>> from the heart of where innovation, money and power collide, in silicon valley and beyond, this is bloomberg technology with emily chang.

i am emily chang in san francisco and this is bloomberg technology. coming up in the next hour, it could have been worse. that is what analysts are saying about netflix results. she was jumping in late trade despite losing almost a million subscribers. could ads solve the company problems? we will discuss. plus, twitter wins for now. a judge grants a company request to fast-track a lawsuit against elon musk. the trial scheduled to start in october. we will explore this particular judge's record and what it tells us about each side. and as a major crypto letter and all of that, is regulation the answer ahead of u.s. policy of coinbase? talking about the way out of the ashes of the crypto crash. we will get all of that in a moment but first, look at the market.

tech pushing u.s. stocks higher as earnings seasons get well and truly underway. ed ludlow is here with the very latest. >> interesting session. 490 four stocks with the s&p 500 in the green on tuesday. that is the sort of breath in a rally we have not seen since march. the opera performance in the technology sector, the nasdaq 100 is up. that is the risk on appetite is it really took hold. you see the yields climbing higher. bitcoin caught up in that, up to 23,000 u.s. dollars. beyond that point, the highest level in exactly a month. the market speculating that now might be the time to come in and buy and as you said, earnings are really an interesting dynamic in that. if you bring up results in ibm, it was one of the worst performers in tuesday sessions. down 5% after cutting the four year outlook for free cash flow. this is a story we will talk

about as much but the strong dollar really weighing on ibm sales. its top and bottom line. another big game we are keeping track of. twitter closing out to 20% on tuesday session. as much as 5.4%. it will start an expedited trial. and earnings season continues. let's talk netflix. you guys -- you and i love talking about netflix. really interesting numbers because they lost fewer described -- and subscribers than they thought they would in the second quarter. 970,000 versus the 2 million the forecast. they are only going to add a million in the current time and when they forecast 1.8 million. these are as a big-name title that actually help them. you've been bugging me about it for weeks. what have you been watching? >> i have been watching stranger

things and i said yesterday it is a lot gory or than it has been in seasons past but somehow i am addicted. court that gore generated 1.3 billion viewing hours. the best four weeks for a season netflix has ever had. clearly that might be helping the stock. >> thank you. let's stay away from netflix now. let's bring in this portfolio manager. why are shares up if they still lost almost a million subscribers? >> it is kind of a confusing report. if you think about it, it is kind of a sigh of relief i a lot of people coming to the numbers. obviously, the projection going into the third quarter are below expectations. it turned to a number of new subscribers. they are saying they are going to add a million. they did lose less than expected in the second quarter. there were a lot of estimates, some people saying as many as 2

million. the cayman losing 970,000. the other thing that is kind of confusing is if you look at their guidance going into your revenues and earnings for the third quarter, there actually also blow consensus and yet the stock is up. the only thing i can think of is there kind of addressing a lot of their issues. they talked in their shareholder letter about how they are going to address the issues with all of these people. 100 million people that are using the service for free. they talked a little bit about free cash flows and various other things so i think that people are thinking that they are just addressing their issues. it is not as it was. the stock is up. >> let's talk about this crack down on password sharing. netflix has been giving that looks away for free for four out to a lot of people who just have not paid up. if they crackdown on the password, how big of an impact you think that will have been getting some of those people to pay up? question in the shareholder

letter, they mentioned they are going to test two approaches in latin america and they are going to charge 299 per month and they're going to work something to try to get his people to start paying. i'm kind of curious to learn a little bit more about that. that seems very low to me. 2.99 per month? i paid close to $20 per month for my netflix subscription. it will be interesting to see how they roll that out and put that together. they have tried to monetize these people and bring them in out. we have to learn a bit more about how they are going to do it that is a huge number. >> could advertising be the answer to netflix's problem? >> it is kind of interesting because i'm curious to see how that will play out. they signed an agreement with microsoft to help them on that. you are a big user of netflix. are they offering and edge streaming service and there is not that many ads? it is over 15 minutes, would you

