The Real Detroit Story: Taking Stock (07/22)

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July 22 (Bloomberg) -- On today's "Taking Stock," Pimm Fox helps you to think like a professional investor and discover the next "big thing." (Source: Bloomberg)

"taking stock" this is we're going to show you the technology that helped make money in the television business and also the technology that is used to make best-selling automobiles and run the global economy.

We talked to the cofounder of netflix about the amazing comeback.

What she learned about the documentary of the plight of the motor city.

Debunking myths about china.

All that and more over the next hour.

Let's take stock of today's market action.

The s&p 500 closed at 1695. the nasdaq gained 12 points.

A quick look at the markets.

This change at 2.84%. for a closer look at individual companies making headlines us go to my radio cohost.

Thank you.

Netflix shares are falling after immigration trade.

They signed a new customers in the second quarter.

The number falling short of estimates.

Tested -- texas instruments showing results.

The earnings per share came in at $.42. that is a penny above estimates.

Visibility in the second half has improved.

Third-quarter revenue should meet estimates.

Dan is the investor leaving this this month.

They are also stepping down.

More on this.

Likes how netflix is changing the media landscape.

I am joined by mitchell lowe, one of the cofounders of netflix.

He joins us give us the details.

I think you heard what he said.

This is what they actually report.

Particularly the subscribers are in the united states.

They would add this during a little lower.

Some a little bit higher towards 800,000. they just fall within that range.

They are stealing -- seeing if the business continues to grow.

Given that reed hastings has been wondering if they would live the big shows put up a much bigger subscriber number.

Overall, they are at around 30 million subscribers here in the u.s.. i some accounts there holding a larger audience than hbo.

Their changing and a lot of ways the new media business.

Let me come to you.

At one point netflix was the biggest user of the u.s. postal service.

Today it is the biggest user of bandwidth on the internet.

Had to the company make that transition?

They follow the consumer.

The consumer assault dvd as the most logical and efficient way to get movies.

Today, with all the devices and people wanting more and more of the content where they want it, when they wanted in on the device they want, they migrated to being able to make those choices available.

Be one too many concepts, the idea that you can make one type of row graham and then distribute it to the many people that want it, is that is going to continue?

If you look at what netflix is doing, they have not made the full shift.

You can tell they are putting one leg over on the side with exclusive content.

If you look at the american household, they really are dividing into two groups.

They are willing to spend more and more money to get the right kind of content on the right device.

The other half of the households let are really looking to fill time.

They are looking for a dozen of shows that they are producing.

Exclusive to them are moving closer and closer to the side that is reaching out to consumers that are looking to spend more to get what they want.

They also know what consumers are way -- watching.

When does programming get run by an algorithm?

I think we are arty there.

I think that is an important point.

When people talk about the billions of dollars netflix is spinning on original content, when it comes to negotiating those deals in the old days, trying to figure out what something was worth was a lot more difficult.

If you're talking about television view would go by what the ratings were for past programs.

Netflix has a lot of proprietary data on was all users want.

If can afford to go to the table and pay a lot for something and maybe not so much for something else.

Displays incredibly importantly into what they are going to buy and make available.

It is not going to be everything you think.

This will not be the bitch budget shows even though they're spending a ton of money to keep the subscribers happy.

"orange is the new black" "house of cards" you know where i'm going with this.

This is spent on creating original program.

Is it really just down to the math that if they have 36 million subscribers spending eight dollars a month you do the math and you say that is over 3.5 billion dollars and they can afford it?

They can afford it.

When you look at the model that they are comparing themselves to, just look at hbo.

Hbo is collecting twice as much.

To aspire to that type of the print where they are spending more on this is close of content which means less on these tens of thousands of titles that they are now licensing, that is a great model.

Plus you have 100 million households that subscribe to hbo internationally.

That is a huge shift for netflix.

We just competed a route with some additional funding.

What we are really excited about is adding lots of celebrities and new contributors that will add a whole range of choices for our subscribers.

As she said, our contributor we just signed up a new woman, heather armstrong, who's considered the most successful mommy blogger in the country with millions of followers.

Describe to people what exactly such a celebrity would do.

