tv Bloomberg West Bloomberg March 28, 2016 11:00pm-12:01am EDT
mark: let's begin with the check of your bloomberg first word news. the justice department has withdrawn its legal action against apple in an effort to help it unlock the iphone of one of the san bernardino shooters. the government said that it used out side help to unlock the phone and no longer needs apple's assistance. cory will have more, coming up. in washington, authority saying a man was shot by police after he drew a weapon at a checkpoint at the u.s. capitol visitor center. >> the suspect was taken into custody and transferred to hospital for treatment. his condition is unknown at this time. mark: the chief said the suspect
is known to police but did not elaborate. belgian police are asking for help identifying a suspect seen with two suicide bombers at the brussels airport last week. they posted surveillance video at the federal police website. you have identified the two bombers and meanwhile the death toll is now at 35. the federal aviation officials say that reports of drones near passenger jetliners surged in 2014. global news, 24 hours a day, inered by 2400 journalists 150 news bureaus around the world. i am mark crumpton. ♪ cory: i am cory johnson, in for emily chang, and this is "bloomberg west."
the fbi has dropped the case against apple saying they successfully managed to bypass the security. the highly anticipated vr headset hits the market today, but is the content ready for prime time? and founder tim westridge and -- tim westerton is back. the fbi withdrawing legal action against apple after they successfully bypassed the security of the iphone without apple's help. that's go to matt larson for the latest as well as paul kedrosky will join us for much of the show. >> it looks like the fbi has successfully been able to access the information it was seeking from the iphone without the assistance of apple.
it looks like there was a third party involved that gave them a technical capabilities to do that, likely some kind of mobile forensic expert that had contracted with the government in the past. as of right now, it looks like the fbi is dropping the request to have apple right additional code to circumvent security features of the existing software. cory: do we have any idea who did this? >> the rumors that i have seen so far are the company celebrite. an israeli contractor that works with the government on similar requests, and are kind of savvy in some of these backdoor hacking around security features to access data. cory: what do you think of this, paul? doesn't look like the fbi had access to this all along but was looking for something to give them cover in the courts to hack lots of phones?
cory: -- paul: the story here is that apple had cooperated in the past with various justice department's when they needed access. it is this recent change that is the difference, which is the source of frustration for the fbi. the thought this was a case they can make example of apple. the courts were not going to be particularly sympathetic with protecting the iphone of the alleged terrorist. what happened instead is, he was taking so long and looked like it would work its way to the court system, there was an end run been able to hack it directly. i think it just puts off the day of reckoning. cory: you agree with my conspiracy theory? it was a legal decision as much as a technological decision? paul: absolutely. cory: matt, what is your take on this in terms of what it means for apple's relationship with
the federal government, the fbi, and the justice department? matt: i think that it is kind of the first real discussion point that we have had. the law, when companies are required to comply, the extent of search warrants in this area. in the short-term, it has eliminated subheadline risk from the overall litigation. it may have also raised some concern of the overall security of the iphone. it is certainly a device that is susceptible to security attacks. you may see some additional talk about appropriate ways to secure sensitive information. it kind of closes one issue but opens up another can of warms
when it comes to cyber security. >> i was thinking in soccer terms, this is what we call a shass. it was a shot that turned into a pass. apple folks will turn this into a win, but it is not a win because it means the product is so insecure people are lining up to say, we can provide you access. it lets off the legal day of reckoning and demonstrates that iphones are not particularly secure in the first place. cory: this took them less time than apple itself said it would need to rewrite the software. paul: exactly. if you read any of the hacker forums online, this was the discussion all along. everybody knew that there were
ways of dropping down to the hardware level and doing what needed to be done, and avoiding this lockout problem that would have happened if you try to work your way iteratively through the security codes. the whole thing is bizarre and somewhat unfortunate. it is just putting off the day of reckoning. it may not happen in the u.s., it may happen in the u.k. cory: bloomberg intelligence matt larson. paul will stay with us through the hour. let me show you what is going on for the rest of the tech stock market. there are tech stocks trading everyday. remy? reporter: stocks like the direction as well as the momentum. look at where the numbers close on monday. the dow was the biggest gainer if you can say that. with the nasdaq closing down, the stocks close down versus about 1000 stocks that closed up.
