Apple Said Near Buying Beats: Bloomberg West (5/9)

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May 9 (Bloomberg) -- Full episode of "Bloomberg West." Guests: Sohu CEO Charles Zhang, Former Rhapsody President Jon Irwin, JMP Securities' Alex Gauna, Common Sense Media's Jim Steyer and Hightail CEO Brad Garlinghouse. (Source: Bloomberg)

Live from pier 3 in san francisco, welcome to "bloomberg west." we cover innovation, technology, and the future of business.

I'm emily chang.

A deal rocking the tech world today.

It is not even done yet.

Apple is in talks to bite -- by beats electronics.

For north of $3 billion.

We ask why.

What does richard branson think?

He talks to us about the potential deal and the battle between virgin america airlines and southwest.

A check of top tech headlines.

We are divorcing before getting married.

That is how marie sleep he is describing the breakup of a merger that may have created the largest advertising company.

They had agreed to a $35 billion deal to bring the company together brady the merger fell apart after the sides were not able to agree on how to run the company.

Neither will have to pay a termination fee.

Amazon delivery services now available in 15 additional cities.

Amazon prime shoppers in austin, new orleans, and other cities will be able to order something on friday and have it delivered on sunday for no additional cost.

This is part of an agreement between amazon and the u.s. postal service.

Twitter coo is among the executives who sold shares this week when the company's lockup expired.

He sold 300,000 shares for a profit of $9.9 million.

The twitter corporate counsel also sold a portion of stakes.

Shares have dropped 17%. i want to get into the interview with sir richard branson.

We caught up with him.

Technology entrepreneurs gather to debate the pros and cons of disrupting industries like music and travel.

Cory johnson sat down with branson and is with us now with more.

I know you are a cute virgin fan in general.


I have logged a few miles on verge american.

Richard branson is an interesting guy.

He has spent most of his career in industries we don't think as technology: all.

Virgin america airlines, the experience has been a unique one.

They are pressing against government into disease.

We are expecting a decision about open slots at love field in dallas.

Listen to what he has to say.

I think governments need to realize it's a competition.

Let's take love field and dallas.

90% of the slots are controlled by southwest.

Yet the local government are thinking of giving the final 10% to southwest rather than allowing verge american to compete.

It seems very obvious that the -- the people who live in dallas and traveling to dallas will benefit from competition.


There is much going on with version and virgin galactic.

I want ask about, did he have thoughts on the apple beats acquisition?

He starred in the music industry.

We have apple making the biggest acquisition they've ever made by far for a headphone company that people don't think the headphones are that good.

The career -- he turned it into the records industry and so much more.

He has an understanding of how the industry works.

He talked specifically about the fact apple had on that business.

We were very fortunate to sell out every could company when we did.

Right at the peak of the industry.

Since then, due to apple, the industry has imploded.

Live music still does well.

Merchandising does well.

But, artists make money out of sales of their music.

It is abysmal.

The new move, it may be giving back what they have taken.

It would be great if it could succeed.

The notion that the music industry may have changed but it doesn't change forever.

I love the idea of apple giving back.

They are not doing anyone any favors.

It is interesting that apple has created one of the reasons they had to acquire beats.

They didn't have the deal in place with a shimming the -- with a streaming music engine.

Everybody is saying, it is more than headphones.

Some people don't get, beats only has 200,000 subscribers.

I bet it got more today.

The notion of this announcement has got people thinking about changing the services they are on, looking at rhapsody, spot off i am thinking maybe beats is going to be the winner in this.

Cory johnson, our editor at large.

Be sure to tune in to bloomberg west on monday for the full interview with richard branson at 1:00 eastern.

At this point, apple and beats have it confirmed talks.

Don't forget about dr.


A video shows the artist alluding that the deal is real.

That is next.

It came out two weeks ago.

They need to update forbes list.

The first billionaire and have pop right here.

-- in hip-hop right here.

We are talking to dr.

Dre next.

Welcome back.

I'm emily chang.

Apple is said to be turning up the volume on its music offerings.

With people with knowledge of the matter say they are close to tracking a deal to buy beats electronics for 3.2 billion dollars.

Founded by music executive and dr.

Dre in 2008, beats was known for the beats headphones and streaming service.

It would be the biggest purchase for apple to date by far.

