tv Bloomberg Technology Bloomberg July 17, 2019 11:00pm-12:00am EDT
maxine waters. mind games. technology can read a rats mind. goal, human. first to our top story. netflix tumbling after the streaming giant reported a loss of u.s. customers for the second quarter. earnings renewing prospects. netflix says 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 and bloomberg's luca, who of course covers the company. michael, this is the first time the company has lost subscribers
since 2011 when they split the dvd and streaming business. what is your top reaction? luca becauseborrow he tweeted he is tired of talking about this. increases derived. i think they are probably bumping up against a ceiling of what they can charge and continue to grow. i personally believe they will keep 80% of their domestic subscribers, as high as a $20 monthly charge. but their last 10 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 contenttions as migrates away and competition starts to materialize. disney plus in the fall. warner and comcast and next year. 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. yes, they can cut the cord and 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 they are worth the $4.50 price target most of my competitors have on the stock. i think the correction makes a lot of sense. emily: you did tweet about netflix and how you would be duking it out with michael pachter, so bring it. what is your take? luca: the biggest question for investors, analysts is this a blip, or is this a long-term problem? the second quarter has been a problem. they missed their forecast by quite a bit, but not as much as they did today, and they warned investors and 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 theorecast 7 million for third quarter. we are on pace 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. it is so dependent on a hit like a "stranger things," and does that make it challenging, because subscribers really
depend on a huge hit? luca: you know, it must. sorry, you go ahead. michael: i think lucas is right. i think they need a hit. i think they will see an increase in subs. the numbers on "stranger thing"" are really impressive. it is a really good show. they have a handful of really great content. i think they will hit their 7 million subs. the problem is next year and there is competition. we saw a preview of next year of this quarter. will have a couple of quarters where they start losing subs. >> look at the volume. i know they did not have a "stranger things" or "orange is the new black," but i was doing research.
they would have something new come in it seemed like every day. five new projects. there would be an anime series. is a handful of shows, that is concerning. just because of the volume. pretty good track record coming up with a new big hit, every few quarters. to have a volume issue. >> that is a good point. we talked about it 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 wall and producing stuff that is not great. or is the hbo model of very few, more high-quality content, is that better? michael: by my count, netflix produces about 10 times as many
shows as hbo, and they get about the same number of emmy 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 which is 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 giving us on the crap shows, it 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. lucas, let's talk about international, because that is where the vast majority of new subscribers are going to come from.
q3, 7 million international subscribers 6.2 million of which will be outside of the united states. they talk a lot about india, introducing a cheaper, mobile only plan 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 does not break any of this out, which would be useful, both for analysts like michael and reporters like me. long-term, they are looking at asia. they have invested a lot of programming,inal in particular in india. this mobile only 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 work or they need
to do something to boost growth in the region. it is the first price reduction. they are raising them 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, sure. 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. they can at higher prices, and i honestly think if these guys and -- end up being a no-growth company, they will trade at my $183 price target. competition is going to slow their growth. 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 small kids and not very much money. they will choose netflix that they had a lot of money, and they will choose hbo max if they have even more money. i think it is divide and 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, but they are down 13%. michael packer of wedbush, lucas shaw, thank you. shares of ibm rising after hours
this after topping estimates in second quarter results. cloud revenue was up more than 3%. remember, ibm closed its acquisition of red hat last week , a move it hopes it will compete with cloud leaders like amazon and microsoft. coming up, all eyes on facebook, and david marcus once again as networkss the social cryptocurrency 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. ♪
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 digital currency libra. the bizarre moment is when congressmencongressman brad sherman of california decided not to have a single weston and -- question and instead claimed that libra could be more dangerous than 9/11. >> we are told innovation is good. 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 -- then even that. emily: sherman also kept referring to libra as "zuck's bucks." let's get to it.
