WEBVTT - Bloomberg Businessweek Weekend - August 2nd, 2024 0:00:01.360 --> 0:00:05.720 This is Bloomberg business Week Inside from the reporters and 0:00:05.920 --> 0:00:09.480 editors who bring you America's most trusted business magazine, plus 0:00:09.560 --> 0:00:13.440 gloom War, business finance, and tech news. The Bloomberg Business 0:00:13.440 --> 0:00:18.640 Week Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio. 0:00:19.960 --> 0:00:22.960 Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast. 0:00:23.480 --> 0:00:25.880 A FED decision and Jay Powell saying a rate cut 0:00:25.960 --> 0:00:29.000 could come as soon as September, earnings from four of 0:00:29.000 --> 0:00:32.800 the Magnificent Seven, a renewed round of Mid East tensions, 0:00:33.000 --> 0:00:35.560 new polling around the US presidential race from the crucial 0:00:35.560 --> 0:00:38.040 swing states, and as we put our show to bed, 0:00:38.080 --> 0:00:40.400 the news broke that rush is releasing Wall Street Journal 0:00:40.440 --> 0:00:44.440 reporter Evan Gershkevich and former US Marine Paul Wheelan as 0:00:44.520 --> 0:00:47.120 part of a major prisoner swap with the United States. 0:00:47.159 --> 0:00:49.959 I can even get my head around it. It's exploding, Tim, 0:00:49.960 --> 0:00:50.519 There's so much. 0:00:50.640 --> 0:00:52.279 Yeah, I mean, things are moving so quickly that by 0:00:52.320 --> 0:00:54.840 the time people hear this, there will be additional news. 0:00:54.840 --> 0:00:57.000 So just keep that in mind. Everyone. It's a busy 0:00:57.040 --> 0:00:59.880 summer week to wrap up the month of July, certainly 0:01:00.200 --> 0:01:03.120 on many fronts, including on the US elections because we're 0:01:03.160 --> 0:01:06.080 going to tell you about the billionaire financier who's spending 0:01:06.240 --> 0:01:09.399 millions on upcoming Republican races. And we're going to hear 0:01:09.400 --> 0:01:13.679 how Blackpack, a Democratic political action committee, is mobilizing and 0:01:13.800 --> 0:01:15.679 engaging African American voters. 0:01:15.760 --> 0:01:18.119 Also in the new August issue of Bloomberg Business Week, 0:01:18.120 --> 0:01:21.479 how the internet's biggest recreation zone for kids is fighting 0:01:21.520 --> 0:01:24.319 to keep predators away and it's not always winning. 0:01:24.760 --> 0:01:27.080 All of that to come. We have to start though, 0:01:27.080 --> 0:01:29.440 with earnings from several of the so called mag seven, 0:01:29.840 --> 0:01:33.720 all with trillion dollar plus valuations, Microsoft, Meta, Apple, and 0:01:33.760 --> 0:01:36.800 Amazon all out with results and for a roundup as 0:01:36.840 --> 0:01:39.160 some were crossing the Bloomberg we leaned on the co 0:01:39.240 --> 0:01:42.399 host of Bloomberg Technology on Bloomberg TV, Ed Ludlow, and 0:01:42.440 --> 0:01:45.520 Bloomberg News chief technology correspondent in our in house Apple 0:01:45.560 --> 0:01:46.760 guru Mark German. 0:01:47.200 --> 0:01:49.600 Great beat for iPhone revenue in the quarter, which is 0:01:49.600 --> 0:01:51.760 interesting because we're pre sixteen. 0:01:52.000 --> 0:01:54.000 Yeah, like, why are people buying phones right now? They 0:01:54.040 --> 0:01:54.760 should be waiting, right. 0:01:54.800 --> 0:01:56.960 It was a lot of wait in markets like China 0:01:57.040 --> 0:01:59.600 that they were buying the fifteen generation with the intention 0:01:59.640 --> 0:02:01.120 of holding onto it. And then I go to the 0:02:01.120 --> 0:02:05.080 grater China revenue, missing estimates, and the third party data. 0:02:05.360 --> 0:02:08.000 Third party data is not always right, but he did 0:02:08.000 --> 0:02:10.040 tell us that Apple was slipping in Greater China. 0:02:10.280 --> 0:02:12.560 Is the IDC data, the IDC data. 0:02:12.600 --> 0:02:15.400 There's counterpoint research, there's loads, But my point is that 0:02:15.440 --> 0:02:17.840 there was worried they would They did really face domestic 0:02:17.840 --> 0:02:20.639 pressure on the handset market there, and you always look 0:02:20.680 --> 0:02:22.799 to China as a point of focus. So you have 0:02:22.880 --> 0:02:25.280 to read between the lines because on the earnings call, 0:02:25.520 --> 0:02:28.239 CFO look of my Street often addresses that issue head 0:02:28.280 --> 0:02:31.399 on how they did in the market in China, specifically. 