Maxine waters. Mind games. Technology can read a rats mind. Goal, human. First to our top story. Netflix tumbling after the streaming giant reported a loss of u. S. Customers for the Second Quarter. Earnings renewing prospects. Netflix says it lost 130,000 customers in the United States as a result of higher prices and a weaker slate of shows. It is signed up 2. 7 million subscribers globally, also missing projections. Joining us now to discuss the underwhelming results, michael and bloombergs luca, who of course covers the company. Michael, this is the first time the company has lost subscribers since 2011 when they split the dvd and streaming business. What is your top reaction . Luca becauseborrow he tweeted he is tired of talking about this. Increases derived. I think they are probably bumping up against a ceiling of what they can charge and continue to grow. I personally believe they will keep 80 of their domestic subscribers, as high as a 20 monthly charge. But their last 10 million subscribers are probably middle income house holds, and they notice when prices go up a couple of bucks, which they did in january, and i think you will see continued migrations as contenttions as migrates away and competition starts to materialize. Disney plus in the fall. Warner and comcast and next year. More content leaving at the end of this year and the end of next year. I think middle income households are probably going to have to think about whether they subscribe to one or two or three plans. Yes, they can cut the cord and maybe afford all of them, but the fact is that netflix did see a decline in domestic subs. That is what Fuels International expansion. They are about to lower prices in india, so i do not see how they are worth the 4. 50 price target most of my competitors have on the stock. I think the correction makes a lot of sense. Emily you did tweet about netflix and how you would be duking it out with michael pachter, so bring it. What is your take . Luca the biggest question for investors, analysts is this a blip, or is this a longterm problem . The Second Quarter has been a problem. They missed their forecast by quite a bit, but not as much as they did today, and they warned investors and everybody at the end of the First Quarter that this would be a light one. Is this again a onetime phenomenon in which you have this corrected today, or is it something where we cannot trust their forecast for q3, because netflixs response is going to say we are still in pays for the theorecast 7 million for third quarter. We are on pace for the biggest year yet, but as we see in this quarter, their forecast cannot always be trusted. They miss on these a lot, so if they miss again next quarter, which will come around the same time that disney is introducing disney plus, that becomes a real problem for investors, especially if growth is slowing not only in the u. S. But also overseas, which has been the engine over the last few years. Emily lets say they will add 7 million subscribers, a huge jump from 2. 6 million. We know that Stranger Things is back, they have highlighted dead to me, they have highlighted murder mysteries. It is so dependent on a hit like a Stranger Things, and does that make it challenging, because subscribers really depend on a huge hit . Luca you know, it must. Sorry, you go ahead. Michael i think lucas is right. I think they need a hit. I think they will see an increase in subs. The numbers on Stranger Thing are really impressive. It is a really good show. They have a handful of really great content. I think they will hit their 7 million subs. The problem is next year and there is competition. We saw a preview of next year of this quarter. Will have a couple of quarters where they start losing subs. Look at the volume. I know they did not have a Stranger Things or orange is the new black, but i was doing research. They would have something new come in it seemed like every day. Five new projects. There would be an anime series. Is a handful of shows, that is concerning. Just because of the volume. Pretty good track record coming up with a new big hit, every few quarters. To have a volume issue. That is a good point. We talked about it shows. We have not talked about the shows that are truly not great. I have seen some of those. Michael, how good of the Business Model is the to be throwing everything at the w wall and producing stuff that is not great. Or is the hbo model of very few, more highquality content, is that better . Michael by my count, netflix produces about 10 times as many shows as hbo, and they get about the same number of emmy nominations, so throwing stuff at the wall, throwing 10x at the wall, they will have their hits. I actually think subscriber growth will be based on one of two things, watercooler shows like breaking bad, ozark, and Stranger Things, or good enough content which is high quantity of ok content, and that is the real acid test. Do they have enough stuff that is good enough to keep us coming back . I think all the metrics they are giving us on the crap shows, it tells you people are willing to watch whatever they are throwing at them, so you get 40 Million People watching adam sandler, which shocks me, but it can happen. [laughter] emily i thought it was pretty good. Lucas, lets talk about international, because that is where the vast majority of new subscribers are going to come from. Q3, 7 Million International subscribers 6. 