Transcripts For BLOOMBERG Bloomberg West 20140414

Worse, check on your top bloomberg headlines. The turkish Prime Minister made more allegations against the company, its Global Public policy president had a meeting with the Turkish Communications minister today, the meeting came after the Prime Minister accused him of tax evasion. The government is also threatening to lock service, again, just 10 days after the court overturned the ban on twitter. Linkedin is helping to set up a new International Headquarters in ireland. Irish government is working with the career networking service, according to people with knowledge of the matter. They have entail details of growth decline and horror hoping to gather more workers overseas. Lets move s is the highest paid ceo in the media and less cbs ceo les move is the highestpaid. Ntertainment Ceo Larry Ellison received a package of 78 million last year. First to our lead, the National Security council says that intelligence agencies should reveal most flaws that they discover in internet security. Most. There is an exception for a clear National Security or Law Enforcement need, according to the president. This disclosure comes after bloomberg reported the agency a security flaw for two years before it was made public, something the nsa is denying, but we stand by our previous statement, stating the government was not aware of the recently identified , therability in open hartley vulnerability, and to that was made public in a private sector Cyber Security report. That is the ground. In the meantime, websites afflicted are finding it is taking longer than expected to fix. We have a special roundtable to discuss. David kennedy joins us by skype. Merge robertson is here with in the studio. So, bloomberg is standing by its story. The nsa has denied this now not once, but twice. Do you believe them . At this point, as you mentioned, bloomberg is standing behind the story. , but bloombergit is standing behind the story. What this illustrates is that this is a serious issue. A serious issue in internet encryption. We know that the nsa has been trying many different ways to compromise internet encryption. It is almost irrelevant if it was the hartley bug or Something Else. Bloomberg standing behind the story. David, what do you think . I think the nsa will say what they need to. They havee purpose is a huge set of capabilities, they can go out and excavate these types of flaws, they dont have to detail whether they discovered it previously or not. National security, saying that they basically have no idea if this happened, though it could have been exploited for a number of years. They have all these types of things in their arsenal, things they use every day to infiltrate different hostile governments. It is a big game going on right now with a lot of money to be made in the commercial and private sector. ,ets hartley or Something Else hartley or Something Else, is this not what they do . Which makes their response to the story so interesting. The nsa buys a vulnerability. They dont disclose the company. If the Obama Administration is now saying theyre going to require the nsa to disclose these, as you pointed out, there is a loophole in the statement. Our privacy advocate told me this this weekend, the loophole is so big you can drive a truck through it, what qualifies as National Security and Law Enforcement interest . They pay a lot of money for vulnerability. Potentially millions of dollars. This just contradicts their mission. David, what do you make of this statement from the white house . Is this ever going to actually happen . Is this just trying to appease the masses . If you look at what happened with a lot of the snowden documents that were released, a lot of organizations specifically look for these flaws and use them not only for intelligence purposes, but for going into different intelligence agencies to gather surveillance. If this is to appease the masses, they wont be disclosing their techniques. It will take Something Else for us to see what is going on behind the scenes. I came from that realm. Intelligence, doing a lot of these things, for me it was a different ballgame back in early 2005. We did not have this huge cyber movement. There were very few laws or regulations around what they could do and what they could not do. We are basically at the disposal of what is being made public and i do not think it is much. Jordan, the Canadian Revenue Agency is one organization that has been impacted by hartley and a number of Social Security numbers were stolen. They are having trouble getting rid of the story. It is interesting. The patch for this bug is quite straightforward, pretty simple. You push a button, you make a minor technical adjustment, within a couple of hours you can fix your system. That is what most companies did last week. But there are ripple effects from doing that. Lets say that you patch your system but your hosting provider does not. We spoke to a Company Called team snap, a great news sports fan site. They patched their site, they did it right away. Their internet hosting provider also did. But there was still a problem. Photos were disappearing from the site. You could not upload, could not do all these