be willing to say i am not going to pay the 18 or $20 per month and just go straight to the free edge streaming service? that is interesting in any other component is they have 220 million people using the system right now. how many people do they add to those new edge streaming services? do they start competing against the likes of facebook or google in terms of garnering all of this revenue through advertising? i don't know how that will come together for them. they will let us know as they introduce new services in 2023. it will be interesting to see what happens with this ad streaming netflix. >> i think i would have to look at the ad experience. what kinds of ads are these? how long am i watching them? are they pleasing? are they tailored to me? the companies that are brought up as competitors, disney plus, amazon, hpl, disney plus is not

necessary a substitute for netflix. is it? >> disney plus is interesting because they have about 100 million subscribers. they are the largest competitor to netflix. they are targeting about 240 million subscribers by 2024. it seems like a really big number for them but i think you're right. disney plus seems a little bit different in terms of their content then what we find on netflix. you were talking earlier about the various theories they have and how people get hooked on them. little bit of a different component as disney has that huge library of movies and content through all the years of disney production so it is a little bit different but there is no doubt that disney in terms of number of subscribers is the closest necklace in terms of having the 100 million which is pretty close to 220 million. the rest of the other players have much less subscribers. >> here is the other thing. is the return on content spending paying off?

or dropping off? stranger things is costing a reported $30 million per episode. is that worth it? >> it is interesting to look at their content expense projection for this year, it is about 17.9 billion. that is pretty much in line with what they projected last year which is around 17 billion. it seems to me like netflix is getting a little bit more cautious in regards to this attitude that we are just going to spend tons of money, create tons of content and we are going to get the subscribers and we will be able to pay for it. it seems like they are starting to pull back a little bit with regard to their content budget and expectations and it is starting to be a little bit more careful on margins and so forth. you bring up a good point where they just keep spending and spending and spending. if you are not getting the subscriber growth because your subscriber growth is negative, does it make sense to keep spending more and more money on content? do you need to bring it into refocus? it appears they are starting to redo that so there is this

growth at all cost model. that is what they were doing in the past. >> we will continue to digest these netflix results. coming up, twitter agreement to take elon musk to court and fast. we will talk about what is next in twitter v musk and out very own kurt wagner. this is bloomberg. ♪

round one goes to twitter. the company granted its request

to fast-track his lawsuit against elon musk as they attempt to walk away from the $44 billion deal. kathy mccormick's at a five day trial to start in october. for more, we are joined by the columbia law school professor and faculty codirector along with kurt wagner. what happened in court today? the judge actually has covid. >> i was listening on the public tile. it felt really interesting to listen to arguments that way. there have been elements to this. the judge took a little time to review and think about things and issued a pretty quick verdict. based on the evidence and the argument they make.

>> i understand that the judge is a stellar friendly judge or at least has made stellar friendly decisions in the past. what can you tell us about her? >> she is largely right down the middle as far as her elections. she is very good. she works harder than any judge i have ever met. the thing to remember is that this fair number of these buyers with cold feet. this is the most recent chapter and chancellor mccormick actually had one of these cases that came up during covid about eve ago. she basically told the buyer you're going to be required to go forward with this transaction by the company that you are now

trying to walk away from. i don't even care but -- that your financing has fallen through because you engineered or sabotaged your own deal. there are a lot of argument about twitter's lawyers about whether elon musk had been trying to sabotage the deal. we had not gotten to any of those matters yet. the key question was whether this litigation was going to get fast tracked or slow track. while twitter's lawyers did not get exactly what they were hoping for, they ended up missing it by only a couple of weeks and they pushed what they had hoped to be a september trial into october. click the question is how big of a victory? was that other case of 44 billion dollars deal? did it involve taking on elon musk? >> unless there are cake

decorating companies that are worth that much, it was not. this was a small deal. not even a public -- not even a publicly traded company. chancellor mccormick is going to be similarly unsympathetic toward the buyer that wants to walk away. however, this particular deal and everyone knew this because it was out there in the public domain, elon musk went after twitter. they were reluctant seller. only after did he seem to start to have problems with that. a lot of people including twitter's lawyers said this is a pretext, it beginning to an elaborate set that was attempting to engineer an exit ramp for elon musk. one of the key claims he made was this bot problem was bigger

