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Speaker 1: If you've been to a fat Boy Slim concert, or

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Speaker 1: even just a wedding after party, there's a good chance

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Speaker 1: that DJ was probably using a piece of software made

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Speaker 1: by Aukland company Serrato.

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Speaker 2: At software so well regarded that Serrato's big rival, a

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Speaker 2: company called Alpha Theta, last year, offered sixty five million

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Speaker 2: US dollars or one hundred and six million in our

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Speaker 2: dollars to buy Serato in a merger.

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Speaker 1: Very exciting, a big exit for the founders and a

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Speaker 1: chance to expand on Serrato's success with the help of

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Speaker 1: a new owner.

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Speaker 2: Not so fast, at least, that's what the Commerce Commission

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Speaker 2: said last week. It blocked the Alpha Theater deal, explaining

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Speaker 2: that it could substantially lessen the competition in DJ software

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Speaker 2: and hardware markets.

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Speaker 1: This week on the Business of Tech powered by two

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Speaker 1: Degrees Business, we look at the implications of that decision

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Speaker 1: for startups. Similarly, hoping to attract the interest of deep

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Speaker 1: pocketed buyers.

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Speaker 2: We talked to a startup founder and a competition law

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Speaker 2: expert to examine whether the Commerce Commission got it right.

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Speaker 1: Yeah, we got some great guests for episode sixty off

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Speaker 1: the podcast. First, though, Ben, we need to do a

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Speaker 1: debrief on the big tech story off the week, actually

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Speaker 1: if the entire year, the CrowdStrike IT outage.

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Speaker 2: Yeah, you probably heard about it at this point. There

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Speaker 2: was a few computers that went down. On Friday afternoon,

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Speaker 2: we started hearing reports of banks having outages with their

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Speaker 2: online banking apps.

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Speaker 1: Breaking news, a massive global technical outage tied to CrowdStrike,

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Speaker 1: which is a major cybersecurity provider.

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Speaker 2: The biggest IT outage ever. Airports, banks, supermarkets, healthcare, government services,

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Speaker 2: and news organizations all affected.

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Speaker 1: A simple security update, the kind that usually causes barely

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Speaker 1: a ripple of recognition, instead triggered a worldwide tsunami of

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Speaker 1: technological breakdown. I heard from a friend who went to

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Speaker 1: the supermarket to buy some groceries but went home empty

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Speaker 1: handed because they couldn't process his transaction.

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Speaker 2: And that just steamrolled ten thousand flights ground at hospitals

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Speaker 2: in the UK unable to dispense medicines. It was digital mayhem.

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Speaker 1: So now that the dust has settled, we should really

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Speaker 1: backtrack and look at what we know. What do we

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Speaker 1: know ben about what actually caused this catastrophic outage.

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Speaker 2: It's tough, not a huge amount, because nobody has kind

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Speaker 2: of come out publicly from CrowdStrike to outline it, but

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Speaker 2: one YouTuber did a pretty deep dive, a man named

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Speaker 2: Dave Plumber. He's a former Microsoft engineer, award winning engineer.

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Speaker 2: He's retired now, but he unpacked some of it and

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Speaker 2: basically he said, CrowdStrike attempted to add some instructions at

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Speaker 2: the kernel layer, that the deep base layer of Microsoft

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Speaker 2: Windows that it probably shouldn't have.

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Speaker 3: No, everybody at Microsoft, probably a crowd strike is aware

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Speaker 3: of the stakes when you run code in kernel mode,

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Speaker 3: and that's why Microsoft offers a WHQL certification, which stands

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Speaker 3: for Windows Hardware Quality Labs. As long as the driver

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Speaker 3: itself never changes, the certificate remains valid. But what if

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Speaker 3: your CrowdStrike, and you're agile, ambitious and aggressive, and you

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Speaker 3: want to ensure that your customers get the latest protection

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Speaker 3: as soon as new threats emerge.

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Speaker 2: And those instructions referred to something that either didn't exist

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Speaker 2: or didn't make sense, and that basically caused a massive

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Speaker 2: logic failure leading to blue screen of death almost everywhere.

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Speaker 2: So when that update that CrowdStrike had was pushed out,

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Speaker 2: it just started knocking things down one by one. A

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Speaker 2: cybersecurity company ended up being a pretty massive cyber nightmare.

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Speaker 1: That is a really good video and we'll post it

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Speaker 1: in full. And he explained to me that the blue

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Speaker 1: screen of death is actually a safety mechanism. It's designed

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Speaker 1: to protect the integrity off the system rather than having

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Speaker 1: code toroid or interrupted. So that's what Windows does when

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Speaker 1: it feels like something is going seriously wrong. But that

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Speaker 1: core point I think is really interesting. You have a

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Speaker 1: company CrowdStrike and this Falcon software, which is really surveillance software,

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Speaker 1: endpoint surveillance. So we've seen this transition over the last

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Speaker 1: sort of decade from sort of anti virus and network

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Speaker 1: security software to surveillance software that looks at every endpoint,

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Speaker 1: every device on your network. And to be really effective,

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Speaker 1: they have to look at exactly what is going on

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Speaker 1: with your computer, so they need to have very central

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Speaker 1: access to the kernel off a Windows PC. So that

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Speaker 1: is a big security threat potentially, but is necessary to

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Speaker 1: try and detect things like ransomware attacks which can shut

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Speaker 1: down your computer. So I can see the logic for

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Speaker 1: why CrowdStrike wants to do that. But the blogs I've

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Speaker 1: been reading and videos I've been watching on YouTube, the

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Speaker 1: tone of it is they're just mystified that the content

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Speaker 1: update for CrowdStrike Falcon past the testing process on both

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Speaker 1: ends at CrowdStrike and on all of these Fortune five

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Speaker 1: hundred companies that run CrowdStrike Falcon. The system needs to

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Speaker 1: be reevaluated. It highlights, in the words of some of them,

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Speaker 1: the need for more automated testing. There was a lot

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Speaker 1: of manual testing going on in these big companies, so

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Speaker 1: what's going on with that. It was good that it

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Speaker 1: was a straightforward fix, but because third party service providers

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Speaker 1: were also taken down, that exacerbated the whole problem. So

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Speaker 1: it shows that they need better business disruption planning and

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Speaker 1: the other thing. There's a lot of commentary around this week.

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Speaker 1: It reveals the so called tech monoculture that exists, particularly

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Speaker 1: around Microsoft eight point five million computers Microsoft claims, so

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Speaker 1: they're trying to point out that this wasn't blue screen

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Speaker 1: of death one hundreds of millions of devices, but it

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Speaker 1: didn't need to be because those computers were crucial to

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Speaker 1: running airline systems, you know, ticketing systems, financial systems, e

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Speaker 1: commerce systems. That was enough to do a lot of damage.

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Speaker 1: And if you think about the cloud computing environment, we

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Speaker 1: don't have a monoculture, but we have three or four

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Speaker 1: companies that dominate there, so you can see this is

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Speaker 1: starting to loom large as a major problem for governments,

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Speaker 1: for regulators. Everyone's looking at it, going this could just

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Speaker 1: be the start. Yeah, these patches.

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Speaker 2: Now, you know, in the old days, to patch a

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Speaker 2: piece of software you had to get the CD or

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Speaker 2: the floppy disk and manually install it. But now patches

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Speaker 2: that's just pushed out with such ease, so regularly, weakly

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Speaker 2: more than in some cases, and it can lead to something,

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Speaker 2: as we've now seen, really catastrophic when you get to

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Speaker 2: the point of such regularity that you start to lean

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Speaker 2: a little bit into complacency. So does it start to

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Speaker 2: questions about what does it mean to live in a

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Speaker 2: world where so much can be brought down because companies

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Speaker 2: just made a simple mistake.

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Speaker 1: Yeah. The other thing that's pointed out is where was

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Speaker 1: the staggered release of this update? Where you send it

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Speaker 1: either to a geographical region or to certain organizations or

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Speaker 1: certain sectors, so you test the water is out working. Okay,

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Speaker 1: we've tested internally, but we don't want to take everyone

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Speaker 1: down at the same time. That is standard practicing for

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Speaker 1: Google and for lots of companies, so why didn't that happen?

