Some shareholder losses over a economy back in june, but there are two challenges. The board is being charged with incompetence. Ready for some madden football . The latest version of the popular ea game comes out tomorrow. The graphics are more realistic than ever. Nflill talk to maddens guru that assigned readings, stamina, etc. , to all nfl players. Technology has been under helpopment for years to brace for the big one. The sunday morning quake measured at 6. 0 on the richter scale. It was centered south of napa. It injured more than 170 people. Damaged dozens of homes and businesses in napa and solano counties. 4 billion when you factor in losses from closed businesses and tourism. Many napa wineries escaped significant damage. I am joined ron burglary from berkeley, the director of the let me start with you. What struck you about this quake fully intended. It was a magnitude 6. 2 earthquake on the fault system west of napa. We believe it is west of the napa fault. Further evidence will give us information on whether it was on that fault. It was more of a surprise that it took so long for us to have an earthquake of this size. Of shaking and the area effect is typical for a magnitude six earthquake. Structureslnerable affected by the shaking a lot of gas and water lines broken, consistent with the reported shaking. We are showing footage of an earthquake 25 years ago, really not that long. A lot of the damage done in the east bay. We were showing damage of the bay bridge and other places, which was so notorious where so many people were killed. Terrific damage. You were there in berkeley. It seems like a fantasy we could have technology to predict what could happen before it happened. What do your tools tell us and what you know about your tools that you did not know before yesterday . We are not predicting the earthquake. We are predicting the shaking. The Warning System we have been testing performed very well. It detects be very beginning of the earthquake. Then they can put out an estimate of the shaking that is going to follow. It can push out a few seconds, tens of seconds. Best a scenario is about a minutes worth of warning to warn people prior to significant shaking. Best Case Scenario is a minute of warning. What did we get yesterday . It was pushed out about five minutes after the origin time. Napa could not have received a warning yesterday. Doever what were trying to now is get the necessary investment to build a fullblown public system. One of the things that would do would be improved instrumentation and then napa could have had a warning. In berkeley, we had about 10 seconds worth of warning. As you get further away, oakland and san francisco, you have even more warning. We want this to be available to everybody. We have been testing it for a number of years. It is time to pull the trigger and perform provide warnings to people. Who was holding back on that funding . It seems like a good thing to know maybe. 10 seconds, can that really help . Helps, if youit get a few seconds of warning, you can move to a safe zone. Move under a table. Move away from the front of brick or masonry building so you do not have bricks falling atop of you. Here in the bay area, they already get the warnings from our demonstration early Warning System and they use them to automatically slow and stop the trains, thereby reducing the risk of damage to the trains, possible derailment, and injuries. Surgeons can get the warnings of the eye surgeon can put down the scalpel a few seconds before the shaking starts. There are benefits. What is holding it up is just finding. We actually have legislation in california now as of last year that mandates we should build a public earthquake early Warning System, but funding has not yet been identified. What we need to do is encourage our legislators to put the necessary priority behind this. State of emergency has been declared following the event yesterday. Emergency, we should implement the system. Call your local senator. We will get the system build. That way we will have a warning before the next earthquake. Let me ask you about the economic effect. Dramatic pictures coming out of the wineries in napa and sonoma. Rolee lucky it was such a area where the grapes are the most affected. Area. H a rural what about the hayward fault, which we have heard that is so much more likely to go off . Napa is not a completely rural area. Napa is home to old structures, masonry structures primarily in their downtown area. Really it was these more vulnerable structures. Many have been retrofit, so we saw portions of walls falling down rather than entire walls and buildings collapsing. That was the good news. Ifterms of what would happen we move that earthquake closer to a denser urban population, most likely we would have more ruptures of gas lines, sewer lines, water lines in the affected area. Generally our woodframe structures do very well in earthquakes, as do our structures built to the most recent building codes. Another issue is, as many people noticed yesterday, the inthquake occurred at 3 20 the morning. Most people were at home sleeping. Very few people out and about. That certainly reduce the effect on injuries and so forth. I do not mean to keep quick question for you, brad. Dealing with our older structures of the most important thing. My concern is what is the impact on businesses in Silicon Valley. If we do less construction, less Industrial Production of disk drives in Silicon Valley but Silicon Valley is so big in business right now. What is the potential impact of a san andreas or hayward fault earthquake on the Technology Industry . Certainly in Silicon Valley, a major