Happy as john boehner extensive an invitation to an israeli Prime Minister before a key vote of iran sanctions. I have invited Benjamin Netanyahu to a joint session of congress on the grave threats of radical islam and the threat that iran poses to the world. The press secretary calls the invitation a breach of protocol as the executive branch is not notified about the olive branch. Isnt samsung the Biggest Smartphone maker in the world dropping qualcomm chips . People say samsung has decided not to use the new qualcomm chip after it was it shown running hotter than the samsung benchmark. They say those reports are wrong and snapdragon will still be in the new phones. Amazon has already pulled out of its own amazon branded diapers just a seven weeks after they hit the market. They say the diapers need improvement based on Early Customer feedback. I think the customers are a bunch of whiners. They will keep selling their own baby wipes. Did the lead worst than advertised. Wall street analysts sounding eight downward tone. The falloff in traditional business is dwarfing ibms ability to capture new revenue opportunities. Lets do a quick drill down. The first number is the revenue. The revenues continue to decline. That is a problem for this business as they try to make the payment entered into a business pivot entered into a business they borrowed so much money to buy back shares. That debt is now mounting with longterm and shortterm debt adding up to 41 billion. As the debt gets bigger, the Free Cash Flow gets worse. Down 13 billion this last year in spite of all the acquisitions. Joining us to figure out what ibm will do about the falling revenues and rising debt and falling cash flow, Bloomberg News and bloomberg intelligence. Those debt issues it is starting to loomis a real issue for this company. I have talked about this before with you. As long as there is a decent ability of revenue for some time , i dont think investors will have that much concern about the debt issue. The need to be more concerned about how the Free Cash Flow will be generated Going Forward. It is getting worse and worse. I know you were monitoring the Conference Call last night. Analysts dont like the sound. What was the tone of the call . The tone was a bit of a refresh. You have to be very nuanced here at these ibm calls. They are very bullish on their future perspectives. It did seem like the cfo came out and said look we are going to take a profit hit this year. That was a bit of what investors were looking to hear. I dont to get was enough. Shares are down as much as 4 earlier today, the most since last quarter. Investors were looking to see what happens in 2015 and schroeder did not give that. They given eps guidance for the year the range about right at the below and. Investors want to hear more. Now, they are stuck waiting for this Investor Conference in february. Ibm is kicking the can down the road. I was struck by some comments in the Third Quarter when they said the Software Sales some execution issues, but next quarter, they should close. Software sales were week. What were the biggest weaknesses . We saw a revenue decline across all major businesses and all geographies. It seems like where they need to bring things forward is this software division. What they are really struggling through is taking these legacy offerings they have and either updating them, retooling them or introducing new things delivered over the cloud. These clouded delivered products can push down margins. Theyre giving customers more flexibility. That means theyre not paying that hundred million or whatever the number is up front. Theyre able to gain what they need, which could mean buying less from ibm. Keep an eye on software as the future grows because it is what they are putting a lot of emphasis on. I rated the results last night. I felt like the ghost of amazon was so present. So present in the competition that ibm is facing right here. Ibm which used to margin with an army of consultants and servers and lots of software and the notion that if amazon can give you the Sales Force Automation you want and be ready when you need it, that seems like it is destroying the basic Business Model of ibm. Amazon, google, microsoft are driving down costs of Cloud Computing solo. You will hear Companies Like ibm talk about the hybrid cloud. Things they think they can charge highermargin for because its perceived as higher value. Ibm is going through a massive transformation right now. You have to spend a lot more money for data centers, extending into geographies in order to compete with some of these larger vendors. They are the same providers of the legacy i. T. Infrastructure which gets cannibalized when he start going down the path of cloudbased services. The currency issues they reported that hurt results substantially in the Fourth Quarter not Getting Better in the First Quarter of this year. That could really hurt these guys with sales in europe. The currency is going to be a problem for a lot of usbased Technology Companies that generate a large portion of the revenue from outside the u. S. The crux of it come investors want to figure out where growth will come from. That is the 60,000 question. The world of technology cares as well. Thank you very much. Net neutrality got a big mention from the president last night. President obama is vowing to keep the internet free and open. Will his words cause any sway in capitol hill . This is bloomberg west. President obama renewed his bow to protect a free and open internet. That deal is not done. Net neutrality is up for debate on capitol hill today. Subcommittees in the house and senate are Holding Hearings right