I spoke with jon erlichman and the former president of rhapsody, the first subscription service to offer unlimited streaming service for a flat fee.

I think what it means is the they are seeing the writing on the wall.

The future is in streaming.

It is surprising in the sense that you have apple as a company where steve jobs had very strongly suggested that people will always want to own their music.

I think this is a sign of a turning of the tide.

It is driven by what john mentioned.

Growth in the streaming subscription business over the last three years and a flattening.

A decline in the first quarter of 14% in the sales of download.

You say this smacks of desperation.


What's it is concerning that apple couldn't do something like this on its own.

As john pointed out it has a history of acquisitions.

They are smaller ones that augment forces in play for apple.

One of the criticisms of apple in recent years that there has not been enough innovation.

It has fallen behind the curve.

They are waiting for a larger ipad.

Now maybe they move into subscription music after years of other companies proving successful.

The other thing i don't like is that it is backward looking.

You put your finger on it, apple moves to new business drivers like subscription tv.

Some sort of new content deal.

Not letting amazon fire run away with the best hardware.

A.l. in the headphones prayed i'm not that discriminate in.

A lot of people don't like them.

Google spent three point $2 billion to buy the future -- $3.2 billion.

Apple buys that headphones in a junk service.

How do you respond to that?

They don't need the harbor.

That is for sure.

You have to imagine a smart company they must be seeing something behind the scenes if the speculation is true that they would pay more than $3 billion for we know they have.

Something in the back office and what they do in terms of customizing it to be applied to other business models for apple, that might make some sense.

For the headphones?

It makes no sense.

Is beats audio, it is -- is it a crappy service question my the beats audio, it is the hot new service.

They came out and did a super bowl ad.

When you get to the core of it, a lot of them are very much a like.

Services like rhapsody, napster, like spotify, they all deliver the same thing in a different way.

Beats is trying to capture the cultural relevance of it.

One thing you need to look at with this deal is what apple is seeing in the market, but their positioning in order to capitalize on it.

One of the biggest challenges service providers like spotify have in acquiring subscribers is getting them to convert to paying accounts.

Apple has 800 million itunes accounts.

Most are linked to credit cards.

If the ability to purchase a subscription to the store, it could be a powerful combination in a way that drives a move into the future of streaming.

We have to listen to that bit from dr.


Take a look.

The forbes list just change.

It came out two weeks ago.

They need to update the list.

The first billionaire in hip-hop right here.

The video has since been taken down.

He makes it sound like a done deal.

But it is not as far as we know.

We don't know what he is talking about.

Let's rumor that could be a lot of explanations for apple talking to beats.

They could be looking to license the technology the way that hp did.

They could be me trying to get to understand what beats is dealing.

We will have to see if this actually goes through.

If the billions being talked about are the right number.

Certainly, it seems there is a bit of a culture mismatch.

Apple does have issues now with branding, with fading itunes momentum and it needs to reinvigorate the business model.

What about a potential culture mismatch?

Talking about culture, i think it is important to see that apple could be looking to take this new brand, beats came onto the scene in january with their super bowl ad with relevant and current advertising to promote it.

It is the hot buzz.

If they looked make this move into subscription into streaming, even if there is a hedge, they can use that as a bellwether.

I personally believe with the work that i didn't rhapsody, that is the future.

This is where things are headed.

For a company to ignore that, apple needs to make sure they do whatever they need to do so that their view of downloads from the itunes store don't really become the same thing that cds were in the music industry.

A decline is rapid and very severe.

I'd like to correct myself pretty video was posted on tyrese gibsons page.

Jon erlichman, what you make of the fact that the video was put up and then taken down?

Maybe there is a potential mismatch coming?

I think it makes it more fun to cover the story.

On the cultural side, there are similarities between jimmy iv and dr.


Steve jobs wanted a great experience for the consumer.

The reason it was started by jimmy andrzej because we lived in a world of digital music.

They started with those projects.

Now they're looking for a better experience the subscription.

-- through subscription.

Jon erlichman, and john erwin of rhapsody.

Families around the world have stitched -- ditch their devices and honor of screen free week.

It is cutting off -- is cutting off screens that beneficial?

You can watch a streaming on and amazon.

Welcome back.