this was the lowest trading volume day of the year so we can see that maybe people are still hanging out on the sidelines. coming to bloomberg and i want to show you what is happening with volume right now. can see that across the sectors of the nasdaq, the volume is down in negative territory. energy down by 44% and we also have to look at the information technology down by 32% against that moving average. microsoft was down by about one .25%. of course putting that into context, that comes after eight years when microsoft tried to acquire yost -- yahoo! for itself. it's being reported today that microsoft might take part in a
choir in yahoo! -- in acquiring yahoo!'s core business. let's look at what is happening with gilead sciences. they are going up by 1% or so. this is one of the biggest listed on the nasdaq. a jury awarded the owner of the pharma company to pay $200 million to merk because of a patent case involving hepatitis b. interestingly, merck was wanting $2 billion. it will be interesting looking i had to thursday when she makes a speech -- looking ahead to
cory: tokyo, we have a problem. they're launching a brand-new satellite. it was equipped with x-ray telescopes meant to study black holes. officials lost contact saturday afternoon and have been trying to reconnect ever since. some suggest that an energetic event may have sent it tumbling out of control and prevented the antenna from working properly. the oculus rift has officially
hit the market two years after facebook's surprise $2 billion dollar acquisition. some call this the new era of virtual reality. something that some give credit to mark zuckerberg for sparking. >> when the ceo of a multibillion dollar company gets up and says that the yard is the next computing platform -- the next -- gets up and says that vr is the next computing platform -- that gets everybody on board. cory: joining us now to talk with us is linden lab's ceo. >> linden lab is in the business
of making it possible for users to create virtual experiences. such as second life. the most successful virtual world to date. cory: kind of like minecraft? where the world is created by the users? >> yes, but covers a much broader range of uses. from role-playing to live music, almost as complex as all the things we do in the physical world. cory: are we wrong to focus a much on games when we talk about the uses of vr? >> i think so. nothing wrong with the gaming market. obviously that is where some of the most aggressive early adopters are mama but there are two reasons. vr is not well tuned to the gaming market. you see the comments
specifically people talking about the vertigo they are experiencing and right to the point of nausea. nevertheless, if you start looking outside of gaming, a lot of interesting fix you can imagine in -- interesting things you can imagine. in many ways, larger and more interesting markets. specifically with respect to these frame rates and nausea problems. cory: paul, what do you make for the pricing difference? the oculus system is very expensive. you have to have a souped-up computer to use it. the playstation is $600, but you at a souped-up computer and you are talking about a limited market and the size. the playstation deal could be a lot cheaper. you are he have a large platform and 37.5 million users.
paul: there is a huge pricing umbrella being put in place. it makes a lot of room for samsung and a lot of room for others to play. it will not just be a larger market at that price point. it will come down quickly, or a lot of people will populate the space under oculus as well. >> i think that it will take a while for the price to come down. it has only come down a lot. a couple years ago you would have to spend $40,000 to get some thing not even as good as the rift today. paul: that is my point. it has come down a lot already. cory: maybe not a lot further to go.