now to review the Actions Congress could take next month at the fcc vote. Joining us from capitol hill, peter cook. Very interesting that this is happening, of all things neutrality. The hearing so far, one in the house so far and one in the senate this afternoon has been very interesting and enlightening to both republicans and democrats. It has been a substantive hearing come a lot of good questions being asked and a lot of analysis been offered up by members of the internet community. You have amazon executives, the fcc and top lobbyists for the wireless and Cable Industries come all waiting in on what republicans are offering as they are legislation to bypass the fcc. They want to beat the ftc to the punch. They think the regulatory rules are a mistake and will harm the internet economy. Fred upton on the house side and john kuhn on the senate side john thune on the senate side. We heard from a top amazon executive here in washington weighing in. The bottom line for amazon, it does not matter if its the fcc or congress, then neutrality needs to remain. Its one thing customers should not need to care about. They should not need to care much about where in the statute their rights are protected. Were Net Neutrality is extended. It can be done in the congress. I would suggest that consumers dont care. They want their Net Neutrality. What the republicans are proposing in this draft bill achieves some of the same things tom wheeler has been talking about and the president has been talking about. It would prevent any sort of paid prioritization. No fast lanes. The big difference between what republicans and the ftc are talking about, new ability to classify broadband as anything other than an information service. It would not be a telecom service. That is the big difference and there has been a lot of debate in this hearing about whether or not congress should step in here or whether the fcc has latitude to do it on its own. The exact same issues the fcc has been talking about. Thank you very much. The debate about neutrality raises on this rages on. One of the copies that rely on an open internet . What are the companies that rely on an open internet . What do you make of the tension that Congress Attention that congress is paying to this now . The interesting thing from our conversation, we were talking about our rules needed at all. Today, the conversation is how do you put those rules in place . They are agreeing that rules are needed. The question of what is the mechanism and tools needed. Who has changed their mind . It was not too long ago they were saying no change is needed. Republicans have taken real steps. The sec chairman is five weeks away from voting on rules and we have a chance to see what rules come out of the fcc and five weeks. It is disheartening it is heartening to hear republicans and democrats saying that rules are needed to protect open internet. What is it that makes republicans against this now change their mind . The one piece they were talking about is should the fcc reclassify broadband providers as Intel Communications service a Telecommunications Service . Title to. Title two. Companies have a responsibility to public and therefore have to offer services in a fair and open way. Exactly. That has been the Sticking Point from republicans and democrats. Amazon nailed it from a consumer standpoint we are result oriented. We want to make sure the internet is open at the end of the day. Users dont care about how that happens. They want to make sure they are protected and the internet is open. That does raise the cost for the carriers. There has been a lot of money spent lobbying on that side of it. The Internet Association your members have spent a lot of money lobbying this issue as well. Google is spending 13 million and facebook is spending 7. 4 million. All spending a lot of money on lobbying. Are they getting what they are after . I think today, the conversation has shifted. There is broad recognition that prioritization needs to be blocked. I would rather have the conversation on how to protect users than having the conversation be should we protect users. One wonders what this will mean Going Forward when we look at the comcasttime warner merger. Whether or not that one company should control so much of the internet. The conversations today might informed that decision as well. The debate has certainly overlapped. Everybody is optimistic that rules will get put in place in five weeks. No one has seen the proposal yet. Early indications are it is heading in the right direction. After that, we will see what happens with congress. We can feel a bit better now that the debate has shifted to how and not if. Thank you very much. We appreciate it. President obama calls for an aggressive Server Security legislation. Cyber security legislation. They will have big brother on their side. President obama says the u. S. Could face heightened risks Cyber Security legislation is not passed. Heres the president during his estate of the Union Address last night. We are making sure our government integrates intelligence to combat cyber threats. Irish this congress to finally pass the legislation we need to better meet the threat of Cyber Attacks and combat identity that and protect our childrens information. I urge this congress. Will Companies Support the president s plan . Turning to the chief Strategy Officer at very interesting, the conversation has dramatically changed. Because of the sony attack more than anything else. We have never seen a business targeted by a nationstate before. Thanks for having me on today. I think it has changed. The Threat Landscape when you look back 1020 years ago, people