2 million of which will be outside of the United States. They talk a lot about india, introducing a cheaper, mobile only plan in india. They said they can get another 100 million subscribers in india. Where is the growth going to come from, if not the United States . Lucas i think in the shortterm, you are still looking mostly at europe and latin america. Brazil, united kingdom, france, germany, these are the biggest markets according to analyst reports. Netflix of course does not break any of this out, which would be useful, both for analysts like michael and reporters like me. Longterm, they are looking at asia. They have invested a lot of programming,inal in particular in india. This mobile only is important, because they have been testing lowerpriced plans in asia for a couple of months. This is the first time they have committed to rolling one out, which suggests either they think it is going to work or they need to do something to boost growth in the region. It is the first price reduction. They are raising them almost everywhere else. Emily michael, lets talk about the other parts of the story. You have disney, apple, warner media, all of these other companies trying to take netflix on. Disney is offering cheaper and has a huge library of original disney classics that, you know, people keep coming back to come over 50 years how big a threat is the competition . Michael you know, i think barry diller said it well couple of weeks ago. Netflix has won. They are not going to go out of business. They are not going to lose a material number of subscribers. The question is can they grow into their valuation . And i dont think so. International, sure. If they had 100,000 subscribers in each of the 200 countries they do business, that is 20 million a year. They can do that for another 10 years. Can they continue to grow domestically . No. Can they turn cash flow positive . No. Not with the current model. They can at higher prices, and i honestly think if these guys and end up being a nogrowth company, they will trade at my 183 price target. Competition is going to slow their growth. I do not think anyone is taking subs away from netflix. I just think they will compete for wallet share, and new subs are going to choose the new programs if they have small kids and not very much money. They will choose netflix that they had a lot of money, and they will choose hbo max if they have even more money. I think it is divide and conquer. I think netflix wins overall the subscriber war, but i do not think they win the cash flow war. Emily all right. Shares trading at 362 of these, but they are down 13 . Michael packer of wedbush, lucas shaw, thank you. Shares of ibm rising after hours this after topping estimates in Second Quarter results. Cloud revenue was up more than 3 . Remember, ibm closed its acquisition of red hat last week , a move it hopes it will compete with cloud leaders like amazon and microsoft. Coming up, all eyes on facebook, and david marcus once again as networkss the social cryptocurrency on capitol hill. And if you like bloomberg news, check us out on the radio, check us out on the app, on bloomberg. Com, and listen to us on sirius xm. This is bloomberg. I dont think you should launch libre at all, because the creation of a new currency is a core government function and should be left to democraticallyaccountable institutions that are accountable to the american people. Emily that is new york congresswoman carol maloney, continuing a second day of facebook lashings on capitol hill, only today was the houses turn to take on the news of the Digital Currency libra. The bizarre moment is when congressmencongressman brad sherman of california decided not to have a single weston and question and instead claimed that libra could be more dangerous than 9 11. We are told innovation is good. The most innovative thing that happened this century was when Osama Bin Laden came up with the innovative idea of flying to airplanes in the towers. That is the most consequential innovation, although this may do more to endanger america of an then even that. Emily sherman also kept referring to libra as zucks bucks. Lets get to it. Our own kurt wagoner. David, i have to get your response to that remark. I was laughing. I dont know what he is talking about. I dont think you could say that 9 11 was the greatest innovation in the last century. It is ridiculous. And how libra could pose a threat comparable to 9 11 makes no sense. The problem is that facebook is in a position right now where it has done so many things wrong, when it is now proposing something that is not particularly right or wrong, it is just an interesting that they are going to try and may or may not work, but because it involves money and people are worried about control of that, and there are a lot of businesses that are deeply engaged and sort of concerned, they are getting tremendous pushback. It isnt it fair, but it does not sound from that quote like it is rational. Emily well, to be fair, even the chair of the fed has raised concerns about money laundering, illicit activities, the use that this currency could hide illicit activities. Kurt, you were at hearings today and yesterday. Talk about the difference between what house leaders and Senate Leaders had to ask. Kurt yeah, i mean, despite that one example that was pretty eyeopening, i actually thought the questions they were a lot more thoughtful than yesterday. I feel like yesterday in the senate, it was really just two hours of an excuse for people to come in and the bash facebook for a lot of past misdeeds. Today it seemed like there were a lot more members of the house who genuinely wanted to know what libra was all about. There were questions about facebook and whether it would be offering banking services, a lot of questions about the libre association, which is the group that will oversee the new cryptocurrency, and i do feel like there was more genuine interest from this group of politicians to going to figure out what is this thing and only what is it, but if it possible that this could be launched and actually work . David, how fair do you think this skepticism is against the backdrop facebook is dealing with a lot of issues . The record in trust is not great . Is legitimatet and expected there should be skepticism. Arent think the questions inappropriate. All the congresspeople saying, will you commit to putting this project on hold, letting us do it for you, only to a small test . Many requests of that type, i think they are a little premature. Look, they made the decision to announce this really early in its development. I think many of the questions really literally cannot be answered yet, because we do not even really know if the libra association, which they have proposed to govern it, is really going to hang together and do anything meaningful. If it does, i think that will be a Promising Development terms of suggesting that this could be a manageable operation. But, look, it