This week, thousands of children and parents gave up their tech tools for screen free week sponsored by the campaign for a commercial free childhood.

They say preschoolers spend an average of 30 hours a week in front of the screen.

Is cutting caps off really the right approach?

Good to see you.

32 hours a week in front of the screen.

It sounds like a lot.

It is real.

You think about in the context of ipads and smartphones, and the tv set.

Kids are in front of the screen too much.

The idea of a week with no screen time is a good idea because it is a wake-up call to parents and kids glued to the screen.

I saw members that astonished me.

Two-year-olds to four-year-olds have a tv in their room.

45% of five-year-olds today-year-olds.

They are ridiculous.

Here is the deal.

Parents use screens of all kinds as a babysitter.

I know you are a mom.

I have four kids.

We all do that sometimes.

Putting a tv set and your kid's bedroom is insane.

Nearly 50% have one.

It is hider -- it is higher for older kids.

There are simple things we can do.

Starting with model good behavior yourself.

Do as i say, not as i do.

If you're constantly addicted to your phone or ipads, your kid will be.

I've talked to parents who have had different views on this.

Some don't give any screens.

Some by their kids their own ipad.

Here is the thing.

People are all over the map.

We don't level -- we don't lecture you.

You have people who are abstainers.

The american academy of pediatrics recommends no screen them for your kid under the age of two years old.

That's the thing.

It is hard to do that.

The truth is this.

Set clear rules and keep track.

When kids are younger, you can set the rules.

You can take the divisive way.

It is harder when they are teenagers.

They worry taking everything away could leave them behind.

Digital tools are integrated into learning.

Some apps are actually interesting.

I agree.

We rate those.

We have the only educational rating system.

They can be.

You want to limit screen time.

Do you have a number?

Likes if your kid is under kindergarten age, an hour a day max.

Choose wisely.

Figure out what you want.

The way we time it, a healthy media die.

How'd you come up with the ratings?

We have editors.

We have editors review everything out there.

They spend all day looking at them.

Then evaluating them for age appropriateness magic on -- educational content.

Here is the thing.

I think as a parent you have to do two things.

Set limits.

Timeouts are good.

It is like going away with your husband and your child for a week to the cabin where there is no tv.

It is good for you.

Everyone out there should do that.

You are not want to do that every week of the year.

We need to do is set time limits.

Take a number instead to it.

Make good choices.

There is a big difference between an educational app and a violent videogame.

That is why you have it out there.

It is easy.

Model your behavior.

If you and i are constantly at the dinner tabor -- still tabor -- at the dinner table looking at her phone, you really have to look at your behavior.

You are your best role model for your child.

Start with yourself.

Look in the made it -- mirror.

As your kids get older, they will remind you of what a hypocrite you are if you want to limit their time.

Thank you for keeping us honest.

I appreciate it.

Coming up, why china bans american tv shows.

You can watch us streaming on your phone, tablet and at

You are watching "bloomberg west." netflix is raising prices by one dollar.

Anyone starting the service today will pay nine dollars.

This is the first prize -- rice increase in three years.

Now to the netflix of china.

Sohu strings popular american tv shows in china.

Last month the chinese regulars ordered them to remove the "big bang theory" and other shows after the escalated a crackdown on content considered offensive.

Stephen engle sat down with an interview with charles john of sohu.

[inaudible] the video becomes so mainstream and dominant, the old habits of managing, after this incident there more careful and sophisticated.

I think it's a good thing.

"the big bang theory" is sacrifice.

Are you being diplomatic?


i'm telling the truth.

Less than one percent of the shows are taken down.

I think we are enjoying a real spring of american tv dramas in china.

Wags have you gotten an explanation as to why these shows have been taken down?

I can't comment.

Of course i know.

I can't comment.

Is it the issue of being hijacked by broadcasters so they can broadcast it on regular television?

It is not related.

What is happening behind the scenes that you know of that they need to reinforce monitoring of erotic or political content online?

That doesn't seem to that the "big bang theory" profile.

It is not directly related.

We and dirty -- we enjoy dirty jokes.

If the government considers it a roddick in nature and not proper, we will take it down.

I don't think "the big bang theory" falls into that category.

Defined it strange -- do you find it strange "house of cards" hasn't been taken down?

There is always trial and error.

