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tv   Bloomberg West  Bloomberg  April 18, 2016 11:00pm-12:01am EDT

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>> i am mark crumpton, you are watching "bloomberg west." a day after brazil's lower has voted to impeach her, a defiant dilma rousseff vowed to continue fighting. she said that a president can only be impeached if a crime is committed. if the senate majority votes to put her on trial, she would be suspended while the vice president takes over. two buses exploded in jerusalem on the at least 21 people in what police said was a terror attack. the prime minister benjamin that yahoo! said whoever planted the device will be found and israel
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will "settle the score." >> it is time for the palestinian leadership to end their silence and start acting as leaders. >> the tense exchange took place during the security council. the western-backed opposition wants the rebel groups to put the peace talks on hold. global news, 24 hours a day, powered by 2400 journalists in nearly 150 bureaus around the world. bloomberg west is next. emily: i am emily chang and this is "bloomberg west.
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coming up, netflix forecasting weaker subscriber growth. can international growth give them the boost it needs? plus, ibm revenue falls for the 16th straight quarter. we look for green shifts. first, to our lead. netflix shares plunging in after-hours trading after forecasting weaker subscriber growth this quarter, especially in new or markets outside the u.s. they expect to add 2 million international customers. that's important because netflix has bet its future for being able to bring the on-demand tv revolution to the whole world.
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all of this overshadowing first-quarter results. >> hulu is doing some great work, amazon is, hbo, showtime. there are so many competitors and everyone is working hard to build the best content. we are seeing growth in the overall tv market, that is displacing linear tv. it is natural that everyone is coming in as they realize that the future is internet tv. emily: joining us for a full breakdown is lucas shaw who covers bloomberg in l.a., our editor at large, cory johnson, and eric hippeau, a partner at lerer hippeau ventures. cory, subscriber numbers from last quarter were pretty good.
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it is the forecast that does not look good. what are the big themes? cory: the forecast is so important because netflix grandfathered in a lot of their old customers and said they will not do that this time. we do not know what the effect will be on their customers. growth of only 500,000 new customers predicted for next quarter, combined with that disappointment in only 2 million being added internationally suggests a slower growth rate. the question is, how big can this business be? the suggestion perhaps is that netflix is getting closer to how big it is going to be. the reason that is a problem for netflix is that they are contracted to buy so much
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content, their costs are staying high, they need more customers. if they cannot add more customers, they will face serious problems honoring the commitments they made already. emily: i was speaking to david nevins, who competes with netflix, and i asked him what is netflix's biggest threat? look what he had to say. >> at some point they have to start making earnings. emily: is the original programming going to pay off? >> they have to grow a lot of subs to justify that amount of programming spend. they are racing the clock. emily: lucas, you know david nevins well, at what point do we know if it was worth it? >> we should start to know early next year. reed hastings has said that netflix will deliver material profits starting in 2017. there are profitable in the
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u.s., but if the growth does not keep up overseas, or if currency markets hurt them, we might not to the profits next year that they had forecasted. one thing that i thought was interesting that they pointed out on the call, and one reason why the growth outside the u.s. might not be as fast as people want, that they expanded to 130 new countries in january. for the most part, they are only appealing to people who can speak english and have international credit cards, which means they cannot add on most of the local speakers. emily: just in time for netflix's earnings call, amazon decides to announce a standalone video service. before, you had to be an amazon prime member, now it only costs a few dollars more to do the whole shebang. how does this change the competitive landscape for netflix? >> netflix is the target for everybody, including people who come from linear tv, like showtime which is an offshoot of
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cbs. they have been here the longest, they have established the model and will be the target. by the same token, netflix should have many of cards to play. we just mentioned internationally that they only appeal to people who speak english. they could add local content. in the united states, they could take pages from linear tv. they could start doing live television or news. they could tier the programming overtime. they have this ability to target what people watch. there is a lot that they can do to grow. by no means do i think they have reached the end. emily: netflix has said they are in talks to break into china. how realistic is it? >> they have said almost nothing. they had one line in their