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Speaker 1: So it seems like there was just lots of basic

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Speaker 1: hygiene stuff that didn't happen here, which explains why crowdstrikes

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Speaker 1: share prices down thirty percent this month, and that they

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Speaker 1: are facing class action lawsuits. Some of the litigation companies,

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Speaker 1: the plaintive litigation companies in the US are already talking

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Speaker 1: to CrowdStrike shareholders and probably customers as well, so they're

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Speaker 1: going to get over this. It's unclear exactly what the

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Speaker 1: liability of crowd strikers because there's also people angry, people

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Speaker 1: going to the airlines and those other companies that were

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Speaker 1: affected potentially suing them or asking for money back. So

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Speaker 1: that's going to get very complicated. Then you have will

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Speaker 1: anything happen On the regulation front. The Biden administration in

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Speaker 1: twenty twenty one put out an executive order basically saying

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Speaker 1: we need to tidy up our shop around cybersecurity software,

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Speaker 1: particularly the stuff that is supplied to government around government

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Speaker 1: departments and critical infrastructure. This came in the wake of

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Speaker 1: solar winds and some other big hacking attacks supply chain

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Speaker 1: hacks in the system that caused havoc. They basically said,

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Speaker 1: if you want to sell software to the government, you

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Speaker 1: need to meet these standards. I can see them going

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Speaker 1: back and broadening that out and saying just in terms

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Speaker 1: of the efficacy and the integrity of software, you're going

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Speaker 1: to have to do a lot more. And I can

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Speaker 1: see this happening around the world as well. The government

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Speaker 1: off New Zealand and Australia did a pretty good job

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Speaker 1: in terms of communication. Obviously, he was very proactive. They

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Speaker 1: held a big emergency meeting about this. We didn't go

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Speaker 1: that far, but David Seymour was acting Prime Minister. He

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Speaker 1: was really good in communicating this. He was in touch

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Speaker 1: with all the agencies and kept the media updated and

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Speaker 1: thankfully we just weren't impacted to the extent of other countries.

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Speaker 2: Yeah, it looks like the US Congress as calling for

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Speaker 2: the CrowdStrike CEO George Kurtz to actually testify about what

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Speaker 2: happened in this case, so that will be super insightful,

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Speaker 2: provide a lot of information that we just haven't seen

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Speaker 2: yet that could help to inform government response, industry response,

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Speaker 2: business response, so that something like this maybe can be

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Speaker 2: prevented from happening again. But I don't know the digital

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Speaker 2: world these days is just so massive and unwieldly, and

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Speaker 2: it's just houses of cards built on other houses of cards,

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Speaker 2: So you know, it's not surprising every now and again

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Speaker 2: we have a little slip.

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Speaker 1: Yeah, and given that the there is this political scrutiny,

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Speaker 1: and maybe this is a good thing. Maybe this is

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Speaker 1: the wake up call we needed that was big enough

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Speaker 1: to get on people's radar, but not absolutely catastrophic to

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Speaker 1: take down the financial system or cause absolute chaos for

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Speaker 1: multiple days. We've moved so far away from these old,

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Speaker 1: reliable analog systems for efficiency purposes that we actually don't

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Speaker 1: have much redundancy in our networks. We don't know what

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Speaker 1: to do when they go down and can't be brought

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Speaker 1: back up. So there are bigger threats out there than

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Speaker 1: this software update that could come and bite us. And

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Speaker 1: maybe this is a bit of a dry run, or

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Speaker 1: at least is going to encourage us to take it seriously. Yeah.

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Speaker 2: I did see one post on Reddit as well, or

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Speaker 2: from some IT professionals saying like this is going to

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Speaker 2: teach a lot of companies, hopefully that they can't just

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Speaker 2: outsource all of their AT needs, because you need somebody

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Speaker 2: who can actually come and turn that computer off and

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Speaker 2: on again when it yets to. So Yeah, a lot

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Speaker 2: of learnings to be brought through from this one.

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Speaker 1: Yeah, and shout out to all those IT people and

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Speaker 1: I know a lot of them personally who were super

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Speaker 1: stressed on Friday night, not at home with their families

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Speaker 1: having dinner, but in their organization and over the weekend

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Speaker 1: trying to sort this out.

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Speaker 2: Absolutely. Yeah, thank you to all of those people who

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Speaker 2: just keep everything running by being there.

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Speaker 1: Yeah. Now, Serrato is one of those kiwis startups you

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Speaker 1: may not have heard off, but which has millions, literally

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Speaker 1: millions of raving fans around the world. It was found

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Speaker 1: in a nineteen ninety seven by Steve West and aj Bernshaw,

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Speaker 1: who later became a j Wilderman, starting with a piece

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Speaker 1: of software called pitch in Time.

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Speaker 2: That that was a plug in that West came up

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Speaker 2: with while he was a student at the University of Auckland.

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Speaker 2: He was learning the bass guitar and wanted to slow

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Speaker 2: down complicated bass solos without altering the pitch to make

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Speaker 2: them easier to follow and learn.

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Speaker 1: So we came up with a computer algorithm because there

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Speaker 1: was nothing around that could do this, So that became

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Speaker 1: pitch and time and lots of people wanted to buy it.

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Speaker 2: Fast forward a quarter of a century and Serato has

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Speaker 2: a wide range of software products, including the flagship products

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Speaker 2: Serato DJ Pro and Serato DJ Light, which lets DJ's

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Speaker 2: mixed tracks together on their laptop.

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Speaker 1: In July last year, Serato received an offer to merge

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Speaker 1: from Alpha Theta, which makes software called record Box, which

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Speaker 1: is effectively Serrato's main competitor. But Alpha Theta is also

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Speaker 1: the parent company of Pioneer DJ, which makes DJ hardware controllers,

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Speaker 1: and that's an important point. The fact that the same

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Speaker 1: company that makes market leading DJ hardware and popular software

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Speaker 1: that runs on it wanted to merge with Serrato is

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Speaker 1: at the heart of the Commerce Commission's decision to knock

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Speaker 1: back the merger.

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Speaker 2: The deal was big enough to need Overseas Investment Office approved,

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Speaker 2: which triggered the interest of the Commerce Commission. It examined

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Speaker 2: the merger proposal and last week said no, I don't

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Speaker 2: think this should happen.

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Speaker 1: A huge blow for Sirato's founders. A full year after

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Speaker 1: Alpha Theta floated the idea of merging.

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Speaker 2: There have been some pretty strong reactions to this in

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Speaker 2: the startup and venture capital communities too.

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Speaker 1: Many think it will make it harder for those sorts

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Speaker 1: of exits, so we'll put off founders and investors from

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Speaker 1: starting companies in New Zealand.

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Speaker 2: But on the flip side, only a fair marketplace allows

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Speaker 2: startups to thrive. So isn't the ComCom acting in their

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Speaker 2: best interests.

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Speaker 1: It's a bit of a complicated one, which is why

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Speaker 1: we got two experts onto the show to discuss it.

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Speaker 1: Tim Warren, co founder of Auckland startup ambit Ai, returns

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Speaker 1: to the podcast. He's retired as CEO of Amber and

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Speaker 1: looking at options for his next venture, so this is

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Speaker 1: quite relevant to him. We also wanted a legal opinion

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Speaker 1: on this, so we've got Hayden Wilson, chairman and partner

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Speaker 1: of law firm Denton's New Zealand formerly Kensington Swane on.

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Speaker 1: He leads to the litigation team in Wellington and has

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Speaker 1: a lot of experience in public, regulatory and competition law.

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Speaker 2: So here's Peter's interview on a tech company merger deal

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Speaker 2: derailed for now.

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Speaker 1: Anyway, Hayden and Tim, Welcome to the Business of Tech.

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Speaker 1: Thanks so much for coming on to discuss what is

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Speaker 1: a really topical issue. This commerce commissioned decision on Serrato.

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Speaker 1: This brilliant company that's nearly fifteen years old, has done

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Speaker 1: an incredible work in creating DJ software and other types

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Speaker 1: of music apps that have become very famous around the world.

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Speaker 1: The likes of DJ Jazzy, Jeff Timberland's, even fat Boy

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Speaker 1: Slim are using Sirato's products. So one of those sort

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Speaker 1: of companies that's probably a little bit under the radar

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Speaker 1: for the average KIWI. But both of you are musicians,

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Speaker 1: you use the these products, and Tim, you are a

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Speaker 1: startup founder. First off, I just want to get your

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Speaker 1: reaction to this as a startup founder, someone in the

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Speaker 1: tech community seeing this promising company that's saying to get

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Speaker 1: to the next stage, we need to do this deal,

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Speaker 1: and to see it knocked back.

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Speaker 4: Thank you. I think the first thing to say is

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Speaker 4: it's really disappointing from an entrepreneur's perspective. When you build something,

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Speaker 4: you build it that it is world class quality, that

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Speaker 4: it gets attention from the very best players in the industry.

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Speaker 4: And if you've heard of this one deal, don't worry,

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Speaker 4: there'll be lots of other interested buyers. But you get

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Speaker 4: so good that you're not allowed to complete a deal.

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Speaker 4: And there's an opinion that comes out on this. I

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Speaker 4: think it's it's demotivating for founders, but also possibly companies

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Speaker 4: that are actually wanting to be the best in the world.

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Speaker 1: Yeah, John Small, this is a chair of the Commerce Commission.