our own kurt wagoner. david, i have to get your response to that remark. >> i was laughing. i don't know what he is talking about. i don't think you could say that 9/11 was the greatest innovation in the last century. it is ridiculous. and how libra could pose a 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, when it is now proposing something that 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 that quote like
it is rational. emily: well, to be fair, even 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. kurt: yeah, i 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 come in and the bash facebook for a lot of past misdeeds. today it seemed like there were a lot more members of the house who genuinely 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 association, which is the group 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? david, how fair do you think this skepticism is against the backdrop facebook is dealing with a lot of issues? the record in trust is not great? is legitimatet and expected there should be skepticism. aren't think the questions inappropriate. all the congresspeople saying, 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 the 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. but, look, 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 unveiling this now when they are not even going to launch it in a year, if they plan to still do that? david: it seems that way, and as 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 is known, 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 are 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 -- as sensitive 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 big and too powerful has more 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 that her 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. 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. it is true -- these companies have a global scale and reach that is unprecedented. emily: we will have more on this this hour. techonomy's david kirkpatrick, bloomberg technology's 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 trying to 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 uy 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. give me a sense between now and 2021 about what you are saying, because part of technology is about efficiency. how much? dr. bin bishr: 10 billion. 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 dubai 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
make sure 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 opening this data, to stop our economy from growing and benefiting from this new talk of economy. emily: smart dubai's general director there, dr. aisha bin 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 up's plan to achieve symbiosis with ai.
emily: this is "bloomberg technology. tech law on the defense following more frustration the company is cutting prices on the model 3. the latest complaint captured by bloomberg steve nine. you think most customers would be happy about a price cut, but you profile the guy literally bought his model 3 days before, or maybe a day before the prices cut thousands of dollars? tell us what happened. fullybought a model 3, loaded, the performance edition at $68,000 at the end of last month. the tax credit was going down in
july. cut comes this month, elon the price of that car by more than $6,000. thisu would've bought it month, even if you factor in the tax credit change, he still would have saved $4500. he is fuming mad. to us about how this is renewing concerns about demand for the model 3. it is potentially tied to the tax credit, but what about demand in general? musk has very high expectations for sales of this model. he has had a series of price cuts throughout the year, which is confused and frustrated consumers. the gentleman that i profiled talked about how one of the reasons -- this is the third tesla he bought -- he buys it because of price certainty. unlike other dealers bargaining, he sells confidence that the guy buying the car behind him when i
get a better deal than he did. he said this shakes his faith in tesla. the prices ine, china, what is happening there as the company builds its shanghai factory? keith: that shanghai factory is critical to elon meeting his sales goal of a half million cars this year. that is a very hard stretch goal you might call it. the analysts don't see it happening. if they don't get the plan up and running in china, there's no hope. emily: bloomberg's keith naughton. only muskot the aventurine making headlines this week after two years of secrecy, musk gave the public its first look at his brain computer startup mineral link. it will merge the human brain with ai. the start of showed it can record brain activity via thousands of tiny electrodes surgically implanted into the
brain. the goal is implanting devices in humans, allowing them to potentially control phones, computers and trade thoughts with each other digitally. to get be a long way there, but musk said the company is not far off. : we hope to have this in a human patient before the end of next year. this is not far. emily: joining us to discuss is bloomberg's ashlee vance. drilling holes into the skull and implanting wires. tell us how this works. it is always an adventure with elon. i got to go to the neuralink offices and several of their laboratories before the event. i actually saw a mouse that had gone through the procedure that elon is talking about. they drill this small hole in the skull of the mouse that i
saw, then they have a computer chip at the top, then they call these wires threads pact with electrodes that go into the brain. for humans, it would be the same thing with the first human patients they want to drill for holes into your skull, then you would have a device that connects to the device behind your ear. ist device behind your year like your iphone app.. reads your thoughts. -- app. it basically reads your thoughts. they: how do they know what rat is thinking or that they are recording what the rat is thinking is indeed what the rat is thinking? neuro: that is well-known science. people have been monitoring animal trains and human brains for many decades.