0:02:31.120 --> 0:02:34.240 Ernie's per share coming in one dollars and forty cents 0:02:34.240 --> 0:02:36.919 per share, that beat estimates of one dollar and thirty 0:02:36.919 --> 0:02:38.399 five cents, So a beat there as well. 0:02:38.520 --> 0:02:40.600 Yeah, I don't know, you know, I'm looking at kind 0:02:40.600 --> 0:02:42.560 of our ride through bier marker men, you know, marking 0:02:42.600 --> 0:02:45.080 a return to revenue growth last quarter, he says, topping 0:02:45.160 --> 0:02:49.440 analyst estimates, indicating that upgraded iPads and a strong services 0:02:49.480 --> 0:02:52.000 business helped make up for some of those headwinds in China. 0:02:52.040 --> 0:02:54.560 So sales were up five percent to eighty five point 0:02:54.560 --> 0:02:58.040 eight billion in that fiscal third quarter the iPhone maker, saying, 0:02:58.080 --> 0:03:00.600 putting out that statement, analyst had predicted eighty four five. 0:03:00.639 --> 0:03:03.480 So that's a beat. Three months ago, the CFO had 0:03:03.480 --> 0:03:05.800 said the company would grow by a percentage in the 0:03:05.840 --> 0:03:07.919 low single digits during the period. 0:03:08.040 --> 0:03:12.079 Okay, overall revenue beat, iPhone revenue beat, MAC revenue beat, 0:03:12.200 --> 0:03:16.520 iPad revenue beat. Wearables, homes and accessories also beat. 0:03:16.840 --> 0:03:19.240 We've been talking with you throughout the week about the 0:03:19.280 --> 0:03:23.160 tech reporting season and the big megacap tech companies that 0:03:23.200 --> 0:03:26.040 have reported. How are you thinking about them? I don't 0:03:26.080 --> 0:03:27.560 know that there's one trend line to. 0:03:27.720 --> 0:03:31.040 There is a trend line excluding Apple, which is capital expenditures. 0:03:31.400 --> 0:03:33.280 And what's so interesting is, like I was talking a 0:03:33.320 --> 0:03:36.120 bit about this in the blog earlier, Apple's capex is 0:03:36.120 --> 0:03:39.320 always low. A lot of investors always bemoaned its cash balance. 0:03:39.440 --> 0:03:42.000 You know, it's so ginormous, right. I look at the 0:03:42.040 --> 0:03:44.880 release and I see Apple's board of directors declares the 0:03:44.920 --> 0:03:47.600 cash dividends of twenty five cents per share. There's one 0:03:47.640 --> 0:03:49.320 really important thing when you cover a stock like this, 0:03:49.400 --> 0:03:51.880 you need to remind yourself how widely held is the 0:03:51.920 --> 0:03:54.920 stock around the world. Yes, there are many institutional investors 0:03:54.960 --> 0:03:56.720 that hold it in volume. One of them was on 0:03:56.760 --> 0:03:59.080 my show today, Denny Fisher of Janis think all the 0:03:59.120 --> 0:04:02.800 individuals that Apple stock because they think it's prestigious. I 0:04:02.800 --> 0:04:05.760 always find that fascinating. So little divvy goes a long way. 0:04:05.920 --> 0:04:08.560 It does go a long way. Hey, listen, we've been 0:04:08.640 --> 0:04:10.920 reading his comments along with Ed's on the blog. We 0:04:11.000 --> 0:04:12.920 read a story on Apple. Let's bring him in. Mark 0:04:12.920 --> 0:04:16.039 German is Bloomberg News chief technology correspondent. We call him 0:04:16.080 --> 0:04:19.760 our Apple Guru. Joining us right now, coming off of earnings, Mark, 0:04:19.839 --> 0:04:23.200 walk us through what you think the Bloomberg audience needs 0:04:23.240 --> 0:04:24.960 to know about this release. 