Amazon Strikes Deal for Twitch: Bloomberg West (08/25)

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Aug. 25 (Bloomberg) -- Full episode of "Bloomberg West." Guests: Twitch Board Member Stewart Alsop; Digital World Research CEO P.J. McNealy; Brooklyn Law School Associate Professor Minor Myers; U.S. Geological Survey Research Geophysicist Brad Aagaard; Berkeley Seismological Laboratory Director Richard Allen; Earlybird Venture Capital Partner Konstantin Guericke and S&P Capital IQ Senior Analyst Tuna Amobi. (Source: Bloomberg)

Live from pier three in san francisco, welcome to bloomberg west where we cover innovation and the future of business.

I am cory johnson.

Ahead, amazon is making the most expensive acquisition in its history spending $1 billion to buy videogame streaming company to which.


It is part of the strategy to expand the definition of its entertainment.

It isa settlement over shareholders with a $9 billion autonomy right is now in doubt.

A federal judge says he would not approve a provision in which hp will have to pay for shareholder lawyers and shift the focus to ex-autonomy executives.

Hp is suing another company over the results now.

In parts of napa, they are cleaning up after the strongest earthquake to hit northern california in years.

Its hurt 170 people.

We will see how scientists predict and prepare for earthquakes.

Amazon is no stranger to opening up its wallet.

Today, they announced its long -- largest acquisition ever by buying twitch video.

A platform where people watch other people play videogames.

The earn outs -- the price tag is $1.1 billion giving amazon what?

Amazon has 55 million active users.

That is how many people are watching people play video games every month.

It will expand streaming offerings.

It includes the fire phone as well.

Google and switch broke down.

For more, we have our guests.

Stuart, let me ask you about this deal.

Why is twitch so exciting to a company like amazon?

You are right, the last time i saw you, i refuse to divulge any of the details.

I won not talk about the actual transaction.

Amazon is interested for multiple reasons.

First of all, amazon has a big four way into media.

They are establishing music and books.

For that reason -- the thing that is underneath the cover here is twitch has become a high-performing team that knows had to run systems in real time.

They can deliver video regardless of what is in the video at lowest cost and highest quality of any vendor in the world.

Recently, it was ranked as the number one video site.

I think that is really the key to the future of television.

I think that is really the reason that amazon is interested in acquiring the company.

It is fairly interesting, pj.

We have been talking about games for well over a decade.

We have never seen anything like this where people are really tuning in to watch people other play games.

You know how important twitch is in console videogames.

This is a scene where we are seeing more and more devices that can capture live video.

It will be the next big theme.

People will be posting live streams of events.

In the video game space, twitch has beena a god-send to the video game community that really wants to learn more about games, follow people who note how to play well.

It is no longer a niche thing.

It is driving gaming on all platforms.

Stuart, when you made the investment in twitch, did you see it as a videogame platform, entertainment platform or just a bunch of smart guys that understood how to sell more stuff and using less of the internet than anyone else?

I cannot say that we had a precise notion of how this would turn out seven years ago in 2007 when we first invested.

It was called justintv and one of the four core founders was running around with a video camera in his backpack so we can broadcasting's life for 24 hours.

An associate of ours who was 19 at the time came running into our office and said this is the future of television.

Maybe we were too old to see the future but he got it.

I wonder, pj, is the magic of twitch not figuring out that people want to watch videogames but figuring out how to take boat loads of information across the internet and using less data?

I think it is as much about entertainment more so than data.

A lot of people are watching twitch want to become better gamers or want to be entertained.

A lot of this is entertainment content that is up there.

You are watching somebody else play.

It is more focused on entertainment rather than data.

Go ahead, stuart.

Pj is absolutely right.

The videogame as it is now is the next generation media site.

The size of the venture of videogames is now larger than the movie business and other forms of media.

What we are doing is seeing videogames represent an opportunity to move into a new kind of media which is real-time, live transmission of entertainment.

Stuart, i see cbs break into the blog cast of latest headlines.

Thas if the box office is the most important.

You are suggesting they should break into videogames because that is a bigger number.

How many people watching during peak hours?

Of those numbers are fairly amazing.

Pj, when you talk about the twitch you are and what they're watching -- the number that comes out to me is not the 65 million viewers but the $15 billion -- minutes of usage.

That suggest s people are watching this intently over a substantial time.

There is a lot of user interaction.

We are seeing video game competitions.

We are seeing live gaming events more.

When they sold out the staples center last year, it was a big videogame event.

There was a much broader interest in watching other people game.

You are also seeing the number of streams that have been consumed on youtube that are all twitch feeds.