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letter to shareholders today that said they are in discussions and have no material update. it is pretty much the same line they have had for a year or two. anytime i have had the chance to ask reed hastings or anyone, they have nothing to say. that is typically a bad sign. you heard on the call today when asked about off-line viewing that reed hastings has said that is something they would have to consider when previously they said they would not. there would be some change in the language about china if there were progress. emily: that is a story to continue to watch. thanks a much eric hippeau. cory, i want to speak with you about ibm. big blue shares of dipping after-hours after releasing first-quarter results. the 16th quarter of revenue
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decline in a row. it is a company in transition having away from its software businesses with new growth and data analytics, cloud, and security. what is next for big blue? cory, i will start with you. the same question here in a way that we are asking about netflix. when will we see these investments that ibm is making hit the bottom line? cory: $10 billion in investments in the last couple years in acquisitions. throw in the 0% 17 quarters ago and you have no growth for 17 quarters in the top line. they said they would be focusing on more profitable businesses, but we are not seeing that come to fruition. they have stopped their old form of delineating the different business units. we do not know how this compares to the last because they did not
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give us the numbers. they have a completely different structure. as a result, they want to start over and they will get that chance. the 5% decline looks a little better, but they had some currency conditions. the dollar is a little bit weaker. the strong dollar they had been complaining about was not as much of a problem. but this shows you what a tough business, not just ibm, but throw in hewlett-packard, cisco, oracle's sun business, dell, we can see all of those businesses struggling. emily: i mentioned earlier that we would talk about the green shoots in ibm's business. where do you see bright spots? >> you are seeing cloud business up 36% in constant currency. analytics, security.
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all of that is taking place. we have been talking about this for several quarters. this portion is smaller than the legacy business. it will be a few years before you start seeing revenue growth and catch up to the decline. emily: anarag rana, cory, thanks for holding there. we will take you through the twists and turns as the legacy internet up and he waits for preliminary bids to roll in. ♪
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emily: verizon is said to be moving toward an offer when an unexpected player is jumping into the ring. in the meantime, many companies who are reportedly interested have decided to pass. here to break it all down is my guest host eric hippeau, as well as anthony, who covers yahoo!. instantly, today is a deadline, but as far as we know, yahoo! would still accept a bid tomorrow. what do you make of the field of potential players? verizon, yp, potentially "the daily mail." >> i think verizon is in a better position to acquire those assets. they could combine it with aol and create a mobile advertising
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juggernaut that could compete with the googles and the facebooks of the world. i think verizon is in the best position. these 40 other names, i never thought that the vast majority would stick around and make a bid, which is why last week i came out with a note and essentially said that i thought mid single digits was about the bidders i expected for yahoo! this week. emily: eric, you are in an interesting position. you were an early investor in yahoo!, the former owner of,"," "the huffington post," owned by verizon. depending on how you value yahoo!'s core business and the fact that they would try to do this depending on the -- kind of like a reverse merger. >> i don't know what to think of it. yp is an old legacy business. it seems to be very small am a
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about $1 billion in revenues. about $1.5 billion in market cap. it seems like an unlikely candidate to buy yahoo! emily: what about the yahoo! japan part of the story? is there a chance that that part of the company could end up in a bidding war? >> it could, but i think it is unlikely. it's a complicated asset to throw into the mix because of tax implications and ownership implications. what we will see happening today and tomorrow is probably a moving target. there are probably some other hard assets like -- emily: is it about what will appease the starboard investors, what will avoid a proxy war, or is it about melissa myers trying to keep her job?
