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tv   Bloomberg West  Bloomberg  July 15, 2015 11:30pm-12:01am EDT

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perks are nice. but the best thing you can give your business is comcast business. comcast business. built for business. emily: netflix shares are jumping 10% in after-hours trading. we look at the new market and shows pushing the global audience to new life. ♪ i'm emily chang, this is "bloomberg west". intel shares rising thanks to a better than estimated outlook. amazon sales even better than blast year's lack friday. -- black friday. e-commerce team is on the hunt in silicon valley. i will be joined by the chief officer.
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president obama unveiled a plan to bring the internet to america. i spoke with the chief technology officer. we are watching development out of greece. the parliament is debating a note on austerity measures that could unlock a new $95 million bailout of the eu. you are looking at live footage in athens. greek police have been clashing with protesters. we will update you with any developments. we are learning more about netflix's user growth after an explosive week for the company stock. the service hit 65.6 million subscribers in the second quarter, thanks to original shows like "orange is the new black" and "daredevil." they have reached 23 million subscribers in the new subscriber growth.
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shares are spiking and in after-hours trading. joining me now to break down the numbers, media tech managing partner, who has 40 years of experience as an investment banker. also, paul sweeney who covers netflix for bloomberg intelligence. what do you make of these subscriber numbers? guest: they did beat the analyst predictions. but i think hastings is taking a little page or two out of the greek script, because he has serious debt problems. everybody is looking at the company's share price and subscriber growth, but they don't pay attention to the $9.6 billion in off-balance-sheet liabilities that netflix has. he is getting squeezed in content cost. it is not going anywhere except higher and higher, more than double the share price this year.
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he is that svengali of streaming, but there is no there. emily: you mentioned $9.8 billion in off-balance-sheet commitments to pay for original content. how much do we know for sure that amazon is actually paying to produce these hit shows like "house of cards"? guest: it is a huge number and getting bigger every quarter. if you talk to the company about this issue it is something investors are well aware of. investors are looking at it as a long-term story, whereby the subscriber growth remains very strong. it drives revenue, drives profitability, which will ultimately pay for the long-term contingent liability. if you are an investor, you absolutely have to believe that this story, this service will continue to grow dramatically in terms of subscribers, which will
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drive the profits and paper programming. -- pay for the programming. emily: netflix is in and that all of a conference call right now. we are expecting some sort of parity on the timing for this stock. potentially opening higher than ever. what are you expecting? guest: the split was a great move because the next the stock more accessible to daytraders. it will benefit from that split. but the problem that netflix is facing, they are slowing down. they have a maturing market in the u.s. they put 900,000 new subscribers on. the old managers say that turn is horrendous, and getting bigger all the time. they are going to have to do something about the bottom line. margins are barely 4%, which is not enough to make the company sustainable going forward. they will have to look at advertising, which hastings
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says, never. he started doing self-promotion of netflix content on the network, and sooner or later he is going to have to find a way to increase the profitability and margins, or else look at a buyer. there are a few -- emily: like who? guest: he's not going anywhere in china, but he needs somebody like alibaba. he has clones in china taking the market away. emily: what do you think, that the long-term model is not sustainable? guest: i think you have to give netflix a tremendous amount of credit. when you take a look at the business, the domestic u.s. business is very profitable. it is the international business that remains below breakeven
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they say it will turn profitable towards the end of the year. the issue simply is, they are aggressively building the international markets. this is a land grab for a global internet tv service. netflix certainly is there with the brand recognition. they are first to market, and they recognize they are sacrificing short-term profitability for presumably long-term profitability on a global scale. they are trying to replicate the profit story they had developed in the u.s. in other markets around the world. so far, it looks pretty supportive of that strategy. we have to see how it plays out. emily: paul sweeney and porter bibb, thank you both. big day for tech earnings. intel shares rising in after-hours trading. the company predicting
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third-quarter sales may be higher than estimates. strong server demand is making up for following orders in computer chips. they allow for increased mobile internet use. the first quarter, intel took over as the biggest provider of operating profits for the company. coming up, christmas in july. amazon prime day. we will discuss that. plus why google is offering superfast internet service. a new white house program, next. ♪
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♪ emily: it seems to be christmas in july at amazon. the company's inaugural prime day event to celebrate it 20th anniversary hit record. it says its peak order rates are passed those of last year's black friday sales. today's deals are for the company prime members who pay $99 per year for delivery discounts, video screens and other benefits. was today a success from the customer's point of view? what does it say about customer loyalty? joining me, who studies these issues very closely as well as our bloomberg reporter from new york. i will start with you. what does it really mean, the order rates peaking, surpassed last year's black friday? what about the numbers, we are curious about like how many new prime members and what sales were really like?
