tv Studio 1.0 Bloomberg March 19, 2016 2:30pm-3:01pm EDT
he has since settled down, married, and devoted his career to philanthropy. donating millions to support life sciences, global health, and more. joining me today on "studio 1.0," napster andfacebook cofounder, chairman of the parker foundation, sean parker. thank you for having us at your pad in l.a. we want to talk a little about who you are and how you got here. you started coding when you were seven years old. what kind of a kid were you? sean: i was generally a good kid up until a certain point. things went a little bit off the rails. emily: what point was that? sean: we call it hacking now. that has positive and negative connotations. that was the computer underground in the late 1990's. it was, it was a breeding ground for people who went on to be successful entrepreneurs. but at the time we were interested in computer security. it had a way of sucking you in. because there was an element of danger. there was an element, there was an intellectual challenge associated with it.
as i became more involved in that world, i became less involved in my day-to-day life, everything is probably going fine up until the age of 14. when i discovered this world that, and thank goodness i did. i would not have learned to code. i wouldn't have learned at the early internet. i would not have built napster. i owe a great debt to that small cabal of people. they were essentially an underground community of cyber criminals. at the same time, it drove my parents crazy. emily: when you were 16, you met another hacker, sean fanning, online. you didn't go to college, you moved to silicon valley and you guys built napster together. sean: it was a great experience for us. we had nothing to lose. little did we know, there was criminal liability associated with enabling what they call
contributory and vicarious copyright infringement on what was unrealistically and unprecedented scale. i blame myself that i was not a better negotiator. i could not help them save themselves. it is sad to watch the decline of this industry. it didn't necessarily need to happen that way. emily: why not? sean: consumers turn to piracy by and large when they can't get the product through legitimate channels. there needed to be a legitimate market offering a coming from the record labels and they couldn't get their act together for years and put that in the market. it was frustrating to watch this long deleterious collapse of the industry that was producing something that i loved so much. that was never our intention. we never wanted to see that happen. emily: music sales peaked in 1999. since then, it's been in years of declines. you're on the board at spotify. you think that streaming
services can end the years of decline the music industry has been facing? sean: i think we turn the corner and are getting back into growth. based on what i have seen coming out of spotify and apple. it looks like it bottomed out. for a while, spotify could replace cd sales. the decline in cd sales, and the decline in downloads, but not both. emily: how do you convince people to pay for services when there is so much available for free online, whether it is youtube or napster? sean: it's a question of free versus paid that has gone back to radio. i would say that the services like spotify that monetize at a really great rate where we see, you know, users coming in to a free channel, we see at least 1/3 of those users over time
become paid customers. there is obviously added value. and that added value is convenience, the ability to make a playlist, share a playlist with the outside world, organizing your library, it's all the things we help to service music that you would not have known about. emily: how does spotify get over its taylor swift problem? it's not just taylor swift. adel and coldplay. how does a company like spotify get over this issue that artists don't want to give their music away for free? would spotify consider a paid tier? sean: there is a big difference between artists who these days make their money primarily by touring and doing ancillary things. they get a certain amount of money from subscription services. download services aren't doing well for them these days. they get a little trickle from youtube, which is really nothing. the branding opportunities, the
opportunities to stage large -scale tours because the touring industry is so healthy. that's the bread and butter for these artists. now, artist management is a different story. artist management, these are, many of them are my friends, so i shouldn't be -- it's a necessary profession. artists would say it's a necessary evil. artist managers are always trying to extract every last the value. i find it hard to believe that the artists you are mentioning don't want to be as widely heard by as many people as possible. i would say their managers are likely to extract every last penny from the product which they frankly had no creative role in producing. their job in the ecosystem is to extract every last dime. emily: you think this is her manager speaking and not taylor swift? sean: i think that's an interesting theory. it's hard to know if it's the artist or the manager speaking.
we know that from social media. i don't what she really thinks. we have not talked about it. i have talked to other artists, whose managers are on a vendetta, who love streaming and they just want the music to be heard as widely as possible. emily: what do you think is the biggest threat to facebook's business? ♪
emily: you are known as the guy who dropped "the" from the facebook. i know you and mark were very close. give me a status update with your relationship with mark. how often do you talk? sean: we don't talk nearly as much as we used to. there was a period were we continued to consult every day. generally speaking, it's a good relationship. emily: there's a scene where you and mark zuckerberg meet for the first time in the movie. what some people may not know after that, you go and hang it with travis kalanick of uber.