things. They said it took the entire company all week. David, what is your view on how serious heart bleed is . It is larger than people realize. Is not just going and applying a patch. People need to change their passwords, their private keys that encrypted data. There is a lot more behind the scenes that these vendors have to do. Your passwords could have been compromise, your information could have been stolen. There are a lot more ramifications than just running a patch and fixing the website. This is one of the largest exposures we have seen in 10 years. It will be a long time before these issues are affected, it requires more than just fixing a system or running a patch. There will be a lot of issues to come. The major problem is detection. Prior to get the release, there was no way of it being detected, whether was exploited prior to the patch being released. We have so Many Companies that have no idea whether they were hacked prior to going live. You wonder how many consumers are taking the time to change their passwords. Posted be keeping this all week long with what is going on with this thing. Tank you for joining us. Relativity media starting a bidding war this morning. You may remember that they already had 950 million for maker, the maker of popular short to short films for youtube. Today they made an offer for 1. 1 billion. Jon erlichman following the story from los angeles. John, it looks like there is a battle happening here. What is going on . It is pretty amazing. This had been one of the most talked about stories in town. Now with a potential price tag for maker going up is relatively relativity comes to the table and tries to get in before the stakeholders make their final decision, you start to wonder what this is. Why are people so excited about Something Like this, which many people say is still financially figuring out the best business model. It speaks to what we have seen, a bunch of these businesses bringing the other different youtube channels, thousands, to create a network, make sense of youtube, and make these the nextgeneration cable channels. Traditional players are interested in does they have seen the growth. A player like relativity is interested the cousin they see themselves as a new generation studio. They represent even sports athletes. They are also interested in the Digital Future of hollywood. That is what brings them to the table. John, what about the price . There was shock when disney offered as much as it did. Relativity coming in higher, why . Look, i think that there is obviously a buy or build mentality with these businesses. There are people who are shocked by the prices for these. There are a few of them out there. Mission am a machinima, fullscreen, in the case of these deals keep in mind that there is some money that would be on the table, no questions asked. Offers is based on performance. We will have to see how that ist of it plays out, but it a reminder that once one of these companies is in play, maker is a great example of that, you start hearing stories about all the other ones. I think we will still have to see how the financials play out for these businesses. It is very difficult to make these profitable businesses. These are still early days. Jon erlichman, thank you so much for following the deal for us. Still ahead, renting a Spare Bedroom or sticking a mustache on your car might seem like an easy way to make extra cash tom a that is until tax season rolls around. Next. Welcome back to bloomberg west. You are watching bloomberg west on bloomberg television. You can also see it on amazon fire tv, apple, and we have special programming all day long. Ating america, a look everything tax related, from how you should handle your it going profits to how sharing Economy Companies deal with the tax man. Joining us now from new york, a son in at collaborative the sharing economy. Like chadig factors hurley, the founder of youtube. What is the collaborative fund, exactly . We basically tried to look for companies that intersect. You can see it as they shape the future. One of the things that you do for startups is you offer more practical advice, like how to pay your taxes and deal with insurance. How useful is that kind of information right now with these startups that are in completely uncharted territory . These is helping with advice and the experience that we have, we tried to create some products and projects that will help them on the whole. We try to see some of that in pinpoints, to see where we can help. Information on insurance is one. For example, we started an Insurance Company for the sharing economy. We launched a website called 10 99, which tries to address questions for people involved in the new sharing economy. Speaking of a big tax question, air b b has been running into trouble with the tax man in new york, san francisco, and portland. They have agreed to basically start charging their occupants the occupancy talks in those cities and pay it over to the city. Why has that taken them so long to do . Probably because they did not have to. Thethat it looks like company has a value of around 10 billion, it is time to make , as wellre comfortable as users. There are some scary stories there. That is preparation for what might be the next phase of the company. It might be about about time. For this hurt their business in terms of customers having to pay extra . Like it might hurt a little bit. They take a fee from posts, from guests. , if everything goes as planned, on july 1 im sure they will start charging their 14. 