damaging earthquake that really disrupted the business, youre potentially losing your infrastructure and terms of people having to leave the area. The more we can prepare so people can remain in the area, we will not suffer from the catastrophic events we saw into trina, where people were forced to leave the area and he lost that into trina where people were forced to leave the area and he lost the economic the tally. I want to thank richard and joining us from stanford. Thank you very much. Hewlett packard and autonomy back in court today. Could shareholders be the big losers here . At his next. Im cory johnson and this is bloomberg west. At ants look back editorial moment for hewlettpackard, when the company decided to buy a British Software rollup. It was called autonomy. It was such a disaster, the company had to write down 9 million, essentially saying the money was wasted. Shareholders were kicked off and they are suing. They are suing, saying these people were completely incompetent in doing this deal. Will they win money . Will they find out who is to blame . What went wrong . We will get to that story and what that might mean, but in the meantime, lets get ready for some football. How about a look at what is going on with one of the most accessible Football Games of all time, madden from electronic arts. This big game is known for its s,mbotrons, player montage and now all kinds of investments advancements in Artificial Intelligence and animation. Check this out. For the last two decades, madden nfl has consistently ranked among the top video games in america, bringing in 4 billion for electronic arts. Thatan has helped fuel success and that is not john madden. This is our database. This is where we make a change. Every player has a rating. Meet maddens ratings are. His rankings take nfl players from the field to the game. With 32 nfl teams, 74 players free agentsus 250 and 50 legends, that is 2006 hundred 68 players, to whom donnie assigns a rating in categories like strength, speed, and catching. He uses data from game performance, team stats, and his own notes. We wanted to look like an nfl game. We do not want you to put something in wary if you give a guy one speed he is out there inching along. Exploiting rankings is how donnie got his job at madden. I said, we can probably process this a little bit better so there is more accidental gameplay. Today, donnies ratings have helped donnie make madden look so good, the franchise has sold over 100 million units. But sometimes layers disagree. I have a problem with it. I know i play better. Where do they get these numbers from . Active on twitter, donnie is willing to take feedback from coaches, and especially players about ratings. Know, you have an 80 completion percentage. At 214,technicals are despite having jj wants we are trained to capture that, right . You cannot be handing out lollipops to every team and player. Not even to the highest rated player in the game. Separate i can see this now. I will go to denver. He will come in. Great guy. Well, peyton, im sorry, this year you are at 36. You are 30 years old. I am not going to be the one who tells peyton that. While anyone else would be wide to hang out with receivers and pro bowlers, donnie only cares about making madden a great video game. I love the football of session that is bloomberg newss matt miller. We will be back to talk more about hp and autonomy and a whole lot more when bloomberg west continues. You are watching bloomberg west. Ovation,on an technology, and the future of business. Im cory johnson. Back to you back to hewlettpackard. The hp and autonomy case. It will have an important moment in the courts. I want to turn now to Venture Capital investing in europe. Interesting things going on and a different approach about things being taken on. A lot has been involved in the adls big deals. Right now. Joins me good to see you. I have not seen you in quite a while. Lets talk about what is going on with earlybird Venture Capital, what you guys are doing, and where your focus is in europe. Investments are available to you in europe . In continentaled europe. There are a number of vcs there is a very healthy that have received funding. It is a good spot to be in. This is what people say about Silicon Valley there might be Silicon Valley of phoenix or detroit. But there is this confluence of bankers that can get a Company Ready to do an ipo and help them do an ipo. Does that exist in europe . The lawyers and the d a lot of the companies that will make an impact will probably end up being like be Israeli Company that will have people over here and the ip may be here rather than there. But what you have are the fantastic Development Teams that have worked together before that what you do not have the competition where you have them bid out companies in Silicon Valley that are very good. They have talked about the pace of Venture Capital growth in europe, and while the business is smaller than in the 70 30 billion versus billion, the pace of Venture Capital growth in europe has been enormously faster than in the u. S. Why is there such excitement investing in earlystage companies in europe . I think were seeing a transition. The last 10 or 15 years it has been that like the japanese auto industry. They started focusing on quality and really started creating things for the world. That is the transition we are going through in europe. It has made a lot of money for a rocket internet and others. Now there are a lot of ambitious entrepreneurs ready to go. These are there are all of these new investments, the european version of priceline, the european version of groupon. So, that is the