The video on demand is huge as well.

It has been a key point.

Audiences want to consume video no matter where it is from.

In this case, youtube channels growing courtesy of twitch.

They jumped out at me a few months ago when i was reading a report on twitter.

An interesting study of bandwidth usage on the back end and twitch has jumped up to number 15 overall in the middle of this year.

1.35% of all internet traffic.

Is that a function of the 4.5 hours that every user is watching tv every month?

There are two things going on.

One is the engagement of the average user.

Last month, they had over 55 million unique visitors to the services.

Those users are on over an average of an hour a day.

Some users have a much longer time on.

Part of it is the engagement.

Part of it is this is a broadcasting model.

You are broadcasting this across the internet as well as the traditional broadcast.

What titwitch has figured out is how to engage people.

They are interacting with a live broadcast.

This is different than youtube which stores video and delivers it when you click on it.

This is a real-time phenomenon.

For twitch to have accomplished this, they are at the level where the dominant live streaming vendor of all entities that do live streaming on the internet to the point where they're almost half of all the traffic that live streams.

That is the second number that you have to pay attention to.

I think when we look at what google saw with their youtube traffic was how important twitch was in emerging -- is there something else out there that has the same thing that we haven't focused on?

In terms of live streaming video?


I don't think so.

Since the time justintv transformed itself into twitch, the growth has been so astonishingly fast that i think it will be difficult for somebody to come in and do the same.

Right now, people are focused on twitch as a phenomenon all by itself.

Stuart, a board member and wanted venture capitalist.

Also, pjk from digital world research.

Thank you.

We will stay on this theme that video games may be the future, maybe the present.

The most important media source of all.

Madden football.

The latest version to hit comes tomorrow.

We will look behind the scenes and what makes this game like real football and little bit better.

? i am cory johnson.

This is bloomberg west.

Hewlett-packard was back in court today with a british software company.

Three years and one week after the deal was announced and well after an $8.8 billion write-down, a big plan to get at of his lawsuit by paying for the shareholders lawyers and shifting the blame to the autonomy executives themselves.

That was tossed out to a judge.

He called to a provision potentially fatal saying it should not be a part of the management.

They claim to botch the acquisition.

Where do shareholders fair on this?

We are joined from new york city.

This seems like a complicated story.

I will turn it around a little bit and you can tell me if i am wrong.

Let us say if i am arrested for a crime and spend 10 years in jail for stealing a car, i hire a lawyer, my lawyer goes before the judge and the prosecutor says -- you know what, we will give -- my lawyer says all you have to do the time and that is good.

Is that what happened?

Not you are there to monitor the lawyer.

What happened here is especially egregious scenario and what happens in most shareholders.

You have plaintiff attorneys who are per serving -- pursuing the claims.

It is not surprising that the settlement end up favoring the plaintiff's attorneys but don't do much for the shareholders because there are no shareholders to monitor what is going on.

It is a fairly amazing thing.

It seems like it was like to judge would let it go.

That is the normal storyline.

The plaintiffs attorney and the deaf and didn't show up armed locked and say your honor, we resolve the dispute.

The really remarkable thing would happen is that the judge was willing to say no.

That kind of scrutiny is very unusual.

He said he didn't like what the lawyers were getting paid here and he didn't like the terms in which shareholders are selling this which is for nothing.

The shareholders are getting nothing.

I was talking to a venture capitalist about this deal and he raised the question which seems obvious to people who follow this stuff.

Fundamentally, when a company pays a settlement, it is coming out of the shareholders pocket anyway.

Is there great value to shareholders and having shareholder will law years in suits at all?

Of this suit is against the directors personally.

The company maintains insurance policies to help them in the event that they have to pay on claims like that.

If the claims were successful, they would recover money from people outside the company.

Shareholders really would've do well here.

That doesn't seem to be what is happening.

Should the shareholders be going after the board and demanding a new board or take it up in court?

The court cannot resolve this.

Nonmarket discipline.

Voting people out of office if you're unhappy, that is going to be the better route for some kind of remedy.

The board members at hewlett-packard -- minor myers, thank you very much.

Coming up, from the field to your tv screen, we will take you behind the scenes for the highly successful madden football franchise.

We will show you how data is making these hit games even more realistic.

? i am cory johnson and this is bloomberg west.

Service has been restored to sony's online gaming entertainment network since they were hit by hackers again.

The networks which allow gamers to play against each other had a service attack as hackers try to flood them with high traffic.

Sony doesn't believe any personal data was taken.

They had a big problem with that a year ago.

A plane carrying a sony entertainment unit had a false alarm but sony has referred the matter to the fbi.