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Speaker 1: It's pretty Adaminton in his press release it came out

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Speaker 1: with this decision, he said, you know, they had a

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Speaker 1: around the market and sure there might be new DJ

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Speaker 1: software providers entering the market in a new term, but

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Speaker 1: not sufficient to replace the level of competition that would

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Speaker 1: be lost with this merger. You've got Serrato, You've got

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Speaker 1: Alpha Theta who's doing this acquisition. That's on the Pioneer brand,

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Speaker 1: a huge brand. So he's basically saying, you know the

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Speaker 1: software that Alpha Theta has, bring that together with Serrato

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Speaker 1: and it's just a game changer. No one can compete

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Speaker 1: with that. But the likes of Young Lee, the CEO

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Speaker 1: of Serrato, has been for nearly twelve years. He wrote

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Speaker 1: on LinkedIn last year when this was sort of pending

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Speaker 1: and the Commerce Commission was having a look. He said,

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Speaker 1: the growth in music and the apps that are available

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Speaker 1: to edit music and to play music is exploding. There's

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Speaker 1: been a fivefold increase in the number of tracks that

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Speaker 1: are being streamed and downloaded since twenty eighteen, So he's

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Speaker 1: basically saying this market is ready to explode anyway. There

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Speaker 1: will be lots of other ones. The Commerce Commission, according

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Speaker 1: to Young Lee, said that they were looking specifically at

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Speaker 1: the DJ laptop market. So he's pointing out, well, you've

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Speaker 1: got apps, you've got hardware based things, You've got all

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Speaker 1: sorts of other things. I guess you know you ran

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Speaker 1: an AI start up which is proliferating at the moment.

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Speaker 1: There's so much competition there. Does it sort of make

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Speaker 1: sense to you Young Leed's argument that we might be

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Speaker 1: big at the moment, but there's an explosion happening here

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Speaker 1: that could change very very quickly.

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Speaker 4: Look. Absolutely, I've used many pieces of software, both as

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Speaker 4: a software founder but also in my time as a musician.

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Speaker 4: Serato made one of those pieces of software, but there's

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Speaker 4: hundreds of others, and I think people who are thinking

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Speaker 4: entrepreneurial hat again, people who are looking to do something

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Speaker 4: new and do something different, be it with software or music.

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Speaker 4: They will try anything and use anything, and is a

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Speaker 4: constant battle to stay not only near the top, but

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Speaker 4: occasionally at the top. To find out that you've created

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Speaker 4: a problem by being really good at doing your job

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Speaker 4: for that long. That is a I think almost there's

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Speaker 4: a key we hat on it, which is like, you know,

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Speaker 4: it's kind of tall poppy, Yeah, you're too good, We'll

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Speaker 4: knock you down a step. And I hope it isn't that,

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Speaker 4: but that's what it feels like.

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Speaker 1: Yeah, And I have spoken to a couple of people

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Speaker 1: in the venture capital community and I can't confirm this.

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Speaker 1: This is just anecdotally what they're saying that they're already

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Speaker 1: looking at their portfolio and considering shifting some of their

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Speaker 1: early stage startups offshore because they are confident that if

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Speaker 1: there was an acquisition offer in the US or somewhere else,

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Speaker 1: it would be more likely to get past without the

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Speaker 1: sort of trouble law.

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Speaker 4: It is not my area, but I'm absolutely certain that

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Speaker 4: if this had occurred in most other jurisdictions, it would

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Speaker 4: have been maybe not the UK, but it would have

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Speaker 4: been allowed to go through. If it was a Japanese

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Speaker 4: company buying a Japanese company an American company. You imagine

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Speaker 4: the celebration if it was from a small country, a

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Speaker 4: really small country with little industry would be celebrated and applauded.

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Speaker 4: But at the moment, you've got this, well we've built

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Speaker 4: rocket Lab. We been not let we been not let

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Speaker 4: SPICX buy them kind of mentality, So keep it small,

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Speaker 4: keep it local.

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Speaker 1: Right, Well, Hayden, you are an expert in competition law.

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Speaker 1: Give us your take on this sort of announcement that

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Speaker 1: came out. The full decision hasn't been published yet, but

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Speaker 1: the initial takeaways from John Small's release last week, what

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Speaker 1: did you make of it?

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Speaker 5: You've got to feel a huge amount of sympathy for

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Speaker 5: the Serrato guys. I mean, they have built a product

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Speaker 5: that I've played with and you know it's a great product,

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Speaker 5: and you know, to get to this point where you

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Speaker 5: feel like you are about to go to the next level,

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Speaker 5: to be knocked back is must be hugely disappointing. But

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Speaker 5: there are a couple of from a legal perspective, there

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Speaker 5: are a couple of things that work against them here.

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Speaker 5: The first is this is an application for a clearance,

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Speaker 5: and when you go to the Comments Commission for a clearance,

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Speaker 5: you're saying you're asking the commission to confirm that they

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Speaker 5: are happy that they're satisfied that this transaction will not

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Speaker 5: lessen competition. So you're kind of up against it from

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Speaker 5: the start because their options are are they satisfied that

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Speaker 5: it won't less in competition or not, and if they're not,

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Speaker 5: have to decline the clearance. Effectively, they had to establish

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Speaker 5: they had to convince the Commission that this wouldn't lesson competition.

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Speaker 5: And this is particularly tricky, right because of the nature

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Speaker 5: of the market. And the first thing the Commission does

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Speaker 5: is it kind of defines the market. But what's unique

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Speaker 5: here is you've got Serato competing with a record box

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Speaker 5: as laptop DJ software, but record boxes owned by Alpha,

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Speaker 5: thet by Pioneer, who also produce a hardware, And so

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Speaker 5: that makes it slightly more complicated because you've got two

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Speaker 5: parties that broadly speaking, they probably have about thirty percent

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Speaker 5: of the market right in the software market, but one

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Speaker 5: of them produces hardware as well, and that shifts the

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Speaker 5: dynamic a little bit. And what was kind of influential here,

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Speaker 5: and you know, you were talking about the arguments that

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Speaker 5: Serato made about the development of the market, and the

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Speaker 5: truth is you are kind of sort of guessing about

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Speaker 5: sort of shuffling about in the dark air because we

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Speaker 5: yet to see the commission's actual reasons. But you can

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Speaker 5: intue it from the statement of issues and the statement

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Speaker 5: of unresolved issues, the kinds of things that they were

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Speaker 5: concerned about, And what is clear from that is that

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Speaker 5: all of those issues were raised by the Serato guys

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Speaker 5: to the commission saying, hey, look, this competition from apps,

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Speaker 5: this competition from composition music production software. And the Commissioner

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Speaker 5: has looked at that and ultimately they've gone, we're not

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Speaker 5: satisfied that that is sufficient competition. That if Alpha Theater

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Speaker 5: controlled both chord Box and Serato, they wouldn't be able

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Speaker 5: to use that to impose a what they call a snip,

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Speaker 5: a significant non transitory and increase in price in that market.

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Speaker 5: Part of that comes down to the fact that Alpha

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Speaker 5: Theater THEA also produces hardware. Part of it comes down

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Speaker 5: to the fact of the way the hurdle is phrased.

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Speaker 5: You know that they have to be satisfied that it's

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Speaker 5: not going to reduce competition. Of course, the commission this

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Speaker 5: isn't the end word in all of this, because the

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Speaker 5: reason that you go and ask for a clearance is

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Speaker 5: because you suspect there might be an issue, or that

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Speaker 5: someone might think that there is an issue, and you

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Speaker 5: go in for a clearance, effectively to get kind of

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Speaker 5: an immunity kind of placard that you can hold up.

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Speaker 5: If they're genuine about that, they could just go ahead

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Speaker 5: with the transaction, and we've seen that before. Of course,

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Speaker 5: the consequences of doing that if the Commission decides to

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Speaker 5: challenge it, are such that that's probably not practical because

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Speaker 5: it's expensive, and the penalties if you go through with

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Speaker 5: it and it is found to be anti competitive reasonably significant,

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Speaker 5: which all of that leads to you feel pretty sorry

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Speaker 5: for the position that the Serrato guys have found themselves.

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Speaker 5: And as Tim said, you know, they've worked really hard

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Speaker 5: to become one of the best in the world at

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Speaker 5: this stuff. They're an icon for New Zealand in this

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Speaker 5: particular market, and that success is kind of being used

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Speaker 5: against them. I don't think it's tall poppy ish. I

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Speaker 5: do think it's a product of slightly rigid framework that

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Speaker 5: the Commission has to has to operate in these kinds

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Speaker 5: of environments. And the interesting thing is, you know, they

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Speaker 5: didn't go in for a clearance, as I understand it

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Speaker 5: and I might be wrong, but they didn't go in

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Speaker 5: for a clearance because they thought that there was a

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Speaker 5: competition issue. They went in for a clearance because there

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Speaker 5: was an Overseas Investment Act issue, and the Overseas Investment

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Speaker 5: Office told them they needed to go in and check

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Speaker 5: the competition space, which you know, if the deal was

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Speaker 5: slightly under one hundred million dollars, they might not have

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Speaker 5: you know, we might not be talking about this, so

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Speaker 5: you know, it's a difficult spot for them to be in.

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Speaker 1: Yeah, Tim, from your perspective, you know, when you were

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Speaker 1: founding am but Ai and you're getting investors on board,

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Speaker 1: did this ever go through your mind and your board

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Speaker 1: director's mind that this could be an attractive takeover target?

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Speaker 1: At some point? Were you thinking how do we protect

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Speaker 1: ourselves in case we come up against these sort of

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Speaker 1: you know, anti competitive issues with the Commerce Commission.