will that start to determine use case? it is a fairly expensive toy. >> you will have very distinct differences between mobile vr and tethered vr that requires a computer. you need much more simplified experiences on mobile vr. cory: what do you mean? >> the bandwidth and the compute power of a phone cannot compete with a pc. the richness of the environment that you can be in, the quality of the environment, the multiuser social environment will be hard to do on mobile platforms for time to come. cory: quickly, paul, when you look at the cost. you know a lot about the media business, when you look at content development cost, we know that video games sometimes spent hundreds of millions of dollars to develop the games, are we going to be looking at that for high-quality virtual reality? paul: i think that we will see some of that, but if that is what we are tied to, it harkens back to the late 90's in the
electronic entertainment business. you look at people like electronic arts. the gaming business exploded because of that ballooning cost of content. i think it will come down rapidly and bubble up from those low end devices. apps built from phones, rather than the other direction. the economics are broken when you start at the high-end. cory: thank you very much, i appreciate your time. sony is said to be planning a more powerful version of the playstation 4 to handle these high end gaming experiences. early this month, sony computer entertainment explained some of the mass-market strategy for virtual reality. >> i think we are happy to be bolted address or than 36 million ps for -- ps4's that are ready right now. cory: according to the journal,
that will be announced before october and will share the same the our catalog as the regular ps for -- ps4. the latest developing news that the u.s. is dropping its case against apple. saying they have already won. they gained access to the data on the phone without apple's help. we will bring you all the latest details as the come. ♪
here to discuss this now is lucas shaw. is this a big surprise? >> mcandrews losing his job? i don't think so. there have been a lot of rumblings over the last six months. tim coming back? a little bit more so. he has not run the company in 10 years. being the operational tight is not his strength. -- operational guy is not his strength. i do not think that is what they expect him to do. cory: as we look at this, i keep coming back to their initial filings. it says that their content is too much more expensive than their competitors. paul: that's it. something like 50% of their revenue flows back out again to
artist royalties. they are in that perverse position where they lose money on everything that they sell, and they cannot make it up on volume, because the more that they sell, the more that they lose. this does not go away when they change ceo's which is why they are talking about all the other things that they plan to do. connecting artists with their audiences and so on. the fundamental problem is that the business does not work. cory: there is something to be said for scale. there is a point where the losses were getting smaller. and if you really twisted your excel model inside out, you could start to see some non-pro forma profitability off in the horizon. they certainly do scale with automakers. you think they could start to generate real revenue to get them through these problems so the businesses would actually have profits.
paul: they still have this fundamental problem of oligopolistic suppliers. whenever you have any kind of tangible destination, you will find royalty rates go up again. it is a very difficult situation given the structural nature of the music marketplace, which is not changing the matter what you do with respect to ceo's. cory: lucas, you are in l.a., hobnobbing with the industry executives on a weekly basis. i know this about you. what do they say about pandora? listeners were down in the last quarter for pandora. lucas: they think about pandora because it is the biggest player in this particular market. their focus is the on-demand streaming market. the spotify's and apple of the world. the trade body just released a report that on-demand
streaming's have surpassed $1 billion in sales. it is bigger than the market for online radio. it is still growing while pandora lost customers last year. spotify eclipsed 30 million subscribers, apple eclipsed 10 million. cory: emily chang sat down with tim westergren yesterday. listen to what he had to say. >> everyone is looking to create a music experience. they are blending and barging. on demand is trying -- blending and purging. on-demand is trying to move into radio. the one that can aggregate the largest audience, make the rest of the experience easy and intuitive, will win. cory: paul, when you see the founder go back to a company like this, he certainly led them through tumultuous times in private enterprise.
is that a good sign or a bad sign? paul: i generally like having the founders involved. i don't even have a particular problem with the founder coming back to the problem. so, i generally like it. cory: here are some holy names. mark pincus at zynga, jack dorsey at twitter. this doesn't always work. paul: it doesn't always work. the thing that alibis it in tim's case is that he was not truly gone from the business. my understanding is he has been completely -- has been ambassadorial for some time and did not completely retreat like dorsey or pincus. cory: tesla taking the price tag down a notch for the highly anticipated model three.
thank you. ordering chinese food is a very predictable experience. i order b14. i get b14. no surprises. buying business internet, on the other hand, can be a roller coaster white knuckle thrill ride. you're promised one speed. but do you consistently get it? you do with comcast business. it's reliable. just like kung pao fish.