You subscribe to a celebrity, someone that you admire and something you want to get closer to.

They design a package of goods or items that tell a story that they shipped you every three months.

It is a way to extend the fan base to get closer to people that you admire, whether they be writers or rap musicians like corel williams -- pharell williams.

Our hope is to expand to hundreds of choices so everybody will find someone they admire.

Or even jon erlichman.

I would sign up for that.

The idea of using celebrities , we know that has something that has always been going on in terms of trying to sell either a movie or project.

Now that you have a original programming, it you can actually something from kevin spacey to all of the fans.

Is there anything in the cards as to what is next for netflix?

It is an interesting point.

We are seeing interesting businesses that do more with celebrities, open sky, it retails.

Look.

I think platforms like twitter and facebook are popular because it is a way to connect with people and better gauge what they would like to see from them.

You are going to see a reach out from people embracing the new technologies.

They are choosing to do more of their shows on new media platforms.

They will be doing that much more social media to gauge their reaction.

I want to thank you very much a jon erlichman.

He's joining us from los angeles.

We are going to have more with mitch lowe, one of the cofounders of quarterly.co.

Detroit's life into bankruptcy.

It was captured in eight of mocking and -- in a documentary.

One of the directors will join us next.

Into short , a federal judge has called a hearing for wednesday to consider the request to see if the request can move forward.

It is the biggest nine municipal case -- chapter nine is located in the united states.

It was chronicled in the documentary film "detropia." you are watching this live.

These are houses that are never coming back.

They took all the work to mexico.

We cannot do anymore downsizing.

We want to hear about upsizing.

Super sizing detroit.

The city is broke.

I do not know homicides i have to say that.

Downsizing and tearing down homes.

Joining me is rachel, the are of this documentary.

Thanks for coming in.

-- the codirector of this documentary.

It seems ironic that as you have made the movie now we have the chapter nine filing from the city of detroit bankruptcy.

As you are making the movie, did you feel this was the slide the city was taking?

Yes.

This is not a surprise to us at all.

In fact, we are looking for the silver lining the whole time.

Initially, that is what we thought we were going to find.

The phoenix and the ashes a story, all the new technology companies coming there and development an artist.

As is a story that was very popular.

That -- and this is the story that was very popular.

You list some of the antidotes that the movie looks that in terms of what the real situation is in detroit as opposed to the entrepreneurs and perhaps the real estate developers which is all real but the overriding issues.

One of our characters as the president of the local 22 which is the uaw union hall.

We have a scene where the last hundred and 40 people working at a factory lose their job.

We profile another guy where it is the last business left within four blocks of his establishment.

It is a blues club.

It is the last black owned blues club in the city of detroit.

The dears go that would've been -- 50 years ago that would have been outrageous.

We focused on middle-class people that could leave if they wanted to but decided to stay.

That is a very special person in detroit now days.

What the future of detroit?

What what can you see ahead?

One of the things on the table was the mayor was suggesting there was a consolidation ross says and this is a city of 139 square miles with 700,000 people a design from was 2 million people and this is one of the problems, that they cannot people for services.

There is no services (cap.

He suggests in -- to consolidate.

He suggested they live in a common area and off a grade.

It sounds great on paper that in practice they have lived in their homes for 30 years.

They do not want to leave.

Although emotionally it does not make sense, intellectually is probably one of the only things, it is doubly something that needs to be done.

The movie can be watched on netflix.

I'm going to connect the two because we got the earnings today.

I want to bring in mitch lowe, he is the cofounder of netflix or subscribers can watch on demand.

What is the popularity meaning?

They need to get to reach more people, right?

Oh yes.

This was the original of vision netflix, to be able to make these kinds of things available to millions and millions of nowhere the whole distribution process was broken in the past.

You had to make a disk and get it to the video store or movie theater.

So many people missed great content like this.

This is the kind of content that for me makes netflix what it was always meant to be.

That is a way to get a lot of independent product out to the people who are going to love it and enjoy it and learn from it.

As a documentary filmmaker, do you soonee that others will provide you more opportunity?

Absolutely.

They are allowing phone makers to do a lot of things in their own hands.

In fact, we self released.

We had never done that.

This is our fourth film.