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Speaker 4: Well there's two parts to that. So did we imagine

435
00:24:56,320 --> 00:24:57,840
Speaker 4: selling it becoming very attractive?

436
00:24:57,880 --> 00:24:58,040
Speaker 2: Yes?

437
00:24:58,040 --> 00:25:02,400
Speaker 4: Absolutely, that's Frankly, in New Zealand as an entrepreneur, it's

438
00:25:02,440 --> 00:25:05,879
Speaker 4: one of your only exit pards. It's very hard to

439
00:25:06,160 --> 00:25:11,439
Speaker 4: list a company develop a long term income stream from it,

440
00:25:11,960 --> 00:25:15,840
Speaker 4: especially in one of these fast changing areas. So did

441
00:25:15,840 --> 00:25:20,520
Speaker 4: we think of becoming very attractive to a crier acquires. Absolutely,

442
00:25:20,760 --> 00:25:23,679
Speaker 4: that's what we're in the business of doing. On the

443
00:25:23,720 --> 00:25:27,320
Speaker 4: second part, did we look at or take any protections

444
00:25:27,760 --> 00:25:31,320
Speaker 4: against that? No, no, not at all. You don't. You're

445
00:25:31,359 --> 00:25:33,840
Speaker 4: just try and do a really good job. And it

446
00:25:33,880 --> 00:25:36,520
Speaker 4: turns out if you do a mediocre job, you're in

447
00:25:36,560 --> 00:25:38,960
Speaker 4: with the win, and if you do a really good job,

448
00:25:39,200 --> 00:25:39,720
Speaker 4: maybe not.

449
00:25:41,480 --> 00:25:44,720
Speaker 1: Because we've been told for years this was the famous

450
00:25:44,760 --> 00:25:48,439
Speaker 1: mantra from Sir Paul Callahan. His whole thing and his

451
00:25:48,560 --> 00:25:52,520
Speaker 1: company Magritech was exploit the lucrative niches. The problem is

452
00:25:52,520 --> 00:25:54,480
Speaker 1: when you do that, when you get into those niches,

453
00:25:54,880 --> 00:25:57,359
Speaker 1: there's probably only a handful of companies that do that

454
00:25:57,440 --> 00:25:59,760
Speaker 1: as well, and one of those is going to want

455
00:25:59,760 --> 00:26:03,400
Speaker 1: to buy. So by nature, I sort of a tech

456
00:26:03,440 --> 00:26:08,000
Speaker 1: sector is set up for going after areas that potentially

457
00:26:08,200 --> 00:26:10,880
Speaker 1: are going to be quite crowded very quickly with big

458
00:26:10,920 --> 00:26:15,199
Speaker 1: players and potentially cause competitive issues. But Hayden, have you

459
00:26:15,240 --> 00:26:19,800
Speaker 1: seen any examples like this tech or otherwise where acquisitions

460
00:26:19,840 --> 00:26:23,160
Speaker 1: have been knocked back in recent years basically for these

461
00:26:23,160 --> 00:26:24,080
Speaker 1: sorts of reasons.

462
00:26:25,760 --> 00:26:31,159
Speaker 5: It's it's not hugely frequent in this in this space,

463
00:26:32,480 --> 00:26:35,080
Speaker 5: and you know, it would be really interesting to see

464
00:26:35,119 --> 00:26:38,600
Speaker 5: what would happen if another purchaser came into the market

465
00:26:38,680 --> 00:26:43,200
Speaker 5: who wasn't also hardware to provide, you know, and and if,

466
00:26:43,840 --> 00:26:47,679
Speaker 5: as I believe, the Serratro product is that good, then

467
00:26:47,720 --> 00:26:50,560
Speaker 5: there should be another purchaser purchaser out there. And if

468
00:26:50,600 --> 00:26:55,200
Speaker 5: they don't have that hardware angle and that the real

469
00:26:55,240 --> 00:26:58,360
Speaker 5: strength in the space that you know Pioneer through through

470
00:26:58,400 --> 00:27:02,080
Speaker 5: Record Box has, then I don't see the competition issue here.

471
00:27:02,840 --> 00:27:06,360
Speaker 5: I suppose the thing to go to Tim's point is

472
00:27:07,440 --> 00:27:09,400
Speaker 5: when you're a startup, there are a bunch of things

473
00:27:09,440 --> 00:27:11,399
Speaker 5: that you have to worry about in order to protect

474
00:27:11,440 --> 00:27:15,000
Speaker 5: your ability to exit. And this is one that I

475
00:27:15,040 --> 00:27:17,320
Speaker 5: don't think people have thought much about, probably because it

476
00:27:17,359 --> 00:27:21,119
Speaker 5: doesn't actually come up that often. I mean, this hurts

477
00:27:22,040 --> 00:27:24,000
Speaker 5: for the Seriato guys, but you know this is not

478
00:27:24,040 --> 00:27:27,880
Speaker 5: a fre frequent occurrence. But you know, when you are

479
00:27:28,440 --> 00:27:31,760
Speaker 5: an entrepreneur, when you are starting up with an innovative idea,

480
00:27:32,400 --> 00:27:35,720
Speaker 5: you look to protect your investment through protecting your IP.

481
00:27:36,480 --> 00:27:39,560
Speaker 5: You look to protect your your investment by identifying what

482
00:27:39,600 --> 00:27:43,800
Speaker 5: your you know, what your ultimate exit strategy is and

483
00:27:44,600 --> 00:27:47,920
Speaker 5: thinking about the implications of competition law is just another

484
00:27:47,960 --> 00:27:49,800
Speaker 5: thing that needs to go into that box of things

485
00:27:49,840 --> 00:27:52,520
Speaker 5: that you know, entrepreneurs have to worry about. Is it

486
00:27:52,680 --> 00:27:56,880
Speaker 5: number one? I wouldn't have thought so. My personal view

487
00:27:56,960 --> 00:28:02,920
Speaker 5: is this is this particular example is a case of

488
00:28:03,480 --> 00:28:06,199
Speaker 5: two or three things just coming together and with a

489
00:28:06,240 --> 00:28:07,280
Speaker 5: really negative outcome.

490
00:28:07,720 --> 00:28:10,439
Speaker 1: Yeah, do you ever get a situation or is this

491
00:28:10,560 --> 00:28:13,360
Speaker 1: even a possibility for the Commission where they will consider

492
00:28:14,000 --> 00:28:18,640
Speaker 1: the broader economic impacts of this? For instance, Serato claims

493
00:28:19,359 --> 00:28:24,160
Speaker 1: this partnership stands New Zealand to become a music tech

494
00:28:24,240 --> 00:28:27,120
Speaker 1: hub in the same way that Sir Peter Jackson created

495
00:28:27,240 --> 00:28:29,720
Speaker 1: a film industry here and attracted all of this investment

496
00:28:30,119 --> 00:28:32,160
Speaker 1: to New Zealand. So they could maybe make a case

497
00:28:32,200 --> 00:28:36,680
Speaker 1: that this will lead to more employment, more export revenue.

498
00:28:36,880 --> 00:28:38,880
Speaker 1: Does the Commission consider anything like that?

499
00:28:39,440 --> 00:28:42,040
Speaker 5: They can do not through this clearance process. There's another

500
00:28:42,120 --> 00:28:46,440
Speaker 5: process which is called an authorization, which is a believe

501
00:28:46,440 --> 00:28:50,080
Speaker 5: it or not, an even more involved process than this one,

502
00:28:50,840 --> 00:28:53,720
Speaker 5: which looks to the question of even if this does

503
00:28:53,760 --> 00:29:00,520
Speaker 5: have competitive effects, is it any way still of broader

504
00:29:00,560 --> 00:29:03,880
Speaker 5: benefit to consumers in New Zealand. One of the I

505
00:29:03,880 --> 00:29:06,960
Speaker 5: think one of the things that the Commission can rightly

506
00:29:07,040 --> 00:29:10,000
Speaker 5: be criticized for here, although it's hard to know how

507
00:29:10,080 --> 00:29:12,960
Speaker 5: much of it is entirely their fault, this decision should

508
00:29:12,960 --> 00:29:15,880
Speaker 5: not have taken this lot. People trying to do an

509
00:29:15,920 --> 00:29:20,560
Speaker 5: acquisition of this kind should not have to wait over

510
00:29:20,600 --> 00:29:24,680
Speaker 5: a year for a decision. The Act actually contemplates it

511
00:29:24,760 --> 00:29:27,880
Speaker 5: being about thirty days from memory, and this one has

512
00:29:27,880 --> 00:29:31,440
Speaker 5: been extended and extended and extended. That's a concern, and

513
00:29:31,520 --> 00:29:35,240
Speaker 5: it's particularly a concern, you know, in the tech space,

514
00:29:35,520 --> 00:29:38,960
Speaker 5: which moves so fast. You know, a year in tech

515
00:29:39,080 --> 00:29:40,720
Speaker 5: can be your entire market advantage.

516
00:29:40,920 --> 00:29:44,200
Speaker 1: Oh my god, Tim, in the AI sector, a week

517
00:29:45,520 --> 00:29:46,280
Speaker 1: as a lifetime.

