tv Bloomberg West Bloomberg September 28, 2016 6:00pm-7:01pm EDT
democratsfunding wanted to address the water crisis in flint, michigan, will be handled in a separate water bill. the house could pass it tonight. , kratz joined with republicans to and president obama's first veto override. both house and senate voted overwhelmingly to allow families a 9/11 victory -- 9/11 victims to sue saudi arabia for its alleged backing of the attackers. the president has argued it could open the u.s. to lawsuits around the world. bernie sanders and hillary clinton made joint appearances at the university of new hampshire. sanders called clinton's plan to provide free college tuition to middle-class families revolutionary. want youngders: i people to leave schools excited about the future, the new businesses they will open up, getting married, having kids, being a house, not saddled with tens of thousands of dollars in student debt. mark: clinton is struggling to
win over the millennials who campaign. sanders' a dutch investigation implicates russia and the downing of a malaysian passenger jet over lewd -- over ukraine two years ago. i'm mark crumpton. "bloomberg west" is next. emily: i'm emily chang and this is "bloomberg west." it's the end of an era -- blackberry is powering down its own business. we will take a look at what is next. plus the future of mobility from battery power to self driving cars, we will hear from ford ceo , mark shield ahead. and to veterans dealmakers, we will talk about what is driving
acquisitions and buyouts in the tech industry today. the end of an era for smartphones -- blackberry has said it will stop making the handsets that were once so addictive that we called them crack berries. shares surging 5% on the news. the company struck up a deal with an indonesian company to distribute blackberry devices running on blackberry secure software. the move comes three years after the ceo, john chen took over and outsourced manufacturing to foxconn. we asked him if he feels this is the end of an era. is a the end of an era wrong thing to think about. a lot of our competitors, they have their phones built overseas by foxconn and other people in china, and it has been a traditional thing about how people will manufacture your phone. what i did was take it one step rather to let them design -- one step further to
let them design the hardware. they want to do their own local content. i make it a win/win proposition because of what their desire is. theways tell people smartphone of the future is about the far -- is about the smart, not the phone. if the people focus on the physical phone, they might be missing the big equation. it's smart about application and smart about ai. it's smart about personalization, decision-making. it is really about that. we are focusing on doubling down on those in my opinion is it's the start of a new chapter, rather than the end of an era. you saying hear other smart phone makers will have to stop making smartphone hardware as well? if so, who? matures,n any market it is more about integration. in the past, when you saw the
phone company, even like research in motion, we have everye lines, we build devices, every screw and toolset and so forth. byadays, those are done outside vendors, but they do it very well. we take it one step further and say you have the ability to design the phone on the hardware side. we will control design on the software and license that to you. that is what we have been doing. my prediction in this market, only a handful of very large volume players could do the complete integration, including design of the hardware. how much revenue do you think these licensing deals will bring in? are we talking revenue in the tens or hundreds of millions of
dollars? john: i will give you a number and you do the math. just in indonesia, last year, they sold 33 million phones. the indonesian market. obviously, i cannot grab everything will phone but you can figure out what a large telecom would be a ball to sell. how close are you to another licensing deal with china? i told everybody that is not a guarantee. negotiations are quite complex. stage, soa very late i hope sometime in the next six months, we will have something we can celebrate. at twoblackberry trading to four times -- will this change now that you have made
this decision? john: i believe so but the market is also looking for the proof. as we start seeing traction and revenue coming from this part of the equation, then i think people will start seriously looking at it. emily: why should customers choose your software over microsoft or ibm, especially now that you are not making your own phones anymore? john: it's the most secure and the most complete. if you look at the latest measurereport, they mobile security, they have six .ritical items or factors we are number one in all six of six. chen: blackberry ceo, john there. cory johnson is in new york today.
