tv Bloomberg Business Week Bloomberg February 10, 2019 12:00pm-1:00pm EST
♪ >> welcome to bloomberg businessweek. >> we are at bloomberg headquarters. >> this week's issue, how to fix capitalism and build prosperity. >> that is according to analysts >> the magazine investigates . >> the magazine investigates what happened to president's $ 4.5 billion deal. >> we begin with the international cover story, a report that sheds new light on chinese tech giant huawei and
allegations of trying to steal u.s. trade secrets. >> our editor, joel weber, is here with us, and this is a story that reminds us why officials have some new problem. >> it is a special story that provides a rare glimpse of something only has understood. the u.s. always claims that yet therea bad actor , has been no tangible proof. erik schatzker pulls off an incredible story. from the moment he came to us with it, we said stop talking and start writing. jason: go wherever you need to go, and it takes him to vegas. there's a sorbet stand involved. schatzker undercover. >> where this really began was an american company that has a glass it thinks will make better smartphones. you know how your smartphone shatters, and you ask why
doesn't this -- why does this happen? he thinks he has that technology. he sends a sample to huawei and it comes back broken. that is not supposed to happen and that is what leads us into the story. carol: i did like sitting down with him. we got more with eric shacks are -- eric schatzker on this story. >> >> there was an investigation underway involving a small start up taste outside of chicago in the advanced materials industry. they are trying to develop a diamond coating that would go on top of your smartphone display, making it harder, more scratch resistant, and ideally of great appeal to the likes of apple, samsung, lg, the major smartphone manufacturers, including huawei. the reason this was happening was because of their interactions with huawei. they had been sending samples of their dark glass product to a bunch of different smartphone makers. carol: which is what a supply
will do. >> standard in the industry. you go to multiple iterations. once you think you have something to show customers, you send it to them and they perform tests carol: and there are rules, correct? >> yes, and in this case, it was you can have the sample for 60 days and the tests you perform have to be nondestructive. so this company sent to rounds of samples to huawei and we assume they did the same thing with other companies. after the second round went out, and theays passed sample did not come back. they demanded the sample be returned immediately, as you would, and the first thing they got back from huawei was an email with a picture in. the picture was, under magnification of the sample, and had a big scratch. we talk about this diamond glass
is being scratch resistant or unbreakable. it is come up to a certain point. it is very thin, it is not like it is a chunk of diamond. it also was not in its final form, this was still a prototype. so they saw the scratch, and they thought, my goodness, they have violated the terms of our agreement, damaged the sample. again, they persisted in asking for the sample back. it was finally returned last august 2018. when the chief operating officer at this little start up outside chicago opened up the cardboard box -- carol: tons of safety packaging right? >> it is delicate equipment. threw away the airbags, opened up the plastic case, he realized the sample was not just damaged, it had been broken into two pieces and three shards of this
diamond glass were missing. it was at that point that he and the ceo and founder of this company realized that something very bad was going up. -- going on. this is not what companies do when they are engaging in good faith business. huawei destroyed the sample for reasons they did not understand, but that they could surmise and they feared the worst. jason: the worst being that their intellectual property was being stolen. >> that is among the range of worst possible outcome, yes. that huawei had damaged the sample in an effort to reverse engineer the process and figure out how to put the diamond coating on the glass themselves and get to market that much faster, and in doing so, potentially destroy the commercial opportunity for a
akhan's semi-conductor. they got into this business because, in theory, there are a lot of potential applications. electronics and defense. if you want to get into the business of laser weaponry, either on an offense of basis or a defense of basis, you need a diamond. i'm not going to go to the details, but diamond is a very good heat dissipating material. it has particular use in defense applications, as opposed to offensive applications. carol: including defense. so they worried that maybe it was not just huawei trying to get a jump, but the chinese military trying to get a jump. carol: enter the fbi. they brought the fbi in then. >> they did. two weeks later, the coo, this gentleman was at an fbi seminar.