ecosystem. A lot of people are like im going to do a thing like this as well that is arbitrage. So, it is a great place. You also have people humming in from all over the place. Portfolio companies. They all speaking lives there. They always have employees from eastern europe, southern europe. It reminds me of Silicon Valley where people come in there to be next to each other and to be near the capital. Right. You came from far away, on some level, to work at linkedin. When you and i first met was a long time ago. Very early on at linkedin. I think it was a successful and powerful company, but back when we met, it was struggling, the third floor of one building in Silicon Valley. You took a chance on it. What did you learn of linkedin . Is there one lesson about thatre investing applies to your work now that Venture Capital is looking at europe . Because of the capital constraints, the company has get expecting we can only so much financing. It ends up being solid companies that do not go was way though away as easily as here. Linkedin to again, i dont know, 100 million in vc money before it went public. In many years. In many years. Having that longterm perspective we work in early we syndicate with a lot of u. S. Venture capitalists to enable companies to a longerterm perspectives. I was building this quick model before the show. Of companiesto. 4 and vested in the u. S. And profitable companies. What youre saying is that of kind of a mistake. Vcs should not be looking at travis . I think you can make money and historically it has been a nice business because you reduce the risk, but you get the small to mediumsized outcomes. But i think really you have to do the u. S. Model of taking more risk and looking for the longer time arise in and that is what we focus on at earlybird. Interesting stuff, konstantin guericke. Great to see you from earlybird Venture Capital. Linkedin cofounder. Appreciate your time. Thank you very much. Hewlettpackard back in work over the autonomy acquisition. Even if shareholders windows, they may lose. We will explain when bloomberg west continues. It is 26 minutes past the hour. That means Bloomberg Television is on the markets. Im julie hyman. Lets look at where stocks are trading. Earlier we touch the 2000 level. We have not been able to hold onto it. Financials have been the best performing group in todays session. More on the markets later. More bloomberg west is next. You are watching bloomberg ont, where we focus innovation, technology, and the future of business. Emilyory johnson in for chang. Hewlettpackard back and court over the acquisition of the routers Software Maker autonomy. Hewlettpackard had to write down that hell almost immediately after that deal almost immediately after doing it. Joining us, a former Equity Analyst in san diego. Paul, we just got a headline saying that hp says they will sue the auditor they hired to examine the deal, saying it was their fault. Hb saying it was not their fault that they blew all of this money. It is sort of magnificent, you know . This is the core of it. To everyone involved it goes down to the essential squishy mess of revenue recognition policies and the pressures Companies Face even when they are in the acquisition pipeline. And so so much of art little of science. When you look at the details of what this is all about, essentially distributors taking software, recognizing that as and in some of that revenue coming off the books again when it turned out the distributor did not have the deal that they said they did or thought they did. Under some jurisdictions you are able to recognize that as revenue and that comes off the deal. These are some of the squishy things that, off when they are trying to get a deal done. It was not exactly a secret. There were a number of analysts publicly publishing analysts, not just the guys a gradient you did some wonderful work saying, not all it is cracked up to be and the whole thing was a rollup of at least three Software Companies which almost always leads to a problem. That is a universal truth of technology rollouts. The revenue recognition policies merge together are much worse than any one of the three or four that you rolled up. Heres the thing also. Is not new. I used to be back in corporate computing sales for deck back in the day before hp bought them. You could have reps getting Junior Officers to sign purchase k them early in the coming quarter and have them come off the books again. I a betting what happened here was not that it was not known, it hp sought and said, eh, is not so different from what we do on our own books. It was all too common. Lets talk about what is going on in the suit. There is a wonderful column in the times by chain store typically a great column by james stewart. The shareholders hired lawyers to sue the company and those lawyers are saying, lets just pays theis is hp lawyers and the shareholders get nothing. This is all too common in the skies of actions. We have seen this over and over. The settlement disproportionately favors the lawyers over the people are brought the action. That is unfortunate. It is paying people to chase ambulances rather than dealing with the problem, which is fixed this complete nonsensical recognition of value and Public Companies to the extent that no one knows what values are in a large rollup like this. Shame on both sides. Shame on the lawyers, and shame on us for not sorting out something as simple as revenue recognition in a public company. What might the shareholders want to know from the board of directors at least if the record was expunged, if you will, what kinds of things would be telltale signs that the board did not