is that true? you actually met up at a club or something? sean: i don't know that i went to a club. i think mark went to a club. emily: tell us about that. sean: travis hasn't really changed at all. he is sort of in some ways the perfect ceo of this company because he enjoys the, he enjoys, he feeds off of the conflict and the controversy. he is very good at dealing with complex situations where he's being attacked from all sides. i think there is, i think he would thrive as a wartime leader. emily: really? general kalanick. sean: he is very good under those circumstances. i think a lot of companies would have been way too boring for travis.
emily: how impressed are you with what uber has accomplished? do you think it is worth $64 billion? sean: do i think any of these companies are worth their private market valuations? it's hard to say. there is a disconnect between evaluations. companies wait too long to go public. they don't do so well in the public markets. and you are seeing the fidelity rate down. there have been a lot of high-profile write-downs. emily: snapchat, dropbox. sean: it's not clear what any of these things are worth until the market, the public market values them. in his close-knit private markets, you can do various things to engineer the situation. emily: should they be going public sooner? sean: the traditional path would have been to go public sooner.
something happened post facebook. i may have played a role in this occurring, which was the development of this robust secondary market where suddenly hedge funds and private wealth managers and various sovereign wealth funds and so forth begin to invest very heavily in private companies. emily: you started that? you started secondary markets? sean: i certainly didn't start everything. i didn't start secondary markets. we encouraged facebook a robust secondary market. we were much more open to having a secondary market. in part because we had a longer-term vision, and you need to give people the opportunity to take liquidity on the way. emily: what is the biggest threat to facebook's business? sean: you know, i think facebook's business has so much growth left in it. it is really value extraction. it is value that has been stored for long time. there are smart people trying to unlock that value.
that process is another 20 years before we start to see what that looks like. emily: how big of a threat is snapchat to facebook? sean: there has never been one communication where it dominated everything. they all serve slightly different purposes to people. i think mark zuckerberg has done a wonderful job. i applaud his ability to understand which companies genuinely posed a threat and an opportunity, you know, to facebook. the interesting question is how does snapchat iterate into becoming more of a communication platform that enables communication that is not necessarily ephemeral. emily: you think they should work on non-ephemeral communication. sean: there is an indication that they are going in that direction. i don't spend that much time thinking about it. emily: whether it's instagram or oculus or internet.org, which do you see as having the most
potential to become the next huge business for facebook? sean: the interesting question is is that next big thing somewhere else entirely? is it google x and life sciences and contact lenses that measure glucose? is it self driving cars or is it going to be something that is very close to the home? the core of what facebook is. emily: do you think facebook would be on the core? -- should move beyond the core? sean: i think communication is the biggest market in the world. it cannot be undervalued. are there other paradigms or are there other ways of communicating that facebook could enable? does it make sense for them to buy snapchat? does it make sense for facebook to expand more into real-time communication, so not just broadcast-based where you are sharing with the group and it's essentially public?
facebook messenger is no different from instant messaging that we really had since the mid-1990's, irc and the early internet. facebook is good understanding the core communication network apps that they should own and are there more of those out there? absolutely. there are enormous opportunities left in communication. emily: you mean enormous opportunities left in terms of what facebook could by? sean: in terms of what facebook could build or buy. emily: should they consider buying snapchat again? sean: it will be interesting to see where snapchat takes their user base. the great analogy is when facebook launched feed. it was a paradigm that's almost too ubiquitous. every company thinks we do have a feed. could snapchat go through that kind of transition where they move from having everything ephemeral, it is our destructive -- that's a possibility.
