tv Best of Bloomberg Technology Bloomberg August 31, 2019 11:00am-12:00pm EDT
♪ emily: i'm emily chang and this is the "best of bloomberg technology." coming up, our exclusive interview with with uber's ceo on how the ride-hailing business has changed and the path to profitability. plus, we talked to the cofounder of apple to find out what he thinks about the shift from hardware to services. and a new study finds e-cigarettes are no safer than traditional cigarettes.
one attorney general has filed multiple lawsuits to keep them out of the hands of teenagers. but first, to our top story. two years ago, uber's infamous ceo travis kalanick was forced to resign after a series of scandals. dara khosrowshahi was brought in to rebuild. he has brought in new management and pushed the company beyond ridesharing. it has not been entirely a smooth ride. a big ipo spark investment but investors were not impressed and has traded at a low price since. i sat down with uber's ceo and began by asking if he had made the right decision to join the company. dara: we have resolved the governance conflicts the company had. there are many issues the company was involved with.
as a partnerank and you want them behind you. we have a great investor base. we have taken the company public. revenue has grown 75% since i joined. we now have a path to profitability. so while we have had bumps on the road, i like the position we are in now for the next years. emily: there have been bumps on the road. and despite all the negative stories, uber, lyft, ridesharing companies have been transformational. the big question for you is, can uber be as transformational over the next decade as it has been over the next decade? dara: i think so. really, what uber has done is brought transportation and opportunity to what we believe is a small segment of the population. we have 4 million driver partners all over the world, which is a huge number, unparalleled, but we want uber
to be available to everybody. what we are doing now is going into the next step of introducing other transportation choices to uber. we have always gone with pool, but for example, we are testing buses in cairo to bring the cost of uber down. we are introducing bikes and scooters for personal electric mobility. so that, essentially, any way you want to get around your city, we will be there for you. it will be mostly uber goods, but we will have third parties, such as transit, lime. anyway you want to get around, we want to be there. if you want food, local commerce, uber eats and other services will be there for you as well. emily: i guess the question is, can uber be transformational and stop losing money? the prices sound attractive, but can you create a good business where the rides are $1, $1.50? dara: yes.
if you look at our rideshare business, it covered our overhead less $100 million, so the rideshare business itself is turning quite profitable and we believe the profits of the rideshare business will grow not only topline, but bottom-line as well, and there are other businesses, eats, autonomous -- these are extraordinary opportunities we are funding. but i do believe we will prove to investors that we can take on a serial basis big parts of our business, turn them profitable, use those parts of our business to fund investments in other areas. emily: there are execution issues. you just had your biggest quarterly loss ever, $5.2 billion. the stock is trading below the ipo price. investors seem to love shorting it. you have hiring freezes. some of your top hires have
left. you said you believe uber can be profitable, but how confident and quickly can uber be profitable? how confident are you uber can be profitable and how quickly? dara: i am very confident. the losses we reported was a $5 billion loss from an accounting perspective. if you live in an accounting world, that's a real loss. i live in the real world. in the real world, our ebida losses were lower than q1 and we are on a good path in terms of our ebida losses as well. but you are absolutely right. none of this will be easy. all of this will take excellent execution from all of our teams, marketing, technology, etc., and we are going to be demanding our employees do more with less and to execute incredibly effectively in order for us to grow topline and bottom-line. emily: is pricing the main lever you pull to profitability or are there other drivers?