what do you think is the significance of this news? mark: it is significance in terms of finally being in balance. blackberry has not done much in software -- the hardware or tablet space, but now they are telling officials this is where we are going. we're going all in on our security software and messaging platform. we are done on smartphone hardware where we are losing so much money. emily: is this a moneymaking venture for blackberry? cory: when tech companies blowup, the blowup over inventories. this move away from the manufacturing, whether they jumped or they were pushed, it's hard to say. i want to show you to charts. the number of like berries sold compared to revenues. even before they stopped making the white wine gets smaller and smaller and smaller. remainice the revenues
steady. after the initial collapse of evenbusiness, 11, 12 and 2000 14, revenues stabilize so that the sale of the phone is not so important. the yellow line is days of inventory. how many days of inventory do they have stacked on the shelves? the other line is the stock price. we can annotate that quickly. not all of the time, but some of the time, when the inventory spikes, suddenly the stock is about to collapse. it happened there and here briefly. wheren see those numbers the inventory spikes and the stock collapses. that's not going to be a problem anymore because inventory in the world of software doesn't happen like it does in hardware where you can create a problem even when the business is tailing
off. john chen gave us a few hints there and told us to do the math. : john chen gave us a few his there and told us to do the math. mark: they only have one partner lockdown -- indonesia. indonesia has a big opportunity in the year to come but how big the market is now, is not substantial enough to bring blackberry into the green where it was five years ago. in terms of software and services, this allows them to put all of their eggs in that basket and grow that business. emily: how optimistic are you about blackberry's software business? cory: i'm generally optimistic anyway, but here's this story -- there was a time not too long ago when blackberry and nokia were dominant companies in mobile phones. quickly, technology changes and that goes away. .he same is true in software
the stickiness of software is not to be taken lightly. they stay with the oracle database for decades, but the same is true with security and e-mail and that is blackberry's strength. there is still blackberry enterprise even if you're not carrying around a blackberry as an enterprise. emily: could this turnaround rock very ultimately or is it unclear? they it is possible if focus on that and take the new microsoft approach and put all of their software everywhere. right now, they are compatible with an android version of blackberry. imagine if they put all of their e-mail apps and refresh them for the iphone and on android not running blackberry and the web and all of those platforms and restructured the company around that and shut all the divisions related to the hardware and focus on that. they could become a big software player, but they need to reboot
like a startup and leverage that blackberry brand name. even forget about the licensing deal. it doesn't add much. watching.will be our consumer tech reporter and cory johnson in new york, thank you both. apple is moving its london headquarters to the south bank of the river thames. the tech giant will be the largest office tenant of the former power station with 1400 employees across six floors. the move won't happen until 21, when the project is complete. just crowned its first tech billionaire. those details ahead. looking ahead to the start of , shares up after the company doubled its outlook, saying growth in storage devices was boosting the forecast. this is bloomberg. ♪
emily: california will focus on building more electrical vehicle charging stations to reach its mandate for zero emission autos. it might avoid tougher emission goals pushed by environmental groups. california has 10% of the station it will need in four years. fleet of autonomous electric cars could put off stiffer regulations for 2025. books wagon is laying out a bold plan to ring electric vehicles to the masses. the company plans dozens of new models with unprecedented driving ranges.