thank you, ping. reliably fast internet starts at $59.95 a month. comcast business. built for business. rishaad: oil extends losses for the fourth day; japan also seeing unemployment kicking up and retail sales falling more than 2% in february. began his weaker against the dollar. mixed messages about a possible rate hike. apple says the government's attempt to force apple to open its phone should never have been brought. they used a third-party to hack into the phone, having successfully access the data without compromising it. the stakes have been raised in
the battle for the owner of the sheraton. it says it has received an improved -- the offer with devalue it to about $13 million. those are the headlines for bloomberg news, powered by 2400 journalists in 150 news bureaus. let's get the latest on the markets. are looking at asian markets, struggling to find their feet after coming back in earnest after the four day weekend. just a general lack of direction, waiting for janet yellen to speak to the economics club. to givee is expected some guidance when it comes the strength of the u.s. recovery, and more importantly the path of the rate hike trajectory. that will hopefully give a little more guidance to how
markets are faring. we're looking at weakness out of shanghai, chinese stocks tanking for a second straight day, tech stocks particularly weak. this after saying hi and change control, so increasing down payment measures, and we are starting to see a little bit of weakness in seem to be apix drag. on top of having to digest all around disappointments, retail sales, jobs disappointing, hong kong stocks down 4/10 of 1% ahead of trade day this afternoon. we are getting indications that both imports and exports will see downsize when we get the data through. this is adding to the pessimism -- crude declining, down 6/10 of 1% under that $40 mark.
take a look at the yen; seven straight sessions of decline, the longest losing streak since october, holding steady today. ♪ cory: this is "bloomberg west." i am cory johnson, in for emily chang. i will be here all week. the u.s. government is dropping its case against apple. the microsoft conference on wednesday, a big gathering and san francisco. last year, microsoft announced major plans for android and ios apps. this year they are attracting developers to windows 10. when you look at this conference, it is interesting because microsoft says they are no longer a company with one big
product announcement, but they will be much more iterative. that takes the thunder out of an event like this. >> i think the big product announcement was windows 10 last year, but it is all about the developers and trying to see how they can launch smaller things that are probably going to be useful for other competing products. how they can be more open. it will be a mixed bag. it will not be any one major thing coming up. cory: developers? is that key for microsoft? is it more important in a world where microsoft is more open? >> for sure. the key with microsoft has been that they were -- microsoft used to be invited to every -- essential to every developer strategy and then they became tangential to the point of it relevancy.
now they are coming back up again and showing up in development plans. maybe not specifically under windows mobile but under windows itself. microsoft has also been a very active acquirer of small development companies. you put those pieces together and microsoft is right back in the radar for developers again. cory: microsoft ce when i be essential? paul: shocker, but no. [laughter] cory: let's turn to tesla. a big announcement, model three this week. the ceo has been pushing it since 2004. we are expecting tesla-like things. long driving range in a single charge. semiautonomous stuff. paul, they lose money on every car at $100,000 per car.
do we expect anything like a model s for a third of that price? paul: that is the expectation which has been set. it is really remarkable that the expectation has been set that if anything this will be even more loaded with whizbang stuff than the model s. how do the economics even begin to make sense like this? we are setting the expectation right away that something at $35,000 will be as technologically loaded as the s? >> it is tough to say, but for company like this it will take a long time before you see the financial aspect of something like this. it's more about what you can get from a technology point of view.
paul: you are not even going to see it. the thing that makes me laugh out loud is that in a sense they are just putting a stake out there. it will not even ship until late 2018? in a weird way this is almost a semiconductor-like battle with a declining price and hoping that it all comes together and by launch they do not lose that much money. cory: if you look at the model x that they have right now, the station wagon suv, looks very different than the one they demoed when they unveiled it. i want to get a quick thought on apple. we have this apple news just out and i wonder what the ramifications will be. what do you think the rest of the technology world will say now that apple's phone has been cracked without apple's help? >> this is a huge victory for the technology industry. they have stuck their neck out and basically said, we will support apple on this.