is legitimate that people should ask questions. Facebook has invited skepticism because of their repeated malfeasance in many areas over the last few years, so i am not surprised. I am a little surprised that they announced it now, to be honest. Emily right. Did they make a major miscalculation unveiling this now when they are not even going to launch it in a year, if they plan to still do that . David it seems that way, and as i understand it, there was substantial disagreement in the company about whether now is the time to do it. Mark zuckerberg and david marcus, i am sure, both wanted to do it, and they prevailed. Mark zuckerberg is always going to prevail at facebook. But it may be that the naysayers were right. Emily meantime, kurt, alexandria ocasiocortez, aoc, as she is known, called facebook a surveillance company, and while the hearing in which facebook was present yesterday had perhaps less fireworks, the broader implications for facebook are huge, a potential breakup call, calling attention to the idea that facebook could be a monopoly. Paint the Bigger Picture for us here about everything that facebook is up against. Kurt well, it is pretty simple, right . We are already had a conversation about whether facebook had too much power, and now they say not only do they want to enter a new market, but they want to enter one essence as sensitive as finance as sensitive as having access to peoples money. There is a lot of concern that or do we let a company that we already think might be too big and too powerful has more say over how people kind of do their personal life and how they spend their money . So aoc did mention that. She kind of slipped it in there, actually, it was a subtle thing, but it did not go unnoticed. I think that her idea is one that is shared by many not only here in washington but other places around the country and the world that just think facebook is too big, and letting them do a cryptocurrency is a step too far. Emily certainly a provocative description, david. When you think of facebook, google, apple, all the companies that were questions for the hearings, which do you believe presents the most compelling case for a breakup or presents the most problematic situation in general . Visit facebook, or is it one of the other . David i do believe facebook presents the most problematic challenges. I am not a particular advocate of breakups myself, although i absolutely believe it is fair and inevitable and right that some form of restraint, governmental oversight, needs to be created. Unfortunately, it would be better if it were global, but we do not have global mechanisms that are capable of doing that, so it has of late we will see it in nations like our own, singapore, india, and elsewhere, the eu, of course. I think facebook has invited this by really failing to govern what became a rampantly growing system with all kinds of misbehavior that they, for some reason, when not able to anticipate and did not build any mechanisms to manage, and now they are paying the price. I think there are huge, legitimate questions about google and amazon also. It is true these companies have a global scale and reach that is unprecedented. Emily we will have more on this this hour. Techonomys david kirkpatrick, bloomberg technologys kurt wagner, thank you both. Does consistency make the happiest city on earth . This is bloomberg. Emily cities around the world are trying to transform themselves into socalled smart cities, and dubai is promising it will be the happiest one on earth. It is trying to become a more efficient city through the use of tech, ai, and blockchain. The tech will create free time for residents and visitors, the city claims. We sit down with the smart dubai director to talk about progress. I believe a city where the residents and visitors of a vast city are happier citizens. Today when we talk about technology, for us, it is the secret to happiness. If this technology will not by uy me time, will not give me a peace in my mind, for sure it is not the right technology for us. So i am going to win back time, essentially . Dr. Bin bishr absolutely. Almost 40 hours will be saved when we finish this project. So we like to deal with efficiency in numbers. Give me a sense between now and 2021 about what you are saying, because part of technology is about efficiency. How much . Dr. Bin bishr 10 billion. But from the previous share of services that smart dubai needs to present for the government entities, for every one, we take five. I am trusting you with my data. What is the biggest risk for to dubai with this data . We have seen lots of major scandals with regard to hacking. What are you doing to prepare for the risks . Dr. Bin bishr when it comes to hacking, for us in dubai, we make sure we have all the criterias, policies, standards, the tools that would allow us to stop this kind of hacking, but the biggest for us is that individuals and corporate do not understand the value of the data, whether it be sharing or opening this data, to stop our economy from growing and benefiting from this new talk of economy. Emily smart dubais general director there, dr. Aisha bin bishr. Coming up, tesla has changed prices again. How it is renewing concerns over model 3 demand, next. And one step closer to connecting your brain to computers. First, they will have to move beyond mice. We will talk about the start ups plan to achieve symbiosis with ai. This is bloomberg. . Emily this is bloomberg technology. Tech law on the defense following more frustration the company is cutting prices on the model 3. The latest complaint captured by Bloomberg Steve nine. You think most customers would be happy about a price cut, but you profile the guy literally bought his model 3 days before, or maybe a day before the prices cut thousands of dollars . Tell us what happened. Fullybought a model 3, loaded, the performance edition at 68,000 at the end of last month. The tax credit was going down in july. Cut comes this month, elon the price of that car by more than 6,000. Thisu wouldve bought it month, even if you factor in the tax credit change, he still would have saved 4500. He is fuming mad. To us about how this is renewi