Samsung says batteries were to blame for its overheating note 7 fiasco. The company has apologized and promised to tighten battery safety. Sam suns biggest business crisis killed off its flagship device with a cost projected to be 6 billion. Global news 24 hours a day powered by over 2600 journalists and analysts in over 120 countries. Youre watching bloomberg. Thats the check of the markets. We are seeing upward pressure for the regional benchmark, gaining. 3 . Japan is moving around and be composite is up. The shanghai composite up. 3 . This is bloomberg. Caroline i am caroline hyde. This is the best of Bloomberg Technology, where we bring you all the top interviews from this week in tech. Coming up, netflixs crown jewels. The company out with a huge beat this week as new customers flock to their original content grade plus, the chipmaker in the crosshairs. We will break down the case against qualcomm as the fight over licensing heads to court. And why a judge decided not to arrest samsungs heir apparent. And what is next for south koreas most valuable company. But first, to our lead netflix reports the biggest quarter ever this week. The stocks soared on the news. Netflix added more than 7 million subscribers globally to finish this year with nearly 94 million members, beating analysts estimates on both the domestic and international level. The company credits the popularity of new original content, including the crown and new seasons of Gilmore Girls and black mirror. Bloomberg editor at large cory johnson joined us to break down the numbers. Cory not too long ago it was a company that rented dvds, then a company that put movies out with a little bit of original content. Most of their money now is going towards original content, including things like luke cage where they have a master plan. Luke cage, jessica jones, and they will have their own avengers, which they will call defenders. They can build a mountain of original content grade content. They have also spent a fortune on marketing. The biggest spend they have ever had in the world of marketing. The numbers in terms of marketing spend were greater than ever before and even show an increase. It is now 11. 5 of revenue, and when the numbers seem to be coming down, remember they just raised a bunch of money in the debt market is so they could buy more content. What theyre are doing with that is plowing it into marketing and adds. They had Great Success and buying subscribers internationally, because that is what marketing dollars are but also buying subscribers domestically. They actually saw a check up in the number of domestic subscribers, which looked like that market was completely saturated, going less than 1 in every quarter. This last quarter, they grew at 4 , which i found positive for the company, but that is merely a function of how much you spend. What we really want to see is how long those subscribers stick around. Caroline it is interesting sales still up 36 , bang in line. You are seeing earnings despite the market spend still beating, up 50 , it looks as though the market is liking it from a share reaction point of view, but the cost of this not only the cost of marketing, but also 6 billion being promised to spend on the original content or content in general next year. Is this going to ring alarm bells in the long term . Corey i suggest people look at Gross Margins is where to see. Where the content cost is happening ignore what i said. Netflix said in a press release and i think a lot of endless look at Gross Margins are foolish Gross Margins does not show you what the actual cost of the movies are. It shows you this is hollywood. It shows whatever cost they want to show. They said in the press release that what was going on with this thing was the recognition of content cost, not the actual content costs. There was one number and you can see the stock trading up after hours michael pastor, a friend of the show just tweeted out a minute ago he was doing some math, and they spent about 100 for every new subscriber they got this quarter, which means they will have to keep those subscribers for the next 35 years in order to break even. That is not feasible. Something has got to give. Content costs have to come down, the cost of adding subscribers has got to come down. You do not see it in these numbers. Caroline but they can still make inroads in the countries they are not so big in. They have far less when youre looking at the united kingdom. There is still room to grow. Corey if they can grow that much. , any increasese in a saturated market is interesting. I think that you can sell a dollar for . 50 for only so long. When is the free clash Free Cash Flow going to slow up for this company . The Free Cash Flow numbers was stunningly bad. The subscriber face going up, a very positive number. They have got to have it go up in order to pay for the content. With that big raise, look at this number, 618 million in 13 weeks that is 7 million a day. How do you do that . Caroline its spending on the queen. Cory and all this other content and marketing. They cannot do this forever. Forget the profits on the income statement there is cash flowing out the door in an incredible size that netflix. They are hoping they can outlast their competitors, maybe amazon prime, hbo, showtime, i dont know what the plan is, but as content costs go up, and they are adding marketing costs on top of that, and they are running out of places to grow. They are burning through this Free Cash Flow and it could be a real problem in this business. Stock can do well, but eventually the piper will have to be paid. Caroline we will see how shares trade up tomorrow. If indeed they hang onto these. Always great to get your perspective. Staying with netflix, it has now been 10 years since the company made its most important strategic shift away from dvds and into streaming. Bloombergs Caitlin Meehan looks back at the companys evolution. Caitlin in