0:04:25.920 --> 0:04:26.120 Yeah. 0:04:26.120 --> 0:04:28.320 The through line here is that Apple beat across the 0:04:28.360 --> 0:04:33.000 board in every product category iPhone, iPad, wearables, home and accessories, 0:04:33.760 --> 0:04:36.960 mac and services. So nice beats across the board. There 0:04:37.400 --> 0:04:40.480 still the iPhone one percent year of a year decline, 0:04:41.080 --> 0:04:44.279 not terrible, especially given that we are going into the 0:04:44.360 --> 0:04:47.600 new iPhone season. The other thing to note, though, is 0:04:47.680 --> 0:04:51.279 Greater China. Greater China's down about six percent. This came 0:04:51.320 --> 0:04:55.919 in both below expectations and obviously it's an annual decline. 0:04:56.120 --> 0:04:57.920 That's something that I think a lot of analysts and 0:04:57.920 --> 0:04:59.680 investors are going to want to take a look at 0:05:00.279 --> 0:05:04.720 why is China's performance continuing to decline. Apple does say 0:05:04.760 --> 0:05:07.320 though that they still see this as an improvement over 0:05:07.400 --> 0:05:09.599 the China situation in the first half of the year, 0:05:10.240 --> 0:05:13.760 but still this is not great. Looking ahead, we're going 0:05:13.839 --> 0:05:17.159 to want to know any color about how they're thinking 0:05:17.160 --> 0:05:18.599 they're going to do in the current quarter of the 0:05:18.600 --> 0:05:21.920 fourth quarter. The new iPhone line, the sixteen, will go 0:05:22.000 --> 0:05:24.480 on sale towards the very end of Q four, towards 0:05:24.480 --> 0:05:26.600 the end of September, so that's going to be a 0:05:26.640 --> 0:05:31.919 significant moment obviously contribute quite significantly to the bottom line 0:05:32.279 --> 0:05:34.599 in the current period, which obviously we're looking ahead at that. 0:05:35.400 --> 0:05:37.640 Another thing I want to call out is the iPad. 0:05:37.800 --> 0:05:41.800 iPad grew twenty four percent, not entirely a surprise. I'm 0:05:41.880 --> 0:05:44.640 surprised that Wall Street estimated so low on the iPad. 0:05:45.240 --> 0:05:48.040 Let's not forget that Apple hadn't released a new version 0:05:48.040 --> 0:05:49.760 of the iPad for about a year and a half 0:05:50.080 --> 0:05:52.719 and then released two major versions of the new iPad 0:05:52.839 --> 0:05:56.279 in May along with major updates to their accessories. So 0:05:56.920 --> 0:05:57.800 no surprise there. 0:05:58.040 --> 0:05:59.520 Hey, Mark, One thing I'd love to do with you, 0:05:59.560 --> 0:06:01.320 and I know it's hard, is the math on China. 0:06:01.800 --> 0:06:04.359 You know, you get that three Q iPhone B and 0:06:04.400 --> 0:06:07.159 then the weakness in Greater China. Is it likely to 0:06:07.200 --> 0:06:11.200 be products specific in terms of iPhone or where does 0:06:11.200 --> 0:06:13.280 Apple tend to point to us when they have a 0:06:13.320 --> 0:06:14.839 specific geographic weakness. 0:06:15.960 --> 0:06:18.920 Well, the thing is Apple never really gets into geographic 0:06:19.760 --> 0:06:22.080 weakness on a product ed product basis. What they have 0:06:22.120 --> 0:06:24.640 said over the past several quarters as people have asked 0:06:24.640 --> 0:06:27.520 about the declines in China, is that these declines are 0:06:27.560 --> 0:06:30.960 not due to the iPhone. Now they're not saying what 0:06:31.000 --> 0:06:33.480 those other products are that are contributing to the declines. 0:06:33.480 --> 0:06:36.280 Whether it's the iPad, whether it's the math, whether it's wearables, 0:06:36.360 --> 0:06:41.120 they're not sharing that information. So I believe personally that 0:06:41.200 --> 0:06:43.120 it does have to do with the iPhone and some 0:06:43.200 --> 0:06:45.440 of the softness we're seeing there. A lot of people 0:06:45.440 --> 0:06:48.640 are buying Huawei Vivo Opah the local phonemakers instead of 0:06:48.640 --> 0:06:50.520 the iPhone at this point. So I would say this 0:06:50.600 --> 0:06:53.200 has to do with the iPhone. This quarter, we're. 0:06:53.080 --> 0:06:56.039 Talking with Mark German, We're talking with Ed Ludlow. Apple 0:06:56.040 --> 0:06:58.560 third quarter iPhone revenue that's a B. Third quarter Greater 0:06:58.680 --> 0:07:02.360 China revenue that was miss third quarter revenue. Overall, that 0:07:02.520 --> 0:07:06.000 was a beat mark in terms of