518
00:29:47,200 --> 00:29:49,640
Speaker 4: You put it really well, Hayden. And I think the

519
00:29:50,600 --> 00:29:53,600
Speaker 4: you know, is the whole concept of justice. Justice delayed

520
00:29:53,680 --> 00:29:56,880
Speaker 4: is denied, and in this case, if you're going to

521
00:29:56,920 --> 00:29:59,480
Speaker 4: come out with such a you know, with a negative

522
00:29:59,480 --> 00:30:02,600
Speaker 4: outcome for the progression of this, I think Peter, you

523
00:30:02,640 --> 00:30:05,640
Speaker 4: made a point earlier. As a as a VC, as

524
00:30:05,640 --> 00:30:08,400
Speaker 4: a private equity company, you start looking through your portfolio

525
00:30:08,480 --> 00:30:10,440
Speaker 4: and you say, hey, where are we going to have

526
00:30:10,520 --> 00:30:14,280
Speaker 4: companies that have done a good job and might want

527
00:30:14,320 --> 00:30:18,880
Speaker 4: to be singularly selected by another great company. And I

528
00:30:18,920 --> 00:30:21,760
Speaker 4: think of power by proxy, and I think the apple

529
00:30:21,800 --> 00:30:25,760
Speaker 4: you know, which is you know, virtually a monopoly if

530
00:30:25,800 --> 00:30:29,880
Speaker 4: you want, that ecosystem that they created when they were

531
00:30:29,880 --> 00:30:32,960
Speaker 4: successful in buying power by proxy, a lot of very

532
00:30:33,000 --> 00:30:37,240
Speaker 4: relieved VC in New Zealand. Imagine if that had been blocked.

533
00:30:38,680 --> 00:30:45,320
Speaker 4: That there were other competitive things technologies in the world.

534
00:30:45,600 --> 00:30:50,840
Speaker 4: They they had a very good patent portfolio which stood them,

535
00:30:51,440 --> 00:30:54,440
Speaker 4: stood them apart a little bit. But I'd really worry

536
00:30:55,080 --> 00:30:58,640
Speaker 4: about an example of like that transaction and that that's

537
00:30:58,880 --> 00:31:03,280
Speaker 4: fundamentally bad for that enabled a whole series of other investments,

538
00:31:03,360 --> 00:31:07,280
Speaker 4: none of which would have happened. And money is recycled

539
00:31:07,320 --> 00:31:11,320
Speaker 4: when you get investments like this that are realized, that

540
00:31:11,360 --> 00:31:13,680
Speaker 4: goes back into the economy and you get the multiplier

541
00:31:13,680 --> 00:31:17,000
Speaker 4: effect where a dollar into something like this turns into

542
00:31:17,040 --> 00:31:20,960
Speaker 4: about four dollars in the wider economy. And at the

543
00:31:20,960 --> 00:31:24,360
Speaker 4: moment when we've got a very challenging economic environment where

544
00:31:24,360 --> 00:31:26,840
Speaker 4: it's hard to generate revenue but interest rates are still

545
00:31:27,320 --> 00:31:31,120
Speaker 4: very high, having infusion like this can actually be the

546
00:31:31,200 --> 00:31:34,280
Speaker 4: thing you need to catalyze not only investment, but just

547
00:31:35,160 --> 00:31:41,080
Speaker 4: capital investment, but also revenue investment in companies, companies with

548
00:31:41,200 --> 00:31:44,600
Speaker 4: an improving outlook of the economy. And so from that perspective,

549
00:31:44,600 --> 00:31:47,200
Speaker 4: and I know that's not necessarily part of the Commission's

550
00:31:49,040 --> 00:31:51,880
Speaker 4: remit to look at, but it is concerning well.

551
00:31:51,840 --> 00:31:54,320
Speaker 5: The Commission would take is slightly a different view of that.

552
00:31:54,760 --> 00:31:56,280
Speaker 5: I think they would agree with all of that, but

553
00:31:56,320 --> 00:31:59,280
Speaker 5: they would also say their focus is on competition. And

554
00:31:59,320 --> 00:32:02,160
Speaker 5: the reason that that their focus is on competition is

555
00:32:02,200 --> 00:32:09,000
Speaker 5: that competition creates innovation and that ultimately achieves all of

556
00:32:09,040 --> 00:32:13,600
Speaker 5: those all of those same outcomes. It's just a different

557
00:32:13,680 --> 00:32:16,800
Speaker 5: lens through which you look at it. If they are

558
00:32:17,000 --> 00:32:20,840
Speaker 5: right and this would have been a restraint on competition,

559
00:32:21,560 --> 00:32:25,680
Speaker 5: you could then see a decrease in innovation in the

560
00:32:25,760 --> 00:32:29,360
Speaker 5: DJ software market. You could see increases in prices. You

561
00:32:29,400 --> 00:32:33,239
Speaker 5: can see a world in which, you know, take it

562
00:32:33,240 --> 00:32:37,680
Speaker 5: out of this this example, but a hardware provider who

563
00:32:37,680 --> 00:32:41,560
Speaker 5: also provides software, who buys the other largest provider of

564
00:32:41,600 --> 00:32:45,320
Speaker 5: software can take that and use it to lock people

565
00:32:45,360 --> 00:32:50,520
Speaker 5: into their hardware in a way that ultimately is negative

566
00:32:50,560 --> 00:32:52,680
Speaker 5: for the economy. So there's a lot of there's a

567
00:32:52,680 --> 00:32:55,680
Speaker 5: lot of things to balance in this, and the other

568
00:32:55,760 --> 00:33:00,480
Speaker 5: challenges is regulation in tech never sit comfortably together. Regulation

569
00:33:00,640 --> 00:33:05,360
Speaker 5: is slow. Competition law is, as you know, is a

570
00:33:05,360 --> 00:33:09,600
Speaker 5: thing that has developed, you know, you know, worldwide over

571
00:33:09,840 --> 00:33:15,480
Speaker 5: over more than one hundred years, and it's not particularly

572
00:33:15,520 --> 00:33:18,720
Speaker 5: well equipped to to keep up with the pace of change.

573
00:33:18,760 --> 00:33:21,800
Speaker 5: And I think in New Zealand, you know, our constraints

574
00:33:22,240 --> 00:33:24,120
Speaker 5: and in terms of our Commerce Act, one of the

575
00:33:24,120 --> 00:33:29,400
Speaker 5: reasons why you don't see our Commerce Commission pushing into

576
00:33:30,280 --> 00:33:37,360
Speaker 5: the spaces around data and privacy as competition issues in

577
00:33:37,400 --> 00:33:41,560
Speaker 5: the way that you do see that in the US. Weirdly,

578
00:33:41,600 --> 00:33:44,400
Speaker 5: they have a lot more sort of regulatory kind of

579
00:33:44,440 --> 00:33:48,480
Speaker 5: freedom as to what their agencies dig into.

580
00:33:48,640 --> 00:33:51,000
Speaker 1: Well, that's interesting, Haymen, because I think some of the

581
00:33:51,000 --> 00:33:55,680
Speaker 1: commentary around this has been Okay, sure it may lessen competition,

582
00:33:55,760 --> 00:33:58,640
Speaker 1: but this is a real niche issue here. This is

583
00:33:58,920 --> 00:34:01,920
Speaker 1: a niche market any anyway, you know what battles are

584
00:34:01,960 --> 00:34:05,720
Speaker 1: you willing to pick here? What about the digital economy

585
00:34:05,720 --> 00:34:09,680
Speaker 1: and the dominance of companies like Google and Search in

586
00:34:09,760 --> 00:34:13,480
Speaker 1: New Zealand that has generates a billion dollars in revenue

587
00:34:13,960 --> 00:34:16,680
Speaker 1: a year ships most of that offshore. There hasn't been

588
00:34:16,719 --> 00:34:20,520
Speaker 1: any markets study of that or investigation into that. The

589
00:34:20,600 --> 00:34:23,239
Speaker 1: a triple C across the Tasman and frankly most other

590
00:34:23,280 --> 00:34:26,200
Speaker 1: governments around the world have shone the light on big tech.

591
00:34:26,280 --> 00:34:28,799
Speaker 1: It hasn't happened here. What do you think explains that?

592
00:34:29,360 --> 00:34:30,960
Speaker 5: Yeah, to be fair to the Commission, they've got to

593
00:34:30,960 --> 00:34:33,319
Speaker 5: play the ball that's in front of them, right, this

594
00:34:33,440 --> 00:34:35,560
Speaker 5: is a clearance application they've got to make a decision on.

595
00:34:37,200 --> 00:34:40,640
Speaker 5: If an authorization application was made, they'd have to make

596
00:34:40,640 --> 00:34:43,400
Speaker 5: a decision on that. If they decided to go ahead

597
00:34:43,440 --> 00:34:46,080
Speaker 5: with the merger, then they get a bit more discretion.

