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tv   Bloomberg West  Bloomberg  August 7, 2014 11:00pm-12:01am EDT

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>> live from pier three in san francisco, welcome to "bloomberg where we cover innovation, technology, and the future of business. first, a check of top headlines. zynga suffers from a delay of games. the company says some new titles will be delayed as revenue falls 34% in the quarter and the company cut its forecast. much more on zynga, coming up in a moment. news corp. spun off from 20 century fox last year. it is struggling as it transitions from print to digital. revenue fell 3%. ad sales at "wall street journal" and "new york post" fell 6%.
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book publishing at harpercollins was one of the bright spots. google and barnes & noble are teaming up to take on a common rival, amazon. barnes & noble books are now being offered for same-day delivery in select cities. this coming after amazon expanded its same-day delivery program. our lead story of the day. the clock is ticking for zynga's ceo to turn around the once dominant social game maker. the second quarter was another weak one. revenue down 34 percent and zynga posting a loss of more than $62 million. the company announced new games with the nfl, looney tunes, and tiger woods, but some already-planned games are being pushed back to allow more time to transition to mobile. zynga, once dominant in social gaming, is facing a tough time. how did the company get into this situation in the first place? cory johnson has a look.
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>> in the beginning, a social gaming company was started by harvard mba mark pincus. named for his bulldog, it became zynga and had the good fortune to tie itself to a young facebook, launching poker on facebook in 2007. megahits followed. mafia wars, farmville, and quickly zynga became the number one app maker on the social network. venture investors swarmed to the start up. reid hoffman, peter thiel, even google. by 2009, the company had 200 million monthly active users.
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but some problems started to emerge. only 2.5% of users actually paid zynga anything, and as an ipo looms the accounting at the zynga was interesting. zynga made a bunch of legal accounting changes, effectively taking revenues from the future and pulling them forward. without these changes, zynga would have lost money every single quarter. but with the changes, profits appeared, and so did an ipo at a $7 billion valuation. a few months later, the company had a secondary offering and the ceo sold $200 million of shares. the stock began falling, and in late 2012 sales fell, never to recover. layoffs began. kleiner perkins took another seat on the board and pincus was outed as ceo, replaced by xbox executive don mattrick.
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he got a $1 million salary, a $5 million signing bonus and more than 10 million restricted stock units from zynga. they cut users by 2013. by the end of one year of his tenure, the same problems exist. and a draw in more users? can they launched another game, -- can they launch another hit game, and can they launch games with the same skill they launched a stock? >> cory johnson, here with more now on zynga and the results today. not great. >> not great. look, they are up against it. 130 million users now, a little uptick in user numbers. a lot of members not good, pushing out games, trying to develop more mobile games. not totally miserable. they had a lot of revenues, just 35% less. >> they are pushing up most popular games. poker, "words with friends" -- why? >> don mattrick is pushing them
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out so they can get more development on mobile and better games. he says by the end of the year half of the r&d will go toward new games. they recognize they need hits, and they don't have them. one of the lessons to take away from zynga, outside of all the craziness about the accounting, is that it is a hit-driven business. it is really a credit to electronic arts, activision, take2 interactive, companies that repeatedly came back with successful games, new game franchises. it is an impossible task. >> people are obviously playing games. i wonder if it is this particular kind of social game where they found it difficult to make money? you play "words with friends" -- >> i don't anymore.
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>> one of the departed. >> perhaps. but people play a certain game for a while, and they see tremendous success with other games. clash of clans, remarkably successful. candy crush is essentially its own ipo with king digital, a one-hit wonder. >> and questions are about whether they have another hit. >> the same issue. so they have got some time, they have some money. the stock has gotten destroyed. but they made some financial steps to guarantee long-term existence, not least of which buying the building they are in. that works as long as the bubble stays alive. but they have to find the right games to draw users in and fulfill the promise they sold to investors when they went public. >> are there other social gaming companies doing well? they seem like such short-lived things when they happen.