the chicago field office was holding regular seminars on corporate espionage and he had been going to these in a bizarre coincidence, a special agent at the fbi field office was delivering a seminar on corporate espionage and the case study was something that is now become a little more famous, huawei's attempt to steal intellectual property from the mobile lab outside seattle in 2012. the coincidence was just too powerful, he decided right then and there without ceo or board approval he had to talk to the fbi. he approached her during the on whatd briefed her happened with huawei. he says the fbi took an immediate interest and things began to move very quickly. jason: that is an important thing to point out. any of us in our businesses, if
we approach the fbi and especially as a small company, we think the fbi is going to proverbially pass on the head say, we on our head and will get back to you. stick it in a file somewhere. >> that is not what happened here. we have also been led to believe that because the fbi has been dragged over the mud politically over the recent months, but in this particular case, they were on it. carol: up next, we hear from the akhan semiconductors and his interview with eric. jason: plus, a play-by-play of the fbi sting operation. carol: absolutely fascinating. this is bloomberg. ♪
"bloomberg business here go jason: i am joining carol for me for carol and businessweek every day on the radio or our daily show. carol: and you can find us online and on our mobile app. jason: we are going to stay on this international cover story. carol: erik schatzker followed an fbi investigation into huawei's dealings with akhan. jason: akon ceo explains us what 's ceo explains us what he expects to have the next. >> worst-case scenario and what we have been publicly discussing some of the work we are doing. it could potentially put them in the right direction in terms of what to optimize, i would say that is the worst case in a weapon standpoint. in the context of weapons espionage, simply wanting something to differentiate them from the samsung's and apples and googles of the world. they are setting up to bring out
some sort of finality to the investigation. in akhan is looking to file civil litigation concurrent to it. our main purpose is making sure the fbi gets their investigation right. there is in part a national security portion of it and a corporate espionage, a market value portion. carol: now we get to some of my favorite parts about the story. we talked to eric about the lead up to the fbi sting operation. it happened at the consumer electronics show in las vegas. >> the fbi, in order to keep the investigation running, the fbi did not want them to break off contact with huawei. at a certain point, they asked them to reactio reinitiate contact with huawei so that the fbi could listen into a conference call, affectively bug the conference call, and have executives asked
questions. what happened to the sample, where to go? and the course of this call, they learned the sample had actually gone to china. that is a very important point to make coming because diamond coating with its applicability to military applications is on a restricted list. it is not allowed to leave the country, regulated by a regime called the international traffic in arms regulations. if it had gone to china, and they believed it did, that would have been breaking american law. carol: take us to the consumer electronics show in vegas. >> that evolved out of the same conference call that a huawei individual sediment to china. she indicated that while it wanted to continue conversations. it was very difficult to figure out who is playing who here? we, as an akhan is trying to lead them down a path. at the same time, huawei is trying to play akhan to learn
more about the process. so they set up this meeting at the consumer electronics show, where i happened to be. they wired up the chief operation officer with covert surveillance devices. initially, they were going to have this meeting in a room at the consumer electronics show. an hour before it happened, they -- the huawei representatives suddenly and suspiciously change the location of the meeting to the food court at the venetian casino. that is where the sting went down. carol: and you saw it? >> i watch the two groups meet the akhan executives. i watched them move towards the food court, they'll walk into a fast casual restaurant called "prime burger." that is where the sting went down, trying to look inconspicuous by a gelato stand.