than i thought it was going to be. that was never really in the documented stuff. it was never in the agreement itself. it was sort of something he injected into the picture and i think one of the key questions people are looking at today was whether the judge would be willing to take a long-term litigation approach which would be a signal that she might be more willing to listen to some of this spot count war. instead, she fast tracked it. there will still be arguments about bots but they will not be the blown out thing that elon musk and his lawyers wanted. >> the professor makes a really good point. so much has happened that you kind of forget that twitter is -- did not even want to do this deal in the first place. what are you hearing from you twitter sources about what they will be doing over the next few weeks? >> there is obviously a lot of preparation that will go into this. i think as eric mentioned, this is a good win for twitter because it shows the argument is already being well-received. which i think was the big thing.

i think they won in the court of public opinion. i don't know. certainly on my twitter feed there was a lot of support for twitter from -- for their lawsuit. employees seem to be happy with how the company has handled this. i think at this point it is about trying to remove a lot of the uncertainty because the company has been in this weird state for months where they say it is business as usual but you can't imagine that you're going to be putting a six month, 12 month audit roadmap at the door when you have elon musk covering in there. i think they want to do this as quick as possible so they can get back to doing things like improving the business. >> indeed. how do you think elon musk's larger-than-life personality and the fact that he has 100 million twitter followers himself, there is -- if we are talking about the court of public opinion, elon musk has a lot of fans. how do you think this will influence the trial?

>> there is a sentiment we should already have. one of the argument that we's lawyers made today. you can just leave this deal in limbo when it may just be thrown into utter chaos if we are going to go into another years worth of litigation. that may be in part due to their arguments about the amount of damage that elon musk put tent -- could potentially do here. it is definitely true that there is this -- there have long been these questions about whether esther musk has some sort of exceptionalism that would not make it the same rules that apply to everyone else. this is an early shot across here it then suggests this judge in particular is willing to treat this case just like she would any other case and when you have a deal that has gotten signed up on very stellar friendly terms with very little due diligence in what seems like at least at present to be a bit of a drummed up reason to want to walk away, the musk team probably has an uphill battle

here. there is a real sense that delaware court's uses their look in the mirror moment. they are widely reputed to be able to embrace this place where grownups do transactions with one another and if you put something down on paper and you promise it, they are going to hold you to itself on some level yes, elon musk has a larger-than-life presence but that also has a counter availing effect that the delacorte might have an opportunity to say that even for this person, we are going to hold him to his agreements. >> fascinating. i'm sure they will be many more between now and october. thank you as well is our very own kurt wagner who has a date in delaware court in october. coming up, an internal memo sent by facebook executives back in 2018 is the basis for a new antitrust proposal that would force meda to treat all platforms equally. we will have more on that after

the break. this is bloomberg. it is of note . -- ♪

>> a newly released memo is raising alarms about competitive practices in silicon valley and helping to shape regulation. an internal document by facebook executives in 2018 now released by the house has company more worried about threats from their own products like instagram and whatsapp then others. this memo has helped lawmakers put together the innovation and american choice online act that would help curb some of twitter's powers. does exactly what was in this memo and why it matters.

>> this memo was written in 2018 by a senior data scientist and economist at facebook. he actually analyzed the ways in which facebook's own products compete with each other so the ways in which instagram and facebook compete against each other, the ways in which facebook messenger and whatsapp compete against each other and how those were growing or shrinking and that was really interesting because this entire memo is about how facebook's own products are really cannibalizing each other and seen as the biggest competitors against facebook main products instead of any rivals. they're not -- there are not that many external companies mentioned. youtube gets very small shadow. i message gets a very small shadow. tiktok is not even mention here. that is so interesting about how investigators -- it backs up the idea that facebook had brought