AI and Apple Intelligence, 0:07:06.000 --> 0:07:08.800 which they showed off a lot at the Developers conference 0:07:08.839 --> 0:07:10.720 in June. What would be a question that you'd want 0:07:10.760 --> 0:07:12.880 to know about that? I know they're still developing, they're 0:07:12.920 --> 0:07:14.600 working on it, but what do you want to know? 0:07:16.040 --> 0:07:17.520 I want to know if they think it's going to 0:07:17.600 --> 0:07:19.920 drive sales, because I can tell you after using it 0:07:19.960 --> 0:07:22.120 for the past few days or so, I don't think 0:07:22.120 --> 0:07:24.600 there's any reason why anyone should buy a new iPhone 0:07:24.680 --> 0:07:27.760 based solely on the new features that are currently available 0:07:27.960 --> 0:07:30.040 or will be available from Apple Intelligence at the get go. 0:07:31.000 --> 0:07:33.680 I happen to think that Apple Intelligence is really a 0:07:33.840 --> 0:07:36.760 late twenty twenty five story, and maybe next year is 0:07:36.760 --> 0:07:38.520 one of that's going to drive sales, But the current 0:07:38.560 --> 0:07:42.880 incarnation it shouldn't be a sales driver. Quite frankly, based 0:07:42.920 --> 0:07:46.280 on their marketing and some ridiculous comments I've seen from 0:07:46.280 --> 0:07:49.480 Wall Street analysts and others who cover Apple. Maybe they'll 0:07:49.520 --> 0:07:51.880 still grow based on it. Some people will be disappointed 0:07:51.920 --> 0:07:54.160 if they buy the iPhone based on Apple Intelligence, at 0:07:54.240 --> 0:07:55.080 least from the beginning. 0:07:55.560 --> 0:07:57.200 ED come on back in here to remind us about 0:07:57.240 --> 0:07:59.720 Capex and why CAPEX should be looked at differently with Apple, 0:08:00.080 --> 0:08:02.640 with that Microsoft alphabet, Amazon and Meta. 0:08:02.640 --> 0:08:05.560 Just because historically capital expenditures for Apple are just kind 0:08:05.560 --> 0:08:07.680 of a non event. They're not at the ten percentage 0:08:07.720 --> 0:08:10.560 point to twenty percentage point range that the hyperscalers have, 0:08:11.000 --> 0:08:13.800 particularly in the current environment. Right, It's just not a 0:08:13.840 --> 0:08:16.320 part of their story. And Mark always correct me if 0:08:16.360 --> 0:08:18.240 I'm wrong. But what I find so interesting about Apple 0:08:18.280 --> 0:08:20.920 strategy is the cost of where they're trying to get to, 0:08:20.960 --> 0:08:24.360 which is Apple intelligence. Think about the partnerships, right, you know, 0:08:24.400 --> 0:08:27.800 Apple is not as hyper focused on the building of 0:08:27.800 --> 0:08:30.440 its own large language model. It has some activity there, 0:08:30.560 --> 0:08:33.120 but it partners with open ai, so open ai takes 0:08:33.160 --> 0:08:36.160 the R and D cost. How does Apple facilitate its 0:08:36.200 --> 0:08:39.920 cloud It relies on GCP Google Cloud platform, you know, 0:08:40.160 --> 0:08:41.959 and Google does its own R and D investment on 0:08:42.000 --> 0:08:44.360 the silicon side. And I find that so interesting, And 0:08:44.440 --> 0:08:46.200 you know, that's why I'm a tongue in you know, 0:08:46.360 --> 0:08:47.920 you guys know what I'm like, tongue in cheek. But 0:08:48.000 --> 0:08:51.000 it's why I post in the blog about the divvy 0:08:51.200 --> 0:08:55.160 and about cash generation and the growing balance sheet. Because 0:08:55.280 --> 0:08:57.480 investors always say, I wonder what they'll do with that 0:08:57.520 --> 0:08:57.920 one day? 0:08:58.000 --> 0:08:58.640 Do you know what I mean? 0:08:58.800 --> 0:09:01.120 Like, well, listen, they say, during the quarter, our record 0:09:01.120 --> 0:09:04.880 business performance generated EPs growth of eleven percent, nearly twenty 0:09:04.960 --> 0:09:07.680 nine billion in operating cash flow, allowing us to return 0:09:07.720 --> 0:09:10.840 over thirty two billion to shareholders. I mean, I always 0:09:10.840 --> 0:09:12.599 think about this mark whenever we talk with you, and 0:09:12.679 --> 0:09:14.680 whenever we talk with that. I mean, just the law 0:09:14.720 --> 0:09:19.400 of large numbers when it comes to Apple, specifically, as 0:09:19.400 --> 0:09:22.880 you continue to look at this this report and release, 0:09:23.400 --> 0:09:25.400 I don't know what should we leave our investors with. 0:09:25.440 --> 0:09:26.960 What do you think that they should be thinking at 0:09:27.000 --> 0:09:28.440 top of mind when it comes to Apple. 