jason: where does it stand? what happened? >> the fbi, thanks to the surveillance agreement, recorded both audio and video of this interaction. there were discussions they are -- there again about what the sample had been. the huawei representatives claimed ignorance about the damage and how it got to china and all of that. but they kept pressing for more detail about akhan's operations, trying to get a little further along up the value chain understanding how they were able to engineer the film. not even a couple of weeks later, this was about 20 days later, on january 9. january 28, the fbi conducted a raid. they executed a search warrant on huawei operations in san diego, where the sample had toginally gone from akhan
huawei. we gathered further evidence, and now we are waiting to find out what the government does. jason: one of the tricky things about huawei is that it is privately held. we don't have a lot of information. that is why we have taylor riggs to help us understand this market. taylor: we know huawei is so closely held within the chinese government that we do have a lot of information. we have an etf the tracks the chinese tech sector and gives us a good gauge of where we all stand, relative to the u.s. it looks like they actually track pretty closely together, except what caught my eye was at the end. looking at the forward p/e ratio, the u.s. tech sector has had a bit of a run-up in price because some are saying with the 5g rollout. we heard from earning season that a lot of analysts and 5g to boost the
you can listen to us on the radio on sirius xm and in new york, in boston, washington, d.c. -- jason: a.m. 960 in the bay area, in london, and on our app. in the business section, jay powell and his predecessor janet yellen turned out to be remarkably similar policymakers. carol: we spoke with a federal reserve reporter jeanna smialek of what could be the final result of the era. >> she is doing he's aptly what janet yellen did still in the fact in the sense that they are still pursuing a patient, gradual rate half along the labor market to make as much progress as possible while restraining inflation. we heard him signal at the federal open market committee meeting that the fed might be taking a pause for the foreseeable future. still very much taking this kind of cautious approach. i think it is a real story of continuity so far. jason: let's remind folks that, back in december, if we were
having this conversation six weeks ago, it would be very different because the markets, the president, was a little grumpy with the jay powell. >> they were impatient with him. but one of the things i think is so interesting about looking at janet yellen's legacy and jay powell's legacy and comparing them is that, at the end of the day, they followed a similar reaction function. they both moved rates up when the economy was looking stronger and inflation looked like it was headed up in o unemployment was lower. they both took causes when it seemed like there were risks on the horizon or immediate signs that global growth is showing some cracks. what was interesting about that was that janet yellen repeatedly took fire from every side because she was going to slow on rate hikes and those this -- there was this real concern she would let inflation get out
-- get away from her. powell -- the way jay powell to criticism for the exact opposite reason, there was his idea that he would hike right in the recession and the fed be the cause and that he is positive, it is funny because he is taking heat for capitulating. you cannot win. carol: it is a tricky time. let's get into that a little bit. here we are, the few months away from being the longest u.s. expansion on record. we keep talking over the last couple years about a goldilocks economy, not too hot, we still have job growth. what it is a tricky time for jay powell in terms of what he does next. >> yeah, absolutely. here is the moment where jay powell's legacy diverges from janet yellen's. what he will have to do is create some sort of playbook. we have already seen him decide what will be with the balance
sheet. the fed decided at the january meeting that they are going to stick with their current operating framework and have a slightly bigger downstream. they will have to talk about things like is the inflation target the right one? what do you do in will where inflation is permanently lower? you have less information about a financial crisis because they know it is cutting that fund. it is their most potent peace of ammunition in their toolkit. so there are these real questions, and they are not resolved, and jay powell is monday the person in charge of the committee may have to think through those questions and come up with answers that could be politically difficult. carol: also in the finance section, what happens when hedge funds are built around one great manager? jason: and what happens when they leave? carol: we profile the investment brains behind fir tree. jason: until he walked out the
door. tree -- fir tree was founded by a man named jeff tannenbaum and it did not take off until he tapped one of his former classmates, this guy named andrew fredman. fredman comes along in 2000 and takes this firm from being $300 million to $13 billion. his track record is -- carol: that's huge. >> -- is really big. we were comping his returns relative to other firms or hedge funds at large and he really did beat. he annualized 7.5% over his tenure, including bad months when he wasn't even there your and we really just tried it to build it but he is , not the personality that you see often in investing. he stays in miami, florida even