-- but these properties in terms of extending their properties for social networking. >> what is the impact this memo could have on pending regulation and impacts on facebook's laws that facebook is going to have to abide by? >> congress right now is considering this legislation in the american innovation and choice act that would prevent some of the big tech platforms like facebook from self referencing. so one thing that facebook does is take it really easy to cross between facebook and instagram. -- cross post between facebook and instagram. this legislation has advanced in both the house and senate but still needs a floor vote and there's been a lot of pressure in the senate in particular for this to come up for a vote before the august recess and

lawmakers leaving for the month and then when they come back, they are really focused on the november election. this is seen as overly large and last window for congress to actually act on the legislation if something is going to happen this year. >> any response from facebook about this? facebook is the one that handed over the memo in the first place. >> they said this was old news from 2018. the landscape has shifted since then. i do like to bring up that tiktok is an emerging rival and they think there is still a lot of competition in the social networking space. >> all right. something we will continue to follow. thank you for that context. coming up, netflix is testing its new release strategy. new viewer experiences. we will see if that is the secret to stopping subscribers from fleeing. that is next. bloomberg. ♪

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>> welcome back to bloomberg technology. i want to get back to our top story and that is netflix shares

still jumping after hours after the streaming giant reported lower than expected subscriber's but the forecast still lower than expected recovery in the current quarter. ed ludlow is here with charge that matter. >> we are up almost 8%. there are two ways of looking at it. they lost your subscribers. 170,000 is still quiet a lot of subscribers to lose and the other way of looking at it is that the forecast of the current time, they expected to grow by less than previously forecasted. i think a lot of questions the analysts have is the changing face of netflix as well. if you come to my bloomberg terminal and look at this chart, what necklace is able to do is get more revenue out of each user and one of the questions coming from the sell side analysts and of the webcast call for earnings is the advertising

model. you see that arp you averaged revenue per users jumped kind of 50% in 2016. even subscribers have kind of slow down in the growth picture on the subscribers front has not been clear. they have been able to squeeze out more money from them. the other part of the story is where netflix is doing well. this other chart by me is really fascinating. lower than subscribed losses -- lower than projected subscriber losses. netflix has done so much around local language content in countries like korea and the indian market and you look at where that bus is coming from is the u.s. and canada where netflix raise prices on the service in the first half of this year. the after hours are really interesting. really hard to get one's head around them. >> i want to stick with netflix. we want to return to growth after losing almost a million subscribers. this ceo joins us now.

do you like what you see? i know you're a big netflix holder but here we are having lost another million subscribers. >> yes or know. obviously losing subscribers is not a great headline but you have to look at it in the context of rising prices in the united states and the fact that they don't have a way to monetize people who don't want to pay. that turns out that 30% of people watch netflix don't play -- pay. that is why people are so bullish about the strategy that necklace will be employing to get people to pay. it is a two-pronged strategy. one is the ad supported tear. i think that is a wonderful opportunity to address a global upper -- global market. as an advertiser myself, i would put ads on netflix and secondly, from getting some add-on revenue from the people who use their mom's account. so this is a wake-up call to millennials across america that

they are going to have to watch ads if they don't want to pay for netflix or their mom can pay another couple dollars a month but the days of free streaming are definitely over for netflix. >> what is your take on their content spending strategy? >> they spend a lot on those hits but it seems like netflix makes a lot of stuff. would you advocate them spending less on fewer but still big hits rather than on everything? there seems to be a little bit of this spray and pray element. >> when you are serving the world, you have a huge audience to make happy. a lot of content they make is really for niche audiences one way or another that they are trying to serve throughout the world. you have to look at it from how much goes out and how much comes in verses and what they get for what they are spending. i think one of the things in the report i found very interesting was the fact that netflix is

getting to the point where they are advertising the same amount as they are spending on content. they used to spend a lot more than their advertising. so what they are really getting out of their financials is profitability on the content they have. if any group of people that i trust spending content is the group of people at netflix. they just make amazing content and they have a great team. >> valuations have dropped out there and i wonder what you think about mna. could netflix acquire some new capabilities here? ? what about a roku or a theater chain? >> i was pushing toward the theater chain idea. i love the vindman was not -- i i would wait another two weeks to watch it on netflix as a user. it would not matter to me. it makes me sad that there are not movie metrics. they are moving toward gaming