598
00:34:46,239 --> 00:34:47,800
Speaker 5: They look at that and they go, okay, well, you know,

599
00:34:47,960 --> 00:34:51,160
Speaker 5: is this something that we want to put our energy

600
00:34:51,160 --> 00:34:54,120
Speaker 5: and time into. But when you talk about the market studies,

601
00:34:54,120 --> 00:34:58,080
Speaker 5: the Commission is told what to study. Ultimately, that is

602
00:34:58,120 --> 00:35:03,399
Speaker 5: a political decision, right, and the Commission then gets on

603
00:35:03,440 --> 00:35:06,920
Speaker 5: and does it. And you've seen that, you know, in

604
00:35:06,960 --> 00:35:10,440
Speaker 5: the various market studies that they've already done. They have

605
00:35:10,520 --> 00:35:14,480
Speaker 5: to be resourced for those. Those are enormously expensive, and

606
00:35:14,520 --> 00:35:20,120
Speaker 5: the Commission has constrained resources, particularly when you put those

607
00:35:20,160 --> 00:35:24,520
Speaker 5: resources up against the resources that someone like Google could

608
00:35:26,480 --> 00:35:30,520
Speaker 5: deploy in relation to a market study into search. So

609
00:35:31,440 --> 00:35:33,279
Speaker 5: I think that there is a there is a real

610
00:35:33,360 --> 00:35:35,600
Speaker 5: question to be asked about are we looking in the

611
00:35:35,680 --> 00:35:41,120
Speaker 5: right place. I don't think that's the Commission's problem. That

612
00:35:41,239 --> 00:35:44,840
Speaker 5: is ultimately a political problem and can only be a

613
00:35:44,840 --> 00:35:45,800
Speaker 5: political answer.

614
00:35:46,480 --> 00:35:48,480
Speaker 1: It's not the end of the road here. I mean,

615
00:35:48,520 --> 00:35:51,520
Speaker 1: if you look at a Microsoft's attempted acquisition of Blizzard

616
00:35:52,400 --> 00:35:53,719
Speaker 1: that took a couple of years, but that was a

617
00:35:53,760 --> 00:35:57,120
Speaker 1: sixty eight billion dollar acquisition that affected every country in

618
00:35:57,160 --> 00:36:00,360
Speaker 1: the world and what video games were sold by whom.

619
00:36:01,080 --> 00:36:04,799
Speaker 1: That resulted in Microsoft making a lot of concessions. They gave,

620
00:36:04,920 --> 00:36:08,920
Speaker 1: for instance, an assurance to Sony for ten years games

621
00:36:08,960 --> 00:36:10,880
Speaker 1: will be sold on your platform. We're not going to

622
00:36:10,920 --> 00:36:15,080
Speaker 1: make them Xbox exclusive. Is there now an opportunity do

623
00:36:15,120 --> 00:36:17,439
Speaker 1: you think for Sirato to go to the Commission and say,

624
00:36:17,880 --> 00:36:20,879
Speaker 1: we will ensure, for instance, that our software will run

625
00:36:20,920 --> 00:36:25,600
Speaker 1: on rival to DJ pioneers hardware for a period into

626
00:36:25,600 --> 00:36:26,040
Speaker 1: the future.

627
00:36:26,880 --> 00:36:30,080
Speaker 5: Yeah, there's some are not fully across in this decision.

628
00:36:30,120 --> 00:36:35,279
Speaker 5: What undertakings were offered, if any were offered. I get

629
00:36:35,320 --> 00:36:37,200
Speaker 5: the feeling that there is some One of the challenges

630
00:36:37,280 --> 00:36:40,640
Speaker 5: is we're looking at the publicly available versions of that

631
00:36:41,320 --> 00:36:43,040
Speaker 5: of the documents, and a lot of that stuff is

632
00:36:43,080 --> 00:36:46,759
Speaker 5: really commercially sensitive, but there is certainly the ability to

633
00:36:47,760 --> 00:36:52,720
Speaker 5: you know, wrap your proposal in in agreements to provide

634
00:36:52,880 --> 00:36:58,319
Speaker 5: you undertakings to do or not do certain things. There's

635
00:36:58,360 --> 00:37:00,800
Speaker 5: always been some debate in the competition look community about

636
00:37:01,400 --> 00:37:06,480
Speaker 5: how practical and realistic and enforceable those those undertakings are

637
00:37:06,560 --> 00:37:09,600
Speaker 5: because there's always another reason why, you know, something else

638
00:37:09,680 --> 00:37:16,960
Speaker 5: might might happen. But you know, probably you know both alpha, Alpha,

639
00:37:16,960 --> 00:37:20,640
Speaker 5: Theta and Serato are sitting back now and going, Okay,

640
00:37:21,160 --> 00:37:25,120
Speaker 5: what's the next you know, what is the next alternative?

641
00:37:25,160 --> 00:37:28,279
Speaker 5: And to you know, to Tim's point about about startups,

642
00:37:29,280 --> 00:37:31,319
Speaker 5: as you go through and when you're thinking about your

643
00:37:31,480 --> 00:37:35,160
Speaker 5: your your strategy for being acquired, if you're a VC

644
00:37:35,400 --> 00:37:39,320
Speaker 5: or a startup, you should be thinking well, who logically

645
00:37:39,440 --> 00:37:42,719
Speaker 5: is going to buy us, who's got who is that

646
00:37:42,760 --> 00:37:47,080
Speaker 5: next step? And thinking about those competition issues early because

647
00:37:47,120 --> 00:37:50,200
Speaker 5: there are sometimes some things that you can do to

648
00:37:50,360 --> 00:37:52,920
Speaker 5: ensure that you in the same way you tire yourself

649
00:37:52,960 --> 00:37:56,440
Speaker 5: up for sale, right, you can, you can you can

650
00:37:56,680 --> 00:38:00,279
Speaker 5: you know, clean your competition house if you do this

651
00:38:00,360 --> 00:38:00,960
Speaker 5: early enough.

652
00:38:01,719 --> 00:38:04,840
Speaker 1: And I guess one thing that a number of startup

653
00:38:05,320 --> 00:38:08,680
Speaker 1: boards and investors and founders will be thinking about now

654
00:38:08,880 --> 00:38:13,800
Speaker 1: is do I set up an offshore division and hold

655
00:38:13,800 --> 00:38:17,840
Speaker 1: the IP in that division so we're subject to different

656
00:38:18,080 --> 00:38:22,120
Speaker 1: competition law. But for instance, the UK regulator is saying

657
00:38:22,360 --> 00:38:25,160
Speaker 1: they're going to look at the Sirato acquisition as well,

658
00:38:25,200 --> 00:38:28,440
Speaker 1: so it's not necessarily going to protect you by moving offshore.

659
00:38:28,600 --> 00:38:31,200
Speaker 1: But Tim, do you get the sense that if I

660
00:38:31,200 --> 00:38:33,600
Speaker 1: think you maybe even said if this had been maybe

661
00:38:33,640 --> 00:38:36,040
Speaker 1: in the US is something this probably would have got

662
00:38:36,080 --> 00:38:37,200
Speaker 1: signed off? No problem.

663
00:38:37,280 --> 00:38:39,480
Speaker 4: Yeah, I can't make that call, but it would have

664
00:38:39,480 --> 00:38:42,319
Speaker 4: been a very different discussion. I can definitely say that

665
00:38:42,560 --> 00:38:45,600
Speaker 4: what's very common for New Zealand founders. You get to

666
00:38:45,640 --> 00:38:48,000
Speaker 4: a business that's of a reasonable level of success and

667
00:38:48,040 --> 00:38:52,640
Speaker 4: then you need to go offshore to find deep pockets

668
00:38:52,920 --> 00:38:56,879
Speaker 4: for capital for investment, and usually to do that they

669
00:38:56,920 --> 00:38:59,640
Speaker 4: require you to do what's called the flip, which is

670
00:38:59,680 --> 00:39:02,560
Speaker 4: where you take all your shares, essentially all of your

671
00:39:02,600 --> 00:39:05,319
Speaker 4: investment in IP, out of the New Zealand company and

672
00:39:05,360 --> 00:39:08,200
Speaker 4: you stick it usually in a US company, probably based

673
00:39:08,239 --> 00:39:13,360
Speaker 4: in Delaware because they've got very limited disclosure requirements there.

674
00:39:13,680 --> 00:39:17,040
Speaker 4: And then things become easier and you're always given these

675
00:39:17,040 --> 00:39:19,800
Speaker 4: warnings or if you don't do that if you get bought,

676
00:39:19,840 --> 00:39:22,040
Speaker 4: then it's going to make it difficult. This is not

677
00:39:22,120 --> 00:39:24,480
Speaker 4: one I'd heard of, but I can put money on it.

678
00:39:24,480 --> 00:39:27,920
Speaker 4: It's going to be in entrepreneurship classes going forward that

679
00:39:28,000 --> 00:39:30,919
Speaker 4: if you don't put your IP somewhere with a favorable

680
00:39:31,239 --> 00:39:33,960
Speaker 4: approach to this, then you know you can be big

681
00:39:34,000 --> 00:39:34,800
Speaker 4: in a small pond.