what they are really tracking is these electrical impulses that happen in your brain. it is a little bit like a computer chip, it is binary and reaches this action potential where it gets enough juice and it fires. that's when something interesting happens in your brain. that is what they are tracking. the electrodes sitting in your school reading deal -- skull reading the electrical activity and translating what we see there be a software and that there is something interesting on the other end. emily: the bombshell was that musk said they would be able to get a monkey, via this procedure, controlling a computer. tell us about it. ashlee: there have been rumors that neuralink was doing primate research, which is very controversial for all kinds of reasons. i was at the event last night and they have been trying to keep that a secret leading up to
it. elon just let the monkey out of the bag, i guess. the whole theater was shocked. i'm sure they were planning to announce this down the road. there were these huge questions. you can do this on a rodent, but what happens when you get to a primate, when you get to a human? we know now that they are farther along the we thought. and to be doing this after two and a half years is pretty impressive. realistic is it to think that they could get approval from the fda for human trials early next year? ashlee: i think elon called that aspirational. its even moreerms dramatic for other people. it is a huge bar. not only do you have to prove that this thing can sit in your head for a long period of time, which has been a huge question
and what has slowed down the science, that your brain disrupts these probes. then you have to prove that this can actually do something therapeutic. like you were saying, yes, we can re-be signals and we know something about what's going on, but can you actually translate that into someone who is paralyzed, or that has parkinson's, for that has lost their site? this is a huge open question where you would have to do trials and find out. if they get the fda trials next year, that would be a miracle, i think. emily: talked to us about the visit -- bigger vision that must has that is fascinating but frightening that humans have some sort of semi-assists with symb similar a assist -- iosis coming from a guy who said we should all be afraid of the ai apocalypse. onstage at the event
last night, his argument was that this procedure would become sort of like something you could equate to a lasik procedure. you could go in for an hour and get this in, so regular consumers would do this. if you had this computer enhancement in your head, maybe you could keep up with artificial intelligence. you would be supplementing your own brain and may be doing things that ai cannot do. equalizerhis as an for the people who want to elect to have this kind of surgery. and the robots go on without us, or maybe we can join them and keep up. story,very colorful ashlee vance, thank you for bringing that to us and giving us a look inside elon's mind. the chair of the house financial says --tative committee
president trump recently demanded more information about how the pentagon arrive to the decision to award amazon or microsoft its massive contract. bloomberg's mail me next joins us from washington. president trump has been privately expecting some concerns about the contract. whenis at a time republican lawmakers have been criticizing the deal, including in letters to the trump administration. look, we think that the terms of this contract or overly narrow. there is some alleged conflicts of interest that are concerning us. he shouldeighing what
do. should he step in and intervene. emily: what's next i: the pentagon said it's planning to make a decision on either amazon or microsoft. and that we should learn about their decision late next month. lost its legalk challenge to the contract. the federal claims dismissed its arguments that the alleged impacted of interests that are it we are winning for the pentagon to make a decision. now we are waiting for the white house to make a decision about how they might handle the contracts. itly: how unprecedented is for one particular contract to have so much controversy around it? we have been talking about this for years. naomi: this is a very unusual situation. technology contracts like this, and any federal contract does not normally get this kind of scrutiny and attention. so controversial
that there have been dossiers and allegations of conflicts of interests. there have been lawsuits and legal challenges. there have been lobbying campaigns by as many as nine companies, all really criticizing the deal in this contract. it is definitely unusually controversial. emily: if 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, if you years ago won a very important crop contract from the cia. it burned the security approvals necessary to handle sensitive and top-secret data. recently, microsoft has been seen as a strong contender. we may get a surprise here.
they recently also got a deal with the intelligence community. they are a known player in the defense department. many people in the federal government, many federal agents issued microsoft word. they definitely have a case to make to the dod. i think it will be interesting where the dod comes down on it. if it goes to amazon, there might be more concern about whether trump would weigh in or not. the microsoft could have an upset here. emily: bloomberg's naomi nix. thank you for your reporting. returning to facebook's libra. very social media company took a beating over its crypto plan in a hearing before the house financial services committee. chairwoman maxine waters said that if it's issued, the company will wield immense power that could disrupt the romance and central banks.
she call for facebook to stop developing libra immediately. bloomberg's kevin spoke with congresswoman waters after the hearing. congresswoman waters: i came here today at our request to tell us what lieber is and what they are planning and why they are in switzerland and all those questions that we asked him. i think he skirted some of the most significant questions. he knew nothing about what they were doing and how they were doing it. so, he did not answer the questions. he tried to skirt that by talking about how they were going to take time. how they would get consideration to all of the questions, etc., and ensure they would not harm consumers. it was not good enough. not only did he skirt the questions about the moratorium, we specifically asked about regulations, and what regulators do we think should oversee them? i specifically asked about f sock. he did not answer that.
