >> this is a hard one to square. he is sort of bringing the ai apocalypse on at the same time
as warning against it. he said the procedure would become something you could equate to, like, a lasik procedure. regular consumers would do this, so if you had this computing enhancement, maybe you can keep .p with artificial intelligence you would be supplementing your own brain and may be things that ai cannot do. elon's office has an equalizer for the people who want to elect to have this kind of surgery. the ai's in the robots just go without us or we do our best to try to keep up. emily: thank you for giving us a look inside elon's mind. coming up, maxine waters says mark zuckerberg to testify before congress.
emily: president trump recently demanded more information about how the pentagon arrived at the decision to award either amazon or marquis off its massive cloud computing contract. naomi nick's joins us from washington. what's the latest on that? we reported president trump has privately been expecting some concerns about the contract. this is at a time when republican lawmakers have also been criticizing the deal, including in letters to the trump administration, saying they think the terms of the contract are overly narrow, there's not enough competition, and there's some alleged conflicts of interest that are concerning.
emily: so, what's next? naomi: the pentagon has said essentially that it is planning to make a decision and order to either amazon or microsoft and we should learn about the decision next month. oracle last week lost its legal challenge to the contract. claims dismissed its arguments that the alleged conflicts of interest impacted the procurement, so right now we are waiting for the pentagon to make a decision and now we are waiting for the white house to also make a decision about how they might handle the contract. emily: how unprecedented is it for one particular contract to have so much controversy around it? we've been talking about this for years. naomi: yes, this is a very unusual situation. technology contracts like this and even any federal contract does not normally get this kind of scrutiny and attention.
it has gotten so controversial. there have been dossiers, ofegations of conflicts interest and legal challenges. there's been lobbying campaigns by as many as nine companies. dealeally criticizing the and this contract. it is definitely unusually controversial. everything continues as planned, is there a favorite? is it amazon or microsoft? naomi: amazon from the get-go has been seen as the front runner for the contract. that's because a few years ago, it won a very important cloud contract from the cia and was security approvals that are necessary to handle sensitive and top-secret data. recently, microsoft has been contender.trong we may get a surprise here.
they recently also got a deal with intelligence community. they are a known player in the defense department. many people in the federal government, many federal agencies use microsoft word, so they are a known player, so they definitely have a case to make to the dod. it will be interesting where the dod comes down on it. if it goes to amazon, there might be more concerned about if trump would weigh in or microsoft could have an upset here. emily: thanks so much for your reporting on this. i know you will keep us posted. returning to facebook's liber hearing, the company took a beating for the second straight day over its crypto plans. maxine waters says if facebook issues its libre token, the company will wield immense power that could disrupt governments .nd central banks
bloomberg spoke with congresswoman waters right after the hearing. >> marcus came here today at our request to tell us what libra is and what they are planning and why they are in switzerland in all those places. i think that he skirted some of the most significant questions. i have asked for a moratorium because we knew nothing about what they were doing and how they were doing it, and so he did not answer the question. he tried to skirt that by talking about how they were going to take time, how they were going to give consideration to all the questions, etc., and ensure that they would not harm consumers, but it was not good enough. skirt theid he question about moratorium, we specifically asked about regulatorsand what did he think should oversee them asked about fally
sup, and he did not answer that. he skirted that. >> i was attending a meeting with steve mnuchin, and you might be surprised to hit his, but there seems to be some agreement in the skepticism the white house has. will be taking the lead on these digital currencies? >> at this time, we do not know. as i understand it, the feds have an advisory committee. there may be an advisory committee over at fin tech. i don't know. however, one of the things we have to know and understand is what is it? is it a payment system? what do they do, and how do they do it? you cannot even decide what regulator would oversee them without understanding what it really is.
>> what is the next step? that is truly the next question -- that is truly the number one question i get when reporting on this. people do not even know what these digital currencies are or how they will use them. as the chairwoman of the committee, what is the next step in this process? >> we have a lot of investigation to do, as you know. we are going to talk with all the experts out there who know a lot about cryptocurrency and can tell us about the history of bitcoin on blockchain and how it has all worked, so we are going to be learning an awful lot. we are going to have more hearings, and it was requested today by one of our members that we get mr. zuckerberg here. >> and you agree with that. you are calling on mark zuckerberg to come and talk about libra? >> that's one of the things we have to do. this is an idea born out of facebook. if he is beginning to create an idea that is global in nature, he should be big enough to talk to us about it. >> when david marcus testified in the senate, i put this
question to that committee -- i said would you use libra? he said he does not even use facebook. same question to you, would you ? e facebook's libra >> all i know is the faith i have in the american dollar. i am concerned about libra competing with the american dollar. as of today, no. i don't know what it is or how it works. i am satisfied with the american dollar, and i'm very concerned about any currency that will compete with it in the way they talk about cryptocurrency doing. emily: coming up, diamond dust may be more useful than you think. a start of using fragments of the precious gem to prevent tampering across the global
security tag or dust. it announced $10 million in funding today. joining us to discuss dust identity, the ceo and cofounder. how exactly does this work? >> ask for having me. we put diamond dust -- thanks for having me. we put diamond dust on products, and it creates a unique, cloneable fingerprint. something people cannot re-create and we attach data. diamonds? like, the precious gem? >> yes. we're not using tiffany diamonds but synthetic products. emily: talk to us about the vision. >> when we started to work on this, primarily, the context was
around concerns in supply chain security for the department of defense. it was around the ability to , such asngs replacement parts for fighter jets or toys you buy for your kids online. you want to make sure they are sourced correctly and there are no hazardous materials in them. all these places, you want to be able to connect data to the object you are holding in your hand. you are trusting the data and you are making the assumption connects to the object. if i see a barcode, i can replicate it. if i see an rfid, i can replicate it. 80% of barcodes in the market are not secure, so we need to bring that trust of the data to the market. emily: to what extent is this actually deployed right now? we are currently working with stakeholders in various industries. emily: are they already deployed
in the global supply chain? >> they are in works. emily: what do you mean? >> i cannot go into details of the level we have, but we are working with stakeholders. emily: there could be upcoming huge shifts to the supply chain and already, we're seeing manufacturing moving out of china as a result of a trade were, the result of cost, how does that impact your business? >> a thing generally, we have a global problem maintaining the integrity of supply chains. we're looking at international product that are sourced from world. places around the we just need to make sure that stakeholders are participating hostingthe governments those companies are acting and behaving in a trustworthy way. one of the challenges we see today is that we are missing the ability to actually have that data, that trust propagate in
as you movehain further and further down year downstream operation. it is difficult to see where components on a circuit board show up. emily: interesting. withll track your progress diamond dust. you will have to share some with us. it is the appour, that has gone viral by making you look old. app earlier face today which uses ai to create a you might lookat like in a few decades. some of us -- not me -- look better than others, but, hey, it's just an app, right? it was developed by a company called wireless lab, a company that has faced criticism for how .t has handled the user data the controversy has not stopped
paul: welcome to "daybreak australia." sophie: we're counting down to asia's major market opens. ♪ paul: hear other top stories we are covering in the next hour. wall street. investors assessed mixed corporate earnings, a leading barometer of u.s. economic growth which dropped sharply. no happy ending for netflix. shares sink on a surprise fall