7 of occupancy taxes. I think there are some people that they mayk now start thinking twice about it. The trend of people sharing resources is inevitable. My guess is that it will still keep on growing. Could they have to pay back taxes . I could not speculate on that. What they say, the new terms of service that they published a few days ago, they said they would be able to charge directly from the host. But before they said the host was supposed to pay the taxes themselves on their own. I dont know if the back taxes will be charged. Or if air b b will have to support it. What would you say is the most challenging tax issue for the sharing Economy Companies . I think it is awareness. There is a lot of gray area that happens when you think at look at the Different Things that you can expense. You rent your car, you clean your car, you use your car for private use. Can you expense the cleaning of your house . Do marketing to advertise it . Especially if you are sharing. , they rentople now the houses they live in. Confusion can be a very gray area. Ok. A lot of interesting issues to tackle. So much forhank you joining us here on bloomberg west. Make sure to stay with bloomberg all day today for our special taxing america programming. Coming up, at the urban institute they will talk about the high seas for tax preparers. Site the Chinese Commerce that goes public. They got a deal with the recent nasdaq selloff. Next. Welcome back to bloomberg west. It has been a rough month for tech stocks, with the nasdaq dropping five percent, but that has not stopped companies from filing to go public. A chinese Online Cosmetics retailer is the latest. This while their cofounder and largest stakeholder said that they will not be selling shares after the may 5 lockup expires. , our Bloomberg News ipo reporter, comes to us from new york. Is this a good call for them . Going for it . They could wait a few more months before pricing the shares in trading. Allowave a few months to the markets to temper a bit, to allow tech stocks to rebound. This too soon to tell how will impact their pricing, but this is interesting timing for them, of course. We have seen a rush of these chinese Ecommerce Companies looking to do ipos in the u. S. In retrospect, is there took that as is the timing from last year for twitter looking perfect . Pretty perfect. They saw that 17 pop on the first day of trading and now there is a whole different story in the tech markets. A lot of momentum that benefited twitter in november coming down from the tech sector in particular. So, what executives and insiders have said is that they will not sell shares when the lockup expires, which is an vote of confidence. Often when they do not sell shares they will not put out estate and saying that they will now put out a statement saying that they will not. We are comfortable that they can continue to go higher and we use not see a need to sell now. We are going to wait it out. Big shareholders in twitter saying that they are not going to sell. What is coming up this week . I know that way a lot window going public on wednesday . As well as sabr, the company that owns travelocity. Schedule pretty clear this week in terms of ipo. Clear until the end of april. , ourl right, leslie Bloomberg News ipo reporter will keep us posted all day all week long on what is going on in the markets. Thank you so much. Coming up, 1. 8 ilion dollars, that is how much priceline fetched an Online Marketing last year, most of it going to google. The Priceline Google ceo is with us, next. 26 minutes after the hour, bloomberg tv is on the markets. U. S. Stocks are rising, rebounding after last weeks by three quarters of one percent, the nasdaq at 30 points after selling off 3. 1 . Also want to point out to stocks we are watching for you. The first is 3d systems. They are teaming up with staples, the company will offer consumers and Small Businesses services in new york city and los angeles. Also watching apple. Jefferies says the tech company may be negotiating a 100 price increase. Shares are little changed on that news. On the markets again in 30 minutes. You are watching bloomberg west. Technology and the future of business. Online travel is a private, competitive space. Just days ago, google pushed consumers to push their travel on mobile. Meanwhile, sabr, the Parent Company of travelocity, scheduled to go public this week. It is the revenue from priceline that makes it the Largest Online travel agency in the world. Darren hudson, the ceo of the priceline group, is with us now. Thank you for joining us, eric. Thank you, emily. Priceline has obviously been on a tear. In technology the landscape always shifts so quickly. How are you dealing with the fact that people are booking things through apps rather than going to google . Inwe are investing heavily mobile. Just to give you an example, in 2011 we did 1 billion a lookings on mobile. 