>> earlier this week i was at the white house attending that trend -- press briefing with steven mnuchin, they're actually seems to be some agreement in the skepticism at the white house has, that you have with these digital currencies. you mentioned this, the treasury secretary mentioned something different. which regulator will take the lead on digital currencies? rep. waters: at this time we don't know. as i understand it, the advisor committee -- there may be an advisory committee. one of the things that we have to know and understand is, what is it? >> what is it? rep. waters: 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. >> so what is the next step?
and that is truly the number one question i get one reporting on this. people do not know what these digital currencies are, or how they will use them. you as the chairwoman of this committee, what is the next step in this process? rep. waters: we have a lot of investigation to do. we will have more hearings. we will talk with all of the experts out there that know a lot about cryptocurrency and can tell us about the history of bitcoin and blockchain and how it all works. we will be learning an awful lot. we will have more hearings, and it was requested today by one of our members that we get mr. zuckerberg here. he should be here. >> you are calling on mark zuckerberg to come and talk about libra? rep. waters: that is one of the things we have to do. it's a big idea point out of dutch born out of facebook. if he is big enough to create an idea that is global in nature, then he should talk to us about it. >> when david marcus talk to us in the senate, i said, would you
use libra? he said he does not even use facebook. so same question to you madam chairwoman, would you use facebook libra? the waters: all i know is faith that i have in the american dollar. i love the american dollar, i am concerned about libra competing .ith our dollar i am not concerned at all about whether or not i will use libra as of today. no. i don't know it is, i don't know how it works. i am satisfied with the american dollar, and i am very concerned about any currency that will compete with it in the way that they talk about cryptocurrency doing. emily: u.s. representative maxine waters of california. coming up, this may be more useful than you think. how the start up uses fragments of the process gem -- precious gem to prevent fraud across the global supply chain. this is bloomberg.
objects like high-tech material. it announced $10 million in new funding alongside investments from lockheed martin and airbus -- airbus. how exactly does this work? >> thank you for having me. we put diamond dust, very small particles, on products and that gives us the ability to create a unique fingerprint. something that is impossible for somebody to re-create. we can attach data to that identity that we are creating on the object. emily: so, real diamonds. we're using synthetic diamonds -- not synthetic diamonds but real diamonds. talk to us about the vision here. risk the global supply chain? : the context was around
concerns and supply chain security and the department of defense around the ability to trust things. it's a replacement part for fighter jets or toys for your kids that you buy online and you want to make sure they are sort of -- sourced correctly. and all those places you need to connect data to your home. you are trusting the data and you make an assumption that that data connects the object. what really is the missing link is the ability to have that secure anchoring of the object. if i see a barcode i can replicate it. 80% that are not secure. we need to bring that trust of the data to the objects by anchoring it. emily: what percent is deployed right now? ophir: we are currently working with various stakeholders in certain agencies. emily: are they deployed already
in the global supply chain? ophir: we are doing localized areas. emily: what do you mean? ophir: i cannot go into the details of the level of deployment we have, but we are working with various stakeholders. emily: so there could be theming hugeships to u.s. supply chain. we are seeing manufacturing move out of china as a result of trade war and costs. ophir: in general, we have a global problem in maintaining the integrity of supply chains. as supply chains become much more complex, we are looking at international products that are sourced from various places around the world. we just need to make sure that all the stakeholders participating, and all the ments posting those are behaving in a trustworthy way. one of the challenges we see today is we are missing the ability to have that data, to have that trust propagate in the supply chain as you move further
and further up your operations. it is very difficult to see where components on the circuit board show up from. emily: we will keep track of your progress. you will have to share some with us. identity ceo, thank you for stopping by. finally, the app that has gone viral by making you look old. we hear from our bloomberg tech team who tried thie face app. some of us look better than others, not me. some are sounding the privacy of alarm. face app was developed by a russian company. facedany that has criticism over how it handled user data. user data and images are not being used and is being processed on services like
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