0:09:29.880 --> 0:09:34.160 I'll simplify it for you. From a financial standpoint, everything 0:09:34.280 --> 0:09:37.760 is just fine, right, a little bit of concern in China. 0:09:38.240 --> 0:09:41.880 But my concerns about Apple aren't the financials today. It's 0:09:41.920 --> 0:09:45.680 that this company is not pushing out products at the 0:09:45.720 --> 0:09:49.000 pace that they used to. I'm simply not seeing that 0:09:49.120 --> 0:09:52.360 game changing innovation that we used to see. I'm simply 0:09:52.400 --> 0:09:55.360 not seeing them leap frog ahead of the competition. I'm 0:09:55.400 --> 0:09:58.599 seeing a lot of response the competition. Like with Apple Intelligence, 0:09:58.760 --> 0:10:01.000 I'm seeing something that's not as good as the competition 0:10:01.240 --> 0:10:05.400 with Apple Intelligence. I'm seeing them add features to iOS 0:10:05.400 --> 0:10:08.520 that Android has had for a number of years. I'm 0:10:08.559 --> 0:10:12.320 seeing really impressive new technology like the vision Pro that's 0:10:12.360 --> 0:10:15.920 not a product, it's more of a prototype or developer kit. 0:10:16.080 --> 0:10:16.240 Yea. 0:10:16.559 --> 0:10:21.040 So I'm concerned about Apple products right now, and obviously 0:10:21.480 --> 0:10:23.960 products hardware surprives this company. 0:10:24.760 --> 0:10:27.079 Yeah, so long term, Mark, because you have such a 0:10:27.080 --> 0:10:29.320 good view into the pipeline, much to the chagrin of Apple, 0:10:29.360 --> 0:10:33.400 I imagine no car coming Vision Pro, as you mentioned 0:10:33.440 --> 0:10:36.440 the live blog, not even mentioned in this report. Is 0:10:36.480 --> 0:10:36.840 that right? 0:10:37.840 --> 0:10:38.360 That's right? 0:10:38.440 --> 0:10:42.200 So what is the big picture for the pipeline over 0:10:42.200 --> 0:10:44.319 the next five years. 0:10:44.480 --> 0:10:47.760 I think we're probably two or three years away from 0:10:49.480 --> 0:10:54.400 a bigger new product push, whether that's augmented reality, glasses, 0:10:54.920 --> 0:11:00.119 foldable phones, new types of touchscreen devices, new home devices, 0:11:00.160 --> 0:11:02.800 new max. But I'm not seeing anything in the next 0:11:02.840 --> 0:11:08.240 two to three years that you know it's gonna be 0:11:08.320 --> 0:11:09.160 a game changer. 0:11:09.480 --> 0:11:09.640 Right. 0:11:09.880 --> 0:11:12.400 The vision Pro technology is a game changer. Nobody wants it. 0:11:12.400 --> 0:11:16.240 It's too heavy, it's too expensive, there's no contact and you. 0:11:16.200 --> 0:11:18.760 Know, we lean on you like we lean on Mark. 0:11:19.040 --> 0:11:20.480 I feel like we've been going through a lot of 0:11:20.520 --> 0:11:21.160 the Tech news. 0:11:21.320 --> 0:11:22.760 That's why we flew him out to New York this. 0:11:22.760 --> 0:11:27.800 Week on the on the Bloomberg Jet, the good and 0:11:27.840 --> 0:11:30.760 the bad of the big tech that have been reporting. 0:11:30.960 --> 0:11:33.880 Yeah, that's a really really smart question. So there's one 0:11:33.880 --> 0:11:36.680 thing that I learned very quickly, which was Microsoft, do 0:11:36.760 --> 0:11:39.520 not miss Wall Street estimates that won't go well for you. 0:11:39.559 --> 0:11:42.040 And I think that it's because we've joked about the 0:11:42.080 --> 0:11:45.560 money machine, but now the investors are really starting to 0:11:45.559 --> 0:11:47.600 do the math on it. You know, the Capex number 0:11:47.640 --> 0:11:49.800 was everything. I think I even Heardy and King on 0:11:49.840 --> 0:11:52.560 the phone to you just say couples of expenditures and 0:11:52.600 --> 0:11:57.000 then hang up. It's because with that you can basically 0:11:57.720 --> 0:12:01.880 do the math on the timing of sales growth from 0:12:01.880 --> 0:12:04.920 bottom line growth from artificial intelligence, and then you can 0:12:04.960 --> 0:12:07.480 sort of extraplay out further field. 