january 2007, netflix announced a bold the charger from its core dvd rental a bold departure from its core dvd rental business. Watch instantly allowed netflix users to stream a library of about 1000 movies and tv shows over the internet. Back then, Ceo Reed Hastings explain the move saying mainstream consumer adoption of online movie watching will take a number of years. The time is right for netflix to take the first step. Analysts were skeptical. There were just as many holds as buy ratings on the stock, but consumers saw Something Different and signed on in droves. By the end of 2010, subscribers had grown from 6 million to 20 million. At the same time, instore rental giant blockbuster filed for bankruptcy. Netflix next set its sights on a new venture in 2013, original content, watching what would become an arms race among rivals. Netflix spent an estimated 100 million on two seasons of its first original series house of cards. But original hits do not come cheap. By 2016, netflix had produced more than 600 hours of original content at a cost of over 500 million. It plans to shell out another 6 billion this year, nearly double the programming budget for all of 2014. Netflix has not posted positive Free Cash Flow in two years and it is on the hook for 14 billion, in future payments, but cash flow concerns aside, it does appear that Reed Hastings 2007 bet on streaming video is paying off. Netflix now has over 90 million global subscribers and makes 94 more than 94 of its revenue on streaming video. Caroline another story we are watching, Facebook Ceo Mark Zuckerberg took to the stand in a dallas courtroom to defend his company against claims that its virtualreality unit, oculus, stole the Technology Behind the rift. A Company Called zenimax alleges that oculus poached one of its star designers. Along with key intellectual property for its vr headset. It also said facebook completed its acquisition of oculus in 2014 with full awareness that its tech was misappropriated. If zenimax wins, it could rewrite the story of how facebook has emerged at the forefront of the virtualreality boom. Still to come, we had to this weeks gathering of the World Economic forum in davos, switzerland. Qualcomms chairman talks about the trump administration. This is bloomberg. Caroline now to a bloomberg scoop. U. S. Regulators have filed a lawsuit against qualcomm for allegedly using unfair practices to license its technology. Digging into the details, the federal trade Commission Says qualcomm forced apple to exclusively use its baseband processors in return for lowering the rate of patent royalties it charged. In 2014, it was disclosed that its licensing methods were under investigation by the ftc and a major fine was responsible. Qualcomm responded, saying it never withheld or threaten to withhold chip supply in order to obtain unfair unreasonable licensing terms. Shares tumbled on the news. Now, Bloomberg Technologys ian king broke the story and joined us with bloomberg editoratlarge cory johnson. That is the bombshell today. We have had very general accusations against them, obscure legalistic accusations, but this is specifically saying, no, qualcomm, you used your position to basically force apple to take your chips and that hurt competition. Caroline we are seeing a share price reaction, but this is an ongoing theme, it seems. South korea last month seem to finding to the tune of 1 billion. What money is at stake here . Corey a gets to the heart of the business model. Fundamentally, the model for qualcomm is to license chips they think are great and license those chips. They gained influence by having a standard specifically written for qualcomm chips, so this gets to the heart of their model, the relationships they have with the company that makes the phones, and there is no bigger single phone maker than apple. Caroline it is a special model that qualcomm has developed here. How much do you think they can fight this in the courts . What is their record like . Ian their record is almost flawless. They never lose. They when you look at the headlines in the trouble they have had, they have only really lost one case, against broadcom five or six years ago. Everything else gets overturned on appeal and years later they do a deal and they are very successful. To pick up on what corey said, what they license is actually the fundamentals that go into mobile phone technology. What happens with the chip in and the chip design is another business. What today they have tried to establish for the time is a link first between those two things , and that is the biggest threat to their business so far. Caroline if we are thinking of losers and winners, the fact may be they do end up being thought as guilty, rather it might seem to occur, who does this win out for . Do smartphones get cheaper . Cory they would absolutely get cheaper. If phone makers could shop around for baseband chips, it is one of the most expensive component in the phone. If they could shop around, they might end up with lower pricing, and that is what fundamentally that gets down to was a vendor able to go out and find the cheapest and best chips they could get for connecting the phones to the networks or were they compelled to go to qualcomm because of the power they have in the marketplace . Caroline what is fascinating here is who is doing the talking . Is apple or executives there coming to the ftc and saying we feel what we have been hardly done by . Ian for anybody interested, if you read page 25 of the filing, there is a lot of specifics about agreements between the two companies, deals that were signed, renegotiated, resigned, hard to imagine that came to the ftc in a dream and they did not get that information from somewhere. Cory it was not like qualcomm was sending the information. And. Apple has everything to gain. Apple would like to play the providers against each other. Theyve been unable to do that. Caroline the providers