dara: scale. scale. it is getting big when you have over one billion rides a quarter and you have got trips growing 35% year on year. we think we can use technology to be more efficient. for example, instead of emailing a call center agent or calling a call center agent if you have issues, you can do it in the app. these are technology innovations that allow customers to have a better experience and bring down costs. so the combination of growing topline over 30%, technology innovation to delight the customer and take costs down at the same time and good , old-fashioned efficiency, making sure costs don't grow as fast as revenue. all of those together are the formula to get to profitability. emily: just days before i spoke with him, a former uber engineer pleaded not guilty to charges of stealing technology from alphabet's waymo unit. it adds a new criminal chapter to the saga surrounding the
civil claims of trade secret theft against uber. this was one of many legacies dara khosrowshahi inherited when he took the top job. i asked him if he still feels the weight of previous management. dara: you need different kinds of management for different times in the development of the company. listen, every management has their faults. i have my faults, but they built a great company, and now they have handed it to me. i have to take that great company and make it greater. i think i am up for the job. and while they made their mistakes, the fact is that they built a great brand that had witnesses and has incredible strengths. it is my job to take it to the next level. emily: anthony levandowski, the guy who ran the trucking business that uber bought, was just charged with stealing self -driving technology from google, stealing trade secrets. what do you make of those charges?
dara: um, i wasn't here when we brought anthony on board, but what i do know is we went to incredible depths to make sure any information anthony might have acquired from google, and it sure looked like he did, did not make it over to our company. that was our responsibility, and i think we were incredibly diligent in making sure that we were not guilty of anything that could be nefarious one way or the other. we think that when you build, you've got to build the right way. anthony is an incredibly talented person. it did not work out, but we did the right thing. emily: the person who was here and spearheaded that acquisition which might cost uber $100 million and is still cost credibility is still on the board, travis kalanick. i asked you this on ipo day and i feel i have to ask it again, do you question his position on the board? dara: i think that i am going to live in the here and now.
travis has an incredible amount of historical knowledge about the company. he is incredibly bright, as are other board members. and i use him at the board. he is a strong advisor. and his background of the company is incredibly useful, and he is supportive. ultimately, we are a public company and the shareholders are going to get to pick their own board and that governance process will take care of itself going forward. emily: you talk to him often? dara: i talk to him usually during board meetings and once in a while offline. absolutely. emily: he is on the board for now? dara: he is, and he will be on the board tomorrow. emily: let's talk about the future, then. to those who say uber is a ridesharing and food delivery company, what is the next big idea? dara: the ideas we have right now in this building are plenty big ideas. we have got ridesharing, food delivery, micro mobility, autonomous, freight revolutionizing how truckers move around.
and how shippers ship product all over the world. we've got elevate as well. we have an enormous number of big ideas and now it is execution time. emily: where do you think most of the technological innovation is happening at uber? dara: it is happening all over. what is unique about our business is that we are a combination of the digital and physical and the two coming together in unique ways. we have interesting machine learning algorithms looking at live supply and demand in the city, what riders are looking for and where they are located, and giving our drivers guidelines of where to go to meet that demand. this matching of supply and demand in a dynamic way and the pricing we have is unique. we continue to innovate there, and we innovate in different spots, such as elevate, how we can bring together different
modes of transportation and tie them together. walking, driving, to helicopter to jfk. emily: you are in charge of not just visualizing the future of transportation, but trying to get there and create that future. when you look into the future, what does the future of transportation look like? obviously, you have google, tesla, traditional automakers, and flying cars, and helicopters as you say. how will this come together and be different? dara: we think we can bring it together. i believe we can have that singular app, where when you wake up, anyway you want to get from point a to point b, we can give you the information that is relevant to you with live pricing, inventory, etc.. we have mass transit in the app. we will tell you mass transit , you can take a bus, subway. you can take an uber, and you can take an elevate as well. we are uniquely positioned as a company to have all that
information together. we can do the same thing for transportation, local commerce and restaurants are only the beginning and we can do the same thing for logistics. emily: that was just part of our exclusive interview with uber's ceo. you can catch our full conversation on bloomberg studio 1.0. coming up, another exclusive. we hear from steve wozniak and get his thoughts on the transformation of the company he cofounded, apple. that is next. and if you like bloomberg news, check us out on the radio. this is bloomberg. ♪
others sure seem to think so. >> we believe this is key to the services business and the opportunity is 100 million consumers in the next 3-4 years. that is the golden goose. iphone is the meat and potatoes, but services are key to growth. emily: we spoke about the shift with the man who cofounded the company, none other than steve wozniak. >> we have been able to transition. we started with the name apple computer. and as we moved into products more personal in nature, we dropped the computer from our name. being flexible and being able to shift with the demands of the market is very important for a modern, ongoing company that will make it. so moving into services, apple is a huge company. apple can only move in directions that will be very large in dollar volume.