this lets them in a good framework for newer cases to come as for which weight you can expect these companies to respond in a case like this. cory: what clever thing should i say about this story when it is a day old tomorrow? paul: that it really doesn't matter anymore because the whole story has moved to europe. that is where the action is with the legal ramifications about iphone in a access. cory: paul is sticking with us. thank you very much, we appreciate it. this is part of the dell i.t. division. $3 billion. that is almost $1 billion less than dell paid for it. why the fire sale? ♪
cory: sri lanka's government plans to turn the island nation into one big wi-fi zone. google's project beams down internet to remote areas from high altitude balloons. it could be cheaper than undersea internet cables. the government says it is working to blanket the company -- the country with coverage. within a year will have the first sense if it can be commercially viable. sony's ivo robot dog -- they went in production, determined to keep a few of them alive. rosalind chin reports. reporter: this is one of the 100,000 aibo's they sold. the division was killed off and
sony cutbacks. more than a decade later, aibo, which means companion in japanese, still provides comfort to their devoted followers. >> i think my love is much greater than when i first met him. he runs to me when he finds me and starts dancing. reporter: the engineer provides a lifeline for the aging pets. >> we were first asked to fix aibo in 2013 when an elderly man said he wanted to bring his with him to the nursing home. if we are asked, we will do what it takes to get them fixed. >> the demand is so great, his team of seven engineers cannot work fast enough to get to the pile of more than 450 ailing aibo. he is keen on expanding, hiring more engineers. seeing the impact, he is
trialing an interesting idea, bringing them into homes to offer robot therapy. >> when i say something, it responds. it is a very special feeling. it makes you feel happy. i have never seen anything like this before. i kind of like this. >> robots help you communicate with the world around you. this is the most important factor of robot therapy. they become facilitated and communicate with others. reporter: although japan pioneered robot therapy more than 15 years ago, the spread has been slow. the repair and rental services could be one step down the line to help old dogs learn new tricks. cory: dell's services division is being sold but that is $900 million less than dell paid years ago.
is this a fire sale at dell? peter, let me start with you. what do they want with this i.t. services business? >> ntt has a problem that many japanese companies have. the domestic market is not growing much and shrinking. they are looking for expansion overseas. this deal with dell will give them a bigger footprint in north america and india. it will help them expand in cloud computing, outsourcing services, and will give them a bit more geographic diversity. cory: paul, i look at this deal and i thought, has it lost a quarter of its value in seven years?
or is dell just choking down this massive amount of debt from their emc acquisition and have to sell anything they can to get money? or both? paul: it is a little bit more the latter than the former. if you talk to people inside of dell, there is a lot of unhappiness with how the business was being squeezed over time. there was a sense that it was mismanaged. it is worth remembering that, at the time when dell purchased it, this was in response to hp doing something similar. which is worth pointing out, resulted in a much larger write-down than the loss dell is taking. this was a competitive process. both ended up respectfully overpaying for these companies. they were never worth more than they sold for. cory: poorly managed but also a fire sale.