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guest: it was a brilliant strategy. what is interesting is they created this strategy, and people had such faith that amazon was going to offer low prices that people came in droves in the middle of the summer. what most people don't realize is this isn't just a discount promotion in the middle of the summer to revive the doldrums. this was a targeted attack on brick-and-mortar companies to get people to join prime, and they are using discount as a way to get people to join. emily: we just don't know how many people actually did join as a result of this. amazon is notoriously secretive about some of those numbers. shannon, which you say that prime day has lived up to the hype? did they attack companies you cover to a good extent? reporter: there was a lot of complaining initially on twitter, social media, people disappointed, making fun of things like dog treats or
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a shoehorn, bizarre things on sale. but the early indication from the numbers from third-party observers do look like people were buying. one group told us they saw sales were up 80% on amazon for the day as of noon. amazon says they will give us sales figures next week here at a lot of items were selling out. the website was even a little slow, which is very odd for amazon. it does look like people were shopping, and it was enough to get walmart to follow along. we are at a point now when amazon does something, walmart is following rather than the other way around. emily: what was walmart's response? reporter: a markdown prices on over 2000 items. some people said they found the walmart website a little bit easier to shop, walmart was doing a better job featuring big-ticket items like televisions and electronics.
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we will not know the numbers from walmart either. we will have to wait and see. walmart is getting more and more confident about their e-commerce. they have invested a lot of money in it and they have a couple of offices in silicon valley. they have hired thousands of people and made big acquisitions. they may be getting to the point where they feel a little more comfortable taking on amazon directly. emily: as shannon said, walmart is not going to concede. what is your assessment of customer loyalty to amazon, or prime and are these benefits enough? guest: walmart in essence has conceded. they have about $480 billion in revenue globally and their e-commerce program is roughly $12 billion. they have been behind. second, this is a knee-jerk reaction to amazon announcing
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the sale on monday. the most important thing and something retailers really need to focus on is amazon really has a secret strategic weapon that nobody else has. in the sense that wall street basically doesn't care about amazon's profit. very few retailers are in such a luxurious position. what retailers will have to do is compete against jeff bezos, who is lowering prices. wall street is rewarding him for growth. emily: amazon stock has soared. very curious to see the numbers. google and other companies will offer free or low-cost internet service to more than 275,000 low income households here it is all part of president obama's effort to expand u.s. broadband service. it is called "connect home", designed to bridge the digital divide.
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i spoke to the u.s. cto about the program. >> the president has an extraordinary number of initiatives to get more americans online with high-speed broadband, whether work on mobile, connect education, we are on track to get 99% of classrooms into high-speed broadband. today we are focused on home and on the poorest americans. the focus of the announcement is 27 cities, the team together with the president, to get those communities online. 275,000 americans will be affected by this, of which 200 ,000 are children. can you imagine, if you are not online and you go to class and you can do your homework -- cannot do your homework? that is the focus. emily: will you be providing equipment? guest: there is a range of public and private partnerships.