and we have moved into other hardware products like watches. heck, that is about my favorite piece of technology in the world right now. when apple pay came along, apple took a lot of steps leading the industry. things like touch i.d., and then all the others had to copy it. now we have face i.d. we took touch i.d. and moved it into apple pay. a system that really protects your identity and credit card purchases everywhere and is so unbelievably easy, especially if you have a watch. you pay so easily. that is important. making life easy is what we were known for in computers. these were computers you did not have to be an expert to use. and now, apple pay, the apple credit card is even more secure. the looks of it fits apple's branding. apple's branding is to have a lot of secrecy about what they are doing but also styling and beauty. and things like that. this card is just the most beautiful card i have had in my life.
i don't even judge beauty that way. i don't put a high value on it. i don't, but it is. it doesn't even have a number written on the card. there isn't a camera that can see what your credit card number is. there is no way people in a retail store ever get your credit card number. it continues protecting your privacy, everywhere you go. what you buy and where you buy it shouldn't be tracked that closely, in my mind. i don't want it. we see that you bought a milkshake two hours ago. i don't want somebody coming up to me and saying that. taylor: you are giving us free advertising because you keep flashing your iwatch around. if i heard you correctly, you said it was one of your favorite pieces of technology. the iwatch when it came out, let's call it mediocre. since then, it has really grown and become a key piece for apple. have they done the right thing
incorporating health services into that? steve: i am not a biggie in health services. but, yes. everywhere i go, people are using it for health services and information. that is one of the pieces of it. the apple watch has so many pieces of it that make it so comfortable for me. walking my dog, not having to carry a phone, not having to use a phone even. i can use the iwatch on cellular, i can text my wife, walking the dog. but apple pay is the best. i put my movie tickets on the watch, my boarding passes for flights on the watch. i can do email, i get notifications all the time. it is great to see what is happening around home. i don't know, i use my computer in the hotel or at home to do a n email and then i move to the watch and pretty much skip the phone. emily: that was our exclusive interview with apple's cofounder steve wozniak. will have more on apple after the break, including how the iphone maker could be a big
emily: u.s. chipmaker global foundries is suing taiwan semiconductor for patent infringement, accusing them of using their technology to help them win billions of dollars in sales. the case has the potential to disrupt the supply of everything from smartphones to pcs. remember when president trump hereby ordered u.s. companies out of china? if india gets its way, it may soon welcome apple with open arms. the indian government has eased foreign investment rules in a number of sectors, a move officials hope will further attract companies like apple. the iphone company is already poised to start sales within months and apple and its main
production partner foxconn have been busy laying the groundwork for some manufacturing in india. we discussed this with mark gurman and david kirkpatrick. been plenty of reasons why apple has not been very successful in india. one of those reasons is because they have had a hard time bypassing laws from the indian government which require them to produce a certain amount of products locally in india. and for a company with its vast supply chain elsewhere in the world, doing that is both a difficult and expensive process. will allow apple to work around that, allowing them to open up an online store and physical retail stores, allowing them to have a much deeper push into the region. emily: obviously, we are in the middle of an intense u.s.-china
trade war, escalating on both sides which india could potentially use to its advantage. how do you think india could potentially benefit here? >> india has had very restrictive trade barriers for many years. there was a big drop in them a couple decades ago, but they still have had more restrictions than other major trade partners. so this is clearly an example of them recognizing they can take advantage of the moment and also serve their consumers. look, apple products are popular globally and have not done well in india. and i think this is a win for all concerned. certainly it will be great for , apple and other companies shipping into india, but the indian consumer pretty much has not bought iphones at all so this is a big deal for them. emily: david kirkpatrick along with bloomberg's mark gurman.