peter, this is what i wonder. two companies look at dell and think, we can get a good price on these things because these guys are desperate and need the cash? peter: it is partly about that. it is also about the tech services market. a lot of these companies are struggling to keep their finances up. as paul mentioned, there were some companies who took a look at the business. it is a challenging business right now. it seems like, for ntt, this was a reasonable price to pay and it chance to expand beyond the japan market. to get exposure to markets growing more quickly. cory: in particular, the market for them -- i wonder, is a mismanaged asset something that ntt has a reputation to fix? peter: that is a challenge. ntt and some of the other japanese companies looking for assets overseas have struggled
to manage these assets. this is a people-intensive business. technology services requires hiring and managing these people. it will be a challenge. cory: in this world of things going increasingly hosted and increasingly to web services, the great beast out there, you can see all of the copies in this business. hewlett-packard, ibm and dell, no longer dell. is there a place for this kind of business in the world going forward? peter: thankfully, with a long have government and hospitals which will keep outsourcing companies and business like this long into the future. but as the ownership changes and a copy like perot systems, what happens when i go to a government company say it is a domestic department or hospital, are there changes? i'm sure that came up in the acquisition, but i would not be
surprised to learn the revenue is softer and perot given those issues. cory: maybe the deal does not get done as a result? is that possible? peter: it is certainly possible. paul: i guess it is a possibility. they will have to go through the due diligence. i would be surprised if it does not get done at this point but there may be contingencies that they have to work out. cory: early in the morning -- thank you, more to come. the latest in apple's battle with the fbi over the san bernardino shooter's iphone. and a very important speech. the see if we get a good cop or a bad cop. 9:00 in the morning right here on bloomberg. ♪
cory: back to the big news of the hour. the justice department withdrawing its case against apple after the fbi successfully broke into the iphone of the san bernardino shooter without apple's help. edward peterson is on the phone from los angeles. paul is still with us. let me start with you. i felt like, at the apple event last week, it felt like this case gave the apple people more of a mission about what they do and how they approach privacy or whatever they are doing. >> yes, and it brings the question to the table, how can apple advance with every generation. here is one big thing that they can advance. security. cory: what do you think of this development? >> it is significant that the u.s. filed its status report ending the case a week before they had to. which indicates that they
probably knew last week already that they had a fix for this problem and could break into this phone and are just doing a few tests to make sure it was working happily. the ended it when before they could have. they were not due to file anything until april 5. it is significant that the government is wanting to end this case as soon as popular -- soon as possible. cory: you know a little bit more than the average bear about how these things work. do you support this notion that the government may have always had this capacity but was trying to get more freedom in the courts, selecting a terrorism case and hoping the courts would side with them quickly so that they could use that logic in subsequent cases that might not be about terrorism? >> absolutely. i don't know whether the u.s. already had the capability are asking apple to help with, but i
definitely think they text -- picked this case to show that apple cannot hide behind its government, or its principles of privacy to stand in the way of government investigations. this was a well picked case, and they would have used it as a precedent to go to other cases as well. cory: paul, you have been talking about europe, we know that there are cases lined up. the manhattan da says he has about 100 phones he would like to get access to. talk to me. i would like to have you expand a little about what you are saying about europe and how this will be even more important. >> there are a number of different efforts, in the u.k. specifically, this idea that you will be able to have freer access as a law enforcement agent. it is not apple-specific, but
more recognition that increasingly all of our lives are moving on to these devices. the absolutism of perfect privacy or perfect openness, neither one works in a free and open democratic society. the intent is to create a managed way of gaining access, and that upsets many people in the technology community, but the flipside is that it creates a terrible dilemma for the legal community. there is an effort underway in the u.k. that looks like it has a lot of possibility to an acting some legislation to gain official access. cory: it seems like it creates this perverse cycle. if privacy is something customers care about, there will have to get the latest phone to get the privacy. >> the argument that apple has made is that it really affects normal consumers, like you and me. cory: you are calling yourself innocent? >> we let the jury be out.
cory: i want to record this moment for posterity. >> but the implication is as tim cook said in his initial letter, the people who are criminals will encrypt anything to matter what. they will find chatting apps that have better security than apple or facebook chat. it is the normal people at the crux of this and not necessarily those was having to hide. cory: we wonder, is the government going to have to reveal anything or can they shield this in the investigation of the terrorist act? we will never know if this is all for moot. >> this case is going to be closed. apple is not going to ask the government for information but how cool -- about who this third-party is. there may be other ways in which the government may need to
disclose some of what it has discovered through apple, under a law in d.c. where if it is a security issue that apple should know about, the u.s. has to disclose that. but it will not be a will to go to the court for this. cory: evard petterson, covers legal matters for bloomberg. paul, we appreciate you being here today for breaking news. time to find out who is having the best day ever besides me. in addition to the department of justice, marc benioff. the ceo posted a triumphant tweet after governor nathan deal said he will veto a controversial religious bill that would give religious organizations the idea -- the ability to deny service to gay people based on their religious beliefs. benioff has been very vocal about the bill.
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