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>> i think it could be all of them, but at the end of the day you have to please the shareholders. given their failed attempt to spin off alibaba shares, i think the board has the responsibility to shareholders. that is the best way to reward your holders, the best way to create value in the stock. i expect them to sell the entire asset as a whole. emily: we are watching yahoo! earnings on tuesday and there is a big yahoo! shareholder meeting coming in june. eric, how do you expect this to play out? >> i am a little confused. the reports were that there were reluctant to give open information to the bidders. that there was a whole process that was muddled and confusing. i think that probably scared a
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few people away. i don't know that the private equity guys could make a good decision in terms of what to bid and what price to put on it. expectations are that revenue will come down again. without full cooperation on the part of management, the board, and the company, it would be very hard, if you are a future bitter looking at cash flows, it would be very difficult to make a good decision. emily: and some people are looking at a reverse morris trust, which is a tax-free merger. that would certainly be an interesting turn of events. thank you so much for joining us. eric hippeau, you are sticking with me.
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we will be staying with this yahoo! conversation. up next, arianna huffington on marissa mayer's leadership. ♪
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emily: in this week's edition of "studio 1.0," i sit down with arianna huffington, editor of "the huffington post." we talk verizon and whether she believes the telecom giant has a long-term strategy that includes yahoo! and "the huffington post." >> verizon has decided, and that is why they want "the huffington post," that the future for them has to include a very fast media technology company. so, yahoo! would fit very well in the strategy. there is competition with softbank and maybe google. we will see what happens. emily: what are the synergies that you see with verizon and "the huffington post." >> the synergies with verizon
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have huge distribution potential. we're moving more and more into video. we have mobile video play, and have produced and paid for great content from many providers. this is fantastic for "huffpo" because it gives great distribution. emily: what do you think of the wireless company getting into content? it is an interesting new world. >> i think it is a smart move because the world is changing. it is really the innovator's dilemma. if you do not change fast
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enough, then it is too late to change. in a sense, if the new york times had changed early enough when it came to digital technology, there would be no room for the huffington post. emily: there has been such intense scrutiny on marissa mayer's's leadership, do you sympathize with her? >> absolutely. i feel that marissa is a working mother who chose to run yahoo! a certain way. at the moment, clearly shareholders are not happy with the way it has been run. emily: do you think that yahoo! could be revitalized with new leadership? >> i think that one of the great advantages of yahoo! is that it is a hybrid. it is a journalistic enterprise,
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and it is a platform. it owns tumblr. i think tumblr is an incredible asset. as more people want to express themselves in 140 characters, and you have an incredible opportunity to use tumblr to allow people to express their views and use it as a native advertising play, we see that this is, for us, one of the most important monetization channels. our relationship with goldman sachs, and a mattress company, they create intersections that are for me one of the most evolved forms of native advertising. emily: would you like to see yahoo! at verizon?
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>> absolutely. it provides us a bigger playground. emily: my interview there with arianna huffington on "studio 1.0." a developing investigation, theranos is under investigation by the fcc. caroline, what is it that you know? it looks like we are having technical difficulties. can you here me? >> i can hear you. emily: what is the latest that we know? >> right now, we have just seen a document from theranos, where they told us they are informing their business partners of a number of investigations, some of which are new to us, including investigations by the fcc and the attorney general's office in northern california.
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emily: how does this ramp up what we were speaking about with regard to cms? is this a separate story? >> it is a separate story. they are different investigations. we did not know previously about the fcc investigation. this is more scrutiny on theranos. the company says they have been complying so far. it had just asked to see documents and the company is cooperating. emily: some serious allegations being leveled at theranos. i know this is something that you will continue to follow, and we will bring you new developments as we have them. coming up, the online education company udacity launches in china. my interview with the founder later this hour. if you like bloomberg news, check us out on the radio.