they hope to pivot away from diesel. the move comes one year after the omissions scandal rocked the german automaker. ford out with more details on its plan for auto electrification. the ceo stop by the bloomberg markets most influential summit. >> we are thinking about this holistically. not let's just have an autonomous vehicle. we are going to available full -- level four, fully autonomous vehicle in 2021 in either a service.ng but we also think about mobility and how do people get around in we are asking cities what are your transportation and congestion is choose and what assets can we bring with ford? emily: that was mark shields,
ceo of ford motor company. argentina is on its way to becoming a major tech hub. the countries leading the cart -- leading the continent as far as tech unicorns are concerned. one company leading the charge translates to free market. it's latin america's largest online marketplace. us about the nation's first tech billionaire is tom metcalfe. on a tear. been this is basically like the ebay of argentina. tom: it is a clone of ebay. he thought ebay was a great is this model and transferred it to his home continent. emily: what is this guy like? tom: he's described as a mystery man. iskeeps to the sidelines and asdifficult to see him
opposed to how it is with founders of american companies. he is pretty low profile. have operations in venezuela which is one of the toughest markets to operate in. how's the company doing? tom: if you look at the companies across south america, some of the world hardest markets, venezuela being hyperinflationary. every quarter, they will run down assets in that country. they are taking hits in currency to valuation and that's where the benefit of being diversified across the continent is. as venezuela goes down, you have brazil late -- you have brazil and argentina. emily: where are they looking to expand? tom: i think they are sticking to the continent focused on diversifying products. ebay had paypal and now they are
moving into distribution and classifieds. it is more dominating latin america rather than looking up to america where you have big competition. emily: i touched on argentina's tech scene but tell us what it is really like. tom: they are pretty confident it is going to be one of the globe's big success stories. emulate not aiming to silicon valley and look for the next google. it's more like what are the companies that will work well on the continent. in terms of outsourcing, that's another egg thing. keep -- that's another big thing. emily: we will keep our eye on the billionaire mystery man. thank you so much. japan has the second-largest music market in the world but 80% of sales go to physical formats like cds. how spotify is planning to
emily: music streaming giant spotify is reportedly in vast -- in advance talks to buy soundcloud. just this month, spotify announced it hit 40 million paying subscribers compared to apple music's 17 million. soundcloud launched its own paid streaming service just a few months back. is finally making a move into the second-largest movie -- second-largest music market. spotify japan launched, going head-to-head to head with google play and apple music.
joining me for more details is eugene nakamura in tokyo. they've had an office in tokyo for 18 months. line eat, google, and them to the punch. how much will not having first mover advantage hurt them here? eugene: they -- are definitely coming late to the party. more than a year late. streaming was a new thing. it.yone has already tried free trials a version from apple or line, people know what it is an a lot of people just did not sign up for it. the thing that separate spotify and the reason they were so late is spotify has a free tear. if you listen to ads, you can listen to the music. this is something that apple, line, google do not provide. so this is their advantage.
frankly, the people i've talked to, the analysts think it has a pretty good chance, probably a better chance than apple did. apple came on, iphones are very popular. iphones your makeup more than half of the sales. so everyone has their free three month trial of apple music the conversion rate was pretty low. only about 5% became paying users. apple made some inroads, but not really. this is where spotify has a chance. it's not a free three month trial, it is free forever. competitor is youtube. song, you can probably go to youtube and listen to it for free if you don't money has maybe with into and at. if you don't mind the ads, you
can listen to pretty much any song you want. people think it has a good chance of. tell us about japan's music market. 80% of sales are still on physical formats like cds? eugene: it's actually the opposite of the u.s. in the u.s., it's only 30%. in japan, 84% was still physical last year. it is a very big market, the world's second-biggest music market after the u.s. it's not that japan hasn't embraced digital. japan had the lead over the rest of the world when it came to cell phones about a decade ago. before smartphones came out. back then, i could on my old future phone, i could download music directly onto the phone. they had a pre-strong ecosystem and it was doing -- they had a pretty strong ecosystem it was doing about a billion dollars,
but today it's down to $400 million. the big reason is the iphone did not have very good features early on. ringtones and stuff like that was not very strongly supported. you could not download songs directly to your iphone at first, so that decimated the digital music industry here. the country still loves cds and cd sales to cover large percentage of sales, but they have been going down. 2002, with the peak of the industry, they made about five lien dollars in sales. today, it's down by half. -- made about $5 billion in sales. they realize cd sales are not sustainable and that's why companies like sony that have --ally embrace streaming this is why i think spotify took so long to negotiate this contract and why they are here. we will see whether cds stay
strong or not. japan, a very significant new market. we will see where they go next. walmart is in advanced talks to advance as much as a billion dollars in india's foot card, largest online -- flip card. its lead is under assault by amazon. india's next big retail prize any online market is expected to grow 45% every year until 2020. coming up, our weekly investing long table. ♪
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you don't see that every day. introducing wifi pro, wifi that helps grow your business. comcast business. built for business. mark: i'm mark crumpton. let's begin with a check of your first word news. authorities say a teenager killed his father at home today before going to a nearby elementary school and opened fire with a handgun.