who could be winning out, do we see share reaction . Ian intel has actually managed to get some of those orders away from qualcomm for the first time pretty much in the history. Cory in the apple phones. Ian in the apple phones, right. A clear beneficiary there. A lot of other companies have tried to go against qualcomm over the years and really have just faded away. Caroline give us a time frame here . Is this something we are going to be talking about over weeks, months, years . Ian years, i think. First of all, it is a court case. Its not going to a judge and saying, give me a judgment. This will actually go to court. So you have all of what that entails and qualcomm cannot afford to let this go. They are going to have to appeal this as far as they possibly can , if it goes against them. Caroline before the news broke about that u. S. Antitrust suit, against qualcomm, Erik Schatzker caught up with the qualcomm chairman and longtime democrat paul jacobs at the World Economic forum in davos, switzerland. Eric asked how he is reconciling with the views of the Incoming Administration. There are democrats and republicans, but we are all americans, and we want to see the administration succeed. In a democracy, you have different points of view, but there is a lot of places where we are very inline. We want more jobs, great trade agreements. We were happy when the president tweeted about our one web satellite system. There are a lot of areas where we see alignment, and where there is, we can work hard together. When there is disagreement, we will also express our points of view. Erik where do you disagree right now . I think immigration is one where i worry about, at least. I would not say i know enough to say we disagree. I think the American Dream and the notion of the melting pot has caused the best and brightest to come to the United States and given us a lot of innovation. That is a competitive advantage for the country. That is one i would single out. Erik anything else the president elect has said that concerns you professionally or personally . Clarks i mean, you know, nobody wants a trade work, so we want to make sure that in the cases, for example, in china, where we have gotten through our difficulties there, we are trying to be a liaison and add to helping the situation out, helping to promote understanding, so i think that is an opportunity for us. Erik to the degree that you can, who do you reach out to specifically in the Incoming Administration to help, to give qualcomm a voice where you think you can be helpful . There is a broad range. Erik wilbur ross . Know, a broad range of people within the Transition Team and the new administration, but you look at her when and i has democrats, but we have plenty of republicans and qualcomm as well. It is a big company and the senior team is pretty well next on that. And so there are relationships that have been there. We have been working with conservative organizations for a very long time. We are happy to see the focus on innovation and on intellectual property, and these kinds of things are important. Erik is Silicon Valley well represented with peter thiel as trumps collett Tech Whisperer trumps call it Tech Whisperer . We are from san diego, so we are not a Silicon Valley company. Whether tech is represented, i think there were concerns in the beginning of many people in the Tech Community as to whether they were represented. I dont personally have a relationship with peter thiel. I certainly see him at various conferences, but it is good to have somebody on the inside that understands tech. Erik he says there is no room left for innovation in smartphones. What do you say . I completely disagree with that. We are going to get all sorts of very cool things coming. We just showed off some new chipsets that have great processing capabilities. Its coming gigab down to the size of your pocket and they do Virtual Reality and you dont have to have extra stuff. It uses a camera to figure out the environment and you can walk around and experience Virtual Reality right away. Erik what might have motivated him to say that if you are so confident that we will be able to do more with that magical computer in our pockets . People have sometimes seen things slow down in certain companies, whether they are innovating as fast or not, people like to handicap that. People like to say this is happening and this is not happening, but really what is going on behind the scenes is a lot of new technologies are being created, and 5g is a great example of it. We will build new technologies that are not just faster, but ready for missioncritical applications Like Health Care or automotive. They are going to be ready for internet of things applications, like going into industrial uses or we are really interested in agriculture. Can we make a tag that is cheap enough that in some rural part of the developing world, can they have tags on all of their cattle . Erik you alluded to some of the regulatory heat qualcomm has been facing. How smooth and approval process can you expect for nxps 39 billion acquisition, biggest ever in the semiconductor industry, with the regulatory pressure you are under in a number of localities around the world . We think that is a very complementary thing. We did not build the deal off of a lot of synergies. Obviously, people get concerned when they see big synergies from a regulatory standpoint and get concerned to see if you are getting too vertical or getting into a market and having too big of a stake in a market. In this case, it is very complementary. Erik if asked, would you be willing to spin off the manufacturing facilities . Thats not our first thought. I am not sure why somebody would ask us to do that, but we will listen to what the regulators have to say for sure. Caroline coming up, a south korean court rejected the arrest warrant for samsungs heir apparent this week, so does that mean jay y. Lee is off the hook fr