We have never done it ourselves.

Netflix was one of the reasons we could do it.

I want to thank you very much for grady -- rachel grady, detropia.

How netflix users rate the array of online services.

We will give you the details according to the tech research giants.

That is next.

? netflix earnings but entertainment on demand services on the spotlight.

They report that there are nine percent more u.s. home stand main video to the television since last year.

Joining me now is the executive vice president for worldwide research.

It is always a pleasure.

Give us some of the details as to the changing viewing habits of american consumers.

What is really interesting is that as viewership starts to change, people immediately think that people will cut the cords and they are going to move to a netflix or some other kind of over the top.

This is not really what is happening.

These are substitutes services.

These are services that people are adding on to what they are getting on a regular basis.

You no longer need just one pair of shoes, you need 50. that is right.

What people are figuring out is that maybe i do not need to get that one set of programming if i can get that show i cannot get from a cable company on netflix.

I will just reading those shows and be able to get that knee that i am looking for.

That is one thing i am looking for.

We started to see this 15 years ago we are seeing more and more.

I want to watch tv when i want to watch it.

I want my shows to be available for me at that time.

That is something that drives people.

Netflix is not the only company involved in wanting to get your attention.

You have companies such as hulu and fox.

Also hbo owned by time warner.

They all want to get in on this.

Is this going to be a mess eventually or are they all going to survive?

You are going to see many companies move in with their own proprietary stacks.

You will have to buy into my hardware platform.

Then there will be people over the top.

Eventually, this will consolidate.

You will start to see consolidation.

Some of the cable companies will start to come in.

Consolidation will be the order of the day in about five years.

This is the wild wild west.

We will see more people coming and trying to figure out a way to get access to these viewers.

This is what we think apple is doing right now.

They're trying to work hard to figure out a way to give them a bigger slice of the pie then maybe they got in the audio world.

I do not think they were that happy with this life that they got.

Thank you.

It is 26 past the hour.

It is time for "on the market." the s&p adding three points.

The nasdaq gained more than 12. shares of mcdonald's fell nearly three percent with the biggest decline in nine months after they posted second-quarter profit and revenue.

Coming up, soldiers become a reality.

We will introduce you to atlas.

? this is "taking stock" on bloomberg.

For a look at today's headlines, let's go to mark crumpton.

Thank you.

Netflix shares are falling after hours.

The company has 630,000 new u.s. internet customers in the second quarter.

The number fall short of estimates.

Netflix did beat on that income coming in at orting nine cents a share.

That's coming in at $.49 a share.

Rising mortgage rates put a damper on june sales.

Or just a stone more than 1%. it her by lack of supply.

The royal family has a newfound bouncing baby boy.

They announce the birth this afternoon at buckingham palace.

The baby weighs eight pounds in six ounces and is now third in line to the throne.

Tonight on bottom line, the chief political strategist joins me for a preview of president obama's series of speeches on the economy this week.

Back to you.

The robot revolution is heating up things to boston dynamics.

They have the advanced humanoid robot it.

It was called pet man.

He has it is time to take a look at atlas.

At over six feet tile -- tall, the revolution has a name, atlas.

The newest creation is an evolutionary step up from its rather pac-man.

He was created for the search and rescue clothing during nuclear fallout.

Alice is one of the most advanced humanoid robot ever built.

With 28 hydraulic joints , the robot is designed to use human tools and client using its hands and feet.

The military hopes to use atlas as a super soldier who can stand conditions that humans were not built for.

They challenge 17 teams do outfit atlas with the technology that will make cam effective.

The teams already to have the hardware.

Now it is there -- now it is time for the software.

Their deadline is this december.

The prize for the winning team is $2 million.

The teams competing for the $2 million prize represent nasa as well as virginia tech, jack's old, and carnegie mellon.

Let's stay with technology and what is changing the way you live.

They limited competition with in the printing market.

This could translate to an explosion.

For more on the future of 3-d printing, i would like to look at the company on the cutting edge.

It is good to have you with us.

Thank you for joining us.

Explain what is cricket for those who are not familiar with your petty machines?

Cricket is the first on the electronic cutting machine.

We recognize the paper crafting industry.