0:12:07.679 --> 0:12:10.960 The goats on Apple and more. Bloomberg News Chief Technology 0:12:10.960 --> 0:12:14.240 correspondent Mark German, also the co host of Bloomberg Technology 0:12:14.280 --> 0:12:15.040 on Bloomberg TV. 0:12:15.520 --> 0:12:19.280 Ed Ludlow coming up roadblocks geared toward kids. It's got 0:12:19.320 --> 0:12:21.600 a problem, a pedophile problem. 0:12:21.760 --> 0:12:25.120 That story up next. You're listening to Bloomberg BusinessWeek, This 0:12:25.320 --> 0:12:26.000 is Bloomberg. 0:12:26.679 --> 0:12:30.240 You're listening to the Bloomberg Business Week podcast. Catch us 0:12:30.280 --> 0:12:33.520 live weekday afternoons from two to five pm. Easter Listen 0:12:33.559 --> 0:12:35.720 on Apple car Play and and Broun Auto with a 0:12:35.720 --> 0:12:39.400 Bloomberg Business app, or watch us live on YouTube. 0:12:40.760 --> 0:12:43.680 Roadblocks you're all familiar with the twenty six billion dollar 0:12:43.720 --> 0:12:46.400 market cap gaming company. It was launched in the early 0:12:46.400 --> 0:12:49.040 two thousands under the premise that games were the next 0:12:49.040 --> 0:12:54.400 frontier for education software. Kids could design multiplayer online enclaves 0:12:54.480 --> 0:12:57.840 using a set of building blocks and a simple coding language. 0:12:57.920 --> 0:13:02.800 The platform's weird, whimsical etho attracted thousands and millions of kids, 0:13:03.160 --> 0:13:06.360 who moved through its worlds as Lego like avatars with 0:13:06.440 --> 0:13:10.680 frozen smiles and beadiys, spending roebucks to spruce themselves up 0:13:10.720 --> 0:13:13.439 with virtual wigs, clothes, dragontails, or wings. 0:13:13.840 --> 0:13:16.040 This wasn't around when we were kids. It's a different universes. 0:13:16.040 --> 0:13:17.280 It's a completely different. 0:13:17.080 --> 0:13:20.400 Universe, not the barbies and doll houses stuff I played with. 0:13:20.880 --> 0:13:24.080 That said, Roadblocks has a dark side. Since twenty eighteen, 0:13:24.120 --> 0:13:26.440 police in the US have arrested at least two dozen 0:13:26.480 --> 0:13:29.880 people accused of abducting or abusing victims they'd met or 0:13:29.920 --> 0:13:34.560 groomed using Roadblocks. That's according to data compiled by Bloomberg BusinessWeek. 0:13:35.000 --> 0:13:38.080 Some were already on sex offender registries or had been 0:13:38.120 --> 0:13:41.480 accused of abusing miners. There were also a SHARE's deputy, 0:13:41.640 --> 0:13:43.480 a third grade teacher, and a nurse. 0:13:43.520 --> 0:13:47.080 Bloomberg News investigative reporter Olivia Carvill and Bloomberg News video 0:13:47.080 --> 0:13:51.800 game reporter Cecilia Donastasio write about Roadblocks in the current 0:13:51.800 --> 0:13:54.600 issue of Bloomberg BusinessWeek magazine. You can read it now 0:13:54.640 --> 0:13:57.640 on the Bloomberg and at Bloomberg dot com Slash BusinessWeek. 0:13:57.960 --> 0:14:00.600 We began by talking about someone who used to be 0:14:00.600 --> 0:14:04.760 on the platform, who went by Doctor Opatnik, known as Doc. 0:14:05.400 --> 0:14:09.120 So Doc was a really popular developer and side Roadblocks, 0:14:09.160 --> 0:14:12.320 and he designed a game called Sonic Eclipse Online. So 0:14:12.360 --> 0:14:15.480 it was based on Sonic the Hedgehog, and what children, 0:14:15.640 --> 0:14:19.800 you know, don't love Sonics. So he created this game 0:14:19.840 --> 0:14:25.040 on Roadblocks and thousands of children playing Doc's game and 0:14:25.120 --> 0:14:29.720 looking up to him as a developer that they, you know, 0:14:30.560 --> 0:14:32.720 want to be friends with, that they want to talk with, 0:14:32.880 --> 0:14:35.240 that they want to, you know, understand what are the 0:14:35.240 --> 0:14:37.480 next developments that are coming with his game. So he 0:14:37.520 --> 0:14:41.680 actually had a cult like following of children across Roadblocks 0:14:41.680 --> 0:14:43.760 and other platforms that he would talk to kids on 0:14:44.120 --> 0:14:49.120 like Discord, Twitter, now x, Instagram, Snapchat. He was across 0:14:49.160 --> 0:14:49.480 the mall. 0:14:49.680 --> 0:14:50.520 He's not a good guy. 0:14:51.680 --> 0:14:53.000 He is not a good guy. 0:14:53.040 --> 0:14:54.760 It turns out to say the least. 