2013, 8 billion. Mobile is a very important channel for us in terms of acquiring new customers. It is also a critical part of the end experience. The fact that people are using pcs, tablets, mobile phones, and other Electronic Devices along the journey is giving us a great opportunity to enhance our product for our users. Are you going to be working on any specific mobile specific apps . We have priceline, kayak, booking. Com, all five companies have apps, both for the ios platform and for android. But we continue to evolve those products. They all have very high ratings from consumers. We have added a ton of traction. Web. E is also about we feel that we got very competitive in mobile web products, both on the tablets and the phones. We are excited about where we are. Speaking of the web, you spent 1. 8 ilion dollars last year in Online Marketing. Those of it went to google in search marketing. Do you expect that strategy to continue . We have always been very close partners with google. We have great websites that were tremendously well. Google,nue to look to as well as other sources, like trip advisor, kayak, there are other places where we go to buy demands. We will continue to buy from those channels as long as returns are there. We are seeing returns on those channels being great. Obviously, at the end of the day we would love our customers to become more and more direct, but we use google to go and find customers to show them how wonderful our products are. Google is making more and more aggressive moves in your territory. How big of a competitor do you expect them to be Going Forward . Wes of course, google is respected as an advertiser. They would like to get more of my money. The recent acquisition of some code from room 77 is not the biggest thing that has happened in the space. Google has been working on hotel prices for many years and they continue to want to make that product better so that it becomes more attractive to companies. Thatnk the Biggest Issue we competitively face, frankly, is not google or someone else, but whether or not the company can maintain the hunger and humbleness of their success in the past. Are you going to be adding listings from air b b . The hotel space is very big. The travel industry is a one dollar trillion industry. One third of that is accommodations. We have been increasing our portfolio of accommodations. Last year we went from 290,000 to over 400,000. We now have 450,000 properties on the booking. Com site. We will continue to look at that. That are a lot of things these come and work with that might not necessarily be legal in some cases and we are hoping that that space gets more clarified. If it does, of course were looking at any kind of legitimate combination to add to the website in the future. The Parent Company of travelocity, their ipo is coming up. Aside from travelocity, how do you view them as a competitor . Sabr operates in its own space. Most of the travelocity bookings get done by the expedia group. It is not high on my radar, to be honest. Theree good relationships , but i focus mostly on the things that we can control, the execution of the discipline that we need every day to continue our group success. Acquisitions are something that you control. You purchase kayak a couple of years ago. What other kinds of acquisitions are you looking for . Smaller acquisitions . Made somene group has amazing acquisitions over the years. Booking. Com is probably the most successful acquisition in ministry of the internet. Our acquisitions are not that frequent. We take a lot of time to think through the companies we want to be a part of the group. Most of our focus is on organic growth. Most of the value we create is on the day today acquisition of surprising and delighting customers with products, getting supply on board, managing from a dated ribbon perspective how we bring demand to the platform. That continues to be the majority of our focus. Of course, we are always poking around the space, but we have a pretty high bar of what a great acquisition would need to be to become a great part of the group. You mentioned the booking. Com, where the majority of your revenue comes from. We have seen william shatner, the star of priceline. We just interviewed him last week. I wonder, how much value does a guy like shatner bring when the majority of your revenue is not coming from priceline itself anymore . Waxy has been an amazing spokesperson for the priceline brand over the years. Priceline is still a significant part of our business. He has done a great job in transitioning it from the name your own price model that was invented with the internet into a much more retail model. We love william shatner. He has done some great things. Priceline itself, that is great to bring some an extra point of view and an extra spokesperson into rice line. We are supportive of what our team is doing there. Regionally you survived and thrived through the credit crisis in europe. Are you worried at all about a slowdown in china . It is interesting, when you are a global player, like we are, you get to see it all. I was worried about the Malaysian Air tragedy and the ukrainian crisis, as well as the weather out east. At the end of the day we are quite diversified in our