two students and a teacher were wounded. their injuries are not life-threatening. the teen was apprehended within minutes of the school shooting about one hundred 10 miles northeast of atlanta. house speaker paul ryan says he doesn't expect congress to address the hotly contested transpacific partnership in the upcoming lame-duck session. he said the proposal needs revisions. ieaker ryan: the last thing want to do for our allies relationship is to bring up an agreement only to see it fail. this agreement has got to be improved at fixed and that's not going to happen in the next couple of months. the city of miami at all baseball fans are paying respects to jose fernandez, the 24-year-old star pitcher for the miami marlins. he and two other men were killed when a boat crashed into a jetty off of south beach. a private funeral mass for family and friends will be held
tomorrow. more state election databases have been targeted by hackers. the fbi directors telling lawmakers that in washington. u.s. officials have said the russian government is behind the confirm but, he did not russian involvement. it is just after 6:30 p.m. in new york and 8:30 in the morning in sydney. paul allen has a look at the markets. we are already seeing good gains in new zealand, opening 30 minutes ago. futures for the nikkei looking more mixed and only a sx, we are expecting gains of .8%. energy stocks are one to watch. strengthening on news of the cut from opec. bhp and rio tinto up overnight. the power outage in south australia, the whole state was without power but operations are
-- at running at the hp bhp billiton. in south korea, a court deciding not to arrest the chairman over embezzlement investigations, putting the skins -- putting the skids on a corruption probe. the conglomerate run the re-think from the marks to chemicals, so there's some relief that corruption probe looks to have wrapped up. that is some of what we are watching across the asia-pacific today. i'm paul allen, bloomberg tv, in sydney, australia. emily: this is "lumbered west." i'm emily chang. time now for series a, our tech investing roundtable where we
take a deep dive into the world of the markets. tech investing has evolved in recent years with some startups getting multibillion dollars valuations and disrupting heavily regulated parts of the economy. intore investing is moving new territory, attracting private equity players. joining me to discuss that is to veteran investors, scott stamford who ran goldman sachs internet investment banking and the partner at tpg's growth fund. thank you for joining us. has changed a lot and i know that is part of the reason you left goldman sachs. let's start with venture capital. we see a lot more nontraditional investors and techniques. where do you see venture capital going? class venture is an asset that has evolved quite a bit. if you look at it decade by decade, it looks completely different than it did when venture really started.
what you have seen as a class venture and growth investing has taken over what was the ipo market. the early tech ipos, when you look at the size of those original ipos like microsoft and amazon, they were tiny. venture is absorbing all of that alpha and not surprisingly, because of that, because companies are waiting longer to go public, it has attracted a ton of investors that are not traditional venture investors, including public guys, hedge funds, mutual funds. two thirds of all venture deals were public investors investing privately. this is what you typically see absorbing the ipo. then you have the buyout guys coming into growth investing because these companies are not
going public and the tech ipo volume is anemic relative to any historical benchmark. if you look at last several decades. pe has been in tech for a while but we see nontraditional investors. what's the attraction for tpg? is it nontraditional businesses getting disrupted? guest: part of it is the market opportunity and scaling in a private context. what we have seen from a private equity standpoint is it plays to our strength because of you look at the business is being built now, things like uber and airbnb, it's a combination of bits and atoms businesses. while they are engineering and technology based, they are dealing with physical objects in the real world, whether it's automobiles for drivers, it starts to leverage.
that starts to leverage our traditional strength where we have auto finance relationship, regulatory relationships, globally, nationally, internationally. it's a unique way to pivot from our strength and move to an area where we have done well so far. emily: you are both investors in uber and airbnb, to businesses that are part of the reason things have changed so dramatically. is it right for them to not be uber valued? is right or are they backing themselves into a corner? scott: the question of whether or not to go public has so many angles to it. can you go public? will they be reset of? this comment about public investors investing privately, as long as they are investing privately, what's the hurry?