with their partners and microsoft. i am really happy with microsoft and netflix moving into the gaming area together. what a great partnership. netflix is still -- if you look at the way disney has monetized ip and marvel. that is what necklace is thinking about in their future. how do we monetize our ip better? how do we get more revenue dollars per user? they life events and you saw that with the netflix comedy central -- comedy specials. i think that is really the thinking there. we are very big copy with lots of subscribers but there is a huge amount of revenue that they are really focused on this. i think that approach is really attractive to me as a shareholder. >> i also want to ask you about tesla and twitter. i know you're a big tesla holder and i understand you will twitter until elon musk decided

he wanted to pull out of the deal and now we are seeing this judge fast-track the trial as twitter wanted to do and there are certainly signs that they could force elon musk to do the deal. what is your take? >> i am not a lawyer so i just want to say that i have a pretty good understanding but i am not a professional lawyer. my take on this and i have spoken to many legal people about this as well. my own experience in launching murders over my life is that elon has made a big mistake. this is a mess. there was a material effect on twitter and you can't deny it and pulling out of the deal has severely damaged twitter and their future. so i think you want is at risk to potentially lose billions of dollars in damages but i don't see a court forcing a person to -- a court forcing a company to

run a company they don't want to run. twitter has been damaged and the question is whether they find that damage to be you on's's fault not because of the -- elon's fault or not because of the information that he received about twitter. in my mind, he got information about twitter and he breached their agreement. >> it is a real positive for tesla. he will not be the ceo of twitter. he is not going to be the ceo. i can tell you that. he does not want anything to do with it. that is the bottom line. he will lose billions of dollars. he is a very wealthy man so he will survive but to make tesla perspective, tesla is in massive growth mode right now. there could not be a better environment to sell electric vehicles in and they got these two brand-new factories and the focus needs to be on tesla right now because the next 12 months, the 18 months are the most

constant once for tesla's future i have seen in the eight years i have been an investor in tesla. i am happy that this is still a waste of time and it is still distracting but i am happy he will not end up being ceo of twitter and hopefully he will learn his lesson and focus on what he has done great which is tesla. >> stranger things have happened. i am going to keep using that. coming up, calls from clear crypto regulations are getting louder. gary gensler says there are laws in place and crypto platforms are not coming forward. more on that next. this is bloomberg. ♪ >> there is a lot of noncompliance as in if you raise money from the public and that public has anticipated based on your efforts some profit, that comes into the securities laws.

we at the fcc will do what we can but there are far too many of these platforms that had not come in to basically comply with the law.

>> when you look back, there was very little self-regulation. there was inane risk management where companies took massive leverage, they took asset liability -- they let them out long. those are the two ways people

always did it. >> crypto companies might have needed to better self regulate. he was at the bloomberg crypto summit in new york along with the head of u.s. policy for coinbase. look, a couple of competing narratives here. one is that there is no regulation, this according to the chair of the sec. the companies are not listening, they are not coming forward. what do you think? >> we actually pride ourselves on being compliant and being the most secure. we are regulated by 42 state licenses. we view ourselves as very well-regulated. we are regulated at the federal level. we have a broker dealer license. we think there is a regulatory framework in place that was pretty effective.

we think what we need to do is modernize those rules. and bring them into a space that can really understanding technological capabilities of blockchain and digital assets. >> if those rules were modernized, do you think the spectacular crash we have just seen could be avoided? >> i think it is difficult to predict but may have happened. there were clear rules of the road with all different types of companies engaged. we saw through the recent volatility that the issue was really a credit problem. not a crypto problem. what they are hoping for is that this will help consumers understand what will happen and you have businesses and

innovators and new product -- projects that can come to the table to comply what could be considered some vague rule. >> there is a crypto bill being pushed by senator gillibrand. i spoke with them about why they think this could be it. >> this total bill is more likely to be diverted to next year. it is a big topic. comprehensive. it is still new to many u.s. senators. >> i am so glad, i am from the great state of wyoming. i hold all the work that they are doing very near and dear to my heart. my grandmother very much