i don't know evan. i don't have a crystal ball. i wonder about where they could take things. emily: twitter, do you think twitter survives? sean: i think twitter is a victim of their own success in so many ways. they are a company that, had it not been for the media's infatuation with twitter, they never would have an enormous user base. but that came at a cost. and the cost was the lack of deep, you know, close knit community between its users. twitter was never an accurate reflection of your real social network. it didn't have the same level of intimate interaction. i don't think twitter would have existed had it not been for its
relationship with celebrity and media. but the same time, i think it's relationship with celebrity and media is its biggest weakness. emily: really? so how does that play out? does twitter survive this next wave of innovation and social networks? sean: the question of does it survive may be too dramatic of a question. it's a question of do they prosper and do they become a much larger company, or do or they remain roughly the same size and become, you know, a part of our lives and a fairly narrow way? i don't think that twitter goes on to take market share from other players. and i think, i do think they will continue to exist. emily: there is a huge debate between privacy versus security. should the tech industry be more accommodating to the government? ♪
emily: there is a huge debate between privacy and security and how much silicon valley can help with that. mark zuckerberg and tim cook have really put a stake in the ground and saying we are not going to help the government spy on our users. should the tech community be more accommodating to the government? sean: the reality of the relationship between large industry and government, it should not be underestimated. of course there is collaboration. to think that communication companies, network providers, social media companies aren't, you know, cooperating with the federal government in various ways i think is naïve. we live in a world where enormous economic value comes from finding connections.
technologies are, these tools are going to be used to create necessary revolutions against dictators and be used by terrorists, and the nine crazies who would never have met and organize homegrown terrorist cell. every technological platform and every major shift that happens in the way we communicate is a double-edged sword. emily: what is your current act? what are you spending most of your time on? sean: it's 50% venture investing, startups, many that have been ongoing for several years, and philanthropic endeavors, mostly life sciences related. emily: when you think about the mark zuckerberg initiative? it's been unexpectedly controversial. criticized for not giving to charity. it's characterized as an llc. is that unfair? sean: i don't think anything mark does should -- we should not expected to be anything other than controversial. his intentions are entirely altruistic. it's hard to criticize somebody who is saying they are going to
give away the vast, vast majority of their fortune. i think that the goal of saying it the way he said it and laying it out the way he explained it was to spark controversy. the media cycle is dominated by donald trump and terrorism and a lot of really scary things. i think mark felt an obligation to create a conversation around the role of someone who has vast resources to try to reshape the world. i think he has succeeded in that. emily: you founded the parker foundation. you are giving away $600 million to life scientists and the global health, civic engagement. how has your own strategy evolved? sean: the parker foundation is doing things that we feel extremely passionate about.
that we feel needs to get done in the world. the reason you are seeing so much of this new hacker-style philanthropy is because this group of people who, they made their money by being disruptive. they made their money by being unconventional. there is a desire to see the the same type of impact they had in their business career, which has been, if you look at uber, it has been massively disruptive -- how does one find opportunities that are equally disruptive in the philanthropic world, but they are -- the type of disruption that has to happen if these entrenched social problems are going to be addressed. emily: so you are giving money to advanced science. you are focusing on allergies, cancer.
what do you think that you can do differently than traditional venture capitalists? sean: i think philanthropy can get ahead of venture capital. so, venture capital when it is done correctly happens when a business is ready for commercialization. it's not there to fund basic science. i think there is this middle ground where, for instance, immunotherapy. a you fund immunotherapy, you will take money away from existing labs and researchers. that have been built up over time. there is a hesitation there. the breakthroughs that happen quickly have been driven by private philanthropy because governments have been too slow to recognize that a technology is ready for investment. whether that is a philanthropic investment or venture investment. emily: any crazy areas and biotech that you are thinking about funding that we don't know about yet? sean: i think pharma has done a really poor job of understanding
where past drugs that have demonstrated safe in phase one and phase two clinical trials, you know, could have been approved in a much narrower indication. but it may mean you need access to a drug that only 300 other people need access to. we don't have a regulatory framework that is very good at getting those drugs to market. emily: what is next for sean parker? sean: i think life sciences is the single most interesting area of exploration. it is to the world today what social media was to me in 2002, 2003, 2004. the ability to get to get something where a grad student would spend 30 years of their life trying to do previously.
but i do think that cost reduction, because of new technology leading to faster and faster progress, there are enormous opportunities. i think the fundamental question of the 21st century is, how do we make sure that the technological innovations coming out of life sciences are available to everyone? emily: sean parker, thank you so much for joining us on "studio 1.0." thank you so much for having us at your wonderful house. sean: thank you. ♪
carol: welcome to "bloomberg businessweek." david: defending yourself from online defamation. let's meet the editor. carol: we are here with the editor of "bloomberg businessweek," ellen pollock. you write about a capital mystery. meaning capital expenditure. ellen: we look at why companies are investing last in software tools, the percentagof