Tomorrow, madden nfl 15, yes, the 15th version of that flagship sports franchise will blitz its way into a console near you.

The authentic nfl jumbotron, player montages, even pregame and halftime shows.

That will all be happening as well as the artificial intelligence and animation.

Matt miller was behind the scenes for how the game together for madden.

Talking to the guy that decides how good players in the nfl should be in the premium videogame.

See what he had to say.

For the last two decades, madden nfl has consistently ranked among the top videogames in america ringing in $4 billion for electronic arts.

One man is helped fuel that success and it is not john madden.

This is where i literally have data.

Every player has ever rating.

Meet the rankings czar.

With the 32 nfl teams, 74 players per team, plus 253 agents -- that is 2688 players which he designs a rating for up to 100 and 64 different categories.

Scores he creates using data from the game performance, team stats, and his own notes.

Of what the game to look like an nfl game.

I do want to put something in where you give a guy once bead, he is out there inching along.

He did ratings on his old videogame is how we got his job at madden.

You can spam this one button.

I can probably find to the process so there is more gameplay.

Today, his ratings have helped ea make madden look so good, the franchise has sold over 100 million units.

Sometimes players disagree.

I have a problem with that.

I know i have gotten better.

The same rating?

That is so disrespectful.

He is willing to take feedback from fans, gamers, coaches, and especially players about his ratings.

There is a reason these guys are in a bowl players.

There was also a reason they are throwing 80% completion percentage and the reason why the texans went 2-14 despite having jj watt.

We have tried to capture that.

We cannot hand out lollipops to every player.

Not even to the highest rated player.

I can see it now -- going to denver and peyton manning will come in.

He is a great guy.

Peyton, sorry this year you have 86 throwing power.

I won't be the guy that tells peyton manning that.

While everybody else will be focused on hanging out with pro bowl quarterbacks and wide receivers, he only cares about making madden 15 a great videogame.

That was bloombergs matt miller from orlando, florida.

Northern california hit with the biggest earthquake in 25 years over the weekend.

What can technology do to help businesses perrepare for the next big one?

That story is next.

? you are watching bloomberg west where we focus on innovation and the future of business.

Earthquake technology is back in the forefront after northern california was hit with its strongest quake in 25 years.

Sunday morning 6.0 magnitude center just south of napa injured more than 170 people, damaging dozens of homes.

I spoke to brad of the u.s. geological survey.

I asked them what was unique about this earthquake.

It is a 6.0 earthquake west of napa which is near the west napa falls.

We will have more information on whether it was on that fault or another.

It has been 25 years since we had an earthquake this big.

It is more of a surprise that it took that long to have an earthquake of this size.

Is shaking in the area affected is very difficult for a 6.0 earthquake.

The most vulnerable structures with the one that were affected by the strongest shaking.

A lot of gas lines, water lines broken which is consistent with the level of shaking.

We are seeing some footage of the quake that took place 25 years ago which was not that far away.

A lot of that damage done in the east.

We are showing damage of the bay bridge and other places that were so the tori is where somebody people were killed.

Richard, you are in berkeley.

It seems like a fantasy that we can have technology that will predict what could happen before it happens.

What do your tools tell us and what you know now by the tools you didn't know before yesterday?

We are not predicting the earthquake, we are projecting the shaking.

The warning system we have been testing has performed very well.

It attacks the very beginnings of the earthquake.

It assesses the size of the earthquake and then you can cut out an estimate.

We can push out a few seconds.

Best case scenario, it is a minute warning.

Best case scenario is a minute warning.

What did we get yesterday?

The warning was pushed out about five seconds after the origin time of the earthquake.

It is important to recognize that napa could not have had a warning.

We are getting the necessary investments to build a flu bug -- a full-blown system.

It will improve our instruments and then napa could've had a warning.

In berkley, we had a 10 second warning.

Oakland and san francisco had even more warning.

We are trying to roll this out and make this available to everybody.

We have been testing it for a number of years, it is in really good shape.

It is time to pull the trigger and provide warnings.

Who is holding back on the spending?

It sounds like it will be a good thing to know.

10 seconds, does that really help?

The reason it helps is because you get a few seconds of warning and you can move to a safe zone, move under a sturdy table, move away from hazarded places like the fronts of brick masonry buildings so you don't have these bricks falling on top of you.

You can use it for automated response.

For example, the bart system already gets 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 train and possible injuries.

Surgeons can get the warning so that the eye surgeon can step back with the scalpel the second before the shaking starts.

There are many potential benefits to having an early warning system.