believes in it. this bill is far and away the most comprehensive, detailed -- the intellectual rigor is really impressive. i think she is right. this is very complex. her bill includes the sec jurisdiction, tax reform. putting this puzzle together will take time. allow different committees, -- a lot of different committees. i think we are set up for success in the coming years. >> coinbase is aspiring to be a global company and crypto is a global market. our other governments during this better than the u.s.? are they ahead of the u.s. on regulation? >> part of that is just by the

fact that there may be a single regulator in the u.k. or in this instance of eu, they are putting forward a very comprehensive approach to digital assets. we are seeing additional work in india and singapore and japan and australia. there are a lot of different countries coming to the table and working with stakeholders and consumers understand what the impact of digital assets are. i think that is where we need to get in terms of creating a rulemaking process that is transparent, engaging stakeholders, thinking about those details and -- retailers and institutions. that is what we are missing in the united states right now. >> just about 30 seconds left, we have u.s. midterms coming up. could that be a pivotal moment? >> 100%. we have more crypto advocates, more crypto allies.

they are understanding about what is going on in the crypto space. it is really happening at the state and local level. we are regulated at the state level and we have wonderful regulators across the united states but at the end of the day, we really have to make sure that does being elected to office understand that this is the future of finance. it is the future of the economy and the more we can help educate those policymakers as they come into office, i think we will be better off. >> thank you for giving us your view on the landscape. coming up, controlling computers with your brain. no hands needed. this is not science fiction, it is reality. we will have more on the company that is making it possible. that is next, this is bloomberg. ♪

>> in this week's techonomics, controlling a computer with your brain. this may sound like something out of a sci-fi movie but this technology already exists. the founder of the company joins us now with more. >> we are not talking too much about the patient out of respect for privacy but the patient has severe paralysis due to als. he is not able to use his hands were speak and he depends on the system technologies to communicate with his friends and

family and he is looking for a way to improve that capability. >> how will this implant help him? >> the concept is essentially the idea that we have been dependent on digital devices to engage with the world but there is a part of the brain that controls our fingers. we use those fingers to point and click and if we can go to the source of the brain that controls them -- controls the pointing and clicking, we can tap into that. >> what are you hoping to learn from this patient experience? >> this has been a long journey. we became the first company to get and not -- get an approval -- we are primarily focused on safety but now we are testing out how we measure efficacy. the fda has publicly stated it is not obvious how we would

quantify the effectiveness of this and we are starting to test out the parameters with a view toward preparing that packet for fda approval and commercial launch. >> as i understand it, your technology is ahead of what elon musk has accomplished. how much farther ahead and how is what you are trying to do different than what he is trying to do? >> i would say we are at the beginning of a renaissance of brain science and i think this is going to be a huge problem that solves for many patients. there are many ways to try to solve the problem. we are going into the ring from the blood vessels. we are on a particular path with fda and we have been able to leverage decades of knowledge about leaving devices in blood vessels and the way we can expect the body to react to that. it is a different approach, it

is a big problem and i think there will be many approaches needed but we are excited to be finally getting into the clinical stage after five years of discussion with the fbi and demonstration of safety and testing of our technology. >> who do you imagine will be doing this in the near term future? is this something you see anyone opting to do? >> paralysis is a massive problem. we probably all know somebody who has lost the ability to use their hands. many conditions make our body effective. the big focus is to make sure that the patient population -- the way i think about where this technology is going, it will be something like lay sick. an elective procedure that up to engage with technology more. you overcome physical

disabilities and to reestablish a digital world. >> you think that in the future, putting a device inside your brain will be as easy, simple and desirable as getting basic eye surgery -- lay sick -- lasik eye surgery? >> the types of physicians putting in stents and pacemakers are using the same technology that could be putting in a computer interface. it is a one-day procedure, it is invisible to the outside world and it helps you reconnect and it upsets all the things that come with the human body that can fail for a number of reasons. >> fascinating.

i understand you have done this a handful of times in australia but today, your first u.s. patient has this brain implant. we will follow your progress. thank you for joining us. that does it for this edition of bloomberg technology. don't forget to check out our podcast. you can find it wherever you get your podcast. as always. i am emily chang in san francisco. this is bloomberg. ♪

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