earlier this year, president trump blacklisted huawei amidst escalating trade tensions, resulting in many u.s. companies stopping doing business with the telecom giant. now, president trump said he would relax the restrictions but any reprieve has been doubtful. fuoline hyde and scarlet caught up with the vice president of risk management partner relations. >> the products we are offering our superior products with high quality and all the features and functionality of all of the other flagship phones at a significantly competitive price. i think that is something consumers are missing in the u.s., both in the smartphone area as well as other products and technologies we sell and support. scarlet: if you could be more specific on that, because one big issue we have in the u.s. is the lack of broadband access for people in rural parts of the
country, partly because companies do not want to pay for it. why is it advantageous for rural communities in particular to use huawei gear? what is the sales pitch? >> well, there's a few reasons. frankly, there's over 24 million consumers in the areas that huawei covers. we provide technology and capabilities for operators in these regions. because of our experience, many, many years of experience in rural china, building up the rural chinese technology -- or the communications networks. as we go forward, we are able to provide that expertise, both in the product solutions that we offer that are scalable, both to high levels to large customers, but also to the small customers. along with our services and support that we customize based on the needs of the customers.
the rural customers are a small customer base themselves and are limited in their funding and capabilities and resources, so we help fill that gap. scarlet: a headline that crossed a couple minutes ago is that u.s. prosecutors are investigating huawei on new allegations of technology theft, potentially expanding their probe beyond existing criminal cases against huawei. caroline: this wraps into the issue of stealing intellectual property, which is the main accusation. i want to ask you, therefore, the new additional instances of alleged technology theft -- is this something that is new to you? how are you responding to prosecutors? are you in day to day touch with prosecutors in the u.s. government? >> i cannot really comment on ongoing litigation. i believe that information is related to those investigations. what i can say is huawei is a leader in i.p.
we have over 90,000 patents globally. we have 20% of the global 5g essential patents, and we are a proponent of fair and equal licensing and so on. we license over $6 billion worth of i.p. from other companies, and we also sublicense our ipo to other countries and companies at about 1.4 billion annually. we are concerned about i.p. theft as much as anyone because we do hold a significant number of patents, and we would like to see those issues addressed. but we are a proponent of, you know, of due process and handling of i.p. in appropriate manners. emily: still to come, reading the smoke signals. we will speak to a top legal
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emily: welcome back to "the best of bloomberg technology." i am emily chang. phillip morris and altria started talks to reunite, combining two of the most popular alternative smoking products, but alternative may not mean safer. north carolina was the first state to suit for misrepresenting the dangers of its products. josh stein is taking other e-cigarette companies on.
josh: i am concerned these companies are targeting children. they designed their product, they use flavors that appeal to children. they market on social media the children frequent, they use advertising to appeal to children. the ones i said yesterday either have no age verification or inadequate age verification on their website. that is against the law in north carolina. i care deeply about the health of north carolina teenagers. emily: many of these companies are saying they are giving adult cigarette smokers a safer alternative. if they take products off of store shelves as you want them to do, is that depriving adults of potentially a safer alternative? josh: i want them to stop marketing and selling to kids. ask kids, why do you do this? they love the flavors and they
think it is not dangerous to them. so if these guys will market their product without these flavors that are clearly targeted to children and their packaging, they do them in juice boxes with an actual straw to replicate juice box. they are on snapchat and instagram. there was one ad by eon smoke, one of the companies i sued yesterday. and by the way the massachusetts , attorney general sued them today. but they had an advertisement on instagram of their device that says, no, mom, it is a usb port. they did it to appeal to children. it is immoral, it is wrong, and it is illegal in north carolina which is why i'm going to court. emily: juul has taken most of it's flavored products off physical shelves. you can only get most of them online. is that enough? josh: they still sell mint in the stores and it is very
popular. a buddy of mine who has a ninth grader was telling me school started in north carolina this week, he was telling me what is cool is juul mango. these kids can get their hands on these flavors as long as they are being manufactured and sold. traditional tobacco products, traditional cigarettes you , cannot buy a mango flavored cigarette. you can only buy tobacco or menthol and that is what these e-cigarette manufacturers need to do, otherwise they will create an entire new generation of people addicted to nicotine and that is unacceptable. emily: is the fda doing enough? josh: no. i think they have the right intention and they care about this. the commissioner has declared this an epidemic, so they have the right orientation, but they need to do more. they need to ban these flavors and get preapproval on these products before they
hit the shelves. they need to set a standard on how much nicotine. one of the companies i sued yesterday, the amount of nicotine in their pod is twice what a juul pod is which is more than a person gets from smoking a pack of cigarettes. the amount of nicotine is outrageous. the teenage brain is highly susceptible to addiction. the fda should ban these products when they are not targeted to adults. if an adult wants to buy a tobacco flavor, menthol flavor, i got no problem. that is their right. if it helps them get off cigarettes, fine. but what is happening is children are the ones buying a large number of these products. emily: do you expect other attorney generals to join in on your suit? josh: i would not be surprised. i have heard from a number who are very concerned because they are seeing it in their communities just as i am seeing it in north carolina schools.