You watch and observe.

If it doesn't cause problems, they come up with a policy that makes you the go.

Are you in negotiations to get it back up?

I believe it will come back.

The government is reviewing it.

We haven't got an indication.

It will leave back.

-- it will be back.

How would you define what sohu is to an american audience?

The netflix of china?

Likes no.

There are no cable industries in china.

All the networks are free.

So, there is the tv side has been seriously underdeveloped in china.

Netflix in the u.s. is a different world.

In china, there is a huge amount of work that needs be done with the motion picture and tv.

The video sites are the tv of china.

Do you fear regulations that control movie rights and free to air television, censorship issues are going to suffocate what you are doing?

This is the first step in control of streaming content?

I don't think so.

There will be complaints from the tv stations.

Warring about new media taking their lunch.

Of course.

They are very paranoid.

They are worried.

The state owns those broadcasters.

Are they protecting them now?

Is this an example of that?

We are not in the strong position legally to protect them.

They have some connections.

[indiscernible] speaking of the law, what laws protect you when you go out and buy content?

What protects you now in china?

Say you buy another show, the next big thing.

You get one point 4 billion on that show.

Then it is taken away.

China is in transition.

Policy, today, it will not be the policy of a few years.

It is hard to define exactly what is legal and not legal.

You say this is a one-off episode.

Will the beak wants a quinces -- will there be consequences?

And suddenly the policy changed, then i will be very sad.

But we are not.

We fight piracy.

We get the american tv shows into china when the politics are vague and gray.

The government still allows us to do it.

We are still enjoying it.

Look at how far we have come along.

I am satisfied.

That was the ceo of sohum.

We speak to the tech exec famous for his peanut butter manifesto.

Why some companies may be waiting for better market conditions.

You can watch a streaming on your tablet,, and amazon fire tv.

This is "bloomberg west turcotte.

Concerns of overvaluation have companies delaying ipos.

Joining me now to discuss this is the guy who wrote the peanut butter manifesto into 1 -- 2006. he argued yahoo!

Was spreading resources too thinly.

He is with us now in the studio.

You will never live down that manifesto.

I want to start with box.

We are seeing signs they are struggling to get to market.

What is your take?

On one hand they are in a huge market.

The market is growing fast.

Like some of the companies out there that we have seen, they are spending a lot to drive growth.

They are spending a ton.

Marketing, $17 million a month.

They burn more and a few months than we have in our entire history of the company.

It is a different approach.

We are seeing couple companies spending a lot to drive growth get reset.

We are in a mini correction.

These companies are losing a lot of money to try growth.

You see fire come way down.

Box is a company growing quickly.

Lots of great customers.

They will be able to raise capital.

It will set the expectation mark hi.

I don't think it is a full bubble in the context of 2000. there are companies in a bubble state.

When the hype cycle gets ahead of reality, eventually comes in the equilibrium.

Groupon, xanga, that happened in the public market.

That is painful.

The hype cycle get so far ahead of reality it comes into equilibrium.

We're are seeing that happening for some companies today.

You mentioned firee eye.

Is that even worse because it is insiders?

There are all kinds of reasons.

If you haven't made any money in your 29 years old, you want to get some liquidity, it goes back to the hype ahead of reality.

If you took a line and drew it from when someone join twitter four years ago to its valuation today, that is a massive win.

In between then, that hurts.

How do you see this playing out?

How bad is it going to get?

Likes i don't think it's going to get that bad.

I called a mini correction.

You have massive new markets.

Transformative things happening in tech.

Moving computing to the cloud.

Moving storage to the club.

Great new businesses being created.

Over time that moderates companies that got ahead of themselves.

You are seeing companies it bought.

Oculus virtual-reality, beats being bought.

What you think of that?

The oculus, they were using currency valued highly in facebook stop.

-- stock.

They are making bets.

Zuckerberg is focused on making sure that facebook rides the future waves.

I think we can argue but the valuations.

There are interesting bets for them.

Clearly high prices.

What about apple buying beads?

There is a discussion that innovation is dead.

They are out of ideas.

Would you write a peanut butter manifesto at apple?

In silicon valley, the ecosystem, apple is insular and confidential.

It is an interesting that.

-- it is interesting bet given their ability to make acquisitions.