, though headquarters are here in new york. he kind of has got this child of the 60's personality. he is obsessed with every trade that is put on, he is on around-the-clock, dialing up analysts. he is involved in the culture in a very important way. even though jeff tannenbaum was the founder, fredman was the heart and soul of the firm. unlike bill gross, who retired at 74, well past his prime fredman steps away at his prime, , which is never see. 53 years old. he has his lottery ticket of throws away. he still got very rich, he was just kind of done in. we rarely see that, and it shocked everyone. even though fir tree had a succession plan in place a top , lieutenant of his who was the natural successor, he said over
and we have a whole group of managing directors that would support the successor. things still fell apart, and that is what is so interesting about the story. you can have a plan, but to execute and see how it comes together when the time comes, that is what is really interesting about the hedge fund. carol: and that is the underlying theme of your story. you talk about him being the firm, andsoul of the when that goes way it all comes , undone. >> you don't appreciate has someone is the glue until they are gone. and you can try really hard to stick to your plan, but at the end of the day, the firm has lost $8 billion. -- billion since he has left. the performance has not gone well. it has been bad, year after back here. last year, they lost 8.2%. they were mired in a lot of bad trades that came about starting
when he stepped back. jason: one of the things that you point out, and you mention private equity funds earlier that is locked up for a longer , amount of time. with a hedge fund, it starts to spiral downward. performance gets to a lower point and people start to pull their money out. it spiraled downward very quickly. fir tree has their capital locked up for two years because they do take more private equity style positions. investors patience is wearing thin. now it has been basically five years of mediocre performance. even though the capital is locked up, you can see that redemptions are happening. carol: money talks. obviously, investors are not pleased. jason: still ahead, a lifeline for the recording industry. carol: and $8 million nothing burger for wisconsin. jason: this is "bloomberg
jason: welcome back to "bloomberg businessweek." i'm jason kelly. carroll: and i'm carol massar. still ahead in this week's issue, building a better economy using ideas from across the political and ideological spectrum. jason: plus, what is special about tunisia? well, it is the only democracy left from the arab spring uprising. carol: but we start with the u.s. cover story.
jason: it takes us inside wisconsin's disastrous deal with foxconn. carol: it was meant to create a manufacturing paradise, but in reality, is a different story. we are back with our editor, jill -- joel weber, and joel, this is a story about promises versus reality. joel: $4.5 billion tax breaks that would create a manufacturing paradise. it is already looking like a total bust. jason: and it was not so long ago that president trump was there with some of those senior members of his administration. joel: and it was wisconsin, where scott walker put his political reputation on the line. jason: and important people in business. foxconn is the biggest contract manufacturer in the world. joel: yeah. exactly. this is really a story about job creation and a state that will do anything to really jumpstart its economy. and yet, no one is holding anyone accountable anymore, and that is where this gets tragic. there have been a lot of
lcds beingabout made here, not being made here, and nobody is talking to people with boots on the ground. we talked almost 50 people to get the inside story on this one. jason: and got into the documents underlying all of it. it is really an amazing these of. here's more from austin car. austin: there was was this big deal promise and subsidies to this taiwanese manufacturer foxconn. they were supposed to create 13,000 factory jobs that would be transformative for the state. but so far, after months of reporting, things are not going so well where the facility is based in mount wasn't, wisconsin. -- mount pleasant, wisconsin. jason: take us back to the scene. you have president trump, a plethora of big political names. president trump, his chief of staff, who was from wisconsin. paul ryan, former speaker of the house, also from wisconsin. governor scott walker, wilbur ross, steve mnuchin, this whole
panel of people who are there, and this seems to embody a lot of the promises of the trump campaign. stage ateah, trump on the groundbreaking ceremony said this would return america's industrial might. he said this is central to his trade war with china because it was going to bring the factory jobs, the blue-collar jobs back to places like wisconsin and the rust belt, sort of revive what we have lost in the past couple of decades to mexico and places like asia. for a lot of the sources that we have that are watching that audience, that could not have been further from the truth. trump is talking about how everything was going to be made in the usa, but the tv lcds that were made their are manufactured made there or manufactured, they are only assembled, a lot of the parts imported from mexico. indeed, the display still said "made in mexico." he talks about how there would
be good paying jobs coming. it turns out the production workers were just temps, hourly or interns getting paid $13 an hour without benefits. it did not feel like a lot of it felt like a lot of these jobs were pretty underwhelming. it did not live up to any of the promises the president was making. carol: when i started reading the story, i remember turning to jason and saying, i remember when we had the president at different companies saying, i will be bringing back the jobs? this was a year ago. it was shortly after that that the interns and internships, people were realizing wait, i am not going to have my job anymore. rings started to come undone. austin: correct. just a couple of weeks after the president visited mount pleasant, wisconsin for the ceremony in june 2018, a foxconn manager called a group of 15 interns into a room and told them that they're not going to hire those people full-time because there was not enough work for them to be doing. in fact, two of those sources in that room were called -- recalled the manager saying there were external pressures