emily: you have phillip morris in talks to reunite with altria, which has a huge stake in juul, this would be big tobacco having ownership over the largest vaping company in the world. what is your take on that? josh: i care less about what corporate form these conglomerates take than i do about the business practices that are engaged. i want companies to stop designing their products, packaging their products, marketing their products, and selling their products to children. emily: just to clarify, the eight additional companies you have sued in addition to juul, how did you choose them? josh: we did a lot of research. we had some people do some purchases. and we thought they were extremely bad actors. that is what we allege in our complaint. my objective is to protect young people in north carolina
from these products which are extremely harmful and addictive. these were bad actors in my view. emily: that was north carolina attorney general josh stein speaking with me earlier. juul important to note issued the following statement in we may. have been cooperating with his office and have taken the most aggressive actions of anybody in the industry to combat usage. for more on concerns about vaping products, i want to bring in a professor from the north carolina school of medicine. he published a study earlier this month which finds vaping may not be safer than smoking cigarettes. also in washington, d.c., we have our health care policy reporter. there are a lot of competing dynamics. you have lawsuits from the attorney general of north carolina, corporate potential
deals being made between big tobacco and e-cigarettes. you have new science coming out on this topic weekly. what do you expect to happen with this lawsuit? how impactful could it be? anna: i think it is interesting that the attorney general filed this lawsuit while at the same time the food and drug administration is looking at a lot of these issues he has raised, particularly the flavors that are out there that kids are able to get a hold of in stores, even though it is illegal. i think what is going to happen is one way or another, it seems these flavors will be restricted, whether that comes from attorneys general filing lawsuits or fda actions, which should be becoming final pretty soon. they proposed limiting flavored e-cigarette products to certain stores where there was a separate barrier for adults to buy them.
this would not be a regular convenience store or gas station where they are available now. it seems the outcome will be that flavors will be restricted in some way. emily: professor, let's talk about the science and conclusions of your study, which is fascinating. it all boils down to one question. are e-cigarettes safer than regular cigarettes or not? robert: from a lung perspective, they are not. emily: why? why do you believe they are not safer? we have been studying proteases. upn you get disease, they go , often before we can detect disease. when you get emphysema, there is large amounts well after smoking which causes lung disease. it is a biomarker of harm.