682
00:39:35,200 --> 00:39:38,520
Speaker 1: Yeah, and it's finally tim you use Serato. What is

683
00:39:38,560 --> 00:39:41,279
Speaker 1: it that makes that software so so great that has

684
00:39:41,360 --> 00:39:45,440
Speaker 1: given this small New Zealand startup such an edge and

685
00:39:45,480 --> 00:39:49,640
Speaker 1: a sustained edge over the last decade in DJ software.

686
00:39:50,120 --> 00:39:52,640
Speaker 4: Yeah, I was fortunate enough to have a tour of

687
00:39:52,680 --> 00:39:57,359
Speaker 4: it when a different CEO was in place, but the

688
00:39:57,360 --> 00:40:01,240
Speaker 4: founder was involved the CEO. I think when I was there,

689
00:40:01,480 --> 00:40:07,320
Speaker 4: what really stood out was a really impressive level. Essentially

690
00:40:07,320 --> 00:40:10,239
Speaker 4: sum it up as productivity. They were driven and they

691
00:40:10,320 --> 00:40:13,239
Speaker 4: were so good at things. Now, this is a fascinating thing.

692
00:40:13,360 --> 00:40:15,839
Speaker 4: Don't think the Commerce commissioned did this. But when you

693
00:40:15,920 --> 00:40:20,720
Speaker 4: walked through part of their building, they had all kinds

694
00:40:20,719 --> 00:40:25,320
Speaker 4: of hardware from every manufacturer in the world, whether or

695
00:40:25,400 --> 00:40:27,440
Speaker 4: not they were running their system or not, because they

696
00:40:27,480 --> 00:40:28,960
Speaker 4: want to be the best and they wanted to be

697
00:40:29,040 --> 00:40:32,480
Speaker 4: run on there, and so they were looking very broadly

698
00:40:32,680 --> 00:40:35,520
Speaker 4: and they had charts up everywhere. And I walked in there,

699
00:40:35,600 --> 00:40:39,080
Speaker 4: I thought, this is an icon of visual management. This

700
00:40:39,120 --> 00:40:41,560
Speaker 4: company is going to do very well. I I could

701
00:40:41,640 --> 00:40:44,160
Speaker 4: just sense it there. And I've never come across anyone

702
00:40:44,200 --> 00:40:47,200
Speaker 4: who's got anything other than a great impression of this company.

703
00:40:47,280 --> 00:40:49,359
Speaker 4: So if I can give my two cents on it,

704
00:40:49,880 --> 00:40:53,680
Speaker 4: I think this will stimulate interest from other players. I

705
00:40:53,719 --> 00:40:56,680
Speaker 4: don't know who might be in the position to take

706
00:40:56,719 --> 00:41:01,879
Speaker 4: them out in the music industry, but funnily enough, one

707
00:41:01,920 --> 00:41:04,600
Speaker 4: of the companies that's very powerful in that area is

708
00:41:05,120 --> 00:41:10,200
Speaker 4: actually Apple. Apple have their own essentially radio stations that've

709
00:41:10,200 --> 00:41:13,920
Speaker 4: got their own production, their own TV stations. Wouldn't it

710
00:41:13,920 --> 00:41:16,120
Speaker 4: be interesting if Apple wants to have a crack at

711
00:41:16,120 --> 00:41:18,000
Speaker 4: them one of the other giant tech players.

712
00:41:18,400 --> 00:41:20,760
Speaker 1: Well, the same thing as you said with Power by Proxy.

713
00:41:20,840 --> 00:41:25,080
Speaker 1: They could have probably sold the IP to some other company,

714
00:41:25,120 --> 00:41:27,960
Speaker 1: but you know that technology is now featured in the

715
00:41:28,000 --> 00:41:32,000
Speaker 1: wireless charging component of one hundreds of millions of phones.

716
00:41:32,680 --> 00:41:36,400
Speaker 1: What an amazing New Zealand connection to have to that technology.

717
00:41:36,440 --> 00:41:37,800
Speaker 1: It probably wouldn't have happened otherwise.

718
00:41:38,640 --> 00:41:40,960
Speaker 4: Yeah, that's right. I haven't noticed any lack of competition

719
00:41:41,040 --> 00:41:43,400
Speaker 4: because this one's got the power by proxy ip in it.

720
00:41:43,680 --> 00:41:44,000
Speaker 5: Wow.

721
00:41:44,880 --> 00:41:45,839
Speaker 1: Hey, last word for you.

722
00:41:46,320 --> 00:41:48,920
Speaker 5: I'd be fascinated if, rather than Apple, it was one

723
00:41:48,920 --> 00:41:51,960
Speaker 5: of the app provider's algorithm or one of those, because

724
00:41:52,000 --> 00:41:58,719
Speaker 5: that really would prove Serato's point that they are legitimate competitors.

725
00:42:00,040 --> 00:42:03,720
Speaker 5: Plus combined they could do some very very cool stuff.

726
00:42:04,520 --> 00:42:07,880
Speaker 1: Yeah, is this case do you think on the radar

727
00:42:07,920 --> 00:42:10,480
Speaker 1: if a lot of competition law is locally as something

728
00:42:10,480 --> 00:42:14,600
Speaker 1: to watch, it's.

729
00:42:14,760 --> 00:42:19,200
Speaker 5: Look, there's nothing unique about the competition aspects here. What's

730
00:42:19,360 --> 00:42:23,240
Speaker 5: unique really is that this is a key we startup

731
00:42:23,840 --> 00:42:28,319
Speaker 5: that looks like it's being you know, throttles by the

732
00:42:28,560 --> 00:42:32,279
Speaker 5: New Zealand's competition law. And it's got a bit of

733
00:42:32,320 --> 00:42:36,080
Speaker 5: interest because it's also a core product, which you can't

734
00:42:36,120 --> 00:42:40,680
Speaker 5: say about every every clearance application that goes before the

735
00:42:40,680 --> 00:42:45,360
Speaker 5: Comments Commission. But there isn't anything hugely novel or surprising

736
00:42:45,600 --> 00:42:49,200
Speaker 5: about this, with the exception of it's the latest example

737
00:42:49,239 --> 00:42:54,440
Speaker 5: of the Commission trying to wrangle with the complexities of

738
00:42:54,520 --> 00:42:58,800
Speaker 5: competition in a tech enabled world, and that's a challenge

739
00:42:58,800 --> 00:43:01,680
Speaker 5: they're going to continue to have. When you when you

740
00:43:01,719 --> 00:43:07,000
Speaker 5: look at some of the fantastic tech startups that we've

741
00:43:07,040 --> 00:43:09,120
Speaker 5: got in New Zealand. I was lucky enough to be

742
00:43:10,200 --> 00:43:14,319
Speaker 5: up in San Francisco last week with in West New

743
00:43:14,400 --> 00:43:16,960
Speaker 5: Zealand Trade and Enterprise Delegation up there with a bunch

744
00:43:17,000 --> 00:43:20,600
Speaker 5: of vcs and founders, and there are some fantastic stuff

745
00:43:20,680 --> 00:43:23,920
Speaker 5: going on in in New Zealand. And so these are

746
00:43:24,000 --> 00:43:27,879
Speaker 5: questions that are going to continue to be asked and

747
00:43:28,440 --> 00:43:31,880
Speaker 5: in the interests of New Zealand, we have to get

748
00:43:31,960 --> 00:43:35,040
Speaker 5: better and faster at answering these questions and doing it

749
00:43:35,040 --> 00:43:38,080
Speaker 5: in a way that it looks to the to the

750
00:43:38,120 --> 00:43:39,960
Speaker 5: way the world's going to be, not the way it was.

751
00:43:47,320 --> 00:43:51,359
Speaker 2: So a pretty complicated issue, as competition often is. When

752
00:43:51,360 --> 00:43:53,440
Speaker 2: you were talking to the pair, what were the things

753
00:43:53,440 --> 00:43:55,560
Speaker 2: that kind of stood out to you first?

754
00:43:56,360 --> 00:43:59,600
Speaker 1: Well, I went into this a little bit emotional is

755
00:43:59,760 --> 00:44:03,120
Speaker 1: of sen from many startup founders thinking this is outrageous.