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i did not see that coming. don't deal with disruptions. get better internet installed on your schedule. comcast business. built for business. >> the top stories this hour. japanese stocks rebounded, pushing the regional index to a form of high. the nikkei is having his best basins early march, driven by consumer and telecom stocks. earlier, the dow broke for a high, oil giving of intraday gains. brazile senate in rejected a bill that would curb training empowers. both houses of parliament will discuss it on may 3. economic issues are set to dominate, but the rba is warning that it could complicate the country's. the dollar is at a 10 month
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high. in the five-month high after korea's central bank adopted a wait and see attitude, keeping its interest rate unchanged at a record low 1.5%. and then lowered its estimate for 2016 gdp growth. inflation outlook was also trimmed. those headlines from bloomberg news, powered by 2400 journalists and 10150 bureaus around the world. let's get the markets. juliette: japan coming back alive after a solid morning session. begin weakening and this recovery we saw in crude and offshore markets, giving a good boost to offshore sentiment with great gains coming through from the energy players in the region emily: the tech world has lost a has gone on its market pretty -- it is coming
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through in hong kong, looking a lot better, hsbc leading the gains by 3% on the hang seng index. there has been a switch out in taiwan and the philippines, and other southeast asian markets are looking good. the rebound in oil prices is certainly helping of the asx 200, which is up by 1%. in new zealand, up by 2/10 of 1%. that's the state of play in asia. ok. we will have a look at the currency markets. up, 77.73.dollars the korean won has also looks pretty good today. it has been a five-month high after the bank of korea became third and left interest rates on hold at 1.5%. it's up 1% at the moment.
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the new zealand dollar is also looking pretty strong; it is up by four tens of 1%, the dollar and 69.89. we are seeing good movements coming through. that's the state of play in asia. emily: the tech world has lost a giant. bill campbell has died at the age of 75 after a long battle with cancer. he was known as "the coach" in silicon valley. both for his previous career as a head coach and as a mentor to some of the greatest minds in technology, from steve jobs to jeff bezos, to google's larry page. in 1983, he became a close friend and confidant of jobs, later playing a role in his return to apple in 1997.
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you interviewed him many times over the years, what was he like? >> i think he probably would have spent in discussed as if there were something profane about this discussion. he was a behind-the-scenes operator. he never sought the limelight. he was gregarious, delightfully profane, and insightful. he did not seem to know much about technology, the bits and the bytes, but he was insightful about organizations and people. that is why so many executives and investors used him as a resource about how to structure their companies and deal with interpersonal issues. emily: bill campbell, our close friend died this morning. he helped build google and in countless ways made our success possible.
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tim cook tweeting, bill campbell believed in apple when few people did. he also gave a eulogy at a memorial service for steve jobs on apple's campus. he talks about scott forestall an apple. listen to what he has to say. >> scott forestall was demoing the new phone. he was demonstrating siri. scott did it a couple of times, and steve was across the room and said, let me have that phone. scott said, be careful now, i have this pretty much attuned to my voice. give me the phone! scott goes around and hands him the phone, steve asks a couple benign questions and says, are you a man, or a woman, and siri says, they have not assigned me a gender, sir. [laughter] emily: he was on the board for many years.
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how did he become involved in the company? he was like an invisible hand at companies that competed with each other. >> google and apple went to war, and somehow he continued to advise both companies. twitter and facebook, venture capital firms. it is probably because he was not involved in product or strategy. he operated as a kind of industry psychologist or organizational psychologist. he was a people person.