try to hack for notoriety and publicity. Today, its about money. Organizations need to do everything they can to safeguard their information but also be able to react when they do experience a breach. What part of the legislation is best about what could be passed . It is a noble first step. Last night, we heard the president talk about Cyber Security just a little bit. For Cyber Security to get into the state of a union is a big deal. The president has to talk about all kinds of Different Things going on in the world and cyber finally got the first notice that this is important. We need to come at this as a team. From a legislative standpoint we have some any companies in Silicon Valley whose businesses have been harmed by the nsa must policy of gathering information. Those companies dont want to have to share with the nsa or fbi. The president is suggesting they have to do that. It would help them protect themselves. Where do you hear your customers . I sat with the director for 3. 5 years. Ira member when i would go out and visit companies and people would bring up nsa or some type of information gathering. You have to realize you think about being an fbi agent, you have to balance trying to stop bad things from happening, try to put that people away but its the only organization there to safeguard your liberties. You say i want to stop bad things we need access to information. If we are going to live in a safer world, we are going to be able to go after those people who want to do harm to americans and our allies and businesses. I was reading a story saying there are more new York Police Officers then fbi. I think about what their capabilities are to fight cyber tyre is a. Cyber terrorism. The new York City Police have more Police Officers in the city than all of employees at the fbi. We are a very small group but very dedicated. These men and women go out every day trying to protect american citizens. They are trying to do their best. I got into programs where i would sit there and look at the person briefed me and go who would some that up . We have those tools. Thank you very much. We really appreciate your insight. Amazons latest venture feature films. We take a look at that, next on bloomberg west. You are watching bloomberg west. On cory johnson. Just a week after amazon took home a golden globe, they plan to take on hollywood. They will create 12 feature films every year. They will be released in theaters and then available a few weeks later to amazon prime customers. A veteran movie studio executive for top production houses with me now from new york. The theater owners have always had such a sway over hollywood. Im wondering if this Business Model from amazon, how much the theater owners might react to that negatively. This is a continuation of a trend that is new in the last few years. A real frontal assault on the traditional theatrical movie business where theaters would have exclusive rights to show movies without any competition from any other distribution sources. With the growth of netflix, amazon, streaming in general, that has been called into question. Right now, the theater owners are not going to give. Eventually, it will change. This is part of an evolutionary process that will change the way movies are disturbing it. Distributed. The viewers have changed their viewing habits. People are still going to movie theaters but they are also watching movies on their laptops and tvs. Theres a variety of ways that have changed the whole world. Why do you say thank god . I happen to be a traditionalist in terms iof i like seeing movies and movie theaters. Theres something about the experience that is thrilling and exciting and fulfilling. I am also i have two competing thoughts here. The growth of places like amazon and netflix has meant there is far more outlets available to the creative community. There is more opportunity to create content in more ways to get that content to the audience. One of the significant things of the amazon decision, they made it clear they will make a certain kind of movie. Movies and the 25 million budget range which is primarily independent kinds of movies. We are not talking about transformers 98. Dont rip on the transformers. It is interesting to me would like im making contrast. It is interesting im making contrast. Moviethe awards. It has to be in a theater to be eligible for oscar. I wonder if that is part of the marketing plan for amazon. To get the attention that house of cards got for netflix. Amazon already got huge benefit by one of its tv shows getting the golden globe award. They got a huge buzz and huge publicity off that when. Off that win. When you are doing lower budget movies part of your strategy is to do the original material that will appeal to certain audiences and will get awards that will encourage people to go see it. On the flipside i thought last week what was interesting is you could see the power of the Oscar Nominations when you had the success of american sniper last week. It got Six Academy Award nominations. The Marketing Effectiveness of awards can be really helpful. I remember when i was at nyu people were excited about a graduate student named spike lee. I wonder what your students think of movies going right online. Things going to youtube heard if they still think about feature films. Young filmmakers today have to adopt a multipronged strategy. I would say they still would like to have theatrical releases for the movies but recognize the value of youtube and online to get noticed. When you are a young filmmaker, today, you can get the attention of hollywood without going to hollywood or actually getting an agent or studio beh