0:14:56.120 --> 0:14:59.240 Tell us a little bit about what he ultimately was doing. 0:15:00.240 --> 0:15:04.600 So doctor o Fetnik grew this following through twenty twenty 0:15:04.640 --> 0:15:07.200 in the height of the pandemic when children are really 0:15:07.200 --> 0:15:10.240 attracted to roadblocks and we're wanting to play in the 0:15:10.320 --> 0:15:14.480 online spaces because they're trapped at home. And in that year, 0:15:14.720 --> 0:15:18.280 he was exposed as being predatory towards some of the 0:15:18.320 --> 0:15:21.040 young kids who were working for him on Roadblocks. So 0:15:21.160 --> 0:15:25.200 a lot of gamers tried to tried to shut them down, 0:15:25.320 --> 0:15:28.000 get them off the platform. And in the end, it's 0:15:28.120 --> 0:15:29.280 kind of a long story. 0:15:29.280 --> 0:15:30.920 You have to read it to get all the details, but. 0:15:30.880 --> 0:15:35.720 It wasn't They weren't successful, And fast forward eighteen months later, 0:15:35.800 --> 0:15:37.800 he was actually arrested by the FBI. 0:15:38.520 --> 0:15:40.600 We'll get to that in a minute, because I want 0:15:40.600 --> 0:15:42.480 to bring in Cecilia to talk a little bit about 0:15:42.480 --> 0:15:46.000 what makes Roadblocks unique, because we talk a lot about 0:15:46.000 --> 0:15:50.000 social media platforms and the restrictions on age with social 0:15:50.040 --> 0:15:54.920 media platforms. But seciily you cover gaming, and the whole 0:15:54.920 --> 0:15:58.960 idea with Roadblocks is that this is a place that 0:15:59.080 --> 0:16:03.400 caters specific two kids. It's four kids. Talk a little 0:16:03.400 --> 0:16:06.800 bit about the intricacies and sort of what makes Roadblocks 0:16:06.960 --> 0:16:10.320 unique in terms of what is available online four kids. 0:16:11.320 --> 0:16:14.960 It's a great question. So most social media platforms don't 0:16:15.000 --> 0:16:17.600 allow people under the age of thirteen to sign up 0:16:17.640 --> 0:16:21.400 for them. That includes Discord, that includes Instagram. But Roadblocks 0:16:21.400 --> 0:16:24.800 actually welcomes people who are under thirteen. About forty percent 0:16:25.160 --> 0:16:28.280 of its seventy eight million daily active users are under 0:16:28.320 --> 0:16:32.080 the age of thirteen. And you know, parents have the 0:16:32.120 --> 0:16:35.600 ability to toggle on certain safety features on Roadblocks, but 0:16:36.120 --> 0:16:39.520 by default, you can make an account if you're you know, six, seven, 0:16:39.560 --> 0:16:42.240 eight years old and talk to strangers in a variety 0:16:42.240 --> 0:16:45.440 of games. A lot of the video games that are 0:16:45.600 --> 0:16:48.440 designed for children. A lot of video games appeal to children, 0:16:48.520 --> 0:16:52.240 of course, but games that are designed for children don't 0:16:52.240 --> 0:16:55.880 actually allow children to communicate with strangers openly. You can't 0:16:55.880 --> 0:16:58.600 type to them on your phone or on your keyboard 0:16:58.720 --> 0:17:01.600 or through your video game console. A lot of them 0:17:01.640 --> 0:17:04.240 have these sort of like canned messages you can send 0:17:04.320 --> 0:17:05.800 like hello, how are you do? You want to play 0:17:05.840 --> 0:17:08.440 a game together? But on Roadblocks you can have really 0:17:08.520 --> 0:17:11.959 robust conversations and develop relationships cecil. 