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he was magnetic. i think about a leader in war. somebody who could lead people and you wanted to listen. emily: until recently, he was very actively on company boards. flipboard's jon deor resurvey told us he was invited to become chairman of -- which he decided to do. is or anyone else in silicon valley who is a next duration bill campbell or andy grove that is filling this roll? >> i think he was one-of-a-kind. can look to folks like ben horowitz or peter thiel. in terms of somebody who was reeling to advise such a range of entrepreneurs and companies, sometimes on different sides of the aisle, and remain friends, inspiring to everybody -- i don't think he will be replaced. emily: i know that you interviewed him for your book, and he had some thoughts on jeff bezos. >> people think that campbell was one who advised jeff bezos, but that's not really true. the board of directors sent bill campbell to basically fire jeff bezos and bezos basically told him to go away and did not see the magic. but bill campbell said, this guy was hoping special and they
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should not displace him. he went back and told the board that they were crazy and jeff has become one of the most popular ceo's in history. emily: wasn't he also hired to fire someone at twitter? >> that may be true. you should consult the book for that one. emily: thank you for sharing those stories. we will be back with "bloomberg west" after this quick break. ♪
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emily: elon musk is speeding ahead of schedule on a huge tesla payday. musk could net as much as $1.5 billion from certain options promised by the company. musk was given to 2022, to meet
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these goals but he has already achieved 50% of them in three years. this is according to a proxy statement issued friday. tesla shares are up more than 20% over the last year. a stock we are watching, gamestop shares -- it announced it is launching a new division that will distribute and market its own games. that means the company will be crating content that competes against games on its store shelves. the project includes the creator of the "ratchet and clank" series. udacity is now being offered in china. this expansion follows india. similar to the expansion, they have localized many of their popular classes to china. i spoke to the udacity ceo and started by asking why he targeted china for the expansion. >> i think the good we can do in
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china and india is unmatched. 2.6 billion people live there, about one third of the world's population. there are few great universities and a thirst for education. emily: walk us through the steps. the cost? the amount of students? >> the goal would be 1.3 billion students which would be a lot, but even 100,000 would be very intense for us. emily: there are 8 million developers working in china. you expect that number to grow to 15 million-20 million by 2020? how are you expecting to do that? >> we had a great reception and china like we had in silicon valley.
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the put $100,000 on the table for the winning students. cannot just build content and projects, but place students in jobs. emily: alibaba? >> we are talking to everybody. emily: everybody would like to expand in china, but there are challenges. what were the challenges that you had to overcome?
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>> the biggest so far has been to get the infrastructure working. there is a great chinese firewall and it gets in the way of streaming data from the united states. the next challenge would be scale. emily: what about your experience working with the chinese government. obviously, they have their own views of technology. has it been difficult to work with? have there been regulatory hurdles? >> for udacity it has been really easy. the most important thing is that the chinese government and we have the same vision. there is a lot of talent in the world, china in particular. chinese talent were developed as far as it could be, then half the apps in the app store's would be chinese. emily: i was speaking to peter thiel who taught a class in china, and says the one thing that surprised him most was how ferociously competitive chinese
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students are. it scared him. do you think that china has the power to surpass silicon valley when it comes to innovation and building great companies? >> i have a sweet spot for silicon valley because all the crazy innovators in the world eventually find their way to silicon valley. there is so much brainpower in china that is underutilized. it is such a new country, so to speak, going from the 1960's and 1970's, when you can get good income and have a growing middle class. they will be amazing people in china as well and we have to find them and train them. emily: you work with companies like google and facebook. facebook is blocked in china, google country. might the chinese government have a problem? >> we are exclusively focused on giving people tech skills. we don't take any commentary or the political history.