public markets would probably be more disciplined than the private markets and we see that play out with the proliferation's of unicorns. if they were all to be public overnight, we would see a significant correction. as david said, when uber was , my cofounder and i did series b and we were saying uber has so quickly transcended what the valley has to offer. it was a phenomenon and that's where we went to the guys at tpg and said you need to get in here and uber says yes. these guys are exceptions. if you look at the amount of
dollars, i think they soaked up a third of venture funding. effect wherebell there will be a day of reckoning. the middlenb is in of raising something like $750 million. is it smart for these companies to be waiting these longs and -- waiting this long and driving their own valuation before they see what public market investors would actually pay? david: i think they have the best of both worlds. the leeway to act with a lot of liquidity was to go public. of now you can access a lot liquidity and have the benefit catchting the back office up with the revenue and getting their ducks in a row to be orderly filer reporter. they are unique examples of having their cake and eating it too. the assumption some of these companies are saying private longer, it depends on your lens. companies with those billions in
revenue, that used to be fair. those companies are six years old, plus or minus. i'm not sure if you go back historically if you would look historically at that length terms of when companies go public after being founded, these businesses scale much more rapidly than historic giants. the office in back order and as long as you can have your cake and eat it too, why not do that now? the key think determinant is how willing the public markets are to test forward. in good ipo markets, tech inductors -- tech investors will go two years out and normalized margins and will give you a multiple a year from there. you are almost doing a mini
discount cash flow. if they are willing to go out to that extreme, i think you could start to see a lot of support for the premiums on these valuations. the question is will the public market a for growth? historically, about a third of ipo's trade below issue, well after a, and it's a positive market right now. a lot of the float has been absorbed. emily: we will talk about this a little bit more in the next block. thank you for being here. stick with us. .ore of series a is next ♪
emily:emily: welcome back to our tech investing roundtable, series a. both of my guests are experienced dealmakers. we talked about ipo's, but what about m&a? what he see more of? m&a boom and in an i think it will continue for a few quarters. when you think about what could trigger, day, bloated balance sheet at the corporate level, there is a lot of cash and little innovation. corporate have outsource a lot of research and development to tech startups was so we see a bunch in e-commerce lately. you see they tech darlings really starting to put some hurt on the incumbents. it has been talked about for years, but it's actually starting to happen.
the innovative models the amazons of the world have introduced need to be replicated. it made no sense by the numbers, but the team is fantastic. amazon, 58% of amazon's marketplace revenue, walmart has zero and that the problem because your margins are much, much higher. macy's closed 15% of their stores. that's a problem when you see e-commerce companies growing extremely rapidly because of the new generation being willing to buy elsewhere. , day is going to continue while the markets -- m&a markets will continue all the markets remain tepid. emily: we see verizon, unilever , when, how much more? david: a few of the things scott mentioned have been true for a few years. lowcorporate balance sheet,
interest rates, access to cheap capital, people trying to manufacture growth anyway you can. the thing that's starting to price expectations. you see this private financing market change and we see that in a few different ways. i would argue in this bubble environment we have been in, it has been much more about access rather than diligence. we have probably flipped too withoutan industry diligence and we're flipping back to diligence. great investors have both. i think you have great rationality and operating these is this is an scaling is tougher and expected. getting viable unit economics is than expected. people are questioning that and i think it's starting to turn the m&a environment. emily: do think we have been in a bubble or are the bubble? we have beenk
available and we are seeing that start to reset. a lot of the private financing that has been taking place is large. it's not going to be one of these things where the tap turns off. than whatdifferent happened in the public markets. you saw massive change in valuations at a lot of public investment was hurt. much more concentrated in private hands and companies have more on the balance sheet. businesses generally healthier and better, so i think it will play out over time. .mily: twitter what's going to happen with twitter? we have reported disney is interested. salesforce, alphabet? i don't have any inside information but i would say it's a fantastic as that with its reach. it would be additive to lots of folks. if thewould make sense, football example of them broadcasting nfl games is going to stick, that's a great example
because disney does not own distribution in so much as they can have their own dan operated distribution through a twitter platform, that would be positive. salesforce would be in it for the data. i think it's a very interesting story playing along the lines of what david said, but in the public landscape. quarterly scrutiny, flat subscriber growth and trying to find themselves -- now they are going to be defined by someone else. i do get from all the signals that they are having conversations. we will see how it plays out. emily: we just reported spotify's potentially interested in buying soundcloud and they are expanding in japan. any thoughts on what this means for the future of spotify as an independent company? david: i can't comment on and a day speculation, but we invested in spotify earlier this year and
the results have been outstanding when it gets reported, people think it's a fixed high in the industry of streaming and if apple does this, what does that mean for spotify? the reality is, i think we are in an environment where the vast majority of the addressable audience are not subscribers yet. by more entrance coming into this space, it's the rising tide lifting all boats and consumers are becoming more aware of this great lu proposition in streaming. all the new entrant activity is great for all of players. i think spotify proportionally wins in that. emily: you guys are both biased, but what about lyft? david: all we know are the rumors that have been out there.