do their job . Specifically did they know, for example there is a case that there was a specific transaction with a distributor who was allegedly selling a deal gotnd the actual done between autonomy and craft as opposed to between the distributor and craft. Was this Due Diligence . They did not know that these were the kinds of transactions coming on at the end of quarters as they tried to ramp the revenues up to the level that they wanted hp to pay . It is hard for me to believe they did not know that this was happening, that in general the distributors were making deals based on transactions that did not happen. If they did not know, they should have known, because that widespread phenomena and in a technology company. What about the bankers . Did they do anything to put this saying you have to pay a lot of money for this deal . Know, that is where the accountants come in. The banks will say straight up, we have a line on representations in the diligence work and it be audit work done by the accountants in this spirit, so we will rely on that. Based on these numbers and the comparables we have seen, here is the kind of valuation you will have to pay. If it turns out those representations from the audit firm are squishy or some way do not represent the business, that is not our problem. That is how the bankers get to walk away from this. It is not as though they chose joes accounting shop in tallahassee. They can legitimately say, we relied on their reputation with respect to revenues. There is no bottom when you get to this business of booking revenues at the end of the quarter and taking them off at the beginning of the next. Jpmorgan citi, they are off the hook. Covernt the analysts who hewlettpackard have been up in arms about the board of directors doing this deal . Most of the board of directors are still there. Yeah, which is really remarkable. I can only point a couple places. One is i think and shame on the analyst community. This has been going on for decades. I think this is something they do not understand well enough. How does the quarter get made . How does this happen, the messy his notice of meeting quarterly numbers . Here is what we have produced. There are not the inventories. This mustsay, qed, have gotten done and it is all ok. But it does not work that way. There is all kind of squishiness about numbers, even if they are audited numbers. I am hoping that people will ask harder questions about what is the potential of this revenue coming back in the next quarter . Those are the kinds of questions that should get asked. No you have people defending themselves and saying, well, how were we to know . Look at the representation from the audit firm. How were we to know that was not legitimate revenue . That is like him ba, saying how was i supposed to know . Well i believe paul kedrosky. Thank you very much. Going from the lacrosse field of yale to the c suite of chinas against ecommerce giant. We look at one of the key figures in alibabas ipo. Im cory johnson and this is bloomberg west. Ecommerce giant alibaba will go public it could be one of the biggest ipos ever. Not just contact, but ever. Behind the company there is , who hasrman joe tsai been instrumental in growing the companys fortune. By more on tsai, i am joined leslie picker in new york. This guy, is he the power behind powers . Ne or one of the he is the yin to the yang. Behind m a, but also behind their creative legal structures. He is the one who structure their variable interest entity, their way to get around the chinese restriction on foreign ownership. He is also the guy who championed their partnership structure, the one who says that group of individual should have outside control in nominating the majority of the board. He is kind of the brains behind the throne. He is the one making sure that they go with ali babas best interest. And a yale lacrosse player, no less. One of those who knew him back then says that he used to wear a pick triangle to support gay rights. Jock in uncommon for a the 1980s, and for someone coming from taiwan. What hes said in response to some teasing that happened surrounding that was it was the right thing to do. This of course is the guy that investors are going to look at and say, should we buy shares of this company . Can we trust that our investments will be protected and the company will be acting in our best interests . Adult in thehe room. With a moral compass like that, that says that. I do not know about the morality of the setup that takes the ownership of the company away from the shareholders, but ie is very e different. Talk about that. It is very previously when Chinese Companies went public, historically they have gone public with about 99 of their revenue tied to the vie structure. The risk is if the Chinese Government decides to dismantle the structure, they will lose their investment. Did differently for alibaba, he structured it so only 12 was tied to the structure. Meaning if the Chinese Government or some other entity decides to dismantle the vie, 12 instead of 99 would be lost to investors. What kind of private equity you did he do when he did private equity echo equity . He did private equity deals in new york and in hong kong. He was basically involved in private equity. That is how he met jack ma. That is where the tale goes, he was so impressed by his charisma, his vision for ali baba. Com back then, he was willing to work for free essentially. He was willing to give up his paycheck to work for free for jack ma because he so believed in alibaba. Insisted he take a paycheck, but it turns out it paid off quite well for him. I think you will do all right. Leslie. T, we