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>> i don't know the social aspect is the part that really works. the things that have worked well are the mobile gaming experience. it's clear they are starting to think of not attaching themselves to the facebook platform. you might say, was the success of zynga -- >> completely because of facebook? >> that is something people could do on facebook. >> cory johnson, editor at large. we will continue to follow this. see if don mattrick can get it together. >> i wish him well. >> he came from microsoft and xbox -- >> where he had great success. if anyone can do it, he can. >> barnes & noble tries to fight back against amazon, teaming up with google. we discuss whether this new partnership will actually steal some customers. that is next. ♪
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>> welcome back to "bloomberg west." google and barnes & noble are both worried about competition from amazon. the companies are teaming up with the aim of swiping customers away from the e-commerce giant. starting today, barnes & noble will offer same-day deliveries from local stores through google shopping express. right now, the service is only available in the bay area, west l.a., and manhattan. earlier i spoke to cory johnson and paul kedrosky. i started by asking paul whether the move could really hurt amazon that much. >> i think it is wacky.
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it makes so little sense that i have to assume it is about something other than what it seems. my analogy, imagine if tower records had done the same thing back in the dying days of cds. in the age of digital delivery they said, we will find a way to quickly get cds to your house. does this mean now you promise not to buy things off itunes? it doesn't change anything. there is an alternative, having them delivered digitally. i don't have to wait for four hours later. if i want a book, i can have it right now. i assume this is using the barnes & noble shrinking balance sheet to help google run an experiment that will ultimately have nothing to do with them. >> i have compared them. amazon has almost everything that barnes & noble has but at a cheaper price. more vendors, more things to choose from. how do you compete with that? >> that has been the problem for barnes & noble for quite a long time. amazon, using its technological heft to make sure when you run comparisons on the things barnes & noble might have a deal going -- >> is there a book you really want and need same-day? >> to the analogy, first of all, records were these things made of vinyl -- [laughter]
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>> i don't recall. >> paul can tell you about the 78's. but i think what you see google doing here is partnering with lots of different retailers to create an alternative to amazon. using the balance sheet of barnes & noble, of everyone else, best buy and so on. you see ebay doing the same thing with ebay now, where they are partnering with retailers trying to give the big retailers a way to be online and compete with amazon as it marches on. >> with ebay now, we talked to john donahoe about this, and he says it will be a niche business. amazon has such a lock on delivery. can google really compete? >> i think it can, but you will get into a much more interesting long-term story about alternative ways of distributing things same-day, which comes a story about drones, self driving cars, and suddenly i get my groceries from drones are self driving vehicles. this is the direction all this
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is going, those mundane things we don't really want to do that will become a big chunk of how things get delivered. you can't do them with fedex because the economics are broken. so i think that is where this is going. >> i have tried google shopping express. it is ok. there is not a lot of inventory. but i guess if they build it out, perhaps it is a way for retailers to compete. >> one of the reasons this is happening now is because amazon decided to bite the bullet on local sales taxes. they had built their entire distribution network on avoiding taxes by building the solution centers in places like nevada. now they are coming much closer to urban hubs or they can effect this delivery service. i was struck when i was running an errand in the middle of the day meeting someone in san
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francisco, and i saw these google trucks all over the place, making an effort to be in this business. i wonder about what -- if google's aim is to provide information to everyone who can get it, providing stuff is a very different business. you wonder if they're getting too far afield from what they do best. >> what is the biggest threat to amazon right now, paul? is it a company like google? where do they have the biggest challenges ahead? >> it is more companies like walmart.