We make this from systems.

It is right at the desktop.

Talk about the patents involved in printed.

What is laser centering?

It is the lowest cost technology in the 3-d printing space.

It gives you the precision and revolution that people are looking for.

Primitive technology has shown this.

It brings in a wave of 3-d printers.

Today a number of those patents are expected to expire in 2014. i think that will leave d to the consumer market.

Will that also mean that it'll have two come out with faster models?

Absolutely.

We focus on a number of innovations.

Just like in the 3-d printing space we are able to cut intricate materials such as vinyls, leather, and all kinds of things that can be used with 3-d objects.

This will be focused on developing online technologies that make the design very simple all.

Give us a way to measure how it is doing.

Cricket has sold about 3 million machines in about 15 billion cartridges.

Each cartridge is a package of content.

Going forward what we're really trying to do is doing what itunes did to the the music industry and develop content that people can buy online for as low as $.99 and be able to make their own design and use their freedom.

What is the biggest challenge for a company like cricket?

Is it raising money?

Is it creating the technology?

It is a very good time to be in this industry.

We see the media playing a very good role in educating consumers, inviting them to do things.

Also, they are making it really easy and enabling people to share content, inspire people to make those projects, educate people and create the marketplaces.

The challenge is to innovate at a speed and be able to leverage these trends that are being enabled by the online space, being able to share content and expire people -- inspire people and deliver online technologies and touch interfaces to do that.

Mergers, acquisitions, we know that the authority paid $400 million to of wire this.

-- to acquire this.

Do you think there will be more consolidations?

I think it is still a very early day.

I think they did a very good job in creating amazing interfaces.

I do think the industry is primed for growth both in terms of planning this and expecting to see a lot emerges and acquisitions but companies are launching in the near future.

The chief executive of cricket joining us from san francisco.

Just ahead, existing home sales hit a snag in june.

Them insight on the economy and what the federal economy will use for its program.

That is next.

? existing home sales in the united states unexpectedly dropping in june.

For what all this means, i am joined by the managing director and chief u.s. economist for ubs.

Also the firm's head of global sector research.

It is great to have you both with us.

Let's start with you.

Existing home sales down i think 1.2% for june.

The underlying issue had to do with the supply of homes.

We see the actual number of homes for sale is the lowest it has and since 2001. how is that possible?

It is possible for a couple of reasons.

First of all, the builders are very cautious about building new homes.

That gives you an overall tighter supply situation in the first place.

Secondly, you have people who are still underwater in their houses that do not want to put their house on the market until they no longer have to take money after closing.

Then there is a lot of oaks who say -- folks who say you have not recovered until i can fit the price that i saw a couple of years ago.

I would not counsel waiting for prices to go back to where they were.

People are really acting that way.

So what.

They are up 10 or 15%. they used to be even higher.

I have a question for you with regard to some of the work you have done.

Yet talked about the extent of pent-up demand in the housing market.

Could you make a few comments there?

It does that give you comfort that longer term this is a genuine recovery?

Yes.

The bad news is that we had such a slow recovery.

Unemployment stayed high.

But as also happens is that a lot of things people would normally do and by have not been done.

They have been delayed.

There is a tremendous amount of 10 -- pent up demand that the still out there.

It goes from automobiles to getting married to having babies.

All sorts of things that you normally do were delayed because of uncertainty and high unemployment.

You speak with a lot of investors.

They are asking you what to do with their money.

Do you encounter investors that say i do not want to do anything because i want until i get the prize i feel i deserved for my asset whether it be a house or a stock or a bond?

There is inactivity.

I do not think the question is it waiting for the price they are looking for.

They're waiting for a couple of things.

Same thing for the uncertainty.

With regard to homeowners, i suspect they are waiting for a little more certainty in their job prospects.

You have to wait so long but then you have to act.

If you wait for more precise color on exactly where the jobs market is going, you're going to miss opportunities.

It is the involved.

Based on your fundamental outlook and values and where you expect he will create the most value whether it is as an employer as an employee.

There is no reason to wait.

You're never going to have certainty.

Is there a sector of the u.s. economy that you would suggest is doing much better than others?

Where can we find the opportunities?