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several companies. one of them is equipment, a group that is working on some of the modems, and upgrading people to get online as well as training. kahn academy, boys and girls club doing training, a combination of digital divide and learning as well as physical equipment and access. cox, centurylink, they are also moving to have a broadband package for a cheaper price, and the $10-$20 entry point the people can afford it. some will do it for free. emily: i also asked her about net neutrality and what legacy she plans to leave as the cto of the u.s. guest: i am proud of the president's position on net neutrality, he has been positive for that since the beginning. the fcc controls that. we were just part of that and
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together with 4 million americans who commented on the process. we are happy with where we are going. we want equal net neutral internet so everyone is in. emily: what is a realistic quantifiable legacy you plan to leave? guest: i think our goal is to institutionalize technical skills at the leadership table whether it is the addition of my role at the white house, technology policy, bringing data innovation and technology, insights and inspiration and instigation into the government. we will continue to do that with every agency. people have been very receptive. we do it as a pilot and then tried to scale it and make it permanent. the service will be an extraordinary resource for the government going forward. our founders were very
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technical, and i think president obama and the team are bringing the current set of americans in and up. that's what i'm excited about. emily: megan smith, united states cto. president obama will formally announce the rollout of the program later today from rants oklahoma at 5:30 p.m. eastern. coming up, the pioneers of mobile shopping. what makes the indian customer tick. the big change to google's search algorithm has been a bigger deal than originally thought. and hundreds of thousands of people turned to snapchat to share personal videos on one of the holiest nights of ramadan. access to mecca is off-limits to non-muslims, but the video sharing made the images available to more than 100 million users. over one million people tweeted
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usi3ng #meccalive. ♪
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emily: it is time for the daily byte. today's is 12%. that is the decrease in web traffic that non-mobile friendly sites saw the two months after google changed its search agar -- algorithm. it came on april 21st and sparked fears of a mobile armageddon. the 12% a year from an adobe report that tracked traffic from a than 5000 sites. it did not break down which specific sites were hurt, but according to the small business administration, more than 90% of small business websites are not compatible with mobile.
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how this plays into the hands of google is something that maybe will be clear in the second quarter, earnings results which we will cover tomorrow. turning now to india, where e-commerce is taking off. there is huge potential leading the charge, flip card. the largest online retailer and a pioneer in mobile. indians turning to their smartphones for everything and banking to dating, flipkart says soon it is the only place that will be shopping. they have a long history in silicon valley. talk about how indian shoppers shop on mobile and how it is different from what we know in the u.s.. guest: i think mobile is incredibly mainstream in india. there is a fundamental shift in terms of users, verses in the u.s. people say there is an app for everything in the u.s., but in india people use an app for everything.
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if you want to shop, get something, there is no option except for using an app. emily: what about the reports that it may go app only? guest: our focus is making sure we build a big mobile experience. we have a desktop site also. emily: and that will continue. ok. how do you alter and tweak the mobile experience to make it better and beat amazon? guest: there is a lot to do. if you think about mobile, think about a small town deep in india, trying to buy a refrigerator. can you buy a refrigerator on the phone? it is hard. you cannot even figure out the dimensions. how do you build experiences that allow people to buy almost everything? emily: e-commerce accounts for just 1% of retail in india right now. the potential for growth is huge.
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what are the biggest challenges to scaling the business? guest: there are a lot of things. we are about 50% of e-commerce in the country, but e-commerce is only 1% in the country. the credit card coverage is very small. a lot of people actually do cash on delivery. emily: how many of your transactions are still paid for in cash? guest: a majority, more than 60%. it is an incredibly cash intensive business. there are a lot of places, a lot of mobile experiences that don't scale because units are slow. but that is all people have. they may not have roads or electricity, but every single one of them has a phone. emily: let's talk about that. how do you manage the warehouse and delivery strategy and inventory to hit short delivery
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timelines with bad roads, poor infrastructure, corrupt customs officials? guest: when the company started, there were none of the infrastructure required to actually build the company. it is a warehousing and delivery company and also a payment company. we had to do all of these things to actually build the company. emily: what is your secret to meeting short delivery times? guest: increasingly, we have a strong relationship with a lot of third parties that can be used to make sure there are deliveries. we have had 6-7 years of experience in places that are inaccessible. we work with other third parties. we do warehousing delivery, that is pretty much the only way you can scale. all the money in the world will not be able to build
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infrastructure required to meet the demands of 1.2 billion people. emily: we talk a lot about alibaba's ambition. guest: right now we are focused on e-commerce. there are a lot of people to make sure the mobile experiences work for people. there is a lot of work to do in india. then we will think about it when we feel comfortable. emily: you are recruiting in silicon valley. do you think there is a talent shortage in india? guest: i would reverse that by saying rather than a shortage, i think there is a lot of great talent in the left coast. we need to make sure people from across the world show up, work with us and figure out the solutions. emily: great to have you here on the show. enjoy the rest of your trip. that does it for this edition of "bloomberg west." tomorrow we will be all over google and ebay.
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