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for us, i think it's something that's good for people. emily: but they help with your online courses. is that something the government might -- >> so far we have had zero rebuff. only positive reception. they have help from google but it's only about teaching android not making tiananmen square accessible. emily: what about japan or korea? or under the region entirely? >> we are busy for the time being. we are eyeballing places like south america and brazil. we have connections to germany and japan, but that is for another day. emily: that was my exclusive interview with the ceo of udacity. a story we are watching, the alibaba finance affiliate is said to be planning an ipo in shanghai. they may begin the process as soon as this year. the listing could be china's highest ipo valuation since 2010. it is currently targeting a
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private round of funding at an estimated $60 billion valuation. coming up, 110 years since the great san francisco earthquake of 1906, we explore what the technology are using to prevent a repeat. later, former fdic chair sheila bair. ♪
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emily: a story that we are watching, magic leap has acquired an israeli company. north bid is a company that has claimed to acquire a software portability that could affect millions of users on the android
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operating system. speaking of cyber security, the pentagon is the latest to participate in the so-called bug bounty program. the "hack the pentagon" program runs until may 12 and participants must agree to a background check before participating. it has been 110 years since the city of san francisco suffered a deadly earthquake after what experts believe was a magnitude eight point oh earthquake. ecuador and japan were both hit by major quakes bringing earthquake technology back into the spotlight. especially this question of how prepared certain regions are if a major earthquake were to strike. here, we take a look at the risks. >> according to the u.s. geological survey, california
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has a 99 point 7% chance of experiencing a magnitude 6.7 or larger earthquake in the next 30 years. that is known as the big one. the pacific northwest has a 10% chance of a 8.0 or 9.0 mega earthquake. this is called the really big one. it is the catastrophe that seismologists have been predicting for this zone. the area of impact will cover 140,000 square miles including seattle, tacoma, portland, salem. the last known major earthquake was 130 years ago and created a new western coastline. you could say that we are overdue. the really big one was a title of the new yorker piece about this big earthquake that could
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be coming to the northwest which just won a pulitzer prize. here in california, how well prepared california is if another earthquake like the one that hit in 1906 hits here. joining me now, glenn palmeroy. thank you for joining us. first of all, that story about the earthquake in the pacific northwest, it scared just about everyone. do you believe that is true? >> the story was a powerful piece because it was written in a way that we could all understand. it wasn't scientific jargon, it was just present in matters of fact which is that fault is going to go again someday, and when it does, it will produce tremendous damage along the northern and western coast. tsunamis are the big risk their. in southern california, it is more shake damage we need to be concerned about. emily: so it is a near certainty
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that in the next 30 years, we will see a next major quake. if the one from 1906 happend now, how bad with the damage be? >> it would be really bad. it was 7.9. we would have strong shaking from the northern part of the state all the way to the south. some 2 million homes would experience strong shaking. 250,000 of those homes would be displaced. we estimate that the damages caused would be about $175 billion, and that's just to residents. emily: $175 billion. does that mean that california residences and buildings are not prepared? >> we have made a lot of progress in preparedness. when earthquakes occur, we make
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other leaps forward. the problem is, think we are adequately prepared to rebuild following the earthquake. it takes earthquake insurance. without earthquake insurance, there is no protection for a homeowner. it is specifically excluded in the homeowners policy. after the northridge earthquake, the state of california created this nonprofit insurance company to insure homes in california, and our mission is to make coverage available and get as many homes protected before the ground starts to shake. emily: so you work for a company focused on getting people insured. i wonder, how important is earthquake insurance? you say 50% of residences have it. what about businesses? >> our focus is on homes. basically only 10-15% have it. the rest will be on their own and have to figure out other ways to recover. put debt on top of debt, or hope from a small financial grant from the federal government to take her of life and safety
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needs. we believe that the amount of protection for businesses is about the same as it is for homes. here, we have a lot of work to do to get in place the ability to survive economically. emily: what about in terms of infrastructure? what more should the state be doing? if things are so great, why would there be this much damage? >> there have been a lot of improvements over the last decades. building codes are far safer than they were 110 years ago, for example. but what they say about earthquakes, when you have seen one earthquake, you have seen one earthquake. everyone is different and they all happen when you least expect it. the science has advanced, we know a lot more about what probabilities are, but you cannot say for certain.
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we don't need to live in fear, we just need to do whatever we can to be prepared. emily: is there any research on the big one? >> scientists say to a 99.9% probability that a big one of 6.7 or greater is coming sometime in the next 30 years. it is pretty near certainty that it will happen soon. it could be this afternoon or years from now. emily: thank you so much for stopping by. now, time to find out who is having not the best, but today it is the worst day ever. netflix. shares are plunging in after-hours trading after the company reported weaker subscriber growth, especially internationally. ibm is also down after-hours. tuesday, we will hear from yahoo! and intel. thursday we have microsoft and
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alphabet. that does it for this edition of "bloomberg west." we are focused on the workforce with alec ross. ♪
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