business and as successful as the economy is successful. We are frankly very optimistic about where things are going with travel and Online Travel. How about specifically within the United States . In a weird, we are strange way, even though priceline has been in the market for ever, we are late entrant, but we are excited, this is an online and mature Online Travel product. Introduce moreto americans to the product. I want to encourage viewers out there to go out and try the app, try the website. See what you think about it. It is a very different product from what has been traditionally available in the United States. All right, thank you so much for joining us today here on bloomberg west. Thank you a lot, emily. Winston, a cartoon from toy talk that interacts with children. That is next on number west. Bloomberg west. I am emily chang. This is bloomberg west. Streaming on your phone, tablet, bloomberg. Com, apple tv, and fire tv. Imagine a cartoon that engages in conversation with you. That is the innovative entertainment that toy talk has created. The app brings characters to life listen and can even talk back to your kids. Cofounded by the former chief Technology Officer at pixar, we caught up and asked him how it all works. It works by building a twoway conversation. So, we try to create characters and stories that talk to you and you talk back to your mobile device using recognition and the best writers we could find. They will react to what you say no matter what you say . Yes. We try to put you in the situation. In that circumstance, yes. What is it like to be an alien for real. Tell me how it works. Lets talk to a bird. Outou cant just throw me of the nest. I dont know what this flying thing is. What am i supposed to do . I think you should jump and flap your wings. Ok. You . Kind of parent are can you hear yourself . Kids, jump out of the nest and try to fly. That is what you are saying here, i mean, what is so great about flying, anyway . What if you told it to jump out and not flap its wings . We had to write characters who could play both sides, take your response back and engage you in conversation. How do you do that . Thee take what you say in microphone and it goes over a network to our cloud, be processed the speech, try to recognize what you say, and our intelligence engines try to decide how to respond back. Theou are also storing voices of kids . We have to record them to recognize their speech live. That for theng is voice actors . The voice actor, we have to get them to record and perform the positive answer, the negative answer, the quizzical response it is a large range. They have to perform that in a booth, away from the audience, which is difficult and challenging, because they do not see the audience. So, you have an ipad show right now. What are your goals . Opening up the idea of conversation as entertainment, telling stories by talking to the audience directly. You worked at exar for 20 years. What are your views on children watching rubies and cartoons . I spent a long time making things that hopefully people will enjoy. I think storytelling is an important part of it. It is funny, i have an 18monthold son now and i am constantly questioning how much screen time to give him. What is your approach . I have three kids myself. 10, 8, five and half, that is constantly the conversation. Is your goal here educational . Is there something more than just watching television, essentially . I think it is primarily entertainment and storytelling characterbased, but it is about understanding you as well, developing vocally. That is really important as well. There is some strong value added to the entertainment as well. What have you taken from pixar and toy talk . I think cases what matters through it all are the stories and characters. What is your Favorite Movie you have never worked on . Toy story two and finding nemo. Is too hard to choose. What can you tell us about knowing steve jobs . If i had to pick one thing, he could speak to the truth of a than anyone i ever knew. He could get the message across the way i have never seen anyone able to do before. What was that relationship like . John lasseter how much did he listen to what steve jobs had to say . You should probably ask john that question, but certainly a lot erie it and we miss him very much. My interview with the cofounder of toy talk. Coming up, just how healthy is the Technology Sector . Companies like google and yahoo , opening their books this week. We will take a look at what to expect, next. Welcome back to bloomberg west. Tech earnings season is upon us. Companies like yahoo and google are set to report this week. Will the numbers be good or not some good question not so good . From new york, paul, lets start out with google. What are the big trends you are watching . The market is looking for continued good results. The Big Technology selloff over the last couple of weeks, google has hung in there quite well. Stocks down one percent or two percent, year to date. Partners respect the fact that the core business continues to Topline Revenue growth. Tension on the markets as they continue to invest in new business and pose strong topline to bottomline numbers. On the other hand, yahoo is