we found them at the same level , whichers and vapers means vapers be at the same risk of getting copd. emily: that was professor robert tarran and anna edney. facebook is adding another layer a protection in hopes of keeping next year's election safe from harm. that is next. plus, au revior, that is what president trump and french president macron said to digital taxes. agreed it was a good agreement. that is next. this is bloomberg. ♪
talks to invest in go jack to boost its presence in southeast asia. sources say one scenario would see amazon making meaningful payment for a stake in the startup. indonesia is the region's biggest economy but amazon has no presence there. and facebook is making changes to political advertising ahead of the 2020 presidential election. the social network is tightening how it verifies who is behind political ads as it tries to clamp down on misinformation, saying, "people should know who is trying to influence their vote and advertisers should not be able to cover up who pays for ads. while efforts will not be perfect, they will make it harder for advertisers to obscure who is behind as and provide greater transparency for people." we spoke about this with bloomberg's kurt weidner and david kirkpatrick. kurt: this is more of the same. last year they said, we need to
verify who you are as an advertiser. we want to make sure you are a legitimate political advertiser who is registered and not a russian troll as happened in , 2016. they also made a database where you should be of the search for who paid for the ads. they want to make sure they are getting ads from people who are registered political agents. they're asking for more information to verify who those people are. emily: you famously interviewed mark zuckerberg after the 2016 election and asked if fake news or misinformation on facebook affected the election. he told you that was a crazy idea. almost three years later, there has been a 180. do you think facebook will be ready for 2020? david: i worry, i really worry. i think that statement zuckerberg made right after the election and pretty much every
action they have taken since then underscores how fundamentally naive the company has been and continues to be. this change is a good one to require more disclosure and checking of whether the political advertiser is who they say they are. but why couldn't they have thought of that before? why did they need to fail the first time they looked for nowsparency in the ads and tighten the screws? up ashould have stepped long time ago, before the election, and thought about how their system would be abused because we are paying the price for the fact that they did not do that. they are trying to backfill. it is extremely difficult. emily: i have been inside facebook's election war room. they have had this in place for several different elections around the world. what else have they done, and what will make a difference? especially given that the real threat, they may not even know.
kurt: they keep using the arms race kind of thing. they say we are taking two steps forward, but so are the bad guys. the big things we have seen on the ad front, you mentioned the war room. this is something they plan to pop up for different elections globally, not just in the u.s., where they bring everybody into one room to better monitor things like fake news and fake stories that might be spreading. that is a hard thing to do to manually keep up with on a platform with more than 2 billion people. i think they will continue to do those kinds of things. they have not announced a lot of smaller initiatives. i think they plan to basically try to fight this with their employees in real-time. emily: this has got a little bit less attention, but facebook has been adding more humans to its editorial staff to decide what goes up, what stays up, what comes down.
as somebody who has covered facebook and been a journalist for many years, do you think this is simply what facebook has to do and andt a failure of ai technology? david: the only way they can make serious progress is a combination of algorithms and people looking at this stuff in every possible way and continuing to upgrade the way they do it because people who do things to deceive are getting better and better also. i think what people need to remember is facebook is the primary place in which politicking happens in almost every country, so they can have war rooms in the u.s., brazil, or the e.u., and that is good. but until they have a way to do this in scores of different languages, dealing with all these different cultural issues, i mean, elections happen every day and
they are being abused every single day on facebook, and that is a deeply challenging problem for this company to deal with. emily: that was david kirkpatrick and kurt wagoner. tech giants like facebook and google can breathe a sigh of relief. on monday, u.s. president donald trump and french president emmanuel macron announce they have struck a deal to end a feud over france's digital tax. >> a date of international tax exists. everything that has been paid will be reinvested. emily: we broke down the developments with laura davidson. laura: france passed a digital tax that would hit google, amazon, facebook. a 3% levy on revenues in france, and the u.s. said this is not fair. you are going after american companies.
there were other tech companies affected, but mostly american companies. the u.s. trade representative opened up an investigation and trump has threatened to put tariffs on french wine. today at the g7, we saw them come to an agreement. france said they were going to negotiate these global negotiations going on. there are 130 countries looking at reallocating taxing rights, which country has the right to tax which profits. france says, when there is a global deal reached, they will take away their tax and basically reimburse all the companies who have paid it. they have not agreed right now ,o repeal the tax entirely but they have an agreement in principle to add a feature date repeal the taxes. emily: which companies benefit the most? laura: google, facebook, amazon.