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amazon is increasingly moving away from digital products. people have a beachhead in acquiring physical products. it is less about google. google will only go so far down physical distribution business. walmart and target, those of the companies with the big balance sheets with a vested interest in maintaining businesses. that is where the threat is. >> what do you think? >> i think amazon's biggest threat is amazon. the way they dance so close to the cliff with their financials. amazon does not really turn a profit, really. they put so much of the money they generate from the business into the business, that anyway they might falter, a stock price collapse, would affect their ability to get the best people, which they have been able to do because of the stock price rise over time. >> over the long-term, when do you see amazon, the margins getting bigger? when do you see jeff bezos saying, it is not about long-term growth, it is about right now? >> i think it is the day wal-mart dies, quite honestly. my long-term for amazon is frustrated shareholders punishing the company and deciding they want to be part of something else. i have said that for quite some
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time and have been wrong, but i will keep saying it until i am right. >> cory johnson and paul kedrosky. hip-hop pioneer russell simmons wants to expand his business empire into the digital world, and he just got cash to do it. simmons reveals his grand plan, coming up on "bloomberg west." ♪
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>> i am emily chang. this is "bloomberg west." the permanent ceo of realnetworks has been named. glaser founded the company in 1994 and has been interim ceo since 2012. they own realplayer and have a stake in the rhapsody music service. they reported a loss in the second quarter and is banking on a turnaround. for more, cory johnson in the newsroom. >> the ceo of realnetworks. it has a familiar ring to it because he was ceo. thanks for joining us. what are your plans to get revenues increasing? >> we announced, concurrent with the announcement of my being permanent, that are new product, -- our new product, realplayer cloud is up to 5 million
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registered users, up from 2 million three months ago. basically the product lets consumers play video from any device they have and play it on any device. we do it all seamlessly. the product is, we are very happy with the uptake. it is a premium model, kind of like dropbox for video, and we are optimistic the product will be the cornerstone of how we revitalize the company -- >> obviously that is a lot of growth in a short time, but 5 million is not the number you want to get to. >> absolutely not. 5 million in 9 months, if we were a startup we would be one of the hottest startups. clearly we have advantages, existing realplayer users, but we are getting them to do something very new. we want to grow that to the tens of millions and beyond. when you have a product like that at a significant scale, it ought to become a good monetization source. that is the program that companies like dropbox have
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used. facebook, over one billion users, that would be fantastic, but when we get into the tens of millions and we can rollout partnerships with mobile operators, our goal is to be the premier way for people to take video and play it on any device, on any service, just be that video services application. >> you are right. the comparisons to you, a company that has been public for more than a decade, are very different from startups. one of the issues is about cash flow and burn rates and things. talk to me about what you need in terms of cash, how long your cash can last -- people online are making some crazy speculations about you burning through the cash you have got. >> we are in a fortunate addition. historically, we have been conservative with our balance sheet. we have about $200 million in the bank.
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i'm not worried about that. i want to make sure we make a great product. if you look at reviews for realplayer cloud, we have a new slingo product, and we like those products, too. that realplayer cloud will be the foundation. the nature of these products, they take a certain amount of money to build and we have a decent-size team we are investing in. but they are scalable. we are not sending hundreds of millions on infrastructure. right now we use amazon web services. we have been in conversations with others. it is the reason why venture capitalists like businesses like this. when you get to critical mass they tend to have good long-term return. we measure return in a different time period from some companies. i told investors, this is a three-year or for-year process of turning around the company. the first phase is great new products. the second is uptake in the market, and the third is to drive monetization.