What is holding it up as funding.

We have a legislation here in california now as of last year that mandates we should build a public earthquake early warning system but funding has not been identified.

We need to encourage our legislators to put the necessary priority behind it.

A state of emergency has been declared following the event yesterday.

There was an emergency that we should actually implement the system so call your local senator and get the system built so we can have a warning before the next earthquake.

Let me ask you about the economics.

The effect on business as we have the dramatic pictures out of wineries.

We are lucky it was not such a rural area.

The grapes were probably most affected.

What kind of economic damage are we looking here and how different would that be if the quake was on the hayward fault?

Napa is a community of about 80,000 people so it is not a completely rrural area.

It is home to some old structure so we saw some damage to some on reinforced structures, primarily in the downtown area.

It was these more vulnerable structures.

Many have been retrofitted so we saw portions of walls fall down.

That was the good news.

Moving forward in times of what would happen if we move the earthquake closer to a dancerenser population -- we would have more ruptures of gas lines, sewer lines, water lines in the affected area.

Our woodframe structures do very well in those earthquakes.

Another issue is the earthquake occurred at 3:20 a.m. and most people were not -- were at home sleeping.

Very few people out and about and that reduced the effect on injuries and so forth.

Quick question.

My great concern is what is the impact on technology businesses in silicon valley.

? less instruction, less industrial production of disk drives in silicon valley but it is so much bigger of a business right now.

What are the potential impacts of san andreas or hayward fault earthquake on the technology industry?

In silicon valley, major damaging earthquake that really disrupted the business -- and you are potentially losing your infrastructure in terms of people leaving the area.

The more we can prepare earthquake so people can remain in the area, we won't suffer from a catastrophic event that we saw in katrina where people were forced to leave the area and you lost the economic vitality.

That was richard allen, the director of.

And brad, a a physicist with the usgs.

We will talk to a linkedin cofounder next.

You can watch a streaming on your phone and and apple tv.

? i am cory johnson.

The first day of burning man has gone up in smoke or gone out and smoke thanks to rain.

The burning man festival attended by many tech moguls from mark zuckerberg will not start until midday tomorrow at the earliest due to standing water on the normally dry lake.

Cars are being turned back by law enforcement.

A sad day.

With the next multibillion-dollar company come out of europe?

A linkedin cofounder joint in early venture capitalist firm earlier this year to help bridge the gap between investment in europe and silicon valley.

He has invested in a handful of companies, including a photo sharing app and onefootball.

That is focused on soccer.

I asked him starting with the question of how we decided to focus on european startups.

We are focused on continental europe.

There are a number of companies that have spots in london.

There is not a lot of capital on continental europe.

There is a very healthy ecosystem of startups that have received funding.

It is a good spot to be.

There might be a silicon valley in phoenix or chicago or new york.

There is this confluence of lawyers and multi rounds of venture capitalists that can take a deal through a couple of rounds of investment and get a company ready to do an ipo.

Does that exist in europe in the same way?

The focus i look like is the entrepreneurs.

What is the quality, of the advisors, the capital.

The lawyers sort of sort themselves out.

A lot of companies that make a global impact will be israeli companies who have people here in the ipo may be end up being here.

You have fantastic development teams that have worked together before, who could make a lot with little.

You have an environment where as an investor, you can get in where the competition is not like here where they are really good.

I heard reports that talked about the pace of venture capitalist growth in europe.

While the business is smaller than in the u.s. -- 33 billion dollars versus $7 billion -- the pace of growth has been enormously faster than it is in the u.s.. what is going on and why is there such excitement there?

For the last 10 years, it has been sort of like compared to the japanese auto industry which copied cars and made it a domestic market.

Now they have people in place.

They started focusing on quality and creating things for the world.

That is the transition we are going through in europe.

A lot of companies have been doing that -- making a lot of money.

There is a lot of ambitious entrepreneurs with teams ready to go.

The european version of groupon.

Groupobn acquired at european version which makes it look like they were going faster than it was.

Of that is that ecosystem.

A lot of people are saying him i going to do another thing like this?

That is not truly innovation.

A lot of entrepreneurs are very ambitious.

They stayed in london.

It is a great place.

You have people coming from all over.

They all speak english because they have employees from eastern europe, southern europe, etc.

It reminds me a lot of silicon valley with people coming there to be next to each other and be near the capital.

You came from far away to work at length in where you first -- at lengthinkedin.

It is seen as a powerful company but back when we met, it was a struggling thing in one room on the third floor of a little building and silicon valley.

Of that is right.

You were the first person on tv to actually cover us.

You took a chance on us.