also, smaller companies operating over there. the thing we will be looking for going forward is this global agreement they are working on. it affects digital companies. digital companies will be taxed, but it also affects farm and manufacturing. it has been a global trend of that multinational corporations, there is a consensus that for too long they have been able to operate in tax havens and countries are wising up and saying we will make sure they are taxed somewhere in the world. emily: still ahead, we take a look at china's booming music industry. one name has been a big hit. that is china's regulator. this is bloomberg. ♪
emily: interactive cycling company peleton filed for an ipo this week. it is the latest in a string of companies that have made moves to join the public markets this year. we spoke with nabila ahmed shortly after the filing. nebula: we are seeing about $6 billion raised by tech companies this year. a lot of those companies are up but then you got uber and lyft numbers havehose not been as good. peleton's numbers show it is not profitable, but their total revenue growth was up 99% and 100%. 110% year on year. net losses last year were $195.6 million. taylor: and you say that's up from just $48 million in losses the year before. so losses are growing and in a statement, they say we expect to incur operating losses in the future
and may not achieve or maintain profitability in the future. as you look at peloton and some of the other deals you cover, what is concerning, the fact that they are literally saying we may not be profitable? nabila: they are all saying that and investors are trying to figure out if that is worth buying into it anyway. because these are high-growth companies, they are choosing not to be profitable for now. they are pulling in revenues and when they get to a certain level, they can probably start to make some profits. but as you say, it's concerning when a company says please by our shares but we may never be profitable. emily: that was nabila ahmed. tencent music is under investigation by china's antitrust authority, according to sources who say the probe could in exclusive licensing deals with the biggest record labels. how did tencent music become so dominant?
we discussed it with bloomberg news reporter lucas shaw. lucas: i would say the concern is moderate. on one hand, it's never good to have regulators looking at you. tencent is in a dominant position across the online media landscape in china and in particular in music. tencent's three music services account from anywhere from 50% to 75% of the streaming market in china. but this investigation, the outcome would likely result in them not striking an exclusive deal. the music market in china works differently than in most of the world. here, the big record labels license to spotify, pandora, apple. a lot of those services don't operate in china. instead what they do is sell tencent the exclusive rights and then tencent sublicenses it two other companies who say they are paying too much and passing the charges to them and making them all suffer for some bad deals that it made. taylor: what has tencent said in response?
lucas: so far, they have said very little. i think they're waiting to see how it plays out. the investigation started earlier this year in january or february. a lot of the people we spoke with said there is an outreach to competitive services and their partners in march and april. and there may be some outcome later this year. my guess is that tencent will try to keep a low profile until they figure out what this will mean for them in the long term. taylor: any idea what the record labels, the music labels involved, what is their impact? lucas: they have a lot on the line because china is a market that many years ago was a nonfactor for them. there was too much piracy, no one paid for music. it has grown a lot in recent years. for that to keep growing, they need deals with all these services and they will have to renew their deals with tencent or make deals with rivals sometime in the next six to 12 months.
taylor: how good is this for competitors? we have alibaba, baidu. how thrilled are they? lucas: these companies would be very happy if instead of having to sublicense from tencent, which means they might not get all the songs they want at a given time, they could just make direct deals with record labels. i was based in hong kong for a few months last year and executives at netease were clear they hated the structure because it gave tencent an advantage. most of those music companies that did not go the exclusive labels, theyndent said they tended to benefit when they made deals with everybody because they had more transparency in their data. the downside of the exclusive deals with tencent is that tencent has a lot of control over what happens with that music in a country where western music still only accounts for only 10% to 15% of all listening. taylor: how much does tencent music mean to tencent holdings?
lucas: it's a big deal, but at the moment it's a $25 billion company where tencent is 300 billion dollars to 500 billion. gaming and social apps are still much bigger for tencent. wechat is a super app where they want you to come in there and chat and watch video and music. tencent has staked out a leading position in the areas of streaming video and music to make sure people never leave wechat. if it loses its dominance in those media areas, the strength of wechat on its users is weaker. emily: that was bloomberg's lucas shaw. that does it for this edition of "best of bloomberg technology." we will bring you the latest in tech throughout the week, 5:00 p.m. new york, 2:00 p.m. san francisco, and we are livestreaming on twitter. be sure to follow our global breaking news network tictoc on twitter. this is bloomberg. ♪
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