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the fourth is regenerate scale to generate profits. we are two years into the four-year process. now on to the third and fourth things. >> rob glaser, the once and future king of realnetworks. thank you very much. >> coming up, russell simmons, one of the pioneers of hip-hop, is now trying to expand his business empire with a new digital platform. we join him to talk about the new venture, next on "bloomberg west." you can watch us streaming on your phone, tablet, and ♪
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markets."stocks traded down >> time for bloomberg television "on the markets." stocks traded down across the board, what we saw at the end of the day, with the s&p off 0.5%. the nasdaq gaining 0.5% as well. we saw positive numbers on the jobs front, but europe drag us down throughout the session. stay with us here on bloomberg television. ♪
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>> you are watching "bloomberg west," where we focus on technology and the future of business. as the cofounder of def jam, russell simmons helped hip-hop artists break into the mainstream. he has founded a business empire, with everything from music to movies to clothing. his newest venture, all def digital, is helping artists achieve success in the digital world and beyond. the company has just received $5 million in funding. i am joined from l.a. by russell simmons and a partner at grey croft partners. russell, what are you going to do with the money, and where does this mean all def is going? >> we want to find important content. we have lots of young directors
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and writers and comedians and poets and people who need exposure. now with that partnership, we are putting out one record a week with samsung as part of our process. the money, it is not the money, it is brilliance that we need. we don't need $5 million. we need the brilliance. looking at their, these guys know it. the part we need to expound on our ideas, they know the answers. so i have known these guys a long time, and he is like my godfather or something, so having him in, i am trying to limit the amount of money i take from them, but they own a good piece of it and i'm happy to have them because of their brilliance. to define great content and create great content that will be different, special to the
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marketplace and make a difference. >> let's talk about that brilliance. graycroft was an investor in maker studios, which disney recently bought. you have said that mark knows where the revolution in video is going. mark, where is the revolution in video going? >> it's interesting. the younger demographic, there was a piece that showed the top five recalled stars in the world for kids 13 to 18 are youtube stars. that has replace actors and celebrities and musicians. so when russell explained his vision of trying to use these new platforms that are out there for short form video to honor amazing new talent that has not been discovered yet, that has not had an ability to break through, now they can publish themselves. these guys, the ability to develop content platforms around them and go from initial platforms like that into movies, record labels, television shows, what have you, it was kind of a marriage that was too good to be true. >> when kanye west said that
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george bush didn't like black people -- hollywood was so segregated. when we had bernie mac and jamie foxx and tracy morgan, they all emerged because there was an integration process. since then, no one except some of the older def comedy jam guys like kevin hart have emerged. youtube is a race where people -- a place where people can you merge despite the lack of creativity in hollywood. so i get a chance to say yes instead of asking an executive to say yes, so that for me is a process that is very exciting, with so much young talent and
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great talented people who have not gotten a break yet. hollywood, although it is one of the most progressive places in the world, they live in fear. they have not really done a good job of integration. i think the girl in seattle was the first black girl to leave a show since the 1970's. there is a giant white space, and we want to fill it with creative content. >> is this musical content as well? >> we have records, music every week. we are putting out a record every single week. >> that's a very different release schedule that we have seen in any era of the music industry. what about the digital era? >> there is a cure ration process. the algorithms, this technology that lets artists upload music. samsung has funded this buildout, which is part of the process. the idea of milk music, we built this thing, and the artist
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uploads the music and if it goes to the top of the chart we curate from that. these are artists who have built themselves huge youtube or social media followings, and they are ready for release. so we put a single out every single week. a couple of them are becoming stars already. we just started. >> what is really cool is not only the pace, but that the platforms are global, so we are finding talent literally all over the world, and what historically people thought of as urban is everybody now. it is global. >> the girl we are showing right now was up 600% in sales last week. it has everything to do with the collaboration of all these technologies, especially youtube, and samsung helped to fund this.
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>> speaking of collaborations and stars, jay-z was at one time the president of a label you found it. we have been covering the "on the run tour" bringing in $100 million. you see other artists pairing up. i wonder, is that touring the only way for artists to make that kind of big money these days? >> well, when you look at all the deals they have, where they get pieces of everything artists do, the real truth is that jay-z is a business guy. he does a lot to run business. i created a clothing business that i got jay-z and other people as partners to be in that business. there's a lot of ways to exploit emerging talent, especially if
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you are in the various kinds of areas where they want to exploit celebrity. that's what we do. we are a media company that understands all kinds of media, and that is an important point. we do have the artists have a desire to be in them, and that makes us a unique company. >> you have done partnerships, one that resulted in a food fight between run dmc and the beastie boys a long time ago. [laughter] white castle. i remember. but you have done so many videos with so many people. >> you have not aged. >> i have not aged at all. [laughter] look, i wonder what you know now that you did not know then? >> it is good to have smart people. very smart team, that has given us smart advice.