It's an interesting bet.

I would be surprised to see that going forward.

I think it's an opportunity to add new businesses.

How his peanut butter spread?

You guys are expanding internationally.

Box is spending a lot on marketing.

Dropbox doesn't do that.

What is your differentiating?

We have tried to be focused about who we are going after.

Investing particularly around controlling how you share content in the crowd.

Given the ability to track something, i can get a receipt.

We see a spike of activity around quickbooks on tax day.

Around april 15, they shared it it with their accountants.

They don't want with that with drop cap -- the one up with it on dropbox.

They put into hightail.

What is next?

International has been an important component.

We are just back from australia.

Almost one million active users.

It's exciting to see australia adapt cloud-based technology.

We will invest on how to differentiate around control.

Thank you as always for joining us here on the show.

Straight into the point.

Thank you.

Looking for a site for your space exploration start up?

Inside nasa's kennedy center.

Welcome back.

Kennedy space center was once a bustling campus.

With the end of the space shuttle program, 7000 people were left without jobs.

Nasa is passing the torch to private companies leasing space at the nation's launch up in florida.

Take a look.

Launch pad 309a. we sent humans to the moon.

Now, this launchpad is on the market.

Spacex has won the lease.

He wanted to get on dragon and go up in the earth orbit?

I will take a trip at some point.

The kennedy space center is a melodic of the change.

How americans explore space.

A message to the team was the shuttle program is going to end.

We have to prepare for the future.

Brevard county depended on nasa for economic survival.

At the height of the program in the early 1990's, 19,000 people work the kennedy space sensor.

-- center.

In 2011, 7000 employees were suddenly out of a job.

Today, seven 800 people work at the -- why are they winning to come here and utilize this building?

It is cost effective.

You don't the build anything.

It has more capacity than you need.

Rather than let it sit dormant, enable commercial space operations.

Like the space shuttle program occupies three to 90 facilities on the kennedy campus.

Seven buildings are being handed over to private inner prize.

One new tenant has started moving in.

Boeing has signed leases for several spaces on kennedy's campus.

One is launchpad 41. the other is the o.p.s. three.

An abandoned factory where they hope to employee 300 people.

Chris ferguson piloted america's last shuttle.

His new mission is to get bo eing's from off the ground.

It is not going to be so cavernous and empty.

You will hear the clanking of work being done.

Neither nasa nor boeing would talk numbers.

A user agreement reveals the fair market value for popf3 is five and have million dollars.

-- a cost nasa what hundred thousand dollars a month in upkeep.

Some people say nasa's glory days are behind them.

Is that true?

Our glory days are in front of us.

We are charging into the future.

We know how to do that.

It is time to transition to the marshall space industry.

-- commercial space industry.

Tune in tonight at 9:30 as we take a look at the next space race.

An in-depth journey through the booming business of space exploration.

Now, time for the "bwest byte.

" john is an ally -- in l>.a. $1 billion.

That is the base amount of money the secret service estimates is lost every year to atm skimming.

It is a form of hacking.

They attach a piece of plastic to an atm.

They capture your atm codes.

It is on the rise.

I'm naiàve.

I waste but when i was going to an atm that was safe.


I'm the same way.

I don't think about internet connections.

He wrote a piece about this.

This idea of oceans 11 people getting jobs where they can work in the spots where there is a connection.

And get the malware in there.

There are fascinating details about the links criminals are going to to get access to atms.

It has been harder to hack pin codes.

They are encrypted.

What they are doing is applying and getting jobs at technical service firms that service atms.

That is how they pry open the machines and install electronic circuitry so that they can steal pin codes.

It is a very elaborate operation.

A lot of times these are foreign groups.

The is a sophisticated hacking groups.

It was considered a brutish form of hacking is now done there he sophisticated.

You would never know.

You're in hollywood.

Can you get this turned into a movie for us?

Jordan, i will send you a story around.

We will see.

I think this is actually huge.

We talked to jerry brock i'm her.

They are doing a new csi show tied to cyber crime.

Everyone understands this stuff now.

Fascinating stuff.

Jon erlichman, thank you for bringing us the tidbits.

Thank you for watching this edition of "bloomberg west." get the latest headlines on bloomberg tv and

Have a wonderful weekend.

See you on monday.


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