will be back with you for our bwest byte in a little bit. Before that, lets take a look at what is going on at the top of the hour with bottom line mark crumpton. Were looking at burger king expressing interest in buying the canadian chain, wharton. Tim horton. Cuts 13s tax bill. And a deal forroche. Work lotss of going on in the world. Our correspondent is back in new york with a firsthand account of the situation on the ground in iraq. Back to you in san francisco. Mark crumpton, thank you very much. Top of thee at the hour. Why are the emmys on a monday in august this year . We will talk about that big media story as well as the tech company shaping the big night in tb. That is coming up next. We can watch us streaming on your phone, your tablet, bloomberg. Com and on your apple tv. Welcome back to bloomberg west. Im cory johnson. Tvs biggest stars will gather for these 66 annual emmy awards. Things will be a little bit different. It is monday night in august instead of sunday night in september. It is also on nbc. What is changing . Entertainment analyst joins us from new york. Big a deal is the moving of the date of the emmys . It is a fairly big deal. To the extent that the last time ed on monday was more than 25 years ago. Having said that, with nbc, i think it came down to a scheduling issue and the economics of nfl games that have the scheduling conflicts. If you are an analyst, i think you have to look at what makes sense here from a bottomline perspective. I think that is the main reason why you are seeing this scheduling change. Obviously, we are waiting to see what impact it might have on ratings, given that this is a holiday week. Are going to have to wait and see. Suppose so, what youre basically saying is nbc faced basically youre saying is nbc faced the problem of we spent a lot of money on the emmys, spent a lot of money on the nfl. The nfl stays where it is. The emmys can move. The nfl is among the highest rated in the entire television landscape. If you have a scheduling sense to lookakes at the pros and cons. Tothis case, it makes sense move the schedule around. Keep in mind this is something the academy has known for a while. It was not something that just sprung up. I wonder what this means for the emmys themselves. We have this tremendous change going on in the business. Surprise theg and emmys a few years ago, started to win a lot of awards. Now youve got all of these new places where shows are going on that do not follow traditional broadcast format, netflix chief among them. What should we be looking for . What might it mean to a company like netflix to get some big wins tonight . Haslearly netflix introduced a new power dynamic on television, and just kind of doubling and with orange is the new black, its first year of eligibility, garnering 12 nominations, that is truly outstanding. I think this is perhaps the most compelling validation of netflixs original programming strategy. Will have the usual suspects. Showtime, the premium networks, amc, etc. What we have seen the last several years, the broadcast networks are still in the mix, but the advent of Online Networks like netflix and cable original programming has really changed the dynamics significantly in the television landscape. You are an accounting expert. You can count beyond the number eight, so you have me beat. But when i look at this netflix deal they have got for some of these content creation companies they are not great. The deal for house of cards. A wonderful show. Show whent own that the out years. Does broadcasting house of cards for the first couple of years, winning a bunch of awards really translates to better Free Cash Flow defer netflix . That is the question we wrestle with. Has really made a pretty strong case of the fact to the extent that house of cards was not owned all the way from the beginning, i think they use this to launch their original programming and kind of validate the model. Having said that, having gone out in the out years, some of the newer shows they are kind of launching, i think they will make war effort to own more. I do not expect that will be a stumbling block, because if you think about it, some of the theyst prized shows launched, they have not made the emphasis on ownership. Black mayis the new be the over under on netflix. Tuna amobi. And leslie picker joins us with a special bwest byte. What have you got . The number is 93 . I woke upn of instantly from the earthquake. What this tells us is the information power that job own has. They are the makers of the bracelets that track peoples sleep, eating, exercise. Now we see this is a company ast has tremendous potential an information company. Weve seen that take place with companies in the past. We have seen the tremendous potential facebook has had which has led to even higher by ua shins i do not know if that chart showed me waking up. I sure did wake up with that earthquake. I do not know how i feel about putting theawbone user data out there even in an anonymized way. I did not know it was taking those data. I use the jawbone product might self myself. One thing they were underestimating was the potential for size. Thank you very much. Great to have you on the show. More bloomberg west later tonight. From bloomberg World Headquarters in new york, i am mark crumpton. This is bottom line, the intersection of business and economics with a main street perspective. Burger king looks to buy canadian chain tim hortons. And we will preview tonights primetime emmy awards. To our viewers here in the United States and to those of you from around the world, welcome. We have full coverage of the stocks on stories making headlines today