756
00:44:03,160 --> 00:44:05,920
Speaker 1: You know, these guys have made a very good case

757
00:44:06,000 --> 00:44:08,680
Speaker 1: for how this is going to allow them to grow

758
00:44:08,840 --> 00:44:12,960
Speaker 1: Serato into something much bigger for New Zealand. But as

759
00:44:13,000 --> 00:44:15,840
Speaker 1: Hayden put it, the cold hard reality is there's a

760
00:44:15,880 --> 00:44:20,000
Speaker 1: framework that the Commerce Commission applies to these types of

761
00:44:20,040 --> 00:44:23,560
Speaker 1: things that are happening in our jurisdiction and sort I

762
00:44:23,560 --> 00:44:25,399
Speaker 1: think they played it by the book. Their hands were

763
00:44:25,440 --> 00:44:27,920
Speaker 1: sort of tied. I would like to think that there

764
00:44:27,960 --> 00:44:32,480
Speaker 1: is scope for a change in this decision with certain

765
00:44:32,560 --> 00:44:37,000
Speaker 1: provisions that satisfy the Commerce Commission. And I mentioned in

766
00:44:37,040 --> 00:44:40,719
Speaker 1: the podcast, you know, Blizzard and Microsoft were able to

767
00:44:40,719 --> 00:44:44,560
Speaker 1: sort of come to that sort of accommodation that kept Sony,

768
00:44:44,840 --> 00:44:48,719
Speaker 1: if not happy, at least plicated to some extent that

769
00:44:48,760 --> 00:44:51,000
Speaker 1: they weren't going to lose all of these big titles

770
00:44:51,040 --> 00:44:55,000
Speaker 1: when those gaming behemoths sort of merge. You know, I'd

771
00:44:55,040 --> 00:44:58,160
Speaker 1: like to see something like that already. You know, Sorrato

772
00:44:58,200 --> 00:45:00,000
Speaker 1: has said we're not going to stop selling our software

773
00:45:00,120 --> 00:45:05,280
Speaker 1: to other platforms, and it's great. So maybe some stronger

774
00:45:05,320 --> 00:45:09,440
Speaker 1: assurances or some contractual thing that says that for the

775
00:45:09,440 --> 00:45:12,799
Speaker 1: next decade or something we will guarantee supply of those

776
00:45:12,880 --> 00:45:15,239
Speaker 1: A decade in this game is going to be a

777
00:45:15,360 --> 00:45:18,839
Speaker 1: very long time, as Tim was pointing out, And these

778
00:45:18,840 --> 00:45:21,520
Speaker 1: guys are music lovers and use these products, so they

779
00:45:21,640 --> 00:45:25,400
Speaker 1: know the proliferation of apps, I mean, some of the AI,

780
00:45:25,920 --> 00:45:29,120
Speaker 1: the generative AI apps in the music space is going

781
00:45:29,160 --> 00:45:32,319
Speaker 1: to merge with all of this and potentially overrun it.

782
00:45:32,719 --> 00:45:37,520
Speaker 1: So I think Sirato, Record Box Pioneer DJ, even though

783
00:45:37,520 --> 00:45:40,880
Speaker 1: it's a hardware product, I think they got serious competition coming.

784
00:45:40,920 --> 00:45:43,800
Speaker 1: So in that context, the people who really understand the

785
00:45:43,920 --> 00:45:49,120
Speaker 1: tech innovation ecosystem are looking at this going, really, you're

786
00:45:49,120 --> 00:45:51,640
Speaker 1: going to hold this up that money could filter back

787
00:45:51,640 --> 00:45:54,759
Speaker 1: into starting other companies, so that this is bad for

788
00:45:54,800 --> 00:45:55,800
Speaker 1: the New Zealand economy.

789
00:45:56,320 --> 00:46:00,479
Speaker 2: Yeah. I'm glad you mentioned Blizzard Activision there as well,

790
00:46:00,480 --> 00:46:02,480
Speaker 2: because I thought that was one of the things that

791
00:46:02,480 --> 00:46:04,640
Speaker 2: that cropped out to me, is that I know it

792
00:46:04,760 --> 00:46:06,920
Speaker 2: is not necessarily a hard no when it comes to

793
00:46:07,000 --> 00:46:08,800
Speaker 2: these things. Yeah, I think you've hit the main points

794
00:46:08,840 --> 00:46:10,480
Speaker 2: on the head there, Like there is a way out

795
00:46:10,520 --> 00:46:13,560
Speaker 2: of this. There is a way of assuring that things

796
00:46:13,600 --> 00:46:16,040
Speaker 2: are not just going to turn into a massive monopoly

797
00:46:16,800 --> 00:46:18,799
Speaker 2: in what is a fairly niche space. And there are

798
00:46:18,800 --> 00:46:21,120
Speaker 2: new things coming out all the time as well, especially

799
00:46:21,120 --> 00:46:23,680
Speaker 2: with this new wave of tech and digital tools.

800
00:46:23,800 --> 00:46:28,720
Speaker 1: Yeah, and I think this is quite an isolated case.

801
00:46:28,840 --> 00:46:31,000
Speaker 1: Like when I asked Hayden, do you know if any

802
00:46:31,000 --> 00:46:33,719
Speaker 1: others like this, you didn't have a whole list of them.

803
00:46:33,840 --> 00:46:37,160
Speaker 1: The ComCom has knocked back acquisitions and mergers in New Zealand,

804
00:46:37,160 --> 00:46:40,279
Speaker 1: for instance, the Vodafone Sky TV one that was a

805
00:46:40,320 --> 00:46:44,840
Speaker 1: big one that enzed me our parent company trying to

806
00:46:44,880 --> 00:46:47,000
Speaker 1: merge with stuff. They knocked those back and that was

807
00:46:47,400 --> 00:46:51,080
Speaker 1: year or two year long investigations into that. So we've

808
00:46:51,120 --> 00:46:54,560
Speaker 1: seen that happen. But it's not like lots of startups

809
00:46:54,560 --> 00:46:59,520
Speaker 1: that are suddenly targets of acquisitions from overseas companies have

810
00:46:59,640 --> 00:47:02,120
Speaker 1: been told no, you can't do this. So I think

811
00:47:02,120 --> 00:47:05,560
Speaker 1: it is relatively rare and will continue to be so.

812
00:47:05,719 --> 00:47:09,160
Speaker 1: But it does send the message to startup founders and

813
00:47:09,200 --> 00:47:12,120
Speaker 1: their investors right back at the early days, what is

814
00:47:12,160 --> 00:47:16,400
Speaker 1: our exit strategy and are we playing in a niche

815
00:47:17,560 --> 00:47:20,880
Speaker 1: that we could see us come up against these problems.

816
00:47:20,880 --> 00:47:22,800
Speaker 1: When we do go to sell, they're going to be

817
00:47:22,840 --> 00:47:25,520
Speaker 1: looking at our market dominance, who do we want to

818
00:47:25,520 --> 00:47:28,319
Speaker 1: buy this company? And as Tim said, you know that

819
00:47:28,440 --> 00:47:30,560
Speaker 1: Power by Proxy it was a really good example. You know,

820
00:47:30,560 --> 00:47:34,200
Speaker 1: it was world leading and wireless charging technology. There weren't

821
00:47:34,200 --> 00:47:37,120
Speaker 1: many players in that market at the time. What if

822
00:47:37,120 --> 00:47:38,879
Speaker 1: the ComCom had said, no, we don't like to look

823
00:47:38,880 --> 00:47:42,840
Speaker 1: at that. Apple's a dominant player and they didn't. So

824
00:47:43,680 --> 00:47:46,200
Speaker 1: it is something that should definitely be on the radar

825
00:47:46,400 --> 00:47:49,160
Speaker 1: of people setting out on that startup journey. But I

826
00:47:49,160 --> 00:47:51,440
Speaker 1: don't think it's something that should stop them from launching

827
00:47:51,480 --> 00:47:52,920
Speaker 1: their companies here in New Zealand.

828
00:47:53,200 --> 00:47:56,080
Speaker 2: No, absolutely not. No, I don't think New Zealand's Commerce

829
00:47:56,120 --> 00:47:58,040
Speaker 2: Commission is going to be known globally as one of

830
00:47:58,080 --> 00:48:02,640
Speaker 2: the most fierce and harsh and roveully force us out there. Okay,

831
00:48:02,719 --> 00:48:04,959
Speaker 2: So that's it for the Business of Tech this week.

832
00:48:05,000 --> 00:48:07,719
Speaker 2: Thanks to Tim Warren and Hayden Wilson for their perspectives

833
00:48:07,719 --> 00:48:10,560
Speaker 2: on the Serato situation, and the team at Business Desk

834
00:48:10,640 --> 00:48:13,200
Speaker 2: will be keeping a close eye on how the story proceeds.

835
00:48:13,600 --> 00:48:17,200
Speaker 1: The Business of Tech is on all major podcast platforms

836
00:48:17,200 --> 00:48:20,280
Speaker 1: as well as iHeartRadio, where you can stream every episode.

837
00:48:20,600 --> 00:48:22,840
Speaker 1: Show notes are in the Tech section on the Business

838
00:48:22,840 --> 00:48:25,600
Speaker 1: Desk website. Leave us a review and share it with

839
00:48:25,640 --> 00:48:26,719
Speaker 1: your friends and colleagues.

840
00:48:26,840 --> 00:48:30,920
Speaker 2: Get in touch with feedback, ideas, topics, guest suggestions. Email

841
00:48:30,960 --> 00:48:33,600
Speaker 2: me on Ben at Businessdesk dot co dot z. We'll

842
00:48:33,600 --> 00:48:35,759
Speaker 2: find both of us on LinkedIn and x

843
00:48:36,080 --> 00:48:38,600
Speaker 1: And you'll find the next episode of the Business of

844
00:48:38,680 --> 00:48:42,040
Speaker 1: Tech in your podcast app right and early next Thursday,

845
00:48:42,200 --> 00:48:42,960
Speaker 1: we'll catch you there,