0:17:12.080 --> 0:17:13.640 Yeah, you know, and I kind of jumped the gun there, 0:17:13.680 --> 0:17:15.080 kind of cutting to the chase. But I want to 0:17:15.119 --> 0:17:18.560 ask about you actually created an account that said you 0:17:18.600 --> 0:17:20.239 are a four year old? Tell us about that? 0:17:21.720 --> 0:17:24.600 Sure, So to test for Blocks's features and what was 0:17:24.640 --> 0:17:27.120 available to us, you know, Olivia and I will create 0:17:27.119 --> 0:17:30.520 accounts just to understand exactly what would the experience be 0:17:30.600 --> 0:17:33.159 for someone who was of this demographic. So I did 0:17:33.240 --> 0:17:37.280 create an accounts if I was four years old on Roadblocks, 0:17:37.359 --> 0:17:40.560 and I entered a game, and somebody who was in 0:17:40.560 --> 0:17:42.600 that game who understood that I was four years old, 0:17:43.240 --> 0:17:46.359 attempted to groom me over a direct message. He asked 0:17:46.359 --> 0:17:48.639 if I was single. This person asked if I was single, 0:17:49.119 --> 0:17:51.359 and when I told them that the account was four, 0:17:51.520 --> 0:17:53.879 they said age is just a number with a winkie face, 0:17:54.040 --> 0:17:56.639 after trying to get me to share my snapchat. It 0:17:56.680 --> 0:18:01.680 was an alarming experience. It was unplanned, and we you know, 0:18:02.640 --> 0:18:04.760 we were very very surprised. 0:18:04.480 --> 0:18:06.760 To see there are supposed to be tools in place, 0:18:06.920 --> 0:18:10.679 whether they're AI, are actually human moderators to monitor this 0:18:10.760 --> 0:18:12.840 sort of thing so it doesn't happen. At least that's 0:18:12.880 --> 0:18:15.840 what Roadblock says, tell us about the moderation features and 0:18:15.840 --> 0:18:18.320 why something like that wasn't caught and it did get 0:18:18.359 --> 0:18:20.960 to you even though you had registered an account saying 0:18:20.960 --> 0:18:22.119 you were a four year old. 0:18:22.760 --> 0:18:26.440 Sure so, Roblock says that safety is foundational to its platform. 0:18:26.480 --> 0:18:28.480 The platforms two decades old at this point, and it 0:18:28.520 --> 0:18:33.240 does have chat filters and artificial intelligence designed to catch 0:18:34.160 --> 0:18:38.520 bad words grooming. It also attempts to bring users off platforms, 0:18:38.520 --> 0:18:41.040 which Olivia and I learned predators really like to do. 0:18:41.119 --> 0:18:43.280 They like to maybe meet a child on roadblocks, then 0:18:43.320 --> 0:18:46.800 move them to somewhere the's less moderated, like Snapchat, like Discord, 0:18:46.880 --> 0:18:50.080 like Instagram. But what was really surprising to me was 0:18:50.119 --> 0:18:52.400 that the person who was trying to groom the four 0:18:52.480 --> 0:18:56.439 year old account, they didn't say, what's your Snapchat? They 0:18:56.520 --> 0:18:59.440 used this is pretty clever. They used the ghost emoji, 0:18:59.680 --> 0:19:01.000 which is stab Chat's icon. 0:19:01.200 --> 0:19:04.360 Yeah, so that's a way to sort of get them 0:19:04.400 --> 0:19:06.840 offline and somewhere else. And the idea was it would 0:19:06.840 --> 0:19:09.840 get around the AI exactly. 0:19:09.400 --> 0:19:11.040 And when they asked you to leave the game, they 0:19:11.040 --> 0:19:14.160 spelled at l eeve. So one of the big challenges 0:19:14.160 --> 0:19:17.879 for Roadblocks's three thousand moderators is what we reported in 0:19:17.920 --> 0:19:21.359 the story is that predators and bad people on the 0:19:21.400 --> 0:19:25.280 internet in general will misspell words, will find ways around 0:19:25.280 --> 0:19:28.320 the chat filters, and that's just something that's so hard 0:19:28.359 --> 0:19:29.040 to keep up with. 0:19:29.280 --> 0:19:31.359 All right, But when you have a platform like this, 0:19:31.480 --> 0:19:33.439 the company's got to be on it, or police have 0:19:33.520 --> 0:19:35.960 to be on it, or somebody has to be on it. 0:19:35.960 --> 0:19:40.080 Turns out there were some vigilantes actually Olivia who were 0:19:40.119 --> 0:19:42.200 on it and kind of doing their own police work 0:19:42.280 --> 0:19:43.080 on the platform. 0:19:43.680 --> 0:19:43.840