changing the wisconsin project, which seemed pretty cryptic but foreshadowing what we have seen more recently. carol: were there ever 13,000 jobs created? austin: no, no, no. those were longer term projections. the company wanted to create up to 13,000 jobs by 2022, but it staggered hiring commitments, and they have already missed their first year of hiring. they were supposed to have 1040, their maximum target this year, and they missed it by about 82%. jason: now to the economics section and a broader focus on the u.s. economy, something close to the headlines this week with the state of the union. carol: we will all learn something here. editor christina lindblad incorporated a wide range of ideas of how to breathe new life into american capitalism. christina: modern monetary theory is a way to pay for things. that countries
with their own currency have greater control over debt if they are borrowing in their own currency. so they can manage deficits and debt better than our country -- a country like mexico or egypt, which depend on international capital markets. carol: so the u.s., for instance. christina: right. if you look at our recent experience, like the aftermath of the financial crisis, we were able to spend big on rescue programs that were a priority at that time and we haven't fallen off a cliff. carol: we are still here. christina: so mmt is basically the way that people endorsing the idea are thinking about paying for something like the new green deal. i'm sorry, the green new deal. jason: right. but let's talk about because we talk about them all the time. the conventional wisdom is that tariffs are bad.
hold on a second. christina: there is a camp on the fringe of economics, because there is mostly a consensus tariffs are bad, that goes all the way back to alexander hamilton's research on manufacturing. to look at how tariffs can be applied in a way that benefits the economy. and looking at trump's tariffs, which now exceed something like $300 billion worth of goods and maintenance -- may soon expand to include others, they say it is actually revved up manufacturing. they claim they have created something like 280,000 jobs. jason: some people are skeptical of those numbers. christina: yes, they are, but the idea being that they have created, improved business confidence in certain sectors, allowing companies to invest more.
if you are being shielded from competition for a moment, that will theoretically embolden you, probably, to invest more. in theory. the question is, your belief of how long those barriers with a in place. as soon as they come down, we could see some of these jobs would evaporate, whether they are real or not. they might evaporate as soon as tariffs come down. jason: up next, american workers finding new ways to organize. carol: and how tunisia was able to forge ahead with democracy. jason: this is "bloomberg businessweek." ♪
jason: and find us online at businessweek.com and our mobile app. in the u.s., a contrarian take that american workers have less leverage with their employers. reporter janet patheon told us about new ways workers and activists are getting what they want. janet: i wanted to know what was going on. how come if unions were dead and the american labor movement was dead, why is it that all of a sudden, did we have workers speaking up and getting what they were asking for. carol: what did you find out? janet: one, the labor market is aght, which gives workers little more moxie than they might otherwise have and feel a little more secure. social media makes a huge difference, because it gives people a way to find each other. facebook coworker.org, deep in , the threats of reddit. -- the threads of reddit.
they can share information and talk in a way they have not been able to before, and it also allows them to make their case to the public, which companies have become increasingly sensitive to. jason: an interesting thing is you talk about different generations having different approaches, but ultimately very similar approaches to just wanting a fair workplace. increasingly, it is younger people who are driving this. people who may have grown up in labor union families or may not have, but they're finding a voice. janet: that's right. and i think one of the things that was interesting to me as a desk as i book to a young woman who was part of the union at huffpost, which recently went through a huge round of layoffs right when buzzfeed did as well. this woman is 29, she is an immigrant, said she grew up with a lot of precariousness and her financial situation. unionize,ffpost
that made a lot of sense to her because she wanted a lot of ways, in an unstable industry, to kind of shore up her financial situation. and then we really saw the difference between when huffpost had those layoffs and then buzzfeed did recently. buzzfeed was a nonunion workplace. you really saw a lot of those workers, current and now former, on twitter advocating that they should be paid for vacation days that they had accrued. carol: i think it -- go ahead. youn: one of the things point out at the top of the story, it was not expected to be this way, especially given what the supreme court has said about labor unions of late. janet: yes, and i don't want to overstate what is happening ,ere, because union activity historically, is just way, way, way down. the supreme court rulings have been really damaging to the protections of workers who are