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that's what i'm hoping for, more great advice, more great direction. to show how to best focus. having the partners makes all the difference in the world, and that for me is a gold mine. >> all right. russell simmons, cofounder of all def digital. thanks so much for joining us on "bloomberg west." we will keep our eye on you guys. coming up, competition between lyft and uber heating up as both announce a new carpooling feature. ♪
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>> i am emily chang, and this is "bloomberg west." carpool lane has gone digital. lyft has launched a feature offering to share a ride with strangers for a discount.
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currently it is only available in san francisco. rival uber announced a similar feature launching later this month. so how can carpooling help lyft? the ceo joins me now. how do you coordinate these people? >> 90% of lyft rides have someone else going the same direction within five minutes. so we are taking the two routes and matching them up and saving users up to 60%. >> uber is testing out something similar later this month. how will it be different? >> it is flattering to see others follow when we are innovating in the space. but i think one thing we really created is the sense of community and culture of sharing within lyft. that fits well into the new product and it is true to our roots and vision. we created a company before lyft
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with long-distance ridesharing and carpooling, and now we have come full circle. >> what if no one else is taking the ride in that direction? >> we still give you a savings. it could be 10% or even more. >> so if you say, i agree to allow someone else in the car with me, you still get a discount. why won't everyone to start doing that? >> we hope everyone does. it will be the best way to get around. we are combining the concept of public transportation with on-demand rides to create personal transit at your doorstep. it is really enticing for users. we have already seen hundreds, and today we will cross
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thousands of rides. >> so we have a lot of lyft fans on our team. i wonder, there was a, what if i get into an uncomfortable situation? how do you handle that? >> people have those questions when we started. we have created this incredible experience where you have screening upfront of both drivers and passengers that create accounts and have profiles. it has worked out really well. we have done over 10 million rides on the platform and have 60,000 drivers on the platform. so people do want the service. they are using it in large amounts. the social peace, as long as you design for a safe and convenient experience, it works out. >> so riders pay less, drivers get more, but fewer drivers are needed. how does that work from a supply and demand perspective? >> at our peak times, the commute, in the mornings and evenings, it is nearly impossible to get enough drivers to serve those needs. when you start creating a five dollar ride or seven or ride wherever you need to go, that increases demand. so it is about creating your daily ride. when you create something at a
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five dollar price point, people start getting rid of their cars. the story that was told previously is that what we are doing in this $11 billion u.s. taxi and limo market, our competitors are taxis and limos and uber, but we are going after the consumer transportation market, a 1.1 trillion dollar market, 90% of what is people are spending on personal vehicles. >> obviously you have some challenges in new york city, made some compromises with regulators. some say it is not lyft anymore. others complained that there are not drivers. >> we are seeing incredible demand in new york city. >> but is that because there is no supply? >> it is our third-highest demand across all 67 markets. we have only been live for about two weeks. so markets like chicago that have been live for over a year are not even seeing as much
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demand as new york city already has. it is a massive opportunity. we have created somewhat of a new product, what we call lyft pro. because regulators said it had to be this way. we are working on bringing peer-to-peer lyft as well. >> how will you get more drivers on the road? these people had to be licensed by the taxi and limousine commission, and some of them might already be driving for uber. >> we heard yesterday there were 1000 drivers outside our new york city office. people want the opportunity. we are just scaling really fast. >> we will be watching. john zimmer, cofounder of lyft, thank you for joining us. less than impressive earnings -- we look at three tech companies having a bad week, next on "bloomberg west." ♪
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>> welcome back to "bloomberg west." i'm emily chang. it is not all fun and games in tech. looking at three tech companies having a bad week. you know what people are talking about. three tech companies having a bad week. what are they? >> linkedin is having a terrible week because they did not do accounting correctly. they did not pay overtime. now they're having to pay fines and all those back wages. >> $6 million in unpaid overtime benefits. >> it is one of the things where