to trys like they went to solicit them and they interest. i'm not sure where that came out. it will be interesting to see how that business continues to evolve relative to competition with uber. but with people's focus on this car networks and the belief in self driving cars, is there something of strategic value? it's hard to say. it would take someone with a long-term corporate or strategic interest to see that. is a: i think lyft sideshow. the real thing is what are google, apple, facebook going to do because the car is one of the last devices. they need to own it. they need to be in it. emily: we will be back and you will tell us where you are placing your bets, next. tomorrow, don't miss our exclusive interview with u.s. track -- u.s. treasury secretary, jack lew. this is bloomberg. ♪
emily: welcome back to our tech investing roundtable, series a. to talk about what is driving your investments. of run a huge swath territory within tpg -- internet, digital media, where are you placing your bets and what are you most optimistic about? david: we run those sectors across the tpg fund. in addition to tpg growth and the tpg capital fund, we are split across those as well as other funds we have. one area we have been act debated -- have been active in is experiential. and it's kind of counterintuitive given the digital things we are invested in. but millennials look for these outlets. you seated in the growth of
music touring, festivals. that is thehave on largest touring agency in the world. cirque du soleil, an event we purchased last year. you see that across airbnb. experience,out that live like a local -- that's a theme we think has secular legs. constantrea is this balance of content versus distribution. we agreed to buy an over builder and we just believe in broadband. that last mile connection is incredibly important as we fill this new digital content coming down the pipe, whether it's for a case streaming, the internet of things, the connected home. that all requires higher and higher speeds and having the fastest, most recently built network is a great play on that. at the same time, we like to be the point of content creation and new over-the-top content,
whether it spotify -- it's another area i suspect we will be active in. scott: at the highest level, we look at a couple of big things that steer the industry. we look for platform shifts. clearly, we are moving away from mobile into wearables and virtual reality. we look for tech breakthroughs -- miniaturization, artificial intelligence. these things will drive new applications for users. lastly, so she logical changes. this is the first year millennials are the largest overtakinglation, boomers. combine all of those things and say what is different? brands are very different. you can introduce brand to all new audience and consumers interact with brands in a different way. skin care from a doctor via your
mobile -- prescription skincare. never possible to that prior, but now it's very easy to do. we look at ai. we have invest in a company called luca. iey have not released yet, so have to be careful, but they have built an ai companion for you that you can talk to that starts emulating your behavior. it's a conversational engine, but it's fascinating. when you think about how much time will spend on media. for opportunities to rethink the supply chain. previously it was an opaque, negotiated deal. it opens the door to a huge opportunity. these are the trends we are looking for. you keepw do both of your ears to the ground and figure out what our teenage girls and boys using and watching? what should you be investing in next western mark how do you stay on the leading edge?
david: i think it's why we enjoy working together so much. with this private equity lens of protecting principal and look at what could go wrong? scott is great at what could go right. when you meld that, you get to interesting insight or we can help each other coming from different perspectives. we look at these trends we see is that you can't just that on millennials. that's not an investment theme. but you look for the second derivative. -- if you can't play that main trend, let's the investment theme you can drive off of that to go along? emily: thank you both so much for joining us. ♪
announcer: from our studios in new york city, this is "charlie rose." charlie: we begin this evening with our continuing coverage of the u.s. presidential election. clintonrump and hillary faced off in the first debate of 2016. the candidates sparred over the economy and other public criticisms. the general consensus was that clinton won. president obama and secretary clinton created a vacuum the way they got out of iraq.