speaking up. jason: remind us about those rulings -- carol: remind us about those rulings? janet: there were two. one made it harder for public-sector unions to fund themselves, and the other made it harder for workers to bring class actions. the legal challenges are real, and the formal protections for workers have really been eroded. companies have a lot of legal power. carol: right. janet: but sometimes power is not manifest in a legalistic way. carol: in the international remarks, tunisia is the only democracy left from the 2011 uprising. jason: we talked to our reporter about what lessons tunisia holds for the rest of the region. >> i went back to tunisia after several years, having covered it extensively in the arab spring. i remember one person, a young woman who was an activist blogger. she was the one who brought international attention to the
protests that were taking place in a small town in tunisia, which eventually exploded to become the arab spring. i remember meeting her then and she was optimistic about the future of her country, and i wanted to go back and find out where she was. i also took the opportunity to meet a new class of people in tunisia, free politicians. people who are elected to parliament in free and fair elections. this did not exist in tunisia eight years ago, does not exist almost anywhere in the arab world. it is just one of two places in the arab world where there is absolutely true. so this was a chance to take soundings of people i already knew and a whole new category. try to understand where democracy is in the one country that somehow survived the arab spring with its democracy intact. with a new democracy. that was the purpose of my trip. jason: well, it is such an interesting point, too, because
as you say, tunisia kick dollar this off a lot of ways. when history is really written in a demonstrative way, that is where it all began. and yet, so many things, especially here in the west, people think about egypt and other places as much more dramatic examples, and yet, as you say, democracy has taken root. why there and not elsewhere? >> well, several different reasons. one, perhaps because the tunisians went first, they had institutions that worked very hard to protect the democracy once they had it. in 2015, a bunch of civil service, civil groups were given the nobel peace prize for doing exactly that. the largest labor union in the country, a bunch of other civil groups got together to protect the democracy after the dictator was thrown out. that did not happen in some of these other countries. tunisia has also had a large
proportion of the middle class population, high education standards, a quite robust tourism industry and exposure to international, particularly european affairs. all of these things helped very much. to be honest, it also helped that tunisia was small, and the people will say this all the time. we are so small, foreign countries did not feel like they had to interfere. we managed to skate under the radar a little bit. whatever the reasons, it is working. it is messy, cluttered, confusing. not all tunisians understand this thing they have gotten their hands on, but they value it and they are glad to see it, and they would not have it any other way trade carol: up next, what facebook's data collection practices are like irl. carol: you are so hit -- jason: you are so hip. irl means in real life. this is "bloomberg businessweek." ♪
carol: welcome back to "bloomberg businessweek." i'm carol massar. jason: and i'm jason kelly. you can also listen to us on the radio, on sirius xm, in new york, boston, in washington, d.c. -- carol: in the bay area, in london, and of course, on the bloomberg business app. in the technology section, facebook has increased limits on outside use of its data. jason: but the company is ratcheting up their own data collection practices. carol: interesting. here is sarah frier with more. sarah: for the past year, we have heard this over and over, the argument from facebook that they do not sell your data. pundits come out and say technically you do, it is just a semantic argument. you collect the data, and then you rent it to advertisers, you
rent the targeting of us to advertisers. then we get into this debate over whether facebook should be doing this or not. that is what i am arguing is not the real privacy debate when it comes to facebook. the real debate is, how much data are we giving them and how transparent are they being about the collection of that data? i think some instances over the past year has shown that is probably a more important discussion to be having, because we really don't know and they really don't talk about the extent to which that occurs. jason: and this has really come to the fore more recently as they have started to talk about maybe consolidating some of the back end, at least, of their most popular applications. the they are really counting on ones to grow the business. help us understand how that goes . sarah: everyone understand how facebook worse. if you have facebook, who knows
who everyone is. you log into facebook, you have to use your real name. whatsapp and instagram, you don't. people have been able to have semi-anonymous identities, and what facebook is doing is combining the back end of those platforms so that you can send messages to your self on a different service. this is not something that people have been asking for, but it is something facebook argues that we will want, this ability to send a message through whatsapp or through instagram, vice-versa. and what that is going to do for facebook and what they have not discussed is it will allow them to know you are on the spot it -- on those platforms. identity toect your the data facebook has about your real identity. so it is just another way facebook has been connecting the dots and, get this, their argument about that combination and why it is so important is encryption, so you can send end to end encryption messages.