You are not necessarily wanting to buy high all the time.

I think you need to look at what needs to be done that has not been done.

I will give you an example.

The birthrate has been incredibly depressed.

People will start getting married again.

Think about all the things that you buy once you have the babies.

That is the first example that comes to mind.

It may not fully be appreciated.

On the other hand housing starts have had a -- stocks that had a wonderful run.

It is debatable how much of this is built in.

Most does not raise in the interest rate from the federal reserve.

When do you think that is going to happen.

They are not going to raise the short-term interest rate until 2015. i am pretty sure janet yellen will be the new chair.

At the same time, they already have signaled that they are going to taper their purchases of securities and will probably stop buying altogether about that so the markets are already anticipating that.

Just by telegraphing their plans they have artie done something at a full percentage point.

If that continues, does that see bond yields rise?

I think on balance the rates will go up further.

Many economists estimated that the qe was to cut rates by about a hundred basis points.

They have already backed up.

The market is getting priced as if they believed to be your not going to have this.

I think you still have at least basis point upset on the tenure.

We're going to continue this.

Now for a look at what wall street has let's go to our bloomberg brief cohost.

Apple posting fiscal third- quarter earnings tomorrow.

The iphone maker will report a drop in growing competition with this.

Also out with earnings, you have at&t. the u.s. treasury is scheduled to auction $35 billion.

They indexed treasuries have lost more than 2% so far this year.

Much more to look forward to for tomorrow.

Back to you.

Coming up on taking stock we're going to take a look at china and debunk some of the mess surrounding the fastest- growing economy.

That is next.

That's when comes to the relationship, our next guest would night to clean the air a little bit.

This is the author of a china -- he also served as a diplomat for the french diplomatic service in cambodia, thailand, and the rock.

Is also the chief u.s. economist of ubs.

It is good to have you with us on bloomberg.

Why did you decide to write a book about china threat but with a question mark?

I thought really the misunderstanding between china and the rest of the world was too big.

I thought that it was useful to try to its lane some basic point about china and try to get another angle to go through the challenges of china.

But some of the myths we have about china and the power.

Maybe the biggest myth is that chinese people cannot do what we have done in the last 200 years because they do not know they'd. china is showing what they can do.

They can do it in the next case the next poor thing is to show that china is not going down.

China is going to build up.

We have to face it.

We have to raise as well.

My question to you, what would be the best way for our administration government officials to articulate the opportunity to a greater degree than p will perceive the risks.

How do you show that partnering is a better way?

What should they do?

We have to face what the chinese expect.

They spec -- they expect for their civilization and their policies.

They believe they have been overlooked specifically for the last 10 years.

Now we are coming to a new error.

They are becoming a huge power.

They are the second economic power.

They will come to the level power in 20 or 30 years.

They want to be respect did.

We are talking mainly about the united states.

Now we talk about china.

Not before.

They do expect more respect for their challenge.

That was their book i wrote about.

It was about their challenge.

Many people do not understand the size of china, the difference that exists.

The regional difference.

There is this community.

I think we have to understand what they face.

One source of tension is that one has to do with trades.

They have relied extensively on this for growth.

We need the chinese consumer to stop saving so much money to consume more and buy more of their domestic out that.

That has been pretty hard to do.

What will get the chinese citizen to start consuming more?

Why do they spare so much money just because the cost of education?

When they were companies they did not have this problem because everything was taken.

Now they have been reforming the country's for about 30 years.

It has coverage.

They have to pay for education.

They pay money for that.

As soon as the system will have improved in that respect, with companies taking in charge, they have insurance and the education.

Going back to a less expensive educational system.

There were thoughts of putting more money in conception.

The chinese are good customers.

They love buying things.

What we have answered now is this new air of clinical and social reforms.

This will have a huge impact on the domestic ones.

I want to thank you all very much.

The author of the new book " china threats, the myth of china's rise." it is 56 minutes past the hour.

It is time for "on the market there go the s&p 500, there it is.

Up three points.

The dow jones at a point.

The nasdaq is higher by 12. gold futures gaining the most in a year.

Goal companies are higher in u.s. trading.

Thanks for "taking stock"." ?

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