My question is what did you learn at linkedin?

What was there one lessen that you learned?

The companies have been expecting that we can only get $10 million in financing so they are focusing on profitability.

It ends up being solid companies that don't go away but don't create the breakout companies.

Linkedin took on $11 million before went public in many years.

Having that long-term perspective -- we work at earlybird.

We have a good-sized funded but not huge so we syndicate with a lot of the u.s. venture capitalists to enable our companies to have a longer-term perspective.

I was building this quick model earlier.

1.2% of the european deals were invested in profitable companies compared to .4% of companies invested in the u.s. you are saying that it's kind of a mistake -- that they shouldn't be looking at profits.

I think you can make money.

It has been a nice business because you reduce the risk.

You get the smaller to medium sized outcomes.

At the ecosystem where it is now, it is the u.s. model of innovation and taking more risk in looking for longer time.

That is what we are focused on.

Why are the emmys on a monday in august instead of september?

We will look at the decisions guiding the emmys next.

? welcome back to bloomberg west.

Tvs biggest stars will be out in los angeles tonight for the 66th annual emmy awards.

There is something different about this event.

It is on monday night in august instead of the usual sunday night in september.

It is also on nbc.

What change the air date?

We have tuna joining us now with more.

How big a deal is the moving of the date of the emmys?

I think it is a fairly big deal to the extent that last time the emmys aired on monday which was more than 25 years ago.

I think for nbc it came down to the economics of the nfl game that has a scheduling conflict.

If you are an analyst, you have to look at what makes sense from the bottom-line perspective.

That is the main reason why you are seeing it change.

We will wait and see to see how much impact they will have on ratings given this is a holiday week.

We are still in the summer obviously.

We will have to wait and see.

What you are saying is that nbc faced with the problem of spending a lot of money on the emmys, spending a lot of money on the nfl, the nfl stays where it is.

The nfl rated on the entire television landscape.

If you have a scheduling conflict with any nfl matchup given how much the rights were renewed for, think it makes sense to look at the pros and cons.

In this case, they will look to move the schedule around.

This is something they have known for a while.

I wonder also what this means for the emmys themselves.

We have this tremendous change going on in the business.

Hbo came along enterprise the emmys.

Now, you got all of these new places where shows are going on that do not follow traditional broadcast formats.

Netflix chief among them.

What should we be looking for and what might it mean to accompany night let -- like netflix to get big wins tonight?

They introduced a new paradigm on how to view the traditional definition of television.

The idea of doubling nominations from last year and especially with orange is the new black, the first year of eligibility garnering 12 nominations is nothing short of set -- of outstanding.

We have high expectations for netflix.

More than anything else, this is the most compelling valuation of netflix -- there is no programming strategy.

The usual suspects -- hbo, showtime, the premium networks.

Networks like amc, etc.

I think what we've seen over the last several years is the broadcast networks are still in the mix with the advent of online networks like netflix and cable original programming has really changed the dynamics vary significantly of the entire television landscape.

You are an accountant expert, you can actually count beyond the number eight so you have me beat.

When i look at the netflix deals they got, they are not great.

The deal for house of cards -- a wonderful show that is won a lot of awards, but they don't own that show in the out year.

Does broadcasting house of cards for the first couple of years, winning awards really translate to better future cast for netflix?

Between the rights of ownership and licensing, netflix has made a pretty strong case of the fact that -- house of cards was not kind of own all the way from the beginning.

It will launch their original programming and validate the model.

Having said that, i think they have said going out, some of the newer shows they're launching -- they will make more effort to own more and more.

I don't expect that will be a stumbling block.

If you think about it, some of the highest viewed shows they have launched really are -- they haven't really made that emphasis on ownership.

Orange is a new black, maybe the over under on netflix.

Thank you very much.

We focus on one number that tells us a whole lot.

Lesley pickard shows us with a special one today.

The number is 93%. the byete.

The proportion of jobbers who woke up instantly from the earthquake.

What this tells us is the information power that it has.

It is the maker of those bracelets that people wear that tracks their sleep, they're eating, their exercise.

We see this is a company that has tremendous potential as an information company.

We have seen this take place with other companies in the past.

We have seen in a tremendous information power that facebook has which is led to a higher valuation.

These bracelets -- mine, inf f fact.

I woke up from that earthquake.

I don't feel about jawbone congregating data from users but it does show the impact of these devices and how they can be used to understand what is going on.


I didn't know it was tracking that data.

I'd use the product myself, i know how it works, but i didn't know it was actually tracking the data.

One thing that people were estimating is science.

Thank you very much.

More bloomberg west later today.


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