this saying they are doing it in the name of privacy, but they're actually going to get more data out of it. so i think we are going to see that over and over again. facebook say they're doing something for privacy that gives them a lot more information. jason: in the business section, sales of streaming music are surging. this chart shows us what is going on. the purple you see, that is the physical. the cds, lps, and cassettes, that is been going down. we on the that. streaming has been languishing for a while. carol: streaming is in yellow, and you can see for many years, jason -- this is in the magazine -- streaming in terms of revenue growth kind of going nowhere. but taking a look at the last few bars, the last few years. you can see that streaming revenue has really taken off. that goes to the case of content at those music labels is king once again. and it also explains why universal music group could be valued over $25 billion in a sale by vivendi. jason: here with more is lucas
shaw. lucas: the initial decline in music was because first you have piracy, and then you had itunes. itunes made it so that somebody could go for spending $20 on a cd to instead spending one dollar on a song. streaming flipped the equation there, where all of a sudden people could pay $10 a month, or in some cases a little bit less, and that is actually a better deal for record labels then they were getting some cases in the cd era. there's still a lot of tension between the big internet companies and the music companies that is ever present. record companies now like to claim they are responsible for the success of spotify, which i find to be a little bit ridiculous.then but there is no question that the streaming services are turning on all over the world. and you see -- the opportunity a lot of these companies see, and what universal or vivendi will try to tell investors, is that what you are seeing in the u.s. and europe is going to start playing out all over the world. you will see streaming services develop in india, china, may
be even places like indonesia and saudi arabia. if that happens, there is a chance music as this can get back to the size it was before. even though it is growing again, that has everyone all excited about buying a stake in universal music, but the music business is still a fraction of the size that was in 1999 or 2000, especially when you start accounting for inflation. jason: i want to talk about that potential sale, but before we get there, remind us of the economics of streaming. however when he gets paid along the way, because it is a little -- hownt -- howeve everyone gets paid along the way, because it is a little different than going out and buying a record or cd. lucas: it is also the space on the service and country. but for the biggest service, spotify collects their price from you every month.
the real price is like six or seven dollars a month. they split that amongst the different rights holders space of their share of streaming. if you are warner music, you are getting a cut of every customer they some how much your artists get streamed. you are incentivized to do a really good job developing artists and holding onto new catalogs. this is boost the value of music copyrights, because the more you have, the more you get paid. carol: what i love about your story is you dig into the value of music content. that is growing, and it plays into the whole idea about about a partial sale of universal, because the industry is growing again. lucas: yeah, music is always able to trade because it is a sexy industry. you know, even in 2011 when the industry was near the bottom, warner music group got sold for $3.3 billion to a ukrainian american billionaire, in large part because he wanted to be close to the music business. he likes being at the parties, with the celebrities. but it is now being seen by
investors and financial institutions as a real potential for opportunity, or a real opportunity, because you saw with sony atv, a music publishing asset, that a consortium of investors bought at a low value in 2011 and 2012, traded it six years later, and got a killing in return. carol: bloomberg businessweek is available on newsstands now. jason: and also online at businessweek.com and our mobile app. your must-read? carol: the story by austin carr about foxconn. it is so timely, hearing about the president and his initiatives. this was supposed to great -- to create thousands of manufacturing jobs and the reality is that it has not lived up to that. jason: that is the u.s. cover, mine is the international cover. erik schatzker, what a tour de force of reporting. taking you inside huawei, which has been in the headlines, but from a very, very different angle.
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david: he grew up in a middle-class family in princeton, new jersey, with social activism in his blood. his mother took him to civil rights demonstrations as a baby in a stroller. dan schulman was the youngest member of at&t's senior executive team, cofounder of verizon mobile with richard branson, and ceo of paypal, transforming it into a global payment powerhouse by working with banks, rather than compete against them. schulman never lost sight of the social activism he learned as a child.