down almost 17 . They were hit particularly hard in the latest selloff. What are you looking at when it comes to yahoo . Have some new information about original content and original programming that they are making a push on. How do investors feel about that . There are two things here. First and foremost, the value of their investment in alibaba, which will presumably become public this year, reflecting more than half the valuation of yahoo . That stock has been a proxy for the overall chinese internet story. Secondarily, when people look at the fundamentals, there is not much there in terms of growth. This will probably be a quarter of no growth in the advertising business. It is really frustrating from an operational perspective. The company has not been able to post any sustainable topline growth. They are in fact losing shares to the googles of the world. This has been a very tough business for them. The response from Marissa Mayer has been to try to make some acquisitions and acquire some growth for the company. The most recent strategy, as you mentioned, is getting original programming as online video advertising is one of the strong growth areas of the internet, one that yahoo is not participating in. Marissa mayer has been ceo for two years. Would you say that she has had enough time to make a mark and that things should look better . The honeymoon, if it is not over, should be over very soon in terms of operations. The alibaba aspect has bought her some time. From the investment perspective that has been such a boon for yahoo , but at some point they will have to get back to fundamentals and show that the core display advertising business or yahoo can grow. Know that internet advertising is growing 15 per year and frankly yahoo has posted no Significant Growth over the past several years. The strategies that this team has put into place, we have not seen any results yet. As i said, if the honeymoon is not over now, i think it will be very shortly. Yahoo , google, intel, ibm, reporting earnings this week. Interesting news coming out of facebook today, getting into Online Banking . Certain european markets they are considering getting into Online Banking, if you will, taking a look at the remittance business. We know that people all over the world remit money back to their home countries. I think that that is a business that facebook is looking at. They have over 1. 2 billion users all over the world. They have created a very Strong Social network. Facebook has been quite successful building an ecommerce structure around that. The next thing to dip their toe dip their toe into is financial payments, perhaps starting with remittance, where one user could remit money back to his or her home country, to their family members, that might be a way they might start looking for that Financial Services business. Facebook as ase bank . It is not really a bank. Certainly, some of the users without bank accounts. Here in the United States, 88 of americans have bank accounts. Certain countries obviously outside the United States and in other areas, that number is much, much lower. To the extent that people want to transfer funds in one country to another or just between themselves within a country, some online mechanisms could potentially fill that void that the traditional Banking Sector does not in other markets. Bloomberg industry is going to be all over this as we report this week and next week. Thank you so much, paul. One number that tells a lot . John, what have you got show mark 100. Putanalyst who covers apple out a report and said that when apple comes out with it, it is called the iphone six and they will be looking to charge 100 more. If the end consumer winds up paying that is another story. He said that apple has been talking to some of the carriers that apple looks works closely with to see how much of that they would be willing to stomach. We know that the carriers subsidize these phones. We know they dont love to, but we know that if there is a hot new product, they can be willing. 650nsubsidized version is might indicate that with no subsidies, new iphones would the in the 700 50 range. Is this the iphone six . The bigger iphone . Or the same size one that we all know . An important point. There are a lot of reports out there that apple is looking to go into that world that samsung has enjoyed a lot of growth with. If you have a larger screen device, it costs more money for hiring produce, possibly and shipping technology, which can be costly, it puts pressure on the profit margin for apple. They dont want to put that pressure on their own profit margins. Well, we will be watching. Fork you, thank you all watching this edition of bloomberg west west. We will see you later. From bloomberg World Headquarters in new york, i am mark crumpton. This is bottom line. Intersection of business and economics with the main street perspective. Searching the most since 2012. The Congressional Budget Office global is the projected costs of obamacare. And, a look at tax preparers who take advantage of low income clients. To our viewers in the United States and those of you joining from around the world, welcome. Full coverage of the stocks and stories making headlines today. Looking