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the money is not as bad as the credibility they lose with employees. linkedin was known as a professional company. it's a company about being a great professional. so they came to the realization they owed these wages, reported by the employees. >> there was a department of labor investigation over this. linkedin said they would pay them. >> this is what happens. you realize it will get out there, we need to get ahead of it. usually companies of that scale don't do this in a malicious way. this is not like a small business that cannot afford to pay you. they have systemic errors in process. >> i also wonder why it went public? is usually gets resolved within the company. >> employees decide that if the company is not moving fast enough, they need to make a public disclosure to an agency that oversees labor. >> second company, groupon. >> groupon is having a terrible week. they are just moving too slowly here. they have to transition from couponing to e-commerce. the e-commerce, they are entering a market where they
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used to be first, to a market where they have competitors like amazon. they have to learn expertise in one year that amazon has been doing for 20 years. >> is that the right strategy? e-commerce has seen so much weeding out of the small and medium players. it is tough to beat amazon. >> i don't know if they have many options. they have a lot of acquisitions and they are trying to figure out how to scale and integrate them. the scale has not materialized because they have not scaled up. however, the business is still pretty good. they have enough success to continue to fund investment. they have to continue this for the next five years. maybe the market doesn't like that story. >> do you use groupon? >> occasionally.
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>> for what? >> if you are going to do something anyway, or buy a stake, maybe you go to a -- a steak, maybe you go to a merchant that gives you a better deal. >> i sort of thought the deals were not that great. >> some deals are fantastic. it is a power law. a few deals are good all the time, and others -- >> number 3, 21st century fox. >> time warner on the other hand is having a -- >> there is a little nuance here. >> one side is having a good week, one is not. a self-fulfilling prophecy. trying to make the acquisition makes the acquisition more expensive. like watching inflation erode your savings when you try to buy a house. fox is doing the inflating by creating a deal shareholders don't like. >> i'm checking out the charts. fox stock went way down after the date, and did go back up after they withdrew the bid. time warner also plummeting.
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>> they had the largest increase ever since the ceo took over, and then lost that. >> you run a media company. where is their innovation in media to be had? >> right now innovation in media is in two places. premium and mobile. we are majority mobile now -- >> all the cats are on mobile. >> this question -- remember the last time you got coffee before you had a cell phone, what did you do in line? today we are using that time for entertainment. we play during those times when we used to just stare off into space. >> so what happens in the media
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landscape? everyone feels they can start a new content site. >> it is really cheap. the problem is, platforms is -- are making the barrier to entry zero, but giving distributors more power because the market is fragmented. so we see a divergence between distributors and content creators. >> i think you'll be back to bring us a few more of these lists as the show goes on. great to have you on the show. the guy who made memes mainstream. i appreciate that. time for the bwest byte, one number that tells a whole lot. cory johnson, you have the byte for us today. >> 35,000. xiaomi sold 35,000 phones in india. the company needs to ramp up, because they don't have the manufacturing ability to make more than that. xiaomi still wants to see smart phone sales go from 20 million last year to 100 million. counting on india for growth,
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but right now just selling 35,000 phones. >> we talk so much about the mobile market in china, the largest in the world. but india is an untapped market, even by companies as big as apple. >> phones are sold without subsidies. we are accustomed to a long-term contract. the phones go for a retail price of about $230 or so. much more affordable. that is still a lot of money in india. >> india, the next mobile frontier. cory johnson, editor at large. thank you for watching this edition of "bloomberg west." you can get